Mecom Group plc Annual Reportand Accounts 2013

Mecom Group plc Annual Report and Accounts 2013 www.mecom.com T +44 (0)207 925 7200 (0)207 T +44 925 7201 (0)207 F +44 Mecom Group plc Audley House Palace Street 13 5HX SW1E London About Us

Mecom is a major European consumer publishing group.

We put our readers and advertisers at the heart of everything we do.

We are proud to be a positive force in the communities we serve and will continuously evolve in order to be relevant and everywhere that our readers need us to be.

Overview Financials 1 Operational and Financial Highlights 2013 50 Statement of Directors’ Responsibilities 2 At a Glance 51 Index to the Consolidated and Company 4 Chairman’s Statement Financial Statements 52 Independent Auditors’ Report to the Members Strategic Report of Mecom Group plc 54 Consolidated Financial Statements 6 Objectives, Strategy and Business Model 124 Independent Auditors’ Report to the Members 8 Operating Results of Mecom Group plc 9 Divisional Reviews 125 Company Financial Statements 16 Group Finance Director’s Report 20 Principal Risks and Uncertainties 22 Corporate Social Responsibility Report 136 Shareholder Information

Governance and Directors’ Report 26 The Board 28 Corporate Governance Report 35 Directors’ Remuneration Report 46 Directors’ Report: Additional Disclosures Operational and Financial Highlights 2013

Results from continuing operations1 Continuing Group adjusted earnings per share of 30.1 euro cents (2012: 24.3 euro cents) – Adjusted2 EBITDA of €87.9 million (2012: €87.5 million) Net debt reduced to €38.1 million (closing leverage of 0.5 times) due to cash flow from – Total revenue down 11 per cent to trading activities and €70.9 million of net €807.9 million disposal proceeds – Advertising revenues down 21 per cent to €140 million new banking facilities agreed €287.8 million; underlying advertising down 18 per cent (14 per cent in the second half Given continuing pressure on revenue and the of the year) cash costs of restructuring, no resumption of dividends in respect of the 2014 financial year – Circulation revenue down 4 per cent to 1 Continuing operations are the Group’s Dutch and Danish operations – the Group’s €391.3 million (underlying down 3 per cent) Polish operations, which were disposed of during 2013, were classified as discontinued as at 31 December 2012. – Costs lower by 13 per cent, or €103.0 million 2 Adjusted items are presented before exceptional items and the amortisation of (underlying costs down 11 per cent) acquired intangibles.

Financial overview 2013 2012 2013 €m €m vs 2012 Circulation revenue 391.3 408.2 (4)% Advertising revenue 287.8 364.4 (21)% Other revenue 128.8 137.9 (7)% Total revenue 807.9 910.5 (11)% Costs (720.0) (823.0) 13% lower Continuing adjusted EBITDA 87.9 87.5 0% Continuing adjusted EBITDA margin (%) 10.9% 9.6% 1.3 pts Continuing adjusted earnings per share (euro cents) 30.1 24.3 5.8 cents Total adjusted earnings per share (euro cents) 30.9 34.6 (3.7) cents Continuing EBITDA, after exceptional items 55.1 42.9 28% Operating loss from continuing operations, after exceptional items and intangibles amortisation (98.4) (84.7) 16% higher Loss per share from continuing operations, after exceptional items and intangibles amortisation (euro cents) (54.3) (73.4) 19.1 cents Net debt (38.1) (129.5) €91.4m lower

Mecom Group plc Annual Report and Accounts 2013 1 At a Glance

Mecom operates leading positions in the news and information publishing business in the Netherlands and Denmark. At the heart of the Group is the strength of our 1 million subscribers to our 20 paid titles.

The Netherlands

Mecom Netherlands publishes eight Following the closure of one print plant Key Facts: paid-for daily newspapers in the east at the end of 2013, the Group operates and south of the Netherlands. Seven three plants, in Apeldoorn, Best and 8 paid-for daily titles are published by Wegener and one Heerlen, with capacity largely used to newspapers by LMG, each with an average of eight print the Group’s own daily and weekly local editions. The Group has total daily publications. Wegener runs distribution readers of over 2.5 million and publishes operations in its own area which also Daily readers of over content in print and in online, mobile and distribute the newspapers of other 2.5 million e-paper form. Daily circulation ranges publishers. LMG’s newspapers are from c.50,000 to c.150,000 and Mecom’s distributed by a third party, TMG. titles on average have a 63 per cent 2.3 million unique share of the daily newspaper market in Mecom Netherlands employed 2,449 monthly online users the regions in which it operates. Over people (on a full-time equivalent basis) 95 per cent of newspapers are sold on a as at 31 December 2013. 3 print plants subscription basis, to total subscribers of approximately 770,000. Wegener also publishes over 170 weekly titles, with distribution of over 5.5 million weekly copies, both in the daily publishing regions and also the north and west of the Netherlands. Mecom Netherlands sells advertising in national (for approximately 30 per cent of advertising) and local/regional (for approximately 70 per cent of total advertising) advertising markets. Mecom Netherlands has 2.3 million unique monthly online users. In addition to circulation sales, the Group makes other commercial sales to readers, both online and in print.

2 Mecom Group plc Annual Report and Accounts 2013 We pride ourselves on shaping local and national news and information publishing through innovation and insight, connecting with our audiences wherever they are.

Denmark

Berlingske Media publishes two national including Sweetdeal, the leading “deal Key Facts: titles, (Berlingske and BT, with weekday a day” operation in Denmark. The circulation of over 80,000 and over Group owns and operates, either on 2 national paid-for 50,000 respectively) and one weekly title its own or through joint ventures, news daily titles, a (Weekendavisen, with circulation of over and photo agencies, city guides and 45,000). It publishes seven daily regional a media search, monitoring and weekly newspaper titles (each with circulation of less than analysis company. (Weekendavisen) and 20,000) and 17 free weekly titles in the mid-Jutland region (run as media Berlingske Media operates four print 7 paid-for regional houses with regional paid titles) with plants distributed across Zealand and local daily titles total distribution in excess of 500,000 Jutland, with capacity used to print each week. With the exception of BT, both the Group’s own newspapers and 17 local free weekly most newspapers are sold on a third-party publications. Newspapers predominantly subscription model, are distributed largely through joint newspapers with c.190,000 subscribers (following ventures with other publishers and on the disposals made in 2013). In total, an outsourced basis. Daily readership of Berlingske Media has daily readership of almost 600,000 almost 600,000 and publishes content in Berlingske Media employed 1,291 print and e-paper form, as well as online, people (on a full-time equivalent basis) on mobile and web TV, with pay models as at 31 December 2013. 4 print plants in place for both national and regional news websites, and aggregated unique users across all news websites of c.6 million. The Group operates both national and local radio stations, including Pop FM and Radio24syv, with total listeners of almost 1 million. In addition to circulation sales, the Group makes other commercial sales to readers, both online and in print,

Mecom Group plc Annual Report and Accounts 2013 3 Chairman’s Statement

Rory Macnamara In this, my first statement as Chairman of Mecom, I am pleased Chairman to report that the Group ended 2013 with financial results that exceeded previous expectations and were above those of 2012: adjusted EBITDA of €87.9 million, adjusted earnings per share of 30.1 euro cents and net debt of €38.1 million. (A full explanation of all statutory and adjusted financial performance measures is set out in the Group Finance Director’s Report.) Revenue, which was down 11 per cent including the effect of disposals, continued to be affected by a poor advertising environment, albeit less so in the second half of the year, but circulation revenues remained resilient, new commercial revenues grew and, again, the Group made considerable progress in re-aligning the cost base through staff and other cost reductions to protect profits and to increase margins. Costs fell by 11 per cent on an underlying basis, including the first benefits of a major Dutch restructuring programme announced in September 2013 and described in more detail in the Divisional Reviews.

The Group made a series of disposals during 2013, realising proceeds of €70.9 million at an average transaction multiple of 4.3 times. These transactions have significantly improved our financial position and simplified our operations. The Group’s Strategic Review of the ownership of its assets has now been completed, with only a small number of potential disposals still subject to discussion. Included within these is the disposal of the Limburg business in the Netherlands, in respect of which, as we announced in February, we have reached preliminary agreement regarding a disposal. Discussions aimed at reaching final agreement continue and we will make further announcements on this when appropriate. The Group’s strategic and operating focus is now on improvement of our continuing businesses, but the Board will continue to remain open to the possibility of realising value for shareholders through disposals if opportunities present themselves.

The Board is convinced that the Group’s unique content, strong reach, brands and market positions, and highly skilled people will ensure that it continues to operate successfully as media markets and economic conditions evolve. Further cost restructuring will be necessary in the medium term as print advertising revenues continue to fall, but there are many opportunities for new content and commercial revenues from our extensive and loyal subscriber base.

4 Mecom Group plc Annual Report and Accounts 2013 There were changes to the Board and senior Group Following the Strategic Review, the focus is now firmly on management during the year. Susan Duinhoven joined our developing our businesses. We intend to hold an Investor Day in Wegener subsidiary as CEO in April and has led a major London in early June, to provide our shareholders and analysts overhaul of its organisation and cost base since then. On the an opportunity to learn more about our medium-term strategy Mecom Board, Stephen Davidson and Gerry Aherne stepped and meet the teams which run our businesses. We will provide down during the year. Both Stephen and Gerry had been further details on this in due course. Directors since 2009, in Stephen’s case as Chairman since early 2011, and the Board extends its thanks to both for their considerable contribution to Mecom’s affairs over this period. I joined the Board in May, as did Peter Allen, who brings both commercial and financial insight and experience to the Board.

The Group’s new financing arrangements are set out in Note 25 of the consolidated financial statements. These financings represent both the extension of existing banking relationships and the initiation of new ones and bring the Group’s lenders geographically closer to our operations. This provides the Group with a stable financial footing for the medium term and I welcome the support shown in these financings for Mecom’s plans for the continued development of our business model and for the strength of our local management teams.

The Group has made a firm start in 2014, with the decline in the Group’s advertising revenue a little lower than in later 2013 trading and with cost benefits being delivered from restructuring programmes. We continue to expect advertising revenue declines for 2014 and to deliver the full-year cost benefits that we set out in the January pre-close statement, with resulting EBITDA and earnings per share in line with current market expectations.

The Board has concluded that further time is needed before dividends to shareholders can be resumed. The Group has made good progress in implementing the current Dutch restructuring, has agreed a refinancing of its previous banking facilities and, as noted, trading conditions have become less severe in recent months in the Netherlands. Notwithstanding these positive factors, however, the Group’s cost rationalisation programme will be a considerable call on cash during the year, alongside amortisation of term debt. Furthermore, the Board continues to face the prospect of further reductions in print advertising revenue in the coming year, from structural changes to media consumption and subdued economic conditions. Given this, the Board has concluded that no dividend will be paid in respect of the 2014 financial year.

Mecom Group plc Annual Report and Accounts 2013 5 Objectives, Strategy and Business Model

Objectives

The Group’s objectives are as follows: ...with an efficient and flexible cost base... The Group has made considerable progress in recent years, ...to develop our important role in the communities we reducing costs to align operations with reduced revenues – as serve and create new content from the Group’s unique media markets continue to evolve, a cost base that is flexible, market positions and strong subscription relationships... as well as efficient, will become increasingly important The Group believes strongly that delivering unique content builds a trusted relationship with our subscribers and cements ...so as to provide stable and growing earnings our reputation as a local enterprise. Through our strong and cash generation... brands, our talented and committed employees are dedicated The Group’s commercial objectives aim to provide both stable to delivering relevant and timely journalism that only we can and growing revenues and earnings, from less reliance on provide in local and hyper-local regions or distinctive coverage cyclical advertising revenues, growing consumer revenues and insight in national journalism and efficient costs, with careful focus on cash generation

...reducing reliance on traditional print business revenues...... and dividends and value growth to shareholders. It is clear that print advertising will remain under structural The Group aims to return to dividend payments as soon as pressure as readers read content on an increasing number practicable, taking into account the need for further business of alternative devices and the Group therefore aims for less restructuring, and to provide value growth to shareholders reliance on these traditional revenue sources in the future, through the transformation and improvement of the Group’s through an increased focus on innovation, the pay model for operations that is reflected in the Group’s share price digital content and the development of e-commerce businesses

Strategy

The strategy that the Group has put in place to achieve these audiences, using direct marketing skills on an extensive and objectives is as follows: well-understood customer base

To protect and strengthen reach, brands and market To provide increasingly segmented and high-quality positions, delivering unique content through excellent reach to advertisers, in and away from print and innovative journalism Advertising markets focus on measurement of results and The key to delivering the Group’s objectives is maintaining and knowledge of target audiences, so the Group will present its extending a trusted relationship with the Group’s readers and reach to advertisers with increasing emphasis on segmented consumers, as a base for commercial activities, and this can only and high-quality target groups, especially online and on be done by providing relevant, unique and high-quality content mobile where technology can provide this

