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Mecom Group PLC  -  MEC   

Final Results

Released 07:00 21-Mar-2013

RNS Number : 5127A
Mecom Group PLC
21 March 2013
 



21st March 2013

 

 MECOM GROUP PLC

 

RESULTS FOR THE YEAR ENDED 31st DECEMBER 2012

 

Mecom Group plc ("Mecom" or the "Group") announces its results for the year ended 31st December 2012.

 

HIGHLIGHTS

 

•     Results from continuing operations1

-     Adjusted2 EBITDA of €87.5 million (2011: €111.1 million)

-     Total revenue down 9 per cent to €910.5 million

-     Non-advertising revenues down 3 per cent to €546.1 million

-     Advertising revenues down 17 per cent to €364.4 million

-     Costs lower by 7 per cent, or €63.4 million, versus target of €40 million

•     Total adjusted Group earnings per share of 34.6 euro cents (2011: 46.1 euro cents)

•     Final dividend of 5.5 euro cents per share; full year dividend of 11.5 euro cents (including 3.5 cents relating to earnings from discontinued operations)

•     Net debt halved during the year to €129.5 million, with closing leverage of 1.4 times

•     Modernisation of all areas of the business on track

•     Extension of banking facilities to 31st October 2014

•     Strategic Review progressing effectively:

-     agreement signed for the disposal of Poland division

-     agreement signed for the disposal of Autotrack online classifieds business

-     processes continue in Denmark and the Netherlands

1 continuing operations are the Group's Dutch and Danish operations - the Group's Polish operations were classified as discontinued as at 31 December 2012: the total EBITDA for all operations owned as at 31 December 2012 was €89.5 million (2011: €113.6 million); total revenue for all operations owned at 31 December 2012 was €960.3 million (2011: €1,055.8 million)

2 adjusted items are presented before exceptional items and the amortisation of acquired intangibles

 

 


2012

 

2011

 

2012

vs. 2011


€m

€m

%

Advertising revenue

364.4

437.0

(17)%

Non-advertising revenue

546.1

560.5

(3)%

of which:  Circulation revenue

408.2

422.4

(3)%

Other revenue

137.9

138.1

-

Total revenue

910.5

997.5

(9)%

Costs

(823.0)

(886.4)

7% lower

Continuing adjusted EBITDA

87.5

111.1

(21)%

Continuing adjusted EBITDA margin (%)

9.7%

11.2%

-1.5pts

Continuing adjusted earnings per share (euro cents)

24.3

31.5

(23)%

Total adjusted earnings per share (euro cents)

34.6

46.1

(25)%

Operating loss from continuing operations, after exceptional items and intangibles amortisation

(84.7)

(7.3)

€77.4m higher

Loss per share from continuing operations, after exceptional items and intangibles amortisation (euro cents)

(73.4)

(19.0)

(286)%

Net debt

(129.5)

(258.5)

€129m lower

 

 

Stephen Davidson, Executive Chairman, said:

 

"Our full year results were in line with the expectations we set in June 2012.  Trading in the first weeks of 2013 has continued to be difficult, especially with weaker advertising revenues in our Dutch operations.  This emphasises again the importance of the Group's modernisation programme and cost restructuring plans, both of which progressed well in 2012.  We will, in addition, continue to execute our Strategic Review, carrying on from the two disposals we announced today."

 

 

 

Enquiries:

Mecom Group plc             +44 (0) 207 925 7200

Stephen Davidson, Executive Chairman

Henry Davies, Group Finance Director

 

Pendomer Communications LLP

Ben Foster                            +44 (0) 20 3603 5220

Rosie Oddy

 

A webcast briefing for analysts and investors will take place today at 9:00 am (GMT) on the following details:

 

Webcast: a link to the webcast and the presentation slides used at this briefing are available on www.mecom.com 

 

 

 

 

 

 

EXECUTIVE CHAIRMAN'S STATEMENT

The Group's financial results for 2012 reflected the continuing difficult economic conditions in continental Europe, especially in the Netherlands, where the Group has its largest operation.  EBITDA for the continuing Group (that is, excluding Poland) was €87.5 million, down from €111.1 million in 2011 and in the range we indicated last year in our June trading update.  Cost reductions achieved in the year were substantially higher than the targets that we set out at the start of 2012, which partially mitigated the fall in advertising revenue.  Revenue from our subscriber base of over 1 million, which was 39 per cent of total revenues, remained resilient.  Total earnings per share were 34.6 euro cents, compared with the 46.1 euro cents per share recorded in 2011, reflecting both lower EBITDA and the impact of the disposal of Edda Media.  Year-end net debt halved to €129.5 million, with leverage at 1.4 times. 

 

The Board has proposed a final dividend of 5.5 euro cents a share, giving a total dividend for the year of 11.5 euro cents, including the interim dividend paid on the earnings of Edda Media in the first half of 2012.

 

As explained in detail in each of the Divisional Reviews below, the Group made good progress on the strategic priorities that we set out in January 2012.  The Group's portfolio of products was expanded considerably, including the launch of apps on many platforms and e-versions of print products, with our main focus now being on incorporating these into new subscription bundles. 

 

The major restructuring of all of the Group's businesses progressed with urgency, including the successful completion of our IT outsourcing project in the first half of the year.  Combined restructuring programmes resulted in a reduction in FTEs of circa 570, or over 11 per cent, and led to net cost reductions for the Group's total operations, that is including the Polish businesses owned at the end of 2012, during the year of €71.4 million or 8 per cent.  Excluding the cost benefits from closures, this saving was €16.3 million higher than the revised full-year target that we set out in our interim results.  Further substantial cost reductions will be delivered during 2013.  Organisational change on this scale has naturally been demanding for all Mecom's employees and I have been continuously impressed with their loyalty and commitment. 

 

During the year the Group also settled two major issues with the ending of the loss-making contract with the publisher of De Pers in the Netherlands and the significantly lower settlement of the fine previously levied by the Dutch Competition Authority (the NMa).  The Group also completed the purchase of the outstanding 13.3 per cent minority interest in our Dutch subsidiary Wegener, through the issue of approximately 8.7 million shares, simplifying the ownership of our Dutch operations.

 

There were some significant changes in management during 2012 and in early 2013.  First, Tom Toumazis stood down as Chief Executive in September, following the announcement of the Strategic Review in July.  Secondly, we announced in January 2013 that Truls Velgaard would, as planned, step down as Chairman of the Executive Board of Wegener in mid-2013.  I was very pleased to announce in February that Susan Duinhoven will join the Group as Wegener's Chief Executive, which she will do in April 2013.  Susan brings considerable experience of Dutch media and consumer markets and we look forward to her contribution. 

 

The Group continued to make progress with the Strategic Review announced in July 2012:

 

·      agreement was signed for the disposal of the Group's Polish operations for an enterprise value of €4 million;

·      agreement was signed for the disposal of the Dutch online automotive classifieds business Autotrack for an enterprise value of €26 million;

·      in the Netherlands, the Group remains in discussion with third parties, both about the potential disposal of  component businesses and about potential means of achieving further benefits from cooperation and consolidation across the sector; and

·      in Denmark, discussions on the potential disposal of the Group's operations continue with a number of parties.

The Group will continue to give updates in this area as appropriate.

 

The Group has extended its bank borrowing facility by one year, to 31st October 2014, so as to provide an appropriate financial platform during 2013 from which to complete the Strategic Review.  The full terms of the amended facility are set in Note 25 to the consolidated financial statements. 

 

Advertising revenues in January and February 2013 fell by 22 per cent, higher than the 17 per cent decline in the final quarter of 2012.  The fall in advertising revenue in these typically quieter months was especially marked in the Netherlands at 28 per cent, caused by declining consumer confidence and some short-term disruption arising from the modernisation of our advertising sales organisation, with Danish advertising down 12 per cent.  EBITDA for the Group in the two months was marginally lower than in 2012, after the effect of lower costs.

 

The Group expects full-year 2013 results to be influenced by continued pressure on advertising revenue and declines in circulation revenue arising from lower single copy sales.  Further cost reductions, from the full-year effect of 2012 cost-savings and additional 2013 restructuring plans, will partly offset falls in revenue. The Group also expects reduced interest costs, with the effect of the reduction in net debt in 2012 more than offsetting higher margins under the extended bank facilities.  The Group will give a further update on trading, including over the Easter period, in its Interim Management Statement on 25th April 2013.

 

Finally, I would like to thank my Board colleagues for their hard work and valued contributions and to our shareholders for their continuing support.

 

OPERATING RESULTS

 

The key figures from the 2012 operating results are set out in the table below.

 

CONTINUING OPERATIONS

2012

 

2011

 

2012 vs

2011

 


€m

€m

%

Revenue by type




Advertising

364.4

437.0

(17)%

Non-advertising

546.1

560.5

(3)%

 of which: Circulation

408.2

422.4

(3)%

                 Other

137.9

138.1

-

Total revenue

910.5

997.5

(9)%





Revenue by country




Netherlands

539.5

589.8

(9)%

Denmark

371.0

407.7

(9)%

Total revenue

910.5

997.5

(9)%





Costs by type




Direct

(281.6)

(304.8)

8% lower

Staff

(395.6)

(424.8)

7% lower

Other

(145.8)

(156.8)

7% lower

Total costs

(823.0)

(886.4)

7% lower





EBITDA




Netherlands

70.0

93.3

(25)%

Denmark

24.0

28.5

(16)%

Corporate

(6.5)

(10.7)

39%

Total

87.5

111.1

(21)%

 

The figures in the table above and in the 'Divisional Reviews' below are stated before exceptional items and the amortisation of acquired intangibles.

 

In addition to the continuing EBITDA shown in the table above, the Group's discontinued operations contributed €18.5 million in 2012 (€32.4 million in 2011), comprising €2.0 million for Poland (€2.0 million in 2011) and €16.5 million for Norway (€30.4 million in 2011).

 

 

 

DIVISIONAL REVIEWS: CONTINUING OPERATIONS

 

Netherlands

 

Market Overview

The total Dutch newspaper market, comprising both circulation and advertising and including daily paid newspapers and freesheets, was estimated to be circa €1.8 billion in 2012, down 5.6 per cent since 2011.  Paid-for circulation volume decreased across the entire market by 3.9 per cent in 2012 (Q3 figures), with a 5.0 per cent decrease in regional dailies and 3.0 per cent decrease in national dailies.  Print advertising, which in total comprised 18 per cent of the total advertising market and fell by 11.8 per cent from 2011, was split between daily newspapers at circa €452 million and freesheets at circa €427 million.  The Dutch newspaper market was affected during 2012 by the closure in March 2012 of the daily freesheet De Pers, discussed further below, and by the acquisition by Telegraaf Media Group (TMG) of the daily freesheet Metro in September 2012.

 

There are three major operators in the Dutch newspaper market (with respective market shares): Mecom Netherlands (22 per cent), TMG (40 per cent) and Persgroep Nederland (22 per cent).  Mecom has a 59 per cent share in the paid regional newspaper market and a 30 per cent share in the (fragmented) freesheet market.

 

The Netherlands has one of the highest fixed broadband penetrations in Europe, being available to 96 per cent of the population. There are estimated to be 6 million smartphones in use in the Netherlands, up 11 per cent from 2011.  Mobile internet users total 60 per cent of the population and of these users 62 per cent use mobile internet for accessing news.  It is estimated that there are 2.8 million tablets in use in the Netherlands, up from 1.7 million in 2011.  Online advertising sales were circa €569 million, up 6 per cent from 2011, with a growth in total advertising market share from 10.9 per cent in 2011 to 11.6 per cent in 2012.

 

Mecom's operations

The Mecom Group's Dutch operations comprise Wegener and Media Groep Limburg.  Wegener is the largest publisher of regional daily newspapers and free weekly door-to-door newspapers in the Netherlands.  Media Groep Limburg is the leading regional newspaper publisher in the southern Dutch province of Limburg.  The Dutch division employs over 2,750 people (on a full-time equivalent 'FTE' basis).

 

The Dutch division publishes eight paid-for daily newspapers, with daily circulation ranging from 47,000 to 148,000 and with over 95 per cent of newspapers sold on a subscription basis to a customer base of 819,000.  It also publishes approximately 165 freesheet titles, delivered door-to-door, on a weekly basis. 

 

It has an online portfolio of over 70 newspaper websites, tablet and smartphone apps for all of its paid publications, web-shops (including the Sweetdeal daily deal business that operates in nine Dutch cities), standalone online classified and niche websites  and 165 hyper-local websites associated with its freesheet titles.  The Dutch division has circa 1 million daily online unique users.  Wegener has a 13 per cent voting interest and 30 per cent economic interest in Funda, the leading Dutch property online classified site, jointly owned by the Dutch association of estate agents (the NVM) and a collective of individual estate agents.

 

The Dutch division operates four print plants, which print both Group and third-party publications.  Wegener runs its own distribution arrangements, and distributes third-party newspapers as well as its own publications within its geographical footprint. Media Groep Limburg's newspapers are distributed by a third party.

 

Business Overview

The major initiatives for Mecom's Dutch businesses in 2012 addressed parallel themes of modernisation and cost reduction, during a period of high economic and political turbulence that directly and severely affected the Group's advertising revenues. 

 

The '12 12 12' project launched in February 2012 set out a programme for the modernisation of Wegener and Media Groep Limburg's product portfolio, for both readers and advertisers.  This has been done during 2012 through a thorough upgrade of existing print and online products, as well as the launch of a comprehensive set of new applications for tablets and smartphones.  The extension of the portfolio has been underpinned by a paid-for philosophy in all areas, in print and online.  During the year, 54 smartphone and tablet applications were launched, downloaded by 430,000 existing subscribers and new users.  The group launched HTML5 'dynamic' websites, which automatically adapt content to the size and layout of different devices.  Plans are now in place for the launch of new subscription bundles, covering the entire product portfolio on a paid basis, during 2013.  Wegener relaunched its daily newspaper titles on 5th February 2013, with a change to the organisation of the sections and reinvigorated content.

 

The Group's subscription base in the Netherlands fell by 4 per cent in volume terms during the year, slightly lower than the general market for regionals of 5 per cent but slightly higher than in recent years.  The effect of this was more than offset in financial terms by increases to subscription rates, which, for most of the division's titles, were increased by a further 5 per cent at the start of 2013.

 

We initiated a comprehensive re-structuring of our Dutch advertising sales organisation during the year.  The programme which was launched in October 2012 and achieved FTE reductions of over 20 per cent in the sales teams in 2012, will deliver new customer relationship management systems, more extensive data support and new team structures.  A major component of the change in team structure is to integrate separate sales teams for dailies and weeklies into one combined sales team and to match smaller local advertisers with a direct sales team, rather than the field sales teams that were more appropriate when advertising revenues from this customer segment were higher.  The programme is planned to be completed by June 2013.

 

Cost reduction programmes were initiated across other functions, leading to a total reduction in the FTE basis of 360 or 11 per cent.  As explained further in the financial review below, this contributed to a 5.4 per cent overall reduction in operating costs during 2012.  Cost benefits also resulted from the successful roll-out of a joint distribution agreement between Wegener and TMG which started in 2011; plans for wider cooperation in distribution across the Dutch publishing industry and further resulting costs benefits were also announced, in April 2012.

 

In May 2012, we announced that the Dutch operations would withdraw from a collective regional press agency (the GPD) and that instead a new national press desk would be established within the division.  This was successfully completed during the year, with the first contract to supply this content to a third party now agreed.

 

The Group made changes in a number of other areas.  In March 2012, Wegener ended its advertising collaboration with the De Pers daily freesheet, in a settlement with the publisher of De Pers that concluded the heavily loss-making contract at a one-off cost of €45 million.  In June 2012, following the purchase of the outstanding 13.3 per cent minority interest in Wegener by Mecom Group plc, Wegener was delisted from the Euronext.  In November 2012, Media Grope Limburg, previously Limburg Media Group, announced that as from 1 January 2013 the provision of pensions for Limburg staff would be by the industry-wide PGB pension scheme, which already provides pensions to Wegener employees. The accounting effects of this are set out in note 30 to the consolidated financial statements. 

 

In December 2012, Wegener reached agreement with the Dutch Competition Authority (NMa) to settle previously assessed fines related to an alleged breach of undertakings given by Wegener in the early 2000s.  A payment of €2.2 million was made in December 2012, significantly reduced from the original amount of €20.6 million. 

 

Finally, it was announced in January 2013 that Truls Velgaard, Chairman of the Executive Board of Wegener and overall Chief Executive of Mecom's Dutch operations, would leave the Group in mid-2013 to return to his native Norway.  It was subsequently announced that Susan Duinhoven had been appointed as Chief Executive of Wegener.  Susan, who is currently Managing Director of Thomas Cook's online activities in Europe, brings experience from a range of management roles at other international companies, including Unilever, McKinsey & Co., De Telefoongids, European Directories and Reader's Digest. 

 

Sources: CBS - Statistics Netherlands, CPB - Economic Policy Analysis, pwc Outlook and Nielsen, HOI - Circulation Audit Bureau, Stimuleringsfonds voor de Pers.

 

Financial Overview

 



2012

2011

2012 vs 2011



€m

€m

%

Revenue

Advertising

231.3

281.4

(18)%


Circulation

259.8

258.5

1%


Other

48.4

49.9

(3)%

Total revenue


539.5

589.8

(9)%

Total costs


(469.5)

(496.5)

5%

EBITDA


70.0

93.3

(25)%

Depreciation


(18.4)

(18.6)

(1)%

Operating profit


51.6

74.7

(31)%






EBITDA margin %


13.0%

15.8%

-2.8pts

Digital revenue


23.4

25.3

(7.5)%

 

 

 


First half

Second half


2012

2011

2012 vs 2011

2012

2011

2012 vs 2011


€m

€m

%

€m

€m

%

Advertising

124.0

146.8

(16)%

107.3

134.6

(20)%

Circulation

131.0

128.5

2%

128.8

130.0

(1)%

Other

25.2

23.1

9%

23.2

26.8

(13)%

Total revenue

280.2

298.4

(6)%

259.3

291.4

(11)%








EBITDA

31.4

44.4

(29)%

38.6

48.9

(21)%

EBITDA margin %

11.2%

14.9%

-3.7pts

14.9%

16.8%

-1.9pts

 

 

The financial performance of the Dutch division was heavily influenced by falls in advertising, which became more marked in the second half of 2012 as the broader economic environment, and especially consumer confidence, deteriorated.  Most categories of advertising experienced declines with recruitment and property seeing the sharpest declines.  The falls were broadly consistent between the paid-for daily newspapers and the free weekly door-to-door titles.  Print advertising fell by 19 per cent, with online advertising also falling, by 9 per cent. The falls in online advertising were mainly within recruitment, where the closure of the 'Jobtrack' business as a national portal led to significantly reduced revenues, including reduced bundled print and online advertising. As stated earlier, advertising revenues in the first weeks of 2013 were also weak, with advertising down 28 per cent in January and February compared with 2012.

 

Circulation revenue was up marginally, by 0.5 per cent, as price increases and volume declines broadly balanced each other.  The fall in other revenue was caused entirely by substantial declines in third-party printing revenue, which outweighed increases in revenue from distribution and enterprises.

 

Overall, costs were 5.4 per cent lower, with the majority of the reductions falling in the second half of the year, 9.0 per cent lower compared to 2011, as the financial effect of the significant restructuring programmes increased.

 

Overall, EBITDA fell by €23.3 million, or 25.0 per cent, with a lower fall in the second half of the year, as cost restructuring benefits more than offset higher declines in advertising.  The EBITDA margin reduced from 15.8 per cent in 2011 to 13.0 per cent in 2012.

 

Depreciation was broadly flat year-on-year, resulting in operating profit of €51.6 million (2011: €74.7 million).

 

Denmark

 

Market Overview

The total Danish newspaper market, comprising both circulation and advertising and including daily paid newspapers and freesheets, was estimated to be €1 billion in 2012, down by 5.2 per cent since 2011.  Paid-for dailies circulation volume decreased by 6.5 per cent in 2012, with a 7.4 per cent decrease in regional dailies and 5.8 per cent decrease in national dailies.  Print advertising, which in total comprised 42 per cent of the total advertising market and reduced by 7 per cent from 2011, was split between daily paid newspapers of €239 million and freesheets of €270 million.  The market was affected during 2012 by the closure of the print operations of the URBAN national freesheet in January 2012, referred to further below, and the purchase in November 2012 by TAMedia of Metro Denmark, the publisher of the daily national freesheets MetroXpress and 24timer.  On 14th March, TAMedia announced that the publication of 24timer would end in March 2013.

