Pre-Annual General Meeting Information • Feb 9, 2018
Pre-Annual General Meeting Information
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Circular or the action you should take, you are recommended to seek your own financial advice as soon as possible from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000, if you are resident in the United Kingdom or, if not, from another appropriately authorised independent professional adviser.
If you sell or transfer or have sold or transferred all of your Ordinary Shares, please send this Circular and any accompanying documents as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee. If you have sold part of your holding of Ordinary Shares please retain this Circular and the accompanying Proxy Form and contact immediately the bank, stockbroker or other agent through whom the sale or transfer was effected.
This Circular is not a prospectus and it does not constitute or form part of any offer or invitation to purchase, acquire, subscribe for, sell, dispose of or issue, or any solicitation of any offer to sell, dispose of, purchase, acquire or subscribe for any security, including any Consideration Shares to be issued in connection with the proposed Acquisition.
(Incorporated in England & Wales with registered no. 82548)
and
Your attention is drawn to the letter from the Chairman of the Company which is set out in Part I (Letter from the Chairman of Trinity Mirror plc) and which contains the unanimous recommendation of the Directors that you vote in favour of the Acquisition Resolution to be proposed at the General Meeting referred to below. You should read the whole of this Circular and, in particular, the risk factors in Part II (Risk Factors).
Notice of a General Meeting of the Company to be held at the Wilberforce Room, Museum of London Docklands, No.1 Warehouse, West India Quay, London E14 4AL on Tuesday, 27 February 2018 at 11.30 am is set out at the end of the Circular. A Proxy Form for use at the General Meeting is enclosed. Whether or not you propose to attend the General Meeting, please complete and submit the enclosed Proxy Form in accordance with the instructions printed on it. The Proxy Form must be received by no later than 11.30 am on Friday, 23 February 2018. Completion and return of the Proxy Form will not prevent you from attending and voting at the General Meeting in person, should you wish. Alternatively you can register your proxy vote electronically no later than 11.30 am on Friday, 23 February 2018, either by means of a website provided by Equiniti, www.sharevote.co.uk, or CREST members can use the service provided by Euroclear. Further details are given in the notes to the Notice of General Meeting set out in the Notice of General Meeting at the end of this Circular.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting and any adjournment(s) thereof by using the procedures set out in the notes to the Notice of General Meeting set out in the Notice of General Meeting at the end of this Circular, as soon as possible and in any event no later than 11.30 am on Friday, 23 February 2018 (or in the case of an adjournment, not later than 48 hours, excluding non-working days, before the time fixed for the holding of the adjourned meeting).
Numis, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as sole sponsor, financial adviser and joint corporate broker to the Company and no one else in connection with the Acquisition, and will not regard any other person (whether or not a recipient of this Circular) as a client in relation to the Acquisition and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Acquisition or any other transaction or arrangement referred to or contained in this Circular.
Aside from the responsibilities and liabilities, if any, which may be imposed under the FSMA or the regulatory regime established thereunder, or any other applicable regulatory regime, neither Numis nor any of its affiliates accept any responsibility or liability whatsoever for, and no representation or warranty, express or implied, is made by Numis in relation to the contents of this Circular, including its accuracy, fairness, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Acquisition, the Ordinary Shares or the Consideration Shares. Each of Numis and its affiliates accordingly disclaims any and all responsibility or liability, whether arising in tort, contract or otherwise (save as referred to above), in respect of this Circular or any such statement or otherwise.
This Circular is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, Ordinary Shares, including the Consideration Shares, in any jurisdiction. The information provided in this Circular is provided solely for the purpose of considering the Acquisition Resolution. Any reproduction or distribution of this Circular, in whole or in part, and any disclosure of its contents or use of any information contained in this Circular for any purpose other than considering the Acquisition Resolution is prohibited.
No person has been authorised to give any information or make any representations other than those contained in this Circular or incorporated by reference herein and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company or Numis. None of the above take any responsibility or liability for, and can provide no assurance as to the reliability of, other information that you may be given. Subject to the Listing Rules, the Prospectus Rules and the Disclosure Guidance and Transparency Rules, the delivery of this Circular shall not, under any circumstances, create any implication that there has been no change in the affairs of Trinity Mirror or Northern & Shell since the date of this Circular or that the information in this Circular is correct as at any time after its date.
The contents of this Circular are not to be construed as legal, business or tax advice. Each Shareholder should consult their own legal adviser, financial adviser or tax adviser for legal, financial or tax advice respectively.
Distribution of this Circular by any recipient may be restricted or prohibited by law. Recipients are required to inform themselves of, and comply with, all such restrictions or prohibitions.
This Circular is not an offer of securities for sale in the United States and there will be no public offer of securities in the United States. The securities discussed herein have not been and will not be registered under the US Securities Act or under the securities law of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in or into the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and otherwise in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Neither the Ordinary Shares nor the Consideration Shares have been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or any US regulatory authority, nor have such authorities reviewed or passed upon the adequacy or accuracy of this Circular. Any representation to the contrary is a criminal offence in the United States.
This Circular contains (or may contain) statements that are, or may be deemed to be, ''forwardlooking statements''. Forward-looking statements are based on current expectations and projections about future events and other matters that are not historical fact. These forward-looking statements are sometimes identified by the use of a date in the future or forward-looking terminology, including, but not limited to, the words ''aim'', ''anticipate'', ''believe'', ''intend'', ''plan'', ''estimate'', ''expect'', ''may'', ''target'', ''project'', ''will'', ''could'' or ''should'' or, in each case, their negative or other variations or words of similar meaning. These forward-looking statements include matters that are not historical facts and include statements that reflect the Directors' intentions, beliefs and current expectations. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond Trinity Mirror's control. They are not guarantees of future performance and are based on one or more assumptions.
Forward-looking statements appear in a number of places throughout this Circular and include statements regarding the intentions, beliefs or current expectations of Trinity Mirror concerning, without limitation: current and future years' outlook; revenue and revenue trends; EBITDA; capital expenditure; shareholder returns including progressive dividends; net debt; credit ratings; Trinity Mirror's investment in print and digital media; enhancing Trinity Mirror's portfolio of print and digital businesses; the performance and growth of, and opportunities available in, print and digital media and Trinity Mirror's positioning to take advantage of those opportunities; expectations regarding competition, market shares, prices and growth; Trinity Mirror's possible or assumed future results of operations and/or those of its associates and joint ventures; investment plans; anticipated financial and other benefits and synergies resulting from the Acquisition, including revenue, operating cost and capital expenditure synergies; and Trinity Mirror's plans and objectives following the Acquisition.
Statements contained in this Circular regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Any forward-looking statements in this Circular reflect Trinity Mirror's view with respect to future events as at the date of this Circular and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the conditions to the Acquisition being satisfied, increased leverage as a result of the Acquisition, Trinity Mirror's ability to integrate the businesses and retention of key personnel, the successful realisation of the anticipated synergies and strategic benefits and an adequate return on its investment from the Acquisition, consumer behaviour, maintenance of Northern & Shell's performance and momentum in its business throughout integration and Trinity Mirror's operations, result of operations, financial condition, growth, strategy, the industry in which Trinity Mirror operates, and the other risk factors highlighted in this Circular. No assurances can be given that the forward-looking statements in this Circular will be realised. Trinity Mirror's actual performance, results of operations, internal rate of return, financial condition, distributions to shareholders, the development of its financing strategies and the results or eventual success of the Acquisition may differ materially from the impression created by the forward-looking statements contained in this Circular. In addition, even if Trinity Mirror's actual performance, results of operations, financial condition, distributions to Shareholders and results of the Acquisition are consistent with the forward-looking statements contained in this Circular, those results or developments may not be indicative of results or developments in subsequent periods. Nothing in this section seeks to qualify the working capital statement in paragraph 13 of Part VI (Additional Information).
Forward-looking statements contained in this Circular apply only as at the date of this Circular. Subject to any obligations under the Listing Rules, the Disclosure Guidance and Transparency Rules, MAR or any other applicable law or regulation, Trinity Mirror undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
To the extent that any document or information incorporated by reference or attached to this Circular, itself incorporates any information by reference, either expressly or impliedly, such information will not form part of this Circular, except where such information or documents are stated within this Circular as specifically being incorporated by reference or where this Circular is specifically defined as including such information. Capitalised terms have the meanings ascribed to them in Part VII (Definitions).
The contents of Trinity Mirror's website, the website of Northern & Shell, or any website directly or indirectly linked to any of those websites do not form part of this Circular and should not be relied upon, without prejudice to the documents incorporated by reference into this Circular.
This Circular is dated 9 February 2018.
| EXPECTED TIMETABLE OF PRINCIPAL EVENTS | 5 | |
|---|---|---|
| DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS | 6 | |
| GENERAL INFORMATION | 7 | |
| PART I | LETTER FROM THE CHAIRMAN OF TRINITY MIRROR PLC | 8 |
| PART II | RISK FACTORS | 21 |
| PART III | SUMMARY OF THE PRINCIPAL TERMS OF THE ACQUISITION | 32 |
| PART IV | HISTORICAL FINANCIAL INFORMATION RELATING TO NORTHERN & SHELL |
34 |
| PART V | UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE ENLARGED GROUP |
78 |
| PART VI | ADDITIONAL INFORMATION | 83 |
| PART VII | DEFINITIONS | 93 |
| NOTICE OF GENERAL MEETING | 97 |
The times and dates in the table below and elsewhere in this Circular are given on the basis of the Directors' current expectations and are subject to change. All references to time in this Circular are to London time.
| Announcement of Acquisition | 9 February 2018 |
|---|---|
| Date of Circular | 9 February 2018 |
| Latest time and date for receipt of Proxy Forms | 11.30 am on 23 February 2018 |
| General Meeting | 11.30 am on 27 February 2018 |
| Completion of acquisition of Northern & Shell Network Limited | 28 February 2018 |
| Admission of, and commencement of dealings in, Consideration Shares |
28 February 2018 |
| Directors | David Grigson Simon Fox Vijay Vaghela Helen Stevenson Lee Ginsberg David Kelly Steve Hatch Olivia Streatfeild |
Chairman Chief Executive Group Finance Director Senior Independent Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director |
|---|---|---|
| Company Secretary | Vijay Vaghela | |
| Registered Office | One Canada Square Canary Wharf London E14 5AP |
|
| Sponsor & Financial Adviser |
Numis Securities Limited 10 Paternoster Square London EC4M 7LT |
|
| Legal Advisers to the Company |
Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ |
|
| Hogan Lovells International LLP Atlantic House Holborn Viaduct London EC1A 2FG |
||
| Reporting Accountants | Deloitte LLP 2 New Street Square London EC4A 3BZ |
|
| KPMG LLP 15 Canada Square Canary Wharf London E14 5GL |
||
| Registrars | Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA |
Unless otherwise stated:
Unless otherwise indicated, financial information in this Circular relating to the Company and Northern & Shell has been prepared in accordance with IFRS and consistently with the accounting policies adopted by Trinity Mirror in preparing its financial statements for the 53 weeks ended 1 January 2017.
Certain data in the Circular, including financial, statistical and operating information, have been rounded. As a result of rounding, the totals of data presented in this Circular may vary slightly from the actual arithmetic totals of such data. Percentages have also been rounded and accordingly may not add up to 100 per cent.
Where information contained in this Circular has been sourced from a third party, Trinity Mirror and the Directors confirm that such information has been accurately reproduced and, so far as they are aware and have been able to ascertain from information published by third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading.
Directors
| David Grigson | Chairman |
|---|---|
| Simon Fox | Chief Executive |
| Vijay Vaghela | Group Finance Director |
| Helen Stevenson | Senior Independent Director |
| Lee Ginsberg | Non-executive Director |
| David Kelly | Non-executive Director |
| Steve Hatch | Non-executive Director |
| Olivia Streatfeild | Non-executive Director |
Registered office: One Canada Square Canary Wharf London E14 5AP
9 February 2018
To the holders of Ordinary Shares
Dear Shareholder,
On 9 February 2018, Trinity Mirror announced the proposed acquisition of Northern & Shell's publishing assets for a total purchase price of £126.7 million. Northern & Shell comprises Northern & Shell Network Limited, a subsidiary of Northern & Shell Media Group Limited containing the publishing assets of Northern & Shell, and its subsidiaries, International Distribution 2018 Limited and a 50% equity interest in Independent Star Limited.
In view of its size, the Acquisition constitutes a Class 1 transaction for the purposes of the Listing Rules and therefore requires the approval of Shareholders. Accordingly, a General Meeting of Shareholders has been convened at 11.30 am on Tuesday, 27 February 2018 to be held at the Wilberforce Room, Museum of London Docklands, No.1 Warehouse, West India Quay, London E14 4AL. The Notice of General Meeting can be found at the end of this Circular.
I am writing to give you further details of the Acquisition, including the background to and reasons for it, to explain why the Board considers it to be in the best interests of the Company and the Shareholders as a whole and to recommend that you vote in favour of the Acquisition.
Trinity Mirror is one of UK's largest commercial news publishers with national and regional news brands across the UK, including influential and iconic brands such as the Daily Mirror, Sunday Mirror, Sunday People, Daily Record, Sunday Mail and market leading regional titles in key metropolitan markets across the country. Trinity Mirror's brands have a long heritage of being trusted sources of news and information, with our editorial conviction and high standards of journalism providing audiences with timely information and opinion across multiple platforms.
Trinity Mirror's vision is ''to be an essential part of people's daily lives by delivering quality content and services that inform, enlighten and enrich''. To deliver this vision it is clear that quality content is and will remain at the heart of Trinity Mirror's business. At the same time, Trinity Mirror's businesses operate in the rapidly evolving media sector and face a challenging trading environment, which continues to place structural pressure on its print-related revenue while at the same time presenting opportunities to grow its digital revenue.
In this regard, Trinity Mirror's strategy is to grow, build, protect and consolidate its strong position in the communities it serves through four key areas of strategic focus:
Trinity Mirror's financial objective in the short term is to support profits and cash flows through revenue and efficiency initiatives and to deliver sustainable growth in revenue, profit and cash flow over the medium term.
The Board believes that growth from the continued focus on digital audience and revenue from Trinity Mirror's core news sites coupled with new revenue streams by building new products and services will begin to outstrip print declines on an aggregate basis, leading to a stabilisation of Trinity Mirror's revenues and then a return to top-line growth. This, combined with Trinity Mirror's focus on efficiencies, makes the Board confident that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future, for the benefit of all stakeholders.
Northern & Shell is also a significant force in the UK media sector, with a portfolio of newspapers and magazines which comprises four national newspaper titles (the Daily Express, Sunday Express, Daily Star and Daily Star Sunday) and three celebrity magazines (OK!, New! and Star) together with a 50% joint venture interest in the Irish Daily Star, outside the UK. Northern & Shell operates a print plant in Luton, serving its portfolio of newspapers as well as providing third-party printing services.
The Board believes Trinity Mirror is well positioned to drive value from acquiring Northern & Shell and that the Acquisition will create value for all stakeholders. The Acquisition is an attractive opportunity, which is consistent with Trinity Mirror's strategic objectives and goals and firmly fits into the fourth area of strategic focus – ''Consolidate: seek out strategic opportunities that drive value''.
As well as driving value for Shareholders, the increased scale of the Enlarged Group is anticipated to provide increased financial flexibility in the medium term for investment and meeting the Enlarged Group's pension obligations.
Key rationales for the Acquisition are to create a media business of scale to better serve our readers and advertisers and that is financially compelling and will deliver attractive returns to shareholders.
The following sections explain each reason in greater detail.
The news industry continues to face significant structural changes which are threatening the longterm economic viability of smaller print publishers. By bringing the publishing assets of Trinity Mirror and Northern & Shell together, we will be better placed to serve our readers, both in print and in digital.
The Enlarged Group will be able to improve its editorial propositions by reducing duplication, sharing content across the Enlarged Group and widening the breadth of our coverage with larger combined teams.
The Acquisition will add another four national newspapers (two dailies and two Sundays) and three paid for weekly magazines to our five national newspapers.
The Enlarged Group's digital portfolio will comprise a network of publishing websites delivering 234 million monthly unique browsers (excluding apps) and 963 million monthly page views (excluding apps and galleries) as at December 2017 with over 50 per cent. of its online audience based in the UK. The Acquisition will therefore lend considerable strength to Trinity Mirror's digital portfolio, enabling Trinity Mirror to provide a more compelling offering for digital advertisers and therefore to compete more effectively with the global scale of the digital platforms.
The Express.co.uk and Dailystar.co.uk websites achieved 280 million page views in December 2017 compared to 649 million for the Trinity Mirror websites (excluding apps and galleries).
The Acquisition will enable the sharing of best practices, content and resources across both businesses. We will retain the distinct editorial propositions of each of the four national newspaper sites to ensure that each has its own editorial and audience focus thereby enabling us to minimise editorial duplication and maximise digital revenue.
As Trinity Mirror has demonstrated with the Local World acquisition, by sharing digital and other technology there is an opportunity to deliver improved digital products for all brands and benefit from efficiencies when doing so through shared investment.
The Enlarged Group will have a more robust revenue mix, placing less reliance on the most structurally challenged revenue stream, print advertising, and having a greater proportion of circulation revenue where volume declines are partially mitigated by cover price increases. Enders Analysis has forecast national print advertising revenue to decline by 13 per cent. in 2018, whilst circulation revenues have proven to be more resilient historically even though volumes remain under pressure.
Following the Acquisition, circulation revenue will represent nearly half of the Enlarged Group's revenue. In 2016, circulation revenue for Trinity Mirror and Northern & Shell represented 43.6 per cent. and 61.2 per cent. respectively of total revenue of each group.
In addition to the higher proportion of revenue arising from circulation, Northern & Shell has a significantly lower proportion of total advertising revenue accruing from print and digital classified advertising (5.4 per cent. in 2016 compared to 19.5 per cent. of total revenue for Trinity Mirror in 2016).
Trinity Mirror has a proven track record of successful, efficient and value accretive acquisitions. Most recently this has been demonstrated by the Local World acquisition in November 2015 where Trinity Mirror delivered synergies of £15 million, £3 million ahead of the £12 million target set out in the circular to shareholders on 28 October 2015, and has been able to significantly de-leverage within two years of the acquisition. These synergies have been delivered by sharing best practice between Trinity Mirror and Local World and building on our experience of tightly managing the cost base over a number of years.
The Enlarged Group will benefit from Trinity Mirror's track record of delivering synergies and successful cost management, creating scope for cost synergies. Cost synergies are expected to arise through deploying know-how learnt during the delivery of historic structural costs savings in Trinity Mirror's own businesses, through the integration and future operation of certain activities on a group-wide basis across the Enlarged Group, and through the implementation of Trinity Mirror's tight management of the cost base.
Trinity Mirror management has experience of operating a large stable of different news brands under a single combined management structure. There will be no reduction in media plurality following the Acquisition as each newspaper brand will continue with its current editorial positioning, ensuring that it continues to present the editorial content to which its readers and advertisers are accustomed. Trinity Mirror currently operates over 100 news brands and Trinity Mirror's policy is that each is free to take its own editorial position on politics and current affairs, bearing in mind the opinions of their readers. Trinity Mirror does not interfere in the editorial positions of its titles, which remain firmly the responsibility of the individual titles' editors and their senior editorial teams.
It is anticipated that cost savings will be achieved following the Acquisition, and that a full run rate of £20 million before tax per annum will be achieved by 2020, with a significant amount of these savings achieved in 2019. The synergy savings are expected to accrue in the areas of content generation (£9.3 million), cost of advertising sales (£4.3 million), digital and technology costs (£2.1 million), printing and distribution (£3.3 million) and management and central costs (£1.0 million).
It is anticipated that total restructuring costs of £16 million and capital expenditure of £4 million will be incurred across the first and second years of ownership in order to deliver these cost savings.
The synergies identified above reflect both the beneficial elements and the relevant costs that will arise as a result of the Acquisition. The synergies are contingent on the Acquisition and could not be achieved by Trinity Mirror and Northern & Shell operating independently.
The synergies represent circa 3 per cent. of the Northern & Shell and Trinity Mirror estimated combined adjusted 2017 cost base (after separation adjustments).
The purchase consideration of £126.7 million, plus the contributions agreed to be paid to the Northern & Shell Pension Schemes, implies an enterprise value of £184.2 million and an EBITDA multiple pre anticipated synergies of 5.4 times on the estimated 2017 adjusted performance (after separation adjustments). Post anticipated synergies, this implies a multiple of 3.4 times on the estimated 2017 adjusted performance (after separation adjustments). It is anticipated that the Acquisition will be materially earnings enhancing in the first full year following the acquisition of Northern & Shell Network Limited and will strengthen the strong cash generative nature of the Enlarged Group for investment, continued support for the Enlarged Group's historic defined benefit pension scheme liabilities and potential return of capital to shareholders. For the purposes of earnings enhancement, the Company regards the relevant metric as Adjusted EPS.
The Northern & Shell publishing portfolio comprises the following titles:
Latest reported circulation and audience for the portfolio are shown below:
| Print portfolio | Average volumes thousands |
Cover price GBp |
|---|---|---|
| Newspapers | Dec-17 | Dec-17 |
| Daily Express | 365 | 55 (Mon-Fri), 80 (Sat) |
| Sunday Express | 318 | 140 |
| Daily Star | 392 | 30 (Mon-Fri), 50 (Sat) |
| Daily Star Sunday | 240 | 90 |
| Magazines | Jun-17 | Jun-17 |
| OK! UK | 168 | 200 |
| New ! Magazine | 183 | 135 |
| Star Magazine | 108 | 130 |
| Unique browsers | Page views | |
| Digital portfolio | millions | millions |
| Dec-17 | Dec-17 | |
| express.co.uk | 71 | 205 |
| dailystar.co.uk | 26 | 75 |
| ok.co.uk, new-magazine.co.uk, star-magazine.co.uk | 8 | 34 |
Source: ABC (Print), Google Analytics (Digital)
Note: Figures for unique browsers are excluding apps and figures for page views are excluding apps and galleries.
The Northern & Shell business performance over 2014 to 2016 has been affected by cover price discounting for its newspapers which has adversely impacted its circulation revenue and profitability. The cover prices of the Daily Star Monday to Friday, Daily Star Saturday and Daily Star Sunday were halved to 20 pence, 30 pence and 50 pence respectively during October 2015. The cover prices of the Daily Express Monday to Friday (in Scotland only) and Daily Express on Saturday were reduced to 30 pence and 45 pence respectively in December 2015 and January 2016. There were marginal increases in cover prices during July and August 2016 but not to the levels prior to the 2015 cover price discounting. The reduction in cover prices has increased circulation volumes through an increase in the frequency of purchase. There were no cover price changes in 2017 and no further cover price changes have been implemented up to the date of this Circular.
Revenue declined by 11.8 per cent. in 2015 and by 12.0 per cent. in 2016 reflecting both a fall in circulation revenue as a result of cover price discounting and a fall in print advertising revenue. Circulation revenue has increased in 2017 as a result of the partial reversal of cover price discounts during 2016. Strong growth in digital revenue has been supported by strong audience growth.
To facilitate the separation of Northern & Shell from the wider Seller group, Trinity Mirror and the Seller will enter into commercial agreements at NSNL Completion in relation to advertising and production services. The Seller has committed to purchase advertising services from Northern & Shell and/or Trinity Mirror for a period of five years to December 2022 to the value of approximately £32 million. Trinity Mirror has committed to purchase TV advertising and production services through the Seller during 2018 to the value of approximately £4 million.
To further facilitate the separation of Northern & Shell from the wider Seller group, Northern & Shell and the Seller will enter agreements at or prior to NSNL Completion including:
The impact of these separation arrangements on actual and estimated revenue figures for Northern & Shell for the financial years ended 31 December 2016 and 31 December 2017 is £0.4 million and £1.8 million respectively. The impact of these separation arrangements on the adjusted EBITDA actual and estimated figures for Northern & Shell for the financial years ended 31 December 2016 and 31 December 2017 is £18.2 million and £16.7 million respectively.
The results for 2016 were revenue and adjusted EBITDA (after separation adjustments) of £190.3 million and £31.2 million, respectively. The Directors estimate that for 2017 Northern & Shell generated revenue marginally ahead of 2016 and adjusted EBITDA of circa. £34 million (after separation adjustments). These estimates demonstrate a significant improvement in performance since the partial reversal in 2016 of the cover price reductions.
The revenue and adjusted EBITDA (after separation adjustments) for the financial year ended 31 December 2016 are based on Part IV (Historical Financial Information Relating to Northern & Shell), Part A: Consolidated Historical Financial Information Relating to Northern & Shell for that period. Revenue increased by £0.4 million as a result of the separation items. The table below sets out a reconciliation of the Operating Profit/(Loss) as per the historical financial information to the adjusted results for 2016:
| 2016 £m |
|
|---|---|
| Operating Profit/(Loss)(1) Adjusted Items(2) |
2.1 5.1 |
| Separation Items(3) | 18.2 |
| Adjusted Operating Profit (post separation items) Depreciation(4) |
25.4 5.8 |
| Adjusted EBITDA (post separation items) | 31.2 |
Notes:
3) Separation items relate to revenue and costs which as a result of the transaction will not be incurred going forward.
4) Depreciation from Part IV Historical Financial Information Relating To Northern & Shell, Part A.
The revenue and adjusted EBITDA (after separation adjustments) estimated for the financial year ended 31 December 2017 are based on the unaudited management accounts of Northern & Shell for that period. The estimates for 2017 have been compiled on the basis used to prepare the audited statutory accounts and adjusted results for 2016. The basis of accounting used is consistent with the accounting policies of Trinity Mirror as set out in Part IV of this Circular. The Directors have assumed for this purpose that the audit of Northern & Shell financial information for the financial year ended 31 December 2017 will not require any material adjustments or reveal any unforeseen matters that would have a material impact on the estimated revenue and adjusted EBITDA. This assumption is, however, outside the control of the Directors.
As part of the Acquisition, Trinity Mirror will also assume the historical liabilities relating to the Northern & Shell Pension Schemes. These schemes had a total deficit of £31.3 million on an IAS19 basis at 31 December 2016 and had a valuation deficit of £63.6 million at their last actuarial valuations.
New deficit contribution recovery plans have been agreed with the trustees of the Northern & Shell Pension Schemes as part of the Acquisition and, in aggregate, these require an upfront contribution of £41.2 million and annual contributions of £1.9 million each year from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027. Post tax, these contributions equate to £57.5 million in total.