To extend our daily news subscription base across all To continue the restructuring of the Group’s cost base platforms with new products and packages, paid models The Group’s strategy is to focus internal resources solely on for content content and commercial teams, to lower costs and to replace The Group believes strongly that a paid subscription model fixed cost structures with flexible resources where possible, for daily news is viable across all platforms, and is working to including extending commercial cooperation with other introduce a largely paid model for all content and to ensure publishers that content is available to readers in whatever medium and format they use Reduce financial leverage further to reduce reliance on debt markets during the further development and To expand commerce relationship with subscribers restructuring of the business through new products, affinities and member offers Through a period of business transformation and restructuring The Group will expand its commercial offering to subscribers, of products and cost base, the Group expects to reduce which until now has largely been through typical newspaper leverage and reliance on debt markets, such that gearing is at “add-on” products, to products and services fitting the target a minimum until new models are established to deliver stable and growing revenues

6 Mecom Group plc Annual Report and Accounts 2013 Business Model

The business model that the Group operates to allow the delivery of this strategy is:

The Netherlands Denmark

Publishing daily news, providing Eight regional daily newspapers, market Three national daily newspapers, with relevant content from our own leaders in chosen regions with unique distinctive brand values, and seven editorial teams to local markets or editorial and commercial teams, each regional daily newspapers with unique distinct national segments through with full multi-media content editorial and commercial teams, each print, online and mobile with full multi-media content

Managing subscription relationships c.770,000 subscribers with revenues of c.190,000 subscribers with revenues of that provide close understanding of c.€250 million, paid in advance over€€90 million, paid in advance customers and stable cash flows

Providing local and hyper-local news 170 titles with revenues of €90 million 17 titles with revenues of €20 million through a wide portfolio of free weekly newspapers and websites

Selling reach to advertisers in local 2.5 million daily readers and 6 million 417,000 readers of daily nationals, and national advertising markets, weekly readers, with 2013 on-going 151,000 readers of regional/local titles through print and online news advertising revenues of €175 million – in and 423,000 readers of weeklies, with addition, selling advertising on behalf of on-going (i.e. post-disposal) advertising other regional publishers in national revenues of €84 million advertising markets

Supplying other products to Print offers, web-shops, regional National leader in deal-a-day operations subscribers and readers through products and events, affinity groups through Sweetdeal print and e-commerce or niche online operations, largely as an agent Print offers, web-shops, city guides

Running printing and distribution Three print plants; own distribution Four print plants; own distribution in operations, often in collaboration operations covering majority of all Jutland and participation in one with other news publishers, or newspapers published in Wegener distribution joint venture managing outsourced arrangements regions

The operating and financial key performance indicators that the Group uses to monitor the delivery of its strategy and the operation of its business model, and which are described in the Divisional Review sections below, are (for each business unit): subscriber numbers (’000s); circulation revenue (€m); advertising trends (per cent comparative movement and €m); the development of new consumer revenues (€m); delivery of cost savings (progress against targets of full-time equivalent (“FTE”) reduction and €m reduction in costs); adjusted EBITDA (€m); and, for the Group as a whole, adjusted earnings per share (euro cents).

Mecom Group plc Annual Report and Accounts 2013 7 Operating Results: Continuing Operations

The key figures from the 2013 operating results are set out in the Revenue by type table below. The year-on-year comparisons below include the (€ millions) effect of disposals made during 2013 within each country. More detailed analysis, including the effect of these disposals, is set 2013 2012 out in the Divisional Reviews. Advertising 287.8 Advertising 364.4 Circulation 391.3 Circulation 408.2 2013 Other 128.8 Other 137.9 2013 2012 vs 2012 €m €m %

Revenue by type 16% 15% 14% Advertising 287.8 364.4 (21)% 36% 40% Non-advertising 520.1 546.1 (5)% 2013 2012 44% of which: 42% Circulation 391.3 408.2 (4)% 48% 45% Other 128.8 137.9 (7)% Total revenue 807.9 910.5 (11)% Revenue by country Revenue by country (€ millions) Netherlands 472.4 539.5 (12)% 2013 2012 Denmark 335.5 371.0 (10)% The Netherlands 472.4 The Netherlands 539.5 Denmark 335.5 Total revenue 807.9 910.5 (11)% Denmark 371.0

Costs by type Direct (243.5) (281.6) 14% Staff (355.7) (395.6) 10% 42% 41% 2013 2012 Other (120.8) (145.8) 17% 58% 59% Total costs (720.0) (823.0) 13%

EBITDA Netherlands 67.0 70.0 (4)% EBITDA by country Denmark 27.2 24.0 13% (€ millions) Corporate (6.3) (6.5) 3% lower 2013 2012 Total 87.9 87.5 0% The Netherlands 67.0 The Netherlands 70.0 Denmark 27.2 Denmark 24.0

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

In addition to the continuing adjusted EBITDA shown in the table above, the Group’s discontinued operations contributed €1.0 million in 2013 (2012: €18.5 million), comprising 29% 26% €1.0 million for Poland (2012: €2.0 million) and €nil for Norway (2012: €16.5 million). 2013 2012

71% 74%

8 Mecom Group plc Annual Report and Accounts 2013 Divisional Reviews: Continuing Operations

Market overview The The Dutch daily newspaper circulation market comprises national and regional titles, accounting for c.55 per cent and Netherlands c.45 per cent, respectively, of daily copies sold. Away from the Randstad area in the west of the Netherlands, regional titles have an average share of the daily newspaper market of over 60 per cent. Total daily circulation was 3 million copies, down 6 per cent from the comparable period in 2012, with regional titles falling on average by 6 per cent and national titles by 7 per cent. The total daily circulation revenue was estimated to be €819 million in 2013 (2012: €831 million). The total print advertising revenue, including daily newspaper titles and free weekly titles, represented 28 per cent of total advertising and was estimated to be €966 million (2012: €1,058 million), including revenue for daily titles of €404 million and free newspapers of €336 million.

The Netherlands revenue There are three major operators in the Dutch newspaper (€ millions) market: Mecom Netherlands, Telegraaf Media Groep (“TMG”) 2013 2012 and Persgroep Netherlands (“PGN”). Mecom Netherlands, comprising Koninklijke Wegener NV (“Wegener”) and Limburg Advertising 177.0 Advertising 231.3 Media Groep (LMG), has a 63 per cent share of the regional Circulation 254.2 Circulation 259.8 newspaper market; TMG has a 33 per cent share of the national Other 41.2 Other 48.4 newspaper market and a 15 per cent share of the regional newspaper market; PGN has 44 per cent share of the national 9% 9% newspaper market.

37% Mecom’s operations 43% 2013 2012 Mecom Netherlands publishes eight paid-for daily newspapers 48% in the east and south of the Netherlands. Seven titles are 54% published by Wegener and one by LMG, each with an average of 40% eight local editions. The Group has total daily readers of over 2.5 million and publishes content in print and in online, mobile and e-paper form. Daily circulation ranges from c.50,000 to c.150,000 and Mecom’s titles on average have a 63 per cent share of the daily newspaper market in the regions in which it operates. Over 95 per cent of newspapers are sold on a subscription basis, to total subscribers of approximately 770,000. Wegener also publishes over 170 weekly titles, with distribution of over 5.5 million weekly copies, both in the daily publishing regions and also the north and west of the Netherlands. Mecom Netherlands sells advertising in national (for approximately 30 per cent of advertising) and local/regional (for approximately 70 per cent of total advertising) advertising markets. Mecom Netherlands has 2.3 million unique monthly online users. In addition to circulation sales, the Group makes other commercial sales to readers, both online and in print.

Following the closure of one print plant at the end of 2013, the Group operates three plants, in Apeldoorn, Best and Heerlen, with capacity largely used to print the Group’s own daily and weekly publications. Wegener runs distribution operations in its own area which also distribute the newspapers of other publishers. LMG’s newspapers are distributed by a third party, TMG.

Mecom Netherlands employed 2,449 people (on a full-time equivalent basis) as at 31 December 2013.

Mecom Group plc Annual Report and Accounts 2013 9 Divisional Reviews: Continuing Operations The Netherlands continued

Disposals In the course of 2013, the online portfolio has been developed The Group made the following disposals of operations within its further and pay models for online subscriptions have been Dutch business during 2013, resulting in gains of €22.9 million: introduced. Newspaper subscriptions to the Wegener titles have been enhanced with free access for paying subscribers to all • Autotrack, an online automotive classified website, for online content. More than 200,000 subscribers (over 25 per cent proceeds of €26.4 million; and of the entire subscriber base) have registered for this service. • the Group’s 30 per cent economic interest in Funda, an online Non-subscribers have been required to pay for access to digital property classified website, for proceeds of€ 15.1 million. news on Wegener’s apps since the end of 2013. Cooperation agreements have been made with other parties for the 2013 review exploitation of digital content and with regional broadcasters Mecom’s Dutch businesses have taken important initiatives in regarding non-exclusive regional news. New business initiatives 2013 to make both the organisation and the product portfolio are aimed at the broadening of regional market presence more resilient to the changing media landscape. A renewed (e.g. books, events, etc.) and club sales (wine, ticketing, etc.). emphasis was put on the regional content portfolio which forms the basis of Mecom’s Dutch market position and which will To lower distribution costs, further significant steps were made continue to be a unique differentiator for the future. Continued to cooperate with other newspaper publishers. As of the start macro-economic weakness resulted in both advertising and, of 2014, the daily newspapers of De Persgroep are distributed to a lesser extent, circulation revenues performing below by Wegener in its daily newspaper footprint, adding to those of expectations, although towards the end of the year, the rate of other publishers introduced in earlier years. decline in advertising sales slowed. As a result of the continued weakness in revenues, significant cost reduction programmes Susan Duinhoven has been appointed CEO of Wegener, were put in place across Mecom’s businesses in the following the previously announced departure of Truls Velgaard. Netherlands, as explained further below. In order to respond to In September, a new Management Team was appointed to lead future customer demands, investment continued in 2013. At the the organisation after the Phoenix restructuring programme. centre of these investments were developments in the digital The management model within Wegener has been altered to content portfolio, new business initiatives and club sales to put more emphasis on Wegener’s regional presence and generate new revenue streams. publications. From October 2013, the regional titles are led by the regional editor-in-chief and by the regional sales director. The The Group’s Dutch operations have experienced a decline in the former function of regional director/publisher has been replaced overall subscription base of 6 per cent in volume terms. This is in by two publishers (East and South regions), who are part of line with overall market trends in (regional) newspapers, but Wegener’s Management Team. slightly higher than in previous years. The circulation decline was largely compensated by price increases implemented in early The focus for 2014 will remain on cost control and on the full 2013 of approximately 5 per cent. Advertising revenues showed implementation of the cost savings programmes already in an extremely slow start in 2013, due to a weak economic place, given the expectation that traditional advertising revenues environment. The execution of improvement plans in the Group’s will continue to decline. In order to offset the decline in print sales operations and a slight improvement in market sentiment revenues, continued emphasis will be placed on the growth in resulted in improvement in revenue development in the second use and monetisation of digital content. New business initiatives half of the year. and club sales are also expected to generate a growing share of revenues, albeit with only marginal contribution to profitability Both Wegener and LMG have executed broad-based cost during the start-up phase. reduction programmes in 2013. The “Phoenix” restructuring programme in Wegener targeted savings, both employee and non-employee, across all operations and functions, including the closure of the Enschede print plant at the end of 2013. The first wave of savings was achieved in 2013, with remaining cost savings to be realised in 2014 and 2015. The “Obelisk” programme in LMG, which will be implemented in 2014, likewise involves cost savings across a number of functions, including the closure of one line at the Heerlen print plant and the discontinuation of the weekly newspaper WeekendGazet on 1 October 2013.

