2018 ANNUAL REPORT AND ACCOUNTS INDEPENDENT NEWS & MEDIA PLC ANNUAL REPORT & ACCOUNTS 2018
Independent House 27-32 Talbot Street Dublin 1 Ireland Tel +353 1 466 3200 Fax +353 1 466 3222 Email [email protected] www.inmplc.com STRATEGIC REPORT OVERVIEW
HIGHLIGHTS OF THE YEAR
• Total revenues of €191.0m, down 2.1%; • Profit before tax* of €24.1m, ahead of expectations; • Total operating costs decreased by a net €0.1m to €167.4m in the year. This reflects a reduction in the Group’s cost base largely offset by costs associated with two acquisitions and investment in strategy, GDPR and cyber-security costs; • Basic & Diluted EPS* of 1.6c, down from 1.8c in the prior year; • Net exceptional charge of €13.3m primarily including a non-cash €7.0m impairment (Northern Ireland assets), a restructuring charge of €4.1m and legal expenses of €3.5m; €191.0m • Net assets increased by €13.6m on the prior year to €89.7m at year end 2018, notwithstanding the Total Revenues aforementioned non-cash €7.0m impairment; € • Closing cash of €81.7m, with continued cash 24.1m generation offset by once-off cash outflows related to Profit Before Tax* retirement benefit obligations and acquisitions; • New corporate strategy identified which focuses on €81.7m protecting the core, expanding and developing customer-centric offerings and enabling the future; Cash and Cash Equivalents and • New refreshed Board and new appointments to the Senior Executive Team (“SET”), to drive delivery of the corporate strategy.
Credits: Designed by: Creativerin Design * All numbers in the Strategic Report that are accompanied by Photography by: Crazy Pixels Photography an asterisk (*) are stated pre exceptional items. Printed by: Colorman Ireland Ltd i STRATEGIC REPORT
INDEPENDENT NEWS & MEDIA PLC AT A GLANCE
Independent News & Media PLC Contents (‘INM’) is a market-leading STRATEGIC REPORT media group in the Republic of Highlights of the year i Ireland and Northern Ireland, INM at a glance 1 with a strong newspaper and Chairman’s Message 2 digital presence. Chief Executive’s Review 6
INM is the largest wholesale newspaper distributor on Strategy 8 the island of Ireland. It manages gross assets of Operating Review 12 €192.3m and employs approximately 800 people. Financial Review 16 The company is headquartered in Dublin, Ireland and its Business Model 21 shares are listed on Euronext Dublin and the London Risk Report 22 Stock Exchange. Corporate Social Responsibility 30
GOVERNANCE Chairman’s Introduction 37 Board of Directors 41 Corporate Governance Statement 44 Audit and Risk Committee Report 53 Remuneration Committee Report 65 Nomination and Corporate Governance Committee Report 87 Report of the Directors 93
FINANCIAL STATEMENTS Statement of Directors’ Responsibilities 101 Report of the Independent Auditor 103 Financial Statements 112
Independent News & Media PLC 1 STRATEGIC REPORT
CHAIRMAN’S MESSAGE
Dear Shareholder
In 2018 we continued to make progress in implementing our new strategy with the full support of our new Board and our new Senior Executive Team. We have also recorded a financial performance for 2018 ahead of market expectations and I can assure you that despite the challenges facing the industry, the Board and Senior Executive Team of your Group are both determined and confident that we are heading in the right direction to build a sustainable business for the future and to create shareholder value.
Results and financial performance
The Group returned profits before tax* of €24.1m in 2018. While this represents a 15.4% reduction on the previous year, this still represents a robust performance in what remains a challenging trading environment and underlines the Group’s market leadership position.
The Group’s closing cash balance continues to be significant at €81.7m and comes after incurring costs relating to addressing the Belfast Telegraph pension “Despite the issue, acquisitions and legal costs associated with the respective investigations of the Office of the Director of challenges facing Corporate Enforcement (“ODCE”) and the Data Protection Commissioner (“DPC”) and the appointment of inspectors. the industry, I am confident that we are heading in the right direction.”
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Chairman’s Message - continued
Governance High Court Appointment of Inspectors to INM, following application by the The Board of your Group has been refreshed over the ODCE last year. I am delighted to have been appointed to the Board as Chairman in March 2018, when three other On 6 September 2018, the High Court made an order new non-executive Directors, John Bateson, Fionnuala appointing Mr Sean Gillane SC and Mr Richard Fleck CBE Duggan and Seamus Taaffe were also appointed to the as inspectors under section 748 of the Companies Act, Board. Kieran Mulvey was appointed as a non-executive 2014 to inquire into and report on certain issues relating Director in August 2018, having been nominated by to the conduct of the affairs of the Company. Denis O’Brien, the Group’s largest shareholder. These issues include the accessing by third parties of the At the end of January of this year we also announced Company’s data from 2014, the proposed acquisition in the appointment of Kate Marsh as an independent non- 2016 by the Company of Newstalk Radio and other executive Director of the Company. matters that were the subject of disclosures made by Mr Robert Pitt, the Group’s former CEO, to the Company. Part of my role as Chairman is to ensure that your Board The inspectors will also report on whether Mr Leslie has a wealth of experience and expertise in the media Buckley, the former Chairman of the Group, disclosed industry and the wider corporate world from which to information to third parties in breach of market abuse or draw on and is fully equipped to take on the challenges other applicable law and whether there have been any and demands of what has become a rapidly changing breaches of law arising from any of these matters and industry. Along with changes already announced to our the Company's response to the disclosures made to it. key committees, your Board has the necessary skills, knowledge and experience to make informed decisions Since the appointment of the inspectors, the Board and that are in the best interests of all stakeholders and fully the Group’s Senior Executive Team have remained complies with the composition recommendations laid focused on the business and ensuring that the Group's down by the UK Corporate Governance Code and the operations continue, so far as possible, to be conducted Irish Corporate Governance Annex. as normal. The Group has been co-operating with the inspectors and assisting them in the efficient execution Separately, since the date of the last Annual Report in of their inquiry. The inspectors are due to report back to April 2018, two members of the Board resigned, namely the High Court in April 2019 with an update on how Paul Connolly and Terry Buckley and in December 2018 their inquiry is progressing. it was announced that our Group CFO, Ryan Preston, would depart the Company. I would like to take this opportunity to thank all three for their contribution to the Group over many years.
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Chairman’s Message - continued
Investigation by the DPC Looking to the future
The DPC is currently investigating suspected breaches of Over the past year your Group has made significant data security within the Group. Your Group is progress in identifying the key issues we need to co-operating with the DPC in relation to its inquiries and address to ensure that our new strategy will succeed in we look forward to the speedy resolution of this process, stabilising and repositioning our business. which I am fully aware is a matter of major concern to the Board and all of our employees. Of course, we will continue to confront the many challenges currently dominating our industry’s wide Group Strategy agenda, including the unfettered advance of the global technology platforms such as Google and Facebook, the The new INM Senior Executive Team, under the inexorable rise of fake news and the cold climate for leadership of CEO Michael Doorly, is currently overseeing consolidation in the Irish market as a result of the implementation of our three-year strategy, which is inadequacies in the competition approval process, not to called INM@21, to build a sustainable business for the mention our outdated libel and legal regime. future and to create shareholder value. We face a tough journey over the next few years This process involves building on the market leadership through a rapidly-changing media landscape, but we are position of our core print and online business. determined to succeed in achieving our vision of a The reputation of our journalists, our print titles and successful INM that delivers for all of our many digital products are unrivalled in the Irish market and we stakeholders. will be investing heavily in the technology, data, analytics, customer and digital resources necessary to provide the coverage and opinions that our readers and customers really value and are looking for on a 24/7 basis.
It will involve rapid change and regrettably some painful but necessary cost reductions as a consequence of the challenging print environment and ensuring close alignment between our strategic initiatives and new investment as we work towards the adoption of a new business operating model that reinforces INM’s strong market reputation while also allowing us to pursue new opportunities for growth and development.
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Chairman’s Message - continued
The Board Outlook
While there has been a lot of change in the composition While our industry will continue to face strong of the Board over the past year, this has helped to headwinds, the Group remains confident that the refresh the Board dynamic and we are focused and implementation of our strategy will continue to deliver committed to meeting the many challenges that real progress across all of our operations, thereby currently face the Group. I would like to thank each enabling us to identify and pursue new opportunities to member of the Board for their unwavering support for create shareholder value. our business and their determination to ensure that we continue to pursue the right strategy to future proof our I would also like to thank you, our shareholders, for your business. continued support. I look forward to speaking with many of you at the forthcoming AGM. Our People
On behalf of the Board, I would like to thank each Murdoch MacLennan employee in INM for their contribution and for their Chairman ongoing commitment and engagement with the roll-out 28 March 2019 of our new strategy. Their contribution is vital to ensuring the successful delivery of INM@21 over the coming months and years.
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CHIEF EXECUTIVE’S REVIEW
Our results for 2018 clearly illustrate the rapid change “I am pleased to taking place in our industry and the significant and unique challenges facing our Group. Despite the many report that we are difficulties we faced throughout 2018, the Group recorded profits before tax* of €24.1m for the year, while our cash balance remained strong at €81.7m at moving forward in year end.
reshaping our In line with the industry - which is facing the challenges of digital disruption, changing consumer behaviours and economic shifts - INM experienced declines of 10.8% in business.” publishing advertising revenues, 1.7% in digital revenues and 6.3% in circulation sales.
In order to stabilise the Group’s finances, we have been reviewing all of our operations and implementing our new corporate strategy.
In this regard, we have also reviewed our cost base and have taken action to reduce staff numbers and costs in our editorial and commercial departments. While these decisions are very tough, they are unfortunately necessary in order to build a sustainable business for INM. As part of this process, we have engaged fully with our staff at all levels throughout the Group and there is a clear understanding of the urgency required to ensure that we can fully implement our change strategy.
Our strategy also involves a substantial investment in building capability - in people, in data and data analytics and in technology. We have made good progress in these key areas.
While change is happening right across our sector, I am pleased to report that we are moving forward in reshaping our business to better meet the needs of our print and online readers and customers.
The challenging environment in which we currently operate also presents exciting opportunities to develop new initiatives which will increase our revenue base, while we are also actively seeking new investment opportunities in the wider media industry.
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Chief Executive’s review - continued
Financial Performance Acquisitions
The Group faced a number of significant challenges in In line with our new strategy, the Group’s distribution 2018 which resulted in a decline in overall revenues and subsidiary, Reach Group, concluded the acquisition of the profits. trading business and certain assets of Hegadon Limited (trading as Supreme Stationary) in January 2018. In addition, • Profit before tax* was €24.1m, a reduction of 15.4%. in May 2018, Reach Group acquired the remaining 50% • Total operating costs decreased by a net €0.1m to stake in Reachmount DAC, trading as Reach Retail Services, €167.4m in the year. This reflects a reduction in the one of Ireland's leading innovative packaging companies. Group’s cost base largely offset by costs associated Post-acquisition revenues and profits, for both acquisitions, with two acquisitions and investment in strategy, are trading in line with expectations. GDPR and cyber-security costs. • The Group’s balance sheet remains healthy, showing a Pensions cash balance of €81.7m with continued cash generation offset by once-off cash outflows related to In December 2018 the Group and the Trustees of the retirement benefit obligations and acquisitions. Belfast Telegraph Pension Scheme reached agreement • INM’s titles continue to hold leading positions in the on a recovery plan to address the actuarial funding deficit newspaper market in Ireland, with the Irish of Stg£25.6m by 2024. Ongoing contributions from the Independent outselling the Irish Times and the Company will continue to be made to the scheme to meet Examiner combined and the Sunday Independent the Company’s obligations. The agreement will ensure having 63% of the Sunday quality market. In Northern that the pension scheme is on track to meet the needs Ireland, the Belfast Telegraph and Sunday Life hold of its members based on the actuarial valuation as at 31 commanding positions in their respective daily and December 2016. In addition, the Group continued to meet Sunday markets. its c. €7.4m annual pension obligations in respect of its • Our digital audience numbers continue to show good Republic of Ireland pension schemes. growth, with the Group’s flagship news platform independent.ie surging by 10% year on year with an Our people average of more than 1 million unique users visiting the platform each day. Producing quality content remains essential to the future of our business and to that end the calibre of our New Strategy editorial team is unmatched in the Irish market. I would like to thank all of my colleagues in INM for their Our strategic plan, entitled INM@21, involves optimising continued commitment and resolve in the face of what revenues, reducing costs and building the capability to has been another challenging year for the Group. respond to the changing needs of our audience. In order They have given me huge support during the roll-out of to arrive at a new publishing model, one that is fit for our new corporate strategy and they will play a pivotal purpose in a changing world, we are increasing our role in its successful implementation over the next three investment in technology and digital capability to ensure years. I am personally committed to ensuring successful we have the resources required to deliver our strategy. delivery and I am confident that, together, we have the This investment will amount to approximately €5m in ambition and capability to build a robust, sustainable the first phase. Key appointments were made to the business into 2021 and beyond. Senior Executive Team (SET) during 2018 to deliver the strategy and build a sustainable future for the Group. Michael Doorly Chief Executive 28 March 2019
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STRATEGY - INM@21
Overview The Group boasts significant audiences both in print and online, with a strong portfolio of trusted brands across INM is a leader in the Irish media landscape, with a the island of Ireland. historically strong position, asset base and reputation across the newspaper value chain.
Iconic Brands
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Strategy - continued
In recent years, there has been a shift in the global Consumer behaviours are also changing with a marked publishing industry and media landscape. Across the transition from newspaper to mobile consumption world, newspaper and magazine publishers are striving where there is an expectation of real-time content in to adapt to the challenges and opportunities presented easy to digest formats. by digital disruption, changing consumer behaviours and economic shifts. INM, too, is facing those challenges, and there is now a greater need for the Group to develop new and robust Advertising and circulation revenues continue to decline, revenue sources to offset these downward trends and and economic potential is moving from traditional deliver shareholder value. channels towards new digitally enabled business models. Competitors are continuing to drive ongoing Equally, changes in the industry also bring major pressure on print and advertising revenues, profitability opportunities and INM has developed a new and and future opportunities. Traditional advertising models ambitious three year strategy, entitled ‘INM@21’, which must be redefined to take advantage of new fundamentally re-orients its focus. opportunities presented by the shift towards programmatic ads; Facebook, Google and other ad tech intermediaries are currently the main beneficiaries of these trends.
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Strategy - continued
INM@21 The three pillars of the strategy are outlined below which are underpinned by 11 workstreams involving the The INM strategy builds on a reinforced core, expands optimisation of revenues, reduction of costs and building and develops customer-centric offerings, and aims to the capability to respond to the changing needs of INM’s future-proof the business. audience:
01 - PROTECT AND 02 - EXPAND AND 03 - ENABLE THE REINFORCE THE CORE DEVELOP CUSTOMER- FUTURE CENTRIC OFFERINGS
1. Maximise revenue through 4. Leverage INM’s existing reach 8. Invest in customer-centric continuous innovation to deliver and brand, and monetise systems putting the customer at best in class products across all through a range of digital the core of the business. platforms. offerings. 9. Implement future proof 2. Achieve and maintain the most 5. Develop paid for membership organisational structure. efficient operating model. content models. 10.Build processes and invest in IT 3. Consolidate the distribution 6. Consolidate existing position and data analytics to enable network. and further expand into data driven decision making. targeted verticals. 11.Invest in culture and people to 7. Invest to build Reach Group. transform our business.
The core of ‘INM@21’ entails putting the customer at Building Capability the centre of everything that INM does. This means building greater customer intelligence to understand The Publishing Division remains central to the business readership behaviours and interests. Today, the digital of INM and, during 2018, INM appointed Richard solution that INM offers to its customers is an online McClean as Managing Director of Publishing to oversee version of what the company has done for years in print all publishing activities. Investment has also been made and this is no longer sustainable. INM needs to be able in building out the capability of the Senior Executive to target its customers with the right content at the right Team (“SET”) to focus on the key areas of the strategy time through the appropriate channel. comprising; customer, technology, commercial development and people. The SET, which comprises eight people, has seen four new appointments during 2018; Mark Coan (Chief Commercial Development Officer), Mark Ody (Chief Customer Officer), Henry Minogue (Chief Information Officer), and Richard Morgan (Chief People and Change Officer).
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Strategy - continued
These appointments demonstrate that there is a clear For INM to arrive at a new publishing model, one that is emphasis on delivering an online proposition to INM’s fit for purpose in a changing world, the Group will customers that is supported by data and quality continue to ramp up its investment in technology and journalism. digital capability, over the next 12-18 months, to ensure it has the resources required to deliver ‘INM@21’.
Strategic Priorities 2019-2021 TARGETS
Protect and Reinforce the Core • Maximise income from print through revamped and refocused print products. Review the price points. • Jointly pursue higher CPMs (cost per thousand impressions) for the news websites. • Relentlessly pursue cost efficiencies across the business not conflicting with long term strategy and continue to closely monitor progress. • Continue to review and consolidate the distribution network.
Expand and Develop Customer- • Leverage analytics and use richer insights to target new and existing Centric Offerings customers, capitalise on their needs, refine products and pricing and identify which areas to expand in. • Develop paid for membership content models to monetise focused, superior content, understand and target valuable readership. • Claim a careful selection of (B2B) verticals, leveraging current INM assets, and market strengths. • Extend the Reach Group brand to a compelling retailer service proposition and selectively ‘load’ the network, within its natural commercial and logistical boundary conditions.
Enable the Future • Optimise and extend existing analytics and digital assets to enable future growth initiatives including customer acquisition, retention, increasing lifetime value, product pricing, advertising and propositions. • Systematically build up self-propelling support, such as the skillset, technology, data base, organisation and partnerships needed for the future. • Embed processes and culture that will ensure customer-centric data collection and decision making (both advertisers and audience).
Looking to the future
The foundations have been put in place upon which the There is a clear plan for 2019 with a mandate to both CEO and SET can deliver on the ‘customer-first’ three stabilise the business and develop new commercial year strategy. opportunities for the Group.
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OPERATING REVIEW
Independent News & Media PLC (‘INM’) is a market- The Irish Independent continues to lead the quality daily leading media Group in the Republic of Ireland and market with an Audit Bureau of Circulation (“ABC”) Northern Ireland, with a strong newspaper and digital number of 85,7862 maintaining its number one position presence. in the Irish Daily Market. It has the highest readership of any daily paper with an average issue readership of INM is the largest wholesale newspaper distributor on 523,700 adults1, which is greater than the total the island of Ireland. It manages gross assets of readership of the Irish Times and Irish Examiner €192.3m and employs approximately 800 people. combined. 2018 saw a complete redesign of the Irish Independent and the paper has a new bespoke Print and Publishing typeface, called “Nuacht” which has been well received by INM’s readers. Markets and market position INM brands are household names in Ireland and include The Sunday Independent, which recorded an ABC of the Irish Independent, Sunday Independent, Sunday 170,9572 has 63% of the Sunday quality market and World, The Herald, Belfast Telegraph, Sunday Life and remains the biggest selling quality newspaper in the The Star. country with an ABC1 readership of 322,0001 each week. The newspaper also yields a significant regular The Group’s popular titles continue to dominate the Irish audience on the island of Ireland with a total readership daily and Sunday newspaper markets and offer a wide of 693,000 adults1 each week. platform for advertisers wishing to target an extensive customer base. Currently, INM enjoys a combined The Sunday World is Ireland’s largest selling tabloid readership of more than 2.5 million adults1 (ROI and NI) newspaper with an ABC sale of 126,5842 copies each each week across all of its print titles. week (44% of the Sunday popular market), maintaining the paper’s leading market position in the competitive From a regional perspective, INM is a leading publisher Sunday tabloid category. of local newspapers in Ireland, with titles in seven counties. The Group also publishes Ireland’s Own which In 2018, The Herald continued to be the paper of choice is one of Ireland’s leading weekly magazines. INM’s for Dubliners, with 83% of Herald readers living in regional business delivered a very strong financial Dublin or the rest of Leinster, yielding an average daily performance in 2018 with the local focus of the readership of 168,000 adults1. newspapers helping to deliver strong advertising and circulation revenues. In Northern Ireland, the Belfast Telegraph remains a front runner within the local daily newspaper market Operating highlights with a daily ABC of 33,9513 and 150,0001 daily readers. In early 2018, Fionnán Sheahan assumed responsibility Sunday Life, with an ABC of 30,4353 and a weekly for both the print and online editions of the Irish readership of 149,0001 also performed strongly in a Independent; this is in line with INM’s three year highly competitive Sunday market. With a combined corporate strategy which looks at a customer-first digital weekly readership of almost one third of the NI approach. population, INM titles hold a commanding position within the NI print market. The Irish Independent, Sunday Independent, Sunday World, The Herald and Belfast titles combined achieve sales of more than 1 million copies2 per week.
1 Target Group Index (“TGI”) 2018. 2 ABC Jan-Dec 2018. 3 ABC Jul-Dec 2018.
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Operating Review - continued
Digital Platforms New mobile channels, including the Belfast Telegraph app and AMP, delivered the fastest growth, accounting Markets and market position for 11% and 10% respectively of its overall 2018 traffic. Digital revenues decreased by 1.7% in 2018, which is Growth was also driven by the editorial coverage of largely attributable to the shift in the digital advertising stories that matter to audiences in Northern Ireland, model towards a lower yield programmatic selling one. with news and sport increasing by 8% and 33% However, the Group witnessed continued growth in its respectively. classified businesses, specifically CarsIreland.ie, for which revenues grew by 18.2%. As a trusted news source and with a wide portfolio of advertising solutions, the site provides the strongest In 2018 there were more than 1 million unique daily commercial digital platform in Northern Ireland. users4 of INM’s innovative news platform, Independent.ie. The online platform remains as Ireland’s CarsIreland.ie, grew its revenue by 18.2% YoY in 2018 number one news app and the largest publisher on while also increasing its operating margin. It is now Facebook. As INM continues to deliver quality real-time firmly established as one of the leading classified coverage of news events, it consolidates Independent.ie platforms in the Republic of Ireland for motor vehicles. as the digital platform of choice for readers. During The company is continuing to invest significantly in its Storm Emma (late February to March 2018), the daily online platforms using open source technology and user numbers spiked to 1.46 million4 with a peak of 9.8 advanced analytics. Car buyers are increasingly moving million4 impressions on the website on March 2nd 2018. online to inform themselves about the purchase of a car and CarsIreland.ie is benefiting from this behavioural Belfasttelegraph.co.uk is the leading commercial news shift. website in Northern Ireland, publishing content across desktop, mobile, app and Accelerated Mobile Pages (“AMP”). The site delivered over 200 million5 page impressions in 2018, an average of 16.8 million5 page impressions per month due to strong traffic growth in 4 Google Analytics. the second half of the year (+4% YoY). 5 Adobe Analytics.
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Operating Review - continued
Operating highlights Reach Group In 2018, the Group continued to identify and build out audience propositions. Newspread (trading as Reach Group), completed the acquisition of the trading business and certain assets of Following the relaunch of leading classified sites Hegadon Limited (trading as Supreme Stationery) and nijobfinder.co.uk and propertynews.com in early 2018, the remaining 50% stake in Reachmount DAC, trading as the focus has been on consolidating their performances Reach Retail Services, during the year. These acquisitions in an increasingly competitive marketplace. boosted its successful diversification into adjacent categories and resulted in revenue growth and an Investment in Search Engine Optimisation (“SEO”), User improved operating margin. Experience (“UX”) testing and Pay Per Click (“PPC”) advertising is being made to improve traffic and lead Through its very successful diversification strategy, Reach generation on both platforms and to strengthen their Group now supplies Irish retail with newspapers, position in a competitive environment. With almost magazines, books, stationery, gifting and food-to-go 300,0005 monthly users on each platform, packaging products. Through Reach Group, the company nijobfinder.co.uk and propertynews.com continue to lead also operates a successful in-store display and fulfilment their respective markets. business for FMCG clients across the Irish retail estate.
In early 2019, Reach Group won the contract to exclusively wholesale the Examiner Group titles, cementing its position as the premier wholesaler of newspapers on the Island of Ireland.
Reach Group continues to actively review potential partnerships and acquisition opportunities as it continues its diversification programme.
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Operating Review - continued
Our People Acquiring new businesses for growth and diversification INM always seeks to attract, recruit and retain the best people. Across all of the businesses and products, The Group continues to actively review potential customers and readers benefit from the Group’s partnership and acquisition opportunities that diversify entrepreneurial edge and exceptional content. the Group’s revenues.
INM encourages people to think creatively while acting The Board and Management have approved INM’s three responsibly. Much of the company’s success is based on year strategy, entitled ‘INM@21’ which sets out a range the relationships we build while adapting to the ever of initiatives that will help to future-proof the business changing landscape of media and business. and capitalise on other revenue opportunities.
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FINANCIAL REVIEW
The key highlights in respect of 2018 included the “A profit before following: * tax of €24.1m • Total revenues of €191.0m, down 2.1%; • Profit before tax* of €24.1m, ahead of expectations;
with a closing • Total operating costs decreased by a net €0.1m to €167.4m in the year. This reflects a reduction in the cash balance of Group’s cost base largely offset by costs associated with two acquisitions and investment in strategy, €81.7m.” GDPR and cyber-security costs; • Basic & Diluted EPS of 1.6c, down from 1.8c in the prior year;
• Net exceptional charge of €13.3m primarily including a non-cash €7.0m impairment (Northern Ireland assets), a restructuring charge of €4.1m and legal expenses of €3.5m;
• Net assets increased by €13.6m on the prior year to €89.7m at year end 2018, notwithstanding the aforementioned non-cash €7.0m impairment;
• Closing cash of €81.7m, with continued cash generation offset by once-off cash outflows related to retirement benefit obligations payments and acquisitions;
• Retirement benefit obligations reduced to €50.6m from €77.5m at the prior year;
This Financial Review provides an overview of the Group’s financial performance for the year ended 31 December 2018 and of the Group’s financial position at that date.
* All numbers that are accompanied by an asterisk (*) are stated pre exceptional items.
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Financial Review - continued
Overview of Results
Year Ended 31 December 2018 Year Ended 31 December 2017 Before Before Exceptional Exceptional Exceptional Exceptional Items Items Total Items Items Total (restated) (restated) (restated) €m €m €m €m €m €m
Revenue 191.0 - 191.0 195.0 - 195.0 Operating costs (167.4) (14.6) (182.0) (167.5) (12.0) (179.5)
Operating Profit/(Loss) 23.6 (14.6) 9.0 27.5 (12.0) 15.5 Share of results of associates and joint ventures 0.4 - 0.4 0.9 (0.1) 0.8 Net finance income 0.1 0.8 0.9 0.1 - 0.1
Profit/(loss) before taxation 24.1 (13.8) 10.3 28.5 (12.1) 16.4 Taxation (charge)/credit (1.8) 0.5 (1.3) (3.9) - (3.9)
Profit/(loss) for the year 22.3 (13.3) 9.0 24.6 (12.1) 12.5
Revenue Operating Profit
The Group adopted IFRS 15 Revenue from Contracts with Group operating profit (before exceptionals) decreased Customers (“IFRS 15”) from 1 January 2018 and restated by 14.2% to €23.6m, primarily reflecting the revenue comparatives accordingly. The effect was that in respect decrease outlined previously. of the distribution of third party newspapers and magazines, the Group recognises its distribution fee only Operating margin (before exceptionals) decreased by as revenue as opposed to the full selling price and cost 170bps to 12.4%. of sale of the item. The impact of this in the financial statements is a reduction in revenue and costs of Finance income (net) €93.1m for the year (2017: a reduction of €98.0m). Total revenue of €191.0m was down 2.1% on 2017. In 2018, the Group recorded €0.1m of finance income This was primarily driven by a decline in publishing (before exceptionals), equivalent to the prior year. advertising revenues of 10.8% and a decline in circulation revenues of 6.3%. The Group also recorded an exceptional finance gain of €0.8m in 2018, arising from the re-measurement to fair value of the Group’s pre-existing 50% interest in Reachmount DAC.
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Financial Review - continued
Profit before tax and exceptional items Taxation
Profit before tax (before exceptional items) decreased The total tax charge of €1.3m relates to a deferred tax by 15.4% to €24.1m. This reduction was primarily due charge of €1.8m and a current exceptional tax credit of to continued revenue challenges and was also impacted €0.5m in respect of redundancy and other restructuring by a lower share of results of associates and joint costs. The deferred tax charge primarily comprises a tax ventures, reducing from €0.9m (before exceptionals) in charge of €0.9m on the release of a deferred tax asset 2017 to €0.4m in 2018. arising from movements in retirement benefit obligations and a tax charge of €0.8m arising from a Exceptional items movement in the deferred tax asset in respect of capital allowances. The Group recorded a total net exceptional charge of €13.3m in 2018 as follows:
2018 €m Impairments (7.0) Restructuring charge (4.1) Legal expenses (3.5) Exceptional finance income 0.8 Exceptional tax credit 0.5 Total (13.3)
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Financial Review - continued
Basic Earnings per Share
Basic earnings per share (before exceptional items) decreased from 1.8 cent to 1.6 cent.
2018 2017 Total Total
Basic and diluted earnings per share 0.7c 0.9c
Basic and diluted earnings per share before exceptional items 1.6c 1.8c
Dividend
The Board is not proposing a dividend for 2018 (2017: €nil).
Cash Flow
Cash and cash equivalents decreased by €9.8m in the year, as summarised in the table below:
2018 2017 €m €m
Adjusted EBITDA* 30.3 33.8 Retirement benefit obligations deficit repair/special contribution payments (21.9) (14.1) Exceptional expenditure (5.2) (3.9) Other (including provisions/working capital/tax etc) (3.5) (5.9)
Cash (used in)/generated by operating activities (0.3) 9.9
Cashflows from investing activities Acquisition of subsidiary, net of cash acquired (5.3) - Miscellaneous (including purchases of assets) (4.0) (2.4)
(9.6) 7.5 Cashflows from financing activities Transactions with non-controlling interests (0.1) -
(Decrease)/increase in cash and cash equivalents in the year (9.7) 7.5 Foreign exchange losses (0.1) (0.8)
Net (decrease)/increase in cash and cash equivalents in the year (9.8) 6.7
Independent News & Media PLC 19 STRATEGIC REPORT
Financial Review - continued
The Group ended the year with a cash balance of Balance Sheet €81.7m, down €9.8m year on year. This result was generated primarily from cash outflows relating to INM net assets were €89.7m at year end 2018 retirement benefit obligations, the acquisition of compared with €76.1m at year end 2017. subsidiaries, exceptional expenditure, capital expenditure and movement in provisions/working The strengthened balance sheet was mainly driven by a capital, somewhat offset by the cash generated from decrease in the retirement benefit obligations of EBITDA. €26.9m, an increase in intangible assets of €4.1m (impacted by two new acquisitions), partly offset by a Cash used in operating activities in 2018 was €0.3m decrease in cash and cash equivalents of €9.8m year on compared to cash generated by operating activities of year and by a decrease in tangible assets of €6.5m €9.9m in 2017. This movement is primarily attributable primarily due to an impairment of property, plant and to an increase in retirement benefit obligations cash equipment in the Newry print facility. outflows of €7.8m (which includes a payment of €13.9m to the Belfast Telegraph scheme in November Share Price and Market Capitalisation 2018 as part of the agreed funding arrangements), an € € EBITDA decrease of 3.5m to 30.3m, an increase in The Company’s shares traded in the range €0.06 to € exceptional expenditure of 1.3m, partly offset by a €0.11 during the year. The share price at 31 December reduction in provisions/working capital/tax etc outflow 2018 was €0.06 (31 December 2017: €0.09) giving a € of 2.4m. market capitalisation of €83.3m (2017: €131.7m) at that date. Cash outflow from investing activities in 2018 primarily related to the acquisition of Hegadon (trading as Supreme Stationary) and Reachmount DAC and capital expenditure on tangible and intangible assets.
A cash outflow from financing activities of €0.1m was incurred in 2018 relating to a payment to a non-controlling interest in respect of a 51% owned subsidiary.
The foreign exchange losses are as a result of the weakening of Sterling versus the Euro.
20 Report And Accounts 2018 STRATEGIC REPORT
BUSINESS MODEL
How we create and share value INM also generates revenues from commercial printing which provides internal and external print services and INM’s portfolio of print and digital publications includes from its distribution activities, trading as Reach Group, two of Ireland’s most read paid-for newspapers, the Irish which is the largest wholesale distributor for Independent and the Sunday Independent, and Ireland’s newspapers, magazines and other related products on most visited digital news site across desktop and the island of Ireland. mobile, independent.ie.
Revenues are generated from advertising and circulation, with additional revenues generated from digital activities. The newspaper publications continue to generate the significant proportion of profits while the Group continues to diversify with new digital initiatives.
What’s important to us Attributes of our Value creation businesses • Responsibility to inform on civic • Top quality journalism • Market leading media products and public matters • Operating efficiency and • Financial performance • Commitment to quality journalism effectiveness • Shareholder value • Truth and fairness • Best-practice management • Growth through investments and • Adherence to ethical standards • Financial management expertise acquisitions • Excellence in all that we do • Prudent investment • Salaries and employment • Responsibility to our stakeholders • Training and development of our • Taxes people • Commitment to high standards of corporate governance
Independent News & Media PLC 21 STRATEGIC REPORT
RISK REPORT
Effective Risk Management The Group considers risk as the potential for loss or management harm, or the diminished opportunity for gain, that can adversely affect achievement of the Group’s objectives. The Group also recognises that risk represents of risk opportunity to the organisation, and that in order to achieve its strategic objectives it has an appetite to assume a certain degree of risk. Internal control is a process, affected by the Board, management and other The Board of INM determines the nature personnel, designed to provide reasonable, but not and extent of the principle risks it is willing absolute, assurance regarding the achievement of objectives relating to operations, reporting and to take to achieve its strategic objectives. compliance. INM’s Risk Management and Internal It is responsible for setting the Group’s risk Control frameworks encompass policies, procedures, appetite and ensuring that appropriate risk governance structures, people and systems within the Group and are designed to align with the strategic management and internal control systems, objectives of the Group. The risk management designed to identify, manage and mitigate framework in place in the Group and the roles and potential material risks to the business are responsibilities of the key elements of the framework in place. are set out below:
Risk Management Framework
INM PLC Board
Audit and Risk Committee
Group Risk Register Executive Risk Register Audit Risk and Compliance
Risk Registers
First line of defence Second line of defence Third line of defence
Audit Risk & Compliance
22 Report And Accounts 2018 STRATEGIC REPORT
Risk Report - continued
Risk Management Framework The Board has delegated responsibility for the ongoing monitoring of the effectiveness of the Group’s system of The risk management framework has been designed risk management and internal control to the Audit and using a ‘three lines of defence’ model. Risk Committee. The Chairman of the Audit and Risk The first line comprises business unit and functional Committee reports to the Board on the Committee’s management, who have day-to-day responsibility for activities in regard to the Group’s risk management and designing, implementing and maintaining effective internal control systems. The Board also receives and internal controls within the individual business units and reviews a summary Group Risk Register and a Risk and functions. The second line comprises Group oversight Internal Controls Report, prepared by the Head of Audit, functions that provide expertise in regard to the Risk and Compliance on an annual basis. management of specific risks, for example security, health, safety and environmental (‘HSE’) and Audit and Risk Committee compliance. The third line of defence principally The duties of the Audit and Risk Committee in respect of comprises the internal audit process within the Group risk management in particular include the following: Audit, Risk and Compliance function and also includes specialist third party auditors. • Keep under review the effectiveness of the Company’s systems of risk management and internal controls; The detailed roles and responsibilities assigned under and the risk management framework are summarised • Review and approve statements to be included in the below: Annual Report concerning risk management and internal controls. Board of Directors The Board retains ultimate responsibility for setting the The Audit and Risk Committee is also responsible for strategic objectives of INM, identifying strategic risks overseeing financial reporting, and for reviewing the impacting upon its ability to achieve the objectives and mechanisms the Company has in place with regards to establishing the risk management and internal control whistleblowing, detecting fraud and preventing bribery. frameworks. As such, the Board is required to: The Audit and Risk Committee is authorised to obtain, at the Company’s expense, outside legal or professional • Know about the most significant risks facing the advice on any matter within its terms of reference. The organisation and how they are being managed; Chairman of the Audit and Risk Committee reports to the • Know how the organisation will respond to a crisis; Board on its activities, both in regard to audit matters and and risk management. • Be assured that the risk management process is working effectively.
The Board is responsible for determining the Group’s Risk Appetite Statement and for the Risk Management Policy. The Board is also required to report on the annual review of the effectiveness of the Group’s risk management and internal control systems.
Independent News & Media PLC 23 STRATEGIC REPORT
Risk Report - continued
Executive Risk Committee Risk Register Process The Executive Risk Committee is chaired by the Chief Executive and comprises executive Group management. INM’s Risk Register is a statement of risks impacting The Executive Risk Committee maintains the Group Risk upon the Group’s ability to achieve its strategic Register and reports to the Audit and Risk Committee objectives. This is the primary document where risks are quarterly or more frequently as circumstances require. identified and assessed. INM has adopted a “top-down” The Executive Risk Committee supports the Audit and and “bottom-up" approach to risk identification and Risk Committee in overseeing and evaluating the Risk assessment. Management processes and procedures in place in INM. Its responsibilities are to provide day-to-day oversight on A risk register template, pre-populated with the most risk management processes and procedures and provide relevant risks covering strategic, operational, financial the necessary information to the Audit and Risk and compliance areas, has been developed. These risk Committee in order to support them in providing registers are completed at all levels of the Group, with assurance that the risk management system is the impact and probability of occurrence for each risk functional and that the identified risks are relevant and determined and scored at both a gross (before accurately assessed and managed. mitigation) and net (after mitigation) basis. A risk scoring matrix is used to ensure a consistent approach is Audit Risk and Compliance (“ARC”) Function taken when completing the probability and impact The ARC Function derives its authority from the Audit assessments. New or emerging risks are added to the and Risk Committee. The scope of the Function covers all risk register as they are identified and the template is activities of the Group and its subsidiaries across all formally reviewed and updated at least annually. departments and locations, both currently existing and under development. Work is prioritised according to risk Business Units as identified through the Group Risk Profile, the Each business unit is required to maintain a risk register, judgement of the Head of ARC, the CEO and the which is reviewed and updated for submission to the direction of the Audit and Risk Committee. Executive Risk Committee quarterly. In addition a Quarterly Risk Survey Questionnaire is issued to each The Function has no direct responsibility for any of the Business Unit Head, requesting further information on activities or operations that it reviews, or for the any significant occurrences relevant to the Group’s Risk development or implementation of systems. Environment which should be brought to the attention The responsibility for internal control, risk identification of the Executive Risk Committee. and mitigation and compliance activity rests entirely with management who must ensure that adequate and Group effective processes exist within their area of The Group Risk Register is coordinated by Head of ARC responsibility. and maintained by the Executive Risk Committee. This is updated to reflect any significant changes noted The Head of ARC has overall responsibility for ensuring in the reviews of business unit risk registers. that procedures and processes are in place to enable The “bottom up” risk register process is complemented adherence to the Group’s Risk Management Policy. by the Executive and Group-wide review of the top risks. The Head of ARC is accountable for enabling the efficient This provides “top down” confirmation of the completed and effective governance of significant risks, and related risk registers. The Group Risk Register is then reviewed opportunities within the business. and formally approved by the Audit and Risk Committee and the Board.
24 Report And Accounts 2018 STRATEGIC REPORT
Risk Report - continued
Reporting These issues include the accessing by third parties of the Company's data, the proposed acquisition in 2016 by the The INM Board and Audit and Risk Committee receive Company of Newstalk Radio and other matters that regular updates on matters relating to risk and internal were the subject of disclosures made by Mr Robert Pitt, control. Formal risk reporting timetables and structures the Group's former CEO, to the Company. are in place across the Group and in particular from the Executive Risk Committee to the Audit and Risk The inspectors will also report on whether Mr Leslie Committee and Board, and from Head of ARC to the Buckley, the former Chairman of the Group, disclosed Audit and Risk Committee. This facilitates full, information to third parties in breach of market abuse or comprehensive reporting by the Audit and Risk other applicable law and whether there have been any Committee to the Board. breaches of law arising from any of these matters and the Company's response to the disclosures made to it. ARC track risk mitigation activity to conclusion and report on progress to the Audit and Risk Committee. Emerging The Group has been co-operating with the inspectors issues are escalated through the Head of ARC to the SET and assisting them in the efficient execution of their and Committee as required. inquiry. The inspectors are due to report back to the High Court in April 2019 with an update on how their inquiry Principal Risks and Uncertainties is progressing.
The principal risks and uncertainties which have the Separately the Data Protection Commissioner (DPC) is potential, in the short to medium term, to have a currently investigating suspected breaches of data significant impact on the Group’s strategic objectives are security within the Group. The Group is co-operating set out below, together with the principal mitigation with the DPC in relation to its inquiries. measures. This table presents the Board’s view of the Group’s principal risks and uncertainties and does not The above and related matters relating to the represent an exhaustive list of all the risks that may inspectorate and the DPC process could result in the impact the Group. There are additional risks which are Company incurring material costs. not yet considered material or which are not yet known to the Board but which could assume greater importance in the future. The mitigation measures that are maintained in relation to these risks are designed to provide a reasonable and not an absolute level of protection against the impact of the events in question.