Under the terms of the Share Purchase Agreement, Trinity Mirror will (subject to the satisfaction of certain Conditions) acquire Northern & Shell from the Seller for a total purchase price of £126.7 million.
The purchase consideration of £126.7 million will be satisfied by the payment to the Seller of, in aggregate, £106.7 million in cash and the balance of £20.0 million by the allotment and issue to the Seller of 25,826,746 Consideration Shares.
Northern & Shell comprises three separate businesses: Northern & Shell Network Limited and its subsidiaries, International Distribution 2018 Limited and the 50% equity interest in the issued ordinary share capital of Independent Star Limited. Independent Star Limited is a 50:50 joint venture between Express Newspapers and Independent News and Media Plc which publishes and sells the Irish Daily Star newspaper (Monday to Saturday) in the Republic of Ireland. International Distribution 2018 Limited sells the Daily Express, the Sunday Express, the Daily Star Sunday and celebrity magazines OK!, New! and Star in the Republic of Ireland.
1) Operating profit/(loss) from Part IV Historical Financial Information Relating To Northern & Shell, Part A.
2) Adjusted items relate to the exclusion of non-recurring items, restructuring charges in respect of cost reduction measures and the pension administrative expenses.
The cash component of the consideration for the acquisition of Northern & Shell Network Limited will be paid as to £42.7 million on NSNL Completion and as to £59.0 million in four tranches of £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries, respectively, of NSNL Completion.
The Consideration Shares will be allotted and issued to the Seller at NSNL Completion based on a reference price of 77.4 pence per share. The Consideration Shares represent 9.4 per cent. of Trinity Mirror's existing issued ordinary share capital.
The consideration payable for the acquisition of Northern & Shell Network Limited will be subject to an adjustment following NSNL Completion once the completion accounts, which will be prepared by Trinity Mirror, have been finalised in accordance with the Share Purchase Agreement.
The Seller has entered into a Standstill and Lock-up Agreement which means that, for a period of 12 months following NSNL Completion, the Seller's group will (subject to certain exceptions) be restricted from acquiring, or causing another to acquire, an interest of any kind whatsoever in any Ordinary Shares or other securities of the Company. The Seller's group will also be subject to a lock-in in respect of any disposal of Ordinary Shares or any securities convertible into or exchangeable for Ordinary Shares for a period of 6 months following NSNL Completion, subject to certain exceptions including accepting a general offer to all holders of Ordinary Shares made in accordance with the City Code, making a disposal of Ordinary Shares to an affiliate (provided certain conditions are satisfied), and with the consent of the Company, including to enable the Seller to satisfy liabilities under the Share Purchase Agreement. The Seller's group has undertaken that for the period of 6 months following the expiry of such lock-in period it shall only affect disposals of the Consideration Shares through the Company's brokers and in accordance with the requirements of the Company's brokers so as to maintain an orderly market in the Company's publicly traded securities.
The consideration payable for the acquisition of the 50% equity interest in the issued ordinary share capital of Independent Star Limited will be an amount in cash of £4.5 million payable on completion of such acquisition.
The consideration payable for the acquisition of the issued ordinary share capital of International Distribution 2018 Limited will be an amount in cash of £0.5 million payable on completion of such acquisition.
Completion of the acquisition of Northern & Shell Network Limited is conditional upon satisfaction of certain Conditions, including the passing of the Acquisition Resolution and Admission. Completion of the JV Acquisition and the Direct Sales Acquisition are both conditional on the completion of the acquisition of Northern & Shell Network Limited and additionally receipt of ROI Competition Clearance prior to the Irish Long Stop Date. Completion of the acquisition of Northern & Shell Network Limited, which does not have operations in the Republic of Ireland, is not conditional on ROI Competition Clearance being obtained.
The cost to Trinity Mirror set out in the unaudited pro forma statement of the combined net assets of the Enlarged Group as at 2 July 2017 in Part V (Unaudited Pro Forma Financial Information for the Enlarged Group) of this Circular of £126.7 million reflects the gross purchase consideration of £126.7 million. Transaction costs of some £7 million will be incurred by Trinity Mirror in relation to the Acquisition.
The Share Purchase Agreement contains customary warranties, covenants, undertakings and conditions for a transaction of this nature.
On NSNL Completion, as a result of the transaction, an upfront payment of £41.2 million will be made to the Northern & Shell Pension Schemes and revised recovery plans requiring contributions of £1.9 million per annum from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027 have been agreed with the trustees of the Northern & Shell Pension Schemes.
Details of the Share Purchase Agreement are set out in more detail in Part III (Summary of the Principal Terms of the Acquisition) of this Circular.
Information on the expected effect of the Acquisition on the assets and liabilities of the Enlarged Group is set out in the unaudited pro forma statement of the combined net assets of the Enlarged Group as at 2 July 2017 in Part V (Unaudited Pro Forma Financial Information for the Enlarged Group) of this Circular.
The Board believes that the Acquisition will generate considerable value for Shareholders, with increased financial flexibility in the medium term, increased scale and cost synergies.
The key financial implications of the Acquisition are as follows:
Trinity Mirror will fund the cash element of the purchase price, the contributions to the Northern & Shell Pension Schemes and transaction costs by utilisation of the New Debt Facility, a £75 million amortising term loan facility, which will be fully drawn, with the balance being drawn down under the Existing Debt Facility and cash balances.
On 9 February 2018 Trinity Mirror released the following trading update:
''Trinity Mirror is today issuing a trading update in respect of the unaudited results for the 52 weeks ended 31 December 2017 ahead of announcing the audited results for 2017 on 5 March 2018.
The figures quoted in this announcement are unaudited and are subject to final approval by the Board and completion of the audit.
The Board anticipates adjusted* results for 2017 to be marginally ahead of consensus** forecasts.
Group revenue*** for 2017 on a like for like basis is expected to fall by 9% year on year, broadly in line with the 9% decline in the first half.
| H1 | Q3 | Q4 | H2 | FY | |
|---|---|---|---|---|---|
| Publishing | (10)% | (8)% | (8)% | (8)% | (9)% |
| Print Digital |
(12)% 6% |
(10)% 4% |
(11)% 12% |
(11)% 8% |
(11)% 7% |
| Total Group Revenue | (9)% | (8)% | (9)% | (8)% | (9)% |
Publishing revenue is expected to fall by 9% with an improvement in the rate of decline in the second half to 8% compared to a decline of 10% in the first half. Publishing digital revenue growth of 7% reflects improved growth of 8% in the second half compared to 6% growth in the first half. The improvement in the rate of growth in Publishing digital is driven by a strong fourth quarter growth of 12% with display and transactional growth of 22%.
Strong cash generation continued throughout the year which enabled net debt to fall to circa £10 million at the end of 2017.
The IAS 19 pension deficit at 31 December 2017 is expected to be £378 million, a reduction of £88 million from the 2016 year end. The fall in the deficit has been driven by strong asset returns and a change in mortality assumptions which has been partially offset by a further reduction in discount rates.
The Board expects to propose a final dividend of 3.55 pence per share for 2017, which together with the interim dividend of 2.25 pence per share represents a full year dividend of 5.80 pence per share, a year on year increase of 6.4%.
The costs associated with the settlement of civil claims in relation to phone hacking have been higher than expected, in particular the legal fees of the claimants' lawyers and the general court process. Therefore, we have increased the provision for settling these historical claims by a further £3.0 million. This is in addition to the £7.5 million increase in the provision at the half year resulting in a total charge of £10.5 million for the full year.
Although there remains uncertainty as to how these matters will progress, the Board remains confident that the exposures arising from these historical events are manageable and do not undermine the delivery of the Group's strategy.
At this early stage in the year, performance for 2018 is expected to be in line with market expectations.
The statement on future performance is given as at the date of this announcement and is subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in the statement. The Company undertakes no obligation to update this forward-looking statement other than as required by the Prospectus Rules, Listing Rules, MAR and the Disclosure Guidance and Transparency Rules, as appropriate.
Northern & Shell performed well in 2017 despite continued pressure on its print advertising revenues.
Total revenues (after separation adjustments) are estimated to have marginally increased in 2017, with growth in newspaper circulation revenues (arising from the partial reversal of cover price discounting) and digital revenues offsetting declines in print advertising revenues. Adjusted EBITDA (after separation adjustments) is estimated to be circa. £34 million, benefiting from operational and strategic reductions in printing and production, marketing and other operating costs.
Trinity Mirror has three defined benefit pension schemes which were all closed to future accrual on 31 March 2010.
The deficits of the Trinity Mirror Pension Schemes at the triennial valuation as at 31 December 2016 which were agreed in December 2017 and finalised in January 2018 are set out below:
| Triennial Valuation | Assets £m |
Liabilities £m |
Deficit £m |
|---|---|---|---|
| MGN Pension Scheme | 842.0 | (1,318.0) | (476.0) |
| Trinity Retirement Benefit Scheme | 452.5 | (530.5) | (78.0) |
| Midland Independent Newspapers Pension Scheme | 200.3 | (268.5) | (68.2) |
| 1,494.8 | (2,117.0) | (622.2) |
The assets, liabilities, and deficits of the Trinity Mirror Pension Schemes on an IAS19 basis as at 31 December 2017 are as follows:
| Assets £m |
Liabilities £m |
Deficit £m |
|---|---|---|
| 914.1 | (1,236.7) | (322.6) |
| (7.5) | ||
| 189.9 | (237.4) | (47.5) |
| 1,551.6 | (1,929.2) | (377.6) |
| Assets £m |
Liabilities £m |
Deficit £m |
| — | ||
| 1,369.5 | (1,747.1) | (377.6) |
| 1,551.6 | (377.6) | |
| 447.6 182.1 |
(455.1) (182.1) (1,929.2) |
The 31 December 2016 triennial valuations for the Trinity Mirror Pension Schemes were agreed during December 2017 and all the relevant documentation was finalised in January 2018. The recovery plans agreed for the valuation require annual contributions of £43.8 million per annum from 2018 to 2027.
On and subject to NSNL Completion, as a result of the transaction, the recovery plans will be revised with contributions increased by £3.2 million per annum for 2018 to 2020 and £8.2 million per annum for 2021 to 2027, bringing total contributions to £47.0 million per annum from 2018 to 2020 and £52.0 million per annum from 2021 to 2027, totalling a post-tax value of £417.0 million. The increased contributions reflect a sharing of the financial benefits arising from the Acquisition.
Northern & Shell has three defined benefit pension schemes. Two schemes were closed to future accrual on 31 December 2008 and one scheme on 28 February 2010.
The deficits of the Northern & Shell Pension Schemes at the last triennial valuation are set out below:
| Triennial Valuation | Assets £m |
Liabilities £m |
Deficit £m |
|---|---|---|---|
| Express Newspapers 1988 Pension Fund (5/4/15) Express Newspapers Senior Management Pension Fund |
456.2 | (511.3) | (55.1) |
| (5/4/15) | 21.0 | (23.7) | (2.7) |
| West Ferry Printers Pension Scheme (31/12/14) | 294.0 | (299.8) | (5.8) |
| 771.2 | (834.8) | (63.6) |
The assets, liabilities, surpluses and deficits of the Northern & Shell Pension Schemes included in Part IV (Historical Financial Information Relating to Northern & Shell), Part A: Consolidated Historical Financial Information Relating to Northern & Shell, Note 27, at 31 December 2016 are set out below:
| IAS19 Accounting | Assets £m |
Liabilities £m |
Surplus/ (Deficit) £m |
Balance Sheet £m |
|---|---|---|---|---|
| Express Newspapers 1988 Pension Fund | 493.0 | (522.8) | (29.8) | (29.8) |
| Express Newspapers Senior Management Pension Fund West Ferry Printers Pension Scheme |
22.7 237.4 |
(21.3) (225.0) |
1.4 12.4 |
1.4 (2.9) |
| 753.1 | (769.1) | (16.0) | (31.3) | |
| Representing | Assets £m |
Liabilities £m |
Surplus/ (Deficit) £m |
Balance Sheet £m |
|---|---|---|---|---|
| Liabilities matching insurance contracts | 161.5 | (161.5) | — | — |
| Other invested assets | 591.6 | (607.6) | (16.0) | (31.3) |
| 753.1 | (769.1) | (16.0) | (31.3) |
As a result of the transaction, the recovery plans for the Northern & Shell Pension Schemes have been revised ahead of completing the next valuations in 2018. On and subject to NSNL Completion, an upfront payment of £41.2 million will be made to the Northern & Shell Pension Schemes and contributions of £1.9 million per annum from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027 will be payable. Future triennial valuations for Northern & Shell Pension Schemes will be aligned to Trinity Mirror Pension Schemes.
The revised recovery plans reflect agreed mitigation for any potential detrimental impact on the employer covenant as a result of the transaction which is driven by the requirement for all material Northern & Shell subsidiaries to guarantee the financial indebtedness of the Trinity Mirror Group under the Existing Debt Facility and the New Debt Facility.
Further details of the Northern & Shell Pension Schemes is included in Part IV (Historical Financial Information Relating to Northern & Shell), Part A: Consolidated Historical Financial Information Relating to Northern & Shell, Note 27.
Trinity Mirror had a policy in place with the Trinity Mirror Pension Schemes by which additional contributions are paid to those schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2015, 2016 and 2017. Additional contributions would have been paid at 50% of the excess if dividends in 2015 were above 5.00 pence per share. For 2016 and 2017 the threshold increased in line with the increase in dividends capped at 10% per annum. No payments were paid in respect of the dividends paid in 2015, 2016 and 2017. Alongside the £10 million share buyback announced in August 2016, Trinity Mirror agreed to contribute a minimum of £5 million or up to a maximum of 75% of the share buyback as additional funding to the Trinity Mirror Pension Schemes. Trinity Mirror paid £5.0 million in 2016 and paid £2.5 million in 2017.
As part of agreeing the 31 December 2016 triennial valuations for the Trinity Mirror Pension Schemes, Trinity Mirror has a policy in place with the Trinity Mirror Pension Schemes by which additional contributions are paid to those schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2018, 2019 and 2020. Additional contributions will be paid at 50% of the excess if dividends in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold increases in line with the increase in dividends capped at 10% per annum.
The Northern & Shell Group had entered into a profit sharing arrangement with some of the Northern & Shell Pension Schemes by which additional contributions are paid depending on the Northern & Shell Group's free cash flows. No additional contribution was paid in respect of 2016 and none is payable in respect of 2017.
As a result of the transaction, a revised dividend sharing policy will be adopted by Trinity Mirror which will replace the existing policy for the Trinity Mirror Pension Schemes and the profit sharing arrangements for the Northern & Shell Pension Schemes. Under the revised policy, additional contributions will be paid to the schemes in respect of a special distribution (a distribution to shareholders that is over and above a normalised dividend) in 2018, 2019 and 2020. Additional contributions will be paid at 75% of the excess if dividends in 2018 are above 6.16 pence per share. For 2019 and 2020 the threshold will increase in line with the increase in dividends capped at 10% per annum.
Trinity Mirror has and will continue to commit that the aggregate of dividends and distributions to Shareholders in any calendar year will not exceed the aggregate contributions to the defined benefit pension schemes.
The Pensions Regulator confirmed in a letter dated 16 November 2017 to Frank Field MP that it was aware of the possibility of the transaction and was working with all relevant parties to assess the impact of the potential Acquisition on both the Northern & Shell Pension Schemes and the Trinity Mirror Pension Schemes and, if relevant, what mitigation would be appropriate.
The Company and Northern & Shell met and corresponded with the Pensions Regulator as part of the negotiation phase of the transaction process. The Company also met and consulted with all six sets of pension scheme trustees who also, separately, interacted with the Pensions Regulator.
As described above, a package of higher contributions and a revised dividend sharing policy will be put in place for the six schemes as a result of the transaction. The Company, Northern & Shell and the six sets of pension scheme trustees, following comprehensive engagement with the Pensions Regulator, consider this package to be appropriate.
Trinity Mirror paid a final dividend for 2016 of 3.35 pence per Ordinary Share on 9 June 2017, and an interim dividend for 2017 of 2.25 pence per Ordinary Share was paid on 29 September 2017. Total dividend payments in 2017 amounted to £15.3 million. This is in line with the progressive dividend policy aligned to free cash generation by the business. The free cash generation for the purposes of assessing the dividend is the net cash flow generated by Trinity Mirror before the repayment of debt, dividend payments, other capital returns to Shareholders and additional contributions made to the Trinity Mirror Pension Schemes as a result of any substantial increase in dividends and/or capital returns to Shareholders. When setting the level of dividends the Board will ensure that Trinity Mirror maintains adequate headroom for investment and any unexpected cash flow requirements for historical events or to fund further restructuring. Based on the Board's expectations of future cash flows, the Board expects dividends to increase by at least five per cent. per annum. Trinity Mirror's dividend policy will not be affected by the Acquisition.
The Consideration Shares will be issued at NSNL Completion, credited as fully paid and will rank pari passu in all respects with the Ordinary Shares, including the right to receive all dividends, distributions or any return of capital declared, made or paid after NSNL Completion.
The Notice of General Meeting, at which the Acquisition Resolution summarised below will be proposed, is set out at the end of this Circular. The Acquisition Resolution is required in order to enable the Company to implement the Acquisition and, accordingly, the Acquisition is conditional on the Acquisition Resolution being passed. The full text of the Acquisition Resolution is set out in the Notice of General Meeting.
The Acquisition Resolution proposes that the Acquisition be approved and that the Directors be authorised to take all steps and enter into all agreements and arrangements necessary, expedient or desirable to implement the Acquisition.
The Acquisition Resolution will be proposed as an ordinary resolution. The Acquisition Resolution must be approved by Shareholders who together represent a simple majority of the Ordinary Shares being voted (whether in person or by proxy) at the General Meeting.
A Proxy Form for use in relation to the General Meeting which covers the Acquisition Resolution to be proposed at the General Meeting accompanies this Circular. Shareholders can also submit or register the appointment of their proxy electronically at www.sharevote.co.uk.
If you hold Ordinary Shares in CREST, you may instead appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Company's registrars, Equiniti. Guidance notes to assist you in completing the Proxy Form or to register the appointment of a proxy electronically or to complete and transmit a CREST Proxy Instruction are set out in the Notice of General Meeting at the end of this Circular.
Whether or not you intend to be present at the General Meeting, Shareholders are requested to complete and return the accompanying Proxy Form in accordance with the instructions printed thereon or to register the appointment of a proxy electronically or, if you hold Ordinary Shares in CREST, to complete and transmit a CREST Proxy Instruction.
Completed Proxy Forms should be returned to the Company's registrars, Equiniti, and any electronic proxy instruction or CREST Proxy Instruction should be made as soon as possible and, in any event, so as to be received no later than 11.30 am on Friday, 23 February 2018.
The completion and return of a Proxy Form or the transmittal of an electronic proxy registration or CREST Proxy Instruction will not prevent you from attending the General Meeting and voting in person if you wish to and are entitled to do so.
Your attention is drawn to the further information set out in Part II (Risk Factors) to Part VI (Additional Information) of this Circular and in particular the risk factors set out in Part II (Risk Factors) of this Circular.
Investors should read the whole of this Circular and not rely solely on information summarised in this letter, including the summarised financial information.
The Board has received financial advice from Numis in relation to the Acquisition. In providing such financial advice to the Board, Numis has relied on the Board's commercial assessment of the Acquisition. The Board considers the terms of the Acquisition and the Acquisition Resolution to be in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Acquisition Resolution as they intend to do in respect of their own beneficial holdings of Ordinary Shares.
Yours faithfully,
for and on behalf of Trinity Mirror plc David Grigson
Prior to voting on the Acquisition Resolution at the General Meeting, you should carefully consider, together with all other information contained in this Circular, the specific risks and uncertainties described below.
The Directors consider the following to be the material risk factors relating to the Acquisition and to which Trinity Mirror and Northern & Shell are (and, following NSNL Completion, the Enlarged Group will be) exposed. However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. Additional risks and uncertainties that are not presently known to the Directors, or which they currently deem immaterial, may also have an adverse effect on the Enlarged Group's operating results, financial condition and/or prospects if they materialise. The information given is as at the date of this Circular and, except as required by the FCA, the London Stock Exchange, MAR, the Listing Rules or the Disclosure Guidance and Transparency Rules (and/or any regulatory requirements or applicable law), will not be updated.
If any or a combination of the following risks and uncertainties actually materialise, the Enlarged Group's business, financial condition and results of operations could be materially and adversely affected. In such case, the price of the Ordinary Shares could decline and Shareholders may lose some or all of their investment.
NSNL Completion is conditional upon satisfaction of various Conditions, including the passing of the Acquisition Resolution and Admission, prior to the Long Stop Date.
In the event that the General Meeting resolves not to approve the Acquisition Resolution or the Conditions are not satisfied by the Long Stop Date, the Share Purchase Agreement will automatically terminate with immediate effect.
If the Conditions are not satisfied Trinity Mirror would nonetheless be required to pay significant fees and other costs incurred in connection with the Acquisition (including financing, financial advisory, legal and accounting fees and expenses).
If the Acquisition Resolution is approved at the General Meeting and each of the other Conditions is satisfied prior to the Long Stop Date, Trinity Mirror will be contractually obliged to proceed to NSNL Completion unless the Share Purchase Agreement is otherwise terminated in accordance with its terms.
The JV Acquisition and the Direct Sales Acquisition are conditional on NSNL Completion and additionally receipt of ROI Competition Clearance.
There can be no assurance that the Conditions will be fulfilled or that the Acquisition will be completed.
If the financial results and cash flows generated by Northern & Shell and its future prospects are not in line with Trinity Mirror's expectations, a write-down may be required against the carrying value of Trinity Mirror's investment in Northern & Shell and/or accounting goodwill and other intangible assets generated upon acquisition. Such a write-down may affect Trinity Mirror's (and, following NSNL Completion, the Enlarged Group's) business and may also reduce Trinity Mirror's ability to generate distributable reserves by the extent of the write-down and consequently affect its ability to pay dividends.
Trinity Mirror and Northern & Shell currently operate and, until NSNL Completion, will continue to operate as two separate and independent businesses. The Acquisition will require the integration of Northern & Shell with the existing businesses carried on by Trinity Mirror and the success of the Enlarged Group will depend, in part, on the effectiveness of the integration process and the ability of the Enlarged Group to realise the anticipated benefits and synergies from combining the respective businesses.
The integration of Northern & Shell may involve particular challenges, some of which may not be known until after NSNL Completion. The process of integrating Northern & Shell with the existing businesses carried on by Trinity Mirror could potentially lead to operational interruption or a loss of key personnel, either or both of which could have an adverse effect on the business, financial condition and results of operations of the Enlarged Group. Any delays or difficulties encountered in connection with the integration of Trinity Mirror's and Northern & Shell's businesses could also lead to reputational damage to the Enlarged Group. Trinity Mirror's and Northern & Shell's management teams will be required to devote significant attention and resources to integrating their respective business practices and operations. There is a risk that the challenges associated with managing the integration of Trinity Mirror's and Northern & Shell's respective businesses will result in management distraction and that, consequently, the underlying businesses will not perform in line with expectations.
Trinity Mirror and Northern & Shell expect to incur a number of costs in relation to the Acquisition, including integration and post-completion costs, which could exceed amounts estimated. There may also be further additional and unforeseen expenses incurred in connection with the Acquisition. These costs could have an adverse effect on the operating results, business, financial condition and/or prospects of the Enlarged Group.
Trinity Mirror can offer no assurance that the Enlarged Group will realise the potential benefits of the Acquisition, including synergies, to the extent and within the timeframe contemplated or at all. If Trinity Mirror is unable to successfully integrate Northern & Shell, this could have a negative impact on the business, results of operations, financial condition and/or prospects of the Enlarged Group.
Under the terms of the Share Purchase Agreement, the Seller has given certain representations, warranties, indemnities and covenants in favour of Trinity Mirror. The liabilities of the Seller under the Share Purchase Agreement are subject to limitations and in any event limited in amount and Trinity Mirror may therefore sustain losses in excess of any such limitations. The Seller's liability under the warranties is subject to a de minimis of £75,000 per claim and a threshold of £1.3 million, above which threshold the Seller is liable for the whole amount claimed and its liability is not limited to the amount of the excess. The Seller's liability under the indemnities is subject to a de minimis of £10,000 per claim above which the Seller shall be liable for the whole amount claimed and not just the excess. The Seller's liability under both warranty claims and indemnity claims, subject to certain exceptions, is capped at £100 million. The Seller's liability is also limited in time; warranty claims must be brought within 24 months of NSNL Completion (with the exception of tax claims, which must be brought within 7 years following NSNL Completion and claims under the pension warranties, which must be brought within 6 years following NSNL Completion). Indemnity claims must be brought within 36 months save for certain claims which must be brought within 7 years, in each case following NSNL Completion.
Please see Part III (Summary of the Principal Terms of the Acquisition) of this Circular for a summary of the principal terms and conditions relating to the Acquisition.
Post NSNL Completion, Trinity Mirror has contracted to provide a number of transitional services to parts of the Seller's business that do not form part of the Acquisition. These services include IT, finance and administrative services and cover a maximum period of 12 months. The provision of these services could delay the timing of realisation of synergy benefits as old systems and IT infrastructure may need to be maintained to meet the obligations under these service arrangements.
Trinity Mirror is targeting synergies from the Acquisition and the financial planning for the Enlarged Group is based in part on realising these synergies, which include expected cost savings of, in aggregate, £20 million per annum before tax to be achieved by 2020, with a significant amount of these savings achieved in 2019.
Realisation of these synergies will depend partly on the rapid and efficient management and co-ordination of the activities of the Enlarged Group's businesses. There is a risk that synergy benefits from the Acquisition may fail to materialise, or they may be materially lower than has been estimated. In addition, the cost of achieving these synergies may exceed the expected restructuring costs of £16 million and the expected level of capital expenditure of £4 million anticipated to be incurred across the first and second year of ownership. Such eventualities could have a material adverse effect on the business, financial condition, operational results and/or prospects of the Enlarged Group.