10 Mecom Group plc Annual Report and Accounts 2013 Financial overview Financial performance in 2013 for the Group’s Dutch operations was affected by the disposal of the purely online Autotrack 2013 2013 2012 vs 2012 business (in March 2013) and the Group’s investment in Funda Reported €m €m % (in June 2013). The “pro-forma” results in the table above restate Revenue revenues and costs for both 2012 and 2013 to aid understanding of the underlying performance of the on-going business. Circulation 254.2 259.8 (2)% Advertising 177.0 231.3 (23)% Circulation revenue, virtually all of which relates to subscriptions, Other 41.2 48.4 (15)% fell by 2 per cent, as the effect of price increases made early in 2013 of an average of 5 per cent was more than offset by a fall in Total revenue 472.4 539.5 (12)% subscription volumes of 6 per cent. Other revenue fell by 15 per Total costs (405.4) (469.5) 14% cent, with falls in printing revenues (in part related to the closure EBITDA 67.0 70.0 (4)% of one print line during the year) but growth in enterprises revenues of 5 per cent during the year. Depreciation (19.6) (18.4) (7)% Operating profit 47.4 51.6 (8)% Advertising revenue fell by 23 per cent (21 per cent on a pro- forma basis), with sharper declines experienced in the first half of the year. The declines reflected both structural shifts in EBITDA margin % 14.2% 13.0% 1.2pts advertising expenditure and the effects of difficult economic conditions, where falling personal income and GDP affected 2013 consumer confidence and advertisers’ behaviour. Declines 2013 2012 vs 2012 Pro-forma for disposals €m €m % were experienced broadly equally in both the daily and weekly newspapers (which accounted for c.45 per cent and c.55 per Revenue cent, respectively, of print advertising during 2013). Overall Circulation 254.2 259.8 (2)% performance in advertising was less affected in the national Advertising 174.7 220.4 (21)% advertising markets than in regional and local markets. Other 46.9 (12)% 41.2 Costs were lower in every category and in total by 14 per cent Total revenue 470.1 527.1 (11)% (12 per cent on a pro-forma basis). The number of FTEs fell by Total costs (404.8) (462.6) 12% 12 per cent, from 2,792 to 2,449 at 31 December 2013 (including c.30 arising from disposals), which together with certain non- EBITDA 65.3 64.5 1% recurring benefits of€ 5 million related to the reduction of certain Depreciation (19.5) (17.9) (9)% employee benefit entitlements in 2013, contributed to a fall in Operating profit 45.8 46.6 (2)% staff costs of €24.9 million or 10 per cent. The cost reductions included the first benefits from restructuring plans that will continue to be implemented during 2014 and 2015, as explained EBITDA margin % 13.9% 12.2% 1.7pts further in the Chairman’s Statement.

First half Second half EBITDA fell by €3.0 million to €67.0 million, but on a pro-forma 2013 2013 basis EBITDA was slightly higher than in 2012, as cost reductions 2013 2012 vs 2012 2013 2012 vs 2012 more than offset falls in revenues. Depreciation was higher than Reported €m €m % €m €m % in 2012, as a result of the acceleration of depreciation on the Circulation 128.7 131.0 (2)% 125.5 128.8 (3)% Enschede print plant which was closed in December 2013 (effect Advertising 92.2 124.0 (26)% 84.8 107.3 (21)% of c.€2 million). As a result, operating profit fell by€ 4.2 million. Other 19.6 25.2 (22)% 21.6 23.2 (7)% Total revenue 240.5 280.2 (14)% 231.9 259.3 (11)%

EBITDA 22.9 31.4 (27)% 44.1 38.6 14% EBITDA margin % 9.5% 11.2% (1.7)pts 19.0% 14.9% 4.1pts

Mecom Group plc Annual Report and Accounts 2013 11 Divisional Reviews: Continuing Operations

Market overview Denmark The Danish daily newspaper circulation market comprises national and regional (and local) titles, accounting for c.55 per cent and c.45 per cent, respectively, of daily copies sold. Total daily circulation was 0.8 million copies, down 4 per cent from the comparable period in 2012, with regional titles falling on average 1 per cent and national titles by 6 per cent. The national market includes three quality titles, two tabloid papers and a daily Denmark revenue financial newspaper. There are 25 regional and local titles, with (€ millions) a wide range of circulation volume. The total daily circulation revenue was estimated to be €498 million in 2013 (2012: €506 2013 2012 million). The total print advertising revenue, including daily Advertising 110.8 Advertising 133.1 newspaper titles and free weekly titles, represented 28 per cent Circulation 137.1 Circulation 148.4 of total advertising and was estimated to be €466 million (2012: Other 87.6 Other 89.5 €509 million), split between daily titles of €212 million and free newspapers of €254 million.

26% 24% There are two major operators in the Danish newspaper market: 33% 36% Berlingske Media and JP/Politikens Hus (JPPol), with 25 per cent 2013 2012 and 29 per cent, respectively, of the total paid newspaper circulation (in the case of Berlingske Media after the disposals made during 2013). Ownership of other newspaper operations 41% 40% 40% is fragmented, with no other publisher having more than 10 per cent of the market.

Mecom’s operations Berlingske Media publishes two national titles, (Berlingske and BT, with weekday circulation of over 80,000 and over 50,000 respectively) and one weekly title (Weekendavisen, with circulation of over 45,000). It publishes seven daily regional titles (each with circulation of less than 20,000) and 17 free weekly titles in the mid-Jutland region (run as media houses with regional paid titles) with total distribution in excess of 500,000 each week. With the exception of BT, most newspapers are sold on a predominantly subscription model, with c.190,000 subscribers (following the disposals made in 2013). In total, Berlingske Media has daily readership of almost 600,000 and publishes content in print and e-paper form, as well as online, on mobile and web TV, with pay models in place for both national and regional news websites, and aggregated unique users across all news websites of c.6 million. The Group operates both national and local radio stations, including Pop FM and Radio24syv, with total listeners of almost 1 million. In addition to circulation sales, the Group makes other commercial sales to readers, both online and in print, including Sweetdeal, the leading “deal a day” operation in Denmark. The Group owns and operates, either on its own or through joint ventures, news and photo agencies, city guides and a media search, monitoring and analysis company.

Berlingske Media operates four print plants distributed across Zealand and Jutland, with capacity used to print both the Group’s own newspapers and third-party publications. Newspapers are distributed largely through joint ventures with other publishers and on an outsourced basis.

Berlingske Media employed 1,291 people (on a full-time equivalent basis) as at 31 December 2013.

12 Mecom Group plc Annual Report and Accounts 2013 Disposals Berlingske Media’s enterprise sales continued its strong growth The Group made the following disposals of operations within its with new initiatives and increased revenue. “Sweetdeal Travel” Danish business during 2013, resulting in gains of €13.8 million: has gained market share and is today in the top 5 of the biggest Danish travel operators. In 2013, revenue from enterprises was • free-sheet titles in Zealand, in a series of transactions with €9.5 million, up 13 per cent from 2012, notwithstanding the effect aggregate proceeds of €18.1 million; of disposals, and Berlingske Media expects further development • the Group’s 50 per cent investment in the JydskeVestkysten of this business area over the next years. publishing operation, with related free-sheet titles in southern Jutland, for proceeds of €11.8 million; and In 2013, Berlingske Media’s cost base was reduced by 11 per • investments in the Boliga online property classified website cent compared to 2012 (including the effect of disposals; the (25 per cent) and Jobzonen online employment classified reduction on a pro-forma basis was 8 per cent), bringing the website (43 per cent economic ownership) for aggregate cumulative decrease in costs since 2008 to 31 per cent. The cost proceeds of €2.6 million. savings were spread over a number of areas, with emphasis on outsourcing or reducing the scope of all activities other than the 2013 review core commercial and editorial departments. The cost reductions During 2013, Berlingske Media addressed two major priorities: in Berlingske Media in recent years have significantly reduced a continuing focus on creating sustainable business models the number of FTEs: since 2009, the total number of FTEs, for its entire portfolio and further cost reductions through taking into account both recent disposals and some acquisitions restructuring of the business’s operations. In addition to this, and new projects over the period, has been reduced by almost as noted above as part of the Group’s Strategic Review, one third. Berlingske Media sold its free local weeklies in the east and southern part of Denmark, as well as some partly owned Mobile grew rapidly during 2013, with more and more people activities, including its 50 per cent share of JydskeVestkysten. owning mobile devices and increasingly using them to access (The disposed businesses contributed €42.1 million of revenue the internet. Berlingske Media has been at the forefront of the and €6.2 million of EBITDA during 2013.) mobile development, at an early stage of which it developed mobile sites and apps for its customers; it anticipates further Advertising sales decreased by 10 per cent from 2012 to 2013 commercial development of the mobile market in 2014. on a pro-forma basis adjusting for disposals, with differing experience in different markets. Compared to market trends, Berlingske Media extended its products, online presence and Berlingske Media’s daily titles performed in line, the weekly titles reach with a series of innovative initiatives during 2013, including: were slightly better but, notwithstanding continued growth at EBITDA, lower than market performance for digital advertising. • “TotalFodbold” is a new niche magazine for tablets for football enthusiasts; The volume in circulation sales in the Group’s national titles • the print magazine “iNPUT Berlingske” which originally was a (BT, Berlingske and Weekendavisen) declined during the year digital gadget magazine for tablets but was further developed by 11 per cent. The decline in papers sold on subscription was as a successful quarterly gadget print magazine which is 9 per cent (although only 7 per cent after adjusting to exclude distributed together with Berlingske; trial and discounted subscriptions, which the Group is actively • the travel print magazine Escape was also launched in a reducing due to their unprofitability) and 16 per cent for news digital version for tablets; and stand sales, primarily for BT. For the seven paid local dailies • “Boligen” (a lifestyle magazine) was launched as a new free in central Jutland, which are sold primarily on subscription, app with a new direct model for partnerships with advertisers circulation volumes decreased by an average of 9 per cent. that enables the customers to go directly from the editorial As of early 2014, Berlingske’s metered online subscription presentations of furniture and home accessories to the model, which was launched in August 2013, had, together with advertiser’s homepage and buy the item shown. the e-paper and other digital subscriptions, 10,000 subscribers, at the same level as the Group’s main competitors. In April 2013, the wholly owned Scanpix Denmark business, a full-service photo agency, merged with the team of award- During 2013, the national paid daily Berlingske continued its winning photographers from within the national operations commitment to the highest standards of journalism, to ensure of Berlingske Media itself. Scanpix was strengthened and the continuing credibility of the brand to its audience. Several now provides images and videos for the newspapers and of the Berlingske journalists again were nominated in 2013 for external customers. both national and European awards. In the beginning of 2013, Berlingske launched an evening edition solely for tablets, which resulted in further digital growth. Today, all content produced under the title Berlingske can be found online, with a selection of the content being published in the newspaper itself. Berlingske follows a digital first strategy and publishes special content for the digital platforms. The national tabloid BT continued its powerful online development, with the number of digital users and online advertising revenue growing rapidly. Each month approximately 1.6 million users now read BT on mobile devices.

Mecom Group plc Annual Report and Accounts 2013 13 Divisional Reviews: Continuing Operations Denmark continued

Financial overview Financial performance in 2013 for the Group’s Danish operations 2013 was affected by the various disposals made during 2013 and 2013 2012 vs 2012 described above. The “pro-forma” results in the table above restate Reported € m €m % revenues and costs for both 2012 and 2013 to aid understanding of Revenue the underlying performance of the on-going business. Circulation 137.1 148.4 (8)% Circulation revenue fell by 8 per cent, 5 per cent on a pro-forma Advertising 110.8 133.1 (17)% basis (the difference arising from the sale of the Group’s share of Other 87.6 89.5 (2)% JydskeVestkysten). Declines in single-copy sales of 10 per cent Total revenue 335.5 371.0 (10)% (on a pro-forma basis) arose largely from the Group’s tabloid BT, with only modest declines in subscription sales of 3 per cent. Total costs (308.3) (347.0) 11% Average subscribers fell by 9 per cent to 187,000 in 2013, including EBITDA 27.2 24.0 13% the effect of a 20 per cent reduction in trial subscriptions. Depreciation (11.7) (15.1) 23% Advertising revenue declined by 17 per cent, 10 per cent on a Operating profit 15.5 8.9 74% pro-forma basis. The reported decline was higher in the second half of the year, but this arose entirely from the effect of disposals EBITDA margin % 8.1% 6.5% 1.6pts made during the year, with the pro-forma declines being lower in the second half of the year, as comparatives stabilised after a difficult first quarter trading. Advertising declines were 12 per 2013 2013 2012 vs 2012 cent in the national titles and 5 per cent in the regional titles Pro-forma for disposals €m €m % (excluding those that were disposed during the year). Revenue Other revenues were marginally lower in 2013 on a pro-forma Circulation 127.5 134.3 (5)% basis, with enterprise revenues up by 19 per cent and printing Advertising 83.8 93.2 (10)% revenues down by 4 per cent (reported printing revenues Other 82.1 82.5 0% showed strong growth, due largely to the continued printing by the Group’s plants of titles disposed during the year). Distribution Total revenue 293.4 310.0 (5)% revenues were 6 per cent lower, on a pro-forma basis, due to Total costs (272.4) (294.8) 8% reduced volumes. EBITDA 21.0 15.2 38% Costs were down 11 per cent (8 per cent on a pro-forma basis), Depreciation (11.5) (14.7) 22% with reductions in all categories. The number of FTEs fell by 22 Operating profit 9.5 0.5 1,800% per cent, from 1,664 to 1,291 at 31 December 2013 (including c.270 arising from disposals), which contributed to a reduction in staff costs of €15.0 million or 10 per cent. EBITDA margin % 7.2% 4.9% +2.3pts EBITDA was 13 per cent, or €3.2 million, higher than in 2012 at First half Second half €27.2 million. On a pro-forma basis, EBITDA was €5.8 million, 2013 2013 or 38 per cent higher, as the benefit of cost savings and growth 2013 2012 vs 2012 2013 2012 vs 2012 Reported €m €m % €m €m % in other revenues offset advertising and circulation declines. Depreciation was €3.4 million lower than in 2012, as certain Circulation 70.4 74.6 (6)% 66.7 73.8 (10)% assets reached the end of their useful economic life. Advertising 61.9 69.2 (11)% 48.9 63.9 (23)% Other 42.5 43.0 (1)% 45.1 46.5 (3)% Total revenue 174.8 186.8 (6)% 160.7 184.2 (13)%

EBITDA 11.1 9.1 22% 16.1 14.9 8% EBITDA margin % 6.4% 4.9% +1.5pt s 10.0% 8.1% +1.9 pt s

14 Mecom Group plc Annual Report and Accounts 2013 Divisional Reviews: Discontinued Operation

Poland

The Group disposed of its remaining Polish business, Media Regionalne, on 31 October 2013, following a sale and purchase agreement of 20 March 2013, for an enterprise value of €3 million. Media Regionalne publishes nine regional paid-for titles in Poland, as well as weekly paid and free titles, websites and radio operations. In the ten-month period to the disposal date, Media Regionalne recorded revenues of €37.1 million and EBITDA of €1.0 million, compared with €49.8 million and €2.0 million respectively for the full year 2012.