In addition to the risks and uncertainties set out below, it should be noted that on 6 September 2018, the High Court made an order appointing Mr Sean Gillane SC and Mr Richard Fleck CBE as inspectors under section 748 of the Companies Act, 2014 to inquire into and report on certain issues relating to the conduct of the affairs of the Company.
Independent News & Media PLC 25 STRATEGIC REPORT
Risk Report - continued
Principal Risks and Uncertainties - continued
Risk Impact Principal Mitigation Measures
Market Maintaining profitability is 1. Advertising revenue and circulation volumes are Disruption increasingly challenging due to closely monitored against budgets and industry market disruption (i.e. shift from print benchmarks by senior management during weekly media to digital/mobile) negatively management meetings. affecting newspaper circulation and 2. Cost containment and reduction activity is in place print and digital advertising revenues, across all areas of the business, as evidenced in the giving rise to the need for cost recent restructuring plans, in order to generate reduction and the development of sufficient cash to cover our commitments. This new revenue and profit streams. remains a key priority of the Group and is monitored closely by senior management and Finance. 3. Development of new revenue streams is the subject of a detailed programme - see Strategy implementation below.
Strategy Failure to complete implementation 1. Maximise revenue through continuous innovation to Implementation of Corporate Strategy including deliver best in class products across all platforms. Organisational Change under three 2. Achieve and maintain the most efficient operating strategic pillars: Protect the Core, model, not conflicting with longer term strategy. Expand and Develop Customer-Centric Offerings and Enable the Future could 3. Consolidate print distribution and protect the network. impact on profit targets and impede 4. Leverage INM’s existing reach and brand, and the strategic development of the monitise through a range of digital offerings. Group. 5. Develop paid for membership content models. 6. Consolidate existing position and further expand into targeted verticals. 7. Build and diversify Reach Group while maintaining critical route to market for publishing. 8. Invest in customer-centric systems enabling us to put the customer at the core of the business. 9. Implement future proof organisational structure. 10. Invest in IT and data analytics to enable data driven decision making. 11. Invest in our culture and people to transform our business.
26 Report And Accounts 2018 STRATEGIC REPORT
Risk Report - continued
Principal Risks and Uncertainties - continued
Risk Impact Principal Mitigation Measures
Cyber and Maintaining adequate IT systems to 1. Cyber security reviews, including penetration testing Information secure Business and Customer data and vulnerability assessments are performed Security and protect from accidental exposure throughout the year by specialist third party technical or deliberate theft of sensitive experts to provide independent assurance. information, loss of service or system 2. IT Transition programme currently being implemented availability & cybercrime. including the appointment of a new IT Security Manager and a specific InfoSecurity project. 3. IT standards and policies are subject to internal audit and external reviews annually to ensure they are in line with appropriate best practices.
Corporate A failure to create and maintain a 1. Implement a Tone from the Top Culture. Culture & strong culture of corporate 2. Invest in our culture and people to transform our Reputation governance, editorial independence, business, new HR Programme to develop HR openness and innovation, could capabilities, measure performance and enhance significantly impact the near and long employee journey. term profit targets and the strategic development of the Group. 3. Audit, Risk and Compliance Function established, and charter specifies responsibilities within this area.
Business A significant loss of production 1. Business Continuity Plans (‘BCP’) and IT Disaster Continuity capability during a disaster scenario Recovery plans (‘DRP’) are in place and tested could severely impact revenue and throughout the year. These plans are subject to lead to increased costs. review on an annual basis by external specialists. 2. Contingency arrangements for recovery of specific systems/operations within targeted timeframes have been defined and tested and back-up systems can be provided by contracted 3rd parties. 3. Individual plans are in place for individual businesses and locations where appropriate. These individual plans and testing feed into the overall Group plan.
Independent News & Media PLC 27 STRATEGIC REPORT
Risk Report - continued
Principal Risks and Uncertainties - continued
Risk Impact Principal Mitigation Measures
Talent A failure to attract, retain or develop 1. The Group maintains a constant focus on talent Management high calibre talent and management management with structured succession planning, / Succession throughout the Group could impact on people/management development and remuneration Planning the attainment of objectives. programmes in place. 2. New SET members recently appointed. Their objectives include addressing succession dependencies and identifying talent requirements within their remit. 3. New HR Programme to develop HR capabilities, measure performance and enhancing employee journey. 4. People initiatives are reviewed regularly by Group Human Resources, the Group Chief Executive Officer and the Board.
Compliance Increasing regulation, including in the 1. A number of processes are in place to assess and with laws and areas of Corporate Governance such address any compliance requirements. These include: regulations as directors’ duties and directors’ The Risk and Control Assurance Statement, The compliance statement requires more Directors Compliance Statement and ARC function focus and resources to ensure the activity. Separately the Company Secretary also carries Group is compliant with all applicable out compliance activity including Board and Sub- laws and regulations. Committee assessment exercises against best practice. 2. ARC facilitates a number of initiatives with Group Legal, Company Secretary and Editorial to address compliance awareness. 3. All the above mitigation activity is subject to review and challenge by the Audit and Risk Committee.
28 Report And Accounts 2018 STRATEGIC REPORT
Risk Report - continued
Principal Risks and Uncertainties - continued
Risk Impact Principal Mitigation Measures
Litigation Libel action or other types of litigation 1. Libel action claims are actively managed by Editorial taken against the INM Group or senior management in conjunction with legal producing published content that support. lacks trust and credibility could result 2. Collaborative reviews of articles prior to publishing in financial loss or reputational between journalists and outsourced legal support damage. functions (pre and post publication) ensure the Editorial Code of Practice is upheld. 3. Rigorous investigations and disciplinary processes are carried out following any proven errors. 4. Several initiatives exist to mitigate the risk of libel actions occurring, including renewed policies and compulsory training for journalists and contributors.
Data Protection A breach in data protection legislation 1. The GDPR Project has been completed and the project Legislation could lead to fines as well as is now in BAU and managed by the ARC team. reputational and operational damage 2. ARC has sufficient resources and expertise to act as to INM. the primary source of advice and assurance in respect of GDPR and are supported by an external Data Protection Officer.
Economic & General economic conditions can 1. INM executives monitor the macroeconomic and Geopolitical positively or negatively affect the geopolitical environment by way of regular analysis uncertainty performance of the Group’s of business performance through financial results and businesses, such as the consequential key performance indicators (‘KPIs’) to highlight early risks and uncertainties arising from trends and impacts from economic and geopolitical Brexit. uncertainty. 2. The implications of Brexit are subject to regular analysis. If there is a managed Brexit transition on a negotiated basis we do not anticipate any material impact on the Group’s activities and exchange rate exposures are adequately hedged.
Independent News & Media PLC 29 STRATEGIC REPORT
CORPORATE SOCIAL RESPONSIBILITY
Introduction Our People
As a market-leading multimedia Group that reaches Our people are the lifeblood of our continued success as millions of consumers each week, INM is in a unique Ireland’s largest news and media organisation. position to make a real difference from a social Our commitment to sustainable long term performance responsibility point of view. We aim to demonstrate to is wholly dependent on the empowerment of our all our stakeholders how we contribute ethically, people and their engagement in our business. economically and socially to local communities as a We recognise that our employees are one of our responsible employer, how we actively work to raise greatest assets. They are the face of our business and, funds for worthy causes in our community, and how we combined with our market-leading brands, are the point continue to strive towards reducing any negative impact of recognition for our many millions of consumers. on the environment. Our human resource policies reflect the central role that our employees play in our organisation. This section explains how we manage the wellbeing and development of our people, our involvement in Diversity and Equal Opportunity national and local communities and how we are INM recognises the variety of characteristics which make reducing our environmental impact. Further details on individuals unique and we embrace the benefits of a each of these areas are provided below. Individual workforce with diverse skills, qualities and experience. subsidiaries also have additional business specific areas While recognising the importance of diversity in which are fundamental to their ongoing sustainability, workforce composition, it is Group policy that including relationships with customers, suppliers, employment decisions be made on merit, judged regulators and local communities, procurement of raw against objective criteria, taking account of the skills, materials and supply chain integrity. experience and expertise of candidates rather than by the setting of specific targets. In line with our commitment to create an inclusive workplace, all recruitment, selection and promotion decisions are made on individual merit and personal contribution.
Talent Development In support of our growth plans, we have in place extensive organisational Talent Development Programmes which provides INM with a bespoke education, training and personal development framework to select, assess and grow talent internally, providing us with a competitive edge while nurturing potential business and media leaders for the future.
30 Report And Accounts 2018 STRATEGIC REPORT
Corporate Social Responsibility - continued
Graduate Programme Employee Engagement The Talent Development Programme has been At INM we recognise the value of sharing our ideals and complemented by the INM Graduate Programme, with information with each other and with our stakeholders an objective to create and develop a pipeline of for our continued success. As a Group we enjoy regular potential, emerging editorial and media professionals. meetings and conferences with our suppliers, customers This programme offered our graduates an exceptional and other third parties we work with. We have also opportunity to participate in placements across the multi worked hard to enhance engagement with our platform editorial function. employees during 2018 through a variety of means, including conferences, townhall meetings, intranet, and The INM Graduate Programme is differentiated by the the introduction of a number of key employee-related content, academic training with the London Press initiatives during the year. Association and an opportunity for placements which enables graduates to participate and work on complex, In June 2018, INM launched a new Employee Assistance critical and demanding projects. This, along with the Programme comprising a free and confidential diverse industry nature of the placements and regular counselling and information service provided by VHI learning modules, provides significantly accelerated Corporate Solutions to make available practical development. As a result of the extremely successful assistance and emotional support to employees 24 programme, many graduates are now employed in the hours a day, 365 days a year. This was followed in July business across the Group’s editorial and digital 2018 by the launch of an employee Health Screening operations. Programme, partnering with Laya Healthcare, to provide services for all employees across the island of Ireland. National College of Ireland We recognise the importance of providing the In August 2018, an Internal Communications Manager opportunity to our people to strengthen their digital, was recruited to centralise and co-ordinate employee commercial and innovation skills and have established communication across the business and a new monthly two bespoke programmes for this purpose with the Internal Business Update commenced circulation, issued National College of Ireland. This initiative is in its fourth from the CEO to all staff, and featuring employee year and the net benefit to INM is to develop a cohort of interviews, biggest news stories and key business employees and teams who understand and can meet highlights each month. the challenges of the digital age. In December 2018, preparatory work commenced to carry out the first employee engagement survey in the organisation, the purpose of which is to ensure that we enhance our existing feedback mechanisms, receiving employee feedback directly, digesting and responding where required. This exercise will be rolled out across the organisation, commencing in April 2019.
Independent News & Media PLC 31 STRATEGIC REPORT
Corporate Social Responsibility - continued
Health & Safety Charities and local communities The INM Health & Safety policies set out the Board’s commitment to continually improving management Across INM, subsidiaries support charities and local systems and safety cultures, viewed as positive drivers communities by direct financial contributions, fundraising of business performance. The policies are reinforced in or the provision of particular skills and training. INM is our INM Code of Conduct. proud of its track record in supporting humanitarian causes on a local and national basis. Each Group business maintains appropriate health, safety and environmental management systems. Risk Our media assets allow us to create and promote control measures - technical, procedural and behavioural awareness and we support, both directly and indirectly, - are implemented and monitored to confirm their dozens of causes every year. effectiveness and to identify improvement opportunities. Our individual titles, both national and regional, have Process safety management is a key focus within the always recognised the importance of championing their print and distribution businesses, reflecting the nature of local communities. This connection with our immediate the work being carried out in these locations. Process societies remains a key pillar going forward. Examples of safety performance indicators are used to monitor the community initiatives and charitable organisations that integrity of the safety critical assets, technology, were supported during the year, many of which were competence and procedures that are in place to prevent employee led, to make a difference to those around us a major accident/incident occurring. include the Capuchin Day Centre for the homeless, the Harold’s Cross Hospice, Goal and the St. Vincent de Paul Monthly Health & Safety audits of systems and Christmas Appeal. buildings, as well as monthly Fire audits are carried out across the Group’s key sites by expert external consultants which highlight actions for improvement that are continuously implemented by site management. During 2018 we carried out a number of fire warden and first aid training courses, and all of our security personnel are first-aid and fire-warden trained as standard. An annual Group Health & Safety gap analysis audit is also completed and all recommendations are subsequently actioned by the relevant sites.
32 Report And Accounts 2018 STRATEGIC REPORT
Corporate Social Responsibility - continued
Respect for Human Rights Anti-Bribery and Corruption
INM is committed to conducting all our activities in Ethics and Compliance accordance with high standards of business conduct, INM seeks to achieve the highest standards of business which includes meaningful steps to respect the ethics and compliance in all our activities. Ensuring that fundamental freedoms and rights of our people. these standards are met is the responsibility of the INM has suitable Human Resources policies and leadership team in each business within the Group. procedures which apply to each business in the Group. The key message of our Compliance Programme is that INM is also committed to ensuring that our supply chain managers and employees across the Group should be is free from human rights abuses. The Group endeavours ‘Doing the Right Thing’ at all times. This means not to maintain strong relationship with our partners and merely following the laws and policies that apply to suppliers and has established procedures including the their work, but also exercising good judgement to issuing of supplier questionnaires to assess salient risks ensure that their actions are seen as fair and reasonable. within our supply chain. Both our “Request for Tender” documentation and our Standard Terms & Conditions of INM Code of Conduct Purchase contain clauses requiring that all work and Our Group INM Code of Conduct, which is available on services shall comply with all relevant laws as well as our website, sets out the standards that are expected of with the Company’s general working practices, employees across the Group in a range of areas, including, without limitation, all applicable safety and including conflicts of interest, bribery and corruption and employment legislation. dealings with customers and suppliers.
With the introduction of the General Data Protection Compliance Policies and Training Regulation (“GDPR”) on 25 May 2018, which The Group also maintains detailed policies on a range of seeks to harmonise the protection of fundamental rights relevant areas, complementing the general and freedoms of natural persons in respect of data requirements set out in the INM Code of Conduct. processing activities, INM undertook a comprehensive The areas covered by more detailed policies include readiness programme with the assistance of third party health and safety, anti-bribery and corruption, data specialists to ensure compliance with our obligations in protection, IT security, diversity and equal opportunities that respect. All policies and procedures relating to data and share dealing. Each policy has a dedicated owner, protection were reviewed and updated, and detailed and due diligence processes fall under the remit of our training sessions were rolled out across the Group to Audit, Risk & Compliance function who monitor and promote increased Data Protection Awareness. Further report on instances of non-compliance and provide details are contained in the Risk Report on page 29. recommendations for remediation.
As part of the 2018 Internal Audit programme, an Internal Audit of fraud maturity was carried out in June 2018, to assess and enhance the efficiency and effectiveness of INM’s anti-fraud operational processes. The findings from this audit confirmed the Group’s culture of intolerance for such incidents and behaviours, and made a number of recommendations which are currently being implemented.
Independent News & Media PLC 33 STRATEGIC REPORT
Corporate Social Responsibility - continued
Whistleblowing Environment Employees across the Group are encouraged to raise a concern if any of our activities are being undertaken in a We acknowledge that our activities impact the manner that may not be legal or ethical. Concerns can environment and we are committed to identifying and be raised with a member of management in the minimising negative impacts across all of our operations. business where the employee works or with the Company Secretary. Our internal policies make clear that It is our policy to understand the environmental impact retaliation against any employee who raises a concern is of our activities and those of our suppliers and to prohibited. develop strategies to reduce these impacts, particularly in the areas of energy, natural resources and materials. The Audit and Risk Committee has oversight We continuously consider aspects of our supply chain to responsibility for the whistleblowing policy and how it increase the percentage of recycled materials we use. operates. Certain of our key newsprint providers supply 100% recycled materials and we are working with the others to increase the recycled fibre content. Producer responsibility for waste packaging and waste electronic and electrical equipment is regulated in all EU member states and all INM businesses meet their obligations through membership of national compliance schemes. All paper waste from our plants is reprocessed through the recycling channel.
The print and distribution businesses operate under the strict conditions set out in their waste management licences and are subject to routine compliance inspections by the national regulators. All INM businesses are conscious to adhere to agreements in place and have comprehensive, environmental management systems to ensure robust controls are in place to minimise negative impacts on the environment.
34 Report And Accounts 2018 STRATEGIC REPORT
Corporate Social Responsibility - continued
Energy and Climate Change In June 2018, we agreed a new contract with Agfa The global challenge of climate change continues to Graphics to upgrade the current print processor drive policy and legislation at both EU and national level. capability to the latest technology, delivering chemical Member states have implemented various mechanisms free printing plates, elimination of water usage, greatly to support the achievement of targets including direct reduced cleaning and improvement in uptime carbon taxes, levies on operational carbon emissions, production operation. Additional benefits include 17% subsidies for generation of renewable energy and the waste reduction, 75% gum usage reduction, low power requirement for energy providers to part-fund consumption and reduced maintenance requirements. investment in energy efficiency projects in domestic markets. INM continues to focus on supporting these Our outsourced Facilities Management team have efforts through its media assets and to implement carried out a number of projects over recent years to energy-efficient processes where possible. streamline energy efficiencies across our key sites. We have completed LED lighting projects, as well as In March 2018, we engaged with an energy specialist boiler and compressor replacements which have the and entered into a DSU (Demand Side Unit) scheme to combined benefits of making the Group more energy provide energy back to the grid by using the additional efficient as well as generating cost savings in the capacity available on site off peak when called. process. We manage and audit our Facilities By entering the scheme INM are providing capacity to Management supplier through monthly review Ireland’s electricity market. Through improved processes meetings, and both financial and non-financial KPI’s and procedures we have reduced our overall electricity including adherence to planned maintenance schedules, consumption during the year across a number of our minimum reactive response times and full legislative regional sites. compliance with respect to environmental, health & safety, form part of the ongoing vendor management assessment process. Electricity Usage KWH per year
10,500,000
10,000,000 2018 2017
Independent News & Media PLC 35 GOVERNANCE
GOVERNANCE
Chairman’s Introduction 37 Board of Directors 41 Corporate Governance Statement 44 Audit and Risk Committee Report 53 Remuneration Committee Report 65 Nomination and Corporate Governance Committee Report 87 Report of the Directors 93
36 Report And Accounts 2018 GOVERNANCE
CHAIRMAN’S INTRODUCTION
Dear Shareholder
As Chairman, one of my primary responsibilities is to uphold and promote high standards of integrity, probity and corporate governance. This report explains how the Company has applied the principles set out in the UK Corporate Governance Code and the provisions of the Irish Corporate Governance Annex which are the benchmarks used by Irish and UK listed companies for measuring corporate governance.
At the Extraordinary General Meeting (“EGM”) on 1 March 2018, the Board of INM (the “Board”) was re- constituted with the appointment of four new directors, including myself subsequently appointed as Chairman, following a number of departures. In addition, in August 2018, Mr. Kieran Mulvey was appointed non-executive Director as a nominee of the major shareholder, Mr. Denis O’Brien and in January 2019 Ms. Kate Marsh joined the Board as an independent non-executive Director. This recomposition has provided the Board and its key committees with the appropriate balance of skills, experience, independence and knowledge to enable them to discharge their respective duties and “INM is committed to responsibilities effectively. applying the principles of The Board continues to be committed to high standards best practice corporate of corporate governance. On behalf of the Board, I am pleased to report our compliance with the 2016 version governance to facilitate of the UK Corporate Governance Code (‘the Code’) which applied to INM for the year ended 31 December 2018 effective leadership and save for the exceptions outlined in the Corporate drive the long-term Governance Statement on pages 44 to 52. success of the Group.” Changes in the regulatory environment have increased both the expectations on, and the responsibilities of, corporate Boards. A revised version of the UK Corporate Governance Code was issued by the Financial Reporting Council (“FRC”) in July 2018 (“the 2018 Code”) and applies to financial periods beginning on or after 1 January 2019. In INM’s case, it will apply to the financial year ending 31 December 2019. The Nomination and Corporate Governance Committee and the Board are reviewing the new requirements of the 2018 Code and are satisfied that INM will achieve compliance with these provisions in the current year.
Independent News & Media PLC 37 GOVERNANCE
Chairman’s Introduction - continued
Legal Matters The Group has been co-operating with the inspectors and assisting them in the efficient execution of their On 6 September 2018, the High Court made an order inquiry. The inspectors are due to report back to the High appointing Mr Sean Gillane SC and Mr Richard Fleck CBE Court in April 2019 with an update on how their inquiry as inspectors under section 748 of the Companies Act, is progressing. 2014 to inquire into and report on certain issues relating to the conduct of the affairs of the Company. Separately the Data Protection Commissioner (“DPC”) is currently investigating suspected breaches of data These issues include the accessing by third parties of the security within the Group. The Group is co-operating Company’s data, the proposed acquisition in 2016 by with the DPC in relation to its inquiries. the Company of Newstalk Radio and other matters that were the subject of disclosures made by Mr Robert Pitt, The above and related matters relating to the the Group's former CEO, to the Company. inspectorate process and the DPC could result in the Company incurring material costs. The inspectors will also report on whether Mr Leslie Buckley, the former Chairman of the Group, disclosed The Company takes its corporate governance information to third parties in breach of market abuse or responsibilities very seriously, and seeks to comply at all other applicable law and whether there have been any times with all relevant laws and regulations. breaches of law arising from any of these matters and the Company’s response to the disclosures made to it.
38 Report And Accounts 2018 GOVERNANCE
Chairman’s Introduction - continued
Board Composition and Diversity Board Effectiveness
The Board keeps its composition under continuous In 2018, Deloitte were appointed to perform a review of review and we seek to ensure we have the right the effectiveness of the Board of INM, in accordance balance of skills, experience and diversity that are with the requirement, under the 2016 Code, to have this required to lead the Company. During the year ended 31 process externally facilitated every three years. I am December 2018 the Board of INM has undergone pleased to report that the results of this review were considerable change with a number of directorate and positive. senior management changes at the Company. These changes include the decision of the former Chairman, A number of actions were agreed by the Board which Mr. Leslie Buckley and that of Mr. Allan Marshall to retire have been implemented during the year. from the Board (as announced on 19 January, 2018), the More information on this process can be found on page appointment of four new non-executive Directors, 51 of the Corporate Governance Statement. namely myself, John Bateson, Fionnuala Duggan and Seamus Taaffe, to the Board following approval by Board Development shareholders at the Company’s EGM on 1 March, 2018, the resignations of Mr. Paul Connolly and Mr. Terry Director training needs are kept under review and the Buckley on 31 May 2018 and the appointments of Mr. Company Secretary provides a range of suggested Kieran Mulvey and Ms. Kate Marsh to the Board in opportunities to ensure that those needs are matched August 2018 and January 2019 respectively. In with appropriate internal presentations and external identifying and selecting candidates for nomination, the events. Company has used the services of an independent external search consultancy, Merc Partners. As part of their ongoing training and development, the The Board has, in line with corporate governance non-executive Directors had a number of meetings with recommendations, sought to identify Board candidates Group and subsidiary management during the year on merit, against objective criteria and with due regard ended 31 December 2018 and were heavily involved in for the benefits of diversity on the Board, including design and implementation of the Group’s corporate gender. strategy.
The Board currently comprises of eight non-executive Directors (including the Chairman) and one executive Director. Detailed biographies of current Directors are set out on pages 42 and 43 together with a detailed description of the breadth and depth of experience that each of the Directors bring to the Board. Further information on the Board’s Diversity Policy is included in page 91 of the Nomination and Corporate Governance Committee Report.
Independent News & Media PLC 39 GOVERNANCE
Chairman’s Introduction - continued
Independence and Re-Election Board Committees
There are eight non-executive Directors and one Our Board Committees have continued to perform executive Director on our Board. effectively. You will find on pages 53 to 92 a detailed report, introduced by the Chair of each Committee, In accordance with the Code and our practice, all of setting out its membership and an overview of its those Directors seeking election or re-election will be activities during the year. presenting themselves for election or re-election at the forthcoming Annual General Meeting. I hope that the detailed information included in the following pages clearly demonstrates our ongoing The independence of each non-executive Director is commitment to high standards in corporate governance. reviewed on an annual basis taking into account the criteria of the Code. Murdoch MacLennan The results of that review and details on the Chairman independence of non-executive Directors are set out on 28 March 2019 pages 47 to 49.
Board Meeting Balance
The intention at Board meetings is to achieve an appropriate balance between strategic, operational and financial, regulatory/governance and shareholder/ stakeholder matters. The amount of time devoted to each category of business is regularly monitored to ensure that we maintain the required balance.
40 Report And Accounts 2018 GOVERNANCE
BOARD OF DIRECTORS AND OTHER INFORMATION
Board of Directors Advisors
Murdoch MacLennan (Chairman) (appointed Solicitors non-executive Director 1 March, 2018, appointed McCann FitzGerald Chairman 7 March, 2018) Riverside One John Bateson (appointed 1 March, 2018) Sir John Rogerson’s Quay Michael Doorly* Dublin 2 Fionnuala Duggan (appointed 1 March, 2018) Ireland Kate Marsh (appointed 30 January, 2019) Triona Mullane Stockbrokers Kieran Mulvey (appointed 29 August, 2018) Davy Group Len O’Hagan (Senior Independent Director) Davy House Seamus Taaffe (appointed 1 March, 2018) 49 Dawson Street Dublin 2 * Executive Director Ireland
Board Committees and Registrars Company Secretary Link Asset Services, Link Registrars Limited 2 Grand Canal Square Audit and Risk Committee Dublin 2 Seamus Taaffe (Chair) (appointed 7 March, 2018, Ireland appointed Chair 19 April, 2018) Fionnuala Duggan (appointed 7 March, 2018) Statutory Auditor Len O’Hagan KPMG Chartered Accountants Remuneration Committee 1 Stokes Place Fionnuala Duggan (Chair) (appointed 31 May, 2018) St. Stephen’s Green Len O’Hagan Dublin 2 Seamus Taaffe (appointed 7 March, 2018) Ireland
Nomination and Corporate Governance Committee Principal Bankers Len O’Hagan (Chair) Bank of Ireland Fionnuala Duggan (appointed 7 March, 2018) Allied Irish Banks, plc. Triona Mullane Secretary and Registered Office
Mary Gallagher Independent News & Media PLC Independent House 27-32 Talbot Street Dublin 1 Ireland
Independent News & Media PLC 41 GOVERNANCE
BOARD OF DIRECTORS
Murdoch John Bateson, Michael Doorly, Fionnuala Duggan, Kate Marsh, MacLennan, FCA B Comm, FCA Chairman Non-executive Director Chief Executive Non-executive Director; Non-executive Director Age: 69 Age: 55 Age: 59 Chair, Remuneration Age: 57 Nationality: British Nationality: Irish Nationality: Irish Committee; Member, Nationality: British Audit and Risk Committee; Member, Nomination and Corporate Governance Committee Age: 54 Nationality: Irish Joined Board
Mr. MacLennan joined the Mr. Bateson joined the Board Mr. Doorly joined the Board Ms. Duggan joined the Board Ms. Marsh joined the Board Board in 2018. in 2018. in 2017. in 2018. in 2019.
Experience
Murdoch MacLennan is non- Mr. Bateson is Managing Mr. Doorly has been with Ms. Duggan is former Ms. Marsh is a senior media executive Director and Director of International INM for over 20 years, where Managing Director of executive with significant former Deputy Chairman of Investment and Underwriting he has held a number of KNect365 Learning, part of strategic and operational the Telegraph Media Group (“IIU”) and represents IIU on senior executive roles, most the events and conferences experience in brand building and was previously its CEO the boards of various recently that of Company division of London-quoted and consumer engagement for 13 years. companies, both private and Secretary and Chief Risk Informa plc. for global companies, most Before joining the Telegraph, publicly quoted. Officer. A senior digital executive recently from her role as he was Group Managing Since joining IIU in 1995, Before joining INM, he and leader, Fionnuala has executive vice president for Director of Associated Mr. Bateson has been closely worked in Technicon Ireland enjoyed success in Western Europe International Newspapers and, prior to involved in the creation of its Limited (now Bayer repositioning traditional Networks at Sony Pictures that, Managing Director of current portfolio of Diagnostics) and KPMG. industries for the digital age, Television, and also in various roles at Sky, GroupM the Daily Record and Sunday investments. Prior to joining A graduate of UCD, and in establishing and and the BBC, joining the Mail. He is currently IIU, he spent six years with Mr. Doorly is a qualified scaling up digital businesses Corporation as a journalist. Chairman of the Press the corporate finance arm of Chartered Accountant and having held senior executive Association Group and NCB Group. He is a graduate Chartered Director. roles at CourseSmart, She has served at board Chairman of the Scottish of Trinity College Dublin and, Random House Group, EMI level for Sony Pictures Professional Football League. having qualified as a Music plc and Macmillan Entertainment regional Between 1997 and 2003 he chartered accountant with Publishers. companies, Plato Media Ltd was President of IFRA, the KPMG, is a Fellow of A graduate of Trinity College (home of the pre-school kids global association for Chartered Accountants Dublin and INSEAD, Fionnuala App, Hopster) and has been newspapers, and is now a Ireland. is currently a Governor and a committee member of the member of the Board of the Member of the Finance and UK’s Commercial International News Media Resources Committee of Broadcasters Association, Association (“INMA”). London Metropolitan representing industry to Since 2016, he has been a University and a Trustee of Government. member of the Council of Yale University Press Google’s Digital News (London). Initiative (“DNI”).
42 Report And Accounts 2018 GOVERNANCE
Board of Directors - continued
Triona Mullane, Kieran Mulvey, Dr. Len O’Hagan, Seamus Taaffe, BSC Computer Systems CBE FCA Non-executive Director; Non-executive Director Non-executive Director; Non-executive Director; Member, Nomination Age: 67 Chair, Nomination and Chair, Audit and Risk and Corporate Nationality: Irish Corporate Governance Committee; Member, Governance Committee Committee; Member, Remuneration Age: 53 Audit and Risk Committee Nationality: Irish Committee; Member, Age: 68 Remuneration Nationality: Irish Committee Age: 64 Nationality: Irish Joined Board
Ms. Mullane joined the Board Mr. Mulvey joined the Board Dr. O’Hagan joined the Board Mr. Taaffe joined the Board in in 2012. in 2018. in 2012. 2018.
Experience
Ms. Mullane has occupied a Mr. Mulvey has had a Dr. O’Hagan has extensive Mr. Taaffe is an experienced number of senior roles across distinguished career in public national and international non-executive director and technology companies. service having been Director management, governance financial and management She was formerly Chief General of the Workplace and directorial experience in consultant. He was a Senior Technology Officer for Relations Commission, and both the public and private Audit Partner with KPMG NewBay Software from 2007 formerly Chief Executive of sectors. until his retirement in 2009, to 2011 (acquired by the Labour Relations Dr. O’Hagan is Chairman of as well as being a member Blackberry) and previously Commission, for over 25 Northern Ireland Water, of the Board of KPMG Ireland Chief Technology Officer for years until his retirement in Chairman All-island and Chairman of its ANAM Mobile Limited (from 2016 and has served on the Congenital Heart Disease Consumer and Industrial 2003 to 2006). From 1995 to governing boards of a Network Board and a Markets Group. 2003 she was Director of number of public bodies. director of a number of Since 2012, Seamus has Engineering and He is currently a Director of private companies. He is a been a non-executive subsequently Vice President Dublin City University DAC, Fellow of the Institute of director of Total Produce plc of Technology for Logica. Chairman of Adare Human Directors. and is Chairman of its Audit Ms. Mullane is currently CEO Resources Ltd, Chairman of Dr. O’Hagan was Chair of Committee. He is also a and Founder of mAdme Sport Ireland and Belfast Harbour director of a number of Technologies Limited. Trustee/Treasurer of the Commissioners, Chair of private Irish companies and a registered charity, the Metropolitan Arts Centre and member of two charitable International Foundation for Vice President of Royal organisations based in the Protection of Human College of Physicians. Ballyfermot and Tallaght, Rights Defenders. He is the Dublin, Ireland - Candle recipient of Honorary Community Trust, where he Doctorates from the National is Chairman, and The Priory University of Ireland and Institute. University College Dublin.
Independent News & Media PLC 43 GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
This statement The Board of Directors Role describes INM’s The Board of INM comprises the non-executive Chairman, seven other non-executive Directors and one governance executive Director, namely, the Chief Executive. The Board is collectively responsible for the long term principles and success of the Company. Its role is to provide leadership, to oversee management and to ensure that the practices. Company provides its stakeholders with a balanced and understandable assessment of the Company’s current position and prospects. For the financial year ended 31 December 2018, INM’s corporate governance practices The Board’s leadership responsibilities, in the interest of delivering long term value to shareholders, involve were subject to the 2016 version of the UK working with management to set corporate values and Corporate Governance Code, which was to develop strategy, including decisions on which risks it issued by the FRC in April 2016 (‘the 2016 is prepared to take in pursuing its strategic objectives. The Board’s oversight responsibilities involve it in Code’) and to the Irish Corporate constructively challenging the management team in Governance Annex. relation to operational aspects of the business, including approval of budgets, and probing whether risk management and internal controls are appropriate. This statement details how INM has applied the principles and complied with It is also responsible for ensuring that accurate, timely the provisions set out in the 2016 Code. and understandable information is provided about the Copies of the 2016 Code can be obtained Company to shareholders, regulators and other stakeholders. from the FRC’s website, www.frc.org.uk.
INM PLC - Corporate Governance Framework
Board of Directors
Nomination and Corporate Remuneration Committee Audit and Risk Committee Governance Committee
Chief Executive
Executive Risk Committee Senior Executive Team
44 Report And Accounts 2018 GOVERNANCE
Corporate Governance Statement - continued
The Board has delegated responsibility for management Chairman of the Group to the Chief Executive and the SET. The The Chairman’s primary responsibility is to lead the main areas where decisions remain with the Board are Board, to ensure that it has a common purpose, and is summarised below. effective as a group and at individual Director level. He must also ensure that the Board upholds and promotes The Board has delegated some of its responsibilities to high standards of integrity, probity and corporate Committees of the Board. The composition and activities governance. of these Committees are detailed in their individual reports on pages 53 to 92. The Board receives regular The Chairman is the link between the Board and the reports from the Chairs of each of the Committees on Company. He has responsibility for maintaining an their current activities. effective working relationship with the Chief Executive, for ensuring effective and appropriate communications A clear division of responsibility exists between the with shareholders and for ensuring that members of the Chairman, who is non-executive, and the Chief Board develop and maintain an understanding of the Executive. Each of their responsibilities is set out in views of shareholders. writing and has been approved by the Board. Before the beginning of the financial year, and following There is an established procedure for Directors to take consultation with the Directors and Company Secretary, independent professional advice in the furtherance of a schedule of Board and Committee meetings is set for their duties, if they consider this necessary. the following year. This schedule includes the key agenda items for each meeting. Further details on these Schedule of Matters Reserved for the Board agenda items are outlined under ‘Board Meetings’ on The Schedule of Matters Reserved for the Board has page 46. been reviewed and updated during the year. The Board believes that this schedule meets with current best Senior Independent Director practice. The responsibilities of the Senior Independent Director are formally approved by the Board. The schedule includes the matters set out below: The Senior Independent Director is available to • Approval of Group strategy. shareholders who may have concerns that cannot be • Approval of annual budget. addressed through the Chairman or Chief Executive. • Approval of Interim and Statutory Financial Statements. Company Secretary • Oversight of the Group’s operations. The Directors have access to the advice and services of • Approval of major acquisitions and disposals. the Company Secretary, whose responsibilities include • Approval of significant capital expenditure proposals. ensuring that Board procedures are followed, assisting • Approval of material contracts. the Chairman in relation to corporate governance • Approval of changes to the Group’s capital structure. matters and ensuring compliance by the Company with • Appointment of Directors. its legal and regulatory requirements. • Approval of dividend policy. • Approval of treasury policy. • Approval of risk management strategy. • Approval of terms of reference of Chairman, Chief Executive, and other executive Directors. • Approval of terms of reference and membership of Board Committees.
Independent News & Media PLC 45 GOVERNANCE
Corporate Governance Statement - continued
Board Meetings Individual attendance at Board meetings and at A schedule of Board and Committee meetings is Committee meetings is set out in the table below and circulated to the Board for the following year, which there is regular contact between meetings in order to includes the key agenda items for these meetings. progress the business of the Group.
Board papers are circulated electronically in the week The key recurrent Board agenda themes are divided into preceding the meeting. During the year ended 31 strategy, operations and finance, regulatory/governance December 2018, the Board held 21 meetings. and shareholder/stakeholder matters.
Board of Directors: Attendance at meetings during the year ended 31 December 2018:
Board Audit & Remuneration Nomination & Risk Committee Corporate Committee Governance Committee
AB AB AB AB
Continuing Directors
Murdoch MacLennan 18 18
John Bateson 18 18
Michael Doorly 21 21
Fionnuala Duggan 18 17 3 3 2 2 4 4
Triona Mullane 21 20 6 6
Kieran Mulvey 6 5
Len O’Hagan 21 19 5 5 4 4 6 6
Seamus Taaffe 18 18 3 3 3 3
Former Directors
Leslie Buckley 3 2
Terry Buckley 11 11 2 2 2 2 3 3
Paul Connolly 11 9 3 3
Allan Marshall 3 1
Notes: The attendance statistics are outlined above in the format ‘A/B’ where ‘A’ represents the total number of meetings held during the period for which the Director was in place and ‘B’ represents the number of meetings attended by the Director.
46 Report And Accounts 2018 GOVERNANCE
Corporate Governance Statement - continued
Appointment of Directors Induction and Development of Directors The Nomination and Corporate Governance Committee New non-executive Directors undertake a structured formally agrees criteria for new non-executive Director induction process which includes a series of meetings appointments, including experience of the industry in with Group and divisional management, detailed which the Group operates, professional background, and divisional presentations, visits to key subsidiary locations having regard to the need for a balance in relation to and, where appropriate, particularly with respect to diversity, including gender. Committee membership, a briefing with relevant external advisors, including the external auditor, Subject to the annual election or re-election of all remuneration consultants, and the Group’s legal Directors as required under the 2016 Code, it is the advisors. Company’s expectation that non-executive Directors would serve for an initial three-year period, extendable The Chairman and Company Secretary review Directors’ by a further three-year term. A non-executive Director training needs, in conjunction with individual Directors, may be invited to serve an additional period thereafter and provide a range of suggested opportunities to as the Board in its absolute discretion sees fit. match those needs with appropriate internal and external seminars and speakers. Non-executive Directors After three years’ service, and again after six years’ are expected to meet individually during the year, service, each non-executive Director’s performance is outside of Board meetings, with members of the senior reviewed by the Nomination and Corporate Governance executive and management teams and to visit the Committee, with a view to recommending to the Board Group’s business units in order to familiarise themselves whether a further period of service is appropriate, with the business in more detail than is possible during subject to the usual annual approval by shareholders at Board meetings. the AGM. Independence The Board, however, does not consider that the policy of The independence of each non-executive Director is annual re-election is appropriate for executive Directors reviewed on an annual basis taking into account the and accordingly executive Directors will be subject to criteria of the 2016 Code as well as guidance provided re-election at least once every three years subject to the by a number of shareholder voting agencies. In January terms of the Company’s Articles of Association. 2018, the Board approved and adopted the INM Director Independence Policy which formally sets out INM’s The terms upon which each of the non-executive commitment to meeting the requirements of the UK Directors are appointed are set out in letters of Corporate Governance Code in relation to Board appointment and are available for inspection at the independence and formalises the criteria and process to Company’s registered office during normal office hours be used in the annual assessment. As disclosed in last and at the AGM of the Company. years Annual Report, for the period from 1 January 2018 up until reconstitution of the Board in March, the Board Details of the length of tenure of each Director on the was non-compliant with provision B.1.2 of the 2016 Board are set out in the Nomination and Corporate Code which requires that at least half of the Board, Governance Committee Report on page 90. excluding the Chairman, comprise non-executive Directors determined by the Board to be independent. In addition, the Board had insufficient independent non- executive Directors available at that time to satisfy the committee constituent recommendations of the Code.