The calibre and performance of management personnel and other employees, taken together, is important to the success of both Northern & Shell, prior to NSNL Completion, and to the Enlarged Group, following NSNL Completion, and, while plans are, or will be, put in place for the retention of management personnel and other key employees following NSNL Completion, there can be no assurance that, prior to NSNL Completion, Northern & Shell will not lose key personnel (or a significant number of personnel) or that the Acquisition will not result in the departure of management personnel and/or employees from the Enlarged Group. The departure of key or of a significant number of management personnel or employees could adversely affect Trinity Mirror's ability to realise the benefits and synergies of the Acquisition. Such departures could also adversely affect both the Enlarged Group's ability to conduct its businesses (through an inability to execute business operations and strategies effectively) and the value of those businesses, which could have an adverse effect on the operating results, business, financial condition and/or prospects of the Enlarged Group.
A significant proportion of the value of Northern & Shell relates to its intellectual property rights, in particular its valuable brands and proprietary trademarks, content, services and internally-developed technology. The business of Northern & Shell depends (and, following NSNL Completion, the Enlarged Group will depend) on this intellectual property. The Directors believe that, following NSNL Completion, the ability of the Enlarged Group to protect its intellectual property rights would be important to the continued success and competitive position of the Enlarged Group.
The Enlarged Group may not be able to protect intellectual property rights upon which its business relies and, if it loses intellectual property protection, its assets may lose value and its business may be adversely affected. Unauthorised parties may attempt to copy or otherwise obtain the content, services, technology and other intellectual property of Northern & Shell (or, following NSNL Completion, the Enlarged Group) and it cannot be certain that the steps that have been taken to protect such proprietary rights will prevent any misappropriation or confusion among consumers and merchants, or unauthorised use of such rights. Advancements in technology have exacerbated the risk by making it easier to duplicate and disseminate content.
If Northern & Shell (or, following NSNL Completion, the Enlarged Group) has to litigate (in the United Kingdom or elsewhere) to enforce its intellectual property rights or determine the validity and scope of the proprietary rights of others, such litigation may be costly and divert the attention of the management of Northern & Shell (or, following NSNL Completion, the Enlarged Group).
If Northern & Shell (or, following NSNL Completion, the Enlarged Group) is unable to procure, protect and enforce its intellectual property rights, it may not realise the full value of these assets, and its business may be adversely affected. These occurrences could have a material adverse effect on the business, financial condition, operational results and/or prospects of Northern & Shell (or, following NSNL Completion, the Enlarged Group).
Certain contracts which Northern & Shell has entered into contain ''change of control'' or similar clauses that allow the counterparty to terminate or change the terms of their contract upon NSNL Completion, or may otherwise allow the counterparty to exert leverage to renegotiate the terms of the existing contract upon NSNL Completion. Trinity Mirror and Northern & Shell will seek to obtain consents from certain of these counterparties to the continuance of the contract after the change of control, and may renegotiate terms with others. There can be no assurance that the Enlarged Group will be able to contract on the same terms as Northern & Shell does prior to NSNL Completion. If third party consents cannot be obtained, or terms that are renegotiated are unfavourable when compared with the current contracts, there may be an adverse effect on the operating results, business, financial condition and/or prospects of the Enlarged Group.
The Acquisition will be funded in part by the New Debt Facility described in Part VI (Additional Information) of this Circular. The costs and terms on which the Enlarged Group is able to refinance the New Debt Facility and other longer-term indebtedness will depend in part on market conditions. Unfavourable market conditions may arise which could impact the cost at and terms on which the Enlarged Group is able to access capital markets to refinance its indebtedness, which may among other things increase its cost of capital.
The Acquisition will significantly increase the scale of Trinity Mirror's newspapers business. Revenue in the newspaper industry is (and therefore Trinity Mirror's and Northern & Shell's business operations are and, following NSNL Completion, the Enlarged Group's business operations will be) dependent upon newspaper sales and advertising revenue. Competition for advertising and newspaper sales revenue comes from national, local and regional free and paid-for newspapers, radio, broadcast and cable television, direct mail, classified directories, internet and other communications and advertising media that operate in the same markets as Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group). Websites and applications for mobile devices distributing news and other content continue to gain popularity, with relatively low barriers to entry for certain web-based businesses bringing new entrants to the markets of Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group). As a result, audience attention and advertising spending is now spread across a more fragmented media landscape. The fragmentation of media has intensified competition for advertising and has contributed, and may continue to contribute, to a decline in print advertising and newspaper sales revenue for Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group). Should significant numbers of customers choose to receive content using these alternative delivery sources (rather than the newspapers of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group)), and if Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) is not successfully able to migrate customers onto its digital distribution channels (and/or is not able to generate equivalent revenue through such channels), the Enlarged Group may suffer greater decreases in advertising revenue than anticipated or face a greater long-term decline in circulation than anticipated, which is likely to have a material adverse effect on its business, operational results, financial condition and/ or prospects. The increased scale of the Trinity Mirror Group's print businesses may lead to increased exposure to declines in print advertising revenue and newspaper sales revenue.
Newspaper sales are a significant source of revenue for Trinity Mirror and Northern & Shell (and, following NSNL Completion, will be for the Enlarged Group). In recent years, Trinity Mirror's and Northern & Shell's newspapers, and the newspaper industry as a whole, have experienced declining print circulation volume as a result of preferences by some customers to receive all or a portion of their news in new media formats from sources other than print media and the proliferation of those alternative formats. Although Trinity Mirror has, to a degree, been able to offset declining print revenues due to declines in circulation through increases in the cover prices of its publications and an increased focus on driving its digital audience, digital growth has not yet offset print declines and there can be no assurances that it (or, following NSNL Completion, the Enlarged Group) will continue to be able to do so.
Trinity Mirror and Northern & Shell have made significant investments in, and continue to make efforts to build, their digital businesses and the Board believes the success and growth of the overall business of Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) depends to a significant degree upon the combined development of its digital businesses and its ability to continue to adapt quickly to technological changes, evolving industry standards and customers' changing needs and preferences. The increasing number of digital media options available on the internet, through mobile devices and through social networking tools is expanding consumer choice significantly. Accordingly, as a result of increased competition, it may not be possible for Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) to increase its online traffic sufficiently or to monetise this traffic sufficiently.
The ability to attract advertisers and thereby generate revenue and profits from advertising is primarily dependent upon success in attracting audience to the digital products. If traffic levels decline or stagnate, Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) may not be able to create sufficient advertiser interest in its digital businesses and to maintain or increase rates for advertising on its digital products. Even if it maintains traffic levels, the market position of the brands of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) may not be sufficient to counteract the significant downward pressure on advertising rates that the marketplace has experienced as a result of a significant increase in the number of platforms available for distribution.
Failure to successfully develop Trinity Mirror's and/or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) digital business, could have a material adverse effect on Trinity Mirror's and/or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) business, results of operations, financial condition and/or prospects.
Both Trinity Mirror and Northern & Shell recognise pension deficits on their balance sheets.
Trinity Mirror operates three defined benefit occupational pension schemes. Trinity Mirror pays contributions to its defined benefit pension schemes to make good the past service deficits on terms agreed with the Trustees. The accounting pension deficit fell during 2017 by £88.4 million from £466.0 million (£385.1 million net of deferred tax) to £377.6 million (£311.4 million net of deferred tax) reflecting the impact of strong asset returns and the benefit of a decrease in future mortality assumptions that more than offset a further reduction in the discount rate. The change in the accounting deficit does not impact Trinity Mirror's current funding commitments.
During 2017, Trinity Mirror paid £36.2 million of deficit funding and an additional £2.5 million which was agreed as part of a £10 million buyback programme, to the Trinity Mirror Pension Schemes.
The December 2016 triennial valuations for the Trinity Mirror Pension Schemes were agreed in December 2017 and these require contributions of £43.8 million per annum from 2018 to 2027. The revised funding was based on actuarial deficits on a technical provisions basis of £476.0 million for the MGN Pension Scheme, £68.2 million for the Midland Independent Newspapers Pension Scheme and £78.0 million for the Trinity Retirement Benefits Scheme.
Northern & Shell operates three defined benefit occupational pension schemes. Northern & Shell pays contributions to the Northern & Shell Pension Schemes to make good the past service deficits on terms agreed with the trustees of those schemes. The accounting pension deficit of the Northern & Shell Pension Schemes as at 31 December 2016 was £31.3 million (£25.3 million net of deferred tax).
During 2016, Northern & Shell paid £15.3 million of deficit funding to the Northern & Shell Pension Schemes.
As a result of the transaction, revised deficit recovery plans have been agreed with the trustees of the Northern & Shell Pension Schemes which involves, in aggregate, an upfront contribution of £41.2 million on NSNL Completion and annual contributions of £1.9 million each year from 2018 to 2020, £4.1 million per annum from 2021 to 2023, £3.3 million per annum from 2024 to 2026 and £1.3 million in 2027. Post tax, these contributions equate to £57.5 million.
The funding position of defined benefit occupational pension schemes on both the IAS19 and other bases can fluctuate depending on market conditions and actuarial assumptions (including long-term discount rates and mortality assumptions). These fluctuations can impact on the contributions payable by Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) to the schemes and pension deficits may grow at such a rate so that annual cash funding consumes a disproportionate level of operating cash flow of Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group).
The nature of these pension arrangements means that Trinity Mirror and Northern & Shell are (and, following NSNL Completion, the Enlarged Group will be) exposed to volatile cash, balance sheet and profit and loss impacts. In particular, the funding level of the schemes for both cash and accounting purposes is sensitive to changes in a wide range of actual or assumed factors, which are beyond the control of Trinity Mirror and Northern & Shell (and will, following NSNL Completion, be outside the control of the Enlarged Group): including but not limited to interest rates, inflation rates, mortality and regulatory change. Any adverse impact from these factors, together with the slowdown in the global economy and its impact on Trinity Mirror's and/or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) business and investment returns, could have material implications for future pension scheme funding and could adversely impact Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) and its ability to fund past service provision. This may result in a material adverse impact on the business, operational results, financial condition and/or prospects of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group). Consequently, it is not possible to predict accurately the future funding level or employer cash contribution obligations and accounting charges with any degree of certainty. In addition, Trinity Mirror's and Northern & Shell's (and, following NSNL Completion, the Enlarged Group's) distributable reserves, and consequently its ability to pay dividends, will be reduced to the extent that any increase in the pension deficit is required to be recognised on the balance sheet at the end of each financial year.
To facilitate its review of the proposed transaction the Pensions Regulator requested documents and information from all parties. It is understood that to expedite the process and overcome any concerns regarding third party confidentiality agreements some of this information was requested from Northern & Shell using the Pensions Regulator's formal powers under section 72 of the Pensions Act 2004.
The Pensions Regulator has statutory powers to require an employer of a defined benefit pension scheme or a person connected or associated with such employer to make a contribution to or provide financial support for that scheme in certain circumstances.
Whilst no such regulatory action is anticipated, there is a potential risk that actions taken prior to NSNL Completion could lead the Pensions Regulator to exercise its statutory powers and impose financial obligations on companies in the Northern & Shell Group after NSNL Completion.
As part of the transaction the Seller will be providing warranty and indemnity protection to the Enlarged Group against pre-completion matters including pension related issues such as actions taken by the Pensions Regulator that relate to transactions with associates prior to NSNL Completion. Were the Seller to default in its indemnity obligations (in whole or in part) this could have a material adverse impact on the Enlarged Group's business, results of operations, financial condition and/or prospects.
The exact impact of market risks faced by Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) is uncertain and difficult to predict and respond to, in particular, in view of: (i) the unpredictable consequences of the vote by the UK to leave the European Union (commonly referred to as ''Brexit''); (ii) difficulties in predicting the rate at which any economic disruption may occur, and over what duration; and (iii) the fact that some of the related risks to the business are totally, or partially, outside the control of Trinity Mirror or Northern & Shell (or, following NSNL Completion, the Enlarged Group).
Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) may be subject to legal claims, including actual or alleged libel, misuse of private information (including potential claims for phone hacking), infringement of copyright and breach of the Data Protection Act 1998, that arise in the course of the business of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) in connection with the content of their publications, websites and advertisements. The damages that may be claimed in future legal proceedings could be substantial, including in certain cases claims for aggravated and/or exemplary damages as well as injunctions. In addition, Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) may incur significant costs in defending future legal actions brought against them which may not be fully recoverable, irrespective of whether they are successful in defending any claims, and they may be subject to adverse publicity or reputational harm as a result of such claims or actions. Furthermore, conditional fee arrangements, and the fact that claimants are not themselves responsible for paying costs in relation to such arrangements, may encourage the pursuit of legal action and may lead to an increase in the number of claims made against Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group).
In addition, Trinity Mirror and Northern & Shell are (and, following NSNL Completion, the Enlarged Group will be) liable for the content of their publications, websites and advertisements. If legal proceedings against Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) are successful, it could increase their expenses and harm their reputations and relationships with customers. Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) may also be liable to third parties if the content of their publications, websites or advertisements violates intellectual property rights of third parties. If the outcome of any legal proceedings brought against Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) are not favourable, it could have a material adverse effect on their reputations, business, operational results, financial condition and/or prospects.
Trinity Mirror's subsidiary, MGN Limited (''MGN''), has faced a significant number of civil claims for misuse of private information. Since July 2014, after Trinity Mirror's ongoing investigations revealed that phone hacking had taken place at MGN, Trinity Mirror has been dealing with these claims from individuals and has been incurring the cost of dealing with and resolving these claims. During 2017, as a result of the lengthy process of settling claims and the structure and quantum of legal fees for claimants, the provision for settling the claims was increased by £10.5 million. By December 2017, a total provision of £63.0 million had been made for dealing with and resolving claims in relation to phone hacking and the unutilised provision was £10.7 million. MGN continues to resolve civil claims but there is potential for further and/or increased liabilities to arise from the outcome or resolution of the ongoing historical legal issues or further investigations which may require Trinity Mirror to reassess the sufficiency of, and potentially increase, its current provision. However, the Board remains confident that the exposure arising from these historical events is manageable.
Expansion of privacy law in the UK could impact on the ability of certain titles of Trinity Mirror and/ or Northern & Shell (or, following NSNL Completion, the Enlarged Group) to continue publishing in the manner that they currently do. In addition, costs could be incurred by Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) should Section 40 of the Crime and Courts Act 2013 be ''activated'' by the Government. This could have an adverse impact on the business, financial condition, results of operations and/or prospects of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group).
The basic raw material for the publications of Trinity Mirror and Northern & Shell is (and, following NSNL Completion, those of the Enlarged Group will be) newsprint. Historically newsprint prices have fluctuated substantially and newsprint costs have increased since the UK voted to leave the European Union in 2016. Accordingly, the financial results of Trinity Mirror and Northern & Shell are (and, following NSNL Completion, those of the Enlarged Group will be) sensitive to changes in newsprint prices. Trinity Mirror and Northern & Shell have no formal written or multi-year contracts with their paper suppliers and prices are negotiated at least annually and sometimes more frequently.
If the newsprint industry reduces capacity, this could result in an increase in the prices Trinity Mirror and Northern & Shell pay (and, following NSNL Completion, the Enlarged Group will pay) for its newsprint. The availability of newsprint supply may be affected by various factors, including the Brexit negotiations, strikes and other disruptions that may affect deliveries of newsprint, such as the failure or insolvency of a newsprint supplier due to, for instance, a decline in newsprint consumption and the relative strength of sterling as the UK is reliant on the import of newsprint. An inability to obtain an adequate supply of newsprint at a favourable price or in sufficient volumes in the future, or a significant disruption or disruptions to the availability of the newsprint supply of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group), could result in a material adverse effect on the business, financial condition, results of operations and/or prospects of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) and their ability to produce their publications.
The inability of the Enlarged Group to maintain the current terms for contracts with advertising agencies for national advertising and with wholesalers for newspaper and magazines sales could materially impact revenues for the Enlarged Group and/or materially reduce the anticipated benefits (including synergy benefits) of the Acquisition (or affect the timeframe within which such benefits are realised) or result in a material adverse effect on the operating results, business, financial condition and/or prospects of the Enlarged Group.
Advertising agencies contracts are negotiated annually and the current main wholesale contracts for Trinity Mirror and Northern & Shell expire in 2019 and 2021 respectively.
Trinity Mirror and Northern & Shell depend (and, following NSNL Completion, the Enlarged Group will depend) on their key personnel and their ability to attract, retain and hire other qualified and experienced employees. In particular, competition in the media industry for experienced senior management personnel is intense and Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) may not be able to retain their personnel. The loss of any key personnel would require the remaining key personnel to divert immediate and substantial attention to seeking a replacement. An inability to find suitable replacements for departing key personnel could adversely affect the ability of Trinity Mirror or Northern & Shell (or, following NSNL Completion, the Enlarged Group) to grow their businesses. Production and distribution of the publications of Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) and the generation of advertising revenue also require skilled and experienced employees. A shortage of such employees, or the inability of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) to retain such employees, could have an adverse impact on the productivity and costs of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group), its ability to expand, develop and distribute new products, generate advertising sales and its entry into new markets. The cost of retaining or hiring such employees could exceed the resources of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group).
If Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) fails to retain essential senior management and other key personnel it may be unable to operate or grow its business in accordance with its strategy which could have an adverse impact on its business, operational results, financial condition and/or prospects.
Trinity Mirror and Northern & Shell operate (and, following NSNL Completion, the Enlarged Group will operate) in a unionised industry. Trinity Mirror and Northern & Shell have, in general, good relations with their employees and unions. However, there can be no assurance that their operations will not be affected by related problems in the future such as industrial action. There can be no assurance that strikes, work stoppages, industrial action or other labour-related developments (including the introduction of new labour regulations in the United Kingdom) will not adversely affect the business, operational results, financial condition and/or prospects of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) as a consequence of the Acquisition and integration of Northern & Shell.
All of the businesses of Trinity Mirror and Northern & Shell are (and, following NSNL Completion, the businesses of the Enlarged Group will be) dependent on technology to some degree and information systems are critical for the effective management and provision of services. Trinity Mirror and Northern & Shell depend (and, following NSNL Completion, the Enlarged Group will depend) upon ongoing investments in advanced computer database and telecommunications technology as well as upon their ability to protect their telecommunications and information technology systems against damage or system interruptions from cyber-attacks, natural disasters, technical failures and other events beyond their control. In order for Trinity Mirror and Northern & Shell (and, following NSNL Completion, the Enlarged Group) to compete effectively and to meet its customers' needs, it must maintain its systems in good working order as well as invest in improved technology. Information security has also become an important issue in recent years as a result of several high profile losses of data and the growing threat and prevalence of cyber-attacks. Any future breach in the data security of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) could have a harmful impact on its business and reputation. A temporary or permanent loss of any of the systems or networks of Trinity Mirror and/or Northern & Shell (or, following NSNL Completion, the Enlarged Group) could cause significant disruption to its business operation, or damage to its reputation resulting in a loss of revenue and potentially higher costs in the future, which could have an adverse effect on its business, financial condition, results of operations and/or prospects.
The Acquisition is not conditional on the receipt of merger control approval from the CMA. The Acquisition may, however, be reviewed by the CMA. The CMA has the power to impose on Trinity Mirror an order, such as an initial enforcement order (a ''hold separate'' order) to ensure that Trinity Mirror and Northern & Shell are held as separate businesses (which could, amongst other things delay the integration of Northern & Shell with Trinity Mirror and therefore adversely impact the synergy savings in the first year and prevent Trinity Mirror from doing anything which might impair the ability of the Northern & Shell business to compete independently in any markets), pending any decision being made by the CMA and the power to require remedies as a consequence of the Acquisition, such as the divestment by the Enlarged Group of certain assets or businesses and/or the imposition of restrictions on the conduct of the businesses of the Enlarged Group and/or other behavioural remedies.
The Acquisition, the Direct Sales Acquisition and the JV Acquisition together satisfy the conditions for the notification of media mergers to the Competition and Consumer Protection Commission and to the Minister of Communications, Climate Action and Environment in the Republic of Ireland. This is because the acquisitions involve a media business in the Republic of Ireland as a media merger includes an acquisition in which one or more of the undertakings involved carries on a media business in the Republic of Ireland (Trinity Mirror itself satisfies this test) and one or more of the undertakings carries on a media business outside of the Republic of Ireland (Northern & Shell satisfies this). Such acquisitions must be notified in the Republic of Ireland. The Acquisition, the Direct Sales Acquisition and the JV Acquisition will therefore be notified to the Commission and to the Minister. Similarly to the CMA, the Irish authorities have the power to impose remedies as a consequence of the acquisitions. No aspect of the Acquisition within the Republic of Ireland, nor the Direct Sales Acquisition nor the JV Acquisition will be put into effect until they have been cleared by the Commission and the Minister.
Any divestments, restrictions or remedies could impose sustained additional costs for the Enlarged Group and/or materially reduce the anticipated benefits (including synergy benefits) of the Acquisition (or affect the timeframe within which such benefits are realised) or result in a material adverse effect on the operating results, business, financial condition and/or prospects of the Enlarged Group.
Since 2010 the Trinity Mirror Group has incurred significant costs in relation to payments to public officials and phone hacking. There remains uncertainty as to the amount of expenditure that may be tax deductible and additional tax liabilities may fall due in relation to earlier years.
The conclusion of this could result in an adverse effect on the operating results, business, financial condition and/or prospects of Trinity Mirror (and, following NSNL Completion, the Enlarged Group).
Trinity Mirror's and Northern & Shell's profitability and development are not currently impacted by the availability or cost of debt finance. However, Trinity Mirror's and/or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) ability to access liquidity to fund their businesses in the longer term may be affected during periods of tight credit conditions or the absence of funds at a reasonable cost. The availability and cost of debt finance may influence Trinity Mirror's or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) profitability and Trinity Mirror's and/or Northern & Shell's (or, following NSNL Completion, the Enlarged Group's) ability to participate in development opportunities.
In addition, Trinity Mirror's existing financings contain customary financial and other covenants – all of which Trinity Mirror operates within – requiring it to maintain certain financial ratios and thresholds that could in the future restrict its (or, following NSNL Completion, the Enlarged Group's) flexibility in planning for, and reacting to, competitive pressures and changes in its business, industry and general economic conditions and limit its ability to undertake organic development opportunities, make strategic acquisitions, refinance debt and capitalise on business opportunities.
In addition, if Trinity Mirror (or, following NSNL Completion, the Enlarged Group) fails to pay any amount when due under, or otherwise fails to comply in any material respect with the terms of, any of its existing (and any future) financings this may ultimately lead to an event of default under the terms of such financing which could lead to acceleration and enforcement proceedings being brought against it by its creditors.
An inability to obtain future funding on reasonable terms, restrictions on its operational flexibility contained in its financing agreements and/or a material failure to comply with the terms of its existing or future financings, could have a material adverse effect on Trinity Mirror's (or, following NSNL Completion, the Enlarged Group's) business, financial condition or results of operations.
Under the terms of the Share Purchase Agreement, Trinity Mirror will (subject to the satisfaction of certain conditions) acquire Northern & Shell for a total purchase price of £126.7 million.
The purchase consideration of £126.7 million will be satisfied by the payment to the Seller of, in aggregate, £106.7 million in cash and the balance of £20.0 million by the allotment and issue to the Seller of 25,826,746 Consideration Shares.
Northern & Shell comprises three separate businesses: Northern & Shell Network Limited, International Distribution 2018 Limited and the 50% equity interest in the issued ordinary share capital of Independent Star Limited. Independent Star Limited is a 50:50 joint venture between Express Newspapers and Independent News and Media Plc which publishes and sells the Irish Daily Star newspaper (Monday to Saturday) in the Republic of Ireland. International Distribution 2018 Limited sells the Daily Express, the Sunday Express, the Daily Star Sunday and celebrity magazines OK!, New! and Star in the Republic of Ireland.
The consideration payable for the entire issued share capital of Northern & Shell Network Limited will be a cash amount of £42.7 million on NSNL Completion, £20.0 million by the allotment and issue to the Seller of 25,826,746 Consideration Shares and an amount in cash of £59.0 million to be paid in four tranches of £18.9 million, £16.0 million, £17.1 million and £7.0 million on the second, third, fourth and fifth anniversaries, respectively, of NSNL Completion. The consideration payable for the entire issued share capital of Northern & Shell Network Limited will be subject to an adjustment following NSNL Completion once the completion accounts, which will be prepared by Trinity Mirror, have been finalised in accordance with the Share Purchase Agreement.
The consideration payable for the JV Acquisition will be an amount in cash of £4.5 million payable on completion of such acquisition.
The consideration payable for the Direct Sales Acquisition will be an amount in cash of £0.5 million payable on completion of such acquisition.
The cost to Trinity Mirror set out in the unaudited pro forma statement of the combined net assets of the Enlarged Group as at 2 July 2017 in Part V of this Circular of £126.7 million reflects the gross purchase consideration of £126.7 million. Transaction costs of some £7 million will be incurred by Trinity Mirror in relation to the Acquisition.
The Consideration Shares will be issued at NSNL Completion, credited as fully paid and will rank pari passu in all respects with the Ordinary Shares, including the right to receive all dividends, distributions or any return of capital declared, made or paid after NSNL Completion.
NSNL Completion is conditional upon satisfaction of the following Conditions prior to the Long Stop Date:
JV Completion and Direct Sales Completion are conditional on the completion of the acquisition of Northern & Shell Network Limited and additionally the receipt of ROI Competition Clearance prior to the Irish Long Stop Date.
Completion of the acquisition of Northern & Shell Network Limited, which does not have operations in the Republic of Ireland, is not conditional on ROI Competition Clearance being obtained.
It is expected that, if ROI Competition Clearance is obtained, the JV Acquisition and the Direct Sales Acquisition will occur in the second half of 2018.
The Share Purchase Agreement includes customary pre-completion conduct of business undertakings to be given by the Seller to procure that the business of Northern & Shell is operated in the ordinary and usual course of business, materially consistent with past practice and the 2018 Budget, between signing of the Share Purchase Agreement and the relevant completion.
The Seller is providing a set of warranties, customary for a transaction of this nature, including with regards to title, authority, accounts, material contracts, property, intellectual property rights, employment and pensions, tax and litigation.
Warranties will be given at signing of the Share Purchase Agreement and repeated at NSNL Completion and, to the extent the warranties are applicable to International Distribution 2018 Limited or the JV Entity, repeated again on Direct Sales Completion and JV Completion (as applicable) and are subject to matters disclosed in the disclosure letters.