Financial overview 2013 2013 2012 vs 2012 Reported €m €m % Revenue 37.1 49.8 (26)% EBITDA 1.0 2.0 (50)% Depreciation – (2.4) n/a Operating profit/(loss) 1.0 (0.4) n/a

Mecom Group plc Annual Report and Accounts 2013 15 Group Finance Director’s Report

The reported results for the Group for the year ended In the consolidated financial statements, the Group continues 31 December 2013 are summarised below: to present exceptional items and the amortisation of acquired intangibles separately in the consolidated income statement, 2013 2012 to allow the reader of the accounts to understand better the €m €m elements of financial performance in the year. Total Group Revenue 845.0 1,105.2 The year-on-year comparisons of revenue, cost and profit items within continuing operations have been affected by the disposals Adjusted EBITDA 88.9 106.0 made during 2013. The country financial overview sections Adjusted earnings per share – euro cents 30.9 34.6 give an explanation of the effect of disposals on key financial Loss per share after exceptional items and measures, as well as setting out an explanation of the amortisation of acquired intangibles – movements in each business’s revenues, adjusted costs and euro cents (51.9) (23.6) adjusted EBITDA.

Revenue, costs and earnings before interest and tax – Continuing operations continuing operations Revenue 807.9 910.5 Revenue for the year ended 31 December 2013 was €807.9 Adjusted EBITDA 87.9 87.5 million, down from €910.5 million in 2012, of which €763.5 million related to businesses that the Group owned at 31 December Adjusted operating profit 56.6 54.0 2013. Advertising revenue fell by 21 per cent to €287.8 million, Adjusted profit before tax 47.9 39.7 including a three percentage point reduction caused by the sale Exceptional operating costs (114.7) (91.4) of businesses, and circulation revenue fell by 4 per cent to €391.3 million, including a one percentage point fall caused by Amortisation of acquired intangibles (40.3) (47.3) the sale of businesses; other revenue was down 7 per cent at Operating loss after exceptional items and €128.8 million, including a 20 per cent reduction in third party amortisation of acquired intangibles (98.4) (84.7) printing revenues that was caused in large part by the closure Loss before tax after exceptional items and of a printing line at one of the Group’s plants in the Netherlands. amortisation of acquired intangibles (71.1) (102.3) Total adjusted costs (excluding depreciation) for 2013 from Adjusted earnings per share – euro cents 30.1 24.3 continuing operations were €720.0 million, down by €103.0 Loss per share after exceptional items and million or 13 per cent, from 2012, with benefits from reduced amortisation of acquired intangibles – headcount and from lower other costs. Staff costs remain the euro cents (54.3) (73.4) continuing operations’ main cost component, representing some 49 per cent of total costs. Total costs after exceptional Discontinued operations items, but before depreciation and amortisation, were down by €109.8 million, as lower adjusted costs were accompanied by Revenue 37.1 194.7 lower restructuring charges and other exceptional items, as Adjusted EBITDA 1.0 18.5 explained further below and in Note 11 to the consolidated financial statements. Adjusted operating profit 1.0 16.1 Adjusted profit before tax 1.2 16.5 As a result, adjusted EBITDA from continuing operations was Exceptional operating costs (0.2) (20.0) €87.9 million in 2013 compared to €87.5 million in 2012. The adjusted EBITDA margin in 2013 was 10.9 per cent, compared Amortisation of acquired intangibles – (0.2) with 9.6 per cent in 2012. In the Netherlands, adjusted EBITDA Operating profit after exceptional items and was down €3.0 million from €70.0 million to €67.0 million, with the amortisation of acquired intangibles 0.8 (4.1) division’s adjusted EBITDA margin up from 13.0 per cent in 2012 Profit before tax after exceptional items and to 14.2 per cent in 2013. Denmark’s adjusted EBITDA rose by amortisation of acquired intangibles 3.1 58.5 €3.2 million to €27.2 million; adjusted EBITDA margin was 8.1 per cent, up from 6.5 per cent in 2012. EBITDA after exceptional Adjusted earnings per share – euro cents 0.8 10.3 items was €55.1 million, up €12.2 million from 2012 as a result Earnings per share after exceptional items and of higher adjusted EBITDA and lower exceptional charges. amortisation of acquired intangibles – euro cents 2.4 49.8

16 Mecom Group plc Annual Report and Accounts 2013 Depreciation and amortisation of software reduced from €33.5 Discontinued operations million in 2012 to €31.3 million in 2013. As a result of all of these Discontinued operations in 2013 comprised Media Regionalne, factors, adjusted operating profit rose by €2.6 million to €56.6 which was classified as held for sale as at 31 December 2012 million, with an adjusted operating profit margin of 7.0 per cent, and disposed of on 31 October 2013. In 2012, discontinued up from 5.9 per cent in 2012. operations included, in addition to Media Regionalne, the Group’s former Norwegian business, Edda Media. Revenue in Total operating exceptional charges of €114.7 million were respect of Media Regionalne for the period until sale was €37.1 recorded in 2013 (2012: €91.4 million). These charges, which million, with EBITDA of €1.0 million (2012: revenue and EBITDA are set out in detail in Note 11 to the consolidated financial from discontinued operations of €194.7 million and €18.5 million, statements, included: respectively, of which €49.8 million of revenue and €2.0 million of EBITDA related to Media Regionalne). Exceptional operating • staff redundancy costs of €36.6 million (2012: €37.1 million) charges relating to the discontinued operations were €0.2 million recorded across the Group’s divisions as cost-saving (2012: €20.0 million). initiatives were put in place further to achieve the cost reduction targets set out in January 2013; The operating profit after exceptional items and the amortisation • a credit of €5.7 million in respect of employee benefits of acquired intangibles from discontinued operations for the year obligations (2012: charge of €4.8 million); and ended 31 December 2013 was €0.8 million, compared with a • an impairment of €77.7 million in respect of goodwill and loss of €4.1 million in 2012. acquired intangible assets, as explained further in Notes 17 and 18 to the consolidated financial statements. The effective tax rate on adjusted profit before tax from discontinued operations (excluding the share of results of Details of exceptional charges are set out in Note 11 to the associates) for the year ended 31 December 2013 was 8.3 per consolidated financial statements. The amortisation of acquired cent (2012: 28.3 per cent). intangibles was €40.3 million (2012: €47.3 million). Earnings per share and dividends The operating loss after exceptional items and the amortisation As described above, the continuing fall of EBITDA in the year, of acquired intangibles from continuing operations for the year together with the effect of the disposal of businesses recorded ended 31 December 2013 was €98.4 million, up from a loss of within discontinued operations, more than offset lower €84.7 million in 2012 as higher impairment charges more than depreciation and net finance expense, such that Group total offset an improvement in adjusted operating profit and lower adjusted earnings per share, from both continuing and restructuring and other exceptional costs. discontinued operations, were 30.9 euro cents per share in 2013 compared with 34.6 euro cents per share in 2012. Adjusted Finance items and taxation – continuing operations earnings per share for continuing operations were 30.1 euro In 2013, net finance expense before exceptional items was cents per share compared to 24.3 euro cents per share in 2012. €8.7 million, down from €14.1 million in 2012. This improvement The unadjusted loss per share for the Group from continuing principally resulted from considerably lower levels of debt during operations was 54.3 euro cents per share (2012: 73.4 euro 2013, with average net debt of €114.7 million compared with cents), with the fall reflecting higher adjusted operating profit, €224.5 million in 2012. This reduction largely reflected disposal lower net finance expense and €36.6 million of gains on disposal proceeds and debt reduction from cash generation. in 2012, and from discontinued operations was a profit of 2.4 euro cents per share (2012 restated: 49.8 euro cents), with the The effective tax rate on adjusted profit before tax from lower earnings reflecting the absence of the large gain recorded continuing operations (excluding the share of results of in 2012 on the disposal of the Group’s Norwegian operations. associates) for the year ended 31 December 2013 was 25.0 per The total unadjusted loss per share was 51.9 euro cents per cent (2012: 27.3 per cent). This rate was higher than the blended share, compared with a loss of 23.6 euro cents per share in statutory rates of the countries in which the Group operates, 2012, as restated. largely as a result of the non-recognition of tax losses for accounting purposes. The Group paid a final dividend in respect of 2012 totalling €6.7 million. An exceptional tax credit of €18.2 million was recorded in 2013 (2012: €27.2 million), including tax credits on the amortisation of acquired intangibles of €10.8 million (2012: €13.5 million).

Mecom Group plc Annual Report and Accounts 2013 17 Group Finance Director’s Report continued

Cash flow Financial position The movement in the Group’s net debt is summarised in the The Group’s closing net debt as at 31 December 2013 table below (which presents cash flows where relevant in the was €38.1 million, down €91.4 million from €129.5 million at format used by management rather than the statutory format 31 December 2012, reflecting the disposals made during the cash flow included in the financial statements): period and the €37.6 million of cash generated from operations. The Group’s leverage ratio (measured as the ratio of net debt 2013 to adjusted Group EBITDA according to the definitions in the 2013 2012 vs 2012 €m €m €m bank facility agreement) was 0.5 times, down from 1.4 times Total Group as at 31 December 2012. Cash from operations (before Closing net debt comprised bank borrowings of €67.5 million exceptional items) 77.5 69.0 8.5 (2012: €153.8 million), obligations under finance leases of Exceptional operating cash flows (29.5) (56.0) 26.5 €nil (2012: €0.3 million), other borrowings of €3.8 million (2012: €4.0 million) and cash and cash equivalents (net of Exceptional operating cash flows: overdrafts) of €33.2 million (2012: €28.6 million). De Pers (10.4) (39.1) 28.7 Cash generated from operations 37.6 (26.1) 63.7 The Group’s closing total equity decreased by €70.1 million Tax paid (0.6) (4.8) 4.2 during 2013, resulting in closing total equity of €90.2 million. In addition to the total loss for the year of €61.6 million, other Net capital expenditure (3.5) (25.6) 22.1 comprehensive income resulted in a decrease in equity of Net proceeds/(purchases) of €1.6 million, share-based payment credits recorded directly publishing rights and other in equity were €0.6 million and dividends paid to shareholders investments (6.9) (12.5) 5.6 and non-controlling interests decreased equity by €6.9 million. Net interest paid 3.1 3.2 (0.1) Other movements in equity in 2013 totalled a reduction in equity of €0.6 million. Free cash flow, before acquisitions/divestments and Going concern dividends paid to equity The Group’s financial and liquidity risk factors, and the approach shareholders 29.7 (65.8) 95.5 to managing them, are set out in Note 26 to the consolidated Acquisitions/divestments 70.9 213.7 (142.8) financial statements. Acquisitions of non-controlling interests (0.9) (0.8) (0.1) The Group agreed new financing facilities in March 2014 (as set out in Note 25 to the consolidated financial statements), Dividends paid to equity shareholders (6.7) (18.7) 12.0 replacing the previous facilities (also described in Note 25 to the Disposal of EBT shares 1.5 – 1.5 consolidated financial statements), which had been in place Non-cash movements in net debt (3.1) 0.6 (3.7) since late 2007, and expects to refinance its current borrowings through these facilities before 31 March 2014, once conditions Net decrease in net debt 91.4 129.0 (37.6) precedent (that are under the Group’s control) have been met. The new facilities provide financing for at least three years and The Group’s free cash flow (that is, cash flow after capital have been entered into on a local basis with lenders who are expenditure, tax and debt service, but before acquisitions and geographically closer to the Group operations. The new facilities disposals and dividends to shareholders) during the year was an require further reduction in the Group’s borrowings, through the inflow of €29.7 million, compared with an outflow of €65.8 million amortisation of term borrowings from cash flow over that period, in 2012. which will result in a further strengthening of the Group’s financial position over time. Net proceeds from acquisitions and divestments relate to the disposals made under the Group’s Strategic Review, as The Group continues to face the structural pressures on described earlier in this report. revenues that come with changing media consumption and, notwithstanding recent improvements in many indicators in the Netherlands, the risk that economic conditions will have an adverse effect on the Group’s financial performance remains. The Group has strategies in place to seek new revenue streams and plans further cost reductions to protect against these effects; the cash flows associated with these cost reduction plans form part of the business plans on which the new banking facilities have been based. Taking into account these factors, the Board considers that the covenants under the new facilities allow adequate headroom against the risks and uncertainties facing the business over this period.