Independent News & Media PLC 47 GOVERNANCE
Corporate Governance Statement - continued
At the Company’s EGM on 1 March 2018, shareholders As part of this assessment the Board also considered, in approved the appointment of four new non-executive line with the 2016 Code, whether each non-executive Directors to the Board, thus restoring compliance with Director is independent in character and judgement, the Board constituent provisions of the Code at that notwithstanding the existence of relationships or point. The Board also reconstituted the composition of circumstances and application of the criteria set out in the Audit and Risk, Remuneration and Nomination and the 2016 Code. The Board considered the following Corporate Governance Committees to address the areas factors for each non-executive Director as part of this of non-compliance previously disclosed. process:
Following the appointment of Mr. Kieran Mulvey to the • the Director’s integrity and objectivity; Board in August 2018, the Board updated its annual • the Director’s ability to provide constructive challenge assessment of the independence of each non-executive to existing views within Board discussions and to hold Director. management to account for performance; • whether the Director demonstrates that he or she is In scrutinising the independence of the non-executive acting at all times in the best interests of the Directors, the Board took into consideration the Company, its shareholders and other key stakeholders; following in relation to Mr. John Bateson, Ms. Triona and Mullane and Mr. Kieran Mulvey: • the Director’s overall contribution to the Board and its Committees. • Mr. John Bateson is Managing Director of International Investment and Underwriting (“IIU”), a company The Board believes that all of the non-executive controlled by Mr. Dermot Desmond, the second largest Directors demonstrate independent behaviour and shareholder in the Group. Mr. Bateson has been thought in fulfilling their duties as Directors. Despite the nominated to the Board by Mr. Desmond. Accordingly, Board concluding that Mr. Bateson, Ms. Mullane and Mr. the Board has determined that Mr. Bateson should not Mulvey should not be considered independent for the be considered independent given these links with a purpose of the 2016 Code for the reasons explained major shareholder. above, the Board is of the view that their skills, • Ms. Triona Mullane is co-founder, CEO and the largest knowledge, experience and attributes are valuable to shareholder of mAdme Technologies Limited, a the organisation and believes that these Directors technology company that has received investment exercise independent judgement when contributing to from a company introduced by a relation of Board discussions and making decisions. Mr. Denis O’Brien, INM’s largest shareholder, and which has business dealings with Digicel Group (of Under the 2016 Code the test for independence does which Mr. O’Brien is the principal shareholder and not apply to the Chairman. As previously disclosed, the board member). The Board has concluded that, former Chairman, Mr. Leslie Buckley, was not considered collectively, the existence of these relationships or independent upon his appointment as he had previously circumstances could be seen to affect independence served as a representative of Mr. Denis O'Brien. Mr. and has determined that Ms. Mullane should not be Buckley stepped down from his position at the considered independent for the purpose of the 2016 Company’s EGM on 1 March 2018 and Mr. Murdoch Code. MacLennan was appointed non-executive Chairman on 7 • Mr. Kieran Mulvey was nominated to the INM Board March 2018 as his replacement. Mr. MacLennan met the by Mr. O’Brien, and, accordingly, the Board has independence criteria as set out in the Code on his determined that Mr. Mulvey should not be considered appointment. to be independent on application of the independence criteria set out by the Code.
48 Report And Accounts 2018 GOVERNANCE
Corporate Governance Statement - continued
Following this formal review of the Directors’ Chief Executive independence, Ms. Fionnuala Duggan, Dr. Len O’Hagan The Chief Executive has day to day management and Mr. Seamus Taaffe were considered to be responsibility for the running of the Company’s independent by the Board. However given the executive operations and for the implementation of Company position of Mr. Michael Doorly and the factors impacting strategy and policies agreed by the Board. The Chief the independence of the three Directors outlined above, Executive also has a key role in the process for the the Board had insufficient independent non-executive setting and review of strategy. The Chief Executive instils Directors to satisfy the requirements of the Code. the Company’s culture and standards, which include The Board actively engaged in securing a further appropriate corporate governance throughout the candidate for appointment to restore compliance. On 30 Company. In executing his responsibilities, the Chief January 2019, the Board announced the appointment of Executive is supported by the Chief Financial Officer and Ms. Kate Marsh as independent non-executive Director. the Company Secretary, who, together with the Chief Executive, are responsible for ensuring that high quality As at the date of this Annual Report therefore, the Board information is provided to the Board on the Company’s is now pleased to report full compliance with the Board financial and strategic performance. and Committee constituent recommendations of the Code. Executive Risk Committee The responsibilities of the Executive Risk Committee are Audit and Risk Committee set out in the Risk Report on page 24. The primary function of the Audit and Risk Committee is to assist the Board in fulfilling its financial and risk Senior Executive Team oversight responsibilities. Further details of the activities The Senior Executive Team reports to the Chief Executive of the Audit and Risk Committee are set out in its report at weekly management meetings. on pages 53 to 64. Remuneration Remuneration Committee It has been the Company’s practice since 2010 to put The Remuneration Committee is responsible for the Annual Report on Remuneration to an advisory, determining the Remuneration Policy and conditions of non-binding shareholder vote at the AGM. Accordingly, employment for executive Directors and senior the Annual Report on Remuneration will be put to an management. Further details of the activities of the advisory, non-binding shareholder vote at the 2019 Remuneration Committee are set out in its report on AGM. pages 65 to 86. INM is an Irish-incorporated company and is therefore Nomination and Corporate Governance Committee not subject to the UK company law requirement which The Nomination and Corporate Governance Committee is requires UK companies to submit their directors’ responsible for considering the size, composition and remuneration policy report to a binding vote by structure of the Board, succession planning and for shareholders. However, the Group has substantially monitoring the Company’s compliance with corporate adopted UK practice in remuneration reporting on a governance, legal and best practice requirements. voluntary basis and, at the 2016 AGM, the remuneration Further details of the activities of the Nomination and policy was submitted to shareholders and approved. Corporate Governance Committee are set out in its The remuneration policy will be put to shareholders report on pages 87 to 92. again at the Company’s AGM in 2019.
Independent News & Media PLC 49 GOVERNANCE
Corporate Governance Statement - continued
Share Ownership and Dealing The Board receives regular reports from the Chairman of Details of the Directors’ interests in INM shares are set the Audit and Risk Committee on its activities and out in the Remuneration Committee Report on page 84. considers recommendations from the Audit and Risk Committee on the findings and agreed actions arising The Board has adopted the INM Share Dealing Policy from the annual assessment of risk management and which applies to dealings in INM shares by the Directors internal control. and Company Secretary of INM, members of the Senior Executive Team and certain INM Head Office employees. Further details on this assessment are set out in the Audit and Risk Committee Report on page 53. The policy meets the requirements of the EU Market Abuse Regulation which became effective in July 2016. The consolidated financial statements are prepared Under the policy, Directors and relevant executives are subject to the oversight and control of the Chief required to obtain clearance from the Company Financial Officer, ensuring correct data is captured and Secretary before dealing in INM shares and are that all information required for disclosure in the prohibited from dealing in the shares during prohibited consolidated financial statements is provided. The periods as defined by the Market Abuse Regulation. consolidated financial statements are reviewed by the Audit and Risk Committee and approved by the Board. Risk Management and Internal Control Compliance The Board is responsible for the Group’s system of risk management and internal control. It is designed to Tone from the Top manage rather than eliminate the risk of failure to The key message of the Group compliance programme achieve business objectives and provides reasonable but is that Directors, managers and employees should “Do not absolute assurance against material misstatement or the right thing” at all times. This means not merely loss. Details in relation to the Group’s risk management following the laws and policies that apply to their work, structures are set out in the Risk Report on page 22. but also exercising good judgement to ensure that their actions are seen as fair and ethical. The Board has delegated responsibility for the ongoing monitoring of the effectiveness of this system to the INM Code of Conduct Audit and Risk Committee. Details in relation to the INM’s Code of Conduct, which is available on Audit and Risk Committee’s work in this regard are set www.inmplc.com, sets out the general standards that out in the Audit and Risk Committee Report on page 53. are expected of Directors, managers and employees across the Group in a range of areas. In accordance with the revised guidance, entitled “Guidance on Risk Management, Internal Control and The Group also maintains more detailed policies on a Related Financial and Business Reporting” issued by the range of relevant areas, complementing the general FRC in September 2014, which applied to the financial requirements set out in the Code of Conduct. The areas year ended 31 December 2018, the Board confirms that covered by more detailed policies include health and there is an ongoing process for identifying, evaluating safety, anti-bribery and corruption, information security, and managing any significant risks faced by the Group, equal opportunities and share dealing. Depending on that it has been in place for the year under review and the nature of their role, employees of the Group receive for the period up to the date of the approval of the more detailed training on those policies. financial statements and that this process is reviewed by the Board.
50 Report And Accounts 2018 GOVERNANCE
Corporate Governance Statement - continued
Whistleblowing • An online survey questionnaire covering key aspects Employees across the Group are required to raise a of Board effectiveness, including Board roles and concern if any of INM’s activities are being undertaken responsibilities, composition, engagement, in a manner that may not be legal or ethical, and are governance structures, agenda, forward planning and supported if they do so. Concerns can be raised with a reporting, Board dynamics and Chair leadership, member of management in the business where the performance evaluation, training and development employee works or with the Company Secretary. and the content and running of Board Committees Employees may raise concerns anonymously if they was circulated to all Directors. wish. Our internal policies make clear that retaliation • Completed surveys, were returned to the evaluator for against any employee who raises a concern is analysis who prepared a summary report for prohibited. Where concerns are raised, they are presentation to the Board. investigated in an appropriate manner. • A confidential and open interview was conducted with each Director and with the Chief Financial Officer and The Audit and Risk Committee has oversight Company Secretary. responsibility for INM’s whistleblowing arrangements • At the Board meeting on 14 June, the Board and how they operate. The Group’s whistleblowing considered the report from Deloitte who also attended policy was last reviewed and updated in January 2018 in the meeting to facilitate a discussion on their report. conjunction with the Group’s legal advisors. • Each of the Audit and Risk Committee, the Remuneration Committee and the Nomination and Board Performance Evaluation Corporate Governance Committee carried out an annual review of its own performance and of its terms The Board conducts an annual evaluation of its own of reference and recommended any changes it performance, that of each of its principal committees, considered necessary to the Board for approval. namely, the Audit and Risk Committee, the Remuneration Committee and the Nomination and In addition to the external evaluation process outlined Corporate Governance Committee, and that of above, the Chairman spoke privately with each of the Committee Chairmen and individual Directors. Directors to appraise their individual performance and to enquire if they had any views they wished to express on In 2018 the entire performance evaluation process was the performance of any other Director. The Chairman externally defined and conducted by Deloitte, in and non-executive Directors met separately without the accordance with the requirement to have it externally executive Director present to assess his performance. facilitated every three years under Provision B.6.2, of the The Senior Independent Director also met with the 2016 Code. non-executive Directors without the Chairman present, to evaluate the Chairman’s performance. The various phases of the external performance evaluation process, which was carried out in May and The Board formally concluded that the workings of the June 2018 are set out below: Board and its Committees were satisfactory during the • A desktop review of key corporate governance year. A number of areas were noted for improvement documentation, including structure charts, induction and these recommendations will be implemented in the pack, terms of reference, relevant policies and sample current year. Board and Committee packs was carried out by the external evaluator. All action items arising from the 2017 evaluation were completed during the year ended 31 December 2018.
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Corporate Governance Statement - continued
Relations with Shareholders adequate resources to continue in operational existence for a period of at least twelve months from the date of INM recognises the importance of communications with approval of the financial statements. For this reason, shareholders. Presentations are made to both existing they continue to adopt the going concern basis in and prospective institutional shareholders, principally preparing the financial statements. after the release of the interim and annual results. Viability Statement Major news items are also notified to the market and the Company’s website www.inmplc.com provides the In accordance with provision C.2.2 of the 2016 Code, the full text of all press releases. The website also contains Directors have assessed the viability of the Group over the annual and interim reports and incorporates investor three years to December 2021. This assessment has been presentations. made with reference to INM’s current position and prospects, the Group strategy, the Board’s risk appetite and principal All Directors are kept informed of the views of risks, which the Directors review at least annually. shareholders through the Chief Executive and Chief Financial Officers’ attendance at investor presentations Group revenue, operating profit, EBITDA and cash flow and results presentations. Furthermore, relevant forecasts were subject to robust downside stress testing feedback from such meetings, investor relations reports over the assessment period, which involved modelling and brokers notes are provided to the entire Board on a the impact of a combination of severe but plausible regular basis. adverse scenarios. This was focused on the impact of the Group’s principal risks crystallising. The Company’s AGM provides shareholders with the opportunity to question the Chairman, the Committee Based on the analysis described above, the Directors Chairs and the Board. Further details on the Company’s have concluded that they have a reasonable expectation AGM are set out in the Report of the Directors on page 96. that the Group will be able to continue in operation and meet its liabilities as they fall due for the next three years. Report of the Directors Compliance Statement For the purposes of section 1373 of the Companies Act 2014, details of substantial shareholdings in the During the year ended 31 December 2018, the Directors Company are set out in the Report of the Directors on consider that the Company has complied with all page 97. relevant provisions of the 2016 UK Corporate Governance Code and the Irish Corporate Annex save for Going Concern the Board composition, re-election and independence matters disclosed in this Corporate Governance The Company’s business activities are set out in the Statement. With the areas of non-compliance relating to Chief Executive’s Review on page 6. The financial Board composition and independence having now been position of the Company is described in the Financial addressed the Board is satisfied that, save for annual Review on page 16. As noted in the financial re-election of executive Directors, INM will achieve full statements, the Company has €81.7m in liquid compliance with the revised Code in the year ending 31 resources and no borrowings. Having assessed the December 2019. relevant business risks and the Company’s financial position and products, the Directors believe that the Murdoch MacLennan, Michael Doorly Company is well placed to manage its business risks Directors successfully. The Directors have a reasonable expectation 28 March 2019 that the Company, and the Group as a whole, have
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AUDIT AND RISK COMMITTEE REPORT
This report details how the Audit and Risk Committee has met its responsibilities under its Terms of Reference (page 54), the UK Corporate Governance Code (‘the Code’), the provisions of the Irish Corporate Governance Annex and the Companies Act 2014 which apply to INM’s financial year ended 31 December 2018. I have highlighted below a number of key responsibilities.
The Committee is responsible for monitoring the integrity of the Group’s financial statements and in assisting the Board in determining that the Annual Report and Accounts, when taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. The work done in this regard is set out on page 55.
The Committee has been delegated responsibility from the Board for the Group’s risk management and internal control systems. The work done by the Committee in this regard, encompassing ongoing monitoring and the review of effectiveness, is detailed on page 62.
The Audit and Risk Committee comprises KPMG is the external auditor for the Group and has been three non-executive Directors, in place since June 2013 (as a result of the tender process completed in that year). Our engagement with Seamus Taaffe (Chairman), Fionnuala the external auditor and with the ARC function is Duggan and Len O’Hagan. The members of detailed on pages 62 to 64 of this report. the Committee have significant financial The Board, the Audit and Risk Committee and Group and business experience. management are fully committed to continuous improvement of financial and risk management within Dear Shareholder the Group.
As Chairman of INM’s Audit and Risk Committee, I am On behalf of the Audit and Risk Committee pleased to present the report of the Committee for the year ended 31 December 2018 which has been prepared by the Committee and approved by the Board. Seamus Taaffe Chairman, Audit and Risk Committee The responsibilities of the Audit and Risk Committee are 28 March 2019 summarised in the table on page 54 and are set out in full in its Terms of Reference, which are available on the INM website www.inmplc.com.
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Audit and Risk Committee Report - continued
Role
• Monitor the integrity of the Group’s financial statements and any formal announcements relating to the Company’s financial performance, including reviewing significant financial reporting judgments contained in them. • Provide advice on whether the Annual Report and Statutory Financial Statements, when taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. • To assist the Board in its responsibilities in regard to the assessment of the principal risks facing the Company, the monitoring of risk management and internal control systems, including the review of effectiveness, and the going concern and viability statements. • Oversee the relationship with the external auditor, including remuneration and terms of engagement. • Review the effectiveness of the external audit process. • Make a recommendation to the Board on the appointment, re-appointment and removal of the external auditor. • Ensure the external audit is put to tender at least every ten years. • Develop and implement a policy on the supply of non-audit services by the external auditor to avoid any threat to auditor objectivity and independence. • Review the operation and effectiveness of the Group Audit, Risk and Compliance function, including internal audit activity. • Review the Company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. • Review annually its own performance and terms of reference to ensure it is operating effectively. • Report to the Board on how the Committee has discharged its responsibilities.
Composition Meetings The Audit and Risk Committee was reconstituted during The Committee met five times during the year ended 31 2018 and comprises three non-executive Directors, December 2018 as per the attendance schedule on page Seamus Taaffe (Chairman), Fionnuala Duggan and Len 46. O’Hagan. Biographical details regarding the members of the Audit and Risk Committee are set out on pages 42 The Group Chief Financial Officer and, following his and 43. Seamus Taaffe is a Fellow of Chartered appointment, the Head of Audit, Risk and Compliance Accountants Ireland. The Board is satisfied that the attended each committee meeting. The external auditor members of the Committee have recent and relevant also attended these meetings as required. financial experience, as required by the Code, and that the Committee has an excellent mix of skills and The Chairman of the Audit and Risk Committee also met expertise in commercial, financial and audit matters with both the Head of Audit, Risk and Compliance and arising from the senior positions the members hold or the external audit lead-partner outside of Committee held in other organisations. meetings as required throughout the year.
The Company Secretary is the secretary to the Audit and Risk Committee.
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Audit and Risk Committee Report - continued
Activities Fair, Balanced and Understandable
Financial Reporting and Significant Financial The Code requires that the Board should present a fair, Judgements balanced and understandable assessment of the In regard to the Annual Report and Statutory Financial Company’s position and prospects and specifically that Statements, the Committee assesses whether suitable they consider that the Annual Report and Statutory accounting policies have been adopted and whether Financial Statements, taken as a whole, is fair, balanced management has made appropriate estimates and and understandable and provides the information judgements. necessary for shareholders to assess the Company’s performance, business model and strategy. The Committee pays particular attention to matters it considers to be important by virtue of their impact on At the request of the Board, the Committee considered the Group’s results and particularly those which involve whether the 2018 Annual Report and Statutory Financial a relatively higher level of complexity, judgement or Statements met these requirements. estimation by management. The Committee considered and discussed with both The table on pages 56 to 59 sets out the significant management and the Head of Audit, Risk and issues considered by the Committee in relation to the Compliance, the established and documented process financial statements for the year ended 31 December put in place by management for the preparation of the 2018. 2018 Annual Report and Statutory Financial Statements, in particular, the timetable, co-ordination and review Management confirmed to the Committee that they activities. were not aware of any material misstatements in the financial statements and KPMG confirmed that they had This enabled the Committee, and then the Board, to found no material misstatement in the course of their conclude that the Annual Report, taken as a whole, is work. fair, balanced and understandable and provides the necessary information for shareholders to assess performance, business model and strategy.
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Audit and Risk Committee Report - continued
Significant issues in relation to the Financial Statements for the year ended 31 December 2018:
Ongoing As a result of certain protected disclosures made to it by the Company’s former CEO, investigations and Mr. Robert Pitt, the Office of the Director of Corporate Enforcement (“ODCE”) commenced an related matters investigation into the Company’s affairs. In March 2018, the ODCE informed the Company that it intended to apply to the High Court for the appointment of inspectors to investigate the affairs of the Company. In September 2018, the President of the High Court, Mr Justice Peter Kelly, appointed Mr Sean Gillane SC and Mr Richard Fleck CBE as inspectors under section 748 of the Companies Act, 2014 to inquire into and report on certain issues relating to the conduct of the affairs of the Company. These issues include the accessing by third parties of the Company's data from 2014, the proposed acquisition in 2016 by the Company of Newstalk Radio and other matters that were the subject of disclosures made by the Group’s former CEO, to the Company. The inspectors will also report on whether Mr Leslie Buckley, the former Chairman of the Group, disclosed information to third parties in breach of market abuse or other applicable law and whether there have been any breaches of law arising from any of these matters and the Company's response to the disclosures made to it. Arising from materials sent by the ODCE in respect of the Court application, the Company’s Board became aware of new information regarding a data security incident which had previously been notified to the Data Protection Commissioner (“DPC”). The Board notified the DPC of the new information as a result of which the DPC announced a formal investigation into the data security incident. As stated in note 6, the Company has incurred an exceptional charge of €3.5m which relates to the Company’s costs associated with meeting its obligations towards the ODCE and the DPC in their respective investigations; the Company’s and the ODCE’s costs in relation to the application to the High Court for the appointment of inspectors; the Company’s and the ODCE’s costs in relation to the judicial review application made by the Company in relation to the ODCE’s decision to apply to the High Court; the Company’s costs in relation to the inspection and the Company’s costs in complying with its statutory obligations towards certain individuals seeking information in relation to the 2014 data security incident. The Company is co-operating with the inspectors and the DPC in their respective investigations. In considering the provisioning for future costs associated with the investigations and related matters, the Committee: • Obtained and considered managements’ accounting and legal analysis paper in respect of the ongoing investigations and related matters. • Met with management and engaged in detailed discussion regarding the key conclusions in management’s accounting and legal analysis paper. • Met with the Group’s legal advisors and took legal advice regarding the legal analysis underpinning managements’ accounting and legal analysis paper. • Reviewed the disclosures in the Annual Report.
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Audit and Risk Committee Report - continued
Significant issues in relation to the Financial Statements for the year ended 31 December 2018:
Ongoing The Company has not made a provision for future costs associated with the investigations and investigations and related matters. However, the Company has a contingent liability in respect of the ongoing related matters investigations and related matters. These ongoing investigations and related matters may - continued result in the Company incurring material costs.
Carrying amount of As set out in notes 12 and 13 to the Group financial statements, the Group has a combined intangible assets total investment of €71.3m (2017: €73.7m) comprising intangible assets €37.7m (2017: and property, plant €33.6m) and property, plant and equipment €33.6m (2017: €40.1m) as at 31 December 2018. and equipment The Group tests the carrying amount of intangible assets and property, plant and equipment for impairment on an annual basis or whenever there is an indication that assets may be impaired. Assets are allocated, as appropriate, to the relevant Cash Generating Units (“CGUs”) which represent the lowest level at which the related assets are monitored for internal management purposes. When testing for impairment, the recoverable amounts for the Group’s CGUs are measured at their value in use (except for the Island of Ireland Publishing CGU) by discounting future expected cash flows. These calculations use cash flow projections for five years based on management approved forecasts which reflect management’s current experience and future expectations of the markets in which the CGU operates. In respect of the Island of Ireland Publishing CGU, the recoverable amount of this CGU was based on fair value less costs of disposal, estimated using discounted cashflows. The fair value measurement was categorised as a level 3 fair value based on the inputs used in the value in use calculations, except management have also factored in profit enhancement initiatives in arriving at the cash flow projections for the five years 2019 to 2023 inclusive. A total impairment charge of €7.0m was recognised in 2018. This comprised a €4.8m impairment charge in relation to property, plant and equipment in the Northern Ireland - Belfast Printing CGU, a €1.3m impairment charge in relation to the Belfast Telegraph masthead in the Northern Ireland - Belfast Publishing CGU and a €0.9m impairment charge in relation to software in the Northern Ireland - Belfast Publishing CGU. These impairments arose primarily due to the reduction in forecasted EBITDA as a result of commercial printing revenue declines in the Northern Ireland - Belfast Printing CGU and as a result of advertising and circulation revenue declines in the Northern Ireland - Belfast Publishing CGU. Estimates of recoverable amount are key judgmental estimates in the financial statements. The calculations involve a number of key assumptions, made by management, which are based on past experience and are consistent with relevant external sources of information. The calculations are subjected to sensitivity analysis.
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Significant issues in relation to the Financial Statements for the year ended 31 December 2018:
Carrying amount of In considering whether the carrying amount of intangible assets and property, plant and intangible assets equipment is recoverable, the Committee: and property, plant • Reviewed the significant impairment testing models prepared by management at 31 and equipment December 2018 including the recoverable amount and carrying amount for each CGU. - continued • Reviewed the reasonableness of the significant assumptions applied in the impairment testing models prepared by management at 31 December 2018. • Reviewed the movement in the carrying amount of intangible assets and property, plant and equipment in 2018, noting a reduction from €73.7m at 1 January 2018 to €71.3m at 31 December 2018. • Reviewed the reasons for the decrease in the recoverable amount, noting the total exceptional impairment charge of €7.0m. • Reviewed the profit enhancement initiatives factored into the fair value less costs of disposal calculation in the Island of Ireland Publishing CGU. • Reviewed the reasons for the reduction in property, plant and equipment in 2018. • Reviewed the sensitivity analysis performed on the key assumptions used in the impairment testing models. Following their review, the Committee is satisfied that the carrying amount has been appropriately scrutinised and challenged. The Committee concurs with management’s view that the carrying value is recoverable with the exception of the Northern Ireland - Belfast Printing CGU and the Northern Ireland - Belfast Publishing CGU. In respect of the Northern Ireland - Belfast Printing CGU, the Committee concurs with management’s view that it is appropriate to book an exceptional impairment charge of €4.8m in respect of property, plant and equipment. In respect of the Northern Ireland - Belfast Publishing CGU, the Committee concurs with management’s view that it is appropriate to book an exceptional impairment charge of €1.3m in respect of the Belfast Telegraph masthead and an exceptional impairment charge of €0.9m in respect of software. Notes 12 and 13 to the Group financial statements sets out further details in respect of intangible assets and property, plant and equipment, including the impairment methodologies adopted.
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Significant issues in relation to the Financial Statements for the year ended 31 December 2018:
Defined Benefit & As set out in note 32 to the Group financial statements, the Group operates defined benefit Defined and defined contribution pension schemes. The Group Statement of Financial Position reflects Contribution a net pension liability of €50.6m at 31 December 2018. Pension Schemes The Group’s defined benefit schemes are administered by separate funds that are legally separate from the Group under the jurisdiction of Trustees. The defined contribution provision recognised by the Group consists of contributions in respect of two groups of current and former employees in the Republic of Ireland - a group of employees who opted to transfer their legacy defined benefit entitlements to the Company’s defined contribution scheme and the non-pensioner members of the two defined benefit schemes which wound up in July 2017. In considering whether the measurement of the defined benefit and defined contribution pension liabilities are reasonable and whether the associated presentation and disclosure in the Annual Report are appropriate, the Committee: • Noted that the calculations were performed by the Group’s actuarial advisors, Mercer and AON. • Reviewed the reasonableness of the key assumptions applied in the calculations including the discount rates applied in both the Republic of Ireland and Northern Ireland retirement benefit obligations. • Reviewed the reasons for the reduction in the defined benefit pension liability, noting the €15.3m of deficit repair payments, the remeasurement gain of €5.2m, the foreign exchange gain of €0.4m, partly offset by the net interest/administration charge of €0.5m. • Reviewed the accounting, presentation and disclosure in respect of the pension increase exchange of €0.7m along with €0.2m as a result of allowing for the equalisation of Guaranteed Minimum Pension (GMP) benefits between men and women in line with the ruling issued by the UK High Court on 26 October 2018. • Reviewed the reasons for the reduction in the defined contribution pension liability, noting in particular both the cash paid of €6.6m during the year and the actuarial loss from changes in financial assumptions of €0.1m. Following their review, the Committee is satisfied that the measurement of the overall pension liability is reasonable and that the associated presentation and disclosure in the Annual Report are appropriate. Note 32 to the Group financial statements sets out further details in respect of the pension schemes including assumptions and methodologies adopted.
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Other issues:
Deferred Taxation Judgement is exercised by management in arriving at the amounts to be provided for deferred taxation. The final determination of some transactions is uncertain and may not be known for a number of years. The Group has €5.9m of deferred tax assets, largely pension plan deficits and capital allowances. Accounting standards provide guidance on when it is appropriate to recognise such assets in the Statement of Financial Position. The Group also has €1.4m of deferred tax liabilities. As set out in note 21 to the Group financial statements, the Group Statement of Financial Position reflects a net deferred tax asset of €4.5m at 31 December 2018. Management has prepared a financial model to support the Group’s deferred tax position. Deferred tax assets have been recognised in relation to those items to the extent that their recovery is probable having regard to the projected future taxable profits of the relevant business units. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the asset is realised, based on tax rates and tax laws substantively enacted at the reporting date. In considering the recoverability of the net deferred tax asset, the Committee: • Reviewed reports from management regarding the component parts of the deferred tax asset, future taxable profits and the recoverability of the net deferred tax asset. • Reviewed the movement in the net deferred tax asset during 2018, noting a reduction from €6.3m at 1 January 2018 to €4.5m at 31 December 2018. • Reviewed the reasons for the reduction in the net deferred tax asset in 2018. Following its review, the Committee is satisfied that the carrying value of the deferred tax asset is appropriate, and has concurred with management’s view that the asset is recoverable and that the correct accounting treatment has been adopted. Note 21 to the Group financial statements sets out further detail in respect of taxation.
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Other issues:
Exceptional items Exceptional items are those which are separately disclosed by virtue of their nature or amount in order to aid the user’s understanding of underlying performance. Management exercises judgement in assessing each particular item and whether this treatment is consistent with INM’s accounting policies and practice. In considering whether the presentation of the exceptional items in the financial statements is reasonable, the Committee: • Noted the net exceptional charge booked in the year amounts to €13.3m (2017: net exceptional charge of €12.1m). • Noted that this primarily relates to: • A charge of €4.0m relating to restructuring costs, primarily redundancy costs in the Island of Ireland; • A charge of €0.1m for acquisition related expenses; • A charge of €1.3m relating to the impairment of the Belfast Telegraph masthead (see note 12); • A charge of €4.8m relating to the impairment of property, plant and equipment in the Northern Ireland - Belfast Publishing CGU (see note 13); • A charge of €0.9m relating to the impairment of software in the Northern Ireland - Belfast Publishing CGU (see note 12); • A charge of €3.5m relating to the Company’s costs associated with meeting its obligations towards the ODCE and the DPC in their respective investigations; the Company’s and the ODCE’s costs in relation to the application to the High Court for the appointment of inspectors; the Company’s and the ODCE’s costs in relation to the judicial review application made by the Company in relation to the ODCE’s decision to apply to the High Court; the Company’s costs in relation to the inspection; and, the Company’s costs in complying with its statutory obligations towards certain individuals seeking information in relation to the 2014 data security incident; • An exceptional finance income of €0.8m relating to a gain arising from the re-measurement to fair value of the Group’s pre-existing 50% interest in Reachmount DAC upon obtaining control; and • An exceptional tax credit of €0.5m relating to exceptional expenses and to a reduction in the deferred tax liability of €0.2m following the impairment of intangible assets offset by a related reduction in the Group’s deferred tax asset amount of €0.2m. • Discussed the treatment adopted for each exceptional item. Following their review, the Committee is satisfied with the treatment adopted for each exceptional item, their consistency with INM’s accounting policy and previous practice, and the clarity of individual descriptions. Note 6 to the Group financial statements sets out further details in respect of Exceptional Items.
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Other issues:
Libel As set out in note 20 to the Group financial statements, Other provisions of €9.8m primarily include provisions for libel. A certain level of uncertainty exists around the timing and the amount, recognising the nature of libel provisioning. In considering whether the measurement of the libel provisions within Other provisions is reasonable the Committee: • Noted that management was supported in its calculation of the libel provisioning by the Group’s legal advisors in respect of libel matters. • Considered the processes and procedures in place regarding libel matters. • Reviewed the reasonableness of the assumptions in respect of provisioning for libel matters. Following their review, the Committee is satisfied with the reasonableness of the libel provisions as at 31 December 2018.
Other matters In addition, the Committee has considered a number of other judgements which have been made by management including revenue recognition and provisioning for impairment of trade receivables.
Risk Management and Internal Control The Chairman of the Audit and Risk Committee reports to the Board on the Committee’s activities in regard to Details of the Group’s system of risk management and the Group’s risk management and internal control internal control are set out in the Risk Report on pages systems. The Board also receives and reviews a 22 to 29. The Audit and Risk Committee has been summary Group Risk Register and a Risk and Internal delegated responsibility by the Board for the ongoing Controls Report, prepared by the Head of Audit, Risk and monitoring of the effectiveness of this system as Compliance, on an annual basis. required by the Code. The Audit and Risk Committee conducts, on behalf of the The Audit and Risk Committee receives a report at each Board, an annual assessment of the operation of the meeting on the activities of the Group Audit, Risk and Group’s system of risk management and internal control, Compliance (“ARC”) function, including internal audits, as required under the Code. This assessment was based risk monitoring and compliance assurance activity. on a detailed review carried out by the Head of Audit, Reports are also received from the Executive Risk Risk and Compliance, utilising the risk register process Committee. The risk management and internal control described in the Risk Report on page 24. systems were in place for the full year 2018 and remain This review took account of the principal risks facing the active at the date of approval for the 2018 accounts. Group, the controls in place to manage those risks (including financial, operational and compliance Further details on the Group’s risk management controls) and the procedures in place to monitor them. framework are set out in the Risk Report on page 23. Where areas for improvement have been identified, the necessary actions are tracked to implementation and subject to regular progress reporting to the Audit and Risk Committee.
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Audit and Risk Committee Report - continued
The Chairman of the Audit and Risk Committee has Independence reported to the Board on the findings and agreed The Group’s external auditor, KPMG, were appointed for actions arising from this annual assessment of risk the audit of the year ended 31 December 2013 financial management and internal controls. statements. The period of total uninterrupted engagement is 6 years, covering financial years ending External Auditor 31 December 2013 to 31 December 2018. The Audit and Risk Committee has a process in place to ensure that the The Audit and Risk Committee oversees the relationship independence of the audit is not compromised, which with the external auditor including approval of the includes monitoring the nature and extent of services external auditor’s fee proposal. provided by the external auditor through its annual review of fees paid to the external auditor for audit and KPMG are the external auditor for the Group and non-audit work and seeking confirmation from the external conducted the audit in respect of the year ended 31 auditor that they are in compliance with relevant ethical December 2018. and professional guidance and that, in their professional judgment, they are independent from the Group. The Audit and Risk Committee reviewed the KPMG external audit plan at the meeting held in December The Audit and Risk Committee has approved a policy on 2018 prior to the commencement of the audit. the employment of employees or former employees of Following the audit, the Audit and Risk Committee met the external auditor. This policy provides that the Chief with KPMG to review the findings from the audit of the Executive Officer will consult with the Chairman of the Group financial statements. Audit and Risk Committee prior to the appointment of any employee or former employee of the external The Audit and Risk Committee carries out an annual auditor to a senior financial reporting position, to a review of the effectiveness of the external audit process. senior management role or to a Company officer role, As part of this process, an audit effectiveness where such a person was a member of the external questionnaire was completed by Group finance audit team in the previous two years. executives and the responses are summarised by management in a report to the Audit and Risk Non-Audit Services Committee. Based on its consideration of this report and The Audit and Risk Committee has approved a policy on its own interaction with KPMG, in the form of reports the engagement of the external auditor to provide non- and meetings, the Audit and Risk Committee concludes audit services, which provides that the external auditor on the effectiveness of the external audit process and is permitted to provide non-audit services that are not, reports its conclusions to the Board. or are not perceived to be, in conflict with auditor independence, providing they have the skill, The Audit and Risk Committee meets with the external competence and integrity to carry out the work and are auditor during the year without the presence of considered to be the most appropriate to undertake management. such work in the best interests of the INM Group.
In accordance with its Terms of Reference, the Audit and The policy also provides that any non-audit work which Risk Committee is required to make a recommendation would result in the aggregate of non-audit fees paid to to the Board on the appointment, reappointment and the external auditor exceeding 70% of annual audit fees removal of the external auditor. must be approved in advance by the Chief Executive Officer and the Chairman of the Audit and Risk Committee. Details of the amounts paid to the external auditor during the year for non-audit services are set out in note 5 on page 149.
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Audit and Risk Committee Report - continued
Internal audit Annual Evaluation of Performance Internal Audit activity falls under the remit of the Audit, Risk and Compliance (ARC) function as described on The effectiveness of the Audit and Risk Committee is page 24. INM is currently moving to a co-sourced reviewed on an annual basis by both the Board and the approach to the provision of internal audit services, with Committee itself. The conclusion from this process was internal resources supported by an external provider. that the performance of the Committee and of the Chairman of the Committee was satisfactory. Minor Internal audit work is focused on areas of greatest risk to changes were made to the Committee’s Terms of the Group, as captured in the principal Risks and Reference in August 2018 to reflect current best practice. Uncertainties listing from page 26 to 29 detailed in an annual Internal Audit Plan. During the year the Reporting Committee approved and monitored progress against the plan. Audit and remediation progress reports were The Chairman of the Audit and Risk Committee reports delivered to the Committee at each meeting. Where to the Board on the activities of the Committee on a appropriate, the Committee ensured co-ordination regular basis. between internal and external audit activity. The Chairman of the Audit and Risk Committee attends The ARC function has unrestricted access to all Group the Annual General Meeting to answer questions on the documentation, premises, functions and employees as report of the Committee’s activities and matters within required to enable it to perform its functions. The the scope of the Committee’s responsibilities. appointment and removal of the Head of ARC is the responsibility of the Audit and Risk Committee. Length of tenure on Audit and Risk Committee
The Head of ARC has direct access to the Chairman of Tenure the Audit and Risk Committee and attends all (years) Committee meetings. Seamus Taaffe (appointed 7 March, 2018) 1.0 Whistleblowing Arrangements Fionnuala Duggan (appointed 7 March, 2018) 1.0
The Audit and Risk Committee is responsible for Len O’Hagan 6.5 ensuring that the Group maintains suitable whistleblowing arrangements for its employees. The Committee reviewed those arrangements during the year to ensure that they continue to meet the needs of the Group.
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REMUNERATION COMMITTEE REPORT
INM’s Remuneration Policy seeks to incentivise Executives to create shareholder value and consequently their remuneration is weighted towards performance- related elements with targets to incentivise the delivery of strategy over the short and long term.
The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (‘the UK Regulations’) is in effect in the UK. While INM, as an Irish incorporated company, is not subject to these regulatory requirements, we recognise that they represent best practice in remuneration reporting and we have substantially applied the UK Regulations to this Remuneration Committee Report on a voluntary basis.
The UK Regulations only require disclosure of the remuneration of Executive Directors; however, for the purposes of this Report the Committee has decided to disclose fully the remuneration of the Chief Financial Officer, who is not an Executive Director, in addition to that of the Chief Executive Officer. For the purpose of this Report, these roles together are referred to in the Report as the Designated Senior Executives. The Remuneration Committee comprises three independent non-executive Directors. Under the UK Regulations there is a requirement to put the Remuneration Policy to shareholders at least once The members of the Committee are every three years. As this was previously done for the Fionnuala Duggan (Chair), Len O’Hagan and first time in 2016 the Policy will again be put to a non- Seamus Taaffe. Biographical details for the binding vote of shareholders as an ordinary resolution at the 2019 Annual General Meeting. members of the Remuneration Committee are set out on pages 42 and 43. At the 2018 Annual General Meeting, the Annual Report on Remuneration was put to shareholders on an Dear Shareholder advisory basis as an ordinary resolution. The resolution was passed by shareholders. The result of the vote is set As Chairman of INM’s Remuneration Committee, I am out in the table on page 86. The Annual Report on pleased to present the Remuneration Committee Report Remuneration, as set out on pages 77 to 86, will again for the year ended 31 December 2018, which has been be put to an advisory vote by shareholders at the 2019 prepared by the Committee and approved by the Board. Annual General Meeting.
The responsibilities of the Remuneration Committee are summarised in the table on page 68. Its Terms of Reference are available on the INM website www.inmplc.com.
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Performance in 2018 Long Term Incentive Plan
The Group continued to experience difficult trading At the 2014 Annual General Meeting, shareholders conditions within the media industry during 2018. In the approved the introduction of the INM PLC Long Term face of continuing reductions in both advertising and Incentive Plan 2014 (‘2014 LTIP’) including the quantum circulation revenues, the Group returned profit before of awards, the performance conditions, the vesting tax (pre-exceptional items) of €24.1m. While this period and the threshold and maximum vesting levels. represents a 15.4% reduction on 2017, the result is ahead of market expectations and represents a robust Awards made under the Plan in 2015 and 2016 lapsed performance under difficult conditions. Basic earnings without vesting as the performance conditions were not per share (pre exceptionals) at 1.6 cent was down 0.2 satisfied. No award under the Plan was made in 2017 or cent compared to the prior year. 2018. In conjunction with the introduction of a new Group Long Term Retention & Incentive Plan, it is not proposed Annual Incentive Plan to make any further awards under the 2014 LTIP.
The annual performance incentive is based on a Review of Remuneration Terms combination of financial and personal objectives. However, no award is made in respect of personal Earlier this year the Remuneration Committee objectives unless the financial objective, historically commissioned a review of the remuneration of the EBITDA, is met. Designated Senior Executives against a comparator group of Irish listed companies of broadly equivalent The annual performance incentive earned by the market capitalisation. Arising from this review the Designated Senior Executives in respect of the year Committee concluded that the current annual salary ended 31 December 2018 is set out on page 80. levels are appropriate for the roles but that the This reflects an EBITDA of 1.3% in excess of the budget maximum annual incentive in the case of the Chief and the achievement of a range of developmental and Executive Officer and the Chief Financial Officer should personal objectives. be increased to 75% of annual salary in the case of the Chief Executive Officer and 60% for the Chief Financial For the future, it is proposed to use adjusted EBIT Officer, from the current maxima of 60% and 42% (Earnings before Interest and Tax) as the main financial respectively, and that the maximum long term incentive objective. should be reduced to 75% of annual salary (from 100%). No changes to other remuneration terms are proposed (other than with respect to the long term incentive described below).