A tax covenant is also being given by the Seller, under which it agrees to pay Trinity Mirror compensation if pre-closing historic tax liabilities of Northern & Shell Network Limited and its subsidiaries exceed the provision for tax (if any) in the completion accounts. The tax covenant also gives the Seller customary conduct rights over any disputes with HMRC in relation to historic tax issues and periods.
The Seller's liability under the warranties is subject to a de minimis of £75,000 per claim and a threshold of £1.3 million, above which threshold the Seller is liable for the whole amount claimed and its liability is not limited to the amount of the excess. The Seller's liability under the indemnities is subject to a de minimis of £10,000 per claim above which the Seller shall be liable for the whole amount and not just the excess. The Seller's liability under both warranty claims and indemnity claims is, subject to certain exceptions, capped at £100 million. The Seller's liability is also limited in time; warranty claims must be brought within 24 months of NSNL Completion (with the exception of claims under the tax warranties or tax covenant, which must be brought within 7 years following NSNL Completion and claims under the pension warranties, which must be brought within 6 years following NSNL Completion). Indemnity claims must be brought within 36 months save for certain claims which must be brought within 7 years, in each case following NSNL Completion.
The Share Purchase Agreement obliges the Seller to indemnify Trinity Mirror and any member of the Trinity Mirror Group for certain identified risks.
Trinity Mirror and the Seller have each agreed to pay their own costs and expenses incurred in connection with the preparation, negotiation, entering into and completion of the Share Purchase Agreement and all ancillary documents; any bonuses for Northern & Shell employees related to the Acquisition will be for the account of Northern & Shell. Each party is responsible for their respective professional and other costs incurred.
This Part IV contains:
| notes | 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|---|
| Revenue Cost of sales: |
4,5 | 189.9 (77.6) |
215.9 (92.4) |
244.9 (106.5) |
| Gross profit Distribution costs Administrative expenses: |
112.3 (13.5) |
123.5 (17.7) |
138.4 (22.0) |
|
| – Non-recurring items – Restructuring charges in respect to cost |
8 | (2.2) | 2.0 | (24.9) |
| reduction measures – Pension administrative expenses and |
(1.0) | (0.8) | (6.7) | |
| settlements | 27 | (1.9) | (4.3) | (1.6) |
| – Other administrative expenses | (93.3) | (78.4) | (110.2) | |
| Other operating income | 0.8 | 0.8 | 0.8 | |
| Share of results of equity accounted investees: – Results before non-recurring items and |
15 | |||
| amortisation | 0.9 | 0.9 | 0.9 | |
| – Non-recurring items | 8 | — | (0.1) | (0.3) |
| Operating profit/(loss) | 2.1 | 25.9 | (25.6) | |
| Pension finance charge | 27 | (0.9) | (1.6) | (4.1) |
| Financial income | 9 | 16.2 | 4.4 | 6.6 |
| Finance costs | 10 | (1.8) | (3.0) | (6.4) |
| Profit/(loss) before tax | 15.6 | 25.7 | (29.5) | |
| Tax (charge)/credit | 11 | (6.3) | (7.8) | 2.8 |
| Profit/(loss) for the year attributable to | ||||
| equity holders of the parent | 9.3 | 17.9 | (26.7) |
| notes | 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|---|
| Profit/(loss) for the year Items that will not be reclassified to profit and loss: |
9.3 | 17.9 | (26.7) | |
| Actuarial (losses)/gains on defined benefit pension schemes |
27 | (9.2) | 10.9 | 43.5 |
| Tax on actuarial losses on defined benefit pension schemes |
11 | 1.8 | (2.1) | (8.7) |
| Other comprehensive (costs)/income for the year |
(7.4) | 8.8 | 34.8 | |
| Total comprehensive income for the year |
1.9 | 26.7 | 8.1 |
| notes | 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Cash generated from operations before | ||||
| movements in working capital | 22 | (4.2) | 28.7 | (34.3) |
| (Increase)/decrease in inventories | (0.1) | 0.8 | 2.9 | |
| (Increase)/decrease in receivables | (45.4) | 93.5 | 129.4 | |
| Increase/(decrease) in payables | 41.2 | (144.2) | (67.5) | |
| (Decrease)/increase in provisions | (0.1) | (4.5) | 4.1 | |
| Net cash (outflow)/inflow from operating | ||||
| activities | (8.6) | (25.7) | 34.6 | |
| Investing activities | ||||
| Interest received | 0.1 | 0.1 | 0.2 | |
| Dividends received from equity accounted | ||||
| investees | 15 | 0.8 | 0.6 | 0.4 |
| Proceeds on disposal of other investments | 0.1 | — | — | |
| Proceeds on disposal of property, plant and | ||||
| equipment | 4.9 | 0.1 | 0.1 | |
| Purchases of property, plant and equipment | (1.1) | (2.0) | (2.1) | |
| Net cash received from/(used in) | ||||
| investing activities | 4.8 | (1.2) | (1.4) | |
| Financing activities | ||||
| Dividends paid | 12 | — | — | (2.1) |
| Net cash used in financing activities | — | — | (2.1) | |
| Net (decrease)/increase in cash and cash | ||||
| equivalents | (3.8) | (26.9) | 31.1 | |
| Cash and cash equivalents at the beginning | ||||
| of the year | 17 | 11.3 | 38.2 | 7.1 |
| Cash and cash equivalents at the end of | ||||
| the year | 17 | 7.5 | 11.3 | 38.2 |
| notes | Share capital £m |
Share premium account £m |
Capital redemption reserve £m |
Retained earnings £m |
Total £m |
|
|---|---|---|---|---|---|---|
| At 31 December 2013 Loss for the year Other comprehensive |
(0.1) — |
(24.6) — |
(0.1) — |
(36.0) 26.7 |
(60.8) 26.7 |
|
| income for the year | — | — | — | (34.8) | (34.8) | |
| Total comprehensive income for the year Issue of shares Dividends paid |
25, 26 12, 29 |
— — — |
— (16.6) — |
— — — |
(8.1) — 2.1 |
(8.1) (16.6) 2.1 |
| At 31 December 2014 Profit for the year Other comprehensive |
(0.1) — |
(41.2) — |
(0.1) — |
(42.0) (17.9) |
(83.4) (17.9) |
|
| income for the year | — | — | — | (8.8) | (8.8) | |
| Total comprehensive income for the year Issue of shares |
25, 26 | — — |
— (1.7) |
— — |
(26.7) — |
(26.7) (1.7) |
| Capital contribution from related parties Dividends paid |
29 12, 29 |
— — |
— — |
— — |
(13.1) 80.1 |
(13.1) 80.1 |
| At 31 December 2015 Profit for the year Other comprehensive |
(0.1) — |
(42.9) — |
(0.1) — |
(1.7) (9.3) |
(44.8) (9.3) |
|
| costs for the year | — | — | — | 7.4 | 7.4 | |
| Total comprehensive income for the year |
— | — | — | (1.9) | (1.9) | |
| At 31 December 2016 | (0.1) | (42.9) | (0.1) | (3.6) | (46.7) | |
as at 31 December 2016, 31 December 2015 and 31 December 2014
| 2016 | 2015 | 2014 | ||
|---|---|---|---|---|
| notes | £m | £m | £m | |
| Non-current assets | ||||
| Goodwill | 13 | 1.2 | 1.2 | 1.2 |
| Property, plant and equipment | 14 | 58.9 | 70.7 | 83.2 |
| Investment in equity accounted investees | 15 | 0.3 | 0.3 | 0.2 |
| Other investments | — | 0.1 | 0.1 | |
| Deferred tax assets | 19 | 15.5 | 18.6 | 26.6 |
| 75.9 | 90.9 | 111.3 | ||
| Current assets | ||||
| Inventories | 16 | 1.8 | 1.7 | 2.5 |
| Trade and other receivables | 17 | 123.0 | 62.8 | 219.1 |
| Cash and cash equivalents | 17 | 7.5 | 11.3 | 38.2 |
| 132.3 | 75.8 | 259.8 | ||
| Total assets | 208.2 | 166.7 | 371.1 | |
| Non-current liabilities Trade and other payables |
18 | — | — | (0.4) |
| Retirement benefit obligations | 27 | (31.3) | (34.6) | (54.7) |
| Provisions | 20 | (0.7) | (1.5) | (2.5) |
| (32.0) | (36.1) | (57.6) | ||
| Current liabilities | ||||
| Trade and other payables | 18 | (124.5) | (81.5) | (222.3) |
| Current tax liabilities | 11 | (2.7) | (2.7) | (2.7) |
| Provisions | 20 | (2.3) | (1.6) | (5.1) |
| (129.5) | (85.8) | (230.1) | ||
| Total liabilities | (161.5) | (121.9) | (287.7) | |
| Net assets | 46.7 | 44.8 | 83.4 | |
| Equity | ||||
| Share capital | 24,25 | (0.1) | (0.1) | (0.1) |
| Share premium account | 24,26 | (42.9) | (42.9) | (41.2) |
| Capital redemption reserve | 24 | (0.1) | (0.1) | (0.1) |
| Retained earnings | 24 | (3.6) | (1.7) | (42.0) |
| Total equity attributable to equity holders of | ||||
| the parent | (46.7) | (44.8) | (83.4) |
as at 1 January 2014
| notes | £m | |
|---|---|---|
| Non-current assets | ||
| Goodwill | 13 | 1.2 |
| Property, plant and equipment | 14 | 87.7 |
| Investment in equity accounted investees | 15 | 0.1 |
| Other investments Deferred tax assets |
19 | 0.1 33.5 |
| 122.6 | ||
| Current assets Inventories |
5.4 | |
| Trade and other receivables | 324.5 | |
| Cash and cash equivalents | 7.1 | |
| 337.0 | ||
| Total assets | 459.6 | |
| Non-current liabilities | ||
| Trade and other payables | (0.1) | |
| Retirement benefit obligations Provisions |
27 | (108.7) (1.9) |
| (110.7) | ||
| Current liabilities Trade and other payables |
(283.9) | |
| Current tax liabilities | (2.7) | |
| Provisions | (1.5) | |
| (288.1) | ||
| Total liabilities | (398.8) | |
| Net assets | 60.8 | |
| Equity | ||
| Share capital | 24, 25 | (0.1) |
| Share premium account | 24, 26 | (24.6) |
| Capital redemption reserve | 24 | (0.1) |
| Retained earnings | 24 | (36.0) |
| Total equity attributable to equity holders of the parent | (60.8) |
This combined historical financial information (''HFI'') was derived from the financial statements and accounting records of the companies being acquired and forming Northern & Shell as listed on pages 74-75, as Northern & Shell did not constitute a separate group of entities during the periods presented. Certain assets and liabilities will be transferred out of Northern & Shell prior to the transaction and they are detailed in note 31.
The combined historical financial information of Northern & Shell for the years ended 31 December 2016, 31 December 2015 and 31 December 2014 has been prepared specifically for the purposes of this Circular in accordance with the Listing Rules, with International Financial Reporting Standards as adopted by the European Union (''IFRS''), except as described below, with those parts of the Companies Act as applicable to companies reporting under IFRS, and in accordance with this basis of preparation. The accounting policies applied and disclosed below are consistent with those used by Trinity Mirror in its annual financial statements for the 53 weeks ended 1 January 2017 and these policies have been applied consistently to all periods presented unless stated otherwise.
This HFI has been prepared under the historical cost convention as modified by the revaluation of freehold properties.
For the purposes of this HFI, the deemed date of transition to IFRS of Northern & Shell is 1 January 2014 which is the beginning of the first period presented. The principles and requirements for first time adoption of IFRS are set out in IFRS 1. As Northern & Shell did not constitute a separate legal group at the date of IFRS transition, it has not previously prepared or reported any combined financial information in accordance with any other generally accepted accounting principles (''GAAP''). For the purposes of the HFI and as required by IFRS 1, a reconciliation between financial information prepared under previous GAAP and the financial information prepared in accordance with IFRS, as at the date of transition, is set out in note 33. In order to arrive at the financial information prepared under previous GAAP, the statutory accounts of the legal entities making up Northern & Shell, as prepared under FRS102, have been aggregated for any elimination entries.
This HFI has been prepared on a going concern basis. The planned acquisition of Northern & Shell has been considered and it is expected that the appropriate funding will be available for future operations after the Acquisition and that Northern & Shell will continue operating. Northern & Shell's forecasts and projections, taking account of possible changes in trading performance, show that Northern & Shell will be able to operate at adequate levels of resources for the foreseeable future.
IFRS does not provide for the preparation of combined historical financial information, and, accordingly, in preparing this HFI, certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 ''Standards for Investment Reporting applicable to public reporting engagements on historical financial information'' issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departure from IFRS. Other than the departure from IFRS 10 set out below, IFRS has been applied.
The HFI is prepared on a combined carve-out basis and therefore does not comply with the requirements of IFRS 10. The HFI, prepared specifically for the purpose of this document, combine the assets, liabilities, revenues and expenses directly attributed to Northern & Shell. This has been done by applying the principles underlying the consolidation procedures of IFRS 10 'Consolidated Financial Statements' for each of the periods presented.
The following summarises the accounting and other principles applied in preparing this HFI:
* The combined historical financial information incorporates the financial information of Northern & Shell Network Limited and certain entities controlled by it for the years ended 31 December 2016, 31 December 2015 and 31 December 2014. Control is achieved where a company has the power to govern the financial and operating policies of the investee entity, has the rights to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. Transactions and balances between entities included within this combined historical financial information have been eliminated.
This HFI may not be indicative of Northern & Shell's future performance and does not necessarily reflect what its results, financial position and cash flows would have been had Northern & Shell operated as a separate independent group during the periods presented.
The accounting policies adopted in this historical financial information reflect the most recent IFRS required adoptions as at the year ended 31 December 2016.
The following standards, interpretations and amendments to existing standards are not yet effective and have not been adopted early:
The following standards, interpretations and amendments to existing standards are not yet effective, have not yet been endorsed by the EU and have not been adopted early:
Apart from IFRS 9, IFRS 15, and IFRS 16, where the impact is currently being assessed by management, it is anticipated that the future introduction of those standards, amendments and interpretations listed above will not have a material impact on the financial statements.
The principal accounting policies adopted in the preparation of the historical financial information are set out below. The policies have been consistently applied to all years presented.
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed and equity instruments issued by Northern & Shell in exchange for control of the acquiree. Acquisition-related costs are recognised in the profit or loss account as incurred.
Where applicable, the consideration for the Acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement year adjustments. All other subsequent changes in fair value of contingent consideration classified as an asset or liability are accounted for in accordance with the relevant IFRS. Changes in the fair value of contingent consideration classified as equity are not recognised.
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over Northern & Shell's interest in the fair value of the identifiable assets and liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. On disposal of a subsidiary or associate, the remaining amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill is reviewed for impairment either annually or more frequently if events or changes in circumstances indicate a possible decline in the carrying value. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit, prorated on the basis of the carrying amount of each asset in the unit, but subject to not reducing any asset below its recoverable amount. An impairment loss recognised for goodwill is not reversed in a subsequent year.
Joint ventures are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. Northern & Shell's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The combined financial information include Northern & Shell's share of the total comprehensive income and equity movements of equity accounted investees, from the date that joint control commences until the date that joint control ceases. When Northern & Shell's share of losses exceeds its interest in an equity accounted investee, Northern & Shell's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that Northern & Shell has incurred legal or constructive obligations or made payments on behalf of an investee.
Revenue is measured at the fair value of the consideration received, net of applicable discounts and value added tax.
Advertising revenue is recognised upon publication.
Circulation revenue is recognised at the time of sale.
Printing revenue is recognised when the service is provided.
Digital revenue is recognised over the period of the online campaign.
Other revenue is recognised at the time of sale or provision of service.
Rentals receivable under operating leases are credited to the combined income statement on a straight-line basis over the lease term.
Interest income from bank deposits and related parties is recognised on an accruals basis.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to Northern & Shell. All other leases are classified as operating leases. Assets held under finance leases are recognised at their fair value at the inception of the lease or, if lower, the present value of the minimum lease payments. The asset is recognised within property, plant and equipment and the corresponding liability to the lessor is included within obligations under finance leases. Lease payments are apportioned between finance charges which are charged to the combined income statement and reductions in the lease obligation. Rentals payable under operating leases are charged to the combined income statement on a straight-line basis over the lease term. Benefits received as incentives to enter into the agreement are spread on a straight-line basis over the whole lease term.
Transactions denominated in foreign currencies are translated at the rates of exchange prevailing on the date of the transactions. At each reporting date, items denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Exchange differences arising on settlement and on retranslation are included in the combined income statement for the year.
Northern & Shell operates a number of defined benefit pension schemes, all of which have been set up under trusts that hold their financial assets independently from those of Northern & Shell and are controlled by trustees. The amount recognised in the balance sheet in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the reporting date less the fair value of scheme assets, together with any necessary adjustments for potential additional liabilities in respect of future funding commitments under IFRIC 14. The resultant liability or asset of each scheme is included in non-current liabilities or non-current assets as appropriate. Any surplus recognised is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions. The defined benefit obligation is calculated at each reporting date by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds approximating to the terms of the related pension liability.
Northern & Shell operates a defined contribution pension scheme. Payments to defined contribution pension schemes are charged as an expense as they fall due.
The tax expense represents the sum of the corporation tax currently payable and deferred tax.
The corporation tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the combined income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Northern & Shell's liability for tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the combined financial information and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the combined income statement except when it relates to items charged or credited in the combined statement of comprehensive income or items charged or credited directly to equity in which case the deferred tax is also dealt with in the combined statement of comprehensive income and equity respectively.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where Northern & Shell is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the asset to be recovered. Taxable profits are based on the expected future performance of the legal entities of Northern & Shell and are based on management's best estimate of future taxable profits in the next five years. Projections of future taxable profits beyond five years are considered to be inherently uncertain and not considered probably.
Property, plant and equipment are stated in the combined balance sheet at cost less accumulated depreciation and impairment losses. Cost includes the purchase price and all directly attributable costs of bringing the asset to its location and condition necessary to operate as intended.
Depreciation is charged so as to write-off the cost, other than freehold land and assets under construction which are not depreciated, using the straight-line method over the estimated useful lives of buildings (50 years or period of the lease, whichever is shorter) and plant, equipment, fixtures and fittings and motor vehicles (2-24 years). Assets in the course of construction are carried at cost, less any recognised impairment loss. Depreciation commences when the assets are ready for their intended use.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the combined income statement.
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first in first out method.
Financial assets and financial liabilities are recognised in the combined balance sheet when Northern & Shell becomes a party to the contractual provisions of the instrument.
Trade receivables do not carry any interest. Conversion to a readily known amount of cash occurs over a short period and is subject to an insignificant risk of changes in value. Therefore balances are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents comprise cash in hand and demand deposits.
Sterling interest bearing loans and bank overdrafts are recorded at the proceeds received, net of direct issue costs. Foreign currency interest bearing loans are recorded at the exchange rate at the reporting date. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the combined income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise. All other borrowing costs are recognised in the combined income statement in the year in which they are incurred.
Trade payables are not interest bearing. Payments occur over a short year and are subject to an insignificant risk of changes in value. Therefore balances are stated at their nominal value.
Provisions are recognised when Northern & Shell has a present obligation as a result of a past event, and it is probable that Northern & Shell will be required to settle that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material. Provisions are made for legal and other costs in respect of historical litigation and other matters in progress and for estimated damages where it is judged probable that damages will be payable.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax.
Dividend distributions to Northern & Shell's shareholders are recognised as a liability in the combined financial information in the year in which the dividends are approved.
Northern & Shell separately presents non-recurring items in the combined income statement which, in management's judgment, need to be disclosed separately by virtue of their size and incidence in order for users of the combined financial statements to obtain a proper understanding of the financial information and the underlying performance of Northern & Shell. These include the financial effect of the items which occur infrequently, such as a sale of a property outside of the ordinary course of business.
The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.
In the process of applying Northern & Shell's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Taxable profits are based on future expected performance of the business and are based on management's best estimate.
Operating segments are identified on the basis of internal reports about components of Northern & Shell that are regularly reviewed by the board and chief operating decision maker (Executive directors) to allocate resources to the segments and to assess their performance. Northern & Shell has two operating segments that are regularly reviewed by the board and chief operating decision maker.
The operating segments are: publishing which includes all of the newspaper and magazine titles and associated digital publishing; and printing which provides printing services to the publishing segment and to third parties.
The accounting policies used in the preparation of each segment's revenue are the same as Northern & Shell's accounting policies. The board are not provided with an amount for total assets by segment. Northern & Shell does not disclose operating profit by segment given the results are interrelated and the results would not be representative of the segments had they each been trading independently. Northern & Shell's operations are located primarily in the UK and Northern & Shell is not subject to significant seasonality during the year.
Segment review and results:
| Year ended 31 December 2016 | Publishing 2016 £m |
Printing 2016 £m |
Total 2016 £m |
|---|---|---|---|
| Segment sales Inter-segment sales |
186.8 — |
23.5 (20.4) |
210.3 (20.4) |
| Total revenue | 186.8 | 3.1 | 189.9 |
| Segment operating profit Non-recurring items Restructuring charges in respect to cost reduction |
7.2 (2.2) |
||
| measures Pension administrative expenses and settlements |
(1.0) (1.9) |
||
| Operating profit Pension finance charge Financial income Finance costs |
2.1 (0.9) 16.2 (1.8) |
||
| Profit before tax Tax charge |
15.6 (6.3) |
||
| Profit for the year | 9.3 |
| Year ended 31 December 2015 | Publishing 2015 £m |
Printing 2015 £m |
Total 2015 £m |
|---|---|---|---|
| Segment sales Inter-segment sales |
208.8 — |
33.1 (26.0) |
241.9 (26.0) |
| Total revenue | 208.8 | 7.1 | 215.9 |
| Segment operating profit Non-recurring items Restructuring charges in respect to cost reduction |
29.1 1.9 |
||
| measures Pension administrative expenses and settlements |
(0.8) (4.3) |
||
| Operating profit Pension finance charge Financial income Finance costs |
25.9 (1.6) 4.4 (3.0) |
||
| Profit before tax Tax charge |
25.7 (7.8) |
||
| Profit for the year | 17.9 |
| Year ended 31 December 2014 | Publishing 2014 £m |
Printing 2014 £m |
Total 2014 £m |
|---|---|---|---|
| Segment sales Inter-segment sales |
241.2 — |
38.7 (35.0) |
279.9 (35.0) |
| Total revenue | 241.2 | 3.7 | 244.9 |
| Segment operating profit Non-recurring items Restructuring charges in respect to cost reduction |
7.9 (25.2) |
||
| measures Pension administrative expenses and settlements |
(6.7) (1.6) |
||
| Operating loss Pension finance charge Financial income Finance costs |
(25.6) (4.1) 6.6 (6.4) |
||
| Loss before tax Tax credit |
(29.5) 2.8 |
||
| Loss for the year | (26.7) |
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Publishing print | |||
| Circulation | 116.3 | 135.4 | 159.1 |
| Advertising | 48.4 | 54.7 | 65.4 |
| Other | 9.5 | 9.7 | 9.8 |
| 174.2 | 199.8 | 234.3 | |
| Publishing digital | |||
| Display and transactional | 12.6 | 9.0 | 6.9 |
| Printing | 3.1 | 7.1 | 3.7 |
| Total revenue | 189.9 | 215.9 | 244.9 |
Northern & Shell's operations are located primarily in the UK. Northern & Shell's revenue by location of customers is set out below:
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| UK and Republic of Ireland | 187.6 | 213.5 | 242.1 |
| Continental Europe | 1.7 | 1.7 | 2.1 |
| Rest of World | 0.6 | 0.7 | 0.7 |
| Total revenue | 189.9 | 215.9 | 244.9 |
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Operating profit/(loss) for the year is arrived at after | |||
| (charging)/crediting: | |||
| Staff costs | (47.4) | (46.8) | (77.2) |
| Cost of inventories recognised as cost of sales | (35.1) | (38.2) | (47.8) |
| Depreciation of property, plant and equipment | (5.8) | (6.0) | (6.6) |
| Profit on disposal of fixed assets | — | — | 0.1 |
| Operating lease rentals payable: | |||
| – property | (10.8) | (10.8) | (10.9) |
| – vehicles, plant and equipment | (0.4) | (0.4) | (0.3) |
| Net foreign exchange loss | (0.1) | (0.1) | (0.1) |
| Pension administrative expenses and settlements | (1.9) | (4.3) | (1.6) |
| Restructuring charges in respect to cost reduction measures | (1.0) | (0.8) | (6.7) |
| Non-recurring items | |||
| – excluding equity accounted investees | (2.2) | 2.0 | (24.9) |
| – share of equity accounted investees | — | (0.1) | (0.3) |
Fees payable to Northern & Shell Network Limited's auditor for the audit of its annual accounts were £4,000 (2015: £4,000; 2014: £4,000) and for the audit of its subsidiaries were £210,000 (2015: £228,000; 2014: £228,000). Non audit fees payable to Northern & Shell's auditors for other advisory services were £19,000 (2015: £9,000; 2014: £6,000).
Total administrative expenses included in operating profit/(loss) amounted to £98.4 million (2015: £81.5 million; 2014: £143.4 million) including non-recurring items amounting to a charge of £2.2 million (2015: a credit of £2.0 million; 2014: a charge of £24.9 million) and pension administrative expenses and settlements of £1.9 million (2015: £4.3 million; 2014: £1.6 million).
Total share of results of equity accounted investees amounted to a profit of £0.9 million (2015: £0.8 million; 2014: £0.6 million) comprising share of profit before non-recurring items of £0.9 million (2015: £0.9 million; 2014: £0.9 million), and a non-recurring charge of £nil (2015: £0.1 million; 2014: £0.3 million).
The average number of persons, including executive directors, employed by Northern & Shell in the year was:
| 2016 Number |
2015 Number |
2014 Number |
|
|---|---|---|---|
| Production and editorial | 435 | 456 | 587 |
| Sales and distribution | 101 | 95 | 104 |
| Administration | 119 | 121 | 125 |
| Total | 655 | 672 | 816 |
Staff costs, including directors' emoluments, incurred during the year were:
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Wages and salaries Social security costs Pension costs relating to defined contribution pension |
(41.3) (4.7) |
(40.3) (5.1) |
(68.3) (7.1) |
| schemes (note 27) | (1.4) | (1.4) | (1.8) |
| Total | (47.4) | (46.8) | (77.2) |
Wages and salaries include bonuses payable in the year.