 

There are two major operators in the Danish newspaper market (with respective market shares in the circulation of paid-for dailies): Mecom's subsidiary Berlingske Media (29.9 per cent) and JP/Politikens Hus (28.6 per cent).  Berlingske Media publishes the daily national Berlingske and BT newspapers and the weekly Weekendavisen title as well as seven (100 per cent owned) regional daily titles, with JP/Politikens Hus publishing the Jyllandsposten, Politiken and EkstraBladet titles.   The remainder of the market is fragmented, with no other publisher having more than 6.9 per cent of the market.

 

Fixed broadband is available to 89 per cent of the Danish population. There are estimated to be 2.1 million smartphones in use in Denmark, up 0.6 million from 2011 and 0.9 million tablets in use in Denmark, up from 0.7 million in 2011.  Online advertising sales were €545 million, up 12.6 per cent from 2011, with a growth in total advertising market share from 28.4 per cent in 2011 to 32.1 per cent in 2012, making the Danish online advertising market one of the most mature in Europe.

 

Mecom's operations

Berlingske Media's operations span Jutland and Zealand from its headquarters in the centre of Copenhagen, employing 1,664 people (FTE basis).  In the national market, Berlingske Media has a portfolio of two paid-for daily titles (Berlingske, predominantly sold on a subscription basis and BT, sold on both a single-copy and subscription basis), a weekly newspaper (Weekendavisen), a national travel magazine and a business magazine.  The Danish division also publishes seven paid-for regional local daily titles, two jointly owned paid-for local titles and 47 local free weekly newspapers operating under the name of BerlingskeLokaleMedier.  The business has a total of 224,000 subscribers.

 

In online and mobile, Berlingske Media operates 40 websites, 47 hyper-local websites associated with its freesheet titles, six mobile websites and 30 apps for mobile and tablets.  It partly owns online classified and niche operations in property (Boliga), cars (Bilzonen), jobs (Jobzonen) and health (Netdoktor), as well as running numerous webshops, including Sweetdeal, the leading daily deal site in Denmark.

 

Berlingske Media's other media activities include 14 online TV channels, two national radio stations, four local radio stations, an advertising agency (Marketsquare), a photo agency (Scanpix) and a media search, monitoring and analysis company (Infomedia).

 

The Danish division operates four print plants (one of which is jointly owned), which print both for Berlingske Media and third-parties, and largely conducts its distribution operations in joint ventures with other publishers.

 

Business Overview

During 2012, Berlingske Media balanced the continuing focus on creating sustainable business models for its entire portfolio with further cost reduction through restructuring of the division's operations.

 

Early in 2012, Berlingske Media ended the printed publication of URBAN, the free national daily newspaper which had been loss-making in recent years in a fiercely competitive advertising market.  The URBAN brand has been retained, however, and is now operated as a Copenhagen-based digital publication and monthly print shopping and city guide magazine targeted at a younger audience.  In late 2011 a new national news-wire service, BNB, was launched from the Copenhagen editorial offices to provide fast news updates to Berlingske's own titles. During 2012 this service acquired its first external customers, including the Danish Parliament, several government ministries, and a regional TV station.

 

Circulation volumes sales in both the Group's main national titles declined during the year.   In the case of Berlingske, the decline of 10 per cent reflected a planned reduction in the number of discounted subscriptions, with an underlying decline in regular subscriptions of 6 per cent.  In the case of BT the decline of 12 per cent was largely due to pressure on news-stand sales, whereas subscription sales fell by only 5 per cent. 

 

New web-shops were launched during 2012 for both daily national titles, and the Sweetdeal daily deals business added the SweetTravel brand to its operations.

 

The sustained restructuring plan for Berlingske Media, the first elements of which were announced in January 2012, covered all areas of operation, including editorial. The programme resulted in a reduction in FTEs of over 200, or over 11 per cent, during the year.

 

Berlingske Media took a decisive step towards a paid web model, introducing digital subscriptions for the website of its local daily newspapers in late 2012.  Online news for these titles is now only available to subscribers.  A metered online subscription model for Berlingske is planned for early 2013.

 

Two small acquisitions were made in the year by two of the division's 50 per cent-owned joint ventures: Infomedia, the leading Danish provider of media search, monitoring and analysis, completed the acquisition of Infopaq's Danish operations; and BladKompagniet, a distribution company, acquired Interpress, a distributor of international magazines (in neither case was the financial consideration significant).

 

Sources: Danish Audit Bureau of Circulations, Dansk oplagskontrol, Index Danmark/Gallup Mobile Devices.

 

Financial Overview

 



2012

2011

2012 vs 2011



€m

€m

%

Revenue

Advertising

133.1

155.6

(14)%


Circulation

148.4

163.9

(9)%


Other

89.5

88.2

1%

Total revenue


371.0

407.7

(9)%

Total costs


(347.0)

(379.2)

8%

EBITDA


24.0

28.5

(16)%

Depreciation


(15.1)

(17.8)

(15)%

Operating profit


8.9

10.7

(17)%






EBITDA margin %


6.5%

7.0%

-0.5pts

Digital revenue


27.3

26.7

2.2%

 


First half

Second half


2012

2011

2012 vs 2011

2012

2011

2012 vs 2011


€m

€m

%

€m

€m

%

Advertising

69.2

79.5

(13)%

63.9

76.1

(16)%

Circulation

74.6

81.1

(8)%

73.8

82.8

(11)%

Other

43.0

43.1

-

46.5

45.1

     3%

Total revenue

186.8

203.7

(8)%

184.2

204.0

        (10)%








EBITDA

9.0

8.9

1%

15.0

19.6

(23)%

EBITDA margin %

4.8%

4.4%

0.4pts

8.1%

9.6%

-1.5pts

 

The comparison of the financial results, especially advertising, of the Group's Danish operations between 2012 and 2011 is affected by the closure of the URBAN title referred to above as well as the sale of some free weekly titles in late 2011.  Excluding these two factors, advertising declines would have been 9 per cent, rather than the full year decline of 14 per cent shown in the table above.

 

As with the Group's Dutch operations, advertising declines were more pronounced in the second half of 2012, down 16.0 per cent compared with 13.0 per cent in the first half.  The falls affected all titles, national and local, but particularly the free weekly titles which included the effect of the closure of URBAN and the sale of the free weekly titles noted above.  Digital advertising was flat, with falls in online classifieds, especially recruitment, offset by growth in advertising on publishing websites.

 

Circulation revenue was down 9.5 per cent, reflecting two factors.  First, single-copy sales of the BT tabloid fell significantly as part of the overall volume decline noted above.  Secondly, the number of trial and otherwise discounted subscriptions within Berlingske was reduced, again as noted above in the Business Review, leading to a loss of revenue but with limited effect on EBITDA.  Other revenue was 1.5 per cent higher, with increases in distribution and enterprises revenue.

 

Cost reduction initiatives were put in place at the very start of 2012, including the closure of URBAN, with the result that cost savings which totalled 8.5 per cent for the year were spread broadly evenly across the first and second half.

 

The higher revenue declines in the second half of 2012, however, resulted in the overall decline in EBITDA of €4.5 million falling almost entirely in the second half of the year.  EBITDA margin was 6.5 per cent in 2012, compared with 7.0 per cent in 2011.

 

Depreciation was lower in 2012, especially on IT assets, resulting in operating profit down less than the EBITDA shortfall, being €1.8 million lower.

 

DIVISIONAL REVIEWS: DISCONTINUED OPERATIONS

 

The Group's discontinued operations comprise the Polish Media Regionalne business, which was owned by the Group as at 31st December 2012 but classified as held for sale in light of the Group's intention at the balance sheet date to sell that business, the Norwegian Edda Media business, which was sold on 28th June 2012; and the Polish Presspublica business, which was sold on 10th October 2011.  The information below is primarily in respect of Media Regionalne, which was the discontinued operation owned by the Group on 31st December 2012.

 

Poland - Media Regionalne

Media Regionalne is the second largest regional newspaper publisher in Poland.  It publishes nine regional paid-for titles as well as weekly paid and free titles, and operates a variety of news and classified websites.  Media Regionalne employed 979 (FTEs) at 31st December 2012.  Media Regionalne recorded revenues of €49.8 million, compared with €58.5 million in 2011, with declines in advertising of 20 per cent and circulation of 11 per cent.  EBITDA was €2.0 million, compared with €2.5 million in 2011.

 

Norway

The Group's Norwegian operations comprised Edda Media.  Edda Media was the second largest player in the local media market in Norway, mainly positioned in the eastern part of the country.  Edda Media published 12 daily newspapers, as well as other weekly paid and free publications, and operated 35 websites.  Edda Media employed circa 1,250 staff at the end of May 2012 (on an FTE basis).  In the six months to 28th June 2012, the date of the disposal of Edda Media, the Group recorded revenues of €144.9 million in respect of Edda Media, and EBITDA of €16.5 million.

 

Poland - Presspublica

The Group's Presspublica business was sold on 10th October 2011.  It had comprised Rzezpospolita, the leading national daily title, together with the business website parkiet.com and the weekly news magazine Uwazam Rze.

 

Financial Overview

 

 

Discontinued Operations

2012

2011

2012 vs 2011


€m

€m

%

Revenue




Norway (until disposed on 28.06.12)

144.9

276.4

(48)%

Poland - Media Regionalne (until 31.12.12)

49.8

58.4

(15)%

Poland - Presspublica (until disposal on 10.11.11)

-

52.0

(100)%

Total

194.7

386.8

(50)%

EBITDA




Norway

16.5

30.4

(45)%

Poland - Media Regionalne

2.0

2.5

(20)%

Poland - Presspublica

-

(0.5)

100%

Total EBITDA

18.5

32.4

(43)%

Depreciation

(2.4)

(11.9)

(80)%

Total Operating Profit

16.1

20.5

(21)%

 

Comparisons of the financial results of discontinued operations are heavily affected by the date of the disposal of Edda Media in 2012 and Presspublica in 2011.

 

 

 

 

 

GROUP FINANCE DIRECTOR'S REPORT

 

The Group's 2012 financial results, summarised in the table below, were affected by difficult economic conditions, continuing structural change in the media sector and the consequent effect on advertising.  This resulted in a significant fall in EBITDA and earnings from the prior year.  The Group's borrowings and financial leverage reduced significantly during the period as a result of the disposal of the Group's Norwegian business, Edda Media, in June 2012.

 

The reported results for the Group for the year ended 31st December 2012 are summarised below:

 


2012

€m

2011

€m

Total Group



Revenue

1,105.2

1,384.3

Adjusted EBITDA

106.0

143.5

Adjusted earnings per share - euro cents

34.6

46.1

Loss per share after exceptional items and amortisation of acquired intangibles -

euro cents

(25.9)

(21.0)

Continuing operations



Revenue

910.5

997.5

Adjusted EBITDA

87.5

111.1

Adjusted operating profit

54.0

74.6

Adjusted profit before tax

39.6

54.7

Exceptional operating costs

(91.4)

(33.3)

Amortisation of acquired intangibles

(47.3)

(48.5)

Operating loss after exceptional items and amortisation of acquired intangibles

(84.7)

(7.3)

Loss before tax after exceptional items and amortisation of acquired intangibles

(102.3)

(27.7)

Adjusted earnings per share - euro cents

24.3

31.5

Loss per share after exceptional items and amortisation of acquired intangibles -

euro cents

(73.4)

(19.0)

Discontinued operations



Revenue

194.7

386.8

Adjusted EBITDA

18.5

32.4

Adjusted operating profit

16.1

20.5

Adjusted profit before tax

16.5

21.2

Exceptional operating costs

(20.0)

(8.1)

Amortisation of acquired intangibles

(0.2)

(10.1)

Operating profit after exceptional items and amortisation of acquired intangibles

(4.1)

2.4

Profit before tax after exceptional items and amortisation of acquired intangibles

58.5

(1.6)

Adjusted earnings per share - euro cents

10.3

14.6

Earnings per share after exceptional items and amortisation of acquired intangibles - euro cents

47.5

(2.0)

 

 

A number of events took place during 2012 that had a significant effect on the Group's results and financial position:

 

·      in June 2012, the Group disposed of its Norwegian Edda Media business (which had been treated as discontinued and held for sale in the 31st December 2011 financial statements), for total final consideration (after the settlement of closing working capital items) of €201.2 million;

 

·      the Group classified its Polish operations as held for sale and discontinued as at 31st December 2012, resulting in a re-presentation of the 2011 comparative numbers in these accounts and also in an impairment €15.3 million as the net assets of the Polish business were written down to expected disposal proceeds;

 

·      the Group de-recognised the defined benefit pension plan that previously had provided pensions to the employees of the Group's LMG subsidiary in the Netherlands.  Although the effect on the Group's net balance sheet of this was limited, since the scheme had previously been in surplus under IAS 19 resulting in an un-recognised asset, the ending of the pension arrangement results in the de-recognition of assets and liabilities with gross amounts of over €150 million, as explained in more detail in Note 30 to the consolidated financial statements;

 

·      as disclosed in the 31st December 2011 financial statements, the Group entered into an agreement in March 2012 with the publisher of the daily freesheet De Pers under which the commercial arrangements entered into by the Group's subsidiary Wegener and the publisher of De Pers were terminated. Under the agreement, Wegener paid a total of €45 million in respect of the termination, €35 million of which was paid in April 2012 and €10 million in January 2013;

 

·      the Group embarked on a significant cost restructuring programme which, with the completion of actions begun in 2011 such as the Group's IT outsourcing project, resulted in total exceptional restructuring charges of €41.1 million in 2012 (2011: €32.4 million); and

 

·      the Group issued approximately 8.7 million shares in May 2012 as consideration for the purchase of a 13.3 per cent remaining minority interest in its subsidiary Wegener.

 

After the year-end, the Group entered into an agreement with its lending banks to extend the term of its borrowing facilities by one year, to 31st October 2014.  Full details of the terms of the extended facility are set out in Note 25 to the consolidated financial statements.  Given, however, that as at 31st December 2012 the Group had less than one year before the expiry of its then facilities, all borrowings under its bank facilities have been treated as current as at 31st December 2012.

 

In the consolidated financial statements and in the commentary set out below, the Group continues to present exceptional items and the amortisation of acquired intangibles separately in the consolidated income statement, to allow the reader of the accounts to understand better the elements of financial performance in the year.

 

Revenue, costs and earnings before interest and tax - continuing operations

Revenue for the year ended 31st December 2012 was €910.5 million, down from €997.5 million in 2011. Advertising revenue fell by 17 per cent to €364.4 million and circulation revenue fell by 3 per cent to €408.2 million; other revenue was flat at €137.9 million.

 

Total costs (excluding depreciation) for 2012 from continuing operations were €823.0 million, down by €63.4 million or 7 per cent, from 2011, with benefits from reduced headcount and from lower other costs. Staff costs remain the continuing operation's main cost component, representing some 48 per cent of total costs.

 

As a result, adjusted EBITDA from continuing operations was €87.5 million in 2012 compared to €111.1 million in 2011.  The adjusted EBITDA margin in 2012 was 9.6 per cent, compared with 11.1 per cent in 2011. In the Netherlands EBITDA was down €23.3 million from €93.3 million to €70.0m, with the division's EBITDA margin falling from 15.8 per cent in 2011 to 13.0 per cent in 2012. Denmark's EBITDA fell by €4.5 million to €24.0 million; EBITDA margin was 6.5 per cent, down from 7.0 per cent in 2011.

 

Depreciation and amortisation of software reduced from €36.5 million in 2011 to €33.5 million in 2012. As a result of all of these factors, adjusted operating profit decreased by 28 per cent to €54.0 million, with an adjusted operating profit margin of 5.9 per cent, down from 7.5 per cent in 2011.

 

Total operating exceptional charges of €65.7 million were recorded in 2012 (2011: €33.3 million). These charges, which are set out in detail in Note 11 to the consolidated financial statements, included:

 

·      staff redundancy costs of €37.1 million (2011: €12.0 million) recorded across the Group's divisions as cost saving initiatives were put in place further to achieve the cost reduction targets set out in January 2012;

 

·      a credit of €7.6 million (2011: credit of €11.5 million) resulting from the final settlement of the fine originally imposed by the NMa in 2010;

 

·      a charge of €4.3 million in respect of employee benefits obligations, including a charge related to the ending of the Group's relationship with a defined benefit pension plan in its LMG subsidiary;

 

·      a non-cash charge of €5.9 million in respect of onerous property leases, reflecting an increase in vacant and sub-leased office space; and

 

·      an impairment of €46.8 million in respect of goodwill in the Group's Dutch operation, as explained further in Note 17 to the consolidated financial statements.

 

Details of exceptional charges are set out in Note 11 to the consolidated financial statements. The amortisation of acquired intangibles was €47.3 million (2011: €48.5 million).

 

The operating loss after exceptional items and the amortisation of acquired intangibles from continuing operations for the year ended 31st December 2012 was €84.7 million, up from a loss of €7.3 million in 2011.

 

Finance items and taxation - continuing operations

The Group continued to reduce its net finance expense before exceptional items, following the reduction recorded in 2011. In 2012, net finance expense before exceptional items was €14.1 million, down from €19.6 million in 2011. This improvement resulted from two main drivers. First, there were considerably lower levels of debt during 2012, with average net debt of €224.5 million compared with €327.5 million in 2011. This reduction largely reflected the Edda Media disposal proceeds. Secondly, the average interest rate payable on the Group's bank borrowings in 2012 was approximately 70 basis points lower than that paid in 2011, reflecting lower applicable EURIBOR rates.

 

The effective tax rate on adjusted profit before tax from continuing operations (excluding the share of results of associates) for the year ended 31st December 2012 was 27.1 per cent (2011: 26.2 per cent). This rate was higher than the blended statutory rates of the countries in which the Group operates, largely as a result of the non-recognition of tax losses for accounting purposes.

 

An exceptional tax credit of €27.2 million was recorded in 2012 (2011: €21.4 million), including tax credits on the amortisation of acquired intangibles of €13.5 million (2011: €12.2 million).

 

Discontinued operations

Discontinued operations comprised Norway, which was disposed of on 28th June 2012 and the Group's Polish operations, which themselves comprised Media Regionalne, which was classified as held for sale as at 31st December 2012, and Presspublica, which was disposed of on 10th October 2011. 

 

Norway's revenue for the year ended 31st December 2012 was €144.9 million, down from €276.4 million in 2011 as a result of the disposal of Edda Media half-way through the year (on 28th June 2012). Adjusted EBITDA was €16.5 million, compared with €30.4 million for 2011.  Polish revenue in respect of Media Regionalne, which was owned for the entirety of the period, was €49.8 million, down 15 per cent from 2012, with EBITDA also down, by €0.5 million to €2.0 million.  No revenues or EBITDA were recorded in 2012 for Presspublica, which was sold in 2011 and recorded an EBITDA loss of €0.5 million until date of sale.  Total discontinued revenues were therefore €194.7 million (2011: €386.8 million) with EBITDA of €18.5 million (2011: €32.4 million).

 

Exceptional operating costs, excluding the amortisation of acquired intangibles, in 2012 were €20.0 million (2011: €8.1 million) and were, largely impairment charges related to the Group's Media Regionalne operations, as explained further in Note 11 to the consolidated financial statements. The amortisation of acquired intangibles was €0.2 million (2011: €10.1 million) with the decrease largely related to the ending of amortisation on Norwegian intangible assets as at 31st December 2011.

 

The operating loss after exceptional items and the amortisation of acquired intangibles from discontinued operations for the year ended 31st December 2012 was €4.1 million, compared with a profit of €2.4 million in 2011.

 

The effective tax rate on adjusted profit before tax from discontinued operations (excluding the share of results of associates) for the year ended 31st December 2012 was 29.2 per cent (2011: 30.7 per cent).