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New Business Strategy Resignation
Arising from the introduction of the new business Mr. Ryan Preston resigned as Chief Financial Officer of strategy for the Group, the Remuneration Committee has the Group on 31 January 2019. The Group is currently engaged with its advisers to develop a new long term engaged in a process to appoint his successor and this incentive plan to support the recruitment and retention appointment will be announced in due course. of key executives and the delivery of the new strategy. It is intended that the Designated Senior Executives and Conclusion those senior executives who are responsible for delivering the new strategy will participate in the new The Group’s Remuneration Policy is set out on pages 69 Plan. The basis of the new Plan - the INM Long Term to 76 and the Committee continues to be confident that Retention and Incentive Plan 2019 (“2019 LTP”) - has the Policy supports the Group’s strategic objectives as been discussed with the Group’s key shareholders and reflected in the new business strategy, and is properly will be put to a vote of shareholders at the 2019 Annual governed. General Meeting. On behalf of the Remuneration Committee, Under the 2019 LTP, following the end of each financial year, participants will be granted a conditional award of shares with a face value (number of shares x share price Fionnuala Duggan at date of allocation) equivalent to the annual incentive Chair, Remuneration Committee award earned by the participant for the year. 28 March 2019 The Remuneration Committee will, after a period of 3 years, determine the amount of the award that vests based on the progress in the business over that vesting period and provided that the average share price has increased over that vesting period. The maximum award under the 2019 LTP will be 75% of annual salary compared with 100% under the 2014 LTIP. Full details of the 2019 LTP are set out in the revised Remuneration Policy.
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Role and Responsibilities
• To determine and agree with the Board, the policy for the remuneration of the Chief Executive Officer, Chief Financial Officer and certain Executives (as determined by the Committee). • To determine the remuneration packages of the Chairman, Chief Executive Officer, Chief Financial Officer and certain Executives including salary, annual incentive, pension rights and compensation payments. • To oversee remuneration structures for other Group and subsidiary senior management and to oversee any major changes in employee benefit structures throughout the Group. • To nominate Executives for inclusion in the Group’s Long Term Retention and Incentive Plan, to grant awards under this Plan, to determine whether the criteria for the vesting of options or awards have been met and to make any necessary amendments to the rules of the Plan. • To ensure that contractual terms on termination or redundancy, and any payments made, are fair to the individual and the Group. • To be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee. • To obtain reliable, up to date information about remuneration in other companies of comparable scale and complexity. • To report to the Board on how the Committee has discharged its duties. • To review the Group’s Remuneration Policy to ensure that it remains aligned with shareholders’ interests, is correctly reported in accordance with relevant legislation and provides the right framework to attract, retain and motivate Executives to meet the Group’s objectives.
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1. REMUNERATION POLICY
INM’s Remuneration Policy is designed and managed to support a high performance and entrepreneurial culture, taking into account competitive market positioning. The Group intends to continue to operate its remuneration arrangements in line with this Remuneration Policy.
The Board seeks to align the interests of Designated Senior Executives and other Executives with those of shareholders, within the framework set out in the 2018 UK Corporate Governance Code. Central to this policy is the Group’s belief in long-term, performance based incentivisation and the encouragement of share ownership.
The basic objective under the policy is to have overall remuneration reflect business performance and personal contribution, while having basic salary rates and the short term element of incentive payments at the median of a comparator group with a similar market capitalisation.
The Remuneration Committee seeks to ensure that:
• the Group will attract, motivate and retain individuals of the highest calibre; • Executives are rewarded in a fair and balanced way for their individual and team contribution to the Group’s performance; • Executives receive a level of remuneration that is appropriate to their scale of responsibility and individual performance; • the overall approach to remuneration has regard to the sectors and geographies within which the Group operates and the markets from which it draws its Executives; and • risk is properly considered in setting remuneration policy and in determining remuneration packages.
INM’s strategy of fostering entrepreneurship requires well designed incentive plans that reward the creation of shareholder value through organic and acquisition growth while maintaining high returns on capital employed, strong cash generation and a focus on good risk management. The typical elements of the remuneration package for the Designated Senior Executives and other Executives are annual salary, retirement benefits and allowances, annual performance related incentives and participation in a long term performance plan which promote the creation of sustainable shareholder value.
The Remuneration Committee takes external advice from remuneration consultants on market practice to ensure that the remuneration structures continue to support the key remuneration policy objectives.
The primary comparator group for benchmarking remuneration is a group of Irish listed companies that are broadly comparable in terms of market capitalisation to INM.
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The key elements of the remuneration for Designated Senior Executives and other Executives under the Policy are set out in the table below:
Element and link to Approach Maximum Opportunity Remuneration Policy
Annual Salary
Attract and retain skilled and Annual salaries are reviewed annually. No prescribed maximum annual salary or experienced Executives. The factors taken into account in the maximum annual increase. review include: General intention that any increases will • Role and experience be in line with the general increase across • Group performance the Group. • Personal performance • Competitive market practice Increases may be higher in certain • Benchmarking against an Irish market circumstances such as changes in role and capitalisation comparator group. responsibility or significant changes in market practice. When setting salaries, account is taken of movements in salaries generally across the Group.
Annual Incentives
Reward the achievement of annual Annual Incentive payments to Designated The maximum award, as a percentage of performance targets. Senior Executives and other Executives are annual salary, for the Designated Senior based on (a) meeting pre-determined Executives is as follows: financial targets, currently based on adjusted EBIT (Earnings Before Interest % of Annual and Tax, and (b) the attainment of Salary personal objectives. The personal targets are focused on areas such as delivery on Chief Executive Officer 75% strategy, organisational development, risk Chief Financial Officer 60% management and talent development / succession planning. The maximum award, as a percentage of The performance measures, their annual salary, for other senior Executives weighting and the performance targets is 50% of annual salary. are reviewed on an annual basis.
The current performance measures for the Designated Senior Executives, and their weighting, are set out on page 77.
Annual Incentive payments are determined by the Committee after the year end based on actual performance achieved against these targets.
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Element and link to Approach Maximum Opportunity Remuneration Policy
Annual Incentives - continued
The Committee can apply appropriate discretion in specific circumstances in respect of determining the incentive payment to be awarded.
A formal clawback policy is in place for the Designated Senior Executives and other Executives, under which Annual Incentive payments are subject to clawback for a period of three years in the event of a material restatement of financial statements or other specified events. Further details on the clawback policy are set out on page 72.
The Committee has discretion in relation to incentive payments to joiners and leavers.
The Long Term Retention and Incentive Plan (‘2019 LTP’) - subject to shareholder approval at the 2019 AGM
Support the recruitment and The INM Long Term Retention and Incentive Other than in exceptional circumstances, retention of key executives, align the Plan 2019 (“2019 LTP”) provides for the the market value of share awards granted interests of executives with those of Remuneration Committee to grant awards to an Executive in any period of 12 the Group’s shareholders and reflect to Executives to acquire shares in INM. months may not, at the date of the grant, the Group’s policy of long term exceed the award under the Annual Awards will normally vest no earlier than performance based incentivisation. Incentive Plan in the preceding financial the third anniversary of the award date, year. provided the average share price over the 30 day period prior to vesting is higher In exceptional circumstances such as, but than the average share price over the 30 not limited to external recruitment, the day period prior to the award date. Committee may grant additional share awards to a value not exceeding 75% of The number of shares, if any, which vests annual salary in the case of the Chief will be determined by the Committee Executive Officer and Chief Financial based on its assessment of the extent to Officer and a lower maximum value in the which the business of the Group, including case of other Executives. the financial performance, has shown a sustained improvement over the vesting period taking into account the achievement of performance targets in the annual business plan over the vesting period.
The Remuneration Committee may introduce other performance conditions for the vesting of shares, provided they are aligned with the interests of the Group’s shareholders.
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Element and link to Approach Maximum Opportunity Remuneration Policy
Retirement Benefits
Reward sustained contribution.Executives participate in a defined The Group contributes to a defined contribution pension scheme. The pension contribution pension scheme for scheme gives the Group full discretion to employees at rates reflecting their pay appropriate contribution levels and seniority and experience. the Group reviews market and The contribution levels also reflect market benchmarking data for pension benchmarking data. contributions for each employee group.
Allowances
Provide market competitive benefits.Benefits include a car allowance and an Maximum levels have not been set as allowance for private medical insurance. payments depend on individual Executives circumstances. The Committee reviews market and benchmarking data in relation to allowances.
Policy on Payments from Existing Awards Subject to the achievement of the applicable performance conditions, Executives are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration Policy detailed in this Report.
Clawback Policy Annual Incentive payments made to Executives may be subject to clawback for a period of three years from date of payment in certain circumstances including:
• a material restatement of the Group’s audited financial statements; • business or reputational damage to the Group or a subsidiary arising from a criminal offence, serious misconduct or gross negligence by the individual Executive; or • a material breach of applicable health and safety regulations.
The rules of the 2019 LTP give discretion to the Remuneration Committee to reduce or impose further conditions on awards prior to or subsequent to vesting in the circumstances outlined above.
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Remuneration Policy for Recruitment of New Executives In determining the remuneration package for new executives, the Remuneration Committee will be guided by the principle of offering such remuneration as is required to attract, retain and motivate a candidate with the particular skills and experience required for a role. The Remuneration Committee will generally set a remuneration package which is in accordance with the terms of the approved Remuneration Policy in force at the time of the appointment, though the Committee may make payments outside of the Policy if required in the particular circumstances and if in the best interests of the Group and the shareholders. Any such payments which relate to the buyout of variable pay (annual incentives or awards) from a previous employer will be based on matching the estimated fair value of that variable pay and will take account of the performance conditions and the time until vesting of that variable pay.
For an internal appointment, any variable pay element awarded in respect of the prior role and any other ongoing remuneration obligations existing prior to the appointment will be honoured.
Remuneration Policy for Other Employees While the Remuneration Committee’s specific oversight of individual executive remuneration packages extends only to the Designated Senior Executives and a number of Senior Executives, it aims to create a broad policy framework, to be applied by management to Executives throughout the Group, through its oversight of remuneration structures for other Group and subsidiary senior management and of any major changes in employee benefit structures throughout the Group.
INM currently employs approximately 800 people throughout the Republic of Ireland and Northern Ireland.
Consultation with Employees Although the Remuneration Committee does not consult with employees on the Remuneration Policy, it considers remuneration arrangements and trends across the broader employee population when determining and implementing the Policy.
Consultation with Shareholders The Committee takes into account the views of shareholders on remuneration matters, particularly in relation to planned significant changes in policy. The Committee acknowledges that shareholders have a right to have a ‘say on pay’ by putting the Remuneration Policy and the Annual Report on Remuneration to advisory votes at the Annual General Meeting.
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Policy for “Leavers” The provisions for “leavers” in respect of each of the elements of remuneration are as follows:
Salary and Benefits Payments are made only in respect of annual salary excluding benefits for the relevant notice period. For the Designated Senior Executives, the notice period is 6 months and for the other Executives the notice period is 3 months. In all cases, the notice period applies to both the Group and the Executive.
Annual Incentive The Remuneration Committee can apply appropriate discretion in respect of determining the annual incentives to be awarded based on actual achieved performance and the period of employment during the financial year.
Long Term Retention and Incentive Plan In general, a share award that has not vested on the participant’s cessation date immediately lapses.
The Committee would normally exercise its discretion when dealing with a participant who ceases to be an employee by reason of certain exceptional circumstances e.g. death, injury or disability, redundancy, retirement or any other exceptional circumstances. In such circumstances, any share award that has not already vested on the participant’s cessation date would be eligible for vesting on a date determined by the Remuneration Committee. The number of shares, if any, in respect of which the share award vests would be determined by the Remuneration Committee.
In the event that a participant ceases to be an employee by reason of a termination of his employment for serious misconduct, each share award held by the participant will automatically lapse immediately on the service of notice of such termination, unless the Committee in its sole discretion determines otherwise.
Retirement Benefits The rules of the Group’s defined contribution pension scheme, of which the Designated Senior Executives are members, contain detailed provisions in respect of termination of employment.
Policy on Share Ownership INM’s Remuneration Policy has, at its core, a recognition that the spirit of ownership and entrepreneurship is essential to the creation of long term high performance and that share ownership is important in aligning the interests of Executives with those of shareholders. It is, therefore, the intention of the Remuneration Committee to develop a set of share ownership guidelines for implementation in future years.
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Potential Remuneration - scenario charts The current (2019) value and composition of the Designated Senior Executives’ remuneration packages at minimum, target and maximum performance in respect of annual salary, retirement benefits, allowances, annual incentives and long term awards are set out in the charts below. In the case of long term awards the maximum value is the maximum value of shares that can be granted under the Long Term Retention and Incentive Plan 2019 in respect of 2019 performance. In calculating any value that may be delivered in shares under the Plan, no account has been taken of any potential increase or decrease in share price.
Chief Executive Officer Chief Financial Officer
€1,200,000 €1,200,000
€1,000,000 €1,000,000
€800,000 €800,000
€600,000 €600,000
€400,000 €400,000
€200,000 €200,000
€0 €0 Minimum Target Maximum Minimum Target Maximum
Fixed Annual Long Term Fixed Annual Long Term
Notes: a. Fixed = annual salary, retirement benefits and allowances. b. Annual = annual incentives. c. Long Term = maximum value of share awards that can be granted under the 2019 LTP. d. Total pay for minimum performance comprises annual salary, retirement benefits and allowances (fixed). e. Total pay for target performance comprises annual salary, retirement benefits and allowances (fixed), 70% of maximum annual incentive potential (annual) and equivalent LTP value (long term). f. Total pay for maximum performance comprises annual salary, retirement benefits and allowances (fixed), 100% of maximum annual incentive potential (annual) and equivalent LTP value (long term).
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Policy for Non-Executive Directors
Element and link to Operation Maximum Opportunity strategy
Fees
The fees paid to non-executive The remuneration of the Chairman is No prescribed maximum annual increase. Directors reflect their experience and determined by the Remuneration In accordance with the Articles of ability and the time demands of their Committee for approval by the Board. Association, shareholders set the Board and Board Committee duties. The remuneration of the other maximum aggregate ordinary A basic fee is paid for Board non-executive Directors is determined by remuneration (basic fees, excluding fees membership. Additional fees are paid the Chairman and the Chief Executive for committee membership and chairman to the Chairman, the Chairs and Officer for approval by the Board. fees). The current limit of €800,000 was members of Board Committees, and set at the 2015 Annual General Meeting. The fees are reviewed annually, taking the Senior Independent Director. account of any changes in responsibilities Non-executive Directors do not participate and benchmarking advice from in the Long Term Retention and Incentive remuneration consultants on the level of Plan and do not receive any retirement fees in a range of comparable Irish benefits from the Group. Companies.
Non-Executive Directors Letters of Appointment The terms and conditions of appointment of non-executive Directors are set out in their letters of appointment, which are available for inspection at the Group’s registered office during normal office hours and at the Annual General Meeting.
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2. ANNUAL REPORT ON REMUNERATION
This section of the Remuneration Committee Report sets out: • How INM’s Remuneration Policy, as described on pages 69 to 76, will operate in the year to 31 December 2019; • Remuneration outcomes for the year ended 31 December 2018; and • How the Remuneration Committee works.
Operation of the Remuneration Policy in the year to 31 December 2019
Salary The salaries of the Designated Senior Executives for the year to 31 December 2019, together with comparative figures for 2018, are as follows:
Year to Year to December 2019 December 2018 € €
Michael Doorly 404,000 404,000
Ryan Preston/successor* To be agreed 277,750
* Ryan Preston resigned on 31 January 2019. The Group is currently engaged in a process to appoint his successor and this appointment will be announced in due course.
Annual Incentive Following a remuneration review in early 2019, the Remuneration Committee decided to increase the annual incentive to a maximum of 75% of annual salary in the case of the Chief Executive Officer and 60% in the case of the Chief Financial Officer (from 60% and 42% respectively), determined in accordance with the following table:
EBIT Target Below 90% of 90% of Target 100% of Target 110% of Target Target (Threshold) (Maximum)
Award as a percentage (%) of the maximum award Nil 20% of 45% of 67% of maximum award maximum award maximum award
Personal Objectives Did not achieve Achieved some Achieved most Overall exceeded objectives of the objectives objectives objectives (Threshold) including all (Maximum) important ones (Target)
Level of achievement of objectives Nil 10% of 25% of 33% of maximum award maximum award maximum award
For “in-between” performance the award will be determined on a proportionate basis. However, no award will be made in respect of the attainment of personal objectives unless Threshold EBIT Performance (90% of Target Performance) is achieved. The Committee will keep the performance targets under review in light of acquisitions and other business activity during the year to 31 December 2019.
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Long Term Retention and Incentive Details of the proposed new Long Term Retention and Incentive Plan 2019 (‘2019 LTP’) are set out on page 71. No awards will be issued under the 2014 LTIP in 2019 and the initial award, if any, under the 2019 LTP will be made in early 2020.
Retirement Benefits The Designated Senior Executives participate in a defined contribution pension scheme. No changes are proposed to this scheme in the year to 31 December 2019.
Allowances Benefits include a car with all expenses paid or a car allowance together with a contribution towards private medical insurance. No changes are proposed to the benefits payable to the Designated Senior Executives for the year to 31 December 2019.
Employee Share Scheme 2008 Certain employees who agreed to amend the terms and conditions of their employment to provide for a permanent reduction in their salary were granted market based options under the Scheme. There are no performance conditions attached to the options which were required to be exercised no later than 10 years from the date of grant, that is by 21 January 2019.
The option price at which shares were issued is €1.32 and this scheme has now lapsed with no options having been exercised.
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Remuneration outcomes for the year ended 31 December 2018
The tables below set out the details of the remuneration payable to the Designated Senior Executives for the year ended 31 December 2018, together with the prior year figures.
Annual Retirement Salary Incentive Benefit Allowances Total
2018 2018 2018 2018 2018 €’000 €’000 €’000 €’000 €’000
Michael Doorly 404 152 51 25 632
Ryan Preston* 278 81 28 21 408
Total 682 233 79 46 1,040
* Resigned 31 January 2019.
On resigning as Chief Financial Officer in January 2019, Ryan Preston will continue to receive payment of €117,897 in lieu of notice and €12,840 holiday pay, up until completion of his statutory notice period in May 2019. During this period, Ryan will continue to remain available to provide support to the business as it re-focuses its existing finance model. On termination of his notice period, Ryan will receive a severance payment of €699,500 in addition to €23,000 payment made on reaching agreement with regard to termination terms. As the agreement was reached prior to year-end, these payments have been accrued in the 2018 financial accounts.
Annual Retirement Salary Incentive Benefit Allowances Total
2017 2017 2017 2017 2017 €’000 €’000 €’000 €’000 €’000
Robert Pitt* 334 0 67 20 421
Michael Doorly** 83 0 10 3 96
Ryan Preston 278 0 28 21 327
Total 695 0 105 44 844
* Resigned 13 October 2017. **Appointed 18 October 2017.
On resigning as Chief Executive Officer in October 2017, Robert Pitt received a severance payment of €1,500,000 which included a payment of €239,950 in lieu of notice.
No annual incentive payment was made in respect of 2017 as the EBITDA target was not achieved. However, in recognition of the personal efforts of the executive team, in May 2018 an exceptional once-off gesture payment was made in respect of the achievement of personal objectives identified as part of the 2017 annual incentive process. Ryan Preston received a payment of €21,248 in this respect.
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Determination of Annual Incentives for the year ended 31 December 2018 The annual performance incentives earned by the Designated Senior Executives in respect of the year ended 31 December 2018 reflect an EBITDA of 1.3% in excess of budget and the achievement of a range of developmental and personal objectives. The Committee determined that, while both Designated Senior Executives had substantially achieved their personal objectives, the corresponding incentive payment should be limited to 10% of annual salary in each case in order to reflect the continuing challenges facing the business.
The resultant Annual Incentive payout level awards for the year ended 31 December 2018 were as follows:
Michael Doorly Ryan Preston % of Annual Salary % of Annual Salary
Component Max % Payout % Max % Payout %
Adjusted EBITDA Target 25.0 25.0 17.5 17.5
In excess of target 10.0 2.6 7.0 1.8
Overall contribution and attainment of personal objectives 25.0 10.0 17.5 10.0
Total 60.0 37.6 42.0 29.3
Long Term Incentive Plan The awards made in 2015 lapsed without vesting at the end of 2017 as the performance conditions were not achieved.
The awards made in 2016 similarly lapsed without vesting at the end of 2018 as the performance conditions were not achieved.
No awards were made in 2017 or 2018 and therefore there are no remaining options outstanding under the Group’s 2014 Long Term Incentive Plan. It is not proposed to issue any new awards under the Plan.
Policy on External Board Appointments Executives may accept external non-executive directorships with the prior approval of the Board. The Board recognises the benefits that such appointments can bring both to the Group and to the Executive in terms of broadening their knowledge and experience.
The fees received for such roles may be retained by the Executives.
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Non-Executive Directors’ Remuneration Details The remuneration paid to non-executive Directors for the year ended 31 December 2018 is set out in the table below. Non-executive Directors are paid a basic fee. Additional fees are paid to the Chairman, the Chairs and members of Board Committees and to the Senior Independent Director (‘SID’).
The remuneration of the Chairman is determined by the Remuneration Committee for approval by the Board.
The remuneration of the other non-executive Directors is determined by the Chairman and the Chief Executive Officer for approval by the Board.
The fees are reviewed annually, taking account of any changes in responsibilities and benchmarking advice from remuneration consultants on the level of fees in a range of comparable Irish companies.
The fees paid to non-executive Directors in respect of the year to 31 December 2018 are set out below:
Basic Fee Committee Membership Fees Total
2018 2017 2018 2017 2018 2017 €’000 €’000 €’000 €’000 €’000 €’000
Continuing Directors
John Bateson* 45.8 - - - 45.8 -
Fionnuala Duggan* 45.8 - 25.5 - 71.3 -
Murdoch MacLennan* 145.4 - - - 145.4 -
Triona Mullane 55.0 55.0 7.0 16.8 62.0 71.8
Kieran Mulvey** 18.5 - - - 18.5 -
Len O'Hagan 75.0 59.1 48.4 36.3 123.4 95.4
Seamus Taaffe* 45.8 - 20.4 - 66.2 -
Former Directors
Leslie Buckley* 26.7 165.0 - - 26.7 165.0
Terry Buckley*** 22.8 55.0 13.0 37.0 35.8 92.0
Paul Connolly*** 22.8 55.0 2.9 11.0 25.7 66.0
David Harrison**** - 53.7 - 5.2 - 58.9
Jerome Kennedy***** - 48.5 - 19.7 - 68.2
Allan Marshall* 8.9 55.0 - 2.3 8.9 57.3
Total 512.5 546.3 117.2 128.3 629.7 674.6
* Appointed/Resigned 1 March 2018. ** Appointed 29 August 2018. *** Retired 31 May 2018. **** Retired 22 December 2017. ***** Retired 23 August 2017.
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The non-executive Director fee structure for the year to 31 December 2019 is set out below:
€’000
Chairman (to include basic and committee fees) 180
Senior Independent Director 75
Director’s Basic Fee 55
Additional Fee for Committee Chairman: - Audit and Risk, Nomination and Corporate Governance, Remuneration 20
Additional Fee for Committee Membership: - Audit and Risk, Nomination and Corporate Governance, Remuneration 7
Total Directors’ Remuneration Total
2018 2017 €’000 €’000
Designated Senior Executives
Annual Salary 682 695
Annual Incentive 233 -
Retirement Benefits 79 105
Allowances 46 44
Share-based payment credit* (21) (88)
Termination payment** 853 1,500
Total Designated Senior Executives’ remuneration 1,872 2,256
Non-Executive Directors
Fees 630 675
Total Directors’ remuneration 2,502 2,931
* 2018: Comprises €43,000 share based payment charge in the current year, offset by a €64,000 credit relating to the non- vesting at 31 December 2018 of the Earnings Per Share element of the share options granted on 1 January 2016. 2017: Comprises €0.4m share based payment charge in 2017, offset by a €0.5m credit relating to the non-vesting at 31 December 2017 of the Earnings Per Share element of the share options granted on 1 January 2015. ** On resigning as Chief Financial Officer in January 2019, Ryan Preston will continue to receive payment of €117,897 in lieu of notice and €12,840 holiday pay, up until completion of his statutory notice period in May 2019. During this period, Ryan will continue to remain available to provide support to the business as it re-focuses its existing finance model. On termination of his notice period, Ryan will receive a severance payment of €699,500 in addtion to €23,000 payment made on reaching agreement with regard to termination terms. As the agreement was reached prior to year-end, these payments have been accrued in the 2018 financial accounts. On resigning as Chief Executive Officer in October 2017, Robert Pitt received a severance payment of €1,500,000 which included a payment of €239,950 in lieu of notice.
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Executive and Non-Executive Directors’ and Company Secretary’s Interests The interests of the Directors and the Company Secretary (including their respective family interests) in the share capital of INM PLC at 31 December 2018 (together with their interests at 31 December 2017) are as follows:
No. of No. of Ordinary Shares at Ordinary Shares at 31 December 2018 31 December 2017
Continuing Directors
John Bateson* --
Michael Doorly** 176,848 176,848
Fionnuala Duggan* - -
Murdoch MacLennan* - -
Triona Mullane - -
Kieran Mulvey*** - -
Len O'Hagan 111,993 111,993
Seamus Taaffe* - -
Kate Marsh**** - -
Former Directors
Leslie Buckley* - 863,684
Terry Buckley***** - 426,142
Paul Connolly***** - 359,868
Secretary
Mary Gallagher****** 41,707 41,707
* Appointed/Resigned 1 March 2018. ** Appointed as Director on 18 October 2017 having formerly been Company Secretary. *** Appointed 29 August 2018. **** Appointed 30 January 2019. ***** Retired 31 May 2018. ****** Appointed 18 October 2017.
In addition, Ryan Preston held 79,362 (2017: 79,362) Ordinary Shares as at 31 December 2018.
All of the above interests were beneficially owned. Apart from the interests disclosed above, the Directors and the Company Secretary had no interests in the share capital of the Company or any other Group undertaking at 31 December 2018.
There were no changes in the above Directors and Secretary’s interests between 31 December 2018 and 29 March 2019.
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Remuneration outcomes for the year ended 31 December 2018 - continued
The Group’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and share options.
The Group has a policy on dealing in shares that applies to all Directors. This policy meets the requirements of the EU Market Abuse Regulation which became effective in July 2016. Under this policy, Directors are required to obtain clearance from the Group before dealing in INM shares and are prohibited from dealing in the shares during designated close periods and at any other time when they are in possession of Inside Information (as defined by the Market Abuse Regulation).
Designated Senior Executives’ Long Term Incentives As at 31 December 2018, all awards previously granted under the Group’s 2014 Long Term Incentive Plan have lapsed without vesting, as the performance conditions were not achieved.
The market price of INM shares on 31 December 2018 was €0.06 and the range during the year was €0.06 to €0.11.
As at 31 December 2018 the number of options granted under the INM Employee Share Scheme 2008 and the Long Term Incentive Plan, net of options which had then lapsed, was 0.03% of the issued share capital. These options have also lapsed since the year end.
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Governance
Composition The Remuneration Committee comprises three independent non-executive Directors. The members are Fionnuala Duggan (Chair, appointed 31 May 2018), Len O’Hagan and Seamus Taaffe (appointed 7 March 2018). Terry Buckley resigned from the Remuneration Committee on 31 May 2018. The members of the Committee have significant financial and business experience, including in the area of executive remuneration. Each member’s length of tenure is set out in the table below. Further biographical details regarding the members of the Remuneration Committee are set out on pages 42 to 43.
Length of tenure Number of years
Fionnuala Duggan (appointed 31 May, 2018) 1.0
Len O’Hagan 6.5
Seamus Taaffe (appointed 7 March, 2018) 1.0
Meetings The Committee met 4 times during the year ended 31 December 2018 as per the attendance schedule on page 46. The main agenda items included remuneration policy and the operation of the long term incentive plan, remuneration trends and market practice, the remuneration package of the Chairman and approval of this report.
The Chief Executive Officer and Group Chief People and Change Officer may be invited to attend meetings of the Committee, except when their own remuneration is being discussed. No Director is involved in consideration of his or her own remuneration. The Company Secretary acts as secretary to the Remuneration Committee.
Annual Evaluation of Performance As detailed on page 51, the Board conducts an annual evaluation of its own performance and that of its Committees, Committee Chairs and individual Directors. The conclusion from this process was that the performance of the Committee and of the Chair of the Committee was satisfactory. The Committees Terms of Reference were updated in August 2018 to reflect current best practice.
Reporting The Chair of the Remuneration Committee reports to the Board on the activities of the Committee.
The Chair of the Remuneration Committee attends the Annual General Meeting to answer questions on the report on the Committees’ activities and matters within the scope of the Committee’s responsibilities.
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Governance - continued
External Advice The Remuneration Committee seeks independent advice when necessary from external consultants. Mercer acts as independent remuneration advisors to the Committee and during the year provided advice in relation to market trends, competitive positioning and developments in remuneration policy and practice. Mercer also provide actuarial advice to the Group and are actuaries and investment advisors to a number of the Company’s approved pension schemes. Mercer is a signatory to the Remuneration Consultants Group Code of Conduct and any advice was provided in accordance with this code. In light of this, and the level and nature of the service received, the Committee remains satisfied that the advice is objective and independent.
In the year to 31 December 2018, Mercer received fees of €12,885 in respect of advice provided to the Committee.
2018 Annual General Meeting Votes on Remuneration Matters The table below shows the voting outcome at the 2018 AGM in relation to the 2017 Annual Report on Remuneration.
Total votes Total votes Total votes Total votes Vote cast for against abstentions
Advisory Vote on 2017 Remuneration Report 677.3m 673.7m 3.5m 0.1m
The Committee considered the results of the voting outcome at the 2018 AGM and is satisfied that the composition of the Committee remains appropriate.
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NOMINATION AND CORPORATE GOVERNANCE COMMITTEE REPORT
Dear Shareholder
As Chairman of INM’s Nomination and Corporate Governance Committee, I am pleased to present the report of the Committee for the year ended 31 December 2018 which has been prepared by the Committee and approved by the Board.
The responsibilities of the Committee are summarised in the table on page 89 and are set out in full in its Terms of Reference, which are available on the INM website www.inmplc.com.
The Nomination and Corporate Governance Committee is responsible for keeping Board composition under constant review, including the skills, knowledge and experience required, taking account of the Group’s businesses, strategic direction and diversity objectives. Succession planning has been a key area of focus for the Committee this year, culminating with the appointment of four new non-executive Directors to the Board as approved by shareholders at the EGM on 1 March 2018, the appointment of Mr. Kieran Mulvey as a nominee of the major shareholder, Mr. Denis O’Brien in August 2018 The Nomination and Corporate Governance and the appointment of Ms. Kate Marsh as independent Committee comprises Len O’Hagan (Chair) non-executive Director in January 2019. and two non-executive Directors, Fionnuala Duggan and Triona Mullane. The Committee is also responsible for reviewing corporate governance developments. In July 2018, the Further biographical details regarding the Financial Reporting Council (‘FRC’) issued an updated members of the Nomination and Corporate version of the UK Corporate Governance Code which Governance Committee are set out on applies to accounting periods beginning on or after 1 January 2019 - in INM’s case to the financial year ending pages 42 and 43. 31 December 2019. The Nomination and Corporate Governance Committee and the Board have reviewed the new requirements in the 2018 Code and are satisfied that INM will be fully compliant with these requirements in the current year.
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Legal Matters Separately the Data Protection Commissioner (“DPC”) is currently investigating suspected breaches of data On 6 September 2018, the High Court made an order security within the Group. The Group is co-operating appointing Mr Sean Gillane SC and Mr Richard Fleck CBE with the DPC in relation to its inquiries. as inspectors under section 748 of the Companies Act, 2014 to inquire into and report on certain issues relating The above and related matters relating to the to the conduct of the affairs of the Company. inspectorate process and the DPC could result in the Company incurring material costs. These issues include the accessing by third parties of the Company's data, the proposed acquisition in 2016 by the The Company takes its corporate governance Company of Newstalk Radio and other matters that responsibilities very seriously, and seeks to comply at all were the subject of disclosures made by Mr Robert Pitt, times with all relevant laws and regulations. the Group's former CEO, to the Company. The following report provides more details on the roles The inspectors will also report on whether Mr Leslie and responsibilities of the Nomination and Corporate Buckley, the former Chairman of the Group, disclosed Governance Committee and our highlights and information to third parties in breach of market abuse or achievements during 2018. other applicable law and whether there have been any breaches of law arising from any of these matters and On behalf of the Nomination and Corporate Governance the Company's response to the disclosures made to it. Committee
The Group has been co-operating with the inspectors and assisting them in the efficient execution of their Len O’Hagan inquiry. The inspectors are due to report back to the High Chairman, Nomination and Court in April 2019 with an update on how their inquiry Corporate Governance Committee is progressing. 28 March 2019
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Role and Responsibilities
Board Composition and Renewal • Regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes. • Before making a nomination, to evaluate the balance of skills, knowledge, independence and experience on the Board, and, in light of this evaluation, to prepare a description of the role and capabilities required for a particular appointment. • Keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace. • Give consideration to succession planning for Directors, in particular the Chairman and the Chief Executive, and senior Group management. • Make recommendations to the Board as regards the re-appointment of non-executive Directors at the conclusion of their specified term of office and the re-election of all non-executive Directors by shareholders at the Annual General Meeting.
Corporate Governance • Monitor the Company’s compliance with corporate governance best practice and with applicable legal, regulatory and listing requirements (including but not limited to the Companies Acts, Euronext Ireland and the UK Listing Authority’s Listing Rules and the UK Corporate Governance Code including the Irish Corporate Governance Annex) and recommend to the Board such changes or additional action as the Committee deems necessary. • Advise the Board of significant developments in the law and practice of corporate governance. • Oversee the annual evaluation of Board, Committee and individual Director performances.
Composition The Nomination and Corporate Governance Committee comprises Len O’Hagan (Chair) and two non-executive Directors, Fionnuala Duggan and Triona Mullane. Terry Buckley and Paul Connolly resigned from the Committee on 31 May 2018. Each member’s length of tenure at 31 December 2018 is set out in the table below. Further biographical details regarding the members of the Nomination and Corporate Governance Committee are set out on pages 42 and 43.
The Company Secretary is the secretary to the Nomination and Corporate Governance Committee.
Length of tenure on Nomination and Corporate Governance Committee Tenure Years
Len O'Hagan 6.5
Triona Mullane 6.5
Fionnuala Duggan (appointed 7 March, 2018) 1.0
Meetings The Nomination and Corporate Governance Committee met six times during the year ended 31 December 2018 as per the attendance schedule on page 46.
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Activities
Board Composition and Renewal The Nomination and Corporate Governance Committee considered the composition of the Board to ensure the Board had the appropriate combination of skills, knowledge and experience, taking account of the development of the Group and of the length of tenure of the existing non-executive Directors.
The length of tenure of the Directors on the Board is set out below. The length of tenure of members of other Board Committees is dealt with in the individual Committee reports.
Length of tenure on Board Tenure Years
Continuing Directors
John Bateson* 1.0
Michael Doorly 1.5
Fionnuala Duggan* 1.0
Murdoch MacLennan* 1.0
Kate Marsh*** -
Triona Mullane 6.5
Kieran Mulvey** 0.5
Len O’Hagan 6.5
Seamus Taaffe* 1.0
* Appointed to the Board on 1 March 2018. ** Appointed to the Board on 29 August 2018. *** Appointed to the Board on 30 January 2019.
All other Directors were last re-elected at the Group’s AGM in 2018.
Appointment of non-executive Directors On 1 March 2018, Mr. John Bateson, Ms. Fionnuala Duggan, Mr. Murdoch MacLennan and Mr. Seamus Taaffe were appointed to the Board as non-executive Directors. Mr. Kieran Mulvey was appointed to the Board as a non-executive Director on 29 August 2018 and Ms. Kate Marsh was appointed to the Board as an independent non-executive Director on 30 January 2019. The Nomination and Corporate Governance Committee is satisfied that the Board has the appropriate combination of skills, knowledge and experience required, and will continue to keep the structure, size and composition of the Board under review.
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Diversity Report The Board recognises the importance of diversity, including gender, in the boardroom and seeks to recruit directors with varied backgrounds, skills and experience. In January 2018 the Board approved and adopted the INM Board Diversity Policy which formally sets out INM’s commitment to diversity at Board level.
In terms of the gender mix of our Board members, INM are pleased to report that we now have 33% female representation, with three of our nine Directors being female. This compares favourably with the average across Ireland where only 19% of seats on boards of Irish listed PLCs are currently held by female directors (based on a report issued by Mason, Hayes & Curran in October 2018).
Whilst recognising the importance of diversity in board composition, it is the Board’s policy that board appointments be made on merit, judged against objective criteria, taking account of the skills, experience and expertise of candidates rather than by the setting of specific targets. Our Board composition and size is kept under review in order that we retain an appropriate balance of skills, experience, diversity and knowledge of the Group on the part of our non-executive Directors.
Succession Planning and Management Talent Development The Committee has particular regard to the leadership needs of the organisation and gives full consideration to succession planning for Directors and senior management, in particular the Chairman and Chief Executive, taking into account Group strategy, as well as the challenges and opportunities facing the Group and the skills and expertise required.
As noted above, succession planning has been a key area of focus for the Committee over the last two years. The Committee oversaw the Chief Executive transition process from Mr. Robert Pitt to Mr. Michael Doorly in October 2017, the appointment of four new non-executive Directors to the Board as approved by shareholders at the EGM on 1 March 2018, the subsequent appointment of Mr. Murdoch MacLennan as Chairman on 7 March 2018 and the appointment of Mr. Kieran Mulvey as non-executive Director in August 2018. In addition Ms. Kate Marsh was appointed to the Board as an independent non-executive Director on 30 January 2019.
Corporate Governance The Committee advises the Board on significant developments in the law and practice of corporate governance and monitors the Company’s compliance with corporate governance best practice, with particular reference to the UK Corporate Governance Code. The Committee recommends any necessary action required to be adopted and implemented by the Board in respect of the Code.
The Nomination and Corporate Governance Committee reviewed and approved the Corporate Governance Statement in the Annual Report and other material being made public in respect of the Company’s corporate governance.
The terms and conditions of appointment of non-executive Directors are set out in their letters of appointment.
The letters of appointment are available for inspection at the Company’s registered office during normal office hours and at the Annual General Meeting of the Company.
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Governance
Annual Evaluation of Performance The Board conducts an annual evaluation of its own performance and that of its Committees, as outlined on page 51. In 2018, the Board evaluation process was externally facilitated by Deloitte in accordance with the Code, having been internally facilitated in the previous two years 2017 and 2016.
The conclusion from this process was that the performance of the Board Committees including the Nomination and Corporate Governance Committee and of the Chairman of the Committee was satisfactory. The Committee’s Terms of Reference were updated during the year to reflect current best practice.
Reporting The Chairman of the Nomination and Corporate Governance Committee reports to the Board on the activities of the Committee.
The Chairman of the Nomination and Corporate Governance Committee attends the Annual General Meeting to answer questions on the report on the Committees’ activities and matters within the scope of the Committee’s responsibilities.
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REPORT OF THE DIRECTORS
The Directors of Independent News & Media PLC (‘INM’) present their report and the audited financial statements for the year ended 31 December 2018.
Principal Activities INM is a market-leading media Group in the Republic of Ireland and Northern Ireland, with a strong newspaper and digital presence.
INM is the largest wholesale newspaper distributor on the island of Ireland. It manages gross assets of €192.3m and employs approximately 800 people.
The Company is headquartered in Dublin, Ireland and its shares are listed on Euronext Dublin and the London Stock Exchange.
Results and Review of Activities Revenue for the year amounted to €191.0m (2017: €195.0m). The profit for the year attributable to equity holders of the Company amounted to €9.1m (2017: €12.5m). Basic earnings per share (pre-exceptionals) amounted to 1.6 cent (2017: 1.8 cent). Basic EPS (including exceptionals) was 0.7 cent (2017: 0.9 cent). Further details of the results for the year are set out in the Group Income Statement on page 112.
The Chairman’s Message on page 2, the Chief Executive’s Review on page 6, the Operating Review on page 12 and the Financial Review on page 16 contain a review of the development and performance of the Group’s business during the year, of the state of affairs of the business at 31 December 2018, of recent events and of likely future developments. Information in respect of events since the year end as required by the Companies Act 2014 is included in these sections and in note 36 on page 215. Information in respect of research & development expenditure as required by the Companies Act 2014 is included in note 5 on page 149.
Dividends No dividends were paid during the year (2017: €nil).
Share Capital and Treasury Shares Independent News & Media PLC’s authorised share capital is 7,000,000,000 ordinary shares of €0.01 each, of which 1,392,144,452 shares were in issue at 31 December 2018. Of the ordinary issued shares, the Company holds 5,597,077 as treasury shares representing 0.4% of the issued share capital and a nominal value of €55,970. All issued shares are of the same class and carry equal voting rights and ranking for dividends. Treasury shares have no voting rights and no entitlement to dividends, while held in treasury.
At each Annual General Meeting the Directors seek authority to exercise all the powers of the Company to allot shares up to an aggregate nominal value of €4.62m, representing approximately one third of the issued share capital of the Company.
The Directors also seek authority to allot shares for cash, other than strictly pro-rata to existing shareholdings. This authority is limited to the allotment of shares in specific circumstances relating to rights issues and other issues up to approximately 5% of the issued share capital of the Company.
Details of the share capital of the Company are set out in note 23 on page 174 and are deemed to form part of this Report.
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Principal Risks and Uncertainties Under Irish company law, INM is required to give a description of the principal risks and uncertainties facing the Group. These are addressed in the Risk Report on pages 22 to 29. Additional information in respect of the Group’s financial risk management policies and objectives and exposure to financial risks is included in note 29 on pages 181 to 195.