Directors' remuneration
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Remuneration for qualifying services | (1.2) | (1.5) | (14.5) |
Remuneration disclosed above includes the following amounts paid to the highest paid director:
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Remuneration for qualifying services | (0.2) | (0.5) | (3.7) |
The above tables in respect of directors' remuneration are presented after recharges to related parties (note 29).
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Loss of printing contract (a) Closure of printing site (b) (Increase)/decrease in provision against amounts due from |
— (2.2) |
— (12.6) |
(1.0) — |
| related parties (c) | — | 14.6 | (23.9) |
| Non-recurring items included in administrative expenses Non-recurring items included in share of results of equity |
(2.2) | 2.0 | (24.9) |
| accounted investees (d) | — | (0.1) | (0.3) |
| Total non-recurring items | (2.2) | 1.9 | (25.2) |
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Interest income on bank deposits and other interest receipts | 0.1 | 0.1 | 0.2 |
| Interest income on amounts due from related parties | 1.8 | 3.6 | 6.4 |
| Total interest income | 1.9 | 3.7 | 6.6 |
| Dividend income (note 29#) | 14.3 | 0.7 | — |
| Total financial income | 16.2 | 4.4 | 6.6 |
| 10 Finance costs |
|||
| 2016 | 2015 | 2014 | |
| £m | £m | £m |
Interest on amounts due to related parties (1.8) (3.0) (6.4)
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Group tax relief charged for the year | (2.2) | (1.6) | (1.7) |
| Prior year adjustment | 0.9 | (0.2) | 2.8 |
| Share of equity accounted investees taxation | (0.1) | (0.1) | (0.1) |
| Current tax (charge)/credit | (1.4) | (1.9) | 1.0 |
| Deferred tax credit for the year | — | — | 3.6 |
| Prior year adjustment | (2.4) | (3.8) | 0.3 |
| Reversal of deferred tax credit recognised on person | (2.5) | (2.1) | (2.1) |
| Deferred tax (charge)/credit | (4.9) | (5.9) | 1.8 |
| Tax (charge)/credit | (6.3) | (7.8) | 2.8 |
| 2016 % |
2015 % |
2014 % |
|
| Reconciliation of tax (charge)/credit | |||
| Standard rate of corporation tax | (20.0) | (20.3) | 21.5 |
| Net tax effect of items that are not (deductible)/taxable in | |||
| determining taxable profit | (0.9) | 13.6 | (18.2) |
| Prior year adjustment | (9.6) | (15.7) | 10.4 |
| Dividends not subject to tax | 18.5 | 0.5 | — |
| Deferred tax rate change | (5.8) | (4.2) | — |
| Deferred tax assets not recognised | (24.6) | (0.4) | (8.5) |
| Excess of depreciation over capital allowances and other | |||
| timing differences | 1.3 | (3.6) | 0.8 |
| Profits subject to lower level of overseas tax | 0.5 | 0.2 | 2.4 |
| Group relief not paid for | — | (1.1) | — |
| Utilisation of losses | — | — | 1.2 |
| Tax (charge)/credit rate | (40.6) | (31.0) | 9.6 |
Included in the 'net tax effect of items that are not (deductible)/taxable in determining taxable profit' is the impact of the (increase)/decrease in provision against amounts due from related parties of £nil (2015: £14.6 million (gross) decrease and 2014: £23.9 million (gross) increase). The deferred tax asset not recognised relates to unutilised trading losses realised in the year.
Factors that may affect future tax charges:
The standard rate of corporation tax for the year is 20% (2015: blended rate of 20.25% being a mix of 21% up to 31 March 2015 and 20% from 1 April 2015, and 2014: blended rate of 21.5% being a mix of 23% up to 31 March 2014 and 21% from 1 April 2014). The current tax liabilities amounted to £2.7 million (2015: £2.7 million and 2014: £2.7 million) at the reporting date. Amounts due from related parties in respect of group tax relief, included in trade and other receivables (note 17), amounted to £4.3 million (2015: £6.0 million and 2014: £16.7 million) at the reporting date (note 29).
The tax on actuarial losses on defined benefit pension schemes taken to the combined statement of comprehensive income is a deferred tax credit of £1.8 million (2015: charge of £2.1 million and 2014: charge of £8.7 million).
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Dividends paid in the year | — | 80.1 | 2.1 |
In 2015, as part of a group reorganisation, Northern & Shell Network Limited paid dividends of £80.1 million to Northern & Shell Media Group Limited, its immediate parent undertaking (note 29).
In 2014, West Ferry Leasing Limited paid an interim dividend of £2.1 million to Northern & Shell Media Group Limited, its immediate parent undertaking at the time of declaring and paying the dividend (note 29).
| Total £m |
|
|---|---|
| Cost At 31 December 2013, 31 December 2014, 31 December 2015 and 31 December 2016 |
1.2 |
| Carrying amount At 31 December 2013, 31 December 2014, 31 December 2015 and 31 December 2016 |
1.2 |
The goodwill is allocated to West Ferry Printers Limited, a cash-generating unit included in the printing division.
Northern & Shell tests the carrying value of assets at the cash-generating unit level for impairment at each reporting date or more frequently if there are indications that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value in use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount.
Northern & Shell prepares cash flow projections for a cash-generating unit using the board approved budget for the following year. The growth rates for the year are internal projections based on both internal and external market information and reflect past experience of and the risk associated with each asset. Cash flow projections beyond the year are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for the relevant markets. The growth rate for printing is 0% and is based on the board's view of the cashgenerating unit's market position and maturity of the relevant market. The post-tax discount rate used at the year end reporting date in respect of all cash-generating units was 10.0% (2015: 11.0% and 2014: 11.0%) reflecting a long-term equity and debt mix based on the year end enterprise value assuming a long-term debt to EBITDA ratio of 2.5 times. The equivalent pre-tax discount rate is 12.2% (2015: 14.1% and 2014: 14.2%).
The impairment review of the carrying value of assets performed at the reporting date resulted in no impairment (2015: nil; 2014: £nil). The impairment review is sensitive to a change in key assumptions used in the value in use calculations relating to the discount rate and future growth rates. A reasonably possible change of 1% in the discount rate or of 1% in the growth rate beyond 2019 would not change the conclusion of the impairment review.
| Freehold £m |
Leasehold £m |
Plant, equipment and motor vehicles £m |
Fixtures, fittings and office equipment £m |
Asset under construction £m |
Total £m |
|
|---|---|---|---|---|---|---|
| Cost At 31 December 2013 Additions Disposals Reclassification |
15.3 — (0.1) — |
47.5 0.2 — — |
100.6 0.8 (0.2) 1.3 |
10.2 1.0 — — |
1.3 0.1 — (1.3) |
174.9 2.1 (0.3) — |
| At 31 December 2014 Additions Disposals Reclassification |
15.2 — — — |
47.7 0.1 — — |
102.5 0.2 (0.1) — |
11.2 1.4 (0.9) 0.1 |
0.1 0.3 — (0.1) |
176.7 2.0 (1.0) — |
| At 31 December 2015 Additions Disposals Reclassification |
15.2 — (15.2) — |
47.8 0.2 — — |
102.6 0.3 (18.2) — |
11.8 0.6 — 0.3 |
0.3 — — (0.3) |
177.7 1.1 (33.4) — |
| At 31 December 2016 | — | 48.0 | 84.7 | 12.7 | — | 145.4 |
| Accumulated depreciation and impairment At 31 December 2013 Charge for the year Disposals |
(7.1) (0.5) 0.1 |
(13.1) (2.3) — |
(58.0) (2.9) 0.2 |
(9.0) (0.9) — |
— — — |
(87.2) (6.6) 0.3 |
| At 31 December 2014 Charge for the year Disposals Impairment |
(7.5) (0.4) — — |
(15.4) (2.3) — — |
(60.7) (2.4) 0.1 (8.5) |
(9.9) (0.9) 0.9 — |
— — — — |
(93.5) (6.0) 1.0 (8.5) |
| At 31 December 2015 Charge for the year Disposals |
(7.9) (0.4) 8.3 |
(17.7) (2.4) — |
(71.5) (2.0) 18.0 |
(9.9) (1.0) — |
— — — |
(107.0) (5.8) 26.3 |
| At 31 December 2016 | — | (20.1) | (55.5) | (10.9) | — | (86.5) |
| Carrying amount At 31 December 2013 At 31 December 2014 At 31 December 2015 At 31 December 2016 |
8.2 7.7 7.3 — |
34.4 32.3 30.1 27.9 |
42.6 41.8 31.1 29.2 |
1.2 1.3 1.9 1.8 |
1.3 0.1 0.3 — |
87.7 83.2 70.7 58.9 |
Expenditure contracted for but not provided in the combined financial information was £nil (2015: £nil; 2014: £nil).
Northern & Shell owns 50% (of which nil is owned by Northern & Shell Network Limited) of Independent Star Limited, a newspaper publishing company incorporated in the Republic of Ireland, and 50% (of which nil is owned by Northern & Shell Network Limited ) of Iberian Ediciones Limited, a magazine publishing company incorporated in England and Wales.
Northern & Shell's investment in equity accounted investees is set out blow:
| Independent Star Limited £m |
Iberian Ediciones Limited £m |
Total £m |
|
|---|---|---|---|
| At 31 December 2013 | 0.1 | — | 0.1 |
| Dividends received | (0.4) | — | (0.4) |
| Non-recurring items | (0.3) | — | (0.3) |
| Results before non-recurring items | 0.9 | — | 0.9 |
| Taxation | (0.1) | — | (0.1) |
| At 31 December 2014 | 0.2 | — | 0.2 |
| Dividends received | (0.6) | — | (0.6) |
| Non-recurring items | (0.1) | — | (0.1) |
| Results before non-recurring items | 0.9 | — | 0.9 |
| Taxation | (0.1) | — | (0.1) |
| At 31 December 2015 | 0.3 | — | 0.3 |
| Dividends received | (0.8) | — | (0.8) |
| Results before non-recurring items | 0.9 | — | 0.9 |
| Taxation | (0.1) | — | (0.1) |
| At 31 December 2016 | 0.3 | — | 0.3 |
| 16 Inventories |
|||
| 2016 | 2015 £m £m |
2014 £m |
|
| Raw materials and consumables | 1.8 1.7 |
2.5 | |
| 17 Other financial assets |
|||
| Trade and other receivables | |||
| 2016 | 2015 | 2014 | |
| £m £m |
£m | ||
| Gross trade receivables | 14.9 11.5 |
13.0 | |
| Allowances for doubtful receivables | (0.1) (0.3) |
(0.2) | |
| Net trade receivables | 14.8 11.2 |
12.8 | |
| Amounts due from related parties | 100.4 | 43.1 | 196.1 |
| Prepayments and accrued income | 6.4 5.2 |
7.1 |
Trade receivables net of allowances for doubtful receivables at the reporting date amounted to £14.8 million (2015: £11.2 million; 2014: £12.8 million).
Other receivables 1.4 3.3 3.1
123.0 62.8 219.1
The majority of the net trade receivables total above is current with an insignificant proportion being due for more than 30 days.
The average credit year taken on sales of goods is 35 days (2015: 37 days; 2014: 34 days). No interest is charged on the receivables. Northern & Shell has substantially provided fully for all receivables over 90 days because historical experience is such that these receivables are generally not recoverable. A 50% provision is made for trade receivables over 60 days but less than 90 days. Trade receivables less than 60 days are provided for based on specific circumstances and by reference to past default experience.
Before accepting any new customers, Northern & Shell, where appropriate, uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits attributed to customers are reviewed during the year where appropriate. Whilst Northern & Shell is not considered to be reliant on any individual customer, there are two (2015: two; 2014: two) customers who individually represent more than 10% of net trade receivables.
Northern & Shell has determined the movement in the allowance for doubtful debts is insignificant and therefore has not been presented as part of the historical financial information.
In determining the recoverability of a trade receivable, Northern & Shell considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, there is no further credit provision required in excess of the allowance for doubtful debts.
There are allowances for doubtful receivables included in amounts due from related parties (note 29).
The carrying amount of trade and other receivables and other financial assets approximates their fair value.
Terms for amounts due from related parties are set out in note 29.
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Cash and cash equivalents | 7.5 | 11.3 | 38.2 |
Cash and cash equivalents comprise cash held by Northern & Shell and short-term bank deposits with an original maturity of one week or less. The carrying amount of these assets approximates their fair value.
Northern & Shell has no borrowings and therefore the cash and cash equivalents total for each year is the total of Northern & Shell's net cash.
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Trade payables | (8.8) | (11.2) | (14.3) |
| Amounts due to related parties | (89.6) | (40.0) | (172.2) |
| Social security and other taxes | (2.2) | (1.1) | (1.3) |
| Accruals and deferred income | (14.6) | (21.8) | (28.7) |
| Other payables | (9.3) | (7.4) | (5.8) |
| (124.5) | (81.5) | (222.3) |
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Trade payables | — | — | (0.4) |
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. Northern & Shell has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. The carrying amount of trade payables and other financial liabilities approximates to their fair value.
Terms for amounts due to related parties are set out in note 29.
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| At 1 January (Charged)/credited to the combined income statement Recognised in the combined statement of comprehensive |
18.6 (4.9) |
26.6 (5.9) |
33.5 1.8 |
| income | 1.8 | (2.1) | (8.7) |
| At 31 December | 15.5 | 18.6 | 26.6 |
The deferred taxation recognised in these financial statements is analysed as follows:
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Accelerated capital allowances | 0.4 | 2.8 | 5.1 |
| Other timing differences | 1.4 | 1.2 | 1.0 |
| Losses | 7.7 | 7.9 | 9.6 |
| Deferred tax excluding that relating to pension liability | 9.5 | 11.9 | 15.7 |
| Deferred tax on pension liability | 6.0 | 6.7 | 10.9 |
| Total deferred tax asset recognised | 15.5 | 18.6 | 26.6 |
Based on current capital investment plans, Northern & Shell expects capital allowances to exceed depreciation in the future years. Deferred tax is measured on a non-discounted basis at the rates and laws substantively enacted at the balance sheet date.
| Property | Restructuring | Other | Total | |
|---|---|---|---|---|
| £m | £m | £m | £m | |
| At 31 December 2013 | (2.8) | — | (0.6) | (3.4) |
| Charged to income statement | (1.0) | (3.5) | (0.3) | (4.8) |
| Utilisation of provision | 0.2 | — | 0.4 | 0.6 |
| At 31 December 2014 | (3.6) | (3.5) | (0.5) | (7.6) |
| Charged to income statement | — | — | (0.2) | (0.2) |
| Utilisation of provision | 1.1 | 3.5 | 0.1 | 4.7 |
| At 31 December 2015 | (2.5) | — | (0.6) | (3.1) |
| Charged to income statement | (0.1) | (0.1) | (0.4) | (0.6) |
| Utilisation of provision | 0.3 | — | 0.4 | 0.7 |
| At 31 December 2016 | (2.3) | (0.1) | (0.6) | (3.0) |
The provisions have been analysed between current and non-current as follows:
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Current | (2.3) | (1.6) | (5.1) |
| Non-current | (0.7) | (1.5) | (2.5) |
| (3.0) | (3.1) | (7.6) |
The property provision relates to onerous property leases and future committed costs related to occupied, let and vacant properties. This provision is expected to be utilised during the period to 31 December 2022. £1.6 million (2015: 1.0 million; 2014: 1.1 million) is included within current provisions and £0.7 million (2015: 1.5 million; 2014: 2.5 million) is included within non-current provisions.
The restructuring provision relates to restructuring charges incurred in the delivery of cost reduction measures. This provision is expected to be utilised within the next year.
The other provision relates to legal and other costs relating to libel expected to be utilised within the next year.
A list of the legal entities being acquired and forming part of Northern & Shell is on pages 74-75.
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Operating profit/(loss) | 2.1 | 25.9 | (25.6) |
| Depreciation of property, plant and equipment | 5.8 | 6.0 | 6.6 |
| Share of results of equity accounted investees | (0.9) | (0.8) | (0.6) |
| Loss/(profit) on disposal of tangible fixed assets | 2.2 | (0.1) | (0.1) |
| Impairment of fixed assets | — | 8.5 | — |
| Pension scheme administrative expenses and settlements | 1.9 | 4.3 | 1.6 |
| Pension deficit funding payments | (15.3) | (15.1) | (16.2) |
| Operating cash flows before movements in working | |||
| capital | (4.2) | 28.7 | (34.3) |
Total commitments under non-cancellable operating leases:
| Vehicles, plant and equipment 2016 £m |
Property 2016 £m |
Vehicles, plant and equipment 2015 £m |
Property 2015 £m |
Vehicles, plant and equipment 2014 £m |
Property 2014 £m |
|
|---|---|---|---|---|---|---|
| Within one year | (0.2) | (11.9) | (0.4) | (11.7) | (0.8) | (11.7) |
| Greater than one and less than five years Greater than five years |
(0.1) — |
(43.2) (118.1) |
(0.3) — |
(44.2) (128.7) |
(0.6) — |
(45.1) (139.4) |
| (0.3) | (173.2) | (0.7) | (184.6) | (1.4) | (196.2) |
As part of the Acquisition, certain lease commitments included within Northern & Shell in the HFI, as set out in the table above, will be transferred to the Seller's group prior to Acquisition. As at 31 December 2016, the total operating lease commitments to be transferred to the Seller's group amount to £150.7 million (2015: £160.3 million; 2014: £169.8 million) (note 31).
Total future minimum lease receipts with tenants under non-cancellable property operating leases:
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Within one year | 3.2 | 3.5 | 3.2 |
| Greater than one and less than five years | 1.4 | 2.7 | 3.1 |
| Greater than five years | 2.5 | 3.8 | 6.3 |
| 7.1 | 10.0 | 12.6 |
As at 31 December 2016, the total future minimum lease receipts with tenants under noncancellable property operating leases to be transferred to the Seller's group amount to £5.9 million (2015: £8.2 million; 2014: £10.3 million) (note 31).
As part of the Acquisition, a new 10 year lease with a five year break for the premises currently occupied by Northern & Shell at 10 Lower Thames Street, London, a property owned by Badger Property Partners LLP, of which Mr. R.C. Desmond is a member, will be entered into.
| Share capital £m |
Share premium account £m |
Capital redemption reserve £m |
Retained earnings £m |
Total £m |
|
|---|---|---|---|---|---|
| At 31 December 2013 Total comprehensive income for |
(0.1) | (24.6) | (0.1) | (36.0) | (60.8) |
| the year | — | — | — | (8.1) | (8.1) |
| Issue of shares | — | (16.6) | — | — | (16.6) |
| Dividends paid | — | — | — | 2.1 | 2.1 |
| At 31 December 2014 Total comprehensive income for |
(0.1) | (41.2) | (0.1) | (42.0) | (83.4) |
| the year | — | — | — | (26.7) | (26.7) |
| Issue of shares | — | (1.7) | — | — | (1.7) |
| Contribution from related parties | — | — | — | (13.1) | (13.1) |
| Dividends paid | — | — | — | 80.1 | 80.1 |
| At 31 December 2015 Total comprehensive income for |
(0.1) | (42.9) | (0.1) | (1.7) | (44.8) |
| the year | — | — | — | (1.9) | (1.9) |
| At 31 December 2016 | (0.1) | (42.9) | (0.1) | (3.6) | (46.7) |
| 25 Called-up share capital |
| 2016 | 2016 | 2015 | 2015 | 2014 | 2014 | |
|---|---|---|---|---|---|---|
| Number | £m | Number | £m | Number | £m | |
| Authorised Ordinary shares of £1 each |
110,006 | (0.1) | 110,006 | (0.1) | 110,004 | (0.1) |
| Allotted, called-up and fully paid ordinary shares of £1 each | ||||||
| Opening balance | 110,006 | (0.1) | 110,004 | (0.1) | 110,002 | (0.1) |
| Issue of shares | — | — | 2 | — | 2 | — |
In 2015, as part of a group reorganisation, Northern & Shell Network Limited issued 2 ordinary shares of £1 each in the capital of Northern & Shell Network Limited to Northern & Shell Media Group Limited, its immediate parent undertaking, for an aggregate subscription price of £1.7 million.
Closing balance 110,006 (0.1) 110,006 (0.1) 110,004 (0.1)
In 2014, Northern & Shell Network Limited issued 2 ordinary shares of £1 each in the capital of Northern & Shell Network Limited to Northern & Shell Media Group Limited, its immediate parent undertaking, for an aggregate subscription price of £16.6 million.
Northern & Shell Network Limited has one class of share capital, being ordinary shares with a nominal value of £1 each. Northern & Shell Network Limited's ordinary shares give the shareholders equal rights to vote, receive dividends and to the repayment of capital. There are no restrictions on these shares in relation to the distribution of dividends and the repayment of capital.
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| At 1 January | 42.9 | 41.2 | 24.6 |
| Issue of shares (note 25#) | — | 1.7 | 16.6 |
| At 31 December | 42.9 | 42.9 | 41.2 |
Northern & Shell participates in a personal pension plan, which is a defined contribution pension scheme for its employees, where employees hold a personal pension policy directly with Legal & General. Contributions are charged to the combined income statement to reflect amounts payable under the scheme. The charge for the year was £1.4 million (2015: £1.4 million and 2014: £1.8 million). At 31 December 2016, contributions of £115,000 were outstanding (2015: £114,000 and 2014: £140,000). These amounts have been paid in full after all reporting dates. Northern & Shell implemented the Auto Enrolment legislation from 1 November 2013.
Northern & Shell has three defined benefit pension schemes: the Express Newspapers 1988 Pension Fund (the ''EN 1988 Fund''), the Express Newspapers Senior Management Pension Fund (the 'EN SMP Fund') and West Ferry Printers Pension Scheme (the ''WFPP Scheme''). The latest full actuarial valuations of the EN 1988 Fund and the EN SMP Fund were carried out as at 5 April 2015. The latest full actuarial valuation of the WFPP Scheme was carried out as at 31 December 2014. The results below have been updated by a qualified independent actuary using the projected unit valuation method. Both the EN 1988 Fund and EN SMP Fund were closed to future accrual with effect from 31 December 2008. The WFPP Scheme was closed to future accrual with effect from 28 February 2010.
The Northern & Shell Pension Schemes provide pensions to members which are based on the final salary pension payable. Benefits increase both before and after retirement either in line with statutory requirements or in accordance with the scheme rules. Such increases are either at fixed rates or in line with retail or consumer prices but subject to upper and lower limits. All of the schemes are independent of Northern & Shell with assets held independently of Northern & Shell. They are governed by trustees who administer benefits in accordance with the scheme rules and appropriate UK legislation. The trustee boards for the schemes generally comprise half of the trustees nominated by the members and half by Northern & Shell.
Across the three schemes, of the total liabilities approximately 35% related to deferred members, 45% to pensioner members (or their surviving beneficiaries) and 20% to pensioners secured with an annuity contract (insured pensioners). Overall, the duration of the liabilities is around 14 years. Of the non-insured liabilities, benefits are expected to continue to be paid until around 2080, with half the cash flows being paid by 2036. Non-insured benefit payments (excluding transfer values paid out but including anticipated lump sum payments on retirement) are currently around £27 million per annum and are expected to remain at around this level for 20 years before reducing.
The funding of the Northern & Shell Pension Schemes is subject to UK pension legislation as well as the guidance and codes of practice issued by the Pensions Regulator. Funding targets are agreed between the trustees and Northern & Shell and are reviewed and revised usually every three years. The funding targets must include a margin for prudence above the expected cost of paying the benefits and so are different to the liability value for IAS 19 purposes. The funding deficits revealed by these triennial valuations are removed over time in accordance with an agreed recovery plan and schedule of contributions for each scheme.
Northern & Shell currently has an agreed recovery plan in respect of the shortfall in funding and has paid £10.3 million (2015: £10.0 million and 2014: £10.4 million) into the EN 1988 Fund, £559,000 (2015: £542,000 and 2014: £527,000) into the EN SMP Fund and £2.8 million (2015: £2.8 million and 2014: £2.8 million) into the WFPP Scheme during the year. Northern & Shell expects to contribute £13.7 million towards the deficit in its defined benefit plans in the next financial year.
The future deficit funding commitments are linked to the three-yearly actuarial valuations. There is no link to the IAS 19 valuations which use different actuarial assumptions and are updated at each reporting date. The next funding valuation of the schemes has an effective date of 31 December 2017 for the WFPP Scheme and 5 April 2018 for the EN 1988 Fund and EN SMP Fund.
Although the funding commitments do not generally impact the IAS 19 position, IFRIC 14 guides companies to consider for IAS 19 disclosures whether any surplus can be recognised as a balance sheet asset and whether any future funding commitments in excess of the IAS 19 liability should be provisioned for. Based on the interpretation of the rules for each of the defined benefit pension schemes, Northern & Shell considers that it has an unconditional right to any potential surplus on the ultimate wind-up of the EN 1988 Fund and the EN SMP Fund after all benefits to members have been paid. Under IFRIC 14 it is therefore appropriate to recognise any IAS 19 surpluses which may emerge in future, and not to recognise any potential additional liabilities in respect of future funding commitments. Northern & Shell considers that it does not have an unconditional right to any potential surplus on the ultimate wind-up of the WFPP Scheme after all benefits to members have been paid. Under IFRIC 14 it is therefore not appropriate to recognise any IAS 19 surpluses and necessary to recognise any potential additional liabilities in respect of future funding commitments for this scheme.
Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. This results in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value.
The main sources of risk are:
These risks are managed by:
Pension scheme accounting deficits are snapshots at moments in time and are not used by either Northern & Shell or trustees to frame funding policy. Northern & Shell and trustees are aligned in focusing on the long-term sustainability of the funding policy which aims to balance the interests of Northern & Shell and members of the schemes. Northern & Shell and trustees are also aligned in reducing pensions risk over the long term and at a pace which is affordable to Northern & Shell.
Northern & Shell is not exposed to any unusual, entity specific or scheme specific risks. There were no plan amendments or curtailments in 2016 or during 2015 and 2014 which resulted in a pension cost. During 2015, settlement expenses of £2.1 million were charged to the combined income statement in relation to an enhanced transfer value exercise carried out by the WFPP Scheme.
For the purposes of Northern & Shell's combined financial information, valuations have been performed in accordance with the requirements of IAS 19 with scheme liabilities calculated using a consistent projected unit valuation method and compared to the estimated value of the scheme assets at the reporting dates.