 

Earnings per share and dividends

As described above, the continuing fall of EBITDA in the year, together with the effect of the disposal of businesses recorded within discontinued operations, more than offset lower depreciation, net finance expense and tax, such that Group total adjusted earnings per share, from both continuing and discontinued operations, were 34.6 euro cents per share in 2012 compared with 46.1 euro cents per share in 2011. Adjusted earnings per share for continuing operations only were 24.3 euro cents per share compared to 31.5 euro cents per share in 2011. The unadjusted loss per share for the Group from continuing and discontinued operations was 25.9 euro cents per share, compared with a loss of 21.0 euro cents per share in 2011.

 

The Group paid an interim dividend of 6.0 euro cents per share, amounting to €7.1 million, including a dividend of 3.5 euro cents per share in respect of the discontinued Norwegian operations in the first half of 2012. The directors recommend payment of a final dividend in respect of 2012, of 5.5 euro cents per share, such that the total dividend in respect of continuing operations is 8.0 euro cents a share, approximately a third of adjusted continuing earnings per share of 24.3 euro cents a share and total dividends for the year are 11.0 euro cents a share, again approximately a third of adjusted earnings per share from continuing and discontinued operations of 34.6 euro cents per share.  Subject to shareholder approval, the final dividend will be paid on 28th June 2013 to shareholders on the register on 31st May 2013.

 

Cash flow

The Group's cash flows are summarised in the table below:


2012

2011

2012 vs 2011


€m

€m

€m

Total Group




Cash from operations (before exceptional items)

69.0

127.2

(58.2)

Exceptional operating cash flows

(56.0)

(30.1)

(25.9)

Exceptional operating cash flows: De Pers

(39.1)

(14.5)

(24.6)

Cash generated from operations

(26.1)

82.6

(108.7)

Tax paid

(4.8)

(1.5)

(3.3)

Net capital expenditure

(25.6)

(18.0)

(7.6)

Net proceeds/(purchases) of publishing rights and other investments

-

0.6

(0.6)

Net interest paid

(13.3)

(16.1)

2.8

Fees paid on redirection of capital

-

(0.5)

0.5

Net dividends received

3.2

3.4

(0.2)

Free cash flow, before acquisitions/divestments and dividends paid to equity shareholders

(66.6)

50.5

(117.1)

Acquisitions / divestments

213.7

11.6

202.1

Dividends paid to equity shareholders

(18.7)

(6.1)

(12.6)

Non-cash movements in net debt

0.6

(3.8)

4.4

Net decrease in net debt

129.0

52.2

76.8

 

The Group's free cash flow (that is, cash flow after capital expenditure, tax and debt service, but before acquisitions and disposals and dividends to shareholders) during the year was an outflow of €66.6 million, compared with an inflow of €50.5 million in 2011. In addition to the decrease in EBITDA, the Group had a working capital outflow, largely caused by the timing of the Edda Media disposal in the working capital cycle, considerably higher exceptional cash outflows, reflecting the Group's restructuring programmes and the settlement of the De Pers contract in March 2012.

 

Lower net interest cash costs of €2.8 million were offset by higher taxation (€3.3 million) and capital expenditure (€7.6 million), the latter reflecting the investment in IT accompanying the Group's outsourcing arrangement.  Net proceeds from acquisitions and divestments comprise almost entirely the disposal of Edda Media, with higher dividends resulting from the payment of a final dividend in 2012 for the first time.

 

Financial position

The Group's closing net debt was €129.5 million, down €129.0 million from €258.5 million at 31st December 2011 largely reflecting the disposal of Edda Media. The Group's leverage ratio (measured as the ratio of net debt to adjusted Group EBITDA according to the definitions in the bank facility agreement) was 1.4 times, down from 1.8 times as at 31st December 2011.

 

Closing net debt comprised bank borrowings of €153.8 million (2011: €329.7 million), obligations under finance leases of €0.3 million (2011: €1.6 million), other borrowings of €4.0 million (2011: €4.8 million) and cash and cash equivalents (net of overdrafts) of €28.6 million (2011: €77.6 million).

 

As described in further detail in Note 25 to the consolidated financial statements, the Group extended the expiry of its bank borrowings, from 31st October 2013 to 31st October 2014, as well as amending a number of the terms of the agreement.

 

The Group's closing total equity decreased by €27.8 million during 2012, resulting in closing total equity of €160.3 million. In addition to the total loss for the year of €30.4 million, other comprehensive income resulted in an increase in equity of €29.8 million, share-based payment credits recorded directly in equity were €0.1 million, dividends paid to shareholders decreased equity by €18.7 million. Other movements in equity in 2012 totalled €8.6 million.

 

During the period, the Group ended its agreement with the independent pension scheme providing pensions to its Dutch subsidiary LMG Netherlands I B.V., resulting in the de-recognition of the assets and liabilities of that pension scheme from its balance sheet.  Full details of this are set out in Note 30 to the consolidated financial statements.

 

Financial and liquidity risk and going concern

The Group's financial and liquidity risk factors, and the approach to managing them, are set out in Note 26 to the consolidated financial statements.  The principal risks and uncertainties affecting the Group's operations are set out below.

 

As explained in Note 25 to the consolidated financial statements, the Group extended its bank borrowing facilities in February 2013, providing for a term loan of (at inception) €135 million and a revolving credit facility of €115 million that are due to expire on 31st October 2014.

 

The facilities agreement includes certain financial covenants and restrictions, as set out in detail in Note 25 to the consolidated financial statements.  The Group has processes in place designed to ensure that it remains within the facility limits, financial covenants and other relevant restrictions.  These processes include an annual budget cycle, periodic financial re-forecasts and shorter-term (three month) cash flow forecasts, as well as approval of capital expenditure and cash restructuring costs under a scheme of delegated authority.  The Group's approach to mitigating the wider business risks affecting its operations and financial results are set out below in the "Principal Risks and Uncertainties" section.

 

The principal uncertainty affecting the Group's financial performance is the level of advertising, which is in turn affected by a number of factors, including economic conditions and structural change in the media markets.  In making forecasts of advertising revenue for the purpose of assessing the Group's future compliance with the financial covenants in the bank facilities agreement, the Group uses a combination of operating targets, recent trends and third-party market forecasts.  Historically, however, advertising revenues have been difficult to forecast, given the influence of both shorter-term economic factors and structural changes in media consumption and advertising spending.  If actual advertising were to be lower than forecast, the Group has identified actions that it could take to reduce costs to seek to mitigate against such falls, albeit the extent to which this is possible will vary depending on the extent of falls in advertising.

 

Although beyond the minimum 12-month future period required to be considered by the directors in determining whether the going concern is appropriate in the consolidated financial statements, the Directors note that the current bank facilities agreement is due to expire on 31st October 2014.  The Directors expect the current bank borrowings under the agreement to be repaid from disposals arising from the Strategic Review process and from a future refinancing of any remaining Group operations.  However, the nature and terms under which any remaining borrowings of the Group at or before 31st October 2014 would be refinanced are necessarily uncertain:  the amount of any borrowings and the financial position of any remaining operations,  would be dependent on the extent of disposals, if any, and the development of trading (especially advertising revenue) in the meantime.

 

The Board is making full disclosure of the uncertainties set out above since the Directors have concluded that the circumstances where trading were to fall below the range allowed for by the financial covenants during the life of the Group's banking facility agreement and / or the Strategic Review were to have an unsatisfactory conclusion and require the Group to refinance substantial borrowings at a time of continuing trading uncertainty represent material uncertainties which may cast significant doubt upon the Group's ability to continue as a going concern.  The consolidated financial statements do not contain the adjustments that would result if the Group were unable to continue as a going concern.

 

Nevertheless, the Directors, having made appropriate enquiries, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis of accounting in preparing the annual accounts of the Company and the Group.  The auditors' report on the financial statements for 2012 includes an emphasis of matter paragraph to draw attention to the disclosures made in the financial statements indicating material uncertainties about the Group's ability to continue as a going concern. The auditors' opinion is not modified in this respect.

 

Treasury

Group treasury matters are managed centrally with the Group treasury function managing the Group's bank borrowing arrangements, the short- and medium-term liquidity position and monitoring the Group's treasury risks. A treasury committee, which includes the Group Finance Director, the Group Treasurer and the Group Chief Operating Officer, provides further guidance on treasury matters and oversees risk management.

 

The Group is exposed to treasury risks arising from exposure to movements in market interest rates, which affect the Group's borrowing costs.  The Group has a general policy of keeping between 40 per cent and 80 per cent of its gross borrowings at fixed rates, so as to provide some certainty on its interest costs, while leaving open the opportunity to benefit in part from low interest rates.  In economic terms, during 2012 the Group had fixed the interest rate on an average of 67 per cent of its gross borrowings.  In accounting terms, the majority of the Group's interest rate hedge relationships ended following the disposal of Edda Media and so the effective accounting hedge was considerably lower.  All of the Group's interest rate swap contracts hedging the Group's borrowings either expired at 31st December 2012 or will expire by 31st March 2013.  The Group has decided, in light of the current Strategic Review process, which may result in further significant reduction in the Group's borrowings, not to enter into any new hedging transactions for the time being, notwithstanding its general policy.

 

Following the classification of the Group's Polish operation as held for sale and discontinued as at 31st December 2012, and with each operation reporting in the Euro or in the Danish Krone (which is closely pegged to the Euro) and having limited exposure to foreign currency transaction exposure, the Group overall has limited exposure to foreign currency transaction and translation risk.

 

RELATED PARTY TRANSACTIONS

 

Further information is disclosed in Note 21 to the condensed consolidated financial statements below.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

Background

Our Board recognises the importance of identifying and actively monitoring both the internal and external risks facing the business.  As the Group modernises, identifies new market opportunities and develops new revenue streams, its risk management processes are a key success factor in ensuring that the Group continues to operate with an acceptable level of risk.

 

Risk management process

The Board is responsible for establishing a robust and appropriate risk management process and periodically reviews the risk framework, its content and its operation.   The approach to risk management covers risks at all levels of the Group and examines business risks on both a top-down and bottom-up basis. 

 

Risk monitoring and mitigation processes are embedded in the running of each of the businesses.  Each business has its own risk process, aligned to that of the Group, where risks are actively identified, reviewed and monitored.  The risks and mitigating actions identified within the businesses feed into, are consolidated and considered as a part of, the Group's own risk process. 

 

The effectiveness of the risk process is regularly assessed by the Audit Committee and the effectiveness of mitigating controls and actions are subject to on-going review by Group internal audit.

 

The table below shows the principal risks and uncertainties relating to the Group's operations, gives the Board's view on how these have changed over the course of the year and the processes and actions in place to mitigate them. 

 

Key External risk factors

The following risks arise from factors outside the control of management

 

Factor                

Risk

Change from 2011

Mitigation / Management Action

The Market

·      Continued decline in print advertising revenues, caused by prolonged recession in the markets in which Mecom operates, which significantly impacts the Group's overall financial performance

·      Pricing in online advertising markets continues to trend well below traditional print advertising

Increase

·    Designing packages for advertisers that fulfil demands for cross-media reach and attract a larger share of the wider advertising market.

·    Reorganisation and improvement of the advertising sales teams, processes and systems to protect market positions and to drive cross-media promotion.

·    Accelerating the structural shift towards multi-media consumer content, whilst fully exploiting the strength of the Group's existing established and distinctive brands and prominent market position with advertisers to protect core print revenues.

Consumers trends

·      Consumer tastes / behaviours change more quickly than anticipated to new media sources, negatively impacting traditional print circulation volumes and advertising revenues

 

No change

·      Accelerating development and introduction of new media products which appeal to a wider consumer base, that contain content that consumers are willing to pay for across a number of platforms.

·      Improving cross-selling of wholly-owned products and brands to maximise revenue share.

·      Seeking new revenue opportunities through strategic partnerships.

 

 

Key Strategic risks 

 

Factor

Risk

Change from 2011

Mitigation / Management Action

Organisation, structure and process

·      Mecom fails to achieve the planned cost savings and operational improvements from its reorganisations

·      Current technologies and processes are insufficient to support the growth and development of new online products and pay models

·      Mecom fails to invest in and to develop new products and services quickly enough to offset decline in traditional revenues

No Change

·      Continuing to set clear targets and measures of success against which progress on restructuring programmes is measured to maximise the benefits from the established priority change programmes underway in all divisions. These programmes are already delivering substantial savings and driving improvements in the underlying business models and are monitored directly by the Board.

·      Continuing the development of new products and pricing strategies to extend the portfolio for both content customers and advertisers.

·      Developing partnerships with suppliers to ensure cost effective delivery of technology and content.

People

·      Mecom is not able to attract, to motivate and to retain its creative talent

·      Retention of key management becomes more difficult

·      The degree of  change within the business overburdens a small number of core key staff

·      Significant organisation change is not sufficiently supported with training and investment in systems and tools

·      The business loses the support of the unions or works councils

Increase

·      Management has developed focused training to increase the competency and skills base of its workforce and, where necessary, will also recruit new skills from outside the Group.

·      The businesses operate a structured management succession planning process to the level of Country CEO.  The succession of executives above the Country level is handled directly by the Board.

·      The Group seeks to mitigate the risks by spreading and sharing the knowledge and expertise of its key management personnel across the Group.

·      The Group continues to involve and engage the unions, works councils and editorial boards in a constructive dialogue about the on-going structural changes.

Business Continuity

·      Mecom fails to ensure appropriate business continuity planning and resilience in its print, distribution and online operations

·      Failure of the key IT outsource provider, resulting in the loss of IT services across the group

 

No Change

·      All divisions are required to maintain business continuity plans and to update these to keep abreast of the reorganisations and restructurings taking place across the business.  Each division is required to test these plans on an annual basis to ensure their continued effectiveness and relevance. 

·      Extensive IT security measures (back-up, recovery systems, firewalls etc.) have been taken to mitigate the risk of disruption to IT services and these have been enhanced by the outsourcing project which completed this year.

·      Financial health of the IT provider is closely monitored and a contingency plan is in place, should the IT provider fail.

Funding

·      The Group may not be able to comply with banking covenants or to secure medium-term refinancing at the expiry of its current borrowing facility, as explained further in the Group Finance Director's Report above.

 

No Change

·      The Group's financial gearing improved considerably during 2012 following the disposal of Edda Media, with leverage of 1.4 times at 31st December 2012.  Any disposals that may result from the current Strategic Review would further improve the financial position.

·      The Group completed the extension of its bank borrowings, from 31st October 2013 to 31st October 2014, on 28th February 2013.

·      The Group is committed to its cost reduction plans and continues to operate a policy of strict management of cash expenditure.

·      The Group produces regular cash flow forecasts and projections against the various banking covenants.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The directors confirm to the best of their knowledge that:

 

(a) the financial statements for the year ended 31st December 2012, prepared in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group and the undertakings included in the consolidation taken as a whole; and

 

(b) the Management Report (which comprises the Executive Chairman's statement, Operating Results, Divisional Reviews, Group Finance Director's report), includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

By order of the Board

 

 

Stephen Davidson                         Henry Davies

Executive Chairman                      Group Finance Director

 

 

 

 

Consolidated income statement

for the year ended 31 December 2012

 



Year ended 31 December 2012

(restated)
Year ended 31 December 2011


Note

Before
exceptional
items and
amortisation
of acquired
intangibles
 €m

Exceptional items and
amortisation of acquired
intangibles
(Note
7)
 €m

After
exceptional
items and
amortisation of acquired
intangibles
€m

Before
exceptional
items and
amortisation
of acquired
intangibles
 €m

Exceptional items and
amortisation of acquired
intangibles
(Note
7)
 €m

After
exceptional
items and
amortisation of acquired
intangibles
€m

Continuing operations








Revenue


910.5

-

910.5

997.5

-

997.5

Cost of sales


(281.6)

-

(281.6)

(304.8)

-

(304.8)

Gross profit


628.9

-

628.9

692.7

-

692.7

Operating costs


(576.5)

(138.7)

(715.2)

(620.3)

(81.8)

(702.1)

Share of results of associates


1.6

-

1.6

2.1

-

2.1

Operating profit/(loss)

6

54.0

(138.7)

(84.7)

74.5

(81.8)

(7.3)

Finance income

8

1.0

-

1.0

0.9

-

0.9

Finance expense

8

(15.1)

(2.6)

(17.7)

(20.5)

(2.3)

(22.8)

Gain/(loss) on disposal of businesses and








      investments

20

(0.2)

(0.7)

(0.9)

(0.3)

1.8

1.5

Profit/(loss) before tax


39.7

(142.0)

(102.3)

54.6

(82.3)

(27.7)

Income tax (expense)/credit

9

(10.4)

27.2

16.8

(13.7)

21.4

7.7

Profit/(loss) for the year from continuing








      operations


29.3

(114.8)

(85.5)

40.9

(60.9)

(20.0)









Discontinued operations








Profit/(loss) for the year from discontinued








      operations

10

12.2

42.9

55.1

15.3

(18.3)

(3.0)

Profit/(loss) for the year


41.5

(71.9)

(30.4)

56.2

(79.2)

(23.0)









Attributable to:








Mecom Group plc shareholders


39.9

(69.8)

(29.9)

50.8

(73.9)

(23.1)

Non-controlling interests


1.6

(2.1)

(0.5)

5.4

(5.3)

0.1

























Earnings/(loss) per share
(euro cents per share)

Note


Non-IFRS
measures

IFRS
measures


Non-IFRS
measures

IFRS
measures

From continuing operations








Basic

12


24.3

(73.4)


31.5

(19.0)

Diluted

12


24.0

(73.4)


31.2

(19.0)









From discontinued operations








Basic

12


10.3

47.5


14.6

(2.0)

Diluted

12


10.3

47.1


14.4

(2.0)









From continuing and discontinued








      operations








Basic

12


34.6

(25.9)


46.1

(21.0)

Diluted

12


34.3

(25.9)


45.6

(21.0)

 

Details of dividends paid and proposed are set out in Note 11.

 

As explained in further detail in Note 10, the restatement of 2011 comparatives relates entirely to the Group's Polish operations which in 2012 have been classified as discontinued operations in both the current and prior year.