18 Mecom Group plc Annual Report and Accounts 2013 The Directors, having made appropriate enquiries, have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual accounts of the Company.

Treasury Treasury matters are contributed by the Group treasury function, including the oversight of bank borrowing, liquidity management and monitoring Group treasury risks. A Finance Committee which includes the Group Finance Director, the Group Treasurer and the Group Chief Operating Officer, provides further guidance on treasury matters and oversees risk management.

The Group is exposed to treasury risks arising from exposure to movements in market interest rates, which affect the Group’s borrowing costs. The Group has a general policy of keeping between 40 per cent and 80 per cent of its gross borrowings at fixed rates, so as to provide some certainty on its interest costs, while leaving open the opportunity to benefit in part from low interest rates. During 2013, however, in light of the Strategic Review, the Group did not hedge the interest rate on its borrowings. The Group expects to enter into hedging agreements during 2014 to fix the interest rate on borrowings in line with this policy.

Following the sale of its Polish operations, with each operation reporting in the Euro or in the Danish Krone (which is closely pegged to the Euro) and having limited exposure to foreign currency transaction exposure, the Group overall has limited exposure to foreign currency transaction and translation risk.

Henry Davies Group Finance Director

Mecom Group plc Annual Report and Accounts 2013 19 Principal Risks and Uncertainties

Our Board recognises the importance Risk management process The Board is responsible for establishing a robust and appropriate of identifying, evaluating and managing risk management process and periodically reviews the risk the internal and external risks facing the framework, its content and its operation. The approach to risk business. As the Group modernises, management covers risks at all levels of the Group and examines identifies new market opportunities and business risks on both a top-down and bottom-up basis. develops new revenue streams, its Risk monitoring and mitigation processes are embedded in the risk management processes are a key running of each of the businesses. Each business has its own risk process, aligned to that of the Group, where risks are actively success factor in ensuring that the Group identified, reviewed and monitored. The risks and mitigating actions continues to operate with an acceptable identified within the businesses feed into, are consolidated and level of risk whilst exploiting opportunities considered as a part of, the Group’s own risk process. The Group’s risk process is designed to ensure that the Board can identify and that improve returns so as to add value implement mitigation activities so that the Board can execute the to shareholders. Group’s strategy and meet the Group’s business objectives within acceptable residual risk tolerances.

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

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

Key External Risk Factors The following risks arise from factors outside the control of management: Factor Risk Change from 2012 Mitigation/Management Action The market – Decline in print advertising revenues, – Designing packages for advertisers that fulfil demands for caused by structural changes in cross-media reach and attract a larger share of the wider media consumption and prolonged advertising market. economic instability in the markets in – Reorganisation, training and improvement of the advertising sales which Mecom operates, could teams, processes and systems to protect market positions and to significantly impact the Group’s drive cross-media promotion. overall financial performance. – Accelerating the development of multi-media consumer content, whilst fully exploiting the strength of the Group’s existing established and distinctive brands and prominent market position with advertisers to protect core print revenues. Consumer trends – Consumer tastes/behaviours change – Accelerating the innovation, development and introduction of more quickly than anticipated to new new media products which appeal to a wider consumer base, media sources, negatively impacting that contain content that consumers are willing to pay for across traditional print circulation volumes a number of platforms. and advertising revenues. – Improving cross-selling of wholly owned products and brands to maximise revenue share. – Seeking new revenue opportunities through strategic partnerships.

Key No change Decrease

20 Mecom Group plc Annual Report and Accounts 2013 Key Strategic Risks The following risks are related to the delivery of the strategy the Group has put in place: Factor Risk Change from 2012 Mitigation/Management Action Protect and – An editorial error or breach of – The Group has established editorial policies and procedures strengthen reach, editorial standards could lead in place. to potential loss of readership, brands and market – Management has developed focused training to increase damaged reputation or legal the competency and skills base of its workforce and, where positions proceedings. necessary, will also recruit new skills from outside the Group. – Mecom is not able to attract, to motivate and to retain its creative talent. Extend daily news – Mecom fails to invest in and to – Continuing the development of new products and pricing strategies subscription base develop new products and services to extend the portfolio for content customers. quickly enough to offset decline in across all platforms – Accelerating the innovation, development and introduction of new traditional revenues. media products which appeal to a wider consumer base, that contain – Current technologies and processes content that consumers are willing to pay for across a number of are insufficient to support the growth platforms. Expand commerce and development of new online – Reorganisation, training and improvement of the advertising sales relationships with products and pay models and fail to teams, processes and systems to support new products and drive subscribers through provide requisite data analytics to data insights supporting targeted advertising sales. drive segmented and targeted new products advertising sales. – Designing packages for advertisers that fulfil demands for cross- media reach and attract a larger share of the wider advertising market.

Provide increasingly segmented and high-quality reach to advertisers Restructuring of the – Mecom fails to achieve the – Continuing to set clear targets and measures of success against cost base planned cost savings and which progress on restructuring programmes is measured. operational improvements from – Structured reporting processes to allow monitoring by its reorganisations, such as the management and the Board. Phoenix restructuring programme in the Netherlands. – Developing partnerships with suppliers to ensure cost effective delivery of technology and content. Reducing financial – The Group fails to secure medium- – New three/four-year banking facilities were agreed in March 2014; leverage further to term financing to support the the amount of the facilities and financial covenants have been set business, including the need for at levels which take into account the risks and uncertainties facing reduce reliance on further restructuring. the businesses. debt markets – The Group may not be able to comply – The Group produces regular cash flow forecasts and projections with financial limits and covenants in against the various banking covenants. its banking facilities.

Other Significant Risks Factor Risk Change from 2012 Mitigation/Management Action People – Retention of key management – The management team in the Netherlands has been significantly becomes more difficult. strengthened in the year. – The business loses the support of the – The businesses operate a structured management succession unions or works councils. planning process to the level of Country CEO. The succession of executives above the Country level is handled directly by the Board. – The Group seeks to mitigate the risks by spreading and sharing the knowledge and expertise of its key management personnel across the Group. – The Group continues to involve and engage the unions, works councils and editorial boards in a constructive dialogue about the on-going structural changes, such as the support given to the Phoenix restructuring programme in the Netherlands during 2013. Business continuity – Mecom fails to ensure appropriate – All divisions are required to maintain business continuity plans and business continuity planning and to update these to keep abreast of the reorganisations and resilience in its print, distribution and restructurings taking place across the business. Each division is online operations. required to test these plans on an annual basis to ensure their – The Group is subject to external continued effectiveness and relevance. disruption to IT services, for example – Extensive IT security measures (back-up, recovery systems, from an information security breach or firewalls etc.) have been taken to mitigate the risk of disruption to IT cyber attack. services. Data security procedures and controls are subject to – Financial or performance failure of the testing to ensure data is secured and complies with relevant key IT outsource provider, resulting in legislation and contractual requirements. the loss of IT services across the Group. – Financial health of the IT provider is closely monitored and a contingency plan is in place, should the IT provider fail. IT provider performance is monitored against SLAs and any issues are subject to investigation and agreed remedial actions.

Mecom Group plc Annual Report and Accounts 2013 21 Corporate Social Responsibility Report Human rights Our employee policies are set locally to comply with local law within an overall Group framework. Our policy on Business Conduct and Ethics sets out the framework under which the Group operates, with clear standards of behaviour that we expect all of our people to demonstrate and adhere to. The guidelines on business ethics form part of our Code of Business Conduct, underpin our social, ethical and environmental Mecom is committed to responsible commitments and send a clear message to our stakeholders of corporate behaviour. Mecom believes our commitment to responsible business practice. that its reputation is based on maintaining The number of female employees in the Group is 38 per cent high standards of business conduct in (2012 restated: 38 per cent) and the number of female managers is 23 per cent (2012 restated: 26 per cent) out of the total number its relationships with employees and of managers in the Group. The comparative 2012 information stakeholders, being customers, readers, is restated to exclude businesses which were sold in 2013. shareholders, suppliers, governments, A manager is defined as an employee who has responsibility for more than one person in the working processes and is competitors and the local communities responsible for the planning, directing or controlling of the in which Mecom operates. activities of the Company. The number of females in senior management is 10 per cent, or two females out of 21 senior managers. Senior management is defined as individuals reporting to the Board and the level below those reporting to the To underwrite Mecom’s commitment, a Code of Business Board and are those people responsible for planning, directing Conduct (the “Code”) has been implemented across the and/or controlling the activities within the Group. Group to help employees develop a clear understanding of the principles and ethical values that Mecom wants to uphold. There is one female on the Board of Mecom out of seven Directors. The Code is available on Mecom’s website. Each division has The table below shows further details of the gender split within translated the Code into its local language and made it available different levels in the organisation as at 31 December 2013. to employees on their intranets. Compliance with the Code is important for maintaining and building the reputation of the % % Male Female Total Male Female Group as a responsible and trustworthy business partner, employer, supplier and corporate citizen. PLC Board 6 1 7 86% 14% Senior in-country The Code forms the core element of the Group’s corporate Divisional Executive responsibility framework which comprises a set of policies and Managers 19 2 21 90% 10% controls that govern how Mecom acts as an organisation and Managers in the Group 401 120 521 77% 23% how Mecom interacts with its stakeholders in conducting business. It is not possible to anticipate every situation that may Total Group Employees 2,834 1,706 4,540 62% 38% arise. The Code is therefore necessarily broad and general in nature and is not intended to replace more detailed policies and Employees across all divisions enjoy various rights and procedures within individual divisions. A whistleblowing policy is protection through collective employee involvement and also in place within the Group for employees to raise concerns, representation achieved via local forums, such as works councils in confidence, about possible wrongdoing, dishonest or and meetings with recognised unions. Employees elect their unethical behaviour. representatives on the works council and procedures for this process vary across the divisions. Meetings are held between The following report is aimed at providing further insight and employee representatives and management to consult on highlighting a variety of social, community, environmental, health matters essential to the operation of the business and to allow and safety policies within which Mecom’s businesses operate. employees to raise any concerns they may have. Furthermore, in Denmark, employees are entitled to be represented on the Employees boards of the local operating companies. Mecom’s employees are key contributors towards the Group’s success. They continue to be enthusiastic and determined In addition to divisional practices, there is a European Works in continuing the transformation of the traditional newspaper Council (“EWC”) comprising representatives from each of the business into a multimedia content company. The responsibility Group’s divisions. The number of meetings between the EWC for formulating, implementing and ensuring adherence to members varies between one to a maximum of three, and there employment policies and relevant legislation is the responsibility are three meetings with central management. The focus of the of the Human Resources (“HR”) director of each division. EWC is on transnational matters (as opposed to national matters where the principal mechanisms for information and consultation Each division in the Group fully supports the principle of operate at divisional level) and its relationship with central equal opportunity for all and is committed to a policy of equal management is good with open dialogue and a solutions- opportunity for employees at all levels. Employees are treated oriented approach to the matters discussed. equally in all employment-related aspects regardless of their gender, age, race, religion, nationality, political opinion, social Employee communication origin, ethnic origin, sexual orientation or any disability. Each Each division believes in open and continuous communication division opposes all forms of discrimination and has policies to as an important part of the employee engagement process ensure it meets its legal obligations. It is also the policy of each and seeks to achieve this through a variety of channels. All the division to give full and fair consideration to the recruitment of divisions have an intranet and publish internal newsletters which disabled persons. contain information on strategy, financial results, business development and people movements.