Based on actuarial advice, the assumptions used in calculating the scheme liabilities and the actuarial value of those liabilities are:
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| Financial assumptions (nominal % pa) | |||
| Discount rate | 2.65 | 3.65 | 3.70 |
| Retail price inflation rate | 3.20 | 3.05 | 3.05 |
| Consumer price inflation rate | 2.00 | 1.85 | 1.85 |
| Rate of pension increases | 3.00-3.30 | 2.90-3.30 | 2.90-3.30 |
| Mortality assumptions – future life expectancies from age 65 (years) | |||
| Male currently aged 65 | 21.8 | 22.0 | 22.0 |
| Female currently aged 65 | 23.9 | 24.0 | 23.9 |
| Male currently aged 55 | 22.7 | 22.9 | 22.8 |
| Female currently aged 55 | 24.8 | 24.9 | 24.8 |
The fair values of the insurance policies have been taken as equal to the present values of the liabilities that they insure against and by using the same assumptions as those used to value the liabilities.
The estimated impact on the IAS 19 liabilities and on the IAS 19 deficit at the reporting date, due to a reasonably possible change in key assumptions over the next year, are set out in the table below:
| Effect on liabilities £m |
Effect on deficit £m |
|
|---|---|---|
| Discount rate +/- 0.5% pa | -52/+58 | -43/+49 |
| Retail price inflation rate +/- 0.5% pa | +14/-14 | +9/-9 |
| Consumer price inflation rate +/- 0.5% pa | +8/-8 | +8/-8 |
| Life expectancy at age 65 +/- 1 year | +29/-28 | +23/-22 |
The effect on the deficit is usually lower than the effect on the liabilities due to the matching impact on the value of the insurance contracts held in respect of some of the liabilities. Each assumption variation represents a reasonably possible change in the assumption over the next year but might not represent the actual effect because assumption changes are unlikely to happen in isolation.
The estimated impact of the assumption variations make no allowance for changes in the values of invested assets that would arise if market conditions were to change in order to give rise to the assumption variation. If allowance were made, the estimated impact would likely be lower as the values of invested assets would normally change in the same directions as the liability values.
The amount included in the combined income statement, combined statement of comprehensive income and combined balance sheet arising from Northern & Shell's obligations in respect of its defined benefit pension schemes is as follows:
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Pension scheme administrative expenses | (1.9) | (2.2) | (1.6) |
| Pension scheme finance charge | (0.9) | (1.6) | (4.1) |
| Settlements | — | (2.1) | — |
| Defined benefit cost recognised in income statement | (2.8) | (5.9) | (5.7) |
| Combined statement of comprehensive income | |||
| 2016 | 2015 | 2014 | |
| £m | £m | £m | |
| Actuarial (loss)/gain due to liability experience | (3.6) | 14.2 | (1.7) |
| Actuarial loss due to liability assumption changes | (94.0) | (4.1) | (45.9) |
| Changes in the effect of the asset ceiling | 5.1 | 4.6 | (0.3) |
| Total liability actuarial (loss)/gain | (92.5) | 14.7 | (47.9) |
| Returns on scheme assets greater/(less) than discount rate | 83.3 | (3.8) | 91.4 |
| Total (loss)/gain recognised in statement of comprehensive income |
(9.2) | 10.9 | 43.5 |
| Combined balance sheet | |||
| 2016 | 2015 | 2014 | |
| £m | £m | £m | |
| Present value of uninsured scheme liabilities | (607.6) | (533.1) | (567.8) |
| Present value of insured scheme liabilities | (161.5) | (149.2) | (151.6) |
| Total present value of scheme liabilities | (769.1) | (682.3) | (719.4) |
| Invested and cash assets at fair value | 591.6 | 518.3 | 536.9 |
| Value of liability matching insurance contracts | 161.5 | 149.2 | 151.6 |
| Total value of scheme assets | 753.1 | 667.5 | 688.5 |
| Net scheme deficit | (16.0) | (14.8) | (30.9) |
| Adjustment in respect of IFRIC 14 | (15.3) | (19.8) | (23.8) |
| Net scheme deficit after adjustments for asset ceiling and minimum funding requirements |
(31.3) | (34.6) | (54.7) |
| Non-current assets – retirement benefit assets | — | — | — |
| Non-current liabilities – retirement benefit obligations | (31.3) | (34.6) | (54.7) |
| Net scheme deficit | (31.3) | (34.6) | (54.7) |
| Net scheme deficit included in combined balance sheet | (31.3) | (34.6) | (54.7) |
| Deferred tax included in combined balance sheet | 6.0 | 6.7 | 11.0 |
| Net scheme deficit after deferred tax | (25.3) | (27.9) | (43.7) |
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Movement in net scheme deficit | |||
| Opening net scheme deficit | (34.6) | (54.7) | (108.7) |
| Contributions | 15.3 | 15.1 | 16.2 |
| Combined income statement | (2.8) | (5.9) | (5.7) |
| Combined statement of comprehensive income | (9.2) | 10.9 | 43.5 |
| Closing net scheme deficit | (31.3) | (34.6) | (54.7) |
| £m | £m | £m | |
|---|---|---|---|
| Opening present value of scheme liabilities | (682.3) | (719.4) | (679.1) |
| Interest cost | (24.3) | (25.7) | (29.1) |
| Actuarial (loss)/gain – experience | (3.6) | 14.2 | (1.7) |
| Actuarial gain – change to demographic assumptions | 7.9 | — | 9.6 |
| Actuarial loss – change to financial assumptions | (101.9) | (4.0) | (55.5) |
| Benefits paid | 35.1 | 34.8 | 36.4 |
| Settlements | — | 17.8 | — |
| Closing present value of scheme liabilities | (769.1) | (682.3) | (719.4) |
2016
2015
2014
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Opening fair value of scheme assets | 667.5 | 688.5 | 593.2 |
| Interest income | 24.0 | 24.7 | 25.6 |
| Actual return on assets greater/(less) than discount rate | 83.3 | (3.9) | 91.4 |
| Contributions by employer | 15.3 | 15.1 | 16.3 |
| Benefits paid | (35.1) | (34.8) | (36.4) |
| Administrative expenses | (1.9) | (2.2) | (1.6) |
| Settlements | — | (19.9) | — |
| Closing fair value of scheme assets | 753.1 | 667.5 | 688.5 |
| 2016 £m |
2015 £m |
2014 £m |
|
|---|---|---|---|
| Equities | 207.9 | 193.4 | 166.7 |
| Corporate bonds | 16.0 | 56.1 | 71.0 |
| Gilts | 84.1 | 80.3 | 97.1 |
| Cash and other | 283.6 | 188.5 | 202.1 |
| Invested and cash assets at fair value | 591.6 | 518.3 | 536.9 |
| Value of liability matching insurance contracts | 161.5 | 149.2 | 151.6 |
| Fair value of scheme assets | 753.1 | 667.5 | 688.5 |
Scheme assets include neither direct investments in Northern & Shell Network Limited's ordinary shares nor any property assets occupied nor other assets used by Northern & Shell.
Northern & Shell manages its capital to ensure that entities in Northern & Shell will be able to continue as a going concern while maximising the return to shareholders through an optimal balance of debt and equity. The capital structure of Northern & Shell consists of cash and cash equivalents (note 17) and equity attributable to equity holders of the parent comprising share capital and reserves (note 24).
Northern & Shell's significant financial assets are cash and trade and other receivables which are classified as loans and receivables and are accordingly held at amortised cost. Trade and other payables are all designated as other financial liabilities and held at amortised cost.
Northern & Shell's treasury function provides services to the business, co-ordinates access to domestic and international financial markets and monitors and manages the financial risks relating to the operations of Northern & Shell through regular meetings with Northern & Shell finance director analysing exposures by degree and magnitude of risk. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.
Northern & Shell does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Northern & Shell's treasury function provides regular updates to the board covering compliance with treasury related matters.
Northern & Shell undertakes limited transactions denominated in foreign currencies.
Northern & Shell has no significant listed equity investments and is not directly exposed to equity price risk. Northern & Shell has indirect exposure through its defined benefit pension schemes.
Credit risk refers to the risk that a counter-party with Northern & Shell will default on its contractual obligations resulting in financial loss to Northern & Shell. Northern & Shell has adopted a policy of only dealing with creditworthy counterparties, with the exception of exceptional circumstances, such as the financial crisis in the past, Northern & Shell only transacts with financial institutions that are rated the equivalent to investment grade and above. This information is supplied by independent rating agencies where available and, if not, Northern & Shell uses other publicly available financial information and its own trading records to rate its major customers.
Northern & Shell's exposure and credit ratings of its counterparties are reviewed by the Northern & Shell board at appropriate times.
Northern & Shell's credit risk is primarily attributable to its trade receivables. The amounts presented in the combined balance sheet are net of allowances for doubtful receivables, estimated based on prior experience and assessment of the current economic environment.
Trade receivables consist of a large number of customers spread across diverse sectors. Ongoing credit evaluation is performed on the financial condition of trade receivables. Northern & Shell has some credit risk exposure to single counterparties, or groups of counterparties having similar characteristics, with two (2015: two and 2014: two) customers who individually represent more than 10% of net trade receivables. Northern & Shell defines counterparties as having similar characteristics if they are connected entities. Concentration of credit risk with a single counterparty is limited by reference to the long-term credit ratings assigned for that counterparty by independent rating agencies.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
The carrying amount of financial assets recorded in the financial information, which is net of impairment losses, represents Northern & Shell's maximum exposure to credit risk.
Liquidity risk results from having insufficient financial resources to meet day-to-day fluctuations in working capital and cash flow. Ultimate responsibility for liquidity risk management rests with the Northern & Shell board. Northern & Shell manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities.
Transactions between legal entities within Northern & Shell have been eliminated on consolidation and are not disclosed in this note. Transactions with the retirement benefit schemes are disclosed in note 27. Details of other related party transactions are disclosed below.
Sales of goods and services to related parties would be made at Northern & Shell's usual list prices. Transactions between Northern & Shell and related parties are completed at an arm's length.
Northern & Shell provided The Health Lottery Limited, a subsidiary of Northern & Shell Media Group Limited, with advertising services in the year amounting to £8.6 million (2015: £9.4 million; 2014: 6.8 million).
Northern & Shell also recharged costs to The Health Lottery Limited and Health Lottery ELM Limited, a subsidiary of The Health Lottery Limited, for the provision of advertising and production services (note 30). The amount recharged was £nil (2015: £nil; 2014: £18.6 million) and £nil (2015: £16.7 million; 2014: £nil) respectively.
Northern & Shell recharged costs to The Health Lottery Limited for the apportionment of central overheads, accommodation and managing directorate costs. The amount recharged for the year was £0.7 million (2015: £0.9 million; 2014: £0.9 million).
Northern & Shell incurred charges from Health Lottery ELM Limited for the recharge of advertising and production services received in the year amounting to £8.2 million (2015: £4.9 million; 2014: £nil).
Northern & Shell provided Northern & Shell Ventures Limited, a subsidiary of Northern & Shell Media Group Limited, with advertising services in the year amounting to £56,000 (2015: £49,000; 2014: £nil).
Northern & Shell also recharged costs to Northern & Shell Ventures Limited for the provision of advertising and production services (note 30). The amount recharged was £nil (2015: £2.6 million; 2014: £1.0 million).
Northern & Shell recharged costs to Westferry Developments Limited, a subsidiary of Northern & Shell Media Group Limited, for the apportionment of central overheads, accommodation and managing directorate costs. The amount recharged for the year was £398,000 (2015: £nil; 2014: £nil).
Northern & Shell provided Portland Broadcasting Limited and RHF Productions Limited, subsidiaries of Northern & Shell Media Group Limited, with advertising services in the year amounting to £24,000 (2015: £98,000; 2014: £109,000) and £24,000 (2015: £98,000; 2014: £109,000) respectively.
Northern & Shell also incurred charges from Portland Broadcasting Limited and RHF Productions Limited for advertising services received in the year amounting to £22,000 (2015: £78,000; 2014: £78,000) and £22,000 (2015: £96,000; 2014: £141,000) respectively.
Northern & Shell recharged costs to Portland Enterprises Limited, a subsidiary of Northern & Shell Media Group Limited, for the apportionment of central overheads, accommodation and managing directorate costs. The amount recharged for the year was £28,000 (2015: £114,000; 2014: £114,000).
Northern & Shell provided Channel 5 Broadcasting Limited, a subsidiary of Northern & Shell Media Group Limited, for the period to 10 September 2014, with advertising services in the year amounting to £nil (2015: £nil; 2014: £1.2 million). Northern & Shell also recharged costs to Channel 5 Broadcasting Limited for the apportionment of central overheads, accommodation and managing directorate costs in the year amounting to £nil (2015: £nil; 2014: £1.1 million).
Northern & Shell also incurred charges from Channel 5 Broadcasting Limited for advertising and production services received in the year amounting to £nil (2015: £nil; 2014: £8.6 million).
On 10 September 2014, Channel 5 Broadcasting Limited was sold by the Seller's group.
Northern & Shell received income from Independent Star Limited, an equity accounted investee, for the use of editorial content in the year amounting to £295,000 (2015: £262,000; 2014: £243,000).
In 2016, Northern and Shell Finance Limited, a subsidiary of Northern & Shell Media Group Limited, entered into a loan facility agreement with Tepilo Limited, an associated undertaking of Northern & Shell Media Group Limited. The loan facility is for an amount of £2.5 million, charges interest at 15% and is repayable by February 2018. After the year end, the loan facility was increased to £4.0 million and is repayable by February 2019. At the reporting date, Northern & Shell was owed £2.4 million from Tepilo Limited and recognised £179,000 of interest receivable in the combined income statement. Amounts outstanding are included in amounts due from related parties in trade and other receivables. After the year end, the loan facility was transferred from Northern and Shell Finance Limited to Northern & Shell Ventures Limited, a related party.
Badger Property Partners LLP, of which Mr. R.C. Desmond is a member, owns the Number 10 Lower Thames Street property which is the head office for Northern & Shell. The Number 10 Lower Thames Street property is leased to Express Newspapers, a subsidiary undertaking, for a period of 20 years from 10 October 2013, for an initial annual rent of £6.9 million with a rent review every 5 years. The charge for the year was £8.7 million (2015: £8.7 million; 2014: 8.7 million). No amounts were due to Badger Property Partners LLP as at 31 December 2016 (2015: £nil; 2014: £nil).
In 2014, Northern & Shell sold a motor vehicle with a net book value of £nil to Mr. R.C. Desmond, for a total consideration of £71,000. No amounts were due to Northern & Shell as at 31 December 2014.
Northern & Shell Network Limited received dividends of £14.3 million (2015: £nil; 2014: £nil) from Northern & Shell Insurance Limited, a subsidiary undertaking at the time of receiving the dividend, comprising amounts due from related parties of £14.3 million and cash of £30,000. Northern & Shell Network Limited also received dividends of £nil (2015: £686,000; 2014: £nil) from Northern & Shell Group Limited, a subsidiary undertaking at the time of receiving the dividend, comprising amounts due from related parties.
In 2015, as part of a group reorganisation, Northern & Shell Network Limited paid dividends of £80.1 million to Northern & Shell Media Group Limited, its immediate parent undertaking, comprising amounts due from related parties in the sum of £11.0 million and investments held in legal entities not forming part of Northern & Shell for a total sum of £69.1 million.
In 2014, West Ferry Leasing Limited paid an interim dividend of £2.1 million to Northern & Shell Media Group Limited, its immediate parent undertaking at the time of declaring and paying the dividend.
In accordance with the basis of preparation, Northern & Shell received a deemed contribution from related parties of £nil (2015: £13.1 million; 2014: £nil) which represents the total reduction in net assets of Northern & Shell Network Limited following the dividend paid to Northern & Shell Media Group Limited, comprising of investments in subsidiaries not included within Northern & Shell.
The table below shows the amounts due to and from related parties at the reporting date together with any interest payable and receivable recognised in the income statement in each year.
2016
| Name | Amounts due from related parties £m |
Amounts due to related parties £m |
Interest payable to related parties £m |
Interest receivable from related parties £m |
|---|---|---|---|---|
| Health Lottery ELM Limited | 12.2 | (42.7) | (0.7) | 0.3 |
| Health Lottery Financial Limited | — | (4.2) | (0.1) | — |
| LTS Contractors Limited | 0.1 | (0.2) | — | — |
| LTS Rentals Limited | 1.8 | (2.3) | (0.1) | — |
| Northern & Shell Media Group Limited | 1.4 | (35.0) | (0.8) | — |
| Northern & Shell Ventures Limited | 6.3 | (0.5) | — | 0.2 |
| NS Jersey Finance Limited | — | (4.3) | (0.1) | — |
| Portland Media Group UK Limited | 0.3 | — | — | — |
| Tepilo Limited | 2.4 | — | — | 0.2 |
| The Health Lottery Limited | 70.9 | (0.2) | — | 1.1 |
| Westferry Developments Limited Northern & Shell Media Group Limited |
0.7 | (0.2) | — | — |
| group – group relief balances | 4.3 | — | — | — |
| 100.4 | (89.6) | (1.8) | 1.8 |
2015
| Name | Amounts due from related parties £m |
Amounts due to related parties £m |
Interest payable to related parties £m |
Interest receivable from related parties £m |
|---|---|---|---|---|
| Health Lottery ELM Limited | 10.3 | (16.2) | (0.9) | 0.3 |
| Health Lottery Financial Limited | — | (1.2) | (0.3) | 0.1 |
| LTS Contractors Limited | 0.1 | (0.2) | — | — |
| LTS Rentals Limited | 1.3 | (1.7) | — | — |
| Northern & Shell Group Limited | — | — | (1.0) | 0.3 |
| Northern & Shell Insurance Limited | — | (14.2) | (0.3) | — |
| Northern & Shell Investments Limited | — | — | (0.1) | 0.1 |
| Northern & Shell Media Group Limited | 0.7 | (1.9) | — | 0.1 |
| Northern & Shell Ventures Limited | 5.1 | (0.3) | — | 0.1 |
| NS Jersey Finance Limited | — | (4.0) | — | — |
| Portland Broadcasting Limited | — | (0.1) | (0.1) | — |
| Portland Enterprises Limited | — | — | (0.1) | 0.1 |
| Portland Media Group UK Limited | 0.3 | — | (0.1) | — |
| RHF Productions Limited | 0.1 | — | (0.1) | — |
| The Health Lottery Limited | 19.2 | (0.2) | — | 2.5 |
| Northern & Shell Media Group Limited | ||||
| group – group relief balances | 6.0 | — | — | — |
| 43.1 | (40.0) | (3.0) | 3.6 |
| Name | Amounts due from related parties £m |
Amounts due to related parties £m |
Interest payable to related parties £m |
Interest receivable from related parties £m |
|---|---|---|---|---|
| Channel 5 Broadcasting Limited | — | — | (0.2) | 0.2 |
| Health Lottery ELM Limited | 1.0 | (46.8) | (0.7) | 0.4 |
| Health Lottery Financial Limited | 3.1 | (18.8) | (0.4) | 0.1 |
| LTS Contractors Limited | 0.1 | (0.2) | — | — |
| LTS Rentals Limited | 0.7 | (0.6) | — | — |
| Northern & Shell Properties Limited | — | — | — | 0.1 |
| Nasnet Online Limited | 5.5 | (4.7) | — | — |
| Northern & Shell Enterprises Limited | — | — | (1.1) | — |
| Northern & Shell Group Limited | 23.3 | (63.2) | (2.6) | 0.3 |
| Northern & Shell Health Limited | 3.6 | — | — | 0.1 |
| Northern & Shell Insurance Limited | — | (13.2) | (0.7) | — |
| Northern & Shell Investments Limited | 4.9 | (2.7) | (0.1) | 0.1 |
| Northern & Shell Luxembourg S.a.r.l. | 0.5 | (0.2) | — | — |
| Northern & Shell Media Group Limited | 3.0 | — | (0.1) | 1.9 |
| Northern & Shell Ventures Limited | 2.1 | — | — | — |
| NS Jersey Finance Limited | 0.5 | — | — | — |
| Portland Broadcasting Limited | 1.3 | (3.6) | (0.1) | — |
| Portland Enterprises Limited | 2.8 | (9.0) | (0.3) | 0.2 |
| Portland Interactive Limited | 0.3 | (0.3) | — | — |
| Portland Media Group Limited | 3.3 | (0.5) | — | 0.1 |
| Portland Media Group UK Limited | 0.6 | (4.4) | (0.1) | — |
| Portland UK Holdings Limited | 0.3 | — | — | — |
| RHF Productions Limited | 0.8 | (3.5) | — | — |
| Sorse Distribution Limited | 1.0 | — | — | — |
| The Health Lottery Limited | 120.5 | (0.3) | — | 2.4 |
| Westferry Developments Limited | 0.2 | (0.2) | — | 0.5 |
| Northern & Shell Media Group Limited | ||||
| group – group relief balances | 16.7 | — | — | — |
| 196.1 | (172.2) | (6.4) | 6.4 |
2014
Amounts due from related parties are presented net of allowances for doubtful debts. The following table shows the totals of these provisions.
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Gross total of amounts due from related parties | 100.4 | 43.1 | 237.0 |
| Allowances for doubtful receivables | — | — | (40.9) |
| Net total of amounts due from related parties | 100.4 | 43.1 | 196.1 |
Amounts due to and from related parties carry interest between 2.0% and 4% above base rate or LIBOR, unless where specified, are unsecured and repayable on demand. Amounts due to and from dormant related parties and amounts due to and from related parties with respect to group relief are non-interest bearing.
Compensation of key management personnel Key management represents the executive directors.
| 2016 | 2015 | 2014 | |
|---|---|---|---|
| £m | £m | £m | |
| Short-term employee benefits | (1.2) | (1.5) | (14.5) |
Retirement benefits comprising contributions to the defined contribution pension scheme amounted to £15,000 (2015: £14,000; 2014: £13,000).
The immediate and ultimate parent undertaking of Northern & Shell Network Limited is Northern & Shell Media Group Limited. The ultimate controlling party is Mr. R. C. Desmond, the Chairman of Northern & Shell Media Group Limited.
In September 2014, Express Newspapers, a subsidiary undertaking, entered into contracts for the provision of advertising and production services. Under the terms of the contracts, the company was committed to a minimum annual spend of £21.8 million and a minimum annual production spend of £5.7 million to £11.8 million for the periods ending 31 December 2018 and 30 September 2018 respectively (note 29).
In November 2015, the contracts were transferred from Express Newspapers to Health Lottery ELM Limited, a related party. Express Newspapers irrevocably and unconditionally guarantees Health Lottery ELM Limited's obligation under the agreements. As part of the Acquisition, the guarantee provided by Express Newspapers will be transferred to the Seller's group prior to Acquisition (note 31).
At the reporting date, Northern & Shell North America Limited, a subsidiary undertaking, held in place a bank guarantee. The bank, subject to the terms of the guarantee but otherwise unconditionally, undertakes to pay to the landlord of the company's former business premises on demand a sum or sums to an amount not exceeding USD \$2.5 million (sterling equivalent at 31 December 2016: £2.0 million) (2015: \$2.7 million, sterling equivalent: £1.8 million; 2014: \$3.5 million, sterling equivalent: £2.3 million). The guarantee amortises on a reducing balance basis over the term of the lease and shall be reduced to USD \$1.6 million following the ninth year of the lease. The bank's liabilities cease and are determined on 31 August 2018.
As part of the Acquisition, certain assets and liabilities included within Northern & Shell in the HFI, will be transferred to the Seller's group prior to the Acquisition. As at 31 December 2016, the total carrying value of net assets to be transferred was £10.4 million, comprising property, plant and equipment of £10.0 million, amounts due from related parties of £2.4 million (note 29) and other property related operating net liabilities of £2.0 million, which will be transferred at fair value.
At 31 December 2016, operating lease commitments amounting to £150.7 million and future minimum lease receipts with tenants under non-cancellable property operating leases amounting to £5.9 million, relating to the property assets and liabilities being transferred, will also be transferred to the Seller's group prior to the Acquisition (note 23). As part of the Acquisition, a new 10 year lease with a five year break for the premises currently occupied by Northern & Shell at 10 Lower Thames Street, London, a property owned by Badger Property Partners LLP, of which Mr. R.C. Desmond is a member, will be entered into.
The guarantee provided by Express Newspapers in respect to the contracts for the provision of advertising and production services (note 30) will also be transferred to the Seller's group prior to the Acquisition.
The HFI may not be indicative of Northern & Shell's future performance and does not necessarily reflect what its results, financial position and cash flows would have been had these assets and liabilities not been present for the entire three year period.
There have been no subsequent events.
The accounting policies set out in note 3 have been applied in preparing the financial information for the year ended 31 December 2016, 31 December 2015 and 31 December 2014.
In preparing its IFRS balance sheet, Northern & Shell has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting (FRS 102). An explanation of how the transition from FRS 102 to IFRS has affected Northern & Shell's financial position is set out in the following table and the notes that accompany the table.
| FRS 102 £m |
Effect of transition to IFRS £m |
IFRS £m |
|
|---|---|---|---|
| Non-current assets Goodwill |
1.0 | 0.2 | 1.2 |
| Property, plant and equipment Investment in equity accounted investees |
87.7 0.1 |
— — |
87.7 0.1 |
| Other investments Deferred tax assets |
0.1 28.5 |
— 5.0 |
0.1 33.5 |
| 117.4 | 5.2 | 122.6 | |
| Current assets Inventories |
5.4 | — | 5.4 |
| Trade and other receivables Cash and cash equivalents |
324.5 7.1 |
— — |
324.5 7.1 |
| 337.0 | — | 337.0 | |
| Total assets | 454.4 | 5.2 | 459.6 |
| Non-current liabilities Trade and other payables Retirement benefit obligations Provisions |
(0.1) (84.9) (1.9) |
— (23.8) — |
(0.1) (108.7) (1.9) |
| (86.9) | (23.8) | (110.7) | |
| Current liabilities Trade and other payables Current tax liabilities Provisions |
(283.0) (2.7) (1.5) |
(0.9) — — |
(283.9) (2.7) (1.5) |
| (287.2) | (0.9) | (288.1) | |
| Total liabilities | (374.1) | (24.7) | (398.8) |
| Net assets | 80.3 | (19.5) | 60.8 |
| Equity Share capital Share premium account Capital redemption reserve Retained earnings |
(0.1) (24.6) (0.1) (55.5) |
— — — 19.5 |
(0.1) (24.6) (0.1) (36.0) |
| Total equity attributable to equity holders of the parent | (80.3) | 19.5 | (60.8) |
Under its old basis of accounting (FRS 102), Northern & Shell previously amortised its goodwill over 10 years, however, under IFRS, there is no amortisation charge and instead goodwill is assessed for impairment. The impact on Northern & Shell's balance sheet as at 1 January 2014 is an increase in goodwill of £227,000.