 

 

 

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2012

 


Note

Year ended
31 December
2012
€m

Year ended
31 December
2011
€m

Loss for the year


(30.4)

(23.0)





Other comprehensive income/(loss) for the year:




Actuarial (loss)/gain on defined benefit pension schemes

17

(1.0)

1.0

Tax effect


0.3

(0.3)



(0.7)

0.7





Changes in fair value of cash flow hedges


2.9

0.3

Tax effect


(0.2)

(0.2)



2.7

0.1





Transfer from the currency translation reserve to the consolidated income




      statement of cumulative exchange differences on disposal of foreign operations


21.2

(2.3)





Exchange differences on retranslation of foreign operations


6.6

(7.3)

Other comprehensive income/(loss) for the year, net of tax


29.8

(8.8)

Total comprehensive loss for the year, net of tax


(0.6)

(31.8)





Attributable to:




Mecom Group plc shareholders


(0.7)

(30.3)

Non-controlling interests


0.1

(1.5)

 

 

 

 

Consolidated balance sheet

at 31 December 2012

 


Note

2012
€m

2011
€m

Non-current assets




Goodwill

13

91.7

138.5

Other intangible assets


389.8

445.2

Property, plant and equipment


127.6

148.7

Employee benefit assets

17

-

0.3

Interests in associates


9.7

10.2

Other financial assets


-

0.1

Deferred tax assets


23.5

23.8

Derivative financial instruments


-

0.4

Total non-current assets


642.3

767.2

Current assets




Inventories


4.2

8.7

Trade and other receivables


91.7

102.0

Cash and cash equivalents

14

35.4

49.4

Other investments - current


1.1

-

Current tax assets


0.6

0.6

Total current assets


133.0

160.7

Assets classified as held for sale

10

18.3

258.9

Total assets


793.6

1,186.8

Liabilities




Non-current liabilities




Borrowings

15

(3.7)

(316.1)

Other payables


(0.4)

(1.2)

Provisions

16

(8.5)

(17.6)

Employee benefit obligations

17

(38.5)

(39.0)

Deferred tax liabilities


(91.9)

(107.5)

Obligations under finance leases


-

(0.4)

Derivative financial instruments


-

(1.2)

Total non-current liabilities


(143.0)

(483.0)

Current liabilities




Borrowings

15

(170.9)

(28.9)

Trade and other payables


(285.8)

(303.2)

Provisions

16

(25.4)

(75.4)

Current tax liabilities


(0.6)

(5.1)

Obligations under finance leases


(0.3)

(1.2)

Derivative financial instruments


(0.7)

 (0.9)

Total current liabilities


(483.7)

(414.7)

Liabilities directly associated with assets classified as held for sale

10

(6.6)

(101.0)

Total liabilities


(633.3)

(998.7)

Net assets


160.3

188.1

Equity




Issued share capital

18

89.7

83.2

Share premium

18

8.9

-

Retained earnings


39.4

102.4

Other reserves


13.8

8.7

Accumulated amounts recognised directly in equity relating to a disposal group held for sale

10

1.7

(23.0)

Equity attributable to Mecom Group plc shareholders


153.5

171.3

Non-controlling interests


6.8

16.8

Total equity


160.3

188.1

 

 

 


Consolidated statement of changes in equity

for the year ended 31 December 2012

 




Other reserves

Accumulated

amounts recog-
nised directly in
equity relating to
a disposal group
held for sale
€m

Equity attributable to Mecom Group plc share-holders

 €m




Issued
 share
 capital
€m

Share
premium
€m

Retained
earnings
€m

Cash
flow
hedge
reserve
€m

Share
based
payment
reserve
€m

Own
shares
€m

Reval-
uation
reserve
€m

Currency
transla-
tion
reserve
€m

Non-
controlling
interests
€m

Total
equity
€m

Balance at 31 December 2010

83.2

1,530.2

(1,398.7)

(2.7)

8.6

(5.6)

-

(8.2)

-

206.8

32.3

239.1

Loss for the year

-

-

(23.1)

-

-

-

-

-

-

(23.1)

0.1

(23.0)

Other comprehensive (loss)/income:













Actuarial gain on defined benefit pension schemes

-

-

0.7

-

-

-

-

-

-

0.7


0.7

Changes in fair value of cash flow hedges

-

-

-

-

-

-

-

-

-

-

0.1

0.1

Transfer from the currency translation reserve to the consolidated













    income statement of cumulative exchange differences on disposal of













   foreign operations

-

-

-

-

-

-

-

(2.3)

-

(2.3)

-

(2.3)

Exchange differences on retranslation of foreign operations

-

-

-

-

-

-

-

(5.6)

-

(5.6)

(1.7)

(7.3)

Total comprehensive loss for the year

-

-

(22.4)

-

-

-

-

(7.9)

-

(30.3)

(1.5)

(31.8)

Reduction of share capital

-

(1,530.2)

1,530.2

-

-

-

-

-

-

-

-

-

Transaction costs relating to the reduction of share capital

-

-

(0.6)

-

-

-

-

-

-

(0.6)

-

(0.6)

Credit in respect of share-based payments

-

-

-

-

1.5

-

-

-

-

1.5

-

1.5

Transfer of accumulated amounts recognised directly in equity













   relating to a disposal group held for sale

-

-

-

-

-

-

-

23.0

(23.0)

-

-

-

Acquisition of shares in non-wholly owned subsidiaries

-

-

-

-

-

-

-

-

-

-

(1.6)

(1.6)

Disposal of business

-

-

-

-

-

-

-

-

-

-

(11.9)

(11.9)

Dividends paid

-

-

(6.1)

-

-

-

-

-

-

(6.1)

(0.5)

(6.6)

Balance at 31 December 2011

83.2

-

102.4

(2.7)

10.1

(5.6)

-

6.9

(23.0)

171.3

16.8

188.1

Loss for the year

-

-

(29.9)

-

-

-

-

-

-

(29.9)

(0.5)

(30.4)

Other comprehensive (loss)/income:













Actuarial loss on defined benefit pension schemes

-

-

(0.7)

-

-

-

-

-

-

(0.7)

-

(0.7)

Changes in fair value of cash flow hedges

-

-

-

2.7

-

-

-

-

-

2.7

-

2.7

Transfer from the currency translation reserve to the consolidated income













   statement of cumulative exchange differences on disposal of foreign













    operations

-

-

-

-

-

-

-

-

21.2

21.2

-

21.2

Exchange differences on retranslation of foreign operations

-

-

-

-

-

-

-

6.0

-

6.0

0.6

6.6

Total comprehensive loss for the year

-

-

(30.6)

2.7

-

-

-

6.0

21.2

(0.7)

0.1

(0.6)

Credit in respect of share-based payments

-

-

-

-

0.1

-

-

-

-

0.1

-

0.1

Shares held by EBT used to satisfy employee share awards

-

-

(0.1)

-

-

0.1

-

-

-

-

-

-

Transfer on exercise of options

-

-

0.3

-

(0.3)

-

-

-

-

-

-

-

Transfer of accumulated amounts recognised directly in equity













   relating to a disposal group held for sale

-

-

-

-

-

-

-

(3.5)

3.5

-

-

-

Acquisition of shares in non-wholly owned subsidiaries

6.5

8.9

(14.3)

-

-

-

-

-

-

1.1

(1.5)

(0.4)

Transaction costs relating to acquisition of shares in non-wholly owned













   subsidiaries

-

-

(0.3)

-

-

-

-

-

-

(0.3)

-

(0.3)

Disposal of business

-

-

-

-

-

-

-

-

-

-

(8.6)

(8.6)

Capital contribution

-

-

-

-

-

-

-

-

-

-

0.7

0.7

Dividends paid

-

-

(18.0)

-

-

-

-

-

-

(18.0)

(0.7)

(18.7)

Balance at 31 December 2012

89.7

8.9

39.4

-

9.9

(5.5)

-

9.4

1.7

153.5

6.8

160.3

 

 


Consolidated cash flow statement

for the year ended 31 December 2012

 


Note

Year ended
 31 December
 2012
  €m

Year ended
 31 December
 2011
 €m

Operating activities




Cash generated from operations

23

(26.1)

82.6

Income tax paid


(4.8)

(1.5)

Net cash from operating activities


(30.9)

81.1





Investing activities




Proceeds from sale of property, plant and equipment


4.0

1.6

Proceeds from sale of interests in associates and investments


-

1.0

Capital expenditure on:




      Other intangible assets


(10.9)

(6.3)

      Property, plant and equipment


(18.7)

(13.3)

Purchase of interests in associates


-

(0.4)

Acquisition of subsidiaries, net of cash acquired


(1.5)

(4.8)

Divestment of businesses, net of cash sold

20

215.2

16.4

Interest received


1.6

1.8

Dividends received


3.2

3.9

Net cash used from investing activities


192.9

(0.1)





Financing activities




Proceeds from borrowing drawdowns


42.0

35.7

Repayment of borrowings


(221.1)

(79.1)

Repayment of obligations under finance leases


(1.4)

(4.1)

Interest and other finance expenses paid


(14.1)

(17.9)

Transaction costs relating to the reduction of capital


-

(0.5)

Fees paid on renegotiation of Group's bank facilities


(0.5)

-

Fees paid on acquisition of shares in non wholly-owned subsidiaries

18

(0.3)

-

Dividends paid


(18.7)

(6.6)

Net cash generated by/(used in) financing activities


(214.1)

(72.5)





Net (decrease)/increase in cash and cash equivalents


(52.1)

8.5

Net foreign exchange differences


3.1

(0.9)

Cash and cash equivalents at beginning of the year

14

77.6

70.0

Cash and cash equivalents at end of the year

14

28.6

77.6

 

 

 

Notes to the condensed consolidated financial statements

for the year ended 31 December 2012

 

 

1.   Corporate information

 

Mecom Group plc (the "Company") is a public limited company incorporated and domiciled in England and Wales. The registered office of the Company is 1st Floor, Parnell House, 25 Wilton Road, London, SW1V 1LW. Its ordinary shares are traded on the London Stock Exchange (LSE).

 

These condensed consolidated financial statements for the year ended 31 December 2012 were approved by the Board of Directors on 20 March 2012.

 

The financial information in these condensed consolidated financial statements does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 but has been extracted from statutory accounts. The statutory accounts for the year ended 31 December 2011 have been filed with the Registrar of Companies and those for the year ended 31 December 2012 will be filed following the Company's Annual General Meeting. The auditors' reports on the statutory accounts for the year ended 31 December 2011 and for the year ended 31 December 2012 were unqualified and do not contain a statement under Sections 498 (2) or (3) of the Companies Act 2006.  The auditors' report on the financial statements for 2012 includes an emphasis of matter paragraph to draw attention to the disclosures made in the financial statements indicating material uncertainties about the Group's ability to continue as a going concern. The auditors' opinion is not modified in this respect.

 

While the financial information included in these condensed consolidated financial statements has been prepared in accordance with International Financial Reporting Standards ("IFRS"), they do not contain sufficient information to comply with IFRSs. These condensed consolidated financial statements constitute a dissemination announcement in accordance with section 6.3 of the Disclosure and Transparency Rules. The full Annual report and accounts for the year ended 31 December 2012 will be made available on the Company's website at www.mecom.com on or around 17th April 2013.

 

2.   Definitions of terms

 

The Group uses the following terms, with the definition given, in these condensed consolidated financial statements and in its internal monitoring of financial performance:

 

Adjusted EBITDA/Adjusted EBITDA margin

The Group monitors the performance of its segments on an earnings before interest, tax, depreciation and amortisation ("EBITDA") basis. This measure includes any profit or loss from associates but excludes any exceptional items. Adjusted EBITDA margin (expressed as a percentage) is defined as adjusted EBITDA for a period divided by external revenue for the same period.

 

Adjusted operating profit/Adjusted operating profit margin

Adjusted operating profit or loss is stated before exceptional items and amortisation of acquired intangibles. Adjusted operating profit margin (expressed as a percentage) is defined as adjusted operating profit for a period divided by external revenue for the same period.

 

Exceptional items

The Group presents as exceptional items on the face of the consolidated income statement those material items of income and expense which, because of their nature and/or expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the period, so as to facilitate comparison with prior periods.

 

Net debt

The Group presents as "net debt" the net of cash and cash equivalents, borrowings and obligations under finance leases. The Group also includes in net debt any of the above items that have been classified as held for sale.

 

3.   New, amended, revised and improved Standards and Interpretations

 

In 2012, the following amendments were adopted by the Group:

 

Amendments to IFRSs


Effective date




Amendments to IFRS 1

Severe Hyperinflation

1 July 2011

Amendments to IFRS 1

Removal of Fixed dates for First-time Adopters

1 July 2011

Amendment to IFRS 7

Disclosures - Transfers of Financial Assets

1 July 2011

Amendment to IAS 12

Deferred Tax Recovery of Underlying Assets

1 January 2012

 

The Amendments have had no influence on the Group's financial position, performance or its disclosures.

 

 

 

New, amended, revised and improved Standards and Interpretations issued but not adopted in 2012

At the date of authorisation of these condensed consolidated financial statements, the following Standards and Interpretations, which have not been applied in these condensed consolidated financial statements, are in issue but are not yet effective for annual periods beginning on 1 January 2012:

 

New, amended and improved Standards


Effective date




Amendment to IAS 1

Presentation of Items of Other Comprehensive Income

1 July 2012

Amendment to IFRS 1

Government Loans

1 January 2013

Amendment to IFRS 7

Disclosures - Offsetting Financial Assets and Financial Liabilities

1 January 2013

IFRS 13

Fair Value Measurement

1 January 2013

Annual improvements to IFRS (May 2012)

Various standards (IFRS 1- IAS 1 - IAS 16- IAS 32 - IAS 34)

1 January 2013

IAS 19 (as revised in 2011)

Employee Benefits

1 January 2013

IFRS 10

Consolidated Financial Statements

1 January 2014

IFRS 11

Joint Arrangements

1 January 2014

IFRS 12

Disclosure of Interests in Other Entities

1 January 2014

Amendments to IFRS 10, IFRS 11
and IFRS 12

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance

1 January 2014

IAS 27(as revised in 2011)

Separate Financial Statements

1 January 2014

IAS 28 (as revised in 2011)

Investments in Associates and Joint Ventures

1 January 2014

Amendment to IAS 32

Offsetting Financial Assets and Financial Liabilities

1 January 2014

IFRS 9 (as revised in 2010)

Financial Instruments

1 January 2015

Amendments to IFRS 9 and IFRS 7

Mandatory Effective Date of IFRS 9 and Transition Disclosures

1 January 2015

 

The Group expects to adopt these Standards and Interpretations in the financial period for which they become effective. The Group is currently assessing the full impact of adopting IFRS 11 Joint Arrangements as it is anticipated to impact the Group's consolidated financial statements in the period of initial application.

 

IFRS 11 describes the accounting for arrangements in which there is joint control; proportionate consolidation is not permitted for joint ventures (as newly defined).  As a result of this, the Group's jointly controlled entities (JCEs) will now be classified as joint ventures (as newly defined) and will be equity accounted for and their results that are attributable to the Group will be presented within a single line in the income statement.

 

Apart from the effect of IFRS 11 Joint arrangements, the directors do not currently anticipate that the adoption of the other Standards and Interpretations set out above will have a material impact on the Group's consolidated financial statements in the period of initial application.

 

4.   Significant accounting policies

 

Statement of compliance

 

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2012. A summary of the Group's significant accounting policies now follows.

 

Basis of preparation: (i) Preparation of the consolidated financial statements on the going concern basis

The Group's financial and liquidity risk factors, and the approach to managing them, are set out in Note 15 to the condensed consolidated financial statements.  The principal risks and uncertainties affecting the Group's operations are set out in the "Principle Risks and Uncertainties" section above.

 

As explained in Note 15 to the condensed consolidated financial statements, the Group extended its bank borrowing facilities in February 2013, providing for a term loan of (at inception) €135 million and a revolving credit facility of €115 million that are due to expire on 31st October 2014.

 

The facilities agreement includes certain financial covenants and restrictions, as set out in detail in Note 15 to the condensed consolidated financial statements.  The Group has processes in place designed to ensure that it remains within the facility limits, financial covenants and other relevant restrictions.  These processes include an annual budget cycle, periodic financial re-forecasts and shorter-term (three month) cash flow forecasts, as well as approval of capital expenditure and cash restructuring costs under a scheme of delegated authority.  The Group's approach to mitigating the wider business risks affecting its operations and financial results are set out below in the "Principal Risks and Uncertainties" section.

 

The principal uncertainty affecting the Group's financial performance is the level of advertising, which is in turn affected by a number of factors, including economic conditions and structural change in the media markets.  In making forecasts of advertising revenue for the purpose of assessing the Group's future compliance with the financial covenants in the bank facilities agreement, the Group uses a combination of operating targets, recent trends and third-party market forecasts.  Historically, however, advertising revenues have been difficult to forecast, given the influence of both shorter-term economic factors and structural changes in media consumption and advertising spending.  If actual advertising were to be lower than forecast, the Group has identified actions that it could take to reduce costs to seek to mitigate against such falls, albeit the extent to which this is possible will vary depending on the extent of falls in advertising.

 

Although beyond the minimum 12-month future period required to be considered by the directors in determining whether the going concern is appropriate in the consolidated financial statements, the Directors note that the current bank facilities agreement is due to expire on 31st October 2014.  The Directors expect the current bank borrowings under the agreement to be repaid from disposals arising from the Strategic Review process and from a future refinancing of any remaining Group operations.  However, the nature and terms under which any remaining borrowings of the Group at or before 31st October 2014 would be refinanced are necessarily uncertain:  the amount of any borrowings and the financial position of any remaining operations,  would be dependent on the extent of disposals, if any, and the development of trading (especially advertising revenue) in the meantime.

 

The Board is making full disclosure of the uncertainties set out above since the Directors have concluded that the circumstances where trading were to fall below the range allowed for by the financial covenants during the life of the Group's banking facility agreement and / or the Strategic Review were to have an unsatisfactory conclusion and require the Group to refinance substantial borrowings at a time of continuing trading uncertainty represent material uncertainties which may cast significant doubt upon the Group's ability to continue as a going concern.  The condensed consolidated financial statements do not contain the adjustments that would result if the Group were unable to continue as a going concern.

 

Nevertheless, the Directors, having made appropriate enquiries, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis of accounting in preparing the annual accounts of the Company and the Group.

 

 

Basis of preparation: (ii) Group's presentation currency

Since a significant portion of the Group's operations are carried out in the Netherlands and Denmark (whose currency is effectively pegged to the euro) and the significant majority of the Group's net debt is denominated in euros, the directors continue to select the euro as the Group's presentation currency.

 

The Company's functional currency is pounds sterling and so is different to the presentation currency of the Group. 

 

Basis of preparation: (iii) Other

These condensed consolidated financial statements have been prepared on a historical cost basis, except for available-for-sale financial assets, derivative financial instruments, employee benefit assets and obligations and share-based payments that have been measured at fair value.

 

As noted above, these condensed consolidated financial statements are presented in euros and, except when otherwise stated, all values are shown in millions, rounded to the nearest one hundred thousand euros. The significant exchange rates for the Group (against the euro), applied during the current year and prior years are as follows:

 


Average rate for year ended
31 December

Spot rate at
31 December


2012

2011

2012

2011

NOK

7.49

7.79

7.36

7.78

DKK

7.44

7.45

7.46

7.43

PLN

4.19

4.13

4.09

4.46

GBP

0.81

0.87

0.82

0.84

 

Differences in spot rates from 31 December 2011 to 31 December 2012 have caused the Group's non-euro denominated assets and liabilities (primarily comprising amounts denominated in NOK and PLN) to increase (on a net basis) in value when retranslated into euros, resulting in foreign exchange differences of €6.6m being credited to reserves in the year ended 31 December 2012 (year ended 31 December 2011: debit to reserves of €7.3m).

 

The accounting policies which follow set out those policies which apply in preparing the condensed consolidated financial statements for the year ended 31 December 2012. Judgements made by management in the application of IFRS that have a significant effect on these condensed consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 5 below.

 

5.   Significant accounting judgements and key sources of estimation uncertainty

 

In the application of the Group's accounting policies, which are described in Note 4 above, the directors are required to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects that period only, or in the period of the revision and future periods if the revision affects both current and future periods.

 

 

 

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, the directors have made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in these condensed consolidated financial statements:

 

(a)  Taxation

The Company and its subsidiaries are subject to routine tax audits and also a process whereby tax computations are discussed and agreed with the appropriate authorities. Whilst the ultimate outcome of such tax audits and discussions cannot be determined with certainty, management estimates the level of provisions required for both current and deferred tax on the basis of professional advice and the nature of current discussions with the tax authority concerned.

 

(b)  Recoverability of deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that a taxable profit or loss will be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits.

 

Estimates and assumptions

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

 

(a)  Impairment of goodwill and acquired intangibles

The Group determines whether goodwill is impaired at least on an annual basis (see Note 13). This requires an estimation of the value-in-use of the CGUs to which the goodwill is allocated. Estimating a value-in-use amount requires the directors to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. In addition, the Group makes estimates and assumptions concerning future revenues, costs and investments in the underlying budgets and forecasts used to calculate future cash flows. At 31 December 2012, the carrying amount of goodwill was €91.7m (2011: €138.5m). Further details of goodwill, including the sensitivity of the balance sheet amount in the case of goodwill in The Netherlands which has been impaired during the year, are contained in Note 13.

 

The Group assesses at least annually whether there is any indication of any of its acquired intangibles (comprising customer relationships, brands and publishing rights) being impaired. If there is such an indication, the individual asset's recoverable amount is measured and, if necessary, an impairment charge is recorded.

 

At 31 December 2012, the total carrying amount of the Group's acquired intangibles was €370.1m (2011: €419.2m).

 

(b)  Useful lives of acquired intangibles

On acquisition of subsidiaries the Group will consider the useful lives of any intangible assets acquired. The length of useful lives of customer relationships is assessed based on the average lives of historic customer relationships for all main titles. The length of useful lives of brands and publishing rights is assessed based on the directors' view of the market, the length of the time that the main titles have been established and, in the case of publishing rights, the term of any contract.

 

The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

 

(c)  Provisions

The amounts provided for all categories of provisions are based on the directors' best estimates of costs likely to be incurred to the extent that they are recognisable under relevant reporting standards. To the extent that events or costs differ in the future, the carrying amount of provisions may change. At 31 December 2012, the carrying amount of provisions was €33.9m (2011: €93.0m). Details of provisions are contained in Note 16.