The Group has an established Audit and Risk Committee, whose report is set out on pages 53 to 64.
Directors and Secretary and their Interests The names of the Directors and a short biographical note on each Director appear on pages 42 and 43. The interests of the Directors and Company Secretary in the share capital of INM PLC as at 31 December 2018 are set out on page 83 of the Remuneration Committee Report.
In accordance with the 2016 UK Corporate Governance Code, all non-executive Directors submit to re-election at each Annual General Meeting. The Board, however, does not consider that the policy of annual re-election is appropriate for executive Directors and, accordingly, executive Directors will be subject to re-election once every three years in accordance with the Company’s Articles of Association.
Corporate Governance The Corporate Governance Statement on page 44 sets out the Company’s appliance of the principles and compliance with the provisions of the UK Corporate Governance Code 2016, the provisions of the Irish Corporate Governance Annex, the FRC’s Guidance on Audit Committees (2012) and the FRC’s “Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (2014)”, the Group’s system of risk management and internal control and the adoption of the going concern basis in preparing the financial statements. The Corporate Governance Statement shall be treated as forming part of this Report.
INM has complied with the relevant provisions of the 2016 UK Corporate Governance Code and the Irish Corporate Governance Annex save for the exceptions highlighted and explained in the Corporate Governance Statement on pages 44 to 52.
The Corporate Governance Statement, which contains the information required by Section 1373(2) of the Companies Act 2014 and the risk management disclosures are deemed to be incorporated in the Directors’ Report and form part of the corporate governance statement required by section 1373 of the Companies Act.
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Non-Financial Statement & Non-Financial Reporting Obligations Directive For the purpose of Statutory Instrument S.I. 360/2017 European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017, the Company must report on a series of topics as listed below. Information, including where relevant non-financial Key Performance Indicators, is provided on these matters across this report. Page references to the most relevant information on these topics are included in the table below which is intended to help stakeholders understand the Company’s position on key non-financial matters.
Reporting Relevant Policies & Procedures Location of Additional Information within the Requirement Annual Report
Environmental Health, Safety & Environmental Policy Corporate Social Environment - page 34 Matters Statement - Citywest Responsibility Statement
Health, Safety & Environmental Policy Statement - Newry
Health, Safety & Environmental Policy Statement - Newspread
Social and Health & Safety Policy Statement - Operating Review Our People - page 15 Employee Matters Talbot Street
Health, Safety & Environmental Policy Statements as listed above
Maternity & Paternity Policy
Grievance Policy
Code of Practice for Investigation and Disciplinary Procedures
Dignity at Work Policy Corporate Social Our People - page 30 Responsibility Statement Sick Pay Policy Charities & Local Community - page 32 Board Diversity Policy
Respect for INM Plc Code of Conduct Corporate Social Respect for Human Rights - Human Rights Responsibility Statement page 33 Dignity at Work Policy
Privacy and Personal Data Protection Policy
Data Subjects Rights Policy
Data Breach Policy Risk Report Data Protection Legislation - Data Protection Impact Assessment Policy page 29 CCTV Policy
Bribery and Anti-Fraud Policy Corporate Social Anti-Bribery & Corruption - Corruption Responsibility Statement page 33 Bribery and Corruption Policy Corporate Governance Compliance - page 50 Investigations Policy Statement Whistleblowing Whistleblowing Policy Arrangements - page 51
Audit & Risk Committee Whistleblowing Report Arrangements - page 64
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Non-Financial Statement & Non-Financial Reporting Obligations Directive - continued
The policies mentioned above form part of the Group’s Policy Framework which is founded on key risk management principles. All policies are available to employees on the Group’s internal website and from the Human Resources Department, and all employees are informed on commencement of employment of the requirement to adhere to the Company’s policies as issued or amended from time to time. Each policy has a dedicated owner, and due diligence processes fall under the remit of our Audit, Risk & Compliance function who monitor and report on instances of non-compliance and provide recommendations for remediation.
A description of the Company’s Business Model is contained on page 21 of the Strategy Report. The Group’s principal risks, including risks related to the matters referred to above and how the Company manages those risks, are outlined in the Risk Report on pages 22 to 29 of the Strategy Report.
All of the above information is deemed to be incorporated and shall be treated as forming part of this Directors’ Report.
General Meetings The Company’s Annual General Meeting (“AGM”) affords shareholders the opportunity to question the Chairman, the Board and the Chairs of the Audit and Risk, Remuneration and Nomination and Corporate Governance Committees. The Chief Executive presents at the AGM on the Group’s business and its performance during the prior year and answers questions from shareholders.
Notice of the AGM, the Form of Proxy and the Annual Report are sent to shareholders at least 20 working days before the AGM. At the AGM, resolutions are voted on by a show of hands of those shareholders attending, in person or by proxy. After each resolution has been dealt with, details are given of the level of proxy votes cast on each resolution and the numbers for, against and withheld.
If validly requested, resolutions can be voted by way of a poll. In a poll, the votes of shareholders present and voting at the AGM are added to the proxy votes received in advance of the AGM and the total number of votes for, against and withheld for each resolution are announced.
All other general meetings are called Extraordinary General Meetings (“EGM”). An EGM called for the passing of a special resolution must be called by at least 21 clear days’ notice. Provided shareholders have passed a special resolution to that effect at the immediately preceding AGM and the Company continues to allow shareholders to vote by electronic means, an EGM to consider an ordinary resolution may be called at 14 clear days’ notice.
A quorum for an AGM or an EGM of the Company is constituted by three shareholders, present in person, by proxy or by a duly authorised representative in the case of a corporate member. The passing of resolutions at a general meeting, other than special resolutions, requires a simple majority. To be passed, a special resolution requires a majority of at least 75% of the votes cast.
Shareholders have the right to attend, speak, ask questions and vote at general meetings. In accordance with Irish company law, the Company specifies record dates for general meetings, by which date shareholders must be registered in the Register of Members of the Company to be entitled to attend. Record dates are specified in the notes to the Notice convening the meeting.
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Shareholders may exercise their right to vote by appointing a proxy/proxies, by electronic means or in writing, to vote on some or all of their shares. The requirements for the receipt of valid proxy forms are set out in the notes to the Notice convening the meeting.
A shareholder or a group of shareholders, holding at least 5% of the issued share capital of the Company, has the right to requisition a general meeting. A shareholder or a group of shareholders, holding at least 3% of the issued share capital, has (subject to certain statutory exceptions) the right to put an item on the agenda of an AGM or to table a draft resolution for an item on the agenda of a general meeting.
The 2019 AGM will be held at 11.00 a.m. on 30 April 2019 in the Westbury Hotel, Grafton Street, Dublin 2, Ireland.
Memorandum and Articles of Association The Company’s Memorandum and Articles of Association set out the objects and powers of the Company.
The Articles of Association detail the rights attaching to shares, the method by which the Company’s shares can be issued, purchased or re-issued, and the provisions which apply to the holding of and voting at general meetings as well as the rules relating to the Directors, including their appointment, retirement, re-election, duties and powers.
The Company’s Articles of Association may be amended by a special resolution passed by the shareholders at an AGM or EGM of the Company.
A copy of the Memorandum and Articles of Association can be obtained from the Company Secretary.
Transparency Rules As required by the Transparency Rules published by the Central Bank of Ireland under Section 22 of the Investment Funds, Companies and Miscellaneous Provisions Act 2006, the following sections of the Annual Report shall be treated as forming part of this Report: the Key Performance Indicators on page i, the Chairman’s Message on page 2, the Chief Executive’s Review on page 6, the Operating Review on page 12, the Financial Review on page 16, the Principal Risks and Uncertainties on pages 26 to 29, the earnings per ordinary share in note 11 on page 158 and the derivative financial instruments in note 16 on page 168.
The Company has been notified of the following shareholdings of 3% or more in the issued share capital (excluding treasury shares) of the Company as at 31 December 2018:
% of Issued Share Capital (excluding treasury shares)
Denis O’Brien 29.88%
IIU Nominees Limited 15.00%
Farringdon 6.80%
Commerzbank AG 3.24%
Pageant 3.03%
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Directors’ Compliance Statement The Directors, in accordance with Section 225(2)(a) of the Companies Act 2014 (‘the Act’), acknowledge that they are responsible for securing the Company’s compliance with its “relevant obligations”. “Relevant obligations”, in the context of the Company, are the Company’s obligations under:
(a) the Act, where a breach of the obligations would be a category 1 or category 2 offence; (b) the Act, where a breach of the obligations would be a serious Market Abuse or Prospectus offence; and (c) tax law.
Pursuant to Section 225(2)(b) of the Act, the Directors confirm that:
(i) a compliance policy statement has been drawn up by the Company in accordance with Section 225(3)(a) of the Act setting out the Company’s policies (that, in the Directors’ opinion, are appropriate to the Company) respecting compliance by the Company with its relevant obligations; (ii) appropriate arrangements and structures that, in their opinion, are designed to secure material compliance with the Company’s relevant obligations, have been put in place; and (iii) a review has been conducted, during the financial year, of the arrangements and structures referred to in paragraph (ii).
Political Contributions There were no political contributions which require disclosure under the Electoral Act, 1997.
Accounting Records The Directors are responsible for ensuring that adequate accounting records, as required by Sections 281 to 285 of the Companies Act 2014, are kept by the Company. The Directors believe that they have complied with this requirement by providing adequate resources to maintain adequate accounting records throughout the Group including the appointment of personnel with appropriate qualifications, experience and expertise. The accounting records of the Company are maintained at the Company’s registered office, Independent House, 27-32 Talbot Street, Dublin 1.
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Relevant Audit Information The Directors believe that they have taken all steps necessary to make themselves aware of any relevant audit information and have established that the Group’s statutory auditors are aware of that information. In so far as they are aware, there is no relevant audit information of which the Group’s statutory auditors are unaware.
Auditors In accordance with section 383 (2) of the Companies Act 2014, KPMG, Chartered Accountants, will continue in office.
On behalf of the Board:
Murdoch MacLennan, Michael Doorly Directors 28 March 2019
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FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities 101 Report of the Independent Auditors 103 Financial Statements 112
100 Report And Accounts 2018 FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law, the directors are required to prepare the Group financial statements in accordance with IFRS as adopted by the European Union and applicable law including Article 4 of the IAS Regulation. The directors have elected to prepare the Parent Company financial statements in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of Companies Act 2014.
Under company law the directors must not approve the Group and Parent Company financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Group and Parent Company and of the Group’s profit or loss for that year. In preparing each of the Group and Parent Company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or Parent Company or to cease operations, or have no realistic alternative but to do so.
The directors are also required by the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland to include a management report containing a fair review of the business and a description of the principal risks and uncertainties facing the Group.
The directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and which enable them to ensure that the financial statements of the Company comply with the provision of the Companies Act 2014. The directors are also responsible for taking all reasonable steps to ensure such records are kept by its subsidiaries which enable them to ensure that the financial statements of the Group comply with the provisions of the Companies Act 2014 including Article 4 of the IAS Regulation. They are responsible for such internal controls as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for safeguarding the assets of the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for preparing a directors report that complies with the requirements of the Companies Act 2014.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s and Company’s website www.inmplc.com. Legislation in the Republic of Ireland concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Statement of Directors’ Responsibilities in respect of the annual report and the financial statements - continued
Responsibility Statement as required by the Transparency Directive and UK Corporate Governance Code Each of the Directors, whose names and functions are listed on pages 42 to 43 of this Annual Report, confirm that, to the best of each person’s knowledge and belief:
• The Group financial statements, prepared in accordance with IFRS as adopted by the European Union and the Company financial statements, prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of Companies Act 2014, give a true and fair view of the assets, liabilities, financial position of the Group and Company at 31 December 2018 and of the profit or loss of the Group for the year then ended; • The Directors’ report contained in the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face; and • The Annual Report and financial statements, taken as a whole, provides the information necessary to assess the Group’s performance, business model and strategy and is fair, balanced and understandable and provides the information necessary for shareholders to assess the Parent Company's position and performance, business model and strategy.
On behalf of the Board Murdoch MacLennan Michael Doorly 28 March 2019
102 Report And Accounts 2018 FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INDEPENDENT NEWS & MEDIA PLC
1. Opinion
We have audited the Group and Company financial statements of Independent News & Media PLC (‘the Company’) for the year ended 31 December 2018 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Company Statements of Financial Position, the Group and Company Statements of Changes in Equity, the Group and Company Cash Flow statements and related notes, including the summary of significant accounting policies set out in note 1. The financial reporting framework that has been applied in their preparation is Irish Law and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2014.
In our opinion: • the financial statements give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2018 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2014; and • the Group and Company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section of our report. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit and Risk Committee.
We were appointed as auditor by the directors on 27 June 2013. The period of total uninterrupted engagement is the 6 years ended 31 December 2018. We have fulfilled our ethical responsibilities under, and we remained independent of the Group in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to public interest entities. No non-audit services prohibited by that standard were provided.
Independent News & Media PLC 103 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:
Ongoing investigations and related matters.
Refer to the Report from the Audit and Risk Committee in the Corporate Governance Report and notes 1 and 30 to the financial statements.
The risk On 6 September 2018 the High Court of Ireland ordered that inspectors be appointed to inquire and report on certain issues relating to the conduct of the affairs of the Company on foot of an application by the Office of the Director of Corporate Enforcement (“ODCE”). There is also an on-going investigation by the Data Protection Commission (“DPC”) into data security incidents.
Judgement is required in determining whether a provision is required to be recognised for: • Potential penalties/fines arising from the investigations; and • Future costs of the investigations, both internal and external.
At 31 December 2018, no provision has been recognised for potential penalties/fines or future costs related to the investigations.
Our response The procedures that we performed, among others, to assess whether a provision should be recognised for the ongoing investigations, included:
• Obtaining management’s assessment of whether the investigations give rise to facts and circumstances that meet the criteria for a provision to be recognised. • Corroborating management’s position with supporting documentation. • Performing inquiries of management and the Audit and Risk Committee to corroborate the position. • Evaluating and challenging the key assumptions in management’s analysis. • Involving our in house legal specialist to assist in determining whether management’s conclusions are reasonable. • Meeting with the Company’s legal advisor and obtaining written confirmation from them that management’s conclusions are reasonable. • Considering the existence of evidence that contradicts management’s conclusion from our audit procedures related to the investigations or in other areas of our audit. • Examining the design and implementation of the controls over the recognition of a provision. • Ensuring that the accounting treatment and disclosures are in accordance with accounting requirements.
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Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
2. Key audit matters: our assessment of risks of material misstatement - continued
Our response - continued
As a result of our work, we found that the accounting treatment in respect of the investigations is reasonable.
This was also a key audit matter in our audit of the Company. No other key audit matters were identified in our audit of the Company.
Carrying amount of goodwill (2018: €24.5 million; 2017: €19.7 million), intangible assets with indefinite lives (2018: €6.9 million; 2017: €6.6 million) and property, plant and equipment (2018: €33.6 million; 2017: €40.1 million).
Refer to the Report from the Audit and Risk Committee in the Corporate Governance Report and notes 1, 12 and 13 to the financial statements.
The risk The Group has significant goodwill, intangible assets with indefinite lives and property, plant and equipment. There is a risk that these and other assets might be impaired. Recoverability is based on forecasting and discounting future cash flows and significant judgement is involved in relation to the assumptions used in the impairment models, in particular the discount rates and the cash flow forecasts. The Group recognised an impairment of €7.0 million (2017: €12.7 million) in relation to intangible assets with indefinite lives and property, plant and equipment arising from impairment testing at year end.
Our response The procedures that we performed, among others, to assess the carrying amount of goodwill, intangible assets with indefinite lives and property, plant and equipment, included:
• Examining the design and implementation of the controls over impairment testing. • Assessing the Group’s impairment testing models. We considered the appropriateness of the impairment methodology and considered the appropriateness of the cash-generating units (‘CGUs’) identified, taking into account the current management structure and reporting lines in place in the Group. • Evaluating the key assumptions used by the Group, including forecasted cash flow based on budgeted EBITDA as adjusted for expenditure necessary to maintain the asset or CGU at its current standard of performance, discount rates and terminal value multiples. We compared the Group’s assumptions, where possible, to externally-derived data and challenged the reasonableness of the underlying cash flow forecasts. • Comparing the discount rates applied to the Group’s CGUs to peer data as well as involving our own internal valuations expert to assist in assessing the key components of the discount rates calculation. • Testing the mathematical accuracy of the Group’s impairment calculations. • Examining the sensitivity analyses prepared by management, taking into consideration the reasonableness and mathematical accuracy of their analysis. In addition, we performed further sensitivity testing of our own of the key assumptions and of the key drivers of the cash flow forecasts for the individual CGUs. Having identified the extent of change required in those assumptions to give rise to further impairments, we considered the likelihood of such a movement in those assumptions arising. • Assessing whether the related disclosures in the financial statements are appropriate.
Independent News & Media PLC 105 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
2. Key audit matters: our assessment of risks of material misstatement - continued
Our response - continued
As a result of our work, we found that the quantum of the impairment recognised in intangible assets and property, plant and equipment of €7.0 million was appropriate. For the CGUs where the group determined that no impairment was required, we found that these judgements were supported by reasonable assumptions. We found the disclosures to be adequate.
Defined benefit pension scheme obligations €17.3 million (2017: €37.7 million).
Refer to the Report from the Audit and Risk Committee in the Corporate Governance Report and notes 1 and 32 to the financial statements.
The risk • The Group has defined pension scheme obligations in both Northern Ireland and in the Republic of Ireland. • Significant estimates are made in determining the Group’s defined benefit pension obligations and small changes in assumptions and estimates used could have a significant effect on this amount. • There is a risk that the estimates applied are not appropriate in the context of the pension scheme arrangements.
Our response The procedures that we performed, among others, to assess the defined benefit pension scheme obligations, included:
• Examining the design and implementation of the controls over the integrity of the data used to calculate the pension scheme liability. • Obtaining independent confirmation of the plan assets. • Obtaining and inspecting the actuarial report. • Evaluating the competence and independence of the external actuaries who are engaged by the Group to estimate the pension scheme obligations for the purpose of the financial statements. • Involving our in-house actuary to consider and critically assess the methodologies applied including benchmarking the key assumptions applied in determining the Group’s defined benefit obligations, being the discount rate, inflation rate and mortality/life expectancy. This included a comparison of these key assumptions against externally derived data. • Ensuring the accounting treatment and disclosures are in accordance with accounting requirements.
As a result of our work, we found that the assumptions used to calculate the defined benefit obligation were appropriate.
106 Report And Accounts 2018 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
3. Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at €1.2 million (2017: €1.4 million). This has been calculated using a benchmark of Group profit before taxation, from continuing operations normalised for one-off items including certain redundancy costs, impairments and legal costs (of which it represents 5 per cent), which we have determined, in our professional judgement, to be one of the principal financial benchmarks relevant to members of the Company in assessing financial performance.
Materiality for the Parent Company financial statements as a whole was set at €1.2 million (2017: €1.4 million), determined with reference to a benchmark of total investments of which it represents 0.3% (2017: 0.4%).
We report to the Audit and Risk Committee all corrected and uncorrected misstatements we identified through our audit with a value in excess of €0.1 million (2017: €0.1 million), in addition to other audit misstatements below that threshold that we believe warrant reporting on qualitative grounds.
The Group is headquartered, managed and controlled from Ireland, and all of the audit work covering the Group’s revenues, profit for the year and its assets and liabilities is undertaken and performed by the audit team based in Dublin.
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to in relation to the directors’ statement in note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements; or • if the same statement under the Listing Rules set out on page 52 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
Independent News & Media PLC 107 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
5. Other information
The directors are responsible for the other information presented in the Annual Report together with the financial statements. The other information comprises the information included in the Report of the Directors, the Strategic Report, the Audit and Risk Committee Report, the Remuneration Committee Report, and the Nomination and Corporate Governance Committee Report. The financial statements and our auditor’s report thereon do not comprise part of the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Based solely on our work on the other information we report that, in those parts of the Report of the Directors’ specified for our review: • we have not identified material misstatements in the Report of the Directors’; • in our opinion, the information given in the Report of the Directors is consistent with the financial statements; and • in our opinion, the Report of the Directors has been prepared in accordance with the Companies Act 2014.
Disclosures of principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
• the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; • the directors’ confirmation within the viability statement on page 52 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; and • the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Other corporate governance disclosures We are required to address the following items and report to you in the following circumstances:
• Fair, balanced and understandable: if we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; • Report of the Audit and Risk Committee: if the section of the annual report describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee; • Statement of compliance with UK Corporate Governance Code: if the directors’ statement does not properly disclose a departure from provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
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Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
5. Other information - continued
Other corporate governance disclosures - continued
In addition as required by the Companies Act 2014, we report, in relation to information given in the Corporate Governance Statement on pages 44 to 52, that:
• based on the work undertaken for our audit, in our opinion, the description of the main features of internal control and risk management systems in relation to the financial reporting process, and information relating to voting rights and other matters required by the European Communities (Take Over Bids (Directive 2004/25/EC)) Regulations 2006 and specified for our consideration is consistent with the financial statements and has been prepared in accordance with the Act; • based on our knowledge and understanding of the Company and its environment obtained in the course of our audit, we have not identified any material misstatements in that information; and • the Corporate Governance Statement contains the information required by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017.
We also report that, based on work undertaken for our audit, other information required by the Act is contained in the Corporate Governance Statement.
6. Our opinions on other matters prescribed in the Companies Act 2014 are unmodified
We have obtained all the information and explanations which we consider necessary for the purpose of our audit.
In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.
7. We have nothing to report on other matters on which we are required to report by exception
The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made.
The Companies Act 2014 also requires us to report to you if, in our opinion, the Company has not provided the information required by section 5(2) to (7) of the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 for the year ended 31 December 2018 as required by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) (amendment) Regulation 2018.
The Listing Rules of the Euronext Dublin require us to review: • the Directors’ statement, set out on page 52, in relation to going concern and longer-term viability; • the part of the Corporate Governance Statement on page 52 relating to the Company’s compliance with the provisions of the UK Corporate Governance Code and the Irish Corporate Governance Annex specified for our review; and • certain elements of disclosures in the report to shareholders by the Board of Directors’ Remuneration Committee.
Independent News & Media PLC 109 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
8. Respective responsibilities and restrictions on use
Directors’ responsibilities As explained more fully in their statement set out on page 101, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. The risk of not detecting a material misstatement resulting from fraud or other irregularities is higher than for one resulting from error, as they may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control and may involve any area of law and regulation not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on IAASA’s website at https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f- a98202dc9c3a/Description_of_auditors_responsiblities_for_audit.pdf
110 Report And Accounts 2018 FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Independent News & Media PLC - continued
9. The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for our report, or for the opinions we have formed.
Eamon Dillion for and on behalf of KPMG Chartered Accountants, Statutory Audit Firm 1 Stokes Place St Stephen’s Green Dublin 2 Ireland
28 March 2019
Independent News & Media PLC 111 FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
Year Ended 31 December 2018 Year Ended 31 December 2017 Before Before Exceptional Exceptional Exceptional Exceptional Items Items* Total Items Items* Total (restated) (restated) (restated) Notes €m €m €m €m €m €m
Revenue** 4 191.0 - 191.0 195.0 - 195.0 Operating costs** (167.4) (14.6) (182.0) (167.5) (12.0) (179.5)
Operating profit/(loss) 2 23.6 (14.6) 9.0 27.5 (12.0) 15.5 Share of results of associates and joint ventures 14 0.4 - 0.4 0.9 (0.1) 0.8
24.0 (14.6) 9.4 28.4 (12.1) 16.3
Finance income/(expense): - Finance income 3 0.1 0.8 0.9 0.1 - 0.1 - Finance expense 3 ------
Profit/(loss) before taxation 24.1 (13.8) 10.3 28.5 (12.1) 16.4 Taxation (charge)/credit 7 (1.8) 0.5 (1.3) (3.9) - (3.9)
Profit/(loss) for the year 22.3 (13.3) 9.0 24.6 (12.1) 12.5
Profit attributable to: Non-controlling interests (0.1) - (0.1) - - - Equity holders of the Company 22.4 (13.3) 9.1 24.6 (12.1) 12.5
22.3 (13.3) 9.0 24.6 (12.1) 12.5
Earnings per ordinary share (cent)
Basic and diluted 11 0.7c 0.9c
On behalf of the Board Murdoch MacLennan Michael Doorly
* Note 6. ** See note 1 for further details on the transition to IFRS 15 ‘Revenue from Contracts with Customers’ which became effective on 1 January 2018.
112 Report And Accounts 2018 FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year Ended Year Ended 31 December 2018 31 December 2017 €m €m
Profit for the year 9.0 12.5
Other comprehensive income/(expense)
Items that will never be reclassified to profit or loss: Retirement benefit obligations: - Remeasurement gains (note 32) 5.1 2.4 - Related movement on deferred tax asset (note 21) (0.2) (0.2)
4.9 2.2
Items that are or may be reclassified subsequently to profit or loss: Currency translation adjustments - subsidiaries 0.1 (0.5) Losses relating to cash flow hedges* (0.1) -
- (0.5)
Other comprehensive income for the year, net of tax 4.9 1.7
Total comprehensive income for the year 13.9 14.2
Total comprehensive income attributable to: Non-controlling interests (0.1) - Equity holders of the Company 14.0 14.2
13.9 14.2
On behalf of the Board Murdoch MacLennan Michael Doorly
* Relates to a charge of €0.1m (2017: €0.1m) due to cashflow hedges maturing during the year offset by a credit of €nil (2017: €0.1m) relating to cashflow hedges outstanding at the end of the year.
Independent News & Media PLC 113 FINANCIAL STATEMENTS
GROUP STATEMENT OF FINANCIAL POSITION
31 December 2018 31 December 2017 Notes €m €m
Assets Non-Current Assets Intangible assets 12 37.7 33.6 Property, plant and equipment 13 33.6 40.1 Investments in associates and joint ventures 14 1.3 1.7 Deferred tax assets 21 5.9 7.7 Other investments 15 0.2 0.2
78.7 83.3
Current Assets Inventories 17 5.0 2.8 Trade and other receivables 18 24.8 24.7 Derivative financial instruments 16 - 0.1 Corporation tax recoverable 2.1 2.4 Cash and cash equivalents 26 81.7 91.5
113.6 121.5
Total Assets 192.3 204.8
Liabilities Current Liabilities Trade and other payables 19 38.4 39.1 Provisions 20 11.1 9.5
49.5 48.6
Non-Current Liabilities Retirement benefit obligations 32 50.6 77.5 Deferred taxation liabilities 21 1.4 1.4 Other payables 0.7 0.7 Provisions 20 0.4 0.5
53.1 80.1
Total Liabilities 102.6 128.7
Net Assets 89.7 76.1
Equity Equity Attributable to Company’s Equity Holders Share capital 23 13.9 13.9 Share premium 767.0 767.0 Other reserves 316.2 316.6 Retained losses (1,007.2) (1,021.4)
89.9 76.1
Non-controlling interests (0.2) -
Total Equity 89.7 76.1
On behalf of the Board Murdoch MacLennan Michael Doorly
114 Report And Accounts 2018 FINANCIAL STATEMENTS
GROUP STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the Company Share Cash Based Other Currency Flow Other Equity Non- Share Share Payment Undenominated Translation Hedge Equity Retained Interest Controlling Capital Premium Reserve Capital Reserve Reserve Reserve* Losses of Parent Interests** Total €m €m €m €m €m €m €m €m €m €m €m Group At 1 January 2017 13.9 767.0 1.0 413.2 (96.3) 0.1 - (1,036.6) 62.3 - 62.3 Total Comprehensive (Expense)/Income for the year Profit for the year ------12.5 12.5 - 12.5 Other comprehensive (expense)/income*** - - - - (0.5) - - 2.2 1.7 - 1.7 Total Comprehensive (Expense)/Income for the year - - - - (0.5) - - 14.7 14.2 - 14.2 Attributable to owners of the Company, recognised directly in equity Equity settled share based payments-charge ------Equity settled share based payments-transfer - - (0.5) - - - - 0.5 - - - Put option on Subsidiary ------(0.4) - (0.4) - (0.4) Total attributable to owners of the Company - - (0.5) - - - (0.4) 0.5 (0.4) - (0.4) At 1 January 2018 13.9 767.0 0.5 413.2 (96.8) 0.1 (0.4) (1,021.4) 76.1 - 76.1
Total Comprehensive Income/(Expense) for the year Profit/(loss) for the year ------9.1 9.1 (0.1) 9.0 Other comprehensive income/(expense)*** - - - - 0.1 (0.1) - 4.9 4.9 - 4.9 Total Comprehensive Income/(expense) for the year - - - - 0.1 (0.1) - 14.0 14.0 (0.1) 13.9 Attributable to owners of the Company, recognised directly in equity Equity settled share based payments-credit - - (0.3) - - - - - (0.3) - (0.3) Equity settled share based payments-transfer - - (0.2) - - - - 0.2 - - - Put option on Subsidiary ------0.1 - 0.1 - 0.1 Transactions with non-controlling interests ------(0.1) (0.1) Total attributable to owners of the Company - - (0.5) - - - 0.1 0.2 (0.2) (0.1) (0.3) At 31 December 2018 13.9 767.0 - 413.2 (96.7) - (0.3) (1,007.2) 89.9 (0.2) 89.7
* Other equity reserve at 31 December 2018 related to a put option over the non-controlling interest on a 51% owned subsidiary (see note 25 for further details). ** Loss for the year in 2018 for non-controlling interests of €0.1m (2017: €nil) relates to a loss of €0.1m attributable to the non-controlling interest in a 70% owned subsidiary. *** Details can be found in the Group Statement of Comprehensive Income.
Independent News & Media PLC 115 FINANCIAL STATEMENTS
GROUP CASH FLOW STATEMENT
Year Ended Year Ended Year Ended Year Ended 31 December 31 December 31 December 31 December 2018 2018 2017 2017 €m €m €m €m
Profit for the year 9.0 12.5 Exceptional items 13.3 12.1
Profit for the year before exceptional items 22.3 24.6 Share of results of associates and joint ventures (0.4) (0.9) Finance income (0.1) (0.1) Tax charge 1.8 3.9
Operating profit before exceptional items 23.6 27.5 Depreciation/amortisation 6.7 6.3
Adjusted Earnings Before Interest, Tax, Depreciation, Amortisation and Exceptional Items 30.3 33.8 Share based payment credit (0.3) - Movement in provisions/working capital (4.0) (5.0) Retirement benefit obligations deficit repair/special contribution payments* (21.9) (14.1) Defined benefit retirement benefit obligations charge recognised in the Group Income Statement 0.5 1.1
Cash generated from operations (before cash exceptional items) 4.6 15.8 Exceptional expenditure (note 6) (5.2) (3.9)
Cash (used in)/generated from operations (0.6) 11.9 Income tax received/(paid) 0.3 (2.0)
Cash (used in)/generated by operating activities (0.3) 9.9
Cash flows from investing activities Dividends received from joint ventures 0.5 0.6 Purchases of property, plant and equipment (1.8) (1.7) Purchases of intangible assets (2.7) (1.4) Purchases of/advances to associates and joint ventures (0.1) - Interest received 0.1 0.1 Acquisition of subsidiary, net of cash acquired (see note 25) (5.3) -
Net cash used in investing activities (9.3) (2.4)
116 Report And Accounts 2018 FINANCIAL STATEMENTS
GROUP CASH FLOW STATEMENT - continued
Year Ended Year Ended Year Ended Year Ended 31 December 31 December 31 December 31 December 2018 2018 2017 2017 €m €m €m €m
Cash flows from financing activities Interest paid - - Transactions with non-controlling interests (0.1) - Net cash used in financing activities (0.1) -
(Decrease)/increase in cash and cash equivalents (9.7) 7.5 Foreign exchange losses (0.1) (0.8)
Net (decrease)/increase in cash and cash equivalents (9.8) 6.7 Balance at the beginning of the year 91.5 84.8
Cash and cash equivalents at end of the year 81.7 91.5
* Comprises €15.3m of deficit repair payments in respect of defined benefit pension schemes and €6.6m of special contributions in respect of defined contribution pension schemes.
Independent News & Media PLC 117 FINANCIAL STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
31 December 2018 31 December 2017 Notes €m €m
Assets Non-Current Assets Investments in subsidiary undertakings 10 395.4 383.7
Current Assets Trade and other receivables 18 209.1 198.3 Cash and cash equivalents 26 70.5 72.9
279.6 271.2
Total Assets 675.0 654.9
Liabilities Current Liabilities Trade and other payables 19 601.6 589.6
Total Liabilities 601.6 589.6
Net Assets 73.4 65.3
Equity Capital and Reserves attributable to Company’s Equity Holders Share Capital 13.9 13.9 Share Premium 767.0 767.0 Other Reserves 443.8 444.3 Retained Losses (1,151.3) (1,159.9)
Total Equity 73.4 65.3
On behalf of the Board Murdoch MacLennan Michael Doorly
118 Report And Accounts 2018 FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
Share Based Other Non- Share Share Payment Undenominated Distributable Retained Capital Premium Reserve Capital Reserve Losses Total €m €m €m €m €m €m €m
At 1 January 2017 13.9 767.0 1.0 413.2 30.6 (1,116.0) 109.7 Total comprehensive income Loss for the year - - - - - (43.9) (43.9) Other comprehensive expense ------
Total comprehensive loss for the year - - - - - (43.9) (43.9)
Transactions with owners of the Company, recognised directly in equity Equity settled share based payments - - (0.5) - - - (0.5)
Total transactions with owners of the Company - - (0.5) - - - (0.5)
At 31 December 2017 13.9 767.0 0.5 413.2 30.6 (1,159.9) 65.3
Total comprehensive income Profit for the year - - - - - 8.6 8.6 Other comprehensive expense ------
Total comprehensive income for the year - - - - - 8.6 8.6
Transactions with owners of the Company, recognised directly in equity Equity settled share based payments - - (0.5) - - - (0.5)
Total transactions with owners of the Company - - (0.5) - - - (0.5)
At 31 December 2018 13.9 767.0 - 413.2 30.6 (1,151.3) 73.4
The share premium reserve, share based payment reserve, other undenominated capital and non-distributable reserve total €1,210.8m (2017: €1,211.3m). The non-distributable reserve primarily relates to profits arising on the sale of assets to a Group company.
Independent News & Media PLC 119 FINANCIAL STATEMENTS
COMPANY CASH FLOW STATEMENT
Year Ended Year Ended 31 December 2018 31 December 2017 €m €m
Profit/(loss) for the year 8.6 (43.9) Exceptional items (8.5) 43.7
Profit/(loss) for the year before exceptional items 0.1 (0.2) Finance income - -
Operating profit/(loss) before exceptional items 0.1 (0.2) Decrease in short term payables - (0.1)
Net cash generated from/(used in) operating activities (before cash exceptional items) 0.1 (0.3) Exceptional expenditure - -
Net cash generated from/(used in) operations 0.1 (0.3)
Cash flows from investing activities Interest received - -
Net cash received from investing activities - -
Cash flows from financing activities Movement on loans due from Group companies (10.9) (16.0) Movement on loans due to Group companies 8.4 32.8
Net cash (used in)/generated by financing activities (2.5) 16.8
Net (decrease)/increase in cash and cash equivalents and bank overdrafts in the year (2.4) 16.5 Balance at beginning of the year 72.9 56.4
Cash and cash equivalents and bank overdrafts at end of year 70.5 72.9
120 Report And Accounts 2018 FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
Changes in Accounting Policies Except for the changes outlined below, the Group has consistently applied the following accounting policies in these consolidated financial statements.
The following new and amended standards and interpretations are effective for the Group for the first time for the financial year beginning 1 January 2018:
• Revenue from Contracts with Customers (IFRS 15) • Financial Instruments (IFRS 9)
Other new standards and amendments effective for the current period did not have a material effect on the Group’s financial statements.
IFRS 15 The Group adopted IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) from 1 January 2018 and restated comparatives accordingly. IFRS 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaced existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction contracts and IFRIC 13 Customer Loyalty Programmes. See revenue recognition accounting policy.
The key impact on the Group of the adoption of IFRS 15 is to change the presentation of the revenue from distribution of third party news and magazine titles from a gross presentation to a net presentation, as the Group does not control the product and is performing a service on a commission fee basis under IFRS 15. The adoption of IFRS 15 has no impact on net profit and the net assets of the Group, as it reduces both revenue and costs equally. The impact of this adjustment is outlined as follows:
Before IFRS 15 adjustment As reported 31 December 2018 IFRS 15 Impact 31 December 2018 €m €m €m
Revenue 284.1 (93.1) 191.0 Operating costs^ (275.1) 93.1 (182.0) Operating profit^ 9.0 - 9.0
31 December 2017 IFRS 15 Impact 31 December 2017 €m €m €m
Revenue 293.0 (98.0) 195.0 Operating costs^ (277.5) 98.0 (179.5) Operating profit^ 15.5 - 15.5
^ All figures are post exceptional items.
Independent News & Media PLC 121 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Changes in Accounting Policies - continued
IFRS 9 The newly effective requirements for IFRS 9 Financial Instruments (“IFRS 9”) did not have a material impact on the Group.
The following new IFRS 9 requirements are effective for the Group for the first time for the financial year beginning 1 January 2018. The Group has adopted the cumulative effect transition approach and there is no restatement of comparatives.
IFRS 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy and sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The principal impact on the Group of the adoption of IFRS 9 is:
• Equity instruments classified as available for sale have been designated as measured at fair value through other comprehensive income (“FVOCI”). Consequently, all fair value gains and losses will be reported in other comprehensive income (“OCI”), no impairment losses will be recognised in profit or loss and no gains and losses will be reclassified to profit or loss on disposal; and • The lifetime expected credit loss (“Lifetime ECL”) model replaces the “incurred loss” model in IAS 39 for financial assets at amortised cost.
See note 35 for information with regard to new Standards, Interpretations and Amendments effective for future periods.
Reporting Entity and Basis of Accounting Independent News & Media PLC (‘the Company’) is a public company limited by shares and incorporated, domiciled and registered in Ireland. The registered number of the Company is 2936 and the address of its registered office is Independent House, 27-32 Talbot Street, Dublin 1. These Group financial statements as at and for the year ended 31 December 2018 comprise the financial statements of the Company and its subsidiaries (together referred to as ‘the Group’) and the Group’s interest in associates and joint ventures.
In accordance with EU Regulations, the Group financial statements for the year ended 31 December 2018 have been prepared in accordance with EU adopted International Financial Reporting Standards (‘IFRS’), and with those parts of the Companies Acts 2014, and Article 4 of the IAS Regulation, applicable to companies reporting under IFRS. The Company financial statements have been prepared in accordance with EU adopted IFRS as applied by the Companies Act 2014.
These financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due during the 12 months from the date of the approval of the 2018 Annual Report, the time period that the Directors have considered in evaluating the appropriateness of the going concern basis.
122 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Measurement of Fair Values A number of the Group’s accounting policies and disclosures require the measurement at fair value of both financial and non-financial assets and liabilities.
The Group regularly reviews significant unobservable inputs and valuation adjustments.
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
• Note 24 - share based payment arrangements; • Note 25 - acquisitions; and • Note 29 - financial instruments.
Independent News & Media PLC 123 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Basis of Consolidation The presentation currency of the Group financial statements is Euro and the functional and presentation currency of the Company, Independent News & Media PLC, is Euro. The Group financial statements are rounded to hundreds of thousands.
The financial statements of the Company and its subsidiary undertakings for the year to 31 December 2018 are incorporated in the Group financial statements. The Group’s share of results of associates and joint ventures is based on their financial statements for the year to the end of December 2018.
i) Subsidiary undertakings are included in the financial statements from the date on which control is obtained and cease to be consolidated from the date on which control is lost by the Group. Subsidiaries are all entities where the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The existence and effect of potential voting rights are considered when assessing whether the Group controls another entity. (ii) Non-controlling interests represent the proportion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the Company. The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recognised directly in equity. Gains or losses on disposals to non-controlling interests, without a loss of control, are also recognised directly in equity. (iii) A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and: a. represents a separate major line of business or geographical area of operations; b. is part of a single co-ordinated plan to dispose of a separate line of business or geographical area of operations; or c. is a subsidiary acquired exclusively with a view to resale. (iv) When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost. On the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the components of equity related to the subsidiary. Any surplus or deficit on the loss of control is recognised in profit or loss. The fair value of the residual interest is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint arrangement or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss as part of the gain or loss on disposal. (v) Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated upon consolidation.
124 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Business Combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.
Put options over non-controlling interest shares Any contingent consideration is measured at fair value at the date of acquisition. Where there is a put option held by a non-controlling interest (“NCI”) in a subsidiary undertaking whereby that party can require the Group to acquire the NCI’s shareholding in the subsidiary at a future date, the Group applies the present access method of accounting to this arrangement by recognising a contingent consideration liability at fair value, being the Group’s estimate of the amount required to settle that liability. Any remeasurements required due to changes in fair value of the put liability estimation, are recognised in equity.
Contingent Consideration Contingent consideration is remeasured at fair value at each reporting date and subsequent changes in fair value or the contingent consideration are recognised in profit or loss.