Under FRS 102, the rental payments for operating leases were recorded as an expense on a straight line basis over the lease term unless the payments to the lessor are structured to increase in line with expected inflation. Under IFRS, the cost increases have been spread over the entire lease term. The impact on Northern & Shell's balance sheet as at 1 January 2014 is an increase in trade and other payables of £0.9 million and a related increase in deferred tax assets of £0.2 million.
Under IFRS, based on the interpretation of IFRIC 14 the Northern & Shell Group considers that it does not have an unconditional right to any potential surplus on the ultimate wind-up of the WFPP Scheme after all benefits to members have been paid. Under IFRIC 14 it is therefore not appropriate to recognise any IAS 19 surpluses and necessary to recognise any potential additional liabilities in respect of future funding commitments for this scheme. Accordingly, as at 1 January 2014, retirement benefit obligations have increased by £23.8 million to £108.7 million and the related deferred tax asset has increased by £4.8 million.
The net effect of the adjustments above is a reduction in retained earnings of £19.5 million.
Northern & Shell Network Limited
The following subsidiary undertakings are 100% owned and incorporated in the United Kingdom, with a registered office at The Northern & Shell Building, Number 10 Lower Thames Street, London, EC3R 6EN:
Northern & Shell Plc Northern & Shell Media Limited Northern & Shell Worldwide Limited Northern & Shell Leasing Limited Northern & Shell Titles Limited Northern and Shell Finance Limited Northern & Shell Digital Limited *** Northern & Shell Media Holdings Limited Broughton Printers Limited * OK! Magazine Holdings Limited *** Express Newspapers Express Printers Manchester Limited *** West Ferry Printers Limited West Ferry Leasing Limited West Ferry Printers Pension Scheme Trustees Limited *** Beaverbrook Newspapers Limited *** Blackfriars Leasing Ltd *** Daily Star Limited *** Express Property Management Limited *** Express Newspapers Pension Trustees Limited *** Daily Express Limited *** Express Newspapers Properties Limited *** Sunday Express Limited *** United Magazines Publishing Services Limited *** Northern & Shell North America Limited ** Northern & Shell Distribution Limited Northern & Shell Magazines Limited Sightline Publications Limited *** The Northern & Shell Tower Management Services Limited *** Burginhall 677 Limited *** Export Magazine Distributors Limited *** Tower Magazines Limited *** Northern & Shell Videos Limited *** O.K. Magazines Limited *** O K Magazines Trading Co Limited ***
The following subsidiary undertakings are 100% owned and incorporated in the United Kingdom, with a registered office at The Northern & Shell Tower, City Harbour, London, E14 9GL:
The Green Magazine Company Limited ***
The following subsidiary undertakings are 100% owned and incorporated in the United Kingdom, with a registered office at 4th Floor, Citypoint 2, 25 Tyndrum Street, Glasgow, G4 0JY:
Scottish Express Newspapers Limited ***
The following subsidiary undertakings are 100% owned and incorporated in the United States of America:
Northern & Shell Marketing LLC
The following equity accounted investees are 50% owned and incorporated in the United Kingdom, with a registered office at 26-28 Bedford Row, London, WC1R 4HE:
* Denotes the company ceased its principal activity in July 2015.
** Denotes operates a branch in the United States of America, of which the principal trade and assets were disposed during 2011. *** Denotes the company is dormant.
Iberian Ediciones Limited
The following equity accounted investees are 50% owned and incorporated in the Republic of Ireland, with a registered office at Level 1, Independent House, 27-32 Talbot Street, Dublin 1:
Independent Star Limited
Prior to the signing of the Share Purchase Agreement, the 50% interest in the issued ordinary share capital of JV Entity was transferred from Express Newspapers to Northern & Shell Media Group (the Seller). The 50% interest in the issued ordinary share capital of JV Entity is being acquired as part of the Acquisition.
On 10 January 2018, International Distribution 2018 Limited was incorporated in the United Kingdom, with a registered office at The Northern & Shell Building, Number 10 Lower Thames Street, London, EC3R 6EN as a subsidiary of Northern & Shell Media Group Limited.
Prior to the Acquisition, the Direct Sales Business was transferred from Express Newspapers to International Distribution 2018 Limited. The shares in International Distribution 2018 Limited are being acquired as part of the Acquisition.
As at 31 December 2016, Northern & Shell Network Limited had the following subsidiaries which are not included in the business being acquired:
Northern & Shell Ventures Limited Northern & Shell Insurance Limited LTS Rentals Limited
LTS Contractors Limited
The above list excludes legal entities which have been transferred out of the printing and publishing group during the years ending 31 December 2014, 31 December 2015 and 31 December 2016.
On 25 May 2017, Northern & Shell Ventures Limited, LTS Rentals Limited and LTS Contractors Limited were transferred by Northern & Shell Network Limited to Northern & Shell Media Group Limited and accordingly, from this date, were no longer subsidiaries of Northern & Shell Network Limited. On 4 September 2017, Northern & Shell Insurance Limited was dissolved.
KPMG LLP, 15 Canada Square, London, E14 5GL
The Board of Directors on behalf of Trinity Mirror Plc One Canada Square, Canary Wharf, London E14 5AP
9 February
Ladies and Gentlemen
We report on the financial information set out in Part IV for the three years ended 31 December 2016. This financial information has been prepared for inclusion in the Class 1 circular relating to the acquisition of Northern & Shell Network Limited dated 9 February 2018 of Trinity Mirror Plc on the basis of the accounting policies set out in note 3 to the financial information. This report is required by paragraph 13.5.21R of the Listing Rules and is given for the purpose of complying with that paragraph and for no other purpose.
The Directors of Trinity Mirror Plc are responsible for preparing the financial information.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to Ordinary shareholders as a result of the inclusion of this report in the Class 1 circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R(6), consenting to its inclusion in the Class 1 circular.
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
In our opinion, the financial information gives, for the purposes of the Class 1 circular dated 31 January 2018, a true and fair view of the state of affairs of Northern & Shell Network Limited and those subsidiaries listed on pages 74 to 75 of the Class 1 circular as at 31 December 2014, 31 December 2015 and 31 December 2016 and of its profits/losses, cash flows and changes in equity for the three years ended 31 December 2016 in accordance with the basis of preparation set out in note 1 to the financial information.
Yours faithfully
The unaudited pro forma statement of net assets of the Enlarged Group has been prepared in a manner consistent with the accounting policies adopted by Trinity Mirror in preparing its financial statements for the 53 weeks ended 1 January 2017, on the basis set out in the notes below and in accordance with Annex I item 20.2 and Annex II items 1 to 6 of the Prospectus Rules as applied by Listing Rule 13.3.3R.
The unaudited pro forma statement of net assets of the Enlarged Group has been prepared to illustrate the effect on net assets of Trinity Mirror of the Acquisition as if it had taken place as at 2 July 2017.
The unaudited pro forma financial information has been prepared for illustrative purposes only and, by its nature, addresses a hypothetical situation and, therefore, does not represent the Trinity Mirror Group's or the Enlarged Group's actual financial position or results.
The unaudited pro forma statement of net assets has been prepared on the basis set out in the notes below.
Unaudited pro forma statement of net assets of the Enlarged Group as at 2 July 2017:
| GBP £ million | TM 2-Jul-17 note 1 |
N&S 31-Dec-16 note 2 |
Pro Forma Adjustments note 3 |
Pro Forma Adjustments note 4 |
Pro Forma Adjustments note 5 |
Pro Forma Net Assets |
|---|---|---|---|---|---|---|
| Non-current Assets | ||||||
| Goodwill | 102.0 | 1.2 | 80.0 | 0.0 | 0.0 | 183.2 |
| Other intangible assets | 799.3 | 0.0 | 0.0 | 0.0 | 0.0 | 799.3 |
| Property, plant and equipment |
255.3 | 58.9 | 0.0 | 0.0 | 0.0 | 314.2 |
| Investment in associates | 16.7 | 0.3 | 0.0 | 0.0 | 0.0 | 17.0 |
| Deferred tax assets | 71.7 | 15.5 | 0.0 | (7.8) | 0.0 | 79.4 |
| 1,245.0 | 75.9 | 80.0 | (7.8) | 0.0 | 1,393.1 | |
| Current Assets | ||||||
| Inventories | 4.5 | 1.8 | 0.0 | 0.0 | 0.0 | 6.3 |
| Trade and other receivables |
91.2 | 123.0 | 0.0 | 0.0 | (100.4) | 113.8 |
| Cash and cash equivalents |
7.6 | 7.5 | (0.7) | 1.8 | 10.8 | 27.0 |
| 103.3 | 132.3 | (0.7) | 1.8 | (89.6) | 147.1 | |
| TOTAL ASSETS | 1,348.3 | 208.2 | 79.3 | (6.0) | (89.6) | 1,540.2 |
| Non-current liabilities | ||||||
| Retirement benefit obligations |
406.8 | 31.3 | 0.0 | (35.9) | 0.0 | 402.2 |
| Borrowings | 0.0 | 0.0 | 32.0 | 33.0 | 0.0 | 65.0 |
| Deferred consideration | 0.0 | 0.0 | 59.0 | 0.0 | 0.0 | 59.0 |
| Deferred tax liabilities | 165.2 | 0.0 | 0.0 | 0.0 | 0.0 | 165.2 |
| Provisions | 3.4 | 0.7 | 0.0 | 0.0 | 0.0 | 4.1 |
| 575.4 | 32.0 | 91.0 | (2.9) | 0.0 | 695.5 | |
| Current liabilities | ||||||
| Trade and other payables |
86.0 | 124.5 | 7.0 | 0.0 | (89.6) | 127.9 |
| Borrowings | 30.0 | 0.0 | 15.0 | 10.0 | 0.0 | 55.0 |
| Current tax liabilities | 7.4 | 2.7 | 0.0 | (7.8) | 0.0 | 2.3 |
| Provisions | 21.9 | 2.3 | 0.0 | 0.0 | 0.0 | 24.2 |
| 145.3 | 129.5 | 22.0 | 2.2 | (89.6) | 209.4 | |
| TOTAL LIABILITIES | 720.7 | 161.5 | 113.0 | (0.7) | (89.6) | 904.9 |
| NET ASSETS | 627.6 | 46.7 | (33.7) | (5.3) | 0.0 | 635.3 |
Trinity Mirror financial information as at 2 July 2017 has been extracted, without material adjustment, from Trinity Mirror's unaudited consolidated financial statements for the 26 weeks ended 2 July 2017.
Northern & Shell financial information as at 31 December 2016 has been extracted, without material adjustment, from the historical financial information in Part A of Part IV.
Reflects the impact of the Acquisition of 100% of Northern & Shell Network Limited, 50% of the JV Entity and 100% of International Distribution 2018 Limited as follows:
a) The consideration of £126.7 million (Total Consideration) will be payable as a combination of the issuance of Trinity Mirror ordinary shares to the Seller of £20.0 million (Equity Consideration), a cash payment of £47.7 million (Cash Consideration) and the payment of £18.9 million on the second, £16.0 million on the third, £17.1 million on the fourth and £7.0 million on the fifth anniversary of NSNL Completion (Deferred Consideration):
The Total Consideration payable is set out below:
| £m | |
|---|---|
| Equity Consideration | 20.0 |
| Cash Consideration | 47.7 |
| Deferred Consideration | 59.0 |
| Total Consideration | 126.7 |
| £m | |
|---|---|
| Total Consideration Net assets of Northern & Shell acquired |
126.7 (46.7) |
| Pro forma goodwill adjustment | 80.0 |
Part B: Accountant's report on the unaudited pro forma financial information for the Enlarged Group
Deloitte LLP 2 New Street Square, London, EC4A 3BZ
The Board of Directors on behalf of Trinity Mirror Plc One Canada Square, Canary Wharf, London E14 5AP
Numis Securities Limited The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT
9 February 2018
Dear Sirs
We report on the pro forma financial information (the ''Pro forma financial information'') set out in Part V of the Class 1 circular dated 9 February 2018 (the ''Circular''), which has been prepared on the basis described in the notes 1-6, for illustrative purposes only, to provide information about how the transaction might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ended 1 January 2017. This report is required by the Commission Regulation (EC) No 809/2004 (the ''Prospectus Directive Regulation'') as applied by Listing Rule 13.3.3R and is given for the purpose of complying with that requirement and for no other purpose.
It is the responsibility of the directors of the Company (the ''Directors'') to prepare the Pro forma financial information in accordance with Annex II items 1 to 6 of the Prospectus Directive Regulation as applied by Listing Rule 13.3.3R.
It is our responsibility to form an opinion, as to the proper compilation of the Pro forma financial information and to report that opinion to you in accordance with Annex II item 7 of the Prospectus Directive Regulation as applied by Listing Rule 13.3.3R.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to Shareholders as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R (6), consenting to its inclusion in the Circular.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the Directors.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions outside the United Kingdom, including the United States of America, and accordingly should not be relied upon as if it had been carried out in accordance with those standards or practices.
In our opinion:
Yours faithfully
Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (''DTTL''). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NWE LLP do not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.
The Company and the Directors, whose names appear in paragraph 5 below, accept responsibility for the information contained in this Circular. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this Circular is in accordance with the facts and does not omit anything likely to affect the import of such information.
The Company was incorporated and registered in England and Wales on 11 November 1904 as the Liverpool Daily Post, the Liverpool Mercury and the Liverpool Echo Limited. The Company changed its name to the Liverpool Daily Post and Echo Limited on 17 December 1923. On 15 February 1982, the Company re-registered as a public limited company with registered number 82548 and changed its name to The Liverpool Daily Post and Echo Public Limited Company. The Company changed its name to Trinity International Holdings Public Limited Company on 11 January 1985. On 5 May 1998, the Company changed its name to Trinity Public Limited Company. The Company changed its name to Trinity Mirror plc on 6 September 1999.
The Company is a public company limited by shares, and is domiciled in the United Kingdom. The principal laws and legislation under which the Company operates are the Companies Act 2006 and the regulations made thereunder. The Company's registered office is at One Canada Square, Canary Wharf, London, E14 5AP and its telephone number is +44 (0)20 7293 3000.
The Ordinary Shares issued as Consideration Shares will be ordinary shares in registered form and may be held in certificated form or in uncertificated form, and title to such Ordinary Shares may be transferred by means of a relevant system (as defined in the Regulations). Where Ordinary Shares are held in certificated form, share certificates will be sent to the registered members by first class post. Where Ordinary Shares are held in paperless form, the Company's registrar, Equiniti, will transfer the Ordinary Shares through the CREST system. Where the registered member is resident overseas the Ordinary Shares are transferred through the CREST system to the beneficial owner's CREST appointed partner and from there they can be transferred to the beneficial owner's preferred holding vehicle.
As described in paragraph 11 of Part I (Letter from the Chairman of Trinity Mirror plc), it is proposed that the Acquisition Resolution be passed at the General Meeting. The Acquisition Resolution proposes that the Acquisition be approved and the Directors be authorised to take all steps as may be necessary, expedient or desirable to implement the Acquisition.
The Acquisition Resolution will be proposed as an ordinary resolution. The Acquisition Resolution must be approved by Shareholders who together represent a simple majority of the Ordinary Shares being voted (whether in person or by proxy) at the General Meeting. The Acquisition will not proceed unless the Acquisition Resolution is passed.
The names and principal functions of the Directors are as follows:
| Name | Position | |
|---|---|---|
| David Grigson | Chairman | |
| Simon Fox | Chief Executive | |
| Vijay Vaghela | Group Finance Director and Company Secretary | |
| Helen Stevenson | Senior Independent Director | |
| Lee Ginsberg | Non-executive Director | |
| David Kelly | Non-executive Director | |
| Steven Hatch | Non-executive Director | |
| Olivia Streatfeild | Non-executive Director |
Nick Prettejohn is to join the Board as non-executive director and Chairman designate at a date to be determined by the Company during March 2018. It is anticipated that Nick will become Chairman on 3 May 2018, at the end of the Company's next annual general meeting.
The beneficial interests of the Directors and their families in the Ordinary Share capital of the Company as at the Latest Practicable Date were as follows:
| Director | Ordinary Shares |
|---|---|
| David Grigson | 220,000 |
| Simon Fox | 949,148 |
| Vijay Vaghela | 527,873 |
| Lee Ginsberg | 10,000 |
| David Kelly | 10,000 |
| Helen Stevenson | 35,000 |
| Steve Hatch | 0 |
| Olivia Streatfeild | 0 |
In addition to their interests detailed above, as at the Latest Practicable Date, the following Directors held interests under Trinity Mirror employee share schemes:
| Director | Unvested and subject to performance conditions |
Unvested but subject to other conditions(1) |
|
|---|---|---|---|
| Simon Fox | 1,598,539 | 149,882 | |
| Vijay Vaghela | 1,145,779 | 128,899 |
(1) Shares awarded under the Restricted Share Plan are subject to a malus provision.
Save as set out in this paragraph 7, there are no existing or proposed service agreements or letters of appointment between the Directors and any member of the Trinity Mirror Group.
| Director | Commencement | Expiry |
|---|---|---|
| Simon Fox | September 2012 | The agreement is terminable by either party on 12 months' notice. All directors are subject to annual re-election at the AGM. |
| Vijay Vaghela | April 2003 | The agreement is terminable by either party on 12 months' notice. All directors are subject to annual re-election at the AGM. |
| David Grigson | January 2012 | All directors are subject to annual re-election at the AGM. |
| Lee Ginsberg | January 2014 | All directors are subject to annual re-election at the AGM. |
| David Kelly | December 2014 | All directors are subject to annual re-election at the AGM. |
| Helen Stevenson | January 2014 | All directors are subject to annual re-election at the AGM. |
| Steven Hatch | December 2015 | Letter of appointment is for an initial period of three years. All directors are subject to annual re-election at the AGM. |
| Olivia Streatfeild | January 2016 | Letter of appointment is for an initial period of three years. All directors are subject to annual re-election at the AGM. |
The table below sets out a single figure for the total remuneration received by each Executive Director for the financial year ending 1 January 2017:
| Director | Salary £'000 |
Benefit(2) £'000 |
Pension benefits(3) £'000 |
Taxable variable(4) £'000 |
Single year variable(5) £'000 |
Multiple year Total £'000 |
|---|---|---|---|---|---|---|
| Simon Fox | 516 | 77 | 22 | 134 | — | 749 |
| Vijay Vaghela(1) | 435 | 115 | 12 | 116 | — | 678 |
(1) Vijay Vaghela's base salary excludes amount of salary sacrificed for pension contributions.
(2) Includes the value of cash supplements received by Directors in lieu of pension contributions, the value of any salary sacrificed for pension contributions and the value of contributions made by Trinity Mirror on behalf of the director direct to the pension scheme.
(3) Incorporates the value of all tax assessable benefits arising from employment with Trinity Mirror related to the provision of car and fuel allowance and healthcare cover.
Mr Fox was appointed as Chief Executive on 30 August 2012. His appointment may be terminated by either party giving to the other 12 months' written notice. Trinity Mirror reserves the right to make a payment in lieu of notice equivalent to 12 months' basic salary (or, if notice has already been given, basic salary during the remainder of the notice period). The payment in lieu of notice shall not include any bonus, payment in respect of benefits or payment in respect of any holiday entitlement. Where notice of termination has been served by Trinity Mirror or Mr Fox, Trinity Mirror reserves the right to put Mr Fox on garden leave for the notice period or remainder of the notice period.
Mr Vaghela was appointed as Group Finance Director in May 2003 and he entered into a service agreement on 18 April 2003. His appointment may be terminated by either party giving to the other 12 months' written notice, to expire at the end of any calendar month thereafter. The appointment may also be determined by Mr Vaghela reaching the age of 60 or such other normal retirement date as Trinity Mirror may decide. Trinity Mirror reserves the right to make a payment in lieu of notice; subject to certain conditions such payment will be the aggregate of a sum equal to 12 months' salary, his pension benefits and any bonus payment he would have been entitled to if he had worked for the full period of the relevant financial year.
Each of the Executive Directors is subject to annual re-election at the Company's annual general meeting.
Mr Vaghela is entitled to permanent health insurance, medical insurance for himself, his wife and any dependent children up to the age of 18, life assurance equivalent to four times his current salary, subject to certain conditions, and a car allowance.
Mr Fox is entitled to permanent health insurance, medical insurance for himself, his wife and any dependent children up to the age of 21, life assurance equivalent to four times his current salary, subject to certain conditions, and a car allowance.
The Executive Directors are entitled to be reimbursed for all reasonable expenses properly incurred in the course of their duties.
The Executive Directors have the benefit of an indemnity which is a qualifying third-party indemnity provision as defined by section 234 of the Companies Act. The Company maintains appropriate directors' and officers' liability insurance for its directors and officers which provides cover for any legal action brought against them.
Executive Directors' bonuses are based 75 per cent. on Trinity Mirror Group Adjusted Operating Profit and 25 per cent. on publishing digital revenue growth. Performance against targets is disclosed in the Annual Report on Remuneration, if no longer deemed by the Directors to be commercially sensitive.
For Executive Directors, the maximum annual bonus opportunity is 75 per cent. of base salary. Any annual bonus is payable 50 per cent. in cash and 50 per cent. is delivered in the form of restricted share awards.
Performance measures, targets and weightings are set at the start of the year. At the end of the year, the Remuneration Committee determines the extent to which the targets have been achieved. For on-target performance, the bonus opportunity is typically up to 50 per cent. of maximum. For threshold performance, the bonus opportunity is typically up to 20 per cent. of maximum. Additional shares representing reinvested dividends may be released following the vesting of any restricted share award.
The measures selected may vary each year depending on business context and strategy, and will be weighted appropriately according to business priorities. Financial measures will represent the majority of the total bonus opportunity and will include, but not be limited to, Trinity Mirror Group Adjusted Operating Profit. The Remuneration Committee has discretion in exceptional circumstances to adjust the formulaic bonus outcomes within the limits of the plan to ensure alignment of pay with the underlying performance of the business and to ensure fairness to both shareholders and participants or, in exceptional circumstances, to withhold a bonus from an individual if his or her conduct was such that it was detrimental to the customers or reputation of the Trinity Mirror Group.
The Restricted Share Plan is designed to provide further alignment with the interests of shareholders by deferring an element of the annual bonus and delivering it in the form of restricted share awards over Company shares. Restricted shares may not normally be transferred or otherwise disposed of by a participant for a period of three years from the date of grant. Executive Directors are required to retain all of the shares released to them, after the sale of sufficient shares to meet any income tax or national insurance payments obligations of the executive director, until such time as minimum shareholding guidelines are met. Restricted shares are subject to a malus provision which allows the Committee to determine that some or all of the shares may not be released to a participant at the end of the three-year period if during the three-year restricted period: there has been a significant deterioration in the underlying financial health of the Company; a material restatement of the Company's accounts as a result of a participant's conduct; a participant has deliberately misled the Company, the market or Shareholders regarding the Company's financial performance; or a participant's actions have caused harm to the Company's reputation.
All of the Trinity Mirror Group's defined benefit schemes were closed to future accrual on 31 March 2010.
Vijay Vaghela participated in the contributory MGN Pension Scheme until it closed to future accrual on 31 March 2010. From 1 April 2010 until 31 March 2011, he participated in the Trinity Mirror Pension Plan (a defined contribution plan). From 1 April 2011, his contributions to the plan are made under the terms of a salary sacrifice arrangement that was introduced from that date.
Simon Fox receives an annual cash sum to use for pension purposes equivalent to 15 per cent. of base salary.
The Executive Directors are covered for lump sum death benefits equivalent to four times base salary. Vijay Vaghela's spouse is also entitled to a pension if death occurs in service.
As an executive director subject to the earnings cap, Mr Vaghela receives an annual cash sum equivalent to 30 per cent. of salary in excess of the cap.
The Executive Directors' service agreements contain customary undertakings relating to confidentiality, non-competition and non-solicitation of employees and customers. The Non-Executive Directors' letters of appointment contain customary undertakings relating to confidentiality.
Each Non-Executive Director is engaged under a letter of appointment. Non-Executive Directors are appointed for an initial term of three years, unless otherwise terminated earlier by and at the discretion of either party by written notice, and may be invited to serve subsequent terms. Prior to seeking re-election at the end of their initial term by shareholders, the Nomination Committee meets to consider whether his or her performance continues to be effective and whether he or she demonstrates a commitment to the role.
In line with the UK Corporate Governance Code, all Directors including Non-Executive Directors are subject to re-election annually at the Company's annual general meeting.
The Non-Executive Directors will be reimbursed for all reasonable expenses properly incurred in the course of their duties.
The Non-Executive Directors have the benefit of an indemnity which is a qualifying third-party indemnity provision as defined by section 234 of the Companies Act. The Company maintains appropriate directors' and officers' liability insurance for its directors and officers which provides cover for any legal action brought against them.
Fee levels are reviewed annually, with any adjustments generally effective 1 January in the year following review. The fees paid to the Chairman are determined by the Remuneration Committee and the fees paid to the Non-Executive Directors are determined by the Board. Additional fees are payable for acting as Senior Independent Director and as Chairman of the Audit & Risk and Remuneration Committees. When reviewing fee levels, time commitment, responsibilities and the market positioning of fees against sector comparators and FTSE-listed companies of similar size and complexity, are taken into account.
Non-Executive Director fee increases are applied in line with the outcome of the annual fee review. There is no prescribed maximum. The maximum aggregate annual fee for all Non-Executive Directors provided in the Company's articles of association is £700,000.