 

(d)   Employee benefit obligations

The Group has pension commitments under several plans. During the year, the separate funded schemes within the Group were derecognised due to the sale of the Norway activities and, as further explained in Note 17, the agreement that future pensions of the Group's subsidiary LMG Netherlands I B.V. (LMG) would be provided by the PGB, resulting in the de-recognition of this plan since it no longer met the Defined Benefit Plan criteria.

 

At year end, the Group therefore has no separate funded schemes, but still has a number of unfunded pension obligations that fall to be accounted for as a Defined Benefit Obligation, mostly consisting of early retirement and pre pension plans and the "Moratorium shortfall" funding commitment, which is explained further in Note 17. The actuarial valuation of these unfunded pension obligations involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases.

 

Due to the nature of these plans, such estimates are subject to uncertainty. At 31 December 2012, the carrying amount of the unfunded employee benefit obligations was €38.5m (2011: €39.0m). Details of employee benefit obligations are set out in Note 17.

 

 

 

6.   Operating segments

 

For management and therefore internal reporting purposes, at 31 December 2012 the directors have organised the Group into divisions based on geographical location.

The Group's reportable operating segments within its continuing operations are:

·     The Netherlands; and

·     Denmark

 

As set out in Note 10, the Group categorised its Polish operations (Media Regionalne) as held-for-sale as at 31 December 2012 and consequently has presented the results of Media Regionalne as discontinued operations.

 

During 2011 the Group disposed of part of its then Polish operations (the Presspublica business) and also agreed to sell its entire Norwegian business (which was subsequently sold in June 2012). Consequently, for internal reporting purposes, these operations are separated from the results of the "continuing" businesses  and are shown separately under the heading "discontinued".

 

Such separation allows the Board to focus on the financial performance of the continuing businesses, the total of which is shown in the Group's internal financial reports in 2012 and 2011 as "Mecom continuing".

 

"Corporate" is also part of "continuing" and comprises the Group's head-office activities, which are primarily located in the UK. Certain group-wide costs such as IT strategy, revenue development and Group internal audit have been recharged to the Group's reportable operating segments, being charged to their respective adjusted EBITDA amounts.

 

No operating segments have been aggregated to form the above reportable operating segments. The Group's directors (being the chief operating decision maker) monitor the operating results of its divisions separately for the purpose of making decisions about resource allocation and performance assessment. The Group's financial performance is based on an assessment of the results, which are measured consistently with operating profit or loss in the consolidated income statement, of the above segments. Such monitoring and assessment of an individual division's financial performance is done primarily at the adjusted EBITDA level.

 

All of the Group's reportable operating segments derive their revenue from the following revenue streams: advertising, circulation and other (comprising principally third-party printing, distribution and enterprises). Revenue from external customers is attributed to individual operating segments on an origin basis. Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties. Transactions between operating segments represented less than 1% of both total Group revenue and operating costs.

 

Exceptional items (comprising amounts recorded in operating costs, finance exceptional items and gains/losses on disposal of businesses and investments) are also monitored and assessed, in aggregate, by the directors at the operating segment level. Amortisation of acquired intangibles is also monitored and assessed by the directors at the operating segment level. Regular, non-exceptional finance income and expense and income taxes are managed on a Group basis and are not provided to the chief operating decision-maker at the operating segment level. These items are therefore not allocated to operating segments. Operating assets and liabilities comprise all classes of assets and liabilities, respectively. Non-current assets exclude employee benefit assets, deferred tax assets and derivative financial instruments and are located in the country of domicile of their respective reportable operating segment.

 

Digital revenue comprises revenue earned from either newspaper websites or standalone websites and is recorded against the relevant revenue category. Capital expenditure excludes any items purchased via a business combination or the separate purchase of publishing rights and, for the purposes of this Note, includes both property, plant and equipment additions and software additions. Additions to non-current assets comprises additions to goodwill, other intangibles assets, property, plant and equipment, interests in associates, investments and other financial assets arising from capital expenditure, other purchases and business combinations but excludes such additions to employee benefit assets, deferred tax assets and derivative financial instruments.

 

 

 

The following tables present (i) financial information as internally reported to the directors for the years ended 31 December 2012 and 2011 in respect of the Group's reportable operating segments and (ii) reconciliations of financial information as internally reported to financial information as reported under IFRS.

 

(i) Financial information as internally reported to the directors for the year ended 31 December 2012

 






Mecom discontinued



The
Netherlands
€m

Denmark
€m

Corporate   1
€m

Mecom
continuing
€m

Norway
€m

Poland

€m

Mecom
Group total
€m

Revenue:








External sales:








   Advertising

231.3

133.1

-

364.4

75.5

19.5

459.4

   Circulation

259.8

148.4

-

408.2

37.5

23.8

469.5

   Other

48.4

89.5

-

137.9

31.9

6.5

176.3

Total revenue as internally








   reported

539.5

371.0

-

910.5

144.9

49.8

1,105.2

Total costs (including share








   of results of associates








   excluding depreciation)

(469.5)

(347.0)

(6.5)

(823.0)

(128.4)

(47.8)

(999.2)

Adjusted EBITDA as








   internally reported

70.0

24.0

(6.5)

87.5

16.5

2.0

106.0

Depreciation (including








   amortisation of software)

(18.4)

(15.1)

-

(33.5)

-

(2.4)

(35.9)

Adjusted operating








   profit/(loss) as internally








   reported

51.6

8.9

(6.5)

54.0

16.5

(0.4)

70.1

Total exceptional items   2

(78.8)

(13.7)

(2.2)

(94.7)

63.0

(20.8)

(52.5)

Segment result as








   internally reported

(27.2)

(4.8)

(8.7)

(40.7)

79.5

(21.2)

17.6









Assets and liabilities








Operating assets

539.2

206.4

29.7

775.3

-

18.3

793.6

Operating liabilities

(386.2)

(141.1)

(99.4)

(626.7)

-

(6.6)

(633.3)

















Other information








Digital revenue

23.4

27.3

-

50.7

20.4

3.6

74.7

Amortisation of acquired








   intangibles

(39.9)

(7.4)

-

(47.3)

-

(0.2)

(47.5)

Impairment charges in








   respect of:








   goodwill, acquired intangibles,








   software and property,








   plant and equipment

(46.8)

-

-

(46.8)

-

(19.5)

(66.3)

Adjusted EBITDA margin

13.0%

6.5%

n/a

9.6%

11.4%

4.0%

9.6%

Adjusted operating profit margin

9.6%

2.4%

n/a

5.9%

11.4%

(0.8)%

6.3%

Non-current assets

471.7

124.4

22.7

618.8

-

-

618.8

Interests in associates

7.0

2.7

-

9.7

-

-

9.7

Capital expenditure on property,








   plant and equipment








   and software   3

15.1

9.2

-

24.3

3.0

0.8

28.1

Additions to non-current assets

15.7

11.1

-

26.8

3.0

0.8

30.6

 

1 Corporate operating liabilities of €99.4m at 31 December 2012 include €94.7m of gross borrowings

2 For internal reporting purposes, total exceptional items include both operating and finance exceptional items together with all gains/losses on disposal of business

3 Capital expenditure in this instance relates to book amounts.

 

 

 

 

(i) Financial information as internally reported to the directors for the year ended 31 December 2011 (restated)

 

 






Mecom discontinued



The
Netherlands
€m

Denmark
€m

Corporate   1
€m

Mecom
continuing
€m

Norway
€m

Poland   2
€m

Mecom
Group  total
€m

Revenue:








External sales:








   Advertising

281.4

155.6

-

437.0

143.6

38.2

618.8

   Circulation

258.5

163.9

-

422.4

71.6

57.1

551.1

   Other

49.9

88.2

-

138.1

61.2

15.1

214.4

Total revenue as internally








   reported

589.8

407.7

-

997.5

276.4

110.4

1,384.3

Total costs (including share








   of results of associates,








   excluding depreciation)

(496.5)

(379.2)

(10.7)

(886.4)

(246.0)

(108.4)

(1,240.8)

Adjusted EBITDA as








   internally reported

93.3

28.5

(10.7)

111.1

30.4

2.0

143.5

Depreciation (including








   amortisation of software)

(18.6)

(17.8)

(0.1)

(36.5)

(8.2)

(3.7)

(48.4)

Adjusted operating








   profit/(loss) as internally








   reported

74.7

10.7

(10.8)

74.6

22.2

(1.7)

95.1

Total exceptional items   3

(19.2)

(11.3)

(3.3)

(33.8)

(9.3)

(3.4)

(46.5)

Segment result as








   internally reported

55.5

(0.6)

(14.1)

40.8

12.9

(5.1)

48.6

















Assets and liabilities








Operating assets

658.1

220.0

11.6

889.7

258.9

38.2

1,186.8

Operating liabilities

(482.6)

(148.2)

(259.2)

(890.0)

(101.0)

(7.7)

(998.7)

















Other information








Digital revenue

25.3

26.7

-

52.0

37.0

7.7

96.7

Amortisation of acquired








   intangibles

(40.8)

(7.7)

-

(48.5)

(9.1)

(1.0)

(58.6)

Impairment charges in








   respect of:








   acquired intangibles,








   software and property,








   plant and equipment

-

(2.0)

-

(2.0)

-

(4.2)

(6.2)

Adjusted EBITDA margin

15.8%

7.0%

n/a

11.1%

11.0%

1.8%

10.4%

Adjusted operating profit








   margin

12.7%

2.6%

n/a

7.5%

8.0%

(1.5)%

6.9%

Non-current assets

584.2

137.9

0.2

722.3

-

20.4

742.7

Interests in associates

7.3

2.9

-

10.2

-

-

10.2

Capital expenditure on








   property, plant and equipment








   and software   4

4.7

3.8

-

8.5

5.5

2.9

16.9

Additions to non-current assets

5.2

8.2

-

13.4

6.1

3.1

22.6

 

1 Corporate operating liabilities of €259.2m at 31 December 2011 include €248.2m of gross borrowings

2 As explained further in detail in Note 10, the "Poland" segment is restated and includes the comparatives of the entire Polish operations including Presspublica and Media Regionalne

3 For internal reporting purposes, total exceptional items include both operating and finance exceptional items together with all gains/losses on disposal of business

4 Capital expenditure in this instance relates to book amounts.

 

 

 

 

(ii) Reconciliations of financial information as internally reported to financial information as reported under IFRS for the year ended 31 December 2012 and 2011

(a)  Reconciliation of "Norway and Poland" as internally reported to profit for the year ended 31 December 2012 from discontinued operations as reported under IFRS

 


Note

€m

Segment result as internally reported for "Norway and Poland"


58.3

Amortisation intangibles


(0.2)

Net finance income


0.4

Income tax expense


(3.4)

Profit for the year ended 31 December 2012 from discontinued operations

10

55.1

 

(b)  Reconciliation of "Norway and Poland" as internally reported to profit for the year ended 31 December 2011 from discontinued operations reported under IFRS

 


Note

€m

Segment result as internally reported for "Norway and Poland"


7.8

Add back loss of disposal of business


4.6

Amortisation of acquired intangibles


(10.1)

Operating profit of discontinued operations


2.3

Net finance income


0.7

Loss on disposal of business


(4.6)

Income tax expense


(1.4)

Loss for the year ended 31 December 2011 from discontinued operations

10

(3.0)

 

 

 

 

 

7.   Exceptional items and amortisation of acquired intangibles

 

The Group presents as exceptional items separately on the face of the consolidated income statement those material items of income and expense which, because of their nature and/or the infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the period, so as to facilitate comparison with prior periods. The Group also separates the amortisation of acquired intangibles on the face of the consolidated income statement since, whilst accounting standards require the recognition of this amortisation as an expense, it is not an underlying operating expense of the Group's businesses.

 

The exceptional items and amortisation charges relating to continuing and discontinued operations are summarised as follows:

 



Year ended 31 December 2012

(restated)
Year ended 31 December 2011


Note

Exceptional
 items
 €m

Amortisation
 of acquired
intangibles
 €m

Total
€m

Exceptional
items
 €m

Amortisation
 of acquired
intangibles
 €m

Total
 €m

Continuing operations
















Amounts recognised in operating loss:








Restructuring costs








Staff redundancy costs


(37.1)

-

(37.1)

(12.0)

-

(12.0)

IT outsourcing costs


(0.7)


(0.7)

(20.0)

-

(20.0)

Other


(2.8)

-

(2.8)

(0.4)

-

(0.4)

Total restructuring costs


(40.6)

-

(40.6)

(32.4)

-

(32.4)









Other exceptional operating credits/(costs)








Credit relating to fine imposed by the








   Netherlands Competition Authority


7.6

-

7.6

11.5

-

11.5

Credit/(charge) in respect of employee benefit








   obligations

17

(4.8)

-

(4.8)

0.1

-

0.1

Charge in respect of strategic review costs


(0.9)

-

(0.9)

-

-

-

Charge in respect of provisions for onerous








   contracts


(5.9)

-

(5.9)

(10.5)

-

(10.5)

Total other exceptional operating costs/(credits) credits/(costs)


(4.0)

-

(4.0)

1.1

-

1.1









Amortisation and impairment charges








Amortisation of acquired intangibles


-

(47.3)

(47.3)

-

(48.5)

(48.5)

Impairment charges in respect of:








   goodwill

13

(46.8)

-

(46.8)

-

-

-

   software


-

-

-

(0.2)

-

(0.2)

   property, plant and equipment


-

-

-

(1.8)

-

(1.8)

Total amortisation and impairment charges


(46.8)

(47.3)

(94.1)

(2.0)

(48.5)

(50.5)

Total recognised in operating loss


(91.4)

(47.3)

(138.7)

(33.3)

(48.5)

(81.8)









Amounts recognised in finance expense:








Interest rate swaps accounting: mark-to-market


(1.2)

-

(1.2)

1.3

-

1.3

Notional interest on exceptional provisions

16

(0.3)

-

(0.3)

(3.6)

-

(3.6)

Notional interest on exceptional items in








   other payables


(0.4)

-

(0.4)

-

-

-

Costs related to extension of bank facilities


(0.7)

-

(0.7)

-

-


Total recognised in finance expense


(2.6)

-

(2.6)

(2.3)

-

(2.3)

Gain/(loss) on disposal of businesses and








   investment


(0.7)

-

(0.7)

1.8

-

1.8

Total recognised in loss before tax


(94.7)

(47.3)

(142.0)

(33.8)

(48.5)

(82.3)

Exceptional income tax credit


13.7

13.5

27.2

9.2

12.2

21.4

Total recognised in loss for the year from








   continuing operations


(81.0)

(33.8)

(114.8)

(24.6)

(36.3)

(60.9)

 

 

 

 

 



Year ended 31 December 2012

(restated)
Year ended 31 December 2011


Note

Exceptional
items
 €m

Amortisation
 of acquired
intangibles
 €m

Total
€m

Exceptional
items
 €m

Amortisation
 of acquired
intangibles
 €m

Total
 €m

Discontinued operations








Amounts recognised in loss before tax:








Restructuring costs








Staff redundancy costs


(0.5)

-

(0.5)

(1.4)

-

(1.4)

Other


-

-

-

(1.5)

-

(1.5)

Total restructuring costs


(0.5)

-

(0.5)

(2.9)

-

(2.9)









Other exceptional operating costs








(Charge)/credit in respect of employee benefit








      obligations

17

-

-

-

(1.0)

-

(1.0)

Total other exceptional operating costs


-

-

-

(1.0)

-

(1.0)









Amortisation charges and impairment brands








Amortisation of acquired intangibles


-

(0.2)

(0.2)

-

(10.1)

(10.1)

Impairment in respect of:








      brands


(4.1)

-

(4.1)

(4.2)

-

(4.2)

      software


(1.2)

-

(1.2)

-

-

-

      property, plant and equipment


(14.2)

-

(14.2)

-

-

-

Total amortisation and impairment charges


(19.5)

(0.2)

(19.7)

(4.2)

(10.1)

(14.3)

Total recognised in operating profit


(20.0)

(0.2)

(20.2)

(8.1)

(10.1)

(18.2)

Gain/(loss) on disposal of businesses








      and investments

10,20

62.2

-

62.2

(4.6)

-

(4.6)

Total recognised in loss before tax


42.2

(0.2)

42.0

(12.7)

(10.1)

(22.8)

Exceptional income tax credit/(charge)


0.9

-

0.9

1.7

2.8

4.5

Total recognised in profit for the year from








      discontinued operations


43.1

(0.2)

42.9

(11.0)

(7.3)

(18.3)

 

Continuing operations

Restructuring costs

Restructuring costs of €40.6m (2011: €32.4m) include €37.1m (2011 €12.0m) of staff redundancy costs associated with the Group's cost reduction programmes (excluding the group-wide IT outsourcing arrangement as set out below). The staff redundancy costs in 2012 include charges for restructuring in the Netherlands of €24.7m (2011: €9.2m). Staff redundancy costs include senior management exit costs of €1.2m (2011: €nil) including €0.1m of non-cash accelerated share-based payment expense.

 

The Group entered into a group-wide IT outsourcing arrangement in 2011. The Group recognised an additional charge of €0.7m in 2012 in respect of this arrangement (original estimate recorded in 2011 of €20.0m), including transition costs, third party exit costs, redundancy costs and related professional fees.

 

Other restructuring costs include €2.2m for the start-up of a central press agency for regional news in the Netherlands, including the exit-costs of the existing agency.

 

The redundancy and restructuring costs above included the net effect of new provisions made in the year of €36.6m, as set out in Note 16.

 

Other exceptional operating credits/(costs)

Fine imposed by the Netherlands Competition Authority

On the 27th September 2012, the Group announced that the District Court of Rotterdam had determined that amounts payable by the Group's Dutch subsidiary Wegener to the Netherlands Competition Authority (the NMa), in respect of alleged breaches of undertakings given by Wegener at the time of its acquisition of VNU Dagbladen in March 2000, should be reduced from the originally assessed amount of €20.4 million to a total of €2.2 million. Following further discussions between Wegener and the NMa, agreement was reached in December 2012 and the reduced fine was paid before year-end for final settlement of this matter.

 

The amount of the provision related to the fine as at 31 December 2011 was estimated by weighting all possible outcomes by their associated probabilities in order to calculate the expected value. This resulted in the carrying amount of the provision for fines and related costs for an amount of €10.4m (including accrued interest of €0.4m) being recognised as a current provision at 31 December 2011 and a net €11.5m being credited to the consolidated income statement over 2011. The difference between the reduced fine and the carrying amount of the provision at settlement date in December 2012 of €7.6m was recorded as credit to exceptional operating costs in 2012.

 

 

 

Charge/credit in respect of employee benefit obligations

In November 2012 an agreement was reached that future pensions related to LMG would be provided by the PGB (see Note 17). The total cost of exiting the LMG Scheme amounts to €4.8m consisting of a contribution to the derecognised scheme as part of this arrangement (€3.2m), settlement losses (€0.4m), loss on subordinated loan (€0.3m), accrued transition costs (€0.5m) and other cost items (total €0.4m) related to this exiting.

 

Charge in respect of strategic review costs

The amount represents costs incurred related to the strategic review during the year 2012.

 

Charge in respect of provisions for onerous contracts

On 12 March 2012, the Group agreed to terminate the long-term collaboration agreement with the publisher of the De Pers daily free newspaper in The Netherlands. Consequently, at 31 December 2011, the Group had recorded an onerous contract provision of €49.6m, representing the least net costs of exiting from the contract, resulting in an exceptional charge of €13.5m. The settlement of this provision (last payment January 2013) has occurred in accordance with the contractual agreements without additional charges for the year 2012.

 

In addition, in 2012 the Group charged €5.9m (2011: credit €3.0m) to previously established onerous contract provisions related to an increase of vacant office space and new contractual rent arrangements in 2012 of LMG Netherlands I BV.

 

Amortisation and impairment charges

In the year ended 31 December 2012, the Group recorded an amortisation charge of €47.3m (2011: €48.5m) in respect of its acquired intangibles. Note 0 analyses the amortisation of acquired intangibles by operating segment.

 

For impairment charges related to goodwill refer to Note 13.

 

Other impairment charges of €2.0m were recorded in 2011 due the group-wide IT outsourcing arrangement causing certain of the Group's property, plant and equipment and software to become disused.