Associates and Joint Ventures Associates are entities, not being subsidiary undertakings or joint arrangements, where the Group has the ability to exercise significant influence over their operating and financial policies. A joint venture is an arrangement in which the Group has joint control, and the Group has rights to the net assets of the arrangement, rather than direct rights to its individual assets and obligations for its individual liabilities. Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost. Subsequent to initial recognition, the Group’s share of its associates’ and joint ventures’ post-acquisition profits or losses is recognised in the Income Statement and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. Any post-acquisition movements in equity are recognised in Group equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The Group ceases to recognise its share of post-acquisition losses when its investment in the relevant associate or joint venture has been written down to nil, provided the Group does not have a constructive or legal obligation to fund the associate or joint venture. The Group’s investment in associates and joint ventures includes goodwill identified on acquisition, net of any accumulated impairment loss. Losses recognised under the equity method in excess of the investor’s investment in ordinary shares are applied to the other components of the investor’s interest in an associate or joint venture in the reverse order of their seniority. The results of associates and joint ventures are included from the effective date on which the Group obtains significant influence/joint control and are excluded from the effective date on which the Group ceases to have significant influence/joint control. The fair value of any investment retained in a former subsidiary shall be regarded as the cost on initial recognition of an investment in an associate or joint arrangement.
The reduction in the Group’s ownership interest while maintaining significant influence/joint control is recognised in profit or loss. In addition, the Group reclassifies any equity-accounted gain or loss previously recognised in OCI as if the Group had directly disposed of a portion of the related assets and liabilities.
Independent News & Media PLC 125 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Comparative Information Due to applying the newly effective standard, IFRS 15 Revenue from Contracts with Customers, revenue and operating costs comparative information throughout these financial statements has been restated.
Exceptional Items The Group has adopted an Income Statement format which highlights significant items within the Group’s results for the year. Exceptional items are those items of income and expense that the Group considers are material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group’s financial performance. Judgement is used by the Group in assessing the particular items which, by virtue of their materiality and/or nature, are disclosed in the Group Income Statement and related notes as exceptional items. The tax element of exceptional items is included as exceptional tax.
Segmental Reporting A number of operating activities are aggregated into one operating segment on the basis the activities are similar in each of the following respects:
• the type or class of customer for their products and services; and • the methods used to distribute their products or provide their services.
The Chief Operating Decision Maker (“CODM”) reviews and considers management information in respect of the Island of Ireland - Publishing operating segment. The key performance measure, that is reviewed for this segment is operating profit/(loss) before exceptional items. Exceptional items are reviewed at Group level across different categories and appear separately from the key performance measure reviewed by the CODM.
Interest income and expense, share of results of associates and joint ventures and taxation were reviewed and considered by the CODM at Group level only. The Group continued to report its revenues and operating profit before exceptional items by geographical areas with a further analysis of the geographical areas by class of business also provided.
126 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Revenue Recognition
Performance obligations and revenue recognition policies Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer.
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.
Type of revenue Nature and timing of satisfaction Revenue recognition under IFRS 15 of performance obligations, (applicable from 1 January 2018) including significant payment terms
Circulation revenue Customers obtain control of Revenue is recognised when the goods are delivered and newspaper/magazine products when the have been accepted by customers at their premises. goods are delivered to and have been The amount of revenue recognised is adjusted for expected accepted at their premises. Payment of returns. invoices varies slightly across the Group The refund liability is included as a payable in the Group’s titles, where 5 weeks is the average. Statement of Financial Position. The Group reviews its estimate of expected returns at each reporting date and updates the payable accordingly.
Distribution revenue Customers obtain control of these Revenue is recognised when the product is delivered to the - newspapers & products when the goods are delivered to customer and is recognised on a net basis. The amount of magazines and have been accepted at the revenue recognised equates to the distribution fee only and customer’s premises. Invoices are usually does not include the original cost of the newspaper. payable within 9 days. Discounts are provided and customers are permitted to return goods - the eligible time period in which goods can be returned varies by title, but is typically within 6-13 days of the products being delivered.
Commercial printing Customers obtain the benefit of contract Revenue is recognised when the order has been print services when the order has been fulfilled/printed. printed. Dependent upon the contract, invoices are generated weekly, monthly on a 4,4,5 week basis or per calendar month. Normally payment terms are 30 days.
Independent News & Media PLC 127 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Revenue Recognition - continued
Performance obligations and revenue recognition policies - continued
Type of revenue Nature and timing of satisfaction Revenue recognition under IFRS 15 of performance obligations, (applicable from 1 January 2018) including significant payment terms
Distribution revenue Customers obtain control of these Revenue is recognised when the product is delivered to the - other products products when the goods are delivered to customer and is recognised on a gross basis. The amount of and have been accepted at the revenue recognised is the final expected revenue on the customer’s premises. Invoices are usually products delivered to customers. payable within 28 days. No discounts are provided. Some products are supplied to customers on a firm sale basis (i.e. returns are not permitted), while on other products customers are permitted to return goods.
Advertising - Customers obtain the benefit of Revenue is recognised (net of agency commission) over publishing and advertising services when the time as the advertisements are published. The stage of digital revenue advertisement appears in a Group completion for determining the amount of revenue to publication. recognise is assessed based on the number of Invoices for advertisements are normally advertisements published versus the number of issued on a weekly basis and are usually advertisements per the contract. payable within 30 days. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated based on their relative stand-alone selling prices. The stand-alone selling price is determined based on the list prices at which the Group sells the services in separate transactions. Revenue related to the payment for advertisements received in advance of the service being rendered are recognised as a contract liability until the benefit has passed to the customer.
Other income Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate over the period to expected maturity. Dividend income is recognised when the right to receive payment is established.
128 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes all expenditure that is directly attributable to the acquisition of the items. Cost will also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item, is depreciated separately.
Depreciation is charged so as to write off the cost of assets, other than land, less their residual values, over their estimated useful lives, using the straight-line method as follows:
Buildings 40-100 years Plant and equipment 3-25 years Vehicles 4-6 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial year in which they are incurred.
Borrowing costs directly attributable to the construction of property, plant and equipment are capitalised as part of the cost of those assets.
Leases Leases of property, plant and equipment where the Group has substantially all of the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the outset of the lease at the fair value of the leased property, plant and equipment or, if lower, at the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant periodic rate of interest on the balance of the liability outstanding. The interest element of the finance cost is charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over a useful economic life consistent with that for depreciable assets that are owned. If there is no reasonable certainty that title to the asset will transfer to the lessee at the end of the lease period, the asset shall be depreciated over the shorter of the lease term and its useful life.
Leases in which substantially all of the risks and rewards of ownership have not been transferred to the Group are classified as operating leases. Payments made under operating leases, excluding contingent payments, are charged to the Income Statement on a straight-line basis over the period of the lease.
Independent News & Media PLC 129 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Intangible Assets
(i) Goodwill Goodwill is measured at its original carrying value less accumulated impairment losses.
Goodwill acquired in a business combination is recognised as an asset and is allocated, from the acquisition date, to the respective cash generating units (‘CGUs’) or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Goodwill is tested for impairment at least annually.
Any impairment is recognised immediately in the Income Statement and is not subsequently reversed. Goodwill on acquisition of associates and joint ventures is included in investments in associates and joint ventures.
When calculating gains and losses on the disposal of an entity, the carrying value of goodwill relating to that entity is included in the carrying amount of the entity sold.
If tax losses of a company acquired in a business combination are recognised in a period subsequent to the period in which the business combination took place, then the Group recognises acquired deferred tax benefits that it realises after the business combination as follows: (a) Acquired deferred tax benefits recognised within the measurement period that result from new information about facts and circumstances that existed at the acquisition date shall be applied to reduce the carrying amount of any goodwill related to that acquisition. If the carrying amount of that goodwill is zero, any remaining deferred tax benefits shall be recognised in profit or loss. (b) All other acquired deferred tax benefits realised shall be recognised in profit or loss (or, if IAS 12 requires, outside profit or loss).
(ii) Mastheads and Other Intangibles An intangible asset shall be recognised if, and only if, it is purchased in a business combination - or separately - and it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.
Mastheads are initially recorded at cost. Where these assets have been acquired through a business combination, cost will be the fair value in acquisition accounting.
An intangible asset shall be regarded by the Group as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Based on an analysis of relevant factors (such as the actions of competitors and typical product life cycles), most of the Group’s mastheads are regarded as having an indefinite useful life. This is supported by a range of factors including, the expectation to maintain market share over a long period despite the overall declining market. This is also supported by the barriers to entry that exist, the nature of competition in these industries, the intellectual property rights and the quality of branding associated with these mastheads. These mastheads are subject to annual impairment testing at CGU level to identify whether the carrying amount exceeds the recoverable amount. Internally generated mastheads are not capitalised and any expenditure on such assets is charged to the Income Statement in the year in which the expenditure is incurred. Other intangibles include customer listings which are amortised over three years.
130 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Intangible Assets - continued
(iii) Computer Software Acquired computer software is capitalised as intangible assets on the basis of the costs incurred to acquire and bring to use the specific software.
Costs that are directly attributable to the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Directly attributable costs include software development, employee costs and an appropriate portion of relevant overheads.
Computer software costs are amortised over their estimated useful lives (ranging in most cases from three to five years, but up to ten years where specific bespoke software has been developed which is expected to provide benefits over a longer period). Other costs in respect of computer software are recognised as an expense as incurred.
Share Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are included within equity as a deduction from revenue reserves.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the Company’s equity holders until the shares are reissued. Where such shares are subsequently reissued any consideration received in excess of cost is included in share premium attributable to the Company’s equity holders.
Independent News & Media PLC 131 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Impairment of Non-Financial Assets Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually at the reporting date and more frequently when there is an indication that the asset may be impaired. Assets that are subject to amortisation are reviewed for impairment at each reporting date and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The impairment loss recognised is the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
Where an asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. A CGU is the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash inflows of other assets or groups thereof. Certain of the Group’s intangibles are held centrally as these have arisen as a result of the Group’s acquisitions. For the purposes of carrying out impairment tests and reviews at the individual CGU level, these centrally held intangibles are allocated to the relevant CGU which appropriately reflects the history of the acquisition of these intangibles.
If an impairment loss is recognised for a CGU, it is allocated to reduce the carrying amount of the assets of the unit in the following order: (i) first, to reduce the carrying amount of any goodwill allocated to the CGU; and (ii) then, to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined net of depreciation and amortisation if no impairment loss had been recognised.
132 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Employee Benefits
(i) Retirement Benefit Obligations The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee administered funds. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligations to pay further amounts. A defined benefit plan is a post-employment plan other than a defined contribution plan.
Defined Contribution Plans Contributions to defined contribution plans are recognised as an expense in the Income Statement as service is received from employees.
Defined Benefit Plans The Group’s net obligation in respect of defined benefit plans (both funded and unfunded schemes) is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior years, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest) are recognised immediately in the OCI. The Group determines the net interest expense (income) in the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service is recognised immediately in profit or loss, as a past service cost or credit. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Independent News & Media PLC 133 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Employee Benefits - continued
(ii) Share Based Compensation The Group operates an equity-settled share based compensation plan for directors and executives.
The grant date fair value of the employee services received in exchange for the grant of options is recognised as an expense over the vesting period, with a corresponding increase in equity. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted at the grant date. When the award is dependent on a non-market performance condition at each reporting date, the Group revises its estimate of the number of options that are expected to vest such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share based payments awards with market performance conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. When share options are cancelled, the Group accounts for the cancellation as an acceleration of vesting and therefore recognises immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period.
The proceeds received are credited to share capital (nominal value) and share premium when the options are exercised.
(iii) Termination Benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a related restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted.
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (‘FIFO’) method. Cost comprises cost of purchase i.e. supplier’s invoice price (net of discounts), with the addition of charges such as freight or duty where appropriate.
Net realisable value comprises the actual or estimated selling price (net of discounts) less all costs to be incurred in marketing, selling and distribution.
Dividends Dividends are recognised as a liability in the financial statements in the period in which the dividends are declared. Proposed dividends that are declared after the reporting date are not recognised as a liability at that reporting date but are disclosed in a note to the financial statements.
134 Report And Accounts 2018 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Taxation Income tax comprises the sum of current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination or item recognised directly in equity or in other comprehensive income.
Current tax is based on taxable profit for the year and any adjustments in respect of previous years. It is measured using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is recognised in respect of temporary differences that exist at the reporting date. A temporary difference is a difference arising between the tax base of all assets (except non-deductible goodwill) and liabilities and their carrying amounts in the financial statements. However, if the temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not recognised. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint arrangements and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions include onerous contracts in which the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assumptions of the time value of money and the risks specific to the obligation.
Independent News & Media PLC 135 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Financial Instruments
Recognition and initial measurement Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at Fair Value Through Profit & Loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Classification and subsequent measurement Financial assets - Policy applicable from 1 January 2018 On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive Income (“FVOCI”) - debt investment; FVOCI - equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: - it is held within a business model whose objective is to hold assets to collect contractual cash flows; and - its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: - it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and - its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in Other Comprehensive Income (“OCI”). This election is made on an investment‑by‑investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets (see Note 16). On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
136 Report And Accounts 2018 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Financial Instruments - continued
Financial assets - Business model assessment: Policy applicable from 1 January 2018 The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets; - how the performance of the portfolio is evaluated and reported to the Group’s management; - the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; - how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and - the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Independent News & Media PLC 137 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Financial Instruments - continued
Financial assets - Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from 1 January 2018 For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers: - contingent events that would change the amount or timing of cash flows; - terms that may adjust the contractual coupon rate, including variable‑rate features; - prepayment and extension features; and - terms that limit the Group’s claim to cash flows from specified assets (e.g. non‑recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
Financial assets - Subsequent measurement and gains and losses: Policy applicable from 1 January 2018
Financial assets at These assets are subsequently measured at fair value. Net gains and losses, including any interest or FVTPL dividend income, are recognised in profit or loss. However, see Note 16 for derivatives designated as hedging instruments.
Financial assets at These assets are subsequently measured at amortised cost using the effective interest method. amortised cost The amortised cost is reduced by impairment losses using an expected credit loss (“ECL”) model. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Debt investments at These assets are subsequently measured at fair value. Interest income calculated using the effective FVOCI interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments These assets are subsequently measured at fair value. Dividends are recognised as income in profit or at FVOCI loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.
138 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
1. Accounting Policies - continued
Financial Instruments - continued
Financial assets - Policy applicable before 1 January 2018 The Group classified its financial assets into one of the following categories: - loans and receivables; - other investments; and - derivative hedging instruments.
Financial assets - Subsequent measurement and gains and losses: Policy applicable before 1 January 2018
Financial assets at Measured at fair value and changes therein, including any interest or dividend income, were recognised FVTPL in profit or loss. However, see Note 16 for derivatives designated as hedging instruments.
Loans and Measured at amortised cost using the effective interest method, less impairment losses on an impaired receivables loss model.
Other investments Measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, were recognised in OCI and accumulated in the fair value reserve. When these assets were derecognised, the gain or loss accumulated in equity was reclassified to profit or loss.
Financial liabilities - Classification, subsequent measurement and gains and losses - policy applicable before and after 1 January 2018
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held‑for‑trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
See Note 16 for financial liabilities designated as hedging instruments.
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Financial Instruments - continued
Derecognition
Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognised in its Statement of Financial Position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.
Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non‑cash assets transferred or liabilities assumed) is recognised in profit or loss.
Offsetting Financial assets and financial liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Financial assets at amortised cost - policy applicable after 1 January 2018 The Group recognises loss allowances for ECLs on financial assets measured at amortised cost. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward‑looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 120 days past due. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
140 Report And Accounts 2018 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Financial Instruments - continued
Measurement of ECLs ECLs are a probability‑weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit‑impaired. A financial asset is ‘credit‑impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit‑impaired includes the following observable data:
- significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or being more than 120 days past due; - the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; - it is probable that the borrower will enter bankruptcy or other financial reorganisation; or - the disappearance of an active market for a security because of financial difficulties.
Presentation of allowance for ECL in the Statement of Financial Position Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Write-off The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 120 days past due based on historical experience of recoveries of similar assets. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write‑off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.
Policy applicable before 1 January 2018 Financial assets are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. The carrying amount of financial assets is reduced through the use of a provision for impairment when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the financial assets. Significant financial difficulties of the borrower or issuer, probability that the borrower or issuer will enter bankruptcy or financial reorganisation and default in payments, are considered indicators that the financial asset is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the Income Statement.
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1. Accounting Policies - continued
Accounting for Derivative Financial Instruments and Hedging Activities Derivative financial instruments are mainly used to manage exposures to foreign exchange and interest rate risks. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The Group designates certain derivatives as hedges of the variability in cash flow attributable to a particular risk associated with assets and/or liabilities or highly probable forecast transactions (cash flow hedges). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of the effectiveness of the hedge in offsetting changes in cash flows of hedged items. The fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
(i) Cash Flow Hedges The effective portion of changes in the fair values of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income presented in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement. Amounts accumulated in equity are reclassified to the Income Statement in the periods when the hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in OCI at that time is recognised in the Income Statement when the forecast transaction to which it relates occurs. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in OCI is immediately reclassified to the Income Statement.
(ii) Derivatives at Fair Value through Profit or Loss Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of such derivative instruments are recognised immediately in the Income Statement.
(iii) Net Investment Hedges Where foreign currency borrowings provide a hedge against a net investment in a foreign operation, to the extent that the hedge is effective foreign exchange differences are recognised in other comprehensive income and presented in the currency translation reserve (being a separate component of equity). Cumulative gains and losses remain in OCI until disposal of the net investment in the foreign operation at which point the related foreign exchange differences are reclassified to the Group Income Statement as part of the overall gain or loss on sale.
Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held on call with banks, other short-term highly liquid investments with maturities of three months or less at inception and bank overdrafts where a legal right of set-off exists.
142 Report And Accounts 2018 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Foreign Currency Translation
(i) Functional and Presentation Currency The consolidated financial statements are presented in Euro, which is the Company’s functional and presentation currency. Items included in the financial statements of each of the Group’s entities are measured using the currency that reflects the primary economic environment in which the entity operates (‘the functional currency’).
(ii) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement, except when deferred in equity as qualifying cash flow hedges or hedges of net investments in foreign operations.
(iii) Group Companies The results and financial position of all of the Group entities and associates and joint ventures that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (a) assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position; (b) goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate; (c) income and expenses for each Income Statement are translated at actual exchange rates or when they are a reasonable approximation at average exchange rates; and (d) all resulting exchange differences are recognised in other comprehensive income and presented as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are recognised in other comprehensive income. When the Group disposes of its investment in a foreign entity, all cumulative exchange differences previously taken to other comprehensive income are reclassified and booked as part of the gain or loss on disposal in the Income Statement.
Subsidiary Undertakings and Intercompany Loans Shares in subsidiary undertakings are stated in the Company’s Statement of Financial Position at cost less provision for impairment. Intercompany loans are repayable on demand and are stated at cost less provision for impairment.
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1. Accounting Policies - continued
Earnings Per Share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (excluding treasury shares). For diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to assume conversion of all potential dilutive options over ordinary shares once the adjustment does not reduce a loss per share or increase earnings per share. Basic and diluted earnings per share before exceptional items are presented in order to give a better understanding of the Group’s financial performance.
Use of Judgements in Applying the Group’s Accounting Policies The preparation of financial statements in conformity with IFRS requires the use of significant judgements. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Actual results may differ from these estimates.
The areas requiring a higher degree of judgement or complexity which are significant to the consolidated financial statements, relate primarily to accounting for indefinite life intangible assets, accounting for the ongoing investigations, retirement benefit obligations, deferred income tax and libel.
Key Areas:
(i) Provisions for ongoing investigations and related matters The Company has not made a provision for future costs associated with the ongoing investigations and related matters. However, Independent News & Media PLC has a contingent liability in respect of the ongoing investigations and related matters which are dealt with in further detail in note 30.
(ii) Determination of Useful Lives and Assessment for Impairment - Intangibles and Other Assets Estimates of recoverable amount are a critical accounting judgement in the financial statements. A number of key assumptions have been made as a basis for the impairment tests. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information (see note 12 for further information).
An intangible asset shall be regarded by the Group as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Based on an analysis of relevant factors (such as the actions of competitors and typical product life cycles), most of the Group’s mastheads are regarded as having an indefinite useful life. These mastheads are subject to an annual impairment test at CGU level to identify whether the carrying amount exceeds the recoverable amount. Deferred tax on indefinite life intangible assets is assessed on a sales basis.
Property, plant and equipment are included in the carrying value of CGU’s tested for impairment, however an impairment test is also carried out at a reporting date on property, plant and equipment when there are indications that the relevant property, plant and equipment may be impaired. The impairment test compares the carrying amount of property, plant and equipment to its recoverable amount. If the carrying amount exceeds the recoverable amount an impairment is recorded.
144 Report And Accounts 2018 FINANCIAL STATEMENTS
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1. Accounting Policies - continued
Use of Judgements in Applying the Group’s Accounting Policies - continued
Key Areas - continued
(iii) Retirement Benefit Obligations The determination of the retirement benefit cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions which include, inter alia, the discount rate, inflation rate, salary growth, and longevity, all of which are key judgements. Advice is sourced from independent actuaries in selecting suitable assumptions (see note 32 for further information).
Other Areas:
(i) Deferred Income Tax Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. Significant judgement is used when assessing both the extent to which deferred tax assets should be recognised and the amount to be recognised, with consideration given to the timing and level of future taxable income in the relevant tax jurisdiction (see note 21 for further information).
(ii) Libel Libel provisioning involves a certain level of uncertainty around both the timing and the amount. Management exercise judgement in relation to libel provisioning with the assistance of the Group’s legal advisors in respect of libel matters.
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1. Accounting Policies - continued
Use of Judgements in Applying the Group’s Accounting Policies - continued
Sources of estimation uncertainty: Those matters which are the major sources of estimation uncertainty as at the end of the reporting period are:
(i) Market disruption (print media) Market disruption (print media) is a source of uncertainty affecting both the determination of useful lives and assessment for impairment - intangibles and other assets and deferred income tax. The maintenance of print profitability is increasingly challenging due to market disruption (i.e. shift from print media to digital/mobile) negatively affecting newspaper circulation and publishing advertising revenues giving rise to an increased need to achieve cost reductions to offset this contraction. The uncertainty regarding the achievement of forecasted print profitability due to market disruption impacts upon impairment modelling for intangibles and other assets in terms of forecasted cash flows and upon the availability of future profits for use in determining the amount to be recognised for deferred income tax. Additionally, the uncertainty regarding the achievement of forecasted print profitability due to market disruption impacts upon the determination of the useful lives of intangibles and other assets.
(ii) Discount rates Discount rates applied in both the Republic of Ireland and Northern Ireland defined benefit pension schemes are a source of uncertainty in the calculation of retirement benefit obligations. The discount rate is based on the interest yield at the reporting date on high quality corporate bonds of a currency and term consistent with the currency and term of the post-employment retirement benefit obligation. Changes in the discount rate can lead to volatility in the Group’s Statement of Financial Position, Income Statement and Statement of Comprehensive Income.
(iii) Libel The outcome of court proceedings in terms of the scale of libel compensation awards, if granted, is a source of uncertainty with regard to provisioning for libel. Management exercise judgement in relation to libel provisioning with the assistance of the Group’s legal advisors in respect of libel matters.
(iv) Brexit Economic and Geopolitical uncertainty is one of the top 10 risks monitored by the Group, consequently the implications of Brexit is subject to regular analysis. If there is a managed Brexit transition on a negotiated basis we do not anticipate any material impact on the Group’s activities and exchange rate exposures are adequately hedged.
146 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
2. An analysis of the Group’s operating profit and loss
Before Exceptional Exceptional items items Total €m €m €m
2018 Revenue 191.0 - 191.0 Cost of sales (89.9) - (89.9)
Gross profit 101.1 - 101.1 Distribution expenses (31.6) - (31.6) Administration expenses (29.7) (14.6) (44.3) Impairment loss on trade receivables (1.0) - (1.0) Other operating expenses (15.2) - (15.2)
Operating profit 23.6 (14.6) 9.0
2017 Revenue (restated) 195.0 - 195.0 Cost of sales (restated) (90.2) - (90.2)
Gross profit 104.8 - 104.8 Distribution Expenses (32.7) - (32.7) Administration Expenses (30.1) (12.0) (42.1) Other operating expenses (14.5) - (14.5)
Operating Profit 27.5 (12.0) 15.5
3. Net Finance Income/(Costs)
2018 2017 €m €m
Finance income 0.1 0.1 Finance costs - -
Net finance income (before exceptional finance items) 0.1 0.1
Exceptional finance income (note 6) 0.8 -
Net finance income 0.9 0.1
The 2018 exceptional finance income of €0.8m (2017: €nil), relates to a gain arising from the re-measurement to fair value of the Group’s pre-existing 50% interest in Reachmount DAC upon obtaining control (see note 25).
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4. Revenue
The effect of initially applying IFRS 15 on the Group’s revenue is described in Note 1. Due to the transition method chosen in applying IFRS 15, comparative information has been restated to reflect the new requirements.
An analysis of the Group’s revenue for the year is as follows:
2018 2017 €m €m
Revenue from sale of newspapers and magazines 82.2 87.7 Revenue from distribution of newspapers and magazines* 25.3 24.7 Commercial printing activities 5.4 5.8 Revenue from distribution of other products 13.7 6.1 Newspaper advertising revenues 49.6 55.6 Online revenues 14.8 15.1
191.0 195.0
*Restated for IFRS 15.
Third party revenue of €158.0m (2017: €159.8m) relates to the Republic of Ireland, and €33.0m (2017: €35.2m) to Northern Ireland.
An analysis of the Group’s revenue on a gross and net basis is as follows:
2018 2017 €m €m
Revenue recognised on a gross basis 165.7 170.3 Revenue recognised on a net basis 25.3 24.7
191.0 195.0
148 Report And Accounts 2018 FINANCIAL STATEMENTS
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5. Profit/(Loss) for the Year
2018 2017 €m €m
Group Profit/(loss) for the year has been arrived at after charging:
Depreciation (note 13) 3.4 3.4 Amortisation (note 12) 3.3 2.9
6.7 6.3
Research & development* (0.2) 0.1
Operating lease payments** 2.8 2.8
* Includes €0.1m R&D tax credit and €0.1m Enterprise Ireland grant. ** Includes €0.3m of sublease income in 2018 (2017: €0.2m).
During the year, the Group obtained the following services from the Group’s auditor, KPMG:
2018 2017 €m €m
Statutory audit of Group Accounts - Ireland (statutory auditor) 0.5 0.5 - Other network firms - -
Other assurance services - Ireland (statutory auditor) - - - Other network firms - -
Tax advisory services - Ireland 0.1 0.1 - Other network firms - -
Other non-audit services - Ireland - - - Other network firms - -
0.6 0.6
During the year, the Company obtained audit services from the Group’s auditor to the value of €24k (2017: €24k). During the year €24k of out of pocket expenses were reimbursed to the independent auditor (2017: €24k).
Independent News & Media PLC 149 FINANCIAL STATEMENTS
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6. Exceptional Items
Exceptional items are those items of income and expense that the Group considers are material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group’s financial performance.
2018 2017 €m €m
Included in profit/(loss) before taxation are the following:
Restructuring (charge)/credit (i) (4.1) 0.7 Impairments (ii) (7.0) (12.7) Legal expenses (iii) (3.5) -
(14.6) (12.0)
Share of associates’ and joint ventures’ exceptional items (net of tax and non-controlling interests) (iv) - (0.1) Exceptional finance income (note 3) (v) 0.8 -
(13.8) (12.1)
Exceptional tax credit (note 7) (vi) 0.5 -
Total - exceptional items net of taxation and non-controlling interests * (13.3) (12.1)
* Of the exceptional expense in 2018 of €13.3m, €5.2m is shown as an exceptional expenditure outflow in the Group Cash Flow Statement and primarily relates to legal, redundancy and restructuring costs. Of the exceptional expense of €12.1m in 2017, €3.9m is shown as an exceptional expenditure outflow in the Group Cash Flow Statement and primarily relates to redundancy and miscellaneous restructuring costs.
(i) 2018 Primarily relates to the following: (a) A charge of €4.0m relating to restructuring costs, primarily redundancy costs in the Island of Ireland; and (b) A charge of €0.1m for acquisition related expenses.
2017 Primarily relates to the following: (a) A retirement benefits accounting adjustment of €2.9m relating to the finalisation of the de-recognition of two of the Group’s Republic of Ireland defined benefit schemes on 7 November 2016; (b) A gain of €1.0m in relation to the release of an onerous dilapidations provision; (c) A charge of €1.5m relating to a severance payment to the former CEO; (d) A charge of €1.2m related to miscellaneous restructuring costs, primarily redundancy costs in the Island of Ireland; and (e) A charge of €0.5m for acquisition related expenses.
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6. Exceptional Items - continued
(ii) 2018 Relates to the following: (a) A charge of €4.8m relating to the impairment of property, plant and equipment in the Northern Ireland - Belfast Publishing CGU (see note 13); (b) A charge of €1.3m relating to the impairment of the Belfast Telegraph masthead (see note 12); and (c) A charge of €0.9m relating to the impairment of software in the Northern Ireland - Belfast Publishing CGU (see note 12).
2017 A charge of €12.7m relating to the impairment of the Belfast Telegraph masthead (see note 12).
(iii) 2018 Relates to the Company’s costs associated with meeting its obligations towards the ODCE and the DPC in their respective investigations; the Company's and the ODCE’s costs in relation to the application to the High Court for the appointment of inspectors; the Company’s and the ODCE’s costs in relation to the judicial review application made by the Company in relation to the ODCE’s decision to apply to the High Court; the Company’s costs in relation to the inspection; and, the Company’s costs in complying with its statutory obligations towards certain individuals seeking information in relation to the 2014 data security incident.
(iv) 2017 The share of associates’ and joint ventures’ exceptional items (net of tax and non-controlling interests) charge of €0.1m relates to redundancies in Independent Star Limited.
(v) 2018 Relates to a gain arising from the re-measurement to fair value of the Group’s pre-existing 50% interest in Reachmount DAC upon obtaining control (see note 25).
(vi) 2018 The exceptional tax credit of €0.5m relates to the tax effect of exceptional expenses.
2017 The exceptional tax charge of €nil includes a reduction in the deferred tax liability of €2.2m following the impairment of intangible assets offset by a related reduction in the Group’s deferred tax asset of €2.2m. Exceptional tax in 2017 also relates to a deferred tax charge of €0.4m due to the retirement benefits accounting adjustment relating to the de-recognition of two of the Group’s Republic of Ireland defined benefit schemes on 7 November 2016 and a current tax credit of €0.4m arising on exceptional expenses in the Republic of Ireland.
Independent News & Media PLC 151 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
7. Taxation
(a) Amounts recognised in profit or loss
2018 2017 €m €m
Current tax: Current year - - Adjustment for prior year - (0.2)
- (0.2)
Deferred tax: Origination and reversal of temporary differences 1.1 1.8 Release of deferred tax asset on defined benefit schemes 0.1 0.1 Release of deferred tax asset arising on provision for defined contribution scheme payments 0.8 2.0 Charge in respect of tax losses - 0.2 Adjustment for prior year (0.7) -
1.3 4.1
Taxation charge 1.3 3.9
(b) Amounts recognised in Other Comprehensive Income
2018 2017 €m €m
Deferred tax charge on retirement benefit obligation remeasurements (0.2) (0.2)
152 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
7. Taxation - continued
(c) Reconciliation of effective tax rate The total tax charge for the year is different from the standard rate of Corporation Tax in Ireland of 12.5% (2017: 12.5%). The differences are explained below:
2018 2017 €m €m
Profit before taxation 10.3 16.4 Share of results of associates and joint ventures (0.4) (0.8)
Profit of Company and subsidiary undertakings before taxation 9.9 15.6
Profit of Company and subsidiary undertakings before taxation multiplied by standard rate of Corporation Tax in Ireland of 12.5% (2017: 12.5%) 1.2 1.9
Effects of: Non-deductible expenses 0.5 - Permanently deductible expenses (1.3) (1.1) Release of deferred tax asset 0.9 2.0 Adjustment in respect of prior periods (0.7) (0.2) Other differences 0.6 1.0 Unrecognised deferred tax 0.1 0.3
1.3 3.9
For further information on movement in deferred tax in 2018, see note 21.
Within the total tax charge of €1.3m (2017: charge of €3.9m), a net credit of €0.5m (2017: net charge of €nil) is classified as exceptional tax.
The exceptional tax credit of €0.5m relates to exceptional expenses and to a reduction in the deferred tax liability of €0.2m following the impairment of intangible assets offset by a related reduction in the Group’s deferred tax asset amount of €0.2m. The exceptional tax charge of €nil in 2017 includes a reduction in the deferred tax liability of €2.2m following the impairment of intangible assets offset by a reduction in the Group’s deferred tax asset amount of €2.2m.
There is inherent uncertainty surrounding the UK’s exit from the EU and the impact on tax laws and rates. The directors have assessed and have not identified any significant tax matters impacting the financial statements arising from the UK’s exit from the EU.
Independent News & Media PLC 153 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
8. Employees
The average number of persons employed by the Group (including executive Directors) during the year was as follows:
2018 2017
Publishing, digital, distribution, commercial printing 825 845
The employee benefit expenses for the above were as follows:
2018 2017 €m €m
Wages and salaries 45.4 43.8 Social welfare costs 4.9 4.8 Share based payment credit (note 24) (0.3) - Retirement benefit costs - defined benefit pension schemes (note 32) 0.5 1.1 Retirement benefit costs - defined contribution pension schemes (note 32) 2.6 2.9
Total employee benefit expense (excluding termination payments) (pre-exceptional accounting adjustments on Settlements) 53.1 52.6 Termination charges 3.8 2.7 Accounting adjustments on settlements - all pension schemes (note 32) - (2.9)
Total employee benefit expense (including termination payments) (post exceptional accounting adjustments on settlements) 56.9 52.4
154 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
9. Segmental Reporting
A number of operating activities are aggregated into one operating segment on the basis the activities are similar in each of the following respects:
• the type or class of customer for their products and services; and • the methods used to distribute their products or provide their services.
The Chief Operating Decision Maker (‘CODM’) reviews and considers management information in respect of the Island of Ireland - Publishing operating segment. The key performance measure, that is reviewed for this segment is operating profit/(loss) before exceptional items. Exceptional items are reviewed at Group level across different categories and appear separately from the key performance measure reviewed by the CODM.
Interest income and expense, share of results of associates and joint ventures and taxation were reviewed and considered by the CODM at Group level only.
The Group continued to report its revenues and operating profit before exceptional items by geographical areas with a further analysis of the geographical areas by class of business also provided.
Revenue Operating Profit/(Loss) (3rd Party) (Before Exceptional Items) 2018 2018 2017 2017 2018 2018 2017 2017 (restated*) (restated*) €m €m €m €m €m €m €m €m
Island of Ireland - Publishing 191.0 195.0 32.1 36.3 Central Costs - - (8.5) (8.8)
Total 191.0 195.0 23.6 27.5
* Refer to Note 1 for details on restatement of 2017 revenue.
Independent News & Media PLC 155 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
9. Segmental Reporting - continued
Profit (including exceptionals) 2018 2017 €m €m
Total operating profit before exceptional items 23.6 27.5 Operating exceptionals (14.6) (12.0) Share of results of associates and joint ventures (including exceptionals) 0.4 0.8 Net finance income (including exceptionals) 0.9 0.1 Taxation charge (including exceptionals) (1.3) (3.9)
Profit for the year (including exceptionals) 9.0 12.5
Capital Additions (Property, Plant, Equipment and Intangible Assets)* 2018 2017 €m €m
Other Segment Information Island of Ireland - Publishing 11.5 3.1 Central costs - -
Total 11.5 3.1
* Including acquisitions through business combinations.
Share Based Depreciation Amortisation Impairment Payments Total €m €m €m €m €m
2018 Island of Ireland - Publishing 3.4 3.3 7.0 (0.1) 13.6 Central Costs - - - (0.2) (0.2)
Total 3.4 3.3 7.0 (0.3) 13.4
2017 Island of Ireland - Publishing 3.4 2.8 12.7 - 18.9 Central Costs - 0.1 - - 0.1
Total 3.4 2.9 12.7 - 19.0
Third party revenue of €158.0m (2017: €159.8m) relates to the Republic of Ireland, and €33.0m (2017: €35.2m) to Northern Ireland. Within non-current assets (excluding deferred tax) of €72.8m (2017: €75.6m), €70.4m (2017: €65.7m) relates to assets located in the Republic of Ireland and €2.4m (2017: €9.8m) relates to assets located in Northern Ireland.
156 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
10. Profit/(Loss) Dealt with in the Parent Company and Investments in Subsidiaries
A profit of €8.6m (2017: a loss of €43.9m) has been dealt with in the financial statements of the Company, whose Income Statement, as permitted by Section 304 of the Companies Act 2014 is not presented in these financial statements and, as permitted by Section 304 of the Companies Act 2014, is not filed with the Registrar of Companies. This profit is primarily driven by a write-back of a provision for impairment of an investment in a subsidiary which is somewhat offset by exceptional legal expenses.
Investments in subsidiaries are summarised as follows:
2018 2017 €m €m
Company At 1 January 383.7 435.7 Net movement relating to share based payments (0.5) (0.5) Increase in impairment provision - (28.9) Write-back of impairment provision 12.2 - Liquidation of subsidiary - (22.6)
At 31 December 395.4 383.7
Independent News & Media PLC 157 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
11. Earnings Per Share
2018 2017 €m €m Total Total
Profit attributable to ordinary shareholders Profit attributable to the equity holders of the Company (basic and diluted) 9.1 12.5
Exceptional items (note 6) 13.3 12.1
Profit before exceptional items attributable to the equity holders of the Company (adjusted) 22.4 24.6
2018 2017
Weighted average number of shares Weighted average number of shares outstanding during the year (excluding 5,597,077 treasury shares) 1,386,547,375 1,386,547,375 Impact of share options - -
Diluted number of shares 1,386,547,375 1,386,547,375
Basic and diluted earnings per share 0.7c 0.9c
Basic and diluted earnings per share before exceptional items 1.6c 1.8c
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. There are no dilutive potential ordinary shares at year end.
At 31 December 2018: 476,555 options (2017: 518,081) were excluded from the diluted weighted average number of ordinary shares calculation because their effect is anti-dilutive.
Basic and diluted earnings per share before exceptional items are presented in order to give a better understanding of the Group’s underlying financial performance.
158 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets
Mastheads and Other Intangibles* Goodwill Software Total €m €m €m €m
2018 Group Cost At 1 January 2018 367.5 23.3 27.1 417.9 Additions - - 2.7 2.7 Additions through business combinations (note 25) 2.2 4.8 - 7.0 Exchange movements (5.4) - (0.1) (5.5)
At 31 December 2018 364.3 28.1 29.7 422.1
Accumulated Amortisation and Impairment At 1 January 2018 (360.9) (3.6) (19.8) (384.3) Amortisation** (0.5) - (2.8) (3.3) Impairments*** (1.3) - (0.9) (2.2) Exchange movements 5.3 - 0.1 5.4
At 31 December 2018 (357.4) (3.6) (23.4) (384.4)
Net Book Amount At 1 January 2018 6.6 19.7 7.3 33.6
At 31 December 2018 6.9 24.5 6.3 37.7
* Other Intangibles include a closing balance at 31 December 2018 of €2.8m in relation to brand and customer listings which are amortised. ** Charged to cost of sales. *** Charged to exceptional items in other operating expenses.
Independent News & Media PLC 159 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets - continued
Mastheads and Other Intangibles* Goodwill Software Total €m €m €m €m
2017 Group Cost At 1 January 2017 383.5 23.4 25.8 432.7 Additions - - 1.4 1.4 Exchange movements (16.0) (0.1) (0.1) (16.2)
At 31 December 2017 367.5 23.3 27.1 417.9
Accumulated Amortisation and Impairment At 1 January 2017 (363.6) (3.7) (17.2) (384.5) Amortisation** (0.2) - (2.7) (2.9) Impairments*** (12.7) - - (12.7) Exchange movements 15.6 0.1 0.1 15.8
At 31 December 2017 (360.9) (3.6) (19.8) (384.3)
Net Book Amount At 1 January 2017 19.9 19.7 8.6 48.2
At 31 December 2017 6.6 19.7 7.3 33.6
* Other Intangibles include a closing balance at 31 December 2017 of €1.1m in relation to brand and customer listings which are amortised. ** Charged to cost of sales. *** Charged to exceptional items in other operating expenses.
Impairment testing of Cash Generating Units (CGUs) containing Goodwill or other Intangible Assets with an Indefinite Useful Life
The Group tests goodwill and other indefinite life intangible assets for impairment on an annual basis or whenever there is an indication that the goodwill or intangible assets may be impaired. Goodwill and other indefinite life intangible assets have been allocated as appropriate to the relevant CGUs. The CGUs (Group of CGUs) represent the lowest level at which the related goodwill and intangible assets are monitored for internal management purposes and are not larger than the operating segments determined in accordance with IFRS 8. Certain of the Group’s intangibles are held centrally as these have arisen as a result of the Group’s acquisitions. For the purposes of carrying out impairment reviews at the individual CGU level, these centrally held intangibles are allocated to the relevant CGU which appropriately reflects the history of the acquisition of these intangibles.