22 Mecom Group plc Annual Report and Accounts 2013 On Wegener’s intranet, Wegener Intra Media (“WiM”), Susan involvement in the local community and a broad variety of Duinhoven (Wegener CEO) started a weekly blog discussing charitable activities, examples of which are set out below. the developments within Wegener and her daily experiences. Recognising the current economic circumstances and financial All information concerning project Phoenix, a Wegener internal performance of the businesses, some divisions provide non- restructuring project, is also published on this intranet and financial support to charities, for example, by offering advertising is given extra attention through a regular newsletter. Prior to and promotion through its titles where appropriate. Christmas 2013, all Wegener employees received a magazine containing inspiring and successful projects for the year 2013. As the second largest Danish newspaper group, Berlingske Media’s national and local publications have significant impact The internal communication of Berlingske Media is open and and influence on the public democratic debate in Danish society. continuous. One of the main focuses in 2013 was the Mecom Our media is involved in charities, debates, cultural life, sports strategic review process that included a possible sale of activities and social work. Den Berlingske Fond (The Berlingske Berlingske Media. Key tools included the use of CEO Lisbeth Foundation) supports activities of national, religious, cultural, Knudsen’s blog on the Group intranet, as well as a dedicated social or scientific interest, as well as research, training and site on the intranet that gathered all information about the sale’s education related to journalism. In 2013, the fund hosted its process, so employees could be kept up to date. In the last third conference with a focus on the changing media landscape. quarter of 2013 the top management held five big meetings The conference was titled: Trust us – we are (not) lying, and where they presented the strategy and plans for 2014-2017 to the focused on the importance of securing the trustworthiness employees. As always, the employees received a digital bi-weekly of professional media. Since 1972 Berlingske has held the newsletter with a summary of all important internal news. In 2014 Berlingske Music Awards for Young Talents (age 17 and under) a new, improved, dialogue-based intranet will be launched to in cooperation with the Danish Royal Music Academy. A number help dialogue and knowledge sharing across the Group. of notable musicians have been inspired and helped in their careers by this award. Employee training and development Each division recognises that the development of its employees Health and safety is important for the success of that division as well as the Group, The Group strives to create a positive working environment by and their aim is to encourage, and wherever possible develop, observing all applicable health and safety regulations and providing employees to realise their potential. all employees with a safe working environment. Each division has a health and safety committee and/or representatives and has Each division invests in a range of training and development monitoring and reporting processes in place. The health and programmes that are offered to employees to maintain a broad safety committee meets to discuss issues that arise and establish portfolio of skills and help each of them maximise their effectiveness measures to correct and improve health and safety standards. in the workplace. Across the Group, over 32 per cent (2012 restated: 45 per cent) of employees received training in 2013. The Group-wide health and safety policy, adopted by the Board, is implemented across the divisions. Country CEOs In the first part of 2013, the number of employees in Wegener who are responsible for the health and safety performance of their received training in the areas of management/coaching, sales, businesses (where they have control) and for compliance with marketing, safety, HR, ICT and journalism amounted to 1,069. the local legislation and regulation. The policy is available on In April 2013, the training and development department launched Mecom’s website. The Board also receives quarterly updates a Moodle e-Academy. Moodle (Modular Object-Oriented Dynamic on health and safety performance indicators. Learning Environment) is an e-learning platform, also known as a Learning Management System, which facilitates digital learning. The table below indicates the total number of injuries in all the With Moodle, Wegener is able to create e-learning modules that printing plants and major sites of each division. The natures of are available for the whole workforce at small costs. As a result of the injuries are primarily due to falls in printing plants. the reorganisation process Phoenix, there has been a total budget cut from May 2013. However, the Wegener Academy managed to Health and safety performance indicators facilitate e-learning and informal learning sessions with in-house 2013 2012 expertise and without out-of-pocket costs. Fatalities – – The Berlingske Media Academy continued the roll-out of Injuries (one day of absence or more) 14 28 development programmes to over 300 participants. Project Injuries (less than one day of absence) 19 27 management training courses for project managers and members of the steering committees were still a focus area within the Academy. The second Talent Programme was Environment conducted along with Management Programmes for new and The Group aims to achieve good environmental practice and experienced managers. A new and very promising senior to minimise adverse environmental impacts. Due to the nature management programme was introduced at the end of the year, of Mecom’s business, the primary focus is on the reduction and this programme will run well into 2014. The overall subject of environmental impact in the production and printing of for the programme is transition management. newspapers. The Group identified the principal areas relevant to our environmental footprint as sustainable sourcing, with particular Leadership capability at all levels of the business is important to focus on paper, energy consumption and waste management. the future success of each division and the Group as a whole. Each division continues to identify its leadership talent in order to The Environmental Steering Group (the “ESG”), consisting of meet the current and future needs of the Group. representatives from each division and the Company Secretary, aims to share knowledge and to develop a more consistent Community approach to policies and reporting on environmental matters Social and community involvement is inseparable from Mecom across the Group. Responsibility for the development and and its businesses because of the substantial and crucial impact implementation of environmental policies and initiatives lies of media on society and the communities they serve. Each with each division. division builds its reputation as a local enterprise through

Mecom Group plc Annual Report and Accounts 2013 23 Corporate Social Responsibility Report Purchased paper from recycled and certified fibre continued 100% 85% 77% 80%

60%

As a European consumer publishing business, the Group’s aim 40% is to identify and assess the risks and reduce the environmental impact of its operations. To progress this objective, the Group has commissioned Trucost, a leading environmental research 20% organisation, to assist and advise on the Group’s environmental 0% 2012 2013 impact. All the reported data in the “Environment” section (restated) is collected, verified and standardised by Trucost to enable a meaningful comparison across the Group’s operating Performance Target sites. An assurance statement by Trucost is available on Note: Mecom’s website. Data has been re-stated to exclude Poland operations, which were divested during the 2013 financial year. This resulted in a lower performance for 2012 than was reported last year due to a larger consumption of virgin paper. Greenhouse gas The Group’s emissions are calculated in accordance with the Energy consumption guidance provided by the Department for Environment, Food The Group uses electricity, gas, oil, other energy sources and water and Rural Affairs (Defra) and have been classified under the as efficiently as possible and monitors the energy consumption “scopes” set out in the World Resources Institute/World associated with its activities. The table below summarises the Business Council for Sustainable Development’s Greenhouse consumption of energy at the Group’s core sites. Gas Protocol. The comparative 2012 information in the “Environment” section The table below presents an overview of the Group-level has been restated to exclude operations which Mecom sold in greenhouse gas emissions from operational and vehicle fuel 2012 and 2013. use, purchased electricity and district heating.

% Consumption of energy Units 2013 2012 Change 2013 2012 (restated) % Scope 1 Electricity (kWh) 33,259,255 39,795,259 (16)% (direct impact) tonnes of CO 11,184 11,842 (6)% 2 Gas (kWh) 34,128,255 40,579,190 (16)% Scope 2 Water (m3) 58,915 68,149 (14)% (indirect impact) tonnes of CO2 15,101 17,534 (14)%

Scope 1 + 2 tonnes CO2/€m intensity revenue 3.25% 3.23% +0.02% Use of electricity (MWh) per tonne of print output

0.25 Data is collected from 88 per cent of all the facilities in the Group 0.23 0.22 which we have control over. The Group is looking for continuous 0.20 improvement in its data clarity and completeness in future years.

0.15 Sourcing The aim of the Group is to purchase from suppliers who have 0.10 obtained or are working towards obtaining an environmental MWh per tonne management accreditation or systems (including ISO14001). In establishing any Group-wide purchasing arrangements, we will 0.05 seek to include suppliers who share our aims for responsible and sustainable sourcing as far as possible. 0.0 2012 2013 (restated)

The Group sets the aim to purchase 75 per cent of its paper from As shown in the chart above, the use of electricity per tonne of recycled fibre or certified sustainable managed production print output has increased by 7 per cent since 2012 due to the forests and exceeded this objective in 2013 by purchasing 85 per restatement of data. cent. The Group will continue with this policy. The Danish division purchases the majority of its paper through The Danish Waste Press Joint Purchasing Organisation which has a policy of The policy of the Group is to reduce wastage insofar as possible buying paper from suppliers primarily in the local Nordic region given the needs of the business, and to recycle all waste with environmental certification. materials that are recyclable.

Recyclable waste In 2013, the Group’s print plants reused and recycled almost 100 per cent of waste paper, cores and reel-ends and will

24 Mecom Group plc Annual Report and Accounts 2013 continue with this policy. Paper waste from the printing process One Dutch print plant has obtained FSC certification. All our and returned unsold newspapers are sold for recycling. Paper Danish newspapers are also printed on FSC qualified paper. waste statistics are provided in the table below. The percentage of waste paper has decreased overall in 2013. The differences Initiative to reduce energy consumption in the Dutch print plants in waste rates between the countries can be explained by the In the Netherlands, the print plants have joined a programme differences in the printed products. The smaller the circulation called MJA (“More Years Equivalent”) to reduce overall energy of a print run and the more colour in that run, the larger the consumption. The Dutch printing sector has committed to percentage of waste. achieve a total reduction of 8 per cent over a period of four years. The programme is supervised by the Dutch government. Waste paper as a percentage of paper output The participating companies are supported and monitored by 2012 energy consultants provided by the government. 2013 (restated) The Netherlands 6% 5% The programme is set up as a system for continuous improvement. All participating companies have investigated Denmark 14% 8% their energy consumption and possibilities for improvement. Total Group 9% 7% This was done with audits and brainstorming sessions with the consultants, resulting in a concrete plan with several actions The above 2012 numbers have been restated due to a change in to reduce energy consumption. For each of these actions the methodology in calculating the figures. potential energy saving is calculated. The total results in an overall action plan, and a projected percentage of energy Total waste generation, landfill waste disposal and saving to be reached at the end of 2016. waste recycling rate (except waste paper) The results are impressive, with the total percentage reached 2,000 1,811 60% by improving process efficiency 7.4 per cent. This could be 52% 50% reached with relatively simple actions, for example shutting down air compressors in the hours when they are not required for 1,500 45% 1,476 Recycling rate production, or optimising the settings of the climate control.

1,000 30% Large savings are also achieved by the closing of older print Tonnes plants and moving production to the newer and more energy efficient plants. For example, the closing of the print plant in 500 15% Enschede by the end of 2013 reduced the total energy consumption by another 4.3 per cent. 258 60 0 2012 2013 0% (restated) Another goal to reduce energy in the total chain of newspaper production is the reduction of paper grammage to 42 gramme Total waste generation Recycling rate (recycled per m2. Because the making of paper takes a relatively large Landfill disposal and reused waste amount/ total waste generation) amount of energy, this action alone would save even more energy than the total production in the print plants itself. But the The graph above shows the total waste (except waste paper) success will depend on the cooperation of the publishers and generated from the core sites. Waste paper from the print plants possibilities in the paper market. has been reported separately to show the efficiency of the printing process. Waste which is not sent to landfill is incinerated, After completion of the plans in the first half of 2013, the recycled or reused. Each division will reduce landfill waste where monitoring process has started in the beginning of 2014. All possible and continue to manage waste. The increase in total participating companies must report in a web-based system waste generation is partly due to the increase in data collected provided by the government. Furthermore, the energy from more sites. consumption per year is monitored to track if the projected energy savings are realised. Non-recyclable waste Hazardous waste is kept to a minimum and where usage of hazardous substances is unavoidable, they are stored and disposed of in accordance with local laws and regulations. Each The Strategic Report as set out on pages 6 to 25 has been division in the Group also seeks where possible to use and/or approved by the Board. develop energy-saving materials and environmentally friendly technologies with particular focus on key chemicals. By order of the Board

Environmental management systems Rory Macnamara The Group operates seven print plants of which three are in Chairman the Netherlands and remaining four in Denmark. All the seven 17 March 2014 plants are ISO14001 certified. In addition, three Danish plants have OHSAS 18001 certification (an occupational health and safety certification). The Group continues to carry out a risk assessment of each print plant once every two years, or more frequently to meet legal requirements.