 

Amounts recognised in finance expense

Mark-to-market movements in interest rate swaps resulted in a charge of €1.2m in 2012 (2011: credit of €1.3m). Other finance accounting exceptional items in 2012 relate to the unwinding of notional interest on exceptional provisions and onerous contracts not in provisions of €0.7m (2011: €3.6m).

 

Costs related to extension of bank facilities (see for further details Note 15) amounts to €0.7m (2011: €nil).

 

Gain/(loss) on disposal of businesses and investments

The amounts related to the disposal of businesses and investments represents losses related to the disposal of some immaterial businesses in Denmark.

 

Exceptional income tax credit

An exceptional income tax credit of €27.2m was recorded in 2012 (2011: €21.4m). €13.5m (2011: €12.2m) of this is due to tax credits arising on the amortisation of the Group's acquired intangibles and €13.7m (2011: €9.2m) relates to exceptional tax credits recorded on exceptional operating and finance items.

 

Discontinued operations

Restructuring costs

Total restructuring costs of €0.5m (2011: €2.9m) included €0.5m (2011: €1.4m) of redundancy costs. Other costs in 2011 related primarily to the cessation of certain Norwegian operations.

 

Amortisation and impairment charges

In 2012, the discontinued operations recorded an amortisation charge of €0.2m (2011: €10.1m) in respect of its acquired intangibles.

 

Following an impairment review of the carrying value of the Group's cash-generating units in 2012 (see Note 17 for further details) the Group recorded an impairment charge of €4.1m (and related tax credit of €0.8m) against the brands (an acquired intangible presented within other intangible assets) of Mecom Poland.

 

The impairment of software and property, plant and equipment is related to the expected disposal of Mecom Poland as further explained in Note 10.

 

Gain/(loss) on disposal of businesses and investments

The gain on disposal for 2012 includes the gain on disposal of Mecom Norway (€63.3m) and the costs attributable to the expected disposal of Media Regionalne.

 

Exceptional income tax credit

An exceptional income tax credit of €0.9m was recorded in 2012 (2011: €4.5m). €nil (2011: €2.8m) of this is due to tax credits arising on the amortisation of the discontinued operations' acquired intangibles and €0.9m (2011: credit of €1.7m) relates to exceptional tax credits recorded on exceptional operating items.

 

 

 

8.   Finance income and expense

 

Below is an analysis of the Group's finance income and expense, split between continuing and discontinued operations and also split between regular and exceptional items.



Year ended 31 December 2012

(restated)
Year ended 31 December 2011


Note

Continuing operations
 €m

Discontinued
operations
 €m

Total
€m

Continuing operations
 €m

Discontinued
operations
 €m

Total
 €m

Bank interest receivable


0.8

0.6

1.4

0.9

1.0

1.9

Other


0.2

-

0.2

-

-

-

Total finance income before exceptional items


1.0

0.6

1.6

0.9

1.0

1.9









Interest payable on loans and overdrafts


(11.9)

(0.1)

(12.0)

(16.0)

(0.3)

(16.3)

Amortisation of debt issue costs


(1.5)

-

(1.5)

(2.0)

-

(2.0)

Commitment fees on bank loans and overdrafts


(1.2)

-

(1.2)

(1.8)

-

(1.8)

Finance charges payable under finance leases


(0.1)

-

(0.1)

(0.2)

-

(0.2)

Foreign currency exchange losses


(0.2)

(0.1)

(0.3)

(0.5)

(0.1)

(0.6)

Unwinding of discounts


(0.2)

-

(0.2)

-

-

-

Total finance expense before exceptional items


(15.1)

(0.2)

(15.3)

(20.5)

(0.4)

(20.9)

Net finance (expense)/income before exceptional items


(14.1)

0.4

(13.7)

(19.6)

0.6

(19.0)

Exceptional items:








Exceptional finance expense

7

(2.6)

-

(2.6)

(2.3)

-

(2.3)

Total finance income


1.0

0.6

1.6

0.9

1.0

1.9

Total finance expense


(17.7)

(0.2)

(17.9)

(22.8)

(0.4)

(23.2)

 

As set out in Note 15, the Group uses interest rate swaps to hedge its interest rate risk on its floating rate bank borrowings. Differences between floating rates received and fixed rates paid of charge €2.7m (2011: charge €1.4m) for the year ended 31 December 2012 are included within "interest payable on loans and overdrafts" above, along with, amongst other items, the underlying variable rate interest expense incurred on the underlying bank borrowings.

 

 

9.   Tax

 

The major components of the income tax (expense)/credit in the consolidated income statement were:

 



Year ended 31 December 2012

(restated)
Year ended 31 December 2011



Continuing
operations
 €m

Discontinued
operations
 €m

Total
€m

Continuing
operations
 €m

Discontinued
operations
 €m

Total
 €m

Current income tax


   Current year


(1.9)

-

(1.9)

(2.2)

(0.6)

(2.8)

   Adjustments in respect of prior years


2.2

(0.1)

2.1

-

-

-



Deferred tax








   Current year


13.0

(3.3)

9.7

9.9

(0.8)

9.1

   Adjustments in respect of prior years


3.5

-

3.5

-

-

-



16.5

(3.3)

13.2

9.9

(0.8)

9.1

Income tax credit/(charge) reported in


   the consolidated income statement


16.8

(3.4)

13.4

7.7

(1.4)

6.3

Of which:








Expense in respect of profit before



   exceptional items and amortisation of








   acquired intangibles


(10.4)

(4.3)

(14.7)

(13.7)

(5.9)

(19.6)

Credit in respect of exceptional items and








   amortisation of acquired intangibles


27.2

0.9

28.1

21.4

4.5

25.9

 

Tax relating to items recognised directly in equity was as follows:



Year ended
31 December
2012
 €m

Year ended
31 December
2011
 €m

Income tax charge arising on change in fair value of cash flow hedges


(0.2)

(0.2)

Income tax credit/(charge) arising on actuarial (gain)/loss on defined benefit pension schemes


0.3

(0.3)

Income tax credit/(charge) recognised directly in equity


0.1

(0.5)

 

 

 

A reconciliation between the income tax credit and the product of accounting loss multiplied by the Company's domestic tax rate is as follows:

 


Note

Year ended
31 December
2012
 €m

Year ended
31 December
2011
 €m

Loss from continuing operations before tax


(102.3)

(27.7)

Profit from discontinued operations before tax

10

58.5

(1.6)

Less: share of results of associates of above


(2.9)

(4.1)

Accounting loss before tax before share of results of associates


(46.7)

(33.4)

At the UK corporation tax rate of 24.5% (2011: 26.5%)


11.4

8.9

Effect of:

 




      Non-deductible expenses


(18.2)

(2.6)

      Tax exempt income


15.5

0.8

      Current year losses for which no deferred tax is recognised


(2.7)

(3.2)

      Over provision in prior periods


5.7

0.7

      Differences in overseas tax rates


0.1

(0.6)

      Recognition of previously unrecognised losses

7

1.4

2.1

      Other differences


0.2

0.2

Total income tax credit reported in the consolidated income statement


13.4

6.3

 

Non deductible expenses in 2012 mainly relate to the impairment on the assets of Media Regionalne (€3.2m) and the impairment on Wegener (€5.2m). Also included is a restriction on interest costs (€1.3m) and the settlement of the fine imposed by the NMa. As set out in Note 7, in 2012 €7.6m (2011: €11.5m) of the provision relating to this fine was credited back to exceptional operating costs in the consolidated income statement. Part of this amount did not attract any tax debits in the current year, resulting in a credit of €1.7m (2011: €2.5m) being included within non-deductible expenses.

 

In 2012, the Group wrote-back to the consolidated balance sheet €1.4m (2011 €2.1m) of previously unrecognised deferred tax assets. This predominantly relates to Mecom Denmark where the directors have assessed that they expect sufficient future taxable profits will arise against which the asset can be recovered.

 

 

10. Discontinued operations and assets classified as held for sale

 

Mecom Poland

As at 31 December 2012, the Group considered its Polish operations, which were in advanced stages of a disposal process and which otherwise met the criteria in IFRS 5, as being held for sale. During 2011, the Group disposed of part of its Polish operations (Presspublica) and following the sale of Media Regionalne all operations in Poland will have been disposed. Consequently, the operations of Media Regionalne and Presspublica, together "Poland", are presented within the category "Mecom discontinued" for management and therefore internal reporting purposes in both 2012 and 2011 (see Note 7). The Group has reported the income and expenses of this discontinued operation separately from income and expenses of its continuing operations for the years ending 31 December 2012 and 2011, thus restating the 2011 comparatives.

 

Mecom Norway

On 4 December 2011, the Group entered into a binding sale agreement to dispose of its entire media business in Norway (Edda Media AS) to A-pressen AS. As described in further detail in Note 20, the sale of Mecom Norway completed on 28 June 2012.

 

This operation, which represented a major component of the Group, is presented as "Norway" within the category "Mecom discontinued" for management and therefore internal reporting purposes in both 2012 and 2011 (see Note 7). The Group has reported the income and expenses of this discontinued operation separately from income and expenses of its continuing operations for the years ending 31 December 2012 and 2011.

 

 

 

The results of the Mecom Norway and Poland discontinued operations which have been included in the consolidated income statement are set out below.

 



Year ended 31 December 2012

(restated)
Year ended 31 December 2011


Note

Before
exceptional
items and
amortisation
of acquired
intangibles
 €m

Exceptional
items and
amortisation
of acquired
intangibles
(Note
7)
 €m

After
exceptional
items and
amortisation
of acquired
intangibles
€m

Before
exceptional
items and
amortisation
of acquired
intangibles
 €m

Exceptional
items and
amortisation
of acquired
intangibles
(Note
7)
 €m

After
exceptional
items and
amortisation
of acquired
intangibles
€m

Revenue


194.7

-

194.7

386.8

-

386.8

Cost of sales


(49.2)

-

(49.2)

(104.4)

-

(104.4)

Gross profit


145.5

-

145.5

282.4

-

282.4

Operating costs


(130.7)

(20.2)

(150.9)

(263.8)

(18.2)

(282.0)

Share of results of associates


1.3

-

1.3

2.0

-

2.0

Operating profit/(loss)


16.1

(20.2)

(4.1)

20.6

(18.2)

2.4

Finance income

8

0.6

-

0.6

1.0

-

1.0

Finance expense

8

(0.2)

-

(0.2)

(0.4)

-

(0.4)

Gain/(loss) on disposal of businesses and








   investments

7

-

62.2

62.2

-

(4.6)

(4.6)

Profit/(loss) before tax


16.5

42.0

58.5

21.2

(22.8)

(1.6)

Income tax (expense)/credit


(4.3)

0.9

(3.4)

(5.9)

4.5

(1.4)

Profit/(loss) for the year from








   discontinued operations


12.2

42.9

55.1

15.3

(18.3)

(3.0)









Attributable to:

 








Mecom Group plc shareholders


11.9

42.9

54.8

16.0

(18.3)

(2.3)

Non-controlling interests


0.3

-

0.3

(0.7)

-

(0.7)

 

The net cash flows associated with the Norwegian and Polish operations are as follows:



Year ended
31 December
2012
 €m

Year ended
31 December
2011
 €m

Net cash (used in)/from operating activities


(8.9)

27.6

Net cash from/(used in) investing activities


1.3

(4.7)

Net cash flows used in financing activities


(0.3)

(0.5)

 

The loss recognised as a result of measuring the Polish operations at fair value less costs to sell is included within exceptional operating costs above. Further details are provided in Note 7.

All tax presented above is in respect of the profit on operations.

 

 

 

At 2012 year-end the Group's Poland operations (comprising at that time Media Regionalne) have been classified as a disposal group held for sale and are presented separately in the consolidated balance sheet at 31 December 2012. In 2011,the Norwegian operations (sale completed on 28 June 2012) were classified as a disposal group held for sale and were presented separately in the consolidated balance sheet at 31 December 2011. The major classes of assets and liabilities comprising the operations classified as held for sale at 31 December 2012 and at 31 December 2011 are as follows:


Year ended
31 December
2012
 €m

Year ended
31 December
2011
 €m

Goodwill

-

48.0

Other intangible assets

-

61.7

Property, plant and equipment

0.3

35.4

Employee benefit assets

-

1.7

Interests in associates

-

32.7

Investments

-

0.2

Deferred tax assets

1.3

10.1

Inventories

1.0

2.8

Trade and other receivables

5.7

27.6

Cash and cash equivalents

10.0

38.7

Total assets classified as held for sale

18.3

258.9

Provisions

(0.4)

(2.3)

Employee benefit obligations

-

(5.2)

Deferred tax liabilities

(0.6)

(20.2)

Trade and other payables

(5.6)

(73.1)

Current tax liabilities

-

(0.2)

Total liabilities directly associated with assets classified as held for sale

(6.6)

(101.0)

Net assets of disposal group

11.7

157.9

 

At 2012 year-end, the Group presents separately in the consolidated balance sheet an amount of €1.7m (being a credit balance within shareholders' funds) which represents the accumulated amount of foreign exchange differences recognised directly in equity relating to the Polish operations.

 

In addition, at 31 December 2011 the Group presents separately in the consolidated balance sheet an amount of €23.0m (being a debit balance within shareholders' funds) which represents the accumulated amount of foreign exchange differences recognised directly in equity relating to the Norwegian operations. From this balance at 31 December 2011 an amount of €21.2 was recycled to the income statement in the year to 31 December 2012 on the disposal of Edda Media AS, €1.8 was reversed to the currency translation reserve.

 

 

11. Dividends

 



Year ended
31 December
2012
 €m

Year ended
31 December
2011
 €m

Dividends on ordinary shares of the Company declared and paid during the year:

 




   Interim 2012 paid at 6.0 euro cents per share


7.1

-

   Dividend 2011 paid at 9.9 euro cents per share


10.9

-

   Interim 2011 paid at 5.5 euro cents per share


-

6.1

 

In addition, the directors are proposing a final dividend in respect of the financial year ended 31 December 2012 of 5.5 euro cents per share which will absorb an estimated €6.5 million of shareholders' funds. It will be paid on or around 28 June 2013 to shareholders who are on the register of members on 31 May 2013.

 

 

12. Earnings per share

 

Basic earnings per share is calculated by dividing net profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period, excluding own shares held by the Mecom Employee Benefit Trust ("EBT"), which are treated as cancelled (see Note 18 for further details).

 

Adjusted basic earnings per share is calculated by dividing adjusted earnings for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period, excluding own shares held by the EBT, which are treated as cancelled. Adjusted earnings are the profit/(loss) for the period attributed to ordinary equity holders of the parent adjusted to exclude exceptional items and amortisation of acquired intangibles (net of related tax and non-controlling interests).

 

Diluted earnings per share and diluted adjusted earnings per share are calculated after assessing the effect of potentially dilutive shares issued under (i) the Group's share-based payment awards and (ii) share warrants.

 

For diluted earnings per share from total operations (continuing and discontinued operations), the potential shares did not give rise to a decrease in profit per share or an increase in loss per share. As such, potential shares were considered anti-dilutive and did not lead to adjustments in diluted earnings per share. This was also the case for diluted earnings per share from continuing operations only. However, potential shares were considered dilutive for discontinued operations.

 

For diluted earnings per share from discontinued operations and for all measures of adjusted diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares, these being: (i) share-based payment awards where the exercise price is less than the average market price of the Company's ordinary shares during the year and (ii) share warrants.

 

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of authorisation of these condensed consolidated financial statements.


Year ended
31 December
2012
 000s

Year ended
31 December
2011
 000s

Weighted average number of ordinary shares for basic earnings per share and basic adjusted basic



      earnings per share

115,387

110,050

Effect of dilution:



      Share-based payment awards 

1,048

1,032

      Share warrants

-

190

Weighted average number of ordinary shares for diluted earnings per share and adjusted diluted share



      earnings per share

116,435

111,272

 




Year ended
31 December 2012

(restated)
Year ended
31 December 2011

Earnings per share (euro cents per share):



IFRS measures




Basic:

continuing operations

(73.4)

(19.0)


discontinued operations

47.5

(2.0)


continuing and discontinued operations

(25.9)

(21.0)





Diluted:

continuing operations

(73.4)

(19.0)


discontinued operations

47.1

(2.0)


continuing and discontinued operations

(25.9)

(21.0)

Non-IFRS measures

 




Adjusted basic:

continuing operations

24.3

31.5


discontinued operations

10.3

14.6


continuing and discontinued operations

34.6

46.1





Adjusted diluted:     

continuing operations

24.0

31.2


discontinued operations

10.3

14.4


continuing and discontinued operations

34.3

45.6

 

Earnings per share for the years ended 31 December 2012 and 2011 from continuing operations exclude the discontinued Norwegian and Polish operations, as discussed in Note 10.

 

Adjusted earnings per share

The directors believe that the presentation of adjusted earnings per share, being the basic earnings per share adjusted for exceptional items and amortisation of acquired intangibles (and any related tax effects) and the non-controlling interests' share of those items, helps to explain the underlying performance of the Group. A reconciliation of basic to adjusted earnings per share is as follows:

 




Year ended 31 December 2012

(restated)
Year ended 31 December 2011



Note

€m

Euro cents
per share

€m

Euro cents
per share

Basic earnings


(29.9)

(25.9)

(23.1)

(21.0)

Add back exceptional items


(13.7)

(11.9)

40.2

36.5

Add back amortisation of acquired intangibles


47.5

41.1

58.6

53.2

Add back impairments


66.2

57.3

6.2

5.6

Deduct exceptional tax credits for year


(28.1)

(24.2)

(25.9)

(23.4)

Deduct non-controlling interests' share of above


(2.1)

(1.8)

(5.3)

(4.8)

Adjusted earnings


39.9

34.6

50.7

46.1

Deduct adjusted earnings of discontinued operations

10

(11.9)

(10.3)

(16.0)

(14.6)

Adjusted earnings - continuing operations only


28.0

24.3

34.7

31.5

 

13. Goodwill

 


 €m

Cost

 


At 31 December 2010

1,015.6

Revision to prior year joint venture accounting

0.9

Transfer to assets classified as held for sale

(191.8)

Exchange differences

(0.8)

At 31 December 2011

823.9

Transfer to assets classified as held for sale

(14.8)

Exchange differences

0.4

At 31 December 2012

809.5

Accumulated impairment losses

 


At 31 December 2010

(830.2)

Transfer to assets classified as held for sale

143.8

Exchange differences

1.0

At 31 December 2011

(685.4)

Transfer to assets classified as held for sale

14.8

Impairment losses

(46.8)

Exchange differences

(0.4)

At 31 December 2012

(717.8)

Net book value

 


At 31 December 2010

185.4

At 31 December 2011

138.5

At 31 December 2012

91.7

 

In 2011, the directors considered the classification of €1.1m of software recognised on the establishment of a joint venture to be more appropriately presented as goodwill (€0.9m) and brands (€0.2m).

 

The carrying value of goodwill by CGU at 31 December is as follows:

 

CGUs

2012
€m

2011
€m

The Netherlands

89.1

135.9

Denmark

2.6

2.6

Total

91.7

138.5

 

The CGUs given above to which goodwill arising from business combinations has been allocated are also operating segments of the Group, since the management of the Group's operations and the derivation of its cash flows are done at the country level.

 

Annual impairment test

The Group tests goodwill for impairment annually, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of each CGU is determined either from (a) value-in-use calculations, using cash flow projections based on the most recent financial budgets approved by the Board and management forecasts beyond the period of these budgets or, if higher, (b) current valuations of disposal proceeds less costs to sell, based on prospective transactions involving the specific Group assets involved in disposals transactions, recent comparable transactions or valuations of publicly traded companies.

 

The key assumptions to which the value-in-use calculations are most sensitive are:

 

·   revenue assumptions (particularly those relating to print and online advertising, and to circulation), and the direct effect these have on operating profit margins;

·   discount rates; and

·   terminal growth rates.