160 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets - continued
Impairment testing of Cash Generating Units (CGUs) containing Goodwill or other Intangible Assets with an Indefinite Useful Life - continued
This testing involves determining the CGU’s recoverable amount and comparing this to the carrying amount of the CGU. Where the recoverable amount exceeds the carrying amount of the CGU, the asset is not impaired, but where the carrying amount exceeds the recoverable amount, an impairment loss is recognised to reduce the carrying amount of the CGU to its recoverable amount. Estimates of recoverable amount are a critical accounting judgement in the financial statements. A number of key assumptions have been made as a basis for the impairment tests. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information.
A total of three CGUs (2017: three CGUs) have been identified and these are analysed below:
2018 2018 2018 2017 Mastheads Goodwill Total Total and Other Intangibles* €m €m €m €m
Northern Ireland - Belfast Publishing (net book amount) - - - 1.3
Island of Ireland - including Irish Independent, Sunday Independent, The Herald, Sunday World and Sligo Champion Publishing (net book amount) 5.0 14.1 19.1 19.3
Island of Ireland - Reach Group Distribution (net book amount) 1.9 10.4 12.3 5.7
At 31 December 6.9 24.5 31.4 26.3
* Other Intangibles include a closing balance at 31 December 2018 of €2.8m in relation to brand and customer listings which are amortised.
The number of CGUs has remained consistent with 2017. The titles included in the Island of Ireland - Publishing CGU (Irish Independent, Sunday Independent, The Herald, Sunday World and Sligo Champion) operate from a fully integrated commercial department and employees approach the market from INM and not from the individual titles. These titles also operate using common journalists and therefore it is more appropriate to include them as one CGU.
For the purpose of impairment testing, the post-tax discount rate used for value in use calculations of the Northern Ireland - Publishing CGU was 10.4% (11.0% in 2017), the post-tax discount rate used for fair value less costs of disposal calculations of the Island of Ireland - Publishing CGU was 9.7% (10.5% in 2017) and the post-tax discount rate used for value in use calculations of the Island of Ireland - Reach Group Distribution CGU was 9.7% (10.5% in 2017).
Independent News & Media PLC 161 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets - continued
Impairment testing of Cash Generating Units (CGUs) containing Goodwill or other Intangible Assets with an Indefinite Useful Life - continued
Recoverable Amount Calculations The recoverable amounts for the Northern Ireland - Belfast Publishing and the Island of Ireland - Reach Group Distribution CGUs were determined using Value in Use Calculations.
The recoverable amount for the Island of Ireland - Publishing CGU was determined on a Fair Value Less Costs of Disposal basis as management have also factored in profit enhancement initiatives in arriving at the cash flow projections for the five years 2019 to 2023 inclusive.
Value in Use Calculations - Northern Ireland - Belfast Publishing and the Island of Ireland - Reach Group Distribution CGUs Where a value in use approach is used to assess the recoverable amount of the CGU, calculations use pre-tax cash flow projections based on financial budgets/projections approved by management covering a five year period. A terminal value multiple of five was then applied to positive year five EBITDA projections.
The key assumptions used in determining the value in use are:
• Forecasted cash flows Forecasted cash flows are based on budgeted EBITDA as adjusted for expenditure necessary to maintain the asset or CGU at its current standard of performance. The budgeted EBITDA results are based on the approved 2019 budget and projections for 2020 to 2023. These calculations use cash flow projections for five years based on management approved forecasts which reflect management's current experience and future expectations of the markets in which the CGU operates.
• Terminal value multiple A terminal value multiple of five was applied to positive year five EBITDA projections (2017: a terminal value multiple of five) in the value in use calculations.
• Discount rates For the purpose of impairment testing, the post-tax discount rate used for value in use calculations of the Island of Ireland - Reach Group Distribution CGU was 9.7% (10.5% in 2017). The post-tax discount rate used for value in use calculations of the Northern Ireland - Publishing CGU was 10.4% (11.0% in 2017).
Inputs required to calculate the cost of equity include the risk free rate and an adjustment for a risk premium to reflect both the increased risk of investing in equities and the risk of the specific Group operating CGU. In making this adjustment, inputs required include the equity market risk premium (i.e. the increased return required over and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjustment ‘beta’ applied to reflect the risk specific to the Group relative to the market as a whole.
The equity market risk premium used in the calculation has been based on credit default spreads and relative volatility of the equity index specific to the region in which the CGU operates. The risk adjusted ‘beta’ has been based on betas of comparable companies in the newspaper publishing industry.
162 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets - continued
Impairment testing of Cash Generating Units (CGUs) containing Goodwill or other Intangible Assets with an Indefinite Useful Life - continued
Value in Use Calculations - Northern Ireland - Belfast Publishing and the Island of Ireland - Reach Group Distribution CGUs - continued
The cost of debt is calculated based on the margin over the risk free rate and is based on market rates and not specific individual company rates.
• Impairments As a result of the foregoing impairment tests, the carrying amount of the Northern Ireland - Belfast Publishing masthead has been reduced to its recoverable amount through recognition of an impairment charge of €1.3m, and the carrying amount of the Northern Ireland - Belfast Publishing software has been reduced to its recoverable amount through recognition of an impairment charge of €0.9m. These impairments arose primarily due to the reduction in forecasted EBITDA as a result of advertising and circulation revenue declines and a change in the discount rates. In 2017, as a result of the foregoing impairment tests, the carrying amount of the Northern Ireland - Belfast Publishing masthead was reduced to its recoverable amount through recognition of an impairment charge of €12.7m. This impairment arose due to a change in the discount rate and EBITDA forecasts applied in the impairment testing for this CGU.
• Sensitivity The Group ran sensitivities based on reasonably possible changes in the key assumptions for the various CGUs and these sensitivities would not result in the need to recognise any additional material impairment in 2018.
Fair Value Less Costs of Disposal Calculations - Island of Ireland - including Irish Independent, Sunday Independent, The Herald, Sunday World and Sligo Champion Publishing CGU The recoverable amount of this CGU was based on fair value less costs of disposal, estimated using discounted cashflows. The fair value measurement was categorised as a level 3 fair value based on the inputs in the valuation technique used in the above described value in use.
The key assumptions used in determining the fair value less costs of disposal are:
• Forecasted cash flows Forecasted cash flows are based on budgeted EBITDA as adjusted for expenditure necessary to maintain the asset or CGU at its current standard of performance. The budgeted EBITDA results are based on the approved 2019 budget and projections for 2020 to 2023. These calculations use cash flow projections for five years based on management approved forecasts which reflect management's current experience and future expectations of the markets in which the CGU operates. Management have also factored in profit enhancement initiatives in arriving at the cash flow projections for the five years 2019 to 2023 inclusive.
Independent News & Media PLC 163 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
12. Intangible Assets - continued
Impairment testing of Cash Generating Units (CGUs) containing Goodwill or other Intangible Assets with an Indefinite Useful Life - continued
Fair Value Less Costs of Disposal Calculations - Island of Ireland - including Irish Independent, Sunday Independent, The Herald, Sunday World and Sligo Champion Publishing CGU - continued
• Terminal value multiple A terminal value multiple of five was applied to positive year five EBITDA projections (2017: a terminal value multiple of five) in the fair value less costs of disposal calculations.
• Discount rates For the purpose of impairment testing, the post-tax discount rate used for fair value less costs of disposal calculations of the Island of Ireland - Publishing CGU was 9.7% (10.5% in 2017).
• Impairments The foregoing impairment test did not result in any impairment being recognised in 2018 (2017: €nil).
• Sensitivity The Group ran sensitivities based on reasonably possible changes in the key assumptions in the Island of Ireland - including Irish Independent, Sunday Independent, The Herald, Sunday World and Sligo Champion Publishing CGU. These sensitivities outlined that an impairment would be required if there was a reasonably possible change in assumptions. A 5% decrease in the forecasted EBITDA for this CGU would cause an impairment of €3.6m (2017: €nil), a change in the terminal value multiple from five to four for this CGU would cause an impairment of €5.1m (2017: €nil), and a 1% increase in the pre-tax discount rate for this CGU would cause an impairment of €1.3m (2017: €nil).
Company - Impairment of Investments in Subsidiary Undertakings A write back of €12.2m has been recorded in respect of the Company’s investment in subsidiary undertakings as at 31 December 2018 (2017: impairment of €28.9m). The reason for the increase in the value of the subsidiary undertakings is linked to the impairment testing as described earlier in this note. This testing for impairment involves determining the investment’s recoverable amount and comparing this to the carrying amount of the investment. The recoverable amount of the Group’s investment in the subsidiary undertakings was calculated on the basis of a combination of the value in use technique and the fair value less costs of disposal technique. If the carrying amount exceeds the recoverable amount an impairment charge is recorded and if the recoverable amount exceeds the carrying amount a write back is recorded.
164 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
13. Property, Plant and Equipment
Land & Buildings Plant & Equipment Total €m €m €m
2018 Group Cost At 1 January 2018 39.8 99.6 139.4 Additions 0.1 1.7 1.8 Exchange movements - (0.6) (0.6)
At 31 December 2018 39.9 100.7 140.6
Accumulated Depreciation and Impairment At 1 January 2018 (18.5) (80.8) (99.3) Depreciation (0.9) (2.5) (3.4) Impairment* - (4.8) (4.8) Exchange movements - 0.5 0.5
At 31 December 2018 (19.4) (87.6) (107.0)
Net Book Amount At 1 January 2018 21.3 18.8 40.1
At 31 December 2018 20.5 13.1 33.6
* Impairment tests carried out on property, plant and equipment in the Island of Ireland - Belfast Print CGU resulted in an impairment being recognised in 2018 of €4.8m (2017: €nil). The residual carrying value of the Island of Ireland - Belfast Print CGU property, plant and equipment is €nil. The methodology applied in carrying out the impairment testing is consistent with the approach taken for intangible assets (see note 12).
No finance costs were capitalised within property, plant and equipment during 2018.
Independent News & Media PLC 165 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
13. Property, Plant and Equipment - continued
Land & Buildings Plant & Equipment Total €m €m €m
2017 Group Cost At 1 January 2017 40.0 99.0 139.0 Additions 0.3 1.4 1.7 Disposals (0.4) - (0.4) Transfer from inventories* - 0.9 0.9 Exchange movements (0.1) (1.7) (1.8)
At 31 December 2017 39.8 99.6 139.4
Accumulated Depreciation and Impairment At 1 January 2017 (17.6) (79.8) (97.4) Depreciation (0.9) (2.5) (3.4) Exchange movements - 1.5 1.5
At 31 December 2017 (18.5) (80.8) (99.3)
Net Book Amount At 1 January 2017 22.4 19.2 41.6
At 31 December 2017 21.3 18.8 40.1
* Transfer from inventories relates to spare parts previously classified as inventory and reclassified to Property, Plant and Equipment in 2017.
166 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
14. Investments in Associates and Joint Ventures
2018 2017 €m €m
Associates At 1 January 0.9 0.9 Share of results - 0.1 Dividends - (0.1)
At 31 December 0.9 0.9
2018 2017 €m €m
Joint Ventures At 1 January 0.8 0.6 Purchases of/advances to joint ventures 0.1 - Disposal of joint ventures * (0.4) - Share of results 0.4 0.7 Dividends (0.5) (0.5)
At 31 December 0.4 0.8
*On 31 May 2018, the Group acquired the remaining 50% of the shares and voting interests in Reachmount DAC (trading as Reach Retail Services). As a result, the Group was deemed to have disposed of its 50% interest in the joint venture upon acquiring 100% of the shares and obtaining control of Reachmount DAC (see note 25).
(i) Carrying Amount
2018 2017 €m €m
Associates 0.9 0.9 Joint Ventures 0.4 0.8
1.3 1.7
The reporting year end dates of the Group’s associates and joint ventures are the same as the Group’s reporting year end date.
(ii) Associates The closing balance for year end 31 December 2018 for associates of €0.9m relates to Click & Go (2017: €0.9m).
(iii) Joint Ventures The closing balance for year end 31 December 2018 for joint ventures of €0.4m relates to The Star (2017: €0.8m related to The Star and Reachmount DAC).
Independent News & Media PLC 167 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
15. Other Investments
€m
Group At 1 January 2017 0.2 Disposals -
At 31 December 2017 0.2 Disposals -
At 31 December 2018 0.2
The investments included above represent investments in listed and unlisted equity securities. The fair values are based on quoted market prices where available.
Certain of the Group’s other investments comprise of equity instruments that do not have a quoted market price in an active market. Unquoted other investments are measured using valuation techniques based on discounted cash flows. The carrying amount of such investments amounts to €0.2m at 31 December 2018 (2017: €0.2m). Refer to note 29 for further detail on financial assets and liabilities.
16. Derivative Financial Instruments
The effect of initially applying IFRS 9 in the Group’s financial instruments is described in Note 1. Due to the transition method chosen in applying IFRS 9, comparative information has not been restated to reflect the new requirements.
Forward foreign exchange contracts At year end 2018, the Group had forward purchased STG£7.3m (€8.0m) (2017: STG£6.8m (€7.5m)) against Euro for settlement during 2019. Fair value of the instrument was €nil at 31 December 2018.
Information about the Group’s exposure to credit and market risks, and fair value measurement, is included in note 29.
Hedge accounting disclosures are not given due to the immaterial nature of our hedge accounting.
168 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
17. Inventories
2018 2017 €m €m
Group Raw materials 0.9 1.1 Work in progress - - Finished goods 4.1 1.7
5.0 2.8
The amount of inventories recognised as an expense in 2018 was €13.3m (2017: €13.9m) which is included in cost of sales.
In addition, inventories have been reduced by €nil (2017: €0.1m) as a result of the write down to net realisable value.
18. Trade and Other Receivables
2018 2017 €m €m
Group Current Trade receivables 24.2 23.7 Impairment of trade receivables (3.5) (2.8) Trade receivables due from related parties 0.5 0.8 Prepayments 3.6 3.0
24.8 24.7
2018 2017 €m €m
Company Current Loans owed by subsidiary undertakings 209.1 198.3
209.1 198.3
The effect of initially applying IFRS 9 is described in Note 1. Loans owed by subsidiary undertakings are interest free, unsecured and repayable on demand. The parent company recognises loss allowances on intergroup loans at an amount equal to lifetime ECLs. Credit losses are measured as the present value of all cash shortfalls related to the loans.
Credit and market risks, and impairment losses Information about the Group’s exposure to credit and market risks, and impairment losses for trade receivables is included in Note 29.
Independent News & Media PLC 169 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
19. Trade and Other Payables
2018 2017 €m €m
Group Current Trade payables 16.3 19.0 Trade balances owed to joint ventures 1.2 1.1 Payables for taxation and social welfare 3.9 3.2 Contract liabilities 0.1 0.1 Accrued liabilities 16.9 15.7
38.4 39.1
Payables for taxation and social welfare included above are as follows: Income tax deducted under PAYE 1.6 0.5 Other income tax deducted at source 0.1 0.1 Pay related social insurance 1.0 0.9 Value Added Tax payable 1.2 1.7
3.9 3.2
2018 2017 €m €m
Company Current Loans owed to subsidiary undertakings 600.6 589.4 Payables for taxation and social welfare 0.1 0.1 Accrued liabilities 0.9 0.1
601.6 589.6
Payables for taxation and social welfare included above are as follows: Income tax deducted under PAYE 0.1 0.1
Loans owed to subsidiary undertakings are interest free, unsecured and repayable on demand.
170 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
20. Provisions
Onerous Contracts and Restructuring Other Provision Provisions Total €m €m €m
Group At 1 January 2018 0.5 9.5 10.0 Provisions made during the year 1.3 3.2 4.5 Utilised during the year (0.1) (2.9) (3.0)
At 31 December 2018 1.7 9.8 11.5
2018 2017 €m €m
Analysis of total provisions: Current provisions 11.1 9.5 Non-current provisions 0.4 0.5
Total 11.5 10.0
The Onerous Contracts (see note 29) and Restructuring Provision primarily comprises obligations in relation to a number of property lease/restructuring projects and other onerous trading contractual arrangements from which the Group no longer derives economic benefit.
These obligations (which total €1.7m as at 31 December 2018) will expire as follows:
Timeline 2019 2020 2021 2022 and beyond
Amount €1.3m €0.1m €0.1m €0.2m
There is relative certainty around timing and amounts due to the fact that they represent contractual obligations of the Group. The Group’s obligations in respect of onerous contracts and the expected timing of payment are also reflected in the liquidity analysis included in note 29.
Other provisions at 31 December 2018 and 31 December 2017 primarily include provisions for libel. A certain level of uncertainty exists around the timing and the amount, recognising the nature of libel provisioning. Other provisions at 31 December 2018 also include contingent consideration provisions of €0.6m relating to acquisitions made during the year (see note 25).
Independent News & Media PLC 171 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
21. Analysis of Deferred Taxation Balances
Retirement Capital Benefit Tax Allowances Obligations Losses Other Total €m €m €m €m €m
Group At 1 January 2017 3.4 8.2 0.3 (1.2) 10.7 Charge to Income Statement (1.8) (2.1) (0.2) - (4.1) Recognised in other comprehensive income* - (0.2) - - (0.2) Exchange movements (0.1) - - - (0.1)
Total charge for the year (1.9) (2.3) (0.2) - (4.4)
At 31 December 2017 1.5 5.9 0.1 (1.2) 6.3 (Charge)/credit to Income Statement (0.8) (0.9) 0.2 0.2 (1.3) Recognised in other comprehensive income* - (0.2) - - (0.2) Acquisitions (see note 25) - - - (0.3) (0.3) Exchange movements - - - - -
Total (charge)/credit for the year (0.8) (1.1) 0.2 (0.1) (1.8)
At 31 December 2018 0.7 4.8 0.3 (1.3) 4.5
* Tax effect of retirement benefit obligation remeasurements.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised.
In particular, judgement is used when assessing the extent to which deferred tax assets should be recognised, with consideration given to the timing and level of future taxable income in the relevant tax jurisdiction. The Group has tax losses, capital allowances and tax credits in relation to retirement benefit obligations available that have the potential to reduce tax payments in future years. Deferred tax assets have been recognised in relation to these to the extent that their recovery is probable having regard to the projected future taxable profits of the relevant companies. Deferred tax is measured on an undiscounted basis in the periods in which the asset is expected to be realised or the liability expected to be settled, based on tax rates and tax laws substantively enacted at the reporting date.
The net deferred tax asset at 31 December 2018 was €4.5m and the Group estimates that the majority of this will be settled/recovered more than 12 months after the reporting date.
The above net deferred tax balance is reflected in the Group Statement of Financial Position as follows:
2018 2017 €m €m
Deferred taxation assets 5.9 7.7 Deferred taxation liabilities (1.4) (1.4)
4.5 6.3
172 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
21. Analysis of Deferred Taxation Balances - continued
Analysis of deferred taxation assets:
2018 2017 €m €m
Retirement benefit obligations - defined benefit schemes 0.7 1.0 Retirement benefit obligations - defined contribution schemes 4.1 4.9 Capital allowances – property, plant and equipment 0.7 1.5 Tax losses 0.3 0.1 Other 0.1 0.2
5.9 7.7
Analysis of deferred taxation liabilities:
2018 2017 €m €m
Other (1.4) (1.4)
(1.4) (1.4)
The decrease of €1.8m in the Group’s net deferred tax asset during the year primarily relates to the movement on retirement benefit obligations, capital allowances and tax losses (2017: The decrease of €4.4m in the Group’s net deferred tax asset during the year primarily relates to the movement on retirement benefit obligations, capital allowances and tax losses).
The Directors have estimated the recoverability of the Group’s deferred tax assets based on their current assessment of the availability of future taxable profits against which to utilise the deferred tax assets. The Directors determine that capital allowances and losses should be available to shelter a significant portion of the projected profit in the future periods. The Group recognised deferred tax assets projected to be realised in the timescale within which the Group believes that it can assess the likelihood of its profits arising as being more likely than not. The deferred tax assets recognised represent approximately five years (2017: five years) of taxable profits in the relevant entities.
The Group has unrecognised tax losses as at 31 December 2018 of €482.5m (2017: €484.4m) which have a tax value of €99.5m (2017: €102.1m). This is comprised of unrecognised tax losses of €75.0m, €184.4m and €225.2m, with tax values of €9.8m, €31.4m and €58.6m in respect of Republic of Ireland, Northern Ireland and Luxembourg respectively (2017 is comprised of unrecognised tax losses of €75.7m, €183.5m and €225.2m, with tax values of €9.9m, €31.2m and €61.0m in respect of Republic of Ireland, Northern Ireland and Luxembourg respectively). In addition in Northern Ireland, the Group has unrecognised available capital allowances as at 31 December 2018 of €33.5m (2017: €33.9m) which have a tax value of €5.7m (2017: €5.8m). There is no expiry date applicable to these unrecognised tax losses or available capital allowances. In Northern Ireland, the Group has an unrecognised benefit from future retirement benefits of €11.7m (2017: €29.8m) which has a tax value of €2.0m (2017: €5.1m).
Independent News & Media PLC 173 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
21. Analysis of Deferred Taxation Balances - continued
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. Deferred income tax has not been recognised for withholding and other taxes that may be payable on the unremitted earnings of certain subsidiaries, associates and joint ventures, as the timing of the reversal of these temporary differences is controlled by the Group and it is probable that these temporary differences will not reverse in the foreseeable future.
As at 31 December 2018, no unremitted earnings were available in the Group which could have been repatriated to Ireland, which would have given rise to such a deferred tax liability.
22. Borrowings
As of 31 December 2018, the Group held no debt and had cash and cash equivalents of €81.7m (€91.5m as at 31 December 2017).
Undrawn Facilities
The Group has various borrowing facilities available to it. The undrawn facilities available to it at the year end in respect of which all conditions precedent have been met at that date were as follows:
2018 2017 €m €m
Expiring in less than one year (1.0) (1.0) Expiring in more than one but less than two years - - Expiring in more than two years - -
(1.0) (1.0)
23. Share Capital
2018 2017 €m €m
Group and Company Authorised: 7,000,000,000 ordinary shares of €0.01 each 70.0 70.0
Issued and fully paid: 1,392,144,452 ordinary shares of €0.01 each 13.9 13.9
Treasury Shares: 5,597,077 treasury shares of €0.01 each 0.1 0.1
174 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
24. Share Based Payment
The Company operates the following share based schemes which provides for the grant of share options:
(a) INM Employee Share Scheme 2008; and (b) INM Long Term Incentive Plan 2014.
The Group recognised total expenses of €nil (2017: €nil) in the Group Income Statement related to equity-settled share based payment transactions in respect of the INM Employee Share Scheme 2008.
The Group recognised a total credit of €0.3m (2017: €nil) in the Group Income Statement related to equity-settled share based payment transactions in respect of the INM Long Term Incentive Plan 2014. This comprised a €0.1m (2017: €0.5m) share based payment charge in the current year offset by a €0.4m credit (2017: €0.5m). The above credit comprised a €0.2m credit relating to share options which were forfeited in line with the rules of the 2014 Long Term Incentive Plan due to the employees leaving the service of the company during 2018 and therefore forfeiting their share options and also to a credit of €0.2m (2017: €0.5m) relating to the non-vesting at 31 December 2018 of the Earnings Per Share (“EPS”) element of the share options granted on 1 January 2016 (2017: share options granted on 1 January 2015).
In addition the Group booked a €0.2m (2017: €0.5m) credit in retained losses relating to the non-vesting at 31 December 2018 of the Total Shareholder Return (“TSR”) element of the share options granted on 1 January 2016 (2017: share options granted on 1 January 2015).
(a) INM Employee Share Scheme 2008 Eligibility was restricted to certain employees who agreed to amend the terms and conditions of their employment to provide for a permanent reduction in salary (effective 1 January 2009). All options are exercisable within ten years from the date they were granted (23 January 2009). No other performance conditions attach to these options.
The following table shows the number of options outstanding under the INM Employee Share Scheme 2008 as at 31 December 2018:
2018 Number of share Weighted average options exercise price Value € €
Outstanding at the beginning of the year 518,081 1.321 684,386 Forfeited/cancelled during the year (41,526) 1.321 (54,855)
Outstanding at the end of the year 476,555 1.321 629,531
No options have been exercised under this Plan to date. The options outstanding at 31 December 2018 are exercisable at €1.321. On 23 January 2019 these options lapsed.
Independent News & Media PLC 175 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
24. Share Based Payment - continued
(b) INM Long Term Incentive Plan 2014 In June 2014, the Remuneration Committee proposed the introduction of a share option scheme and this was approved by the shareholders at the AGM on 6 June 2014.
The following table shows the number of options outstanding under the INM Long Term Incentive Plan 2014 as at 31 December 2018:
2018 2017 Weighted Weighted Number of average Number of average share exercise Grant date share exercise Grant date options price fair value options price fair value € € € €
Outstanding at the beginning of the year 3,583,764 0.01 587,737* 13,650,637 0.01 1,875,409* Granted during the year ------Forfeited/cancelled/lapsed during the year (3,583,764)** 0.01 (587,737) (10,066,873)*** 0.01 (1,287,672)
Outstanding at the end of the year - - - 3,583,764 0.01 587,737
* Total expense is recognised over a 3 year period. ** Includes 2,183,936 share options granted on 1 January 2016 which did not meet the vesting criteria at the end of the 3 year vesting period and therefore did not vest. The remaining 1,399,829 relates to share options which were forfeited in line with the rules of the 2014 Long Term Incentive Plan due to the employees leaving the service of the company during 2018 and forfeiting their share options. *** Includes 8,923,528 share options granted on 1 January 2015 which did not meet the vesting criteria at the end of the 3 year vesting period and therefore did not vest. The remaining 1,143,345 relates to share options which were forfeited in line with the rules of the 2014 Long Term Incentive Plan due to the employees leaving the service of the company during 2017 and forfeiting their share options.
There were no share options exercisable at year end and it is not proposed to make any further awards under this plan. Expected volatility is based on the weighted average historic volatility over a period equal to the weighted average expected life. The market price of Ordinary Shares of €0.01 each was €0.06 at 31 December 2018 and ranged from €0.06 to €0.11 during the year.
176 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
25. Acquisitions
(a) Hegadon Limited On 11 January 2018, the Group acquired the trading business and certain assets of Hegadon Limited (trading as Supreme Stationery). The business has been fully integrated into the existing Reach Group. The acquisition further diversifies the product range and customer base of Reach Group in the stationery sector while leveraging the existing distribution network.
(i) Consideration transferred The total consideration was €4.7m, which comprised €4.5m of cash and €0.2m of estimated contingent consideration. The contingent consideration payment will be determined by the trading performance in the 12 months following completion. The amount to be paid is being finalised based on the financial outturn and is expected to be in line with the amount provided.
(ii) Acquisition related costs The Group incurred acquisition related costs of €0.2m on legal fees and other transaction costs. These costs were incurred in 2017 and therefore were included in ‘exceptional items’ in 2017.
(iii)Identifiable assets acquired The following table summarises the recognised amounts of assets acquired at the date of acquisition:
€m
Intangible assets - Brands 0.6 Intangible assets - Customer lists 0.3 Deferred tax liability (0.1)
Total net identifiable assets acquired 0.8
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Assets acquired Valuation technique
Intangible Assets The brands of €0.6m were valued using the relief-from-royalty method. The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result of the acquisition.
The customer lists of €0.3m were valued using the multi-period excess earnings method. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows related to contributory assets.
Independent News & Media PLC 177 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
25. Acquisitions - continued
(a) Hegadon Limited - continued
(iv)Goodwill Goodwill arising from the acquisition has been recognised as follows:
€m
Consideration transferred 4.7 Fair value of net identifiable assets (0.8)
Goodwill 3.9
The principal factors contributing to the recognition of goodwill on the business combination include synergies and supply chain expertise.
(b) Reachmount DAC On 31 May 2018, Reach Group acquired the remaining 50% of the shares and voting interests in Reachmount DAC (trading as Reach Retail Services) bringing the Group’s interest up to 100%.
Reachmount DAC was incorporated on 5 November 2015 as a joint venture between Reach Group and Paramount Packaging Limited to provide consumable packaging products to the retail and food service industries. There are clear synergies with Reach Group’s existing distribution network which provides a competitive advantage in this sector.
(i) Consideration transferred The total consideration was €1.2m, which comprised €0.8m of cash and €0.4m of estimated contingent consideration. The contingent consideration payment will be determined by the trading performance in the 12 months following completion. The range of contingent consideration is between €nil and €0.4m and payment will be based on the achievement of set gross margin thresholds.
(ii) Acquisition related costs The Group incurred acquisition related costs which have been included in ‘exceptional items’ (see note 6).
(iii)Identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition:
€m
Intangible assets - Brands 0.8 Intangible assets - Customer lists 0.5 Inventories 0.7 Trade and other payables (0.3) Deferred tax liability (0.2)
Total net identifiable net assets acquired 1.5
178 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
25. Acquisitions - continued
(b) Reachmount DAC - continued
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Assets acquired Valuation technique
Intangible Assets The brands of €0.8m were valued using the relief-from-royalty method. The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result of the acquisition.
The customer lists of €0.5m were valued using the multi-period excess earnings method. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows related to contributory assets.
Other Assets The carrying value of other assets acquired equated to their fair value.
(iv)Goodwill Goodwill arising from the acquisition has been recognised as follows:
€m
Consideration transferred 1.2 Fair value of pre-existing interest in Reachmount DAC 1.2 Fair value of identifiable net assets (1.5)
Goodwill 0.9
The remeasurement to fair value of the Group’s pre-existing 50% interest in Reachmount DAC resulted in a gain of €0.8m. This amount has been included in ‘exceptional items’. The goodwill is attributable to synergies that will be realised through the Group’s people, structures and business practices in acquiring the remaining 50% of Reachmount DAC.
(c) Put Option The Group has a €0.3m liability at 31 December 2018 in respect of a put option over the non-controlling interest on a 51% owned subsidiary, INM Events DAC. This is measured based on a multiple of the profitability of the non-controlling interest of the underlying subsidiary company.
Independent News & Media PLC 179 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
26. Cash and Cash Equivalents
2018 2017 €m €m
Group Cash at bank and in hand 17.1 25.1 Short term deposits 64.6 66.4
81.7 91.5
Cash and cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement: Cash and cash equivalents 81.7 91.5 Bank overdrafts - -
81.7 91.5
2018 2017 €m €m
Company Cash at bank and in hand 6.9 7.3 Short term deposits 63.6 65.6
70.5 72.9
Cash and cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement:
Cash and cash equivalents 70.5 72.9
27. Capital Commitments
2018 2017 €m €m
Group and share of joint ventures and associates Contracted but not provided for: - Group 0.5 0.5 - Associates - - Authorised by Directors but not contracted for: - Group 0.3 0.4 - Associates - -
At end of year 0.8 0.9
180 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
28. Operating Lease Commitments
The Group operating lease commitments primarily comprise obligations in relation to a number of property leases, in addition to other onerous trading contractual arrangements from which the Group no longer derives economic benefit. There was no contingent rent payable; no renewal or purchase options or escalation clauses; and no restrictions imposed by lease arrangements.
(i) Future minimum lease payments At the reporting date, the Group has outstanding commitments under non-cancellable operating leases which fall due as follows:
2018 2017 €m €m
No later than one year 3.1 2.9 Later than one and no later than five years 10.9 9.0 Later than five years 11.1 12.9
25.1 24.8
(ii) Amounts recognised in profit or loss
2018 2017 €m €m
Lease expense* 2.8 2.8
* Includes €0.3m of sublease income in 2018 (2017: €0.2m).
29. Financial Risk and Capital Management
Capital Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern (as disclosed in note 1) and to maintain an optimal capital structure which maximises the return to shareholders while reducing the cost of capital.
No dividend was paid in respect of the year ended 31 December 2018.
Independent News & Media PLC 181 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Financial Risk Management
The Group’s financial risks are managed by Group Treasury within parameters defined formally by the Board. Group Treasury’s activity is reported to the Audit and Risk Committee and to the Board. The main financial risks faced by the Group relate to credit, foreign exchange translation and liquidity. The Board agrees policies for managing these risks as summarised below.
Financial instruments, including derivatives, are permitted to be used to manage financial risk arising from the Group’s operations.
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and cash and cash equivalents. The Board establishes the policy which Group Treasury follows in managing credit risk. Exposure is managed by distributing the credit risk, where possible, across banks or other institutions meeting required standards as assessed normally by reference to the major credit rating agencies.
(i) Trade Receivables The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. Details of concentration of revenue are included in note 4.
In monitoring customer credit risk, customers are grouped according to their characteristics, including their geographic location. The Group takes out credit risk insurance in respect of customers where it considers it appropriate to do so.
The Group is monitoring the economic environment in the UK and is taking actions to limit its exposure to customers due to Brexit. The majority of trade receivables are based in the functional currency of the relevant company.
At 31 December 2018, the exposure to credit risk for trade receivables by geographic region was as follows:
2018 2017 €m €m
ROI 19.4 18.9 NI 5.4 5.8
24.8 24.7
182 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Credit Risk - continued
(i) Trade Receivables - continued The Group’s credit risk management policy in relation to trade receivables involves periodically assessing the financial reliability of customers, taking into account financial position, past experience and other factors. The utilisation of credit limits is regularly monitored. There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers. The maximum exposure to the top five receivables does not exceed €7.7m (2017: €7.3m) and the credit quality of such debtors in each case is good based on previous payment history. Average credit terms, where given, range from 15 days to 45 days.
Included in the Group’s trade and other receivables as at 31 December 2018 are balances of €18.1m (2017: €17.6m) which are not past due at the reporting date and €6.7m (2017: €7.1m) which are past due at the reporting date but not impaired in the majority of cases. The aged analysis of these balances is as follows. Comparative amounts for 2017 represent those amounts which are past due at the reporting date but not impaired under IAS 39.
2018 2017 €m €m
Current 0 - 30 days 3.2 3.3 30 - 60 days 1.1 1.4 60 - 90 days 0.6 0.9 90 - 120 days 0.6 0.2 120+ days 1.2 1.3
6.7 7.1
Independent News & Media PLC 183 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Credit Risk - continued
(i) Trade Receivables - continued
Expected credit loss (‘ECL’) assessment for individual customers as at 1 January and 31 December 2018. The Group uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which comprise a very large number of small balances.
Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different segments based on the following common credit risk characteristics - geographic region, age of customer relationship and type of product purchased.
The following table provides information about the exposure to credit risk and ECLs for trade receivables from individual and corporate customers as at 31 December 2018:
Expected Total Debtors credit loss Total Provision €m % €m
Current 0 - 30 days 21.3 6% 1.2 30 - 60 days 1.1 28% 0.3 60 - 90 days 0.6 62% 0.4 90 - 120 days 0.6 65% 0.4 120+ days 1.2 100% 1.2
24.8 3.5
Loss rates are based on actual credit loss experience over the last year. These rates are multiplied by scalar factors to reflect differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables.
184 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Credit Risk - continued
(i) Trade Receivables - continued
Movements in the provision for impairment in respect of trade receivables - before 1 January 2018 The Group’s policy for the determination of the provision for bad debts is based on a line-by-line assessment of the credit risk attached to the individual debtors and an assessment of the resulting requirement for a provision for impairment. In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable, including any indicators for impairment (which may include evidence of financial difficulty of the customer, payment default, breach of contract, etc.) and any collateral held, which in certain limited cases exists in the form of deposits €2.6m (2017: €2.6m). Amounts charged to the impairment provision are written off when there is no expectation of recovery. Subsequent recoveries of amounts previously written off are credited to the Income Statement. For the purpose of calculating the impairment provision, the Group does not take into account the impact of discounting the trade receivables as it is considered not material given the age profile of the Group’s trade receivable balances.
Movements in the provision for impairment of trade receivables during the year were as follows. Comparative amounts for 2017 represent the provision account for impairment losses under IAS 39.
2018 2017 €m €m
Balance at 1 January under IAS 39 2.8 2.6 Adjustment on initial application of IFRS 9 -
Balance at 1 January under IFRS 9 2.8 Provision for impairment recognised in the year 1.1 0.7 Amounts recovered during the year (0.1) (0.1) Amounts written off during the year (0.3) (0.4)
At 31 December (note 18) 3.5 2.8
The Group’s other classes of financial assets are not past due and do not contain impaired assets. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings or to historical information about counterparty default rates. Based on the credit history of these other assets, it is expected that these amounts will be received when due. The Group’s maximum exposure to credit risk in relation to financial assets (i.e. financial assets excluding prepayments of €3.6m (2017: €3.0m), tax recoverable of €2.1m (2017: €2.5m) and other investments of €0.2m (2017: €0.2m) is €102.9m (2017: €113.4m)).
Independent News & Media PLC 185 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Credit Risk - continued
(i) Trade Receivables - continued
Company There were no past due or impaired trade receivables in the Company Statement of Financial Position as at 31 December 2018 or 31 December 2017.
(ii) Cash The Group held cash and cash equivalents of €81.7m as at 31 December 2018 (2017: €91.5m). The cash and cash equivalents are held with bank and financial institution counterparties, all of which are rated BBB- or better, based on rating agency, Standard & Poor’s, ratings. Deals are authorised only with banks with which dealing mandates have been agreed. These policies are regularly monitored to ensure credit exposure to any one financial institution is limited.
Impairment on cash and cash equivalents has been measured on a 12‑month expected loss basis and reflects the short maturities of the exposures. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties.
On initial application of IFRS 9, there was no material impact on cash and cash equivalents.
(iii) Derivatives The derivatives are entered into with bank and financial institution counterparties, which are rated BBB- or better, based on rating agency, Standard & Poor’s, ratings.
186 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Liquidity Risk
Liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Management monitors the adequacy of the Group’s liquidity reserve (comprising undrawn borrowing facilities as detailed in note 22 and cash and cash equivalents as detailed in note 26).
The following table analyses the Group’s financial liabilities into the relevant maturity groupings based on the remaining period to contractual maturity at the reporting date. The amounts disclosed in the following table are the contractual undiscounted cash flows.
Carrying <1 Year 1-2 Years 2-3 Years >3 Years Total Amount €m €m €m €m €m €m
Group 2018 Trade and other payables 38.4 - - - 38.4 38.4 Onerous contracts - 0.1 0.1 0.2 0.4 0.4 Other payables* 6.8 6.7 6.8 13.7 34.0 33.9 Put liability 0.3 - - - 0.3 0.3 Contingent consideration (see note 25) 0.6 - - - 0.6 0.6
46.1 6.8 6.9 13.9 73.7 73.6
2017 Trade and other payables 38.7 - - - 38.7 38.7 Onerous contracts - 0.1 0.1 0.3 0.5 0.5 Other payables* 6.7 6.8 6.7 20.4 40.6 40.5 Put liability 0.4 - - - 0.4 0.4 Contingent consideration ------
45.8 6.9 6.8 20.7 80.2 80.1
Company 2018 Trade and other payables 601.6 - - - 601.6 601.6
2017 Trade and other payables 589.6 - - - 589.6 589.6
* Other payables primarily relate to defined contribution pension obligations which have been discounted. The impact of discounting is immaterial.
Independent News & Media PLC 187 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Liquidity Risk - continued
The Board has reviewed the Group financial forecasts and associated risks for the period beyond one year from the date of approval of the financial statements. These detailed, bottom-up financial forecasts have been prepared and the forecasts reflect key assumptions, based on information available to the Directors at the time of the preparation of this financial information, and include: • detailed monthly forecasting by business unit for 2019, reflecting trends experienced up to the date of preparation; and • future revenues and cost savings for 2020-2021 based on management’s assessment of trends across principal operating units.
The critical assumptions underlying the forecast were then stress-tested to ensure sufficient headroom exists to cope with a reasonable level of negative movement in the key assumptions.
Having completed this forecasting process, the Directors consider that there is sufficient liquidity available to the Group for a period of at least one year from the date of approval of these financial statements.
Market Risk
(a) Foreign Exchange Risk Foreign exchange risk arises from recognised assets and liabilities and forecast future commercial transactions that are denominated in a currency that is not the entity’s functional currency. Foreign exchange risk arising from forecast future commercial transactions is managed by the use of forward foreign exchange contracts where deemed appropriate. Foreign exchange transaction exposure in the Group is limited due to the fact that trading companies in the Group tend to have the majority of their revenues and expenses in their functional currency.
Foreign currency translation exposure arises from the retranslation of overseas subsidiaries’ Income Statements and Statements of Financial Position into Euro. The Group is primarily exposed to translation risk on its Northern Irish operation.
The Group uses forward rate contracts to mitigate the impact of exchange rate movements on the Group’s Income Statement when the Group considers it economically viable to do so. Further information on the Group’s use of foreign exchange contracts is given in note 16. Based on the net foreign currency assets at 31 December 2018: • if Euro strengthened against sterling by 10%, net assets and total equity would have decreased by €0.7m (2017: €0.7m decrease based on a 10% move); and • if Euro had weakened against sterling by 10%, net assets and total equity would have increased by €0.8m (2017: €0.8m based on a 10% move).
(b) Interest Rate Risk The Group has no interest rate risk in 2018 as the Group had no borrowings (2017: €nil).
188 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(c) Price Risk The Group is not exposed to significant price risk in relation to its financial instruments, other than in respect of the Group’s other investments (note 15).