Mecom Group plc Annual Report and Accounts 2013 25 The Board

Rory Macnamara (59) Henry Davies (46) Zillah Byng-Maddick (39) Chairman Group Finance Director Non-executive Director Rory Macnamara joined Mecom on 22 May 2013 Henry Davies joined the Board of Mecom in Zillah Byng-Maddick joined Mecom as a as the Non-executive Chairman. He qualified as a January 2009 and was appointed the Group Non-executive Director in June 2011. She is chartered accountant with PricewaterhouseCoopers Finance Director in February 2009. Henry currently Chief Financial Officer of Future plc, a LLP and worked at Morgan Grenfell for 17 years qualified as an accountant and spent ten years non-executive director of Betfair Group plc and a where he was a Director in Corporate Finance, with Price Waterhouse. Before joining Mecom as board member of DVLA. Zillah was Chief Financial Head of Mergers and Acquisitions and Vice- Group Financial Controller in 2007, he had been Officer of Trader Media Group, one of Europe’s Chairman of Morgan Grenfell & Co Ltd. In 1999, he Group Controller at DS Smith plc and Eastern largest multimedia publishers, from 2009, serving joined Lehman Brothers, where he was a managing Group plc. latterly as interim Chief Executive until July 2013. director in UK investment banking until 2001. He is Prior to this Zillah was Finance Director of Fitness currently Chairman of Dunedin Income Growth Peter Allen (58) First Group Ltd, from 2006-2009, and prior to that Investment Trust PLC and Essenden PLC and a Non-executive Director she was CFO of the Thresher Group. Zillah has director of Mears Group PLC, Augean Plc and also previously held senior finance positions with Peter Allen joined Mecom as a Non-executive Dragon‑Ukrainian Properties & Development plc. GE Capital and HMV Media Group and qualified Director on 22 May 2013. He is currently chairman as an accountant with Nestlé UK Ltd. of Future plc, Clinigen plc, Chroma Therapeutics Chair of the Nomination Committee and member Limited and a non-executive director of Oxford of the Audit and Remuneration Committees. Chair of the Audit Committee and member of the Nanopore Technologies Limited, Scancell Holdings Nomination and Remuneration Committees. plc. He was Chief Financial Officer of Celltech Keith Allen (53) Group plc between 1992 and 2004. Between 2003 Chief Operating Officer Steven van der Heijden (53) and 2004, he was also Deputy Chief Executive Non-executive Director Keith Allen joined Mecom in 2004, and was Officer of Celltech until the company was sold. appointed Group Finance Director in June 2006. More recently, he was Chief Financial Officer of Steven van der Heijden joined Mecom as a He became Chief Operating Officer in March Abacus Group plc from 2005 until the company Non-executive Director in June 2011. He is 2008. He is currently a governor of Alderbrook was sold in January 2009 and more recently was a currently the chairman of the supervisory board of Primary School. A chartered accountant, he director of ProStrakan plc and non-executive Koninklijke Wegener N.V. (a subsidiary of Mecom) joined the corporate finance division of Hambros chairman of Advanced Medical Solutions plc. and chairman of the Dutch Association of Travel Bank Limited in 1989, becoming a director and Agents and Tour Operators ANVR. He was Chief head of the media team in 1997. In 1998, he left Member of the Audit, Remuneration and Executive Officer of TUI Nederland N.V. and TUI Hambros to become joint head of the newly Nomination Committees. Airlines Nederland B.V. (ArkeFly) until 1 March established corporate finance division at BNP, and 2014. Before joining TUI in 2004, he held various following BNP’s acquisition of Paribas in 2000, he positions within the Dutch travel industry. assumed responsibility for the UK media team. Member of the Audit, Remuneration and Nomination Committees.

Michael Hutchinson (66) Senior Independent Director Michael Hutchinson joined Mecom in May 2009 as Non-executive Director and was appointed Senior Independent Director on 4 February 2011. He is currently the non-executive chairman of Greenland Minerals and Energy Limited, Armajaro Holdings Ltd and Noricum Gold Limited. He was formerly the non-executive chairman of RBS Sempra Metals Limited, chairman of Wogen plc and a director of LME Holdings Limited and The London Metal Exchange Limited.

Chair of the Remuneration Committee and member of the Audit and Nomination Committees.

.

26 Mecom Group plc Annual Report and Accounts 2013 1. Rory Macnamara Non-executive Chairman 2. Keith Allen Chief Operating Officer 3. Henry Davies Group Finance Director

4. 1. Peter Allen Non-executive Director 5. Zillah Byng-Maddick Non-executive Director 6. Steven van der Heijden Non-executive Director 7. Michael Hutchinson Senior Independent Director

3. 2.

5. 4.

6. 7.

Mecom Group plc Annual Report and Accounts 2013 27 Strategic financial, business and Corporate Social The matters reserved for the Board was reviewed during the year Responsibility reporting in light of the updated guidance from the Institute of Chartered Through the review of the Group’s performance and financial Secretaries and Administrators (“ICSA”). position outlined in the Strategic Report (which includes the Group’s strategy and business model, the Divisional Reviews, Delegated authorities the Group Finance Director’s Report, the Corporate Social The Board delegates other specific responsibilities to the Audit, Responsibility Report and the Principal Risks and Uncertainties), Nomination and Remuneration Committees. Each Committee has together with the Directors’ Report including the Corporate its own terms of reference which have all been reviewed prior to Governance Report and the Directors’ Remuneration Report the approval of this report, with the exception of the Nomination and the financial statements, the Board presents a fair, balanced Committee terms of reference which remains fit for purpose and and understandable assessment of the Group’s position and took into consideration the updated guidance from the ICSA. All prospects. A statement of the Directors’ responsibilities in the terms of reference are available on Mecom’s website. Reports preparing the financial statements and a statement by the of these Committees are set out further below. The Chairman of external auditors on their reporting responsibilities are presented each Committee provides an update on matters of significance at on pages 50 and 52 respectively. the Board meeting following the relevant Committee meeting and all Committee minutes are available and presented to all of the Board of Directors – pages 26 and 27 Directors, unless it would be inappropriate to do so. Corporate Governance Report – pages 28 to 34 The Board has approved a schedule of delegated authority Directors’ Remuneration Report – pages 35 to 45 levels which specifies how executive authority is delegated from Other disclosures – pages 46 to 49 the Board to the Executive Directors and on to other senior management including the Group’s divisional chief executives Corporate Governance Report and finance directors, who are best placed on a day-to-day basis to determine the effective operation of their division and the The Board is committed to maintaining high standards of application of the processes and procedures supporting the corporate governance and considers that the Company had Group’s strategic objectives. complied with the provisions of the UK Corporate Governance Code (the “Code”) as published by the Financial Reporting Attendance at meetings Council for most of the year under review, except for principle There were 11 scheduled Board meetings during the year under A.2.1 (combining the role of the Chairman and Chief Executive) review. No one, other than the members of the Board and the until the position was separated on 22 May 2013. Company Secretary, is allowed to attend the meetings other than by invitation. Further information on who was invited to attend Details of how the principles of the Code have been applied for Board meetings is explained on page 30 under the the year under review (including further explanations for the “Development and Board agenda” section. exceptions) are set out below and in the Directors’ Remuneration Report on pages 35 to 45. The Company must also comply with The following table sets out the attendance of each Director at the corporate governance rules contained in the UK Listing scheduled Board and Committee meetings during the year Authority Listing Rules, the Financial Conduct Authority (“FCA”) under review. For each Director, the number of meetings held Disclosure and Transparency Rules and certain related during his/her term as Director and member of the relevant provisions of the Companies Act 2006. Committee is shown. Steven van der Heijden was unable to attend one Board meeting and one Remuneration Committee The role of the Board meeting (which was held on the same day) due to an urgent The Board is collectively responsible for the long-term success matter which required his attention at TUI Nederland N.V, where of the Company and sets the objectives and strategy of the he was an executive director until 1 March 2014.

Group. It also formulates the Group’s values and standards Audit Remuneration Nomination within the Code of Conduct, which is available on Mecom’s Board Committee Committee Committee website, and ensures that obligations to shareholders and other Current Directors stakeholders are understood and met. There is a schedule of matters reserved for the decision of the Board. These are: Rory Macnamara 6/6 2/2 2/2 – Keith Allen 11/11 – – – • the corporate and commercial strategy; Peter Allen 6/6 2/2 2/2 – • the Group annual operating plan and budget; • the structure and capital of the Group and issue of any Henry Davies 11/11 – – – securities; Zillah Byng-Maddick 11/11 5/5 4/4 1/1 • financial reporting, risk management and controls including Steven van der Heijden 10/11 5/5 3/4 1/1 approval of the Annual Report, half-year report and interim management statements; Michael Hutchinson 11/11 5/5 4/4 1/1 • dividend policy, and the declaration of interim, and Past Directors recommendation of final dividends; Gerry Aherne 4/5 3/3 2/2 1/1 • significant expenditure and material transactions and contracts; Stephen Davidson 9/9 – – 1/1 • communication with shareholders; • Board and Committee membership; There were also six unscheduled Board meetings during the • remuneration policy for Executive Directors and the Company year and not all Directors were able to attend these meetings. In Secretary (through the Remuneration Committee); the instances where a Director was not able to attend a meeting, • corporate governance arrangements; and he/she reviewed the Board papers and provided comments and • approval of Group policies, for example the Code of Conduct. views in advance of the meeting to the Chairman and the Chairman updated the Director following the meeting.

28 Mecom Group plc Annual Report and Accounts 2013 Directors and composition of the Board Division of responsibilities – Chairman and Chief Executive The names of the current Board members, their roles and Stephen Davidson was the Executive Chairman up to his biographies are on page 26 and on Mecom’s website. As at resignation from the Chairman role on 22 May 2013. The 1 January 2013, the Board comprised of the Executive Chairman, Company did not comply with the Code provision A.2.1 during two Executive Directors and four independent Non-executive that period. Directors. On 22 May 2013, Stephen Davidson stepped down from his role as Chairman and became the Chief Executive and Following the appointment of Rory Macnamara as the Chairman Rory Macnamara was appointed the Non-executive Chairman. on 22 May 2013, there was a division of responsibility between Gerry Aherne resigned as a Director from the Board and Peter the Chairman and the Executive Directors. Rory Macnamara, Allen joined the Board as a Non-executive Director with effect as Chairman, is responsible for the leadership of the Board and from 22 May 2013. Stephen Davidson stepped down as Chief ensuring its effectiveness on all aspects of his role and that a Executive and Director with effect from 31 October 2013. All of culture of openness and debate exists. He is also responsible for the other Directors served throughout the year. effective communication with shareholders and for ensuring that all Directors are made aware of any issues and concerns of As at 31 December 2013 and up to the signing of this report, the major shareholders. Stephen Davidson, as the Chief Executive, composition of the Board is as follows: was responsible for running the Group’s business between the period 22 May 2013 and 31 October 2013. Board composition As the Strategic Review was coming to its natural conclusion and given the strength of the divisional leadership, Stephen Davidson Chairman 1 14% stepped down as the Chief Executive on 31 October 2013. Executive Directors 2 Non-executive Directors Non-executive Directors 4 57% 29% The Non-executive Directors help develop the objectives and strategy of the Group. They scrutinise and provide challenge to the performance of the management and are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role in appointing and, where necessary, removing Executive Directors, and in succession planning.

Gender split The Non-executive Directors also met as a group without the presence of the Executive Directors, during the year under review. Men 6 14% Board appointments Women 1 There is a formal procedure for the appointment of new Directors 86% to the Board. The Nomination Committee leads this process and the report of the Nomination Committee is set out on page 30.

The Board refreshed the membership of its Committees during the year when two new Non-executive Directors joined the Board, with the result that there is no undue reliance placed on particular individuals. Each Non-executive Director is a member of each of the Board Committees. Advice from external advisers The Board believes there is an appropriate mix of skills, experience, was taken into consideration at this time. knowledge and diversity which enables them to discharge their respective duties and responsibilities effectively. The Board is of Non-executive Directors are appointed for a three-year term sufficient size, meeting the requirements of the business and no and subject to re-election by rotation in accordance with the individual or small group of individuals can dominate the Board. provisions of the Company’s Articles. No Non-executive Director has currently served more than six years. In accordance with the Code requirements, at least half of the Board, excluding the Chairman, comprised of independent Non-executive Directors. Steven van der Heijden is the Length of tenure of Non-executive Directors independent non-executive chairman of Koninklijke Wegener N.V. (a Dutch subsidiary of Mecom), and is regarded by the Board 0-3 years 2 as independent in his role as a Non-executive Director of Mecom. The Board considers the other Non-executive Directors to 4-6 years 2 be independent. 50% 50% 7-9 years 0

As permitted by the Companies Act 2006, the Company purchases and maintains Directors’ and Officers’ insurance cover against certain legal liabilities and costs incurred by the Directors and Officers of the Group companies in the execution of their duties.