 

Revenue growth/decline rates are based on past experience and expected future developments in the Group's CGUs. Cash flows for periods beyond the Group's own budgets and forecasts (which have been prepared up to 31 December 2016) are projected at rates that take into consideration forecast Gross Domestic Product (GDP) growth rates for each country, as well as more specific expectations for the markets in which the Group operates. International Accounting Standard 36 ('IAS36') requires the Group to exclude from its VIU calculations benefits and up-front costs associated with restructuring actions which have not been announced at the date of the impairment test. In common with the wider publishing industry, such restructuring actions can be a fundamental element of the Group's strategy. As such the valuation implied by any VIU calculation performed in accordance with IAS36 may not adequately reflect the Group's economic assessment of the fair value of its CGUs. Longer-term and perpetuity growth rates, as set out in the table below, do not exceed the average long-term GDP growth rate forecasts for each country of the Group's operations. 

 

 

 

The discount rate applied to each CGU is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to each CGU's cash flow projections, based on the Group's weighted average cost of capital.

 

The discount rates and growth rates used in the value-in-use calculations by CGU are as follows:

 

CGUs

Discount rate
2012
%

Growth rate
2012
%

Discount rate
2011
%

Growth  rate
2011
%

The Netherlands

11.9%

0.0%

10.0%

1.8%

Denmark

10.6%

0.0%

8.9%

1.9%

 

The growth rates given in the table above are stated on a nominal basis and are those used in calculating the terminal cash flow value and the discount rate applied to the terminal cash flows.

 

The Netherlands

The 2012 annual impairment test led to an impairment charge of €46.8m being recognised against goodwill in the year (2011: €nil impairment charge).

 

The 2012 impairment charge resulted from a combination of a higher discount rate and lower perpetuity growth rate than had been assumed in previous value-in-use calculations, as well as a reduction in revenue forecasts to reflect the deterioration in conditions in Dutch advertising markets which was experienced during 2012.

 

The Group performs sensitivity analysis to assess the impact of alternative assumptions on the carrying value of its CGUs. The table below sets out the effect that a 1% / 1 percentage point change (as relevant) in each of the key assumptions would have on the carrying value of the Netherlands CGU:

 

€m

Revenue

Discount rate

Terminal growth rate

Sensitivity

+/- 1% each year

+/- 1 ppt

+/- 1 ppt

Impact on carrying value

+/- 39.5

+/- 23.5

+/- 18.3

 

In calculating the figures set out in the table above, the revenue sensitivity was applied to each of the years 2013-2016, and to the revenue figure used in the terminal value calculation.

 

The revenue sensitivity adjustments allow for some minor associated (volume-related) direct cost savings but do not factor in any other cost mitigating actions. As noted also above, International Accounting Standard 36 ('IAS36') requires the Group to exclude from its VIU calculations (in both the impairment test base case and all sensitised cases) all benefits and up-front costs associated with restructuring actions which had not been announced at the date of the impairment test. In common with the wider publishing industry, such restructuring actions can be a fundamental element of the Group's strategy, and management would in practice expect to employ more of these measures in the event that revenue is lower than expected. As such the valuation implied by any VIU calculation performed in accordance with IAS36 may not adequately reflect the Group's economic assessment of the fair value of its CGUs.

 

A one percentage point change in the operating profit margin in each of the years 2013-2016, which is equivalent to a change in total costs of approximately €5.0m per annum, would increase/decrease the carrying value of the Netherlands CGU by €39.4m.

 

Denmark

The 2012 annual impairment test did not result in any impairment charge being recognised in the year (2011: €nil impairment charge).

 

Sensitivity testing showed that a reasonably possible adjustment to any of the key assumptions would not have led to an impairment of the carrying value of the Denmark CGU.

 

Discontinued operations

Goodwill relating to the Norwegian operations was, as set out in Note 10, classified as held for sale at 31 December 2011.

 

The Polish operations are also classified as held for sale as at 31 December 2012 and 31 December 2011. All of the goodwill allocated to the Poland CGU was fully impaired in previous years and, as such, no value-in-use calculation was carried out specifically for the annual impairment test of goodwill at 31 December 2012 and 2011. Certain intangible and tangible assets within the Polish CGU have been impaired during 2012, reflecting the Group's reasonable expectation of disposal proceeds less costs to sell.

 

 

 

 

14. Cash and cash equivalents

 


Note

2012
€m

2011
€m

Cash at bank and in-hand


35.4

45.7

Short-term deposits


-

3.7

Cash and cash equivalents per the consolidated balance sheet


35.4

49.4

Cash and cash equivalents classified as assets held for sale

10

3.6

38.7

Short-term deposits classified as assets held for sale

10

6.4

-

Bank overdrafts


(16.8)

(10.5)

Cash and cash equivalents per the consolidated cash flow statement


28.6

77.6

 

 

15. Borrowings

 



2012
€m

2011
€m

Bank overdrafts


(16.8)

(10.5)

Bank borrowings


(153.8)

(329.7)

Other


(4.0)

(4.8)

Total


(174.6)

(345.0)

Shown in the consolidated balance sheet as:




   Non-current


(3.7)

(316.1)

   Current


(170.9)

(28.9)

 

At 31 December 2012, current borrowings of €170.9m (2011: €28.9m) comprise gross bank borrowings of €154.7m under the bank facility that has been extended and which includes repayments of €14.6m (2011: €20.0m) which will be paid in three quarterly instalments of 3.75% over the outstanding term loans at 30 June 2013 to 31 December 2013 (2011: repaid in quarterly instalments in 2012), unamortised debt issue costs of €0.9m (2011: €2.1m), bank overdrafts of €16.8m (2011: €10.5m) and other borrowings of €0.3m (2011: €0.5m).

 

The Group's net debt is as follows:


Note

2012
€m

2011
€m

Cash and cash equivalents

14

35.4

49.4

Cash and cash equivalents included within assets classified as held for sale  

10,14

10.0

38.7

Borrowings


(174.6)

(345.0)

Obligations under finance leases


(0.3)

(1.6)

Total net debt


(129.5)

(258.5)

 

The Group's average net debt for 2012 was €224.5m (2011: €327.5m).

 

The movement in the Group's net debt in the years ended 31 December 2012 and 2011 is presented below. Since the proceeds and repayment of borrowing obligations from cash and cash equivalents have no effect on net debt, various financing flows from the consolidated cash flow statement itself do not appear in the table.

 


Note

2012
€m

2011
€m

Net debt at 1 January


(258.5)

(310.7)

Non-cash movements:

 




   Amortisation of debt issue costs

8

(1.5)

(2.0)

   Finance charges payable under finance leases

8

(0.1)

(0.2)

   Capitalised interest


-

(2.9)

   Non-cash settlement of other borrowings


-

2.4

Cash movements:




   Net cash from operating activities


(30.9)

81.1

   Net cash used in investing activities


192.9

(0.1)

   Interest and other finance expenses paid


(14.1)

(17.9)

   Other fees paid


(0.8)

(0.5)

   Dividends paid


(18.7)

(6.6)

Exchange differences


2.2

(1.1)

Net debt at 31 December


(129.5)

(258.5)

 

 

 

Bank borrowings

 

(i) Terms of bank borrowings at 31 December 2012 and 2011

 

The bank facility in place at 31 December 2012 was due to mature in October 2013 and was replaced (in February 2013) by an extended and amended facility, which expires in October 2014.

 

They key terms of the amended facility, together with the relevant terms of the previous facility, are set out below:

 


Previous Facility
(until October 2013)

Amended Facility
(as of March 2013)




Facility amount



Term

€71.7m (2011: €292.6m)

€135.0m

RCF

€200.0m (2011: €200.0m)

€115.0m

Total

€271.7m (2011: €492.6m)

€250.0m

Expiry date

31 October 2013

31 October 2014

Margin



Term Loan



Leverage greater than 3.0x

3.5%

n/a

Leverage greater than 2.5x but equal to or less than 3.0x

3.0%

n/a

Leverage greater than 2.0x but equal to or less than 2.5x

2.5%

4.0% to 31/12/13

4.5% to 31/10/14

Less than 2.0x

 

2.0%

3.25% to 31/12/13

3.75% to 31/10/14

RCF Loans



Leverage greater than 2.0x

 

3.0%

As above

Leverage less than or equal to 2.0x

 

2.5%

As above

Financial covenants



Leverage

3.0x

Up to 31/12/13 - 2.5x

From 31/03/14 - 2.25x

Interest Cover

4.0x

4.5x

Free Cash Flow

€63.0m

€63.0m up to 31/03/13

Debt Service Cover ratio

n/a

Not to be less than 1.1x from 30 June 2013

Amortisation - Term Loan

€5.0m per quarter

From 30 June 2013 to 31 December - 3.75% of loans outstanding
From 31 March 2014 - 5.00% of loans outstanding

 

Under the previous facility amounts available under the RCF in excess of €135.0m varied according to the amount of gross cash and cash equivalents on the Group's consolidated balance sheet

 

An amendment fee of 100 basis points was paid to the banks on completion of the extension agreement; a further duration fee of 50 basis points is payable on 1 April 2014 on any facility commitments outstanding at that date.

 

In addition to the scheduled amortisation above, the facility agreement as amended on 25 February 2013 requires that all proceeds from disposals of the Group's operations are applied in repayment of outstanding term loan balance and after that cancellation of the outstanding revolving credit facilities.

 

The amended facility agreement contains a number of restrictions. These cover:

·     acquisitions - approval of the lending banks is needed for any acquisition of consideration greater than €10m;

·     disposals - disposals made by the Group must result in a reduction in the Group's leverage;

·     restrictions on total capital expenditure and exceptional items to be tested annually;

·     dividends - the Group is permitted to make dividends only in accordance with the Group's current dividend policy and only if the leverage of the Group, taking into account the dividend, is less than 2.5 times in respect of dividends related to 2012 earnings, is less than 2.25 times in respect of dividends related to 2013 earnings and less than 2.0 times in respect of dividends related to 2014 earnings;

·     negative pledge - the Group is restricted from entering into other borrowing arrangements, subject to a de minimus allowance of €5m and excluding certain existing borrowing arrangements; and

·    events of default - various events will result in an event of default under the facility, including (but not limited to) cross-defaults, insolvency of obligors or guarantors, litigation which is likely to have a material adverse effect on the financial position of the Group and a qualified audit opinion.  The facilities agreement also contains a provision that it will be an event of default if shareholders of Mecom fail to provide their approval (where such approval is required) to a disposal where the Group has agreed the terms for such disposal with a prospective purchaser.

 

At 31 December 2012 and 2011, the Group's bank borrowings were secured by a charge over certain of the Group's assets, primarily through pledges over the shares of its subsidiaries.

 

Warrants were issued to the Group's lending banks as part of the amendment of terms in May 2009. Warrants over 692,646 (2011: 704,435) of the Company's shares were outstanding at the balance sheet date.

 

(ii) Repayment profiles of bank borrowings at 31 December 2012 and 2011

 

In the year the Group repaid €20.0m of term loan (2011: €37.4m) under the terms of the previous facility (being four quarterly repayments of €5.0m each) and €200.6m from the disposal of Edda Media. At 31 December 2012 and 2011, the term loan of €72.0m, which will be changed under the amended facility to €135.0m, (2011: €292.6m) has the following repayment profile:

 


2012
€m

2011
€m

Previous facility:



Year to 31 December 2012 (€5.0m repaid quarterly)

-

20.0

March, June and September (€5.0m repaid at each of the month stated)

-

15.0

October 2013

-

257.6

Amended facility:



June, September and December 2013 (3.75% of the outstanding term loan)

14.6

-

March, June and September 2014 (5.0% of the outstanding term loan)

17.2

-

October 2014

103.2

-

Total

135.0

292.6

 

The repayment profile for 2012 shows the repayments as agreed under the amended facility.

In addition to the mandatory repayments set out above, the Group makes periodic drawdowns and repayments under the RCF and presents such movements gross in the consolidated cash flow statement within "financing activities".

 

(iii) Analysis of bank borrowings at 31 December 2012 and 2011

 

At 31 December 2012 and 2011, the amounts drawn under terms loans and the RCF, together with the amount of related unamortised debt issue costs, are set out below.


2012
€m

2011
€m

Term loans

(71.7)

(292.6)

RCF

(83.0)

(41.0)

Total bank borrowings (gross)

(154.7)

(333.6)

Related unamortised debt issue costs

0.9

3.9

Total bank borrowings (net)

(153.8)

(329.7)

 

Although the Group's term loans and RCF are multi-currency facilities, at 31 December 2012 and 2011 all actual underlying gross bank borrowings (terms loans and RCF) were denominated in euros.

 

(iv) Leverage ratios for years ended 31 December 2012 and 2011

Term loans and RCF

2012

2011




Leverage

1.4

1.8

Interest cover

7.6

8.6




The Group's leverage covenant under its facility agreement (which is calculated on the same basis as the above), is for actual leverage to be less than 3.0 times at 31 December 2012.

 

Other loans

Other loans at 31 December 2012 include a floating-rate mortgage of €0.3m (2011: €0.4m) that expires in December 2017. During 2012, the average interest rate of this mortgage was 4.0% (2011: 4.0%).

 

Also included in other loans at 31 December 2012 is a variable-rate unsecured Danish krone loan for €0.5m. This loan expires in 2018, with interest being charged at CIBOR plus 2.5%, (2011: €0.7m in total for two loans).

 

At 31 December 2012, the Group, via certain of its subsidiaries, also has two fixed-rate Danish krone loans (one secured; one unsecured) for €3.0m (2011: €2.9m) which expire in 2039 and 2015 respectively. Interest is charged on the secured loan at 5.8% and on the unsecured loan at 4.0%.

 

The joint-venture, via which a secured fixed-rate Danish Krone loan existed (2011: €0.3m), has been divested in 2012.

 

 

 

 

16. Provisions

 


Restructuring
and
redundancy
€m

Onerous
contracts
€m

Litigation
€m

Other
€m

Total
€m

At 31 December 2011

(27.3)

(54.7)

(10.4)

(0.6)

(93.0)

Disposal of businesses

-

-

-

-

-

Transfer to liabilities directly associated with assets classified






   as held for sale

-

-

-

0.4

0.4

Transfer to liabilities


10.0

-

-

10.0

Provisions recognised in year

(36.6)

(6.4)

-

(0.2)

(43.2)

Utilisation of provisions

40.0

40.5

2.6

0.2

83.3

Reversal of provisions

0.7

0.5

7.6

0.1

8.9

Unwinding of discounts

(0.4)

(0.2)

0.2

0.1

(0.3)

At 31 December 2012

(23.6)

(10.3)

-

-

(33.9)

Shown in the consolidated balance sheet as:






Non-current

(0.9)

(7.6)

-

-

(8.5)

Current

(22.7)

(2.7)

-

-

(25.4)

 

The expected phasing of the utilisation of the Group's non-current provisions at 31 December 2012 is as follows:

 


Restructuring
and
redundancy
€m

Onerous
contracts
€m

Litigation
€m

Other
€m

Total
€m

After one year but not more than two years (payable 2014)

(0.9)

(2.0)

-

-

(2.9)

After two years but not more than three years (payable 2015)

-

(1.5)

-

-

(1.5)

After three years but not more than four years (payable 2016)

-

(0.9)

-

-

(0.9)

After four years but not more than five years (payable 2017)

-

(0.8)

-

-

(0.8)

More than five years (payable 2018 and beyond)

-

(2.4)

-

-

(2.4)

At 31 December 2012

(0.9)

(7.6)

-

-

(8.5)

 

Restructuring and redundancy

Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met. This category in 2011 also included amounts in respect of the group-wide IT outsourcing arrangement.

 

Where discounting is used, the increase in the provision due to unwinding the discount is recognised as an exceptional finance expense. Charges arising from unwinding of discounts during the year amounted to €0.4m (2011: €0.4m). The change in the discount rate used in the year did not have a significant impact on this charge.

 

These provisions are expected to be utilised within two years from the balance sheet date (2011: within three years).

 

Onerous contracts

Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met. Any changes in provisions for onerous contracts that impact the consolidated income statement (other than the unwinding of discounts) are generally treated as exceptional operating items (see Note 7). Where discounting is used, the increase in the provision due to unwinding the discount is generally recognised as an exceptional finance expense.

 

Onerous contract: De Pers

In 2010, the Group recorded a provision for €48.0m in respect of future losses under its contract with the publisher of the De Pers newspaper in the Netherlands. Subsequent utilisation of the provisions and a further provision of €13.5 million recorded in the financial year to 31 December 2011 brought the balance of that provision to €49.6m at the end of 2011 (shown in the consolidated balance sheet at 31 December 2011 as €10.0m in non-current provisions and €39.6m in current provisions), representing the expected net costs of exiting from the contract including losses under the contract in the period to termination and related termination costs.

 

On 12 March 2012, the Group announced that Wegener had entered into an agreement with the publisher of the daily freesheet De Pers, Mountain Media B.V. ("Mountain Media"), under which the commercial arrangements entered into by Wegener and Mountain Media in March 2009 and due to end in 2022 would be terminated. Under the agreement with Mountain Media, which ends Wegener's commercial relationship with De Pers, Wegener paid Mountain Media €35.0m on 1 April 2012 and a further payment of €10.0m (plus interest accruing at 5.0% per annum from 1 April 2012) on 1 January 2013, is reclassified to liabilities during 2012 (excluding interest).

 

 

 

Other onerous contracts

Other onerous contract provisions total €10.3m at 31 December 2012 (2011: €5.1m). In 2011, a €3.0m release was made against this provision (with a corresponding credit being recorded against exceptional operating expenses) mainly due to previous vacant office space now being used. An additional charge of total €5.5m was made as a consequence of new contractual rent arrangements in 2012 related to the Dutch subsidiary LMG Netherlands I B.V. Charges arising from unwinding of discounts during the year amounted to €0.2m (2011: €0.3m). €1.4m of this provision was utilised in 2012 (2011: €1.9m). Other onerous contract provisions are expected to be utilised by early 2018, which is approximately five years from the balance sheet date (31 December 2011: within six years).

 

Litigation

The litigation provision of €10.4m at 31 December 2011 is entirely related to the NMa fine being the Group's best estimate of the expenditure required to settle this obligation, based on the all facts and circumstances at that time.

 

On the 27th September 2012, the Group announced that the District Court of Rotterdam had determined that amounts payable by Wegener to the NMa, in respect of alleged breaches of undertakings given by Wegener at the time of its acquisition of VNU Dagbladen in March 2000, should be reduced from the originally assessed amount of €20.4 million to a total of €2.2 million. Following further discussions between Wegener and the NMa, agreement was reached in December 2012 and the reduced fine was paid before year-end for final settlement of this matter.

 

The difference between the reduced fine and the carrying amount of the provision at settlement date (including interest) is presented as an exceptional item, as set out in Note 7.

 

Other

Other provisions were expected to be utilised within two years from the balance sheet date in 2011. These provisions were mainly transferred to liabilities directly associated with assets classified as held for sale. The balance at the end of 2012 is €nil.

 

 

17. Employee benefit assets and obligations

 

Defined contribution plans

The Group participates in defined contribution pension plans in the Netherlands and Denmark and in the Norwegian discontinued operations.

 

During the year, the Group recognised expenses for defined contribution plans of €25.9m (2011: €20.4m) from continuing operations and €3.0 (2011: €5.1m) from discontinued operations.

 

Defined benefit plans

 

The Group has pension commitments under several plans. During the year, the separate funded schemes within the Group were derecognised due to the sale of the Norway activities and the agreement that future pensions of LMG would be provided by the PGB, resulting in the derecognition of this plan since it no longer met the Defined Benefit Plan criteria.

 

At year end, the Group therefore has no separate funded schemes, but still has a number of unfunded pension obligations that fall to be accounted for as a Defined Benefit Obligation, mostly consisting of early retirement and pre-pension plans and the "moratorium shortfall" funding commitment as described below.