(i) Currency and interest rate exposure of financial liabilities The Group’s financial liabilities comprise trade and other payables and other non-current payables.
Fixed Rate Financial Liabilities Weighted Weighted Non-Interest Average Average Floating Rate Fixed Rate Bearing Effective Time for Financial Financial Financial Interest which Rate Liabilities Liabilities Liabilities Total Rate is Fixed €m €m €m €m % Years
Group At 31 December 2018 Currency: Euro - - 65.9 65.9 - - Stg£ - - 7.7 7.7 - -
Gross financial liabilities - - 73.6 73.6 - -
At 31 December 2017 Currency: Euro - - 72.1 72.1 - - Stg£ - - 8.0 8.0 - -
Gross financial liabilities - - 80.1 80.1 - -
The principal closing and average rates against the Euro relevant to the Group were as follows:
2018 2018 2017 2017 Closing Average Closing Average
Stg£ 0.90088 0.88482 0.88893 0.87633
The Group had no debt at 31 December 2018. Non-interest bearing financial liabilities include trade and other payables and other non-current payables, which do not have pre-determined dates of repayment.
Company The Company’s financial liabilities primarily comprise loans from subsidiary undertakings which are denominated in Euro and are interest free.
Independent News & Media PLC 189 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(ii) Currency and interest rate analysis of financial assets The Group’s financial assets comprise other investments, trade and other receivables (excluding prepayments), derivative financial instruments and cash and cash equivalents. A currency analysis of these financial assets is set out below:
2018 2017 €m €m
Group Currency: Euro 93.8 94.7 Stg£ 8.6 16.8 Other* 0.7 2.1
103.1 113.6
* Primarily relates to USD (2017: Primarily relates to USD).
Cash and cash equivalents are placed on deposit at floating rates of interest with an original maturity of 31 days or less. The effective interest rates during the year on short term bank deposits ranged from -0.2% to 0.15%. The Group’s other financial assets, including other investments, trade and other receivables, loans to associates and joint ventures and derivative financial instruments are non-interest bearing.
Based on the cash held at 31 December 2018 a change in interest rates of +/-1% with all other variables being constant would increase/reduce post-tax profits by €0.7m (2017: €0.8m).
Company The Company’s closing cash and cash equivalents balance is denominated in Euro. The effective interest rates during the year on short term bank deposits ranged from -0.2% to 0.15%. All loans to subsidiary undertakings are denominated in Euro and are interest free.
Based on the cash held at 31 December 2018, a change in interest rates of +/-1% with all other variables being constant would increase/reduce post-tax profits by €0.5m (2017: €0.5m).
190 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(iii) Currency exposures The table below shows the Group’s trade assets and liabilities that give rise to the net monetary gains and losses recognised in the Income Statement. Such exposures comprise the monetary assets and liabilities of the Group that are not denominated in the functional currency of the unit involved. Whilst the Group as a whole has assets and liabilities in multiple currencies, individual entities in the Group do not have a significant foreign exchange exposure to currencies that are not their functional currency. At 31 December, these exposures were as follows:
Net foreign currency financial assets/(liabilities) Stg£ Euro Other Total €m €m €m €m
2018 Functional currency of Group operations Euro 1.9 - 0.3 2.2 Stg£ - 0.7 - 0.7
1.9 0.7 0.3 2.9
2017 Functional currency of Group operations Euro 0.5 - 1.9 2.4 Stg£ - 0.6 0.1 0.7
0.5 0.6 2.0 3.1
Net exchange gains of €nil (2017: €0.2m) on monetary items have been recognised in the Income Statement.
Independent News & Media PLC 191 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(iv) Fair values of financial assets and financial liabilities The fair values of quoted other investments and derivative financial instruments are measured using market values. Unquoted other investments and derivatives are measured using valuation techniques. The carrying amount of non interest bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values. The following is a comparison by category of book values and fair values of the Group’s and Company’s financial assets and financial liabilities as at the year end:
Carrying Amount Fair Value 2018 2017 2018 2017 €m €m €m €m
Group Financial Assets Other investments 0.2 0.2 0.2 0.2 Derivative financial instruments - cash flow hedges - 0.1 - 0.1
0.2 0.3 0.2 0.3
Financial assets whose fair value could not be reliably measured amounted to €nil (2017: €nil).
Carrying Amount Fair Value 2018 2017 2018 2017 €m €m €m €m
Group Financial Liabilities (excluding borrowings) Other payables (including defined contribution liability) 34.0 40.5 34.0 40.5 Put option 0.3 0.4 0.3 0.4 Contingent consideration 0.6 - 0.6 -
The Group has not disclosed the fair value of certain financial instruments such as short-term receivables and payables because their carrying amounts are a reasonable approximation of fair value.
The Group has adopted the following fair value measurement hierarchy in relation to its financial assets and financial liabilities that are carried in the Statement of Financial Position at fair value as at the year end: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs, other than quoted prices included within level 1, that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
192 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(iv) Fair values of financial assets and financial liabilities - continued The following tables set out the assets that are measured at fair value on the Statement of Financial Position as at 31 December:
Level 1 Level 2 Level 3 Total €m €m €m €m
Group 2018 Financial Assets Other investments - - 0.2 0.2 Derivative financial instruments - cashflow hedges - - - -
- - 0.2 0.2
2017 Financial Assets Other investments - - 0.2 0.2 Derivative financial instruments - cashflow hedges - 0.1 - 0.1
- 0.1 0.2 0.3
The following tables set out the level under which fair value has been considered for financial liabilities that are not measured at fair value on the Statement of Financial Position as at 31 December:
Level 1 Level 2 Level 3 Total Fair Value €m €m €m €m €m
Group 2018 Financial Liabilities Other payables (including defined contribution liability) - - 34.0 34.0 34.0 Put option - - 0.3 0.3 0.3 Contingent consideration - - 0.6 0.6 0.6
2017 Financial Liabilities Other payables (including defined contribution liability) - - 40.5 40.5 40.5 Put option - - 0.4 0.4 0.4 Contingent consideration - - - - -
Independent News & Media PLC 193 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(v) Measurement of fair values Certain financial instruments are measured in level 2 and level 3 of the fair value hierarchy. These are as follows:
Other investments: The Group’s other investments include unquoted equity instruments which are a level 3 fair value measurement. Initial fair value is equal to the cash amount paid for the assets. Subsequent fair value is determined using valuation techniques based on the related earnings multiple of the investments, which the Group considers to be a close approximation of their fair value.
Derivative financial instruments: Derivative financial instruments consist of foreign exchange financial contracts entered into by the Group. These are not traded in active markets. The fair value of the contracts are estimated using a valuation technique that maximises the use of observable market inputs e.g. foreign exchange rates.
Put Option Liability: Refer to note 25 (c) for fair value measurement detail.
There were no transfers between the levels during the year.
(vi) Foreign exchange contracts Details of the nominal amount of significant foreign exchange contracts outstanding as at 31 December were as follows:
2018 2017 €m €m
Buy Sterling Pounds/Sell Euro 8.0 7.5
The Irish operations purchase newsprint in Sterling. In order to protect against adverse exchange rate movements the above foreign exchange contracts were entered into in 2018 and in 2017.
The table below shows the contractual cash flows due under the Group’s derivative financial instruments included above which will be settled on a gross basis. The balances are due within one year from the reporting date, thus the impact of discounting is not significant.
2018 2017 €m €m
Forward foreign exchange contracts - cash flow hedges Inflow 8.0 7.6 Outflow (8.0) (7.5)
194 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
29. Financial Risk and Capital Management - continued
Market Risk - continued
(vi) Foreign exchange contracts - continued
Movement in cash flow hedges During the year ended 31 December 2018, a gain of €nil (2017: €0.1m) was recognised in other comprehensive income and €0.1m (2017: €0.1m) was transferred from other comprehensive income and recognised in the Income Statement in relation to cash flow hedges.
30. Contingent Liabilities
(i) Guarantees The Company has guaranteed bank advances, EFT facilities and certain other obligations of subsidiary undertakings up to a maximum of €33.8m (2017: €44.0m). Letters of support have also been provided to certain of its subsidiaries.
(ii) Litigation Given the nature of the Company’s business, from time to time, it is party to various legal proceedings. It is the opinion of the Directors that INM’s share of the losses, if any, arising in connection with these matters will have no material adverse impact on the financial position of the Company.
(iii) Ongoing investigations and related matters As a result of certain protected disclosures made to it by the Company’s former CEO, Mr Robert Pitt, the Office of the Director of Corporate Enforcement (“ODCE”) commenced an investigation into the Company’s affairs. In March 2018, the ODCE informed the Company that it intended to apply to the High Court for the appointment of Inspectors to investigate the affairs of the Company.
In September 2018, the President of the High Court, Mr Justice Peter Kelly, appointed Mr Sean Gillane SC and Mr Richard Fleck CBE as inspectors under section 748 of the Companies Act, 2014 to inquire into and report on certain issues relating to the conduct of the affairs of the Company.
These issues include the accessing by third parties of the Company’s data from 2014, the proposed acquisition in 2016 by the Group of Newstalk Radio and other matters that were the subject of disclosures made by the Group’s former CEO to the Company. The inspectors will also report on whether Mr Leslie Buckley, the former Chairman of the Company, disclosed information to third parties in breach of market abuse or other applicable law and whether there have been any breaches of law arising from any of these matters and the Company's response to the disclosures made to it.
Arising from materials sent by the ODCE in respect of the Court application, the Company’s Board became aware of new information regarding a data security incident which had previously been notified to the Data Protection Commissioner (“DPC”). The Board notified the DPC of the new information as a result of which the DPC announced a formal investigation into the data security incident.
Independent News & Media PLC 195 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
30. Contingent Liabilities - continued
(iii) Ongoing investigations and related matters - continued
As stated in note 6, the Company has incurred an exceptional charge of €3.5m which relates to the Company’s costs associated with meeting its obligations towards the ODCE and the DPC in their respective investigations; the Company's and the ODCE’s costs in relation to the application to the High Court for the appointment of inspectors; the Company's and the ODCE’s costs in relation to the judicial review application made by the Company in relation to the ODCE’s decision to apply to the High Court; the Company’s costs in relation to the Inspection and the Company’s costs in complying with its statutory obligations towards certain individuals seeking information in relation to the 2014 data security incident.
The Company is co-operating with the inspectors and the DPC in their respective investigations. The Company has not made a provision for future costs associated with the investigations. However, the Company has a contingent liability in respect of the ongoing investigations and related matters. These ongoing investigations and related matters may result in Independent News & Media PLC incurring material costs.
31. Related Party Transactions
Transactions between the Group and its joint ventures and associates include both trade and loan transactions. Details of the Group’s principal joint ventures and associates are provided in note 33 to the financial statements.
Details of transactions and balances outstanding with associates and joint ventures are as follows:
Sale of goods Purchase of goods Amounts owed Amounts owed by related parties to related parties 2018 2017 2018 2017 2018 2017 2018 2017 €m €m €m €m €m €m €m €m
Associates 0.6 0.6 - - 0.1 0.1 - -
Joint Ventures 7.9 8.5 1.1 1.9* 0.4 0.7 1.2 1.1
*Comparative has been restated due to the transition to IFRS 15.
Details of material other related party transactions are as follows:
During the year the Group continued to engage the services of CTI Global under a Business Continuity Agreement. CTI Global is a company in which Leslie Buckley was Chairman during the period for which he was also Chairman of the Group and in which Denis O’Brien is a significant shareholder. The value of the services rendered in 2018 was €0.1m (2017: €0.2m).
196 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
31. Related Party Transactions - continued
During the year, the Group entered into a number of transactions at arm’s length with Communicorp Group Limited, a company in which Denis O’Brien has control over. Under the terms of these advertising transactions, the Group received advertising services to the value of €1.0m and provided advertising services to the value of €1.0m (2017: received advertising services to the value of €0.8m and provided advertising services to the value of €0.3m).
During the year, the Group entered into a number of transactions at arm’s length with IMP Ventures Ltd, a company over which Dermot Desmond has control. The value of the content monetisation solution services provided to the Group by IMP Ventures Ltd in 2018 was €11k (2017: €nil).
During 2018, the Group engaged the services of iMedia Advisory Ltd., a company in which Allan Marshall is a controlling director. The total value of consultancy services provided in 2018 was €0.2m (2017: €0.1m). On 1 March 2018, Allan Marshall resigned as a non-executive director of the Group.
Company
Details of Directors’ remuneration are disclosed in the Remuneration Committee Report on pages 81 and 82. Details of shares held in the Company by Directors and of share options granted to Directors are disclosed in the Remuneration Committee Report on pages 83 and 84. During the year, the Company charged €0.7m (2017: €0.8m) in management fees to its subsidiaries. Details of loan balances due from/to subsidiaries are provided in notes 18 and 19 and all such loans are on an interest free basis.
Key Management Personnel
Key management personnel comprise the Board of Directors, including the CEO, and CFO who manage the business and affairs of the Company. The remuneration of key management personnel was as follows:
2018 2017 €m €m
Short term benefits (salary, annual incentive, allowances) 1.6 1.4 Long term benefits (long term incentive plan)* - (0.1) Post-employment benefits (retirement benefits) 0.1 0.1
1.7 1.4
Termination payments 0.8 1.5
2.5 2.9
* The long term benefits credit relates to a credit of €0.5m relating to the non-vesting at 31 December 2017 of the Earnings Per Share (“EPS”) element of the share options granted on 1 January 2015 which is offset in part by a share based payment charge of €0.4m.
Independent News & Media PLC 197 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations
The Group operates defined benefit and defined contribution pension schemes. A summary of the Group’s net liabilities in respect of these schemes is set out below:
2018 2018 2018 2017 2017 2017 ROI NIRE Total ROI NIRE Total €m €m €m €m €m €m
Net defined benefit pension liability (5.6) (11.7) (17.3) (7.9) (29.8) (37.7)
Present value of defined contribution scheme provision (33.3) - (33.3) (39.8) - (39.8)
Retirement Benefit Obligations (38.9) (11.7) (50.6) (47.7) (29.8) (77.5)
The Group’s defined benefit schemes are administered by separate funds that are legally separate from the Group under the jurisdiction of Trustees. Each of the Group’s schemes operates under broadly similar regulatory frameworks. The Trustees of the various retirement benefit schemes in existence across the Group are required by law to act in the best interests of the scheme participants and are responsible for administering the schemes in accordance with trust law, all other law and the terms of the Trust Deed and Rules. The Trustees have ultimate responsibility for any investment strategy decisions.
The benefits available to members at retirement are set out in the Trust Deeds and Rules for each scheme. In the Republic of Ireland, the defined benefit schemes were closed to future accrual on 1 October 2013 and all current and future employees participate in a defined contribution scheme. The objective of the defined benefit schemes is to provide members with preserved pensions which are generally 1/60th of pensionable salary for each year of service and decreased by 25%. The preserved pensions are increased by the lower of CPI and 1% per annum before retirement and do not increase once in payment.
The Northern Ireland defined benefit scheme closed to future accrual with effect from 30 November 2013. The benefit payable on normal retirement is generally 1/60th of final pensionable salary for each year of service and increases in line with statutory provisions.
The Group also operates a defined contribution scheme. Normal contributions are paid by the members and by the Group at fixed rates. During the year the Company contributed €2.6m (2017: €2.8m) to the defined contribution scheme and this amount was charged to the Group Income Statement.
198 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
The Group has recognised a defined contribution provision in respect of two groups of current and former employees in the Republic of Ireland - a group of employees who opted to transfer their legacy defined benefit entitlements to the Company’s defined contribution scheme and the non-pensioner members of the two defined benefit schemes which wound up in July 2017. It has been agreed that the contributions that the Group had previously intended to pay to the two schemes under the terms of the funding proposals agreed with the Pensions Authority in September 2013 will now be paid to the Group’s defined contribution pension scheme in respect of these two groups of members. These amounts will be paid to the defined contribution scheme over the next 5 years and it is not dependant on future service.
The Group has recognised a liability in respect of combined annual contributions of €7.4m over the next 5 years to the Republic of Ireland schemes in respect of past service, including the contributions payable to the Group’s defined contribution pension scheme as outlined above. This remains unaltered by the transfers referred to above or by the cessation of two of the Group’s Republic of Ireland defined benefit schemes during 2016. Normal contributions to the defined contribution scheme in respect of future service are payable in addition.
The Group’s intention is to also make contributions of approximately €7.8m over the next 4 years to the Northern Ireland defined benefit pension scheme in respect of past service in line with the funding arrangements agreed as part of the funding valuation of the scheme carried out as at 31 December 2016. The Group also made a contribution of €13.9m to the scheme in November 2018 as part of the agreed funding arrangements.
Group Income Statement
The amounts recognised in the Group Income Statement in respect of all retirement benefit schemes are as follows:
2018 2017 €m €m
- Net interest/administration cost (net of past service credit) relating to defined benefit pension schemes (excluding exceptional items) 0.5 1.1 - Interest cost on defined contribution pension scheme liabilities (excluding exceptional items) - 0.1 - Current service cost relating to defined contribution pension schemes (excluding exceptional items) 2.6 2.8
Total recognised in the Group Income Statement (excluding exceptional items)* 3.1 4.0 Accounting adjustments on settlements (all schemes)** - (2.9)
Total recognised in Group Income Statement (including exceptional items) 3.1 1.1
* Charged to administration expenses. **Credited to exceptional items in the Group Income Statement.
Independent News & Media PLC 199 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
Group Other Comprehensive Income
Remeasurements recognised in Other Comprehensive Income are as follows:
2018 2017 €m €m
- Loss/(return) on scheme assets excluding interest income - defined benefit pension schemes 3.9 (0.7) - Experience variations - defined benefit pension schemes - 1.2 - Actuarial (gain)/loss from changes in financial assumptions - defined benefit pension schemes (5.3) 0.3 - Actuarial gain from changes in demographic assumptions - defined benefit pension schemes (3.8) (3.2) - Actuarial loss from changes in financial assumptions - defined contribution pension schemes 0.1 -
Total gain included in Other Comprehensive Income (5.1) (2.4)
a) Defined Benefit Pension Schemes
The Group operates two defined benefit pension schemes in the Republic of Ireland and one in Northern Ireland.
The projected unit credit method has been employed in determining the present value of the defined benefit obligation arising and, where applicable, past service credit.
The defined benefit schemes closed to future accrual with effect from 1 October 2013 for the Republic of Ireland schemes and 30 November 2013 for the Northern Ireland scheme. The accrued benefits in each of the schemes were underfunded at the last valuation date and long term funding plans are in place for each scheme.
For the two Republic of Ireland defined benefit schemes, long term funding plans have been submitted to the Pensions Authority which aim for the schemes to meet the Funding Standard and Funding Standard Reserve Requirement as set out in Section 44 of the Pension Act, 1990.
The defined benefit scheme in Northern Ireland is funded in accordance with the recommendations arising from the triennial valuation as at 31 December 2016, in line with the scheme funding requirements under Section 224 of the Pensions Act 2004 and Rule 10.2 of the Scheme’s Trust Deed and Rules. An affordability test was carried out as part of the 2016 valuation (and another will be carried out as part of the 31 December 2019 valuation) to aid decisions and negotiations, but this does not form part of the statutory funding requirements. A retirement benefit increase exchange exercise was carried out in 2018 with the intention of restructuring the scheme’s benefits. This exercise reduced the scheme’s liabilities by €0.7m. This was offset by an increase in the scheme’s liabilities of €0.2m as a result of allowing for the equalisation of Guaranteed Minimum Pension (“GMP”) benefits between men and women in line with the ruling issued by the UK High Court on 26 October 2018. This is recognised within the past service credit in administration expenses in the Group Income Statement.
200 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued a) Defined Benefit Pension Schemes - continued
Ruling 14 of the International Financial Reporting Standards Interpretations Committee (IFRIC 14) clarifies how the asset ceiling should be applied, particularly how it interacts with local minimum funding rules. The Group has determined that it has an unconditional right to a refund of any surplus assets if the schemes are run off until the last member dies. In respect of the defined benefit pension schemes, no additional liability would be recognised for the difference between the intended contribution amount and the net liability on the Statement of Financial Position, as the Group is entitled to any surplus remaining at the end of the scheme. i) Net Defined Benefit Pension Liability
Full actuarial valuations were carried out between 31 December 2016 and 31 December 2018. Actuarial valuations have been updated to 31 December 2018 for IAS 19 by qualified actuaries. The net retirement benefit liability as at 31 December 2018 and 2017 is as follows:
2018 2018 2018 2017 2017 2017 ROI NIRE Total ROI NIRE Total €m €m €m €m €m €m
Total fair value of assets 15.5 60.9 76.4 15.5 51.0 66.5
Present value of scheme liabilities (21.1) (72.6) (93.7) (23.4) (80.8) (104.2)
Net pension liability (5.6) (11.7) (17.3) (7.9) (29.8) (37.7)
The weighted average duration of the defined benefit obligation at 31 December 2018 was 20.5 years (2017: 22.0 years). Employer contributions for the forthcoming financial year are estimated at €10.7m, of which €4.1m represents contributions to the Group’s defined benefit schemes. This is inclusive of the contributions that the Group will pay to its defined contribution scheme during 2018 as outlined earlier. However, it does not include normal contributions to the defined contribution scheme in respect of future service.
Independent News & Media PLC 201 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
a) Defined Benefit Pension Schemes - continued
ii) Movement in net defined benefit (asset)/liability
The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit (asset)/liability and its components:
Defined benefit Fair value of plan Net defined benefit obligation assets (asset) liability 2018 2017 2018 2017 2018 2017 €m €m €m €m €m €m
At 1 January 104.2 110.0 (66.5) (68.3) 37.7 41.7
Included in Group Income Statement Accounting adjustment on past service credits (0.5) - - - (0.5) -
Interest cost/(income) 2.5 2.7 (1.6) (1.7) 0.9 1.0
Administration expenses - - 0.1 0.1 0.1 0.1
2.0 2.7 (1.5) (1.6) 0.5 1.1
Included in Group Other Comprehensive Income Statement
Remeasurement:
- experience variations - 1.2 - - - 1.2
- actuarial (gain)/loss from changes in financial assumptions (5.3) 0.3 - - (5.3) 0.3
- actuarial gain from changes in demographic assumptions (3.8) (3.2) - - (3.8) (3.2)
- return on plan assets excluding interest income - - 3.9 (0.7) 3.9 (0.7)
Exchange (gain)/loss (1.0) (3.3) 0.8 2.0 (0.2) (1.3)
(10.1) (5.0) 4.7 1.3 (5.4) (3.7)
Other
Contributions by employers relating to deficit repair plan - - (15.3)* (1.4) (15.3)* (1.4)
Benefits paid (2.4) (3.5) 2.4 3.5 - -
Settlement payments ------
Exchange gain - - (0.2) - (0.2) -
(2.4) (3.5) (13.1) 2.1 (15.5) (1.4)
At 31 December 93.7 104.2 (76.4) (66.5) 17.3 37.7
* Comprises the ongoing annual employer deficit repair contributions of €1.4m to the Group’s defined benefit pension schemes and a contribution of €13.9m made to the Belfast Telegraph defined benefit pension scheme in November 2018 as part of the agreed funding arrangements.
202 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued a) Defined Benefit Pension Schemes - continued ii) Movement in net defined benefit (asset)/liability - continued
Based on the assumptions employed for the valuation of assets and liabilities as at 31 December 2018, the net charge in the Group Income Statement in the year ending 31 December 2019 is expected to be higher than the current year figures.
The actual return on scheme assets was a loss of €2.3m (2017: gain of €2.4m).
Cumulatively since transition to IFRS on 1 April 2004, €211.9m has been recognised as a charge in the Group Statement of Comprehensive Income in respect of defined benefit pension schemes.
Independent News & Media PLC 203 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
a) Defined Benefit Pension Schemes - continued
iii) Split of scheme assets
2018 2017 2018 2017 2018 2017 ROI ROI NIRE NIRE Total Total €m €m €m €m €m €m
Equity instruments
Total 2.1 2.5 18.0 19.9 20.1 22.4
Alternatives Derivatives - - 0.2 0.2 0.2 0.2 Liquid Alternative Strategies 1.5 1.3 - 1.4 1.5 2.7 Venture Capital - - 0.1 0.1 0.1 0.1 Absolute Return - - 2.0 - 2.0 - Insurance Linked Securities - - 0.4 - 0.4 - Commodities - - 0.4 0.9 0.4 0.9
Total 1.5 1.3 3.1 2.6 4.6 3.9
Debt instruments Government Bonds 9.6 9.5 3.9 3.4 13.5 12.9 Enhanced Yield Bond 2.1 2.1 4.5 5.1 6.6 7.2 Liability Driven Investment - - 16.1 17.1 16.1 17.1
Total 11.7 11.6 24.5 25.6 36.2 37.2
Cash and cash equivalents Cash Deposits 0.1 - 14.0 1.2 14.1 1.2 Trustee Bank Account 0.1 0.1 0.6 0.1 0.7 0.2
Total 0.2 0.1 14.6 1.3 14.8 1.4
Property - - 0.7 1.6 0.7 1.6
Total scheme assets 15.5 15.5 60.9 51.0 76.4 66.5
All equity securities and government bonds have quoted prices in active markets. All government bonds have been issued by European governments and are highly rated. The schemes’ alternative asset holdings include unquoted venture capital and liquid alternative strategy holdings, which are priced monthly.
204 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued a) Defined Benefit Pension Schemes - continued iii) Split of scheme assets - continued
The Group’s Northern Ireland scheme has a 32% strategic allocation to Liability Driven Investments within its investment strategy. The purpose of the holding is to mitigate the amount of interest rate and inflation risk that the scheme is exposed to, by investing in assets which aim to move in the same direction as the Scheme's liabilities. Liabilities change when gilt yields and inflation expectations change. A Liability Driven Investment strategy aims to replicate this change, hence assets and liabilities change by the same amount (if 100% hedged), thus keeping the funding level and deficit more stable. Note that the scheme does not have a 100% hedge between its assets and liabilities, as it invests a proportion of its assets in growth assets in order to seek a return to close the deficit.
This scheme invests in both a nominal fund (which offers interest rate protection) and a real fund (which offers interest rate and inflation protection). The investment is in pooled investment funds, which aim to replicate the liability profile of a typical UK defined benefit pension scheme, rather than the Scheme's own liability profile. The funds, which are managed by BMO Global Asset Management, have the ability to invest in a blend of instruments to provide the interest rate and inflation protection, including gilts, index-linked gilts, swaps, synthetic gilts, cash and money market instruments. iv) Financial Assumptions
The principal actuarial assumptions used were as follows:
2018 2017 2018 2017 ROI ROI NIRE NIRE €m €m €m €m
Rate of increase in salaries n/a* n/a* n/a n/a
2.10%- 2.30%- Rate of increase in pensions in payment Nil Nil 3.40% 3.30%
Discount rate 2.25% 2.15% 2.90% 2.50%
Inflation assumption 1.75% 1.75%* 2.40% 2.30%**
* Accrued benefits are not linked to salary increases. Increases to accrued pension benefits pre-retirement are capped at CPI to a maximum of 1% per annum and do not increase in payment. ** Increases to accrued pension benefits pre-retirement are capped at an average rate of CPI to a maximum of 5.0% and increase in payment with RPI to a maximum of 2.1% - 5.0% per annum depending on period of service.
Independent News & Media PLC 205 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
a) Defined Benefit Pension Schemes - continued
v) Demographic Assumptions
The post-retirement mortality assumptions employed in determining the present value of scheme liabilities under IAS 19 are set based on advice from published statistics and experience in both geographic regions and are in accordance with the underlying funding valuations.
2018 2018 2017 2017 ROI NIRE ROI NIRE Years Years Years Years
Current retirees (current age 65) Male 22.5 22.0 23.0 22.6 Female 24.3 24.0 25.0 24.4 Future retirees (current age 45, retiring at age 65) Male 24.2 23.4 25.2 24.4 Female 26.2 25.5 27.3 26.3
vi) Risks
The schemes expose the Group to a number of risks, the most significant of which are as follows:
• Discount rates The calculation of the present value of the defined benefit obligation is sensitive to changes in the discount rate. The discount rate is based on the interest yield at the reporting date on high quality corporate bonds of a currency and term consistent with the currency and term of the post-employment benefit obligation. Changes in the discount rate can lead to volatility in the Group’s Statement of Financial Position, Income Statement and Statement of Comprehensive Income.
• Asset volatility The scheme assets are reported at fair value using bid prices where relevant. The majority of the Group’s scheme assets comprise of government and other bonds. A decrease in corporate bond yields will increase the value of the scheme’s liabilities although this may be partially offset by an increase in the value of the schemes’ bond holdings. The schemes also hold a proportion of equities which are expected to outperform bonds in the long term while providing some volatility and risk in the short term. External consultants periodically conduct investment reviews to determine the most appropriate asset allocation, taking account of asset valuations, funding requirements, liability duration and the achievement of appropriate returns. In the case of the Northern Ireland defined benefit scheme, 32% of the scheme’s assets employ an asset-liability (i.e. Liability Driven Investment) strategy. This is monitored regularly by external consultants for appropriateness. The Republic of Ireland defined benefit schemes have no specific asset-liability strategy in place.
206 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued a) Defined Benefit Pension Schemes - continued vi) Risks - continued
• Inflation risk The Northern Ireland scheme obligations are linked to inflation and higher inflation will lead to higher scheme liabilities although caps are in place to protect the schemes against extreme inflation.
• Mortality risk The present value of the defined benefit obligation is calculated by reference to the best estimate of the mortality of scheme participants. An increase in the life expectancy of the scheme participants will increase the defined benefit obligation. vii) Sensitivity analysis for principal assumptions used to measure scheme liabilities
There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Group’s defined benefit pension schemes. The following table analyses, for the Group’s ROI and NIRE pension schemes, the estimated impact on scheme liabilities resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant.
Assumption 31 December 2018 31 December 2017 Increase Decrease Increase Decrease €m €m €m €m
Discount rate (1% movement) (15.6) 19.2 (18.4) 23.0
Price inflation (1% movement) 11.7 (11.0) 13.4 (14.8)
Mortality (one year movement) 3.7 (3.5) 4.3 (4.0)
Independent News & Media PLC 207 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
32. Retirement Benefit Obligations - continued
b) Defined Contribution Pension Schemes
The defined contribution provision recognised by the Group consists of contributions in respect of two groups of current and former employees in the Republic of Ireland - a group of employees who opted to transfer their legacy defined benefit entitlements to the Company’s defined contribution scheme and the non-pensioner members of the two defined benefit schemes which wound up in July 2017.
The contributions will be of the same form as the expected future payments the Company would have made to the defined benefit schemes in respect of these members under the terms of the Funding Proposal.
The discount rate used in the calculation of the provision as at 31 December 2018 was -0.05% (0.06% in 2017).
The following table shows the movement in the present value of defined contribution scheme liabilities over the year:
2018 2018 2018 2017 2017 2017 ROI NIRE Total ROI NIRE Total €m €m €m €m €m €m
At 1 January 39.8 - 39.8 55.6 - 55.6
Interest Cost - - - 0.1 - 0.1
Cash Paid (6.6) - (6.6) (12.7) - (12.7)
Change in provision - - - (2.9) - (2.9)
Administration expenses - - - (0.3) - (0.3)
Actuarial loss from changes in financial assumptions 0.1 - 0.1 - - -
At 31 December 33.3 - 33.3 39.8 - 39.8
208 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
33. Principal Subsidiaries, Associates and Joint Ventures
Name Principal Activity Issued and Fully Paid Share Capital
Parent Company (as at 31 December 2018) Independent News & Media PLC Holding Company 1,392,144,452 (includes 5,597,077 treasury shares) ordinary shares of €0.01 each
Subsidiary Undertakings (as at 31 December 2018) (Wholly owned unless otherwise stated)
Incorporated and operating principally in Ireland: Independent Newspapers (Ireland) Limited Newspaper Publishing 5,000,000 ordinary shares 27-32 Talbot Street of €1.25 each Dublin 1
Independent Newspapers Marketing Limited Newspaper Publishing 100 ordinary shares 27-32 Talbot Street of €1.25 each Dublin 1 10,000 ‘A’ ordinary shares of €1 each
Sunday Newspapers Limited Newspaper Publishing 80,002 ordinary shares 27-32 Talbot Street of €1.25 each Dublin 1
Newspread Limited Newspaper, Magazine, 3,600 ordinary shares t/a Reach Group and Non-News Distribution of €1.27 each 2023 Bianconi Avenue Citywest Business Campus Naas Road Dublin 24
Independent Communications Holding Company 1 ordinary share (Ireland) Limited* of €1.25 each 27-32 Talbot Street Dublin 1
Independent News & Media Holdings Holding Company 900 ordinary shares (Ireland) Limited of €1.25 each 27-32 Talbot Street Dublin 1
Independent News & Media PLC 209 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
33. Principal Subsidiaries, Associates and Joint Ventures - continued
Name Principal Activity Issued and Fully Paid Share Capital
Independent News & Media Investments Limited Holding Company 1,249 ordinary shares 27-32 Talbot Street of €1.25 each Dublin 1
Independent Communications Holding Company 100 ordinary shares (International) Limited* of €1.25 each 27-32 Talbot Street Dublin 1
Independent Newspapers Management Services Provision of 542,635,000 ordinary shares 27-32 Talbot Street Management Services of €1.25 each Dublin 1
INM Regionals Limited Newspaper Publishing 95,100 ordinary shares 27-32 Talbot Street of €1.25 each Dublin 1
Internet Interaction Limited Online Media 600 ordinary shares 27-32 Talbot Street of €1.27 each Dublin 1
Digital Odyssey Limited Online Auto Trading 200 ordinary shares 27-32 Talbot Street of €1 each Dublin 1
Reachmount DAC Sale and distribution of 2 ordinary shares 2023 Bianconi Avenue packaging products of €1 each Citywest Business Campus Naas Road Dublin 24
210 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
33. Principal Subsidiaries, Associates and Joint Ventures - continued
Name Principal Activity Issued and Fully Paid Share Capital
Incorporated and operating principally in the United Kingdom: Independent News and Media Limited Newspaper Publishing 35,942,899,875 ordinary shares of 39 Wellbeck Street Stg£0.01 each London 415,200 deferred shares W1G 8DR of Stg£0.01 each
Independent News & Media (UK) Limited Holding Company 328,900,000 ordinary shares 39 Wellbeck Street of Stg£1 each London W1G 8DR
Belfast Telegraph Newspapers Limited Dormant Company 11,687,800 ordinary shares 39 Wellbeck Street of Stg£10 each London W1G 8DR
Incorporated and operating principally in Jersey: Independent News & Media (Finance) Limited Finance Company 10 ordinary shares IFC 5, St Helier of €1 each Jersey YE1 IST
Incorporated and operating principally in The Netherlands: Abbey Communications (Netherlands) B.V. Holding Company 42 ordinary shares Luna Arena, Herikerbergweg 238 of €453.38 each 1101 CM Amsterdam, Zuidoost
Incorporated and operating principally in Luxembourg: Peak Holdings Luxembourg SARL Holding Company 73,399 ordinary shares 51 Avenue J-F. Kennedy of €100 each L-1855 Luxembourg
Independent News & Media PLC 211 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
33. Principal Subsidiaries, Associates and Joint Ventures - continued
Name Principal Activity Issued and Fully Paid Share Capital
Joint Ventures (as at 31 December 2018) Incorporated and operating principally in Ireland: Independent Star Limited (effective 50% interest) Newspaper Publishing 500 ‘E’ ordinary shares of €1.27 each 27-32 Talbot Street (0% interest) Dublin 1 500 ‘I’ ordinary shares of €1.27 each 5,000 preference shares of €1.27 each
The respective addresses are the companies’ registered offices.
* Direct 100% owned subsidiaries of Parent Company, Independent News & Media PLC.
34. Companies Act 2014 - Guarantees
The Company has guaranteed the liabilities of certain of its Irish registered subsidiary undertakings for the purpose of Section 357 of the Companies Act 2014, as listed below, and as a result such subsidiaries have been exempted from the filing provisions of the Companies Act 2014.
Argus Newspapers Limited Champion Printing Limited Independent Communications (International) Limited Independent Communications (Ireland) Limited Independent News & Media Holdings (Ireland) Limited Independent News & Media Investments Limited Independent Newspapers (Ireland) Limited Independent Newspapers Marketing Limited INM Securities (Ireland) Limited Internet Interaction Limited Newspread Limited t/a Reach Group Sunday Newspapers Limited The Drogheda Independent Company Limited The Kerryman Limited INM Regionals Limited Digital Odyssey Limited Reachmount DAC Adfront Limited
212 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
35. Standards, Interpretations and Amendments to Published Standards that are not yet effective
A number of new Standards, Amendments to Standards and Interpretations are effective for annual periods beginning after 1 January 2019, and have not been applied in preparing these consolidated financial statements. These include:
• IFRS 16: Leases* • IFRIC 23: Uncertainty over Income Tax Treatments* • IFRS 17: Insurance Contracts**
Other than IFRS 16 the aforementioned are not expected to have a material impact.
* Effective for annual period commencing after 1 January 2019. ** Effective for annual period commencing after 1 January 2021.
Estimated impact of the adoption of IFRS 16
The impact of this new standard has been considered as follows:
The Group is required to adopt IFRS 16 Leases from 1 January 2019. The Group has assessed the estimated impact that initial application of IFRS 16 will have on its consolidated financial statements, as described below. The actual impacts of adopting the standard on 1 January 2019 may change because:
• the Group has not finalised the testing and assessment of controls over its new IT systems; and • the new accounting policies are subject to change until the Group presents its first financial statements that include the date of initial application.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use (“RoU”) asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short‑term leases and leases of low‑value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC‑15 Operating Leases - Incentives and SIC‑27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
Independent News & Media PLC 213 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
35. Standards, Interpretations and Amendments to Published Standards that are not yet effective - continued
Estimated impact of the adoption of IFRS 16 - continued
Leases in which the Group is a lessee The Group will recognise new assets and liabilities for its operating leases of Land & Buildings, Plant & Machinery and Motor Vehicles (see Note 28). The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right‑of‑use assets and an interest expense on lease liabilities.
Previously, the Group recognised operating lease expense on a straight‑line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
In addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous as described in Note 20. Instead, the Group will include the payments due under the lease in its lease liability. No significant impact is expected for the Group’s finance leases.
Based on the information currently available, the Group estimates that it will recognise additional lease liabilities of €22m - €24m and a corresponding right-of-use asset of €19m - €23m as at 1 January 2019.
Transition The Group plans to apply IFRS 16 initially on 1 January 2019, using the modified retrospective approach and for certain leases, the Group has measured the RoU asset retrospectively using transition discount rates. The Group has used practical expedients on transition to IFRS 16 such as applying a single discount rate to leases with similar characteristics and excluding leases with a short remaining term of less than 12 months. The cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.
214 Report And Accounts 2018 FINANCIAL STATEMENTS
Notes to the Financial Statements - continued
36. Subsequent Events
In January 2019, Ms. Kate Marsh was appointed to the Board as an independent non-executive director.
The former Chief Financial Officer, Mr. Ryan Preston, departed the Group by mutual consent at the end of January 2019. INM is currently engaged in a process to appoint a successor to Mr. Ryan Preston and this appointment will be announced in due course.
There were no other events since the year end that would require disclosure or adjustment in the financial statements.
37. Approval of Financial Statements
The financial statements were approved by the Directors and authorised for issue on 28 March 2019.
Independent News & Media PLC 215 NOTES
216 Report And Accounts 2018 STRATEGIC REPORT OVERVIEW
HIGHLIGHTS OF THE YEAR
• Total revenues of €191.0m, down 2.1%; • Profit before tax* of €24.1m, ahead of expectations; • Total operating costs decreased by a net €0.1m to €167.4m in the year. This reflects a reduction in the Group’s cost base largely offset by costs associated with two acquisitions and investment in strategy, GDPR and cyber-security costs; • Basic & Diluted EPS* of 1.6c, down from 1.8c in the prior year; • Net exceptional charge of €13.3m primarily including a non-cash €7.0m impairment (Northern Ireland assets), a restructuring charge of €4.1m and legal expenses of €3.5m; €191.0m • Net assets increased by €13.6m on the prior year to €89.7m at year end 2018, notwithstanding the Total Revenues aforementioned non-cash €7.0m impairment; € • Closing cash of €81.7m, with continued cash 24.1m generation offset by once-off cash outflows related to Profit Before Tax* retirement benefit obligations and acquisitions; • New corporate strategy identified which focuses on €81.7m protecting the core, expanding and developing customer-centric offerings and enabling the future; Cash and Cash Equivalents and • New refreshed Board and new appointments to the Senior Executive Team (“SET”), to drive delivery of the corporate strategy.
Credits: Designed by: Creativerin Design * All numbers in the Strategic Report that are accompanied by Photography by: Crazy Pixels Photography an asterisk (*) are stated pre exceptional items. Printed by: Colorman Ireland Ltd i 2018 ANNUAL REPORT AND ACCOUNTS INDEPENDENT NEWS & MEDIA PLC ANNUAL REPORT & ACCOUNTS 2018
Independent House 27-32 Talbot Street Dublin 1 Ireland Tel +353 1 466 3200 Fax +353 1 466 3222 Email [email protected] www.inmplc.com