The following Non-Executive Director fee policy was in place from 1 April 2016:
| Role | Fee |
|---|---|
| Chairman base fee | £180,000 |
| Non-Executive Director fee | £ 45,000 |
| Additional fee for Senior Independent Director | £ 12,500 |
| Additional fee for chairing Audit & Risk Committee | £ 12,500 |
| Additional fee for chairing Remuneration Committee | £ 12,500 |
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the 53 weeks ended 1 January 2017:
| Other | |||
|---|---|---|---|
| Director | Base fee £'000 |
fees £'000 |
Total £'000 |
| David Grigson | 183 | — | 183 |
| Lee Ginsberg | 44 | 13 | 57 |
| David Kelly | 44 | — | 44 |
| Helen Stevenson(1) | 44 | 27 | 71 |
| Steve Hatch | 44 | — | 44 |
| Olivia Streatfeild(2) | 42 | — | 42 |
(1) The fees paid to Helen Stevenson for 2016 reflect her appointment as Remuneration Committee Chairman from 15 May 2014 and Senior Independent Director from 28 December 2015.
(2) The fees paid to Olivia Streatfeild reflect her appointment from 15 January 2016.
The Board expects that non-executive directors will acquire shares in the Company equal in value to one times their annual fee during a period of three years from the date of their appointment.
It is the policy of the Board that non-executive directors are not eligible to participate in any of Trinity Mirror's bonus, long-term incentive or pension schemes.
As at the close of business on 22 January 2018, so far as the Directors are aware, no person other than those listed below was interested, directly or indirectly, in three per cent. or more of the issued share capital of the Company:
| Shareholder | Number of Ordinary Shares(1) |
Per cent. of total voting rights |
|---|---|---|
| Aberforth Partners | 35,983,891 | 13.16 |
| Schroder Investment Management | 32,716,589 | 11.96 |
| Majedie Asset Management | 23,294,056 | 8.52 |
| Aberdeen Standard Investments | 21,668,595 | 7.92 |
| Dimensional Fund Advisors | 14,061,007 | 5.14 |
| Premier Fund Management | 13,131,107 | 4.80 |
| J.P. Morgan Asset Management | 11,822,497 | 4.32 |
| River & Mercantile Asset Management | 9,716,186 | 3.55 |
| Aviva Investors | 9,109,824 | 3.33 |
| LSV Asset Management | 8,838,294 | 3.23 |
Sources: (1) Equiniti as at 22 January 2018; (2) RNS, as at close 30 November 2017
Save for the material contracts described in this paragraph 9, no contracts (other than contracts entered into in the ordinary course of business) have been entered into in the two years preceding the date of this Circular by Trinity Mirror or another member of the Trinity Mirror Group which are, or may be, material to Trinity Mirror or contain a provision under which Trinity Mirror has an obligation or entitlement which is, or may be, material to Trinity Mirror or such other member of the Trinity Mirror Group, in each case as at the date of this Circular.
Please see Part III (Summary of the Principal Terms of the Acquisition) of this Circular for a summary of the principal terms and conditions of the Share Purchase Agreement.
Under the terms of the Existing Debt Facility, the banks agreed to provide the Company with a revolving credit facility of £110 million (which was reduced by £10 million on 31 December 2017) for an initial term of 5 years of which approximately 4 years are remaining together with an uncommitted accordion facility of up to £20 million to be used for general corporate purposes of the Trinity Mirror Group. An amount of £25million is drawn under the Existing Debt Facility as at the Latest Practicable Date.
Interest is payable on amounts drawn under the Existing Debt Facility (whether under the revolving credit facility or accordion facility) at a rate of between 2.40 per cent. per annum over LIBOR and 3.00 per cent. per annum over LIBOR depending on the ratio of the net borrowings of the Group to EBITDA. Until exercised and drawn there is no cost in respect of the uncommitted accordion facility.
The availability period in respect of the revolving credit facility and the accordion facility ends on 30 November 2021. The amount of the revolving credit facility reduces every 6 months by £8.333 million until 31 December 2020 and to zero on 20 December 2021. The amount of any accordion facility will also reduce on an equivalent basis.
The Existing Debt Facility permits voluntary prepayments and voluntary cancellation of undrawn amounts, subject to payment of applicable break costs (if a prepayment is made other than on an interest payment date). Mandatory prepayment provisions in the event of illegality or a change of control of the Company are also included in the Existing Debt Facility. The amount of break costs that could be payable (if any) is determined as the difference between (i) the amount which the Company would have paid by way of interest costs under the Existing Debt Facility up to the end of the then current interest period if the prepayment had not been made and (ii) the amount which the relevant bank(s) can obtain by redeploying the funds prepaid with a leading bank in the London interbank market for the period from prepayment up to the date on which the then current interest period would otherwise have ended. Accordingly the amount of break costs cannot be determined as a fixed figure and depends on the amount prepaid, the timing of that prepayment and prevailing interest rates at the time of prepayment.
The Existing Debt Facility otherwise contains standard representations, undertakings and events of default for a facility of this nature which, in most cases, each member of the Trinity Mirror Group and, following the Acquisition, the Enlarged Group, will need to observe. The Existing Debt Facility also contains financial covenant tests in relation to the ratios of PBIT to net interest payable (which when measured over the previous 12 months may not be less than 5.0:1), net borrowings to EBITDA (which when measured over the previous 12 months may not exceed 2.00:1) and a cashflow test (which when measured over the previous 12 months may not be less than £25,000,000), all of which are tested six monthly and an ongoing minimum net worth covenant (set at £688,500,000). As it is a Class 1 transaction, under the Existing Debt Facility the lenders are required to consent to the Acquisition and they have provided their consent. Certain members of the Trinity Mirror Group provide a guarantee in favour of the lenders in relation to the Company's obligations under the Existing Debt Facility and the related finance documents and, following the Acquisition, certain members of the Northern & Shell Group will also need to provide such guarantees.
Under the terms of the New Debt Facility, the banks have agreed to provide the Company with an amortising term loan facility of £75 million for a term of approximately 4 years to be used towards payment to the Seller of the purchase price for (and the payment of fees, costs and expenses relating to) the acquisition of Northern & Shell Network Limited, the Direct Sales Acquisition and the JV Acquisition and, following the such acquisitions, towards funding of payments to be made to the trustees of the Northern & Shell Pension Schemes and general corporate and working capital purposes of the Northern & Shell Group. Interest is payable on amounts drawn under the New Debt Facility at a rate of between 2.90 per cent. per annum over LIBOR and 3.50 per cent. per annum over LIBOR depending on the ratio of the net borrowings of the Group to EBITDA.
The availability period in respect of the New Debt Facility ends on the date which is 60 days after the signing of the New Debt Facility (the Financing Long Stop Date) save for that part of the New Debt Facility to be used to fund the Direct Sales Acquisition and the JV Acquisition (and related fees, costs and expenses) in respect of which the availability period ends on 31 December 2018. The New Debt Facility will be repaid in instalments of £10 million on 19 December 2018, £21 million on 19 December 2019, £21 million on 21 December 2020 and £23 million on 20 December 2021.
The New Debt Facility permits voluntary prepayments and voluntary cancellation of undrawn amounts, subject to payment of applicable break costs (if a prepayment is made other than on an interest payment date). Mandatory prepayment provisions in the event of illegality or a change of control of the Company are also included in the New Debt Facility. To the extent that any member of the Trinity Mirror Group receives proceeds of a claim against the Seller or the provider of certain due diligence reports in relation to the acquisition of Northern & Shell Network Limited, the Direct Sales Acquisition or the JV Acquisition, such proceeds (net of costs, expenses and taxes and subject to certain typical exceptions) must be applied in prepayment of the New Debt Facility. The amount of break costs that could be payable (if any) is determined as the difference between (i) the amount which the Company would have paid by way of interest costs under the New Debt Facility up to the end of the then current interest period if the prepayment had not been made and (ii) the amount which the relevant bank(s) can obtain by redeploying the funds prepaid with a leading bank in the London interbank market for the period from prepayment up to the date on which the then current interest period would otherwise have ended. Accordingly the amount of break costs cannot be determined as a fixed figure and depends on the amount prepaid, the timing of that prepayment and prevailing interest rates at the time of prepayment.
If the CMA or the Secretary of State for Business, Innovation and Skills requires a disposal of any member of the Trinity Mirror Group or any member of the Northern & Shell Group (or any of their respective businesses or undertakings) in order to approve the Acquisition the Company is required to prepay the New Debt Facility in the amount equal to the consideration received (net of costs, expenses and taxes). In these circumstances the margin on the New Debt Facility is also increased by 0.10 per cent. per annum and the Company will be precluded from paying any further dividends (other than those already announced to the market). In addition if, following the acquisition of Northern & Shell Network Limited, the Company disposes of either of the two main titles of Northern & Shell or disposes of Northern & Shell it is also required to prepay that part of the New Debt Facility which was used to fund payments to the trustees of the Northern & Shell Pension Schemes or general and working capital purposes of the Northern & Shell Group.
The New Debt Facility is made available on a certain funds basis (other than in relation to the JV Acquisition or the Direct Sales Acquisition) so that the banks are obliged to lend save in certain limited circumstances and are only able to cancel their commitments (other than in relation to the JV Acquisition and the Direct Sales Acquisition and related costs and expenses) under the New Debt Facility during the certain funds period in such limited circumstances, being the breach of any major representations or major undertakings, the occurrence of a major default, bank illegality or change of control. The certain funds period runs from the date on which the New Debt Facility is signed until the Financing Long Stop Date.
The New Debt Facility otherwise contains standard representations, undertakings and events of default for a facility of this nature which, in most cases, each member of the Trinity Mirror Group and, following the Acquisition, the Northern & Shell Group will need to observe. These provisions are substantially the same as the equivalent provisions in the Existing Debt Facility save for certain additional provisions related to the acquisition of Northern & Shell Network Limited, the JV Acquisition and the Direct Sales Acquisition. Certain members of the Trinity Mirror Group provide a guarantee in favour of the relation to the Company's obligations under the New Debt Facility and the related finance documents and, following the acquisition, certain members of the Northern & Shell Group will also need to provide such guarantees. The New Debt Facility also contains financial covenant tests the same as the equivalent provisions in the Existing Debt Facility with the first six monthly test occurring in relation to the period ending 30 June 2018.
No contracts (other than contracts entered into in the ordinary course of business) have been entered into in the two years preceding the date of this Circular by Northern & Shell or another member of the Northern & Shell Group which are, or may be, material to Northern & Shell or contain a provision under which Northern & Shell has an obligation or entitlement which is, or may be, material to Northern & Shell or such other member of the Northern & Shell Group, in each case as at the date of this Circular.
Save for those matters described below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) nor have there been any during the twelve months preceding the date of this Circular which may have, or have had in the recent past, significant effects on Trinity Mirror's financial position or profitability.
Trinity Mirror's subsidiary, MGN, has faced a significant number of civil claims for misuse of private information. Since July 2014, after Trinity Mirror's ongoing investigations revealed that phone hacking had taken place at MGN, Trinity Mirror has been dealing with these claims from individuals and has been incurring the cost of dealing with and resolving these claims. During 2017, as a result of the lengthy process of settling claims and the structure and quantum of legal fees for claimants, the provision for settling the claims was increased by £10.5 million. By December 2017, a total provision of £63.0 million was made for dealing with and resolving claims in relation to phone hacking and the unutilised provision was £10.7 million. MGN continues to resolve civil claims but there is potential for further and/or increased liabilities to arise from the outcome or resolution of the ongoing historical legal issues which may require Trinity Mirror to reassess the sufficiency of, and potentially increase, its current provision. However, the Board remains confident that the exposure arising from these historical events is manageable.
There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Trinity Mirror is aware) nor have there been any during the twelve months preceding the date of this Circular which may have, or have had in the recent past, significant effects on Northern & Shell's financial position or profitability.
Neither the Company nor any member of the Trinity Mirror Group has entered into any related party transactions (which for these purposes are those set out in the standards adopted according to Regulation (EC) No 1606/2002) with any related party during the period beginning 31 December 2013 up to the date of this Circular.
There has been no significant change in the financial or trading position of Trinity Mirror since 2 July 2017, being the date to which the Company prepared its last interim financial statements.
There has been no significant change in the financial or trading position of Northern & Shell Network Limited or in its subsidiaries listed on pages 74-75 since 31 December 2016, being the last date to which the financial information on Northern & Shell Network Limited and the listed subsidiaries, presented in Part IV (Historical Financial Information Relating to Northern & Shell), has been prepared.
The Company is of the opinion that, taking into account the cash resources and bank facilities available to the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements, that is, for at least 12 months following the date of publication of this Circular.
KPMG LLP has given and not withdrawn its consent to the inclusion in this Circular of its report in Part IV (Historical Financial Information Relating to Northern & Shell) in the form and context in which it is included.
Deloitte LLP has given and not withdrawn its consent to the inclusion in this Circular of its report in Part V (Unaudited Pro forma Financial Information for the Enlarged Group) in the form and context in which it is included.
Numis has given and not withdrawn its written consent to the issue of this Circular with references to their names being included in the form and context in which they appear.
Copies of the following documents will be available for inspection during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the offices of Norton Rose Fulbright LLP, 3 More London Riverside, London SE1 2AQ from the date of this Circular up to and including the date of the General Meeting and for the duration of the General Meeting:
The following definitions apply throughout this Circular, unless the context requires otherwise:
| ''2002 Act'' | means the Irish Competition Act 2002; |
|---|---|
| ''2018 Budget'' | means the budget in respect of the Northern & Shell Group in respect of the financial period beginning on 1 January 2018 and ending on 31 December 2018; |
| ''Acquisition'' | means the proposed acquisition of all of the Northern & Shell Shares; |
| ''Acquisition Resolution'' | means the resolution to approve the Acquisition set out in the Notice of General Meeting; |
| ''Act'' or ''Companies Act'' | means the Companies Act 2006, as amended from time to time; |
| ''Adjusted EBITDA'' | means Adjusted Operating Profit excluding the depreciation of fixed assets; |
| ''Adjusted EPS'' | means earnings per share adjusted for the exclusion of non-recurring items, restructuring charges in respect of cost reduction measures, the amortisation of intangible assets, pension administrative expenses, retranslation of foreign currency borrowings, the impact of fair value changes on derivative financial instruments, pension finance charges and the impact of any tax legislation changes; |
| ''Adjusted Operating Profit'' | means operating profit excluding non-recurring items, restructuring charges in respect of cost reduction measures, pension administrative expenses and the amortisation of intangible assets; |
| ''Admission'' | means (i) the admission of the Consideration Shares to the Official List of the UKLA becoming effective in accordance with the Listing Rules; and (ii) admission of the Consideration Shares to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards of the London Stock Exchange (as amended from time to time); |
| ''Board'' | means the Directors of the Company from time to time; |
| ''Business Day'' | means any day on which banks are generally open in London for the transaction of business other than a Saturday or Sunday or public holiday; |
| ''Circular'' | means this document; |
| ''City Code'' | means the City Code on Takeovers and Mergers, as amended from time to time; |
| ''CMA'' | means the Competition and Markets Authority; |
| ''Commission'' | means the Competition and Consumer Protection Commission in the Republic of Ireland; |
| ''Company'' | means Trinity Mirror plc, a company incorporated in England & Wales with registered no. 82548; |
| ''Conditions'' | means the conditions to completion of the acquisition of Northern & Shell Network Limited and/or the 50% interest in the issued ordinary share capital of JV Entity and/or International Distribution 2018 Limited, as applicable, as set out in the Share Purchase Agreement; |
| ''Consideration Shares'' | means the Ordinary Shares to be issued by the Company to the Seller pursuant to the Share Purchase Agreement; |
| ''CREST'' | means the relevant system (as defined in the Regulations) in respect of which Euroclear is the operator (as defined in the Regulations); |
|---|---|
| ''CREST Manual'' | means the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear on 15 July 1996 and as amended since); |
| ''CREST Proxy Instruction'' | means a properly authenticated CREST message appointing and instructing a proxy to attend and vote in place of a Shareholder at the General Meeting and containing the information required to be contained in the CREST Manual; |
| ''Direct Sales Acquisition'' | means the acquisition by the Company of the entire issued share capital of International Distribution 2018 Limited; |
| ''Direct Sales Business'' | means the sale of newspaper and magazine titles (Daily Express, Sunday Express, Daily Star Sunday, OK!, New! and Star magazine) published by the Seller's Group in the Republic of Ireland; |
| ''Direct Sales Completion'' | means completion of the Direct Sales Acquisition pursuant to the terms of the Share Purchase Agreement; |
| ''Directors'' or ''Board of Directors'' |
means the directors of the Company whose names appear in the section entitled Directors, Company Secretary, Registered Office and Advisers; |
| ''Disclosure Guidance and Transparency Rules'' |
means the disclosure rules and transparency rules made by the UK Listing Authority under Section 73A of the FSMA, as amended from time to time; |
| ''Enlarged Group'' | means the Company and its subsidiaries and subsidiary undertakings, including Northern & Shell and its subsidiaries and subsidiary undertakings, after the NSNL Completion and from time to time thereafter; |
| ''Euroclear'' | means Euroclear UK & Ireland Limited; |
| ''Existing Debt Facility'' | means the £110 million, 5 year, unsecured bank facility procured in December 2016; |
| ''Express Newspapers'' | means Express Newspapers, a company incorporated in England and Wales with registered no. 00141748; |
| ''FCA'' | means the Financial Conduct Authority of the UK; |
| ''FSMA'' | means the Financial Services and Markets Act 2000, as amended from time to time; |
| ''General Meeting'' | means the general meeting of the Company to consider and, if thought fit, approve the Acquisition Resolution; |
| ''IFRS'' | means International Financial Reporting Standards as adopted by the European Union; |
| ''Independent News and Media Plc'' |
means Independent News and Media Plc, a company incorporated in the Republic of Ireland with registered no. 2936; |
| ''Independent Star Limited'' | means Independent Star Limited, a company incorporated in the Republic of Ireland with registered no. 122550; |
| ''International Distribution 2018 Limited'' |
means International Distribution 2018 Limited, a company incorporated in England and Wales with registered no. 11143017; |
| ''Irish Long Stop Date'' | means 31 December 2018; |
| ''IPSO'' | means the Independent Press Standards Organisation; |
| ''JV Acquisition'' | means the acquisition by the Company of the 50 per cent. interest in the issued ordinary share capital of JV Entity held by Express Newspapers; |
|---|---|
| ''JV Completion'' | means completion of the JV Acquisition pursuant to the terms of the Share Purchase Agreement; |
| ''JV Entity'' | means Independent Star Limited, a 50:50 joint venture between Express Newspapers and Independent News and Media Plc which publishes and sells the Irish Daily Star newspaper (Monday to Friday) in the Republic of Ireland; |
| ''Latest Practicable Date'' | means 7 February 2018, being the latest practicable date prior to the publication of this Circular; |
| ''Listing Rules'' | means the listing rules made by the UK Listing Authority under section 73A of the FSMA, as amended from time to time; |
| ''London Stock Exchange'' | means London Stock Exchange plc; |
| ''Long Stop Date'' | (i) 31 March 2018; or |
| (ii) in the event that certain Conditions have not been satisfied or waived by 28 February 2018 and the Company and the Seller agree in writing on or before 28 February 2018 that they wish to extend the Longstop Date, such date as the Company and the Seller shall agree being a date falling no later than 30 June 2018; or |
|
| (iii) such other date as the parties may agree in writing; |
|
| ''LTIP'' | means the Trinity Mirror Long-Term Incentive Plan 2012; |
| ''MAR'' | means the Market Abuse Regulation (2014/596/EU); |
| ''Minister'' | means the Minister of Communications, Climate Action and Environment in the Republic of Ireland; |
| ''New Debt Facility'' | means the £75 million term loan facilities agreement dated on or about the date hereof entered into between, amongst others, the Company as parent and original borrower, Barclays Bank plc, Santander UK plc, The Governor and Company of the Bank of Ireland and The Royal Bank of Scotland plc as bookrunners and mandated lead arrangers, Barclays Bank plc, Santander UK plc and The Royal Bank of Scotland plc as coordinators, certain other banks as lenders, certain subsidiaries of the Company as guarantors and The Royal Bank of Scotland plc as agent; |
| ''Northern & Shell'' | means, together (i) Northern & Shell Network Limited and its subsidiaries listed on pages 74-75 (ii) the Seller's 50% interest in the issued ordinary share capital of Independent Star Limited, and (iii) International Distribution 2018 Limited; |
| ''Northern & Shell Network Limited'' |
means Northern & Shell Network Limited, a company incorporated in England & Wales with registered no. 04086475; |
| ''Northern & Shell Pension Schemes'' |
means the existing defined benefit schemes of the Northern & Shell Group; |
| ''Northern & Shell Group'' | means Northern & Shell and its subsidiaries and subsidiary undertakings from time to time excluding those transferred out of the Northern & Shell Group prior to signing the Share Purchase Agreement; |
| ''Northern & Shell Shares'' | means (i) the entire issued share capital of Northern & Shell Network Limited; (ii) 500 'E' ordinary shares of e 1.27 each in Independent Star Limited (being 50% of the issued ordinary share capital); and (iii) the entire issued share capital of International Distribution 2018 Limited; |
| ''Notice of General Meeting'' | means the notice of the General Meeting included at the end of this Circular; |
|---|---|
| ''NSNL Completion'' | means completion the acquisition of Northern & Shell Network Limited pursuant to the terms of the Share Purchase Agreement; |
| ''Numis'' | means Numis Securities Limited; |
| ''Official List'' | means the official list of the UK Listing Authority; |
| ''Ordinary Shares'' | means the ordinary shares of nominal value of £0.10 each in the capital of the Company, including, if the context requires, the Consideration Shares; |
| ''Pounds Sterling'' or ''£'' | means the lawful currency of the United Kingdom from time to time; |
| ''Prospectus Rules'' | means the rules made by the FCA under Part VI of FSMA in relation to offers of transferable securities to the public and admission of transferrable securities to trading on a regulated market (as amended from time to time); |
| ''Proxy Form'' | means the form of proxy for the General Meeting to be sent to Shareholders; |
| ''Regulations'' | means the Uncertificated Securities Regulations 2001 of the United Kingdom; |
| ''Restricted Share Plan'' | means the Trinity Mirror plc Restricted Share Plan; |
| ''ROI Competition Clearance'' | means the competition clearance from the Commission and the Minister; |
| ''Seller'' | means Northern & Shell Media Group Limited incorporated in England and Wales with registered number 04086466; |
| ''Seller's Group'' | means the Seller and its subsidiaries from time to time; |
| ''Shareholder'' | means a holder of Ordinary Shares and ''Shareholders'' shall be construed accordingly; |
| ''Share Purchase Agreement'' | means the agreement entered into on 9 February 2018 between the Seller and the Company in connection with the Acquisition; |
| ''Sponsor'' | means Numis; |
| ''Standstill and Lock-in Agreement'' |
means a standstill and lock-in agreement entered into on 31 January 2018 between the Company and the Seller; |
| ''Trinity Mirror'' or ''Trinity Mirror Group'' |
means the Company and its subsidiaries and subsidiary undertakings from time to time; |
| ''Trinity Mirror Pension Schemes'' |
means the existing defined benefit schemes of the Trinity Mirror Group; |
| ''Trustees'' | means the trustees of the Trinity Mirror Pension Schemes; |
| ''UKLA'' or ''UK Listing Authority'' |
means the Financial Conduct Authority acting in its capacity as the competent authority for the purposes of Part V of the FSMA and any successor(s) thereto; |
| ''Unaudited Pro Forma Financial Information'' |
has the meaning given to it in Part V (Unaudited Pro Forma Financial Information for the Enlarged Group); |
| ''United Kingdom'' or ''UK'' | means the United Kingdom of Great Britain and Northern Ireland; |
| ''United States'' or ''USA'' or ''US'' |
means the United States of America, its territories and possessions, any state of the United States of America, the District of Columbia and all other areas subject to its jurisdiction; and |
| ''US Securities Act'' | means the US Securities Act of 1933, as amended. |
References to a ''company'' in this Circular shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established.
(Incorporated in England and Wales with registered number 82548)
Notice is given that a General Meeting (the ''General Meeting'') of Trinity Mirror plc (the ''Company'') will be held at 11:30 am on Tuesday, 27 February 2018 at the Wilberforce Room, Museum of London Docklands, No.1 Warehouse, West India Quay, London E14 4AL in order to consider and, if thought fit, to pass the following Resolution.
Capitalised terms used in this Notice of General Meeting (the ''Notice'') which are not defined shall have the meaning ascribed to them in the circular to Shareholders dated 9 February 2018 (the ''Circular'') of which this Notice forms part.
The Resolution will be proposed as an ordinary resolution.
THAT, the proposed acquisition by the Company of the Northern & Shell Shares (as defined in the Circular dated 9 February 2018), on the terms and subject to the conditions of the Share Purchase Agreement (as summarised in Part III of such Circular), and the associated and ancillary agreements and arrangements contemplated by the Share Purchase Agreement be approved and that any and all of the Directors (or any duly constituted committee thereof) be authorised to:
By order of the Board of Directors, Vijay Vaghela Company Secretary
Registered Office: One Canada Square Canary Wharf London E14 5AP
9 February 2018
to allow members to specify the number of shares in respect of which that proxy has been appointed. Members who return the Proxy Form duly executed but leave this space blank will be deemed to have appointed the proxy in respect of all of their shares.
A proxy appointment made electronically will not be valid if sent to any address other than those provided or if received after 11:30 am on 23 February 2018. Please note that any electronic communication found to contain a computer virus will not be accepted.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ''CREST Proxy Instruction'') must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications and must contain the information required for such instruction, as described in the CREST Manual (available via www.euroclear.com).
The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19) by the latest time(s) for receipt of proxy appointments specified in the Notice of General Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time-stamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting services providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages.
Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his or her CREST sponsor or voting service provider(s) take(s) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings (www.euroclear.com). The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001 (as amended).
Nominated Persons should also remember that their main point of contact in terms of their investment in the Company remains the member who nominated the Nominated Person to enjoy information rights (or, perhaps the custodian or broker who administers the investment on their behalf). Nominated Persons should continue to contact that member, custodian or broker (and not the Company) regarding any changes or queries relating to the Nominated Person's personal details and interest in the Company (including any administrative matter). The only exception to this is where the Company expressly requests a response from a Nominated Person.
All such documents will also be available for inspection at the Wilberforce Room, Museum of London Docklands, No.1 Warehouse, West India Quay, London E14 4AL from 10.30 am on 27 February 2018 until the conclusion of the General Meeting.
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