 

From 1 January 2010, the Pensioenfonds voor de Grafische Bedrijven ("PGB"), a multi-employer pension arrangement for the Dutch graphical industry, administers all pension plans for Wegener employees. Under the terms of the arrangement between Wegener and the PGB, it was agreed that Wegener would pay a total pension premium of 25.7% to the PGB. It was also agreed that of this premium, 4.2% would be allocated to fund certain benefits for members of that scheme, known as a "moratorium shortfall" within Wegener. This moratorium shortfall relates to a service accrual which was not granted for salary increases between 2002 and 2004, when the Algemeen Pensioenfonds Wegener ("APW", a former Wegener pension plan), which was then a final salary pension plan, faced funding difficulties and negotiations to determine Wegener's pension arrangements were underway between the APW, Wegener and workers' representatives. Neither APW, nor Wegener, were obliged to compensate for any of such non-granted commitments at a later time (although the APW had stated its ambition to provide the relevant past service benefits over time to the extent that it was able to do so and in practice had granted these benefits as cohorts of employees entered retirement) and, consequently, no balance sheet reserves were established. As part of the transfer of the APW to the PGB, it was agreed that a commitment would be made to fund this moratorium shortfall, with these benefits to be provided to scheme members in the future by the PGB once the transfer of the APW had been completed. The premium of 4.2% continues to be payable by Wegener until this shortfall has been funded, which is expected, on the basis of current actuarial calculations, to be achieved during 2020. This commitment is recorded as an employee benefit obligation at 31 December 2012 of €19.1m (2011: €19.6m).

 

From December 2012 the PGB also assumed responsibility for the provision of pensions to employees of LMG who had previously been members of the LMG pension fund as explained further below.

 

Pension liabilities and costs for the Group's unfunded pension obligations are calculated by independent actuaries, using the project unit credit method.

 

 

 

Pension agreement and transfer LMG pension plan to PGB

On 8 November 2012 agreement was reached between LMG Netherlands I B.V. and Stichting Pensioenfonds Media Groep Limburg (MGL Pension Fund) that future pensions would be provided by the PGB. This agreement, which came into force on 30 November 2012, marks the end of the defined benefit plan classification for this scheme. As a result of this agreement all balance sheet positions as of 30 November 2012 were derecognised. The effect of this derecognition on the pension expense in 2012 is €0.4m. As of 1 December 2012 the plan is accounted for as a defined contribution plan and the pension premiums paid by the employer are taken directly to the income statement. In January 2013, the MGL Pension Fund agreed a transfer of its assets and liabilities to the PGB.

 

As part of the pension changes, the company agreed to make a further contribution to the scheme. An accrual of €3.2m has been made in this regard.

 

The funding accrual and costs related to the transfer of this pension plan are accrued as an exceptional item in the 2012 accounts as set out in Note 7.

 

As explained above, the Group has derecognised all of its separate funded schemes during 2012. Consequently, the schemes are not further disclosed for the year 2012. The key assumptions relating to these derecognised plans until 2011 can be summarised as follows:

 

Key assumptions relating to defined benefit plans


The Netherlands
2011


Norway
2011

Future salary increase


2.3%


4.0%

Rate of decrease in pensions in payment and deferred pensions:





   2013 (see below)


(14.0)%


n/a

Rate of increase in pensions in payment and deferred pensions: 2018 and beyond


1.0%


n/a

Rate of increase in pensions in payment and deferred pensions: all years


n/a


0.3%

Discount rate


3.7%-5.4%


2.7%

Expected inflation


2.0%


2.0%

Average expected return on plan assets, of which:


3.4%


4.8%

   - money market investments


-


4.0%

   - bonds


2.2%


4.5%

   - shares


5.2%


8.2%

Life expectancy (years):

 





   - male member age 65


87


84

   - male member age 45


87


82

   - female member age 65


89


87

   - female member age 45


89


85

 

The key assumptions relating to the unfunded pension obligations which exists at 31 December 2012 can be summarised as follows:

 


2012

2011

Mortality tables

AG 2012-2062

AG 2010-2060

Discount rate

1.9%

3.7%

General pay rise

2.25%

2.25%

Career-related pay rise

3% to age 45

0% from age 45 and up

3% to age 45

0% from age 45 and up

Chance of dismissal

10% to age 26

straight-line reduction to 0% from age 26 to age 60

10% to age 26

straight-line reduction to 0% from age 26 to age 60

Mortality trend mark-up

TW - mortality experience

TW - mortality experience

 

With respect to the calculation of the early retirement premium, a contraction of the sector of 2.5% per annum has specifically been taken into account (2011: 2.5%).

 

 

 

The amounts recognised in the consolidated balance sheet were determined as follows:

 


2012
€m

2011
€m

2010
€m

2009
€m

2008
€m

Plan assets

 






Equities

-

62.2

65.9

59.9

53.7

Bonds

-

93.3

102.1

102.6

92.8

Other

-

-

9.4

9.2

9.1

Total fair value of plan assets

-

155.5

177.4

171.7

155.6

Present value of plan liabilities

(38.5)

(162.8)

(218.2)

(229.3)

(220.1)

Net deficit in the plans

(38.5)

(7.3)

(40.8)

(57.6)

(64.5)

Capping of asset value recognised (see below)

-

(31.4)

(10.1)

(8.2)

-

Balance sheet amount

(38.5)

(38.7)

(50.9)

(65.8)

(64.5)

Recognised in the consolidated balance sheet as:






Employee benefit assets

-

0.3

1.2

4.1

2.3

Employee benefit obligations

(38.5)

(39.0)

(52.1)

(69.9)

(66.8)

Total

(38.5)

(38.7)

(50.9)

(65.8)

(64.5)

 

The remaining unfunded pension obligations accounted for as defined benefit obligation can be specified as follows:

 


2012
€m

2011
€m

Early retirement and pre pensions plans

(7.4)

(11.7)

"Moratorium shortfall" funding commitment

(19.1)

(19.6)

Jubilee

(8.2)

(7.5)

Other

(3.8)

(0.2)

Total

(38.5)

(39.0)

 

Analyses of the amounts recognised in the consolidated balance sheet at 31 December 2012 and 2011 are provided below.

 


2012
€m

2011
€m

The Netherlands

 



      - funded arrangements

-

0.3

      - unfunded arrangements

(38.5)

(39.0)

Total the Netherlands

(38.5)

(38.7)




Funded arrangements

-

0.3

Unfunded arrangements

(38.5)

(39.0)

Total

(38.5)

(38.7)

 

The expected phasing of the utilisation of the Group's unfunded arrangements at 31 December 2012 is as follows:

 


€m

Within one year (payable 2013)

(8.4)

After one year but not more than two years (payable 2014)

(4.3)

After two years but not more than three years (payable 2015)

(3.7)

After three years but not more than four years (payable 2016)

(3.6)

After four years but not more than five years (payable 2017)

(3.7)

More than five years (payable 2018 and beyond)

(14.8)

Total unfunded arrangements

(38.5)

Funded arrangements

-

Total net employee benefit obligations

(38.5)

 

 

 

 

(i) Fair value of plan assets

The movement in fair value of defined benefit plan assets during the year was as follows:

 


Year ended
31 December
2012
€m

Year ended
31 December
2011
€m

Opening assets at 1 January

155.5

177.4

Expected return on plan assets

6.5

Contributions by plan participants

1.7

Contributions by employer

2.3

Benefits paid

(8.5)

Actuarial gains/(losses)

(1.6)

Derecognition of LMG plan assets

-

Amounts classified as held for sale

(22.4)

Exchange differences

-

0.1

Closing assets at 31 December

-

155.5

 

Amounts classified as held for sale in 2011 of €22.4m relate to the Group's Norwegian operations. As set out in (ii) below, the associated plan liabilities classified as held for sale were €25.9m. The net balance of €3.5m is presented, as set out in Note 10, as assets held for sale (€1.7m) and liabilities directly associated with assets classified as held for sale (€5.2m).

 

Defined benefit plan assets at 31 December 2012 and 2011 are split as:


2012
€m

2011
€m

The Netherlands

 

-

155.5

Closing assets 31 December

-

155.5

 

(ii) Present value of plan liabilities

The movement in the present value of defined benefit obligations during the year is set out below.


Year ended
31 December
2012
€m

Year ended
31 December
2011
€m

Opening liabilities at 1 January

(162.8)

(218.2)

Current service cost

(1.4)

(1.1)

Past service credit

3.5

0.3

Interest cost

(10.2)

(9.4)

Curtailment (losses)

-

(1.1)

Contributions by plan participants

(1.5)

(1.7)

Benefits paid

13.1

18.5

Actuarial (losses)/gains

(41.3)

23.9

Amounts classified as held for sale

-

25.9

Disposal of businesses

-

0.3

Derecognition of LMG plan liabilities

162.1

-

Exchange differences

-

(0.2)

Closing liabilities at 31 December

(38.5)

(162.8)

 

In 2011, the Group has recorded an exceptional charge of €1.0m related to changes in underlying estimates made in the curtailment losses.

 

The present value of defined benefit obligations at 31 December 2012 and 2011 are split as:


2012
€m

2011
€m

The Netherlands

 

(38.5)

(162.8)

Closing liabilities at 31 December

(38.5)

(162.8)

 

 

 

The amounts recognised within operating costs in the consolidated income statement in respect of all defined benefit schemes were as follows:


Year ended 31 December 2012

Year ended 31 December 2011


Before
exceptional
items
€m

Exceptional
items
(Note
7)
€m

After
exceptional
items
€m

Before
exceptional
items
€m

Exceptional
items
(Note
7)
€m

After
exceptional
items
€m

Recognised within operating costs:

 







Continuing operations:







Current service cost

(1.4)

-

(1.4)

(1.1)

-

(1.1)

Past service credit/(cost)

3.5

-

3.5

0.2

0.1

0.3

Curtailment (losses)/gains

-

(4.8)

(4.8)

-

-

-

Interest cost

(10.2)

-

(10.2)

(8.6)

-

(8.6)

Expected return on plan assets

4.8

-

4.8

5.3

-

5.3

Total recognised within operating costs from







      continuing operations

(3.3)

(4.8)

(8.1)

(4.2)

0.1

(4.1)

Discontinued operations:

 







Interest cost

-

-

-

(0.8)

-

(0.8)

Curtailment (losses)/gains

-

-

-

(0.1)

(1.0)

(1.1)

Expected return on plan assets

-

-

-

1.2

-

1.2

Total recognised within operating costs from







      discontinued operations

-

-

-

0.3

(1.0)

(0.7)

Total recognised within Group operating costs

(3.3)

(4.8)

(8.1)

(3.9)

(0.9)

(4.8)

 

The amounts recognised directly in equity in respect of defined benefit schemes were as follows:


Year ended
31 December
2012
€m

Year ended
31 December
2011
€m

Actual return less expected return on plan assets

8.5

(1.6)

Experience gains and losses

(0.2)

0.8

Changes in assumptions underlying present value of liabilities

(41.1)

23.1

Effect of asset capping recognised directly in equity

31.8

(21.3)

Total

(1.0)

1.0

 

The cumulative amount of actuarial gains and losses recognised in other comprehensive income within the consolidated statement of comprehensive income (on a pre-tax basis) up to 31 December 2012 is a charge of €10.2m (up to 31 December 2011: €9.2m).

 

The history of experience gains and losses related to the derecognised separate funded pension schemes is as follows:

 



Year ended
31 December
2011

Year ended
31 December
2010

Year ended
31 December
2009

Year ended
31 December
2008

Difference between expected and actual return on






   plan assets (€m)


(1.6)

0.9

11.1

(30.8)

Above as a percentage of plan assets (%)


(0.9)%

0.5%

7.1%

(16.5)%

Experience gains and losses on plan liabilities (€m)


0.8

2.2

4.8

3.9

Above as a percentage of plan liabilities (%)


(0.4)%

(1.0)%

(2.2)%

(1.6)%

Total amount recognised directly in equity (€m)


1.0

(4.9)

13.0

(13.0)

Above as a percentage of plan liabilities (%)


(0.5)%

2.1%

(5.9)%

5.4%

 

The percentages in the above table are calculated on closing balance sheet amounts from the prior year.

 

The history of experience gains and losses related to the unfunded pension obligations is as follows:

 


Year ended
31 December
2012

Year ended
31 December
2011

Year ended
31 December
2010

Year ended
31 December
2009

Year ended
31 December
2008

Experience gains and losses on plan liabilities (€m)

0.9

1.5

2.3

0.3

5.8

Above as percentage of plan liabilities (%)

(2.7)%

(3.8)%

(5.1)%

(0.8)%

(13.6)%

 

The percentages in the above table are calculated on closing balance sheet amounts from the prior year.

 

 

 

 

18. Called up share capital and share premium

 

Called up share capital


2012

2011


Number
of shares
'000

Value
€m

Number
of shares
'000

Value
€m

Issued and fully paid

 





Balance at 1 January

112,554

83.2

112,551

83.2

Issue of ordinary shares

8,659

6.5

3

-

Balance at 31 December

121,213

89.7

112,554

83.2

 

At 31 December 2012 and 2011, the Company had one class of share capital.

 

During the year, 43,889 ordinary shares (2011: 2,615 ordinary shares) previously issued to the Mecom Employee Benefit Trust ("EBT", see below for further details) were used to satisfy certain employee share awards.

 

At 31 December 2012, the Company's issued share capital comprised 121,212,997 (2011: 112,553,796) ordinary shares (although for earnings per share purposes 2,457,672 (2011: 2,501,561) ordinary shares held by the EBT are treated as cancelled) with a nominal value of 60.85888 pence each (equivalent to €89.7m at 31 December 2012 and €83.2m at 31 December 2011).

 

On 21 May 2012, the Group acquired 5,980,800 depository receipts for ordinary shares in Koninklijke Wegener N.V. ("Wegener") from funds managed by Governance for Owners. Subsequent to this transaction, the Group's interest in Wegener for accounting purposes increased from approximately 86.4% to 100.0%. Consequently, the non-controlling interest in the consolidated balance sheet relating to Wegener of €1.5m has been extinguished.

 

As consideration for the acquisition, the Company issued 8,659,201 new ordinary shares with a nominal value of £0.6085888 (equivalent to €0.75325 using the spot rate on the date of the transaction). The total market value of the issued shares on the date of the acquisition was €15.4m, with €6.5m and €8.9m being recorded in issued share capital and share premium, respectively.

 

The difference between the amounts recorded in non-controlling interest (debit of €1.5m) and the total market value of the issued shares (credit of €15.4m) was recorded directly in retained earnings.

 

The Group incurred costs of €0.3m of related transaction fees which were recorded against retained earnings.

 

Share premium

As noted above share premium increased by €8.9m in 2012 on acquisition of depository receipts for ordinary shares in Wegener.

 

In 2011 in order to create distributable reserves from which dividends are paid, the Company, having sought both shareholder and Court approval, reduced its share capital via the cancellation of its entire share premium account in August 2011. As a consequence of this, the share premium account was reduced by €1,530.2m, being the entire share premium account as recorded in the consolidated financial statements at historical exchange rates, with a corresponding amount being credited to retained earnings. €0.6m of related professional fees were incurred in 2011 which were recorded as a debit directly in equity via retained earnings. The remaining amount of €0.1m was paid during 2012.

 

Contingent rights to shares

At 31 December 2012 and 2011, options that were outstanding over ordinary shares were those granted to the EBT in connection with the operation of the Senior Executive Share Plan ("SESP") and those granted under the Deferred Bonus Plan ("DBP"), the Savings Related Share Option Scheme and the Executive Share Option Plan ("ESOP"). In addition, share warrants were outstanding at 31 December 2012 and 2011.

 

19. Commitments

 

Operating lease commitments

The Group has entered into commercial leases for property, motor vehicles, IT equipment and office equipment. These leases have lives of between one and 10 years. There are no restrictions placed upon the lessee by entering into these leases.

 

Future minimum rentals payable under non-cancellable operating leases at the year ends are as follows:


2012
€m

2011
€m

Within one year

35.2

27.8

After one year but not more than five years

80.7

65.9

More than five years

19.6

43.0

Total

135.5

136.7

 

Capital commitments

Capital commitments contracted but not provided at 31 December 2012 were €5.3m (31 December 2011: €16.9m).

 

 

20. Disposals of businesses

 

Disposals of businesses during the year ended 31 December 2012

 

Edda Media AS ("Mecom Norway")

On 4 December 2011, the Group entered into a binding sale agreement to dispose of its entire media business in Norway (Edda Media AS) to A-pressen AS. At 31 December 2011, the sale was subject to the terms and conditions of the sale and purchase agreement which included, amongst other things, the approval of Mecom's shareholders and the approval of the Norwegian Competition Authority. Therefore, at 31 December 2011, the assets and liabilities of this operation were classified as held for sale in the consolidated balance sheet.

 

On 28 June 2012, the Group completed the disposal of Mecom Norway following respective approvals of Mecom's shareholders (on 30 January 2012) and the Norwegian Competition Authority (on 28 June 2012) for total net proceeds of €201.1m, comprising cash consideration of €205.5m less directly attributable costs recorded in the year of €4.2m. The Group had already recognised directly attributable costs of €6.2m in the prior year, which were fully accrued at 31 December 2011 meaning total cumulative directly attributable costs are €10.4m and cumulative net proceeds are €195.1m.

 

The profit before tax of Mecom Norway from 1 January 2012 up to the date of disposal was €16.5m, which is set out in further detail in Note 10.

 

The book values of the net assets at 28 June 2012 (date of disposal) are summarised below, together with the related sales proceeds and the gain on disposal.

 





Book value of

net assets

at date of
disposal





€m

Goodwill




49.4

Other intangible assets




64.2

Property, plant and equipment




36.6

Employee benefit assets




1.2

Interests in associates




33.9

Investments




0.2

Deferred tax assets




13.0

Inventories




2.6

Trade and other receivables




37.6

Cash and cash equivalents




7.1

Total assets




245.8

Provisions




(1.2)

Employee benefit obligations




(5.7)

Deferred tax liabilities




(26.0)

Trade and other payables




(64.7)

Bank overdrafts




(22.9)

Total liabilities




(120.5)

Net assets disposed of




125.3

Non-controlling interests' share of above




(8.5)

Group share of net assets disposed of




116.8

Sales proceeds:





Cash




205.5

Less: directly attributable costs   1




(4.2)

Total net proceeds




201.3

Gain on disposal before recycling of foreign exchange




84.5

Recycling of foreign exchange




(21.2)

Gain on disposal after recycling of foreign exchange




63.3

 

1 Directly attributable costs comprise the costs of forward contracts of €2.3m and €1.9m of other costs. Directly attributable costs of €6.2m were expensed in the year ended 31 December 2011.

 

The net cash flow resulting from the disposal in the year ended 31 December 2012 was €215.4m, comprising cash proceeds received on disposal of €205.5m, €15.8m of net bank overdrafts disposed of less €5.9m of directly attributable costs paid.

 

Other

During the year 2012, the Group also disposed of minor operations for €nil gain or loss. The net cash outflow resulting from these disposals, together with cash payments in respect of prior year disposals, in the year ended 31 December 2012 was €0.2m.

 

 

 

Disposals of businesses during the year ended 31 December 2011

 

Presspublica Sp. z o.o.

On 10 October 2011, the Group sold its 51.01% shareholding in Presspublica Sp. z o.o. ("Presspublica") to Gremi Media Sp. z o.o. for total net proceeds of €17.4m, comprising cash consideration on disposal of €18.7m less €1.3m of directly attributable costs. As set out in Note 0, this operation is included within "Mecom discontinued" for internal reporting purposes, although under IFRS it was included within continuing operations up until the disposal date.

 

The loss before tax of Presspublica from 1 January 2011 up to the date of disposal was €7.0m.

 

The book values of the net assets at 10 October 2011 (date of disposal) are summarised below, together with the related sales proceeds and the gain on disposal.

 


Book value of
net assets
at date of
disposal
€m

Other intangible assets

15.5

Property, plant and equipment

11.6

Interests in associates

0.1

Deferred tax assets

0.8

Inventories

1.2

Trade and other receivables

7.8

Cash and cash equivalents

4.8

Total assets

41.8

Employee benefit obligations

(0.3)

Provisions

(0.1)

Trade and other payables

(7.9)

Deferred tax liabilities

(3.5)

Total liabilities

(11.8)

Net assets disposed of

30.0

Non-controlling interests' share of above

(11.9)

Group share of net assets disposed of

18.1

Sale proceeds


Cash

18.7

Less: directly attributable costs

(1.3)

Total net proceeds

17.4

Loss on disposal before recycling of foreign exchange

(0.7)

Recycling of foreign exchange

2.3

Gain on disposal after recycling of foreign exchange

1.6

 

The net cash inflow in the 2011 consolidated financial statements from the disposal was €12.9m, comprising cash proceeds received on disposal