The Company also granted an indemnity to each of its Directors in Approach to gender diversity accordance with section 232 of the Companies Act 2006 in relation Mecom fully supports the principle of diversity and recognises to the Directors’ exercise of their powers, duties and responsibilities the benefits of a fully diverse workforce. The Board always takes as Directors of the Company, save to the extent that any such into account diversity, including gender, when recruiting a Board indemnity would be void under the Companies Act 2006. member (or senior management) and will continue to do so whilst ensuring that any appointment is made on merit against objective criteria and that there is an appropriate range and

Mecom Group plc Annual Report and Accounts 2013 29 Corporate Governance Report Commitments Stephen Davidson’s letter of appointment was dated January continued 2009 when he joined Mecom as Senior Independent Director. It was updated to reflect his appointment as Executive Chairman due to the increased time commitment required to discharge his responsibilities effectively in running the Group’s business and implementing the Board’s strategic review and policies. balance of skills, experience and background on the Board. At During his period as Chief Executive until 31 October 2013, he present the Board has one woman member on a Board of seven. was the chairman of Datatec Ltd, and a non-executive director of Inmarsat plc, Jaywing plc (previously known as Weare 2020 plc) Both the Dutch and Danish divisions are managed by women. and EBT Mobile China Ltd. These appointments were known and approved by the Board at the time he joined Mecom. He Nomination Committee was always available, as required, to attend to the business of Composition the Company and for additional Board meetings and meeting The Nomination Committee is appointed by the Board and the with executives, shareholders and advisers during the year. composition of the Committee is set out in the table below. The Company Secretary acts as the Secretary of the Committee. The Rory Macnamara’s letter of appointment is dated 6 June 2013 composition of the Committee is compliant with the Code as the having joined Mecom as Chairman on 22 May 2013. It sets out majority of the members are independent Non-executive Directors. the time commitment expected from him commensurate to the role. In addition, his other directorships and commitments were Current Directors Role disclosed to the Board prior to his appointment and an Rory Macnamara Chair Independent, appointed agreement from the Board needs to be sought prior to accepting to the Committee on any additional commitments that may impact the time he is able 27 June 2013. Chairman to devote to Mecom. Rory Macnamara is currently the Chairman of the Company of Dunedin Income Growth Investment Trust PLC and Essenden Peter Allen Member Independent, appointed PLC and a director of Mears Group PLC, Augean Plc and to the Committee on Dragon-Ukrainian Properties & Development plc. 27 June 2013 Keith Allen is a governor to Alderbrook Primary School and Zillah Byng-Maddick Member Independent, appointed the position is unremunerated. Henry Davies holds no to the Committee on external appointment. 27 June 2013 Steven van der Heijden Member Independent The terms and conditions of appointment of each Director are Michael Hutchinson Member Independent available for inspection at the registered office of the Company Past Directors during usual business hours or on request to the Company Secretary. The letters of appointment for the Non-executive Gerry Aherne Member Independent (up to his Directors set out the expected time commitment of two days per resignation on 22 May month and in turn each Director has confirmed that he/she is able 2013) to allocate sufficient time to meet the expectations of the role. Stephen Davidson Chair Not independent (up to his resignation as Development and Board agenda Executive Chairman on All new Directors benefit from an induction programme which 22 May 2013) provides them with an induction pack containing information about the Company, the Board and its Committees, key Group policies Meetings and procedures and includes meetings with key personnel. The The Committee meets as and when required. During the year Board is committed to ensuring that Directors continually update under review, four meetings were held of which three were their skills, knowledge and familiarity with the Group to enable them unscheduled. Attendance of the Committee members is shown to fulfil their role on the Board and its Committees. in the table on page 28. Reports are received from the Executive Directors and the Role divisional Chief Executives at each of the scheduled Board The Committee’s terms of reference are available on Mecom’s meetings. The Board has a rolling agenda of items that regularly website. The principal responsibility of the Committee is to need to be considered including certain functional and key maintain the composition and balance of the Board and make project updates and this agenda is continually updated to recommendations to the Board on all new appointments and include any topical matters that arise. In addition the Board also re‑elections of Directors. receives reports and recommendations from time to time on any matter which it considers significant to the Group. The Chairman The main activities of the Committee during the year have been allows sufficient time for proper discussions at Board meetings considering the appointments of Rory Macnamara as Chairman and enables issues of concern to be raised and discussed. and Peter Allen as Non-executive Director. The Board and the Committee considered Rory Macnamara’s relevant skills as an Senior executives below Board level attended relevant parts of experienced chairman and believed that he would be best placed some of the Board meetings in order to make presentations on to lead the Board and the Company. Peter Allen’s skills and their areas of responsibility. This gave the Board access to a experience, in particular his financial background, would broader group of executives and deepened their understanding strengthen the Board’s performance and balance of skills. External of the Group’s operations. The Board is also provided with advice was taken into consideration regarding these appointments. briefings on matters of significance to the Group such as updates on corporate governance, Directors’ remuneration, narrative reporting as well as other changes to legal, regulatory and financial reporting matters as appropriate.

30 Mecom Group plc Annual Report and Accounts 2013 Information and support to achieve business objectives and to provide the Board with The Board is provided with timely information in a form and of a reasonable assurance that problems are identified on a timely quality appropriate to enable it to discharge its duties. When a basis and dealt with appropriately. The Audit Committee reports Director seeks clarification or amplification on a matter of concern, to the Board on all aspects of its review of internal control and management provides further information as appropriate. risk management.

All Directors have access to all relevant information and to the The Group follows a process of identifying, evaluating and services of the Company Secretary, who is responsible to the managing the significant risks faced by divisional businesses Board for ensuring that Board procedures are followed. The and by the Group as a whole. The key aspects of this process Company Secretary brings all governance matters to the are summarised as follows: attention of the Board. Independent professional advice is available to the Directors and to the Board and its Committees The Board and management at the expense of the Company. The Group carries out an annual strategy review which is supported by a budgeting and planning process whereby Performance evaluation detailed operating budgets for the following financial year are The Board undertook a formal evaluation of its performance and prepared by divisional and Group management for approval by that of its Committees for the year under review. The evaluation the Board. The Non-executive Directors during Board meetings process took the form of a comprehensive questionnaire sent to play an active part in challenging and developing the proposals each Director seeking his views on matters such as involvement presented to the Board on strategy. The day‑to-day management in strategy, the conduct of Board meetings, quality of information is undertaken by the senior management of the divisions and and communication, the balance of skills, knowledge and of the Group who have the responsibility for providing visible experience of the Board. leadership and ensuring that risk management is integrated into all operations and functions. A separate evaluation of the Chairman, Rory Macnamara, was performed by the Non-executive Directors and took into account Organisational structure and authorisation procedure the views of the Executive Directors. Appraisals of the Directors The Group has an established organisation structure with clearly were conducted by the Chairman. Each Director also completed stated delegated responsibility and reporting. Authorisation a self-assessment questionnaire. The results of the Board, procedures in respect of matters such as capital expenditure, Committees, individual evaluations and the Chairman’s acquisitions, investments or disposals and treasury transactions performance were presented to the Board. The Board concluded are clearly defined and communicated across the Group. that the Board and its Committees as currently constituted are functioning effectively and that each Director continues to be Risk assessment effective and demonstrates commitment to the role and that the In reviewing the effectiveness of the Group’s system of internal Chairman demonstrates effective leadership of the Board. control, the Board first considers the risk management system and all aspects of risks which include strategic, financial, operational and The results of the evaluation act as a basis for actions and compliance risks. It then considers whether the key controls improvement to certain Board procedures and performance for designed to mitigate these risks are working as intended for both the current year. In accordance with Code principle B.6.2, the “business as usual” and the “strategic initiatives” that will drive Board keeps under review the need to involve external facilitation change across the business divisions and joint-ventures. This of this process. approach improves the effectiveness of control without necessarily increasing the number or cost of controls in the business. Re-election/election In accordance with the Code principle B.7.1 all the Directors of The Corporate Risk Register (the “Register”) provides a FTSE 350 companies should be subject to annual election by consistent method for managing and reporting risks across the shareholders. Although the Company is not within the FTSE 350, Group and ensures that significant risks are understood and the Board is nevertheless committed to maintaining high visible to divisional and Group management, as well as to the standards of corporate governance and has decided to comply Board. The Register sets out the top risks as identified by on a voluntary basis. Therefore all the Directors (except for Rory divisional and corporate management. Group Internal Audit Macnamara and Peter Allen who will stand for election, this discusses risk with the divisional chief executives and prioritises being the first annual general meeting since their respective the top risks against the likelihood of occurrence and impact on appointments to the Board) as they did at the Annual General achievement of the Group’s objectives. The Register, which also Meeting (“AGM”) in the last three years, will retire and offer sets out mitigating controls and actions, is normally reviewed themselves for re-election at the 2014 AGM. The Board intends and assessed three times a year by the Audit Committee and the to review the position on annual re-election of the Directors as Board. A summary of the principal risks and uncertainties facing best practice develops. the Group is provided on pages 20 and 21.

As mentioned in the evaluation process described above, the The process put in place by the Group to address financial and Board is satisfied that each of the current Directors continues to liquidity risk is described in the “Going concern” section of the be effective and has demonstrated commitment to his/her role Group Finance Director’s Report. and the ability to allocate sufficient time to the Company to discharge their responsibilities. In line with FRC’s Internal Control: Revised Guidance on the Combined Code, formerly “the Turnbull Guidance”, the process for Internal control and risk management identifying, monitoring and reporting risks is reviewed regularly by The Board recognises that it has ultimate responsibility for the the Board based on the recommendations of the Audit Committee. Group’s system of internal control and ensures that it maintains The process described has been in place for the year under review a sound system of internal control to safeguard shareholders’ and up to the date of the approval of this Annual Report and investment and the Group’s assets. No system of internal control Accounts and accords with the FRC’s revised guidance. can provide absolute assurance against material misstatement or loss. Instead the Company operates a system which is designed to manage rather than to eliminate the risk of failure

Mecom Group plc Annual Report and Accounts 2013 31 Corporate Governance Report The Committee composition is compliant with the Code as all the four independent Non-executive Directors are on the continued Committee. Zillah Byng-Maddick is the Chief Financial Officer for Future plc and previously was Chief Financial Officer of Trader Media Group. The Board considers Zillah Byng-Maddick to have recent and relevant financial experience and she is a member of CIMA, a professional financial accounting body.

Financial and management reporting Meetings The results of the business divisions are reported to the Group The Committee met five times during the year under review. on a monthly basis and monitored against budget and latest Attendance of the Committee members is shown on page 28. forecasts. The controls that support the Group’s financial Only members of the Committee have the right to attend the reporting procedures are considered as part of the Group’s meetings of the Committee. However, the Committee asked on-going risk assessment process and are reviewed for Stephen Davidson (in his capacity as the Executive Chairman/ effectiveness by the Group’s internal audit function. Chief Executive), the Group Finance Director, Group Internal Audit and the external auditors to attend its meetings. Group Reviewing and monitoring the effectiveness of internal controls Internal Audit and the external auditor have direct access to the The Group’s internal control framework is based on the Board’s Chairman of the Committee and held a private meeting during assessment of risk. The effectiveness of the internal control is the year without the presence of the Executive Directors. monitored in a number of ways: self-certification by the divisional management, management oversight and independent review Role by the Group’s internal audit function. All exceptions are reported The Committee’s terms of reference are available on Mecom’s and reviewed by the Audit Committee. website. They were updated during the year under review in accordance with the updated guidance by the ICSA. The In assessing the effectiveness of the system of internal control principal responsibilities of the Committee are: for 2013, the Audit Committee monitored the on-going implementation of standard policies and procedures across • monitoring the integrity of the financial statements, including the Group. These policies and procedures relate primarily to annual reports, interim management statements, final and financial reporting, accounting policies, risk management and half-year results announcements and any other formal internal control. The Group’s internal audit function continues announcement relating to financial performance; with its programme of testing to ensure that the system of • reviewing the effectiveness of systems of internal control, internal control remains effective across the Group. The Board including those over computer systems, and management of is satisfied that the information it received throughout the year risk, compliance with UK anti-bribery legislation, including enabled it to complete its annual review of the effectiveness of approving statements concerning internal control and risk the Group’s system of internal control for the year under review management in the Annual Report; and up to the date of approval of this Annual Report and • reviewing the authority, structure and effectiveness of the Accounts. The Board continually seeks to improve the internal internal audit function and considering reports of significant control procedures and additional steps are taken on a findings from the internal auditors; continuous basis to embed risk management and internal • reviewing and approving changes to the Group’s key control further into all operations of the Group. accounting policies; • making recommendations to the Board, to be put to Audit Committee shareholders for approval at the Annual General Meeting, in Composition relation to the appointment, re-appointment and removal of The Audit Committee is appointed by the Board and the the external auditors; composition of the Committee is set out in the table below. The • reviewing and monitoring the external auditors’ Company Secretary acts as the Secretary of the Committee. independence, objectivity and the effectiveness of the audit process taking into consideration relevant UK professional Current Directors Role and regulatory requirements; and Zillah Byng-Maddick Chair Independent, has recent • setting and approving policy on the engagement of the and relevant financial external auditors to supply non-audit services, and approving experience audit fees and fees for non-audit services. Peter Allen Member Independent, appointed to the Committee on 27 June 2013 Steven van der Heijden Member Independent Michael Hutchinson Member Independent Rory Macnamara Member Independent, appointed to the Committee on 27 June 2013. Chairman of the Company Past Directors Gerry Aherne Member Independent, resigned on 22 May 2013

32 Mecom Group plc Annual Report and Accounts 2013 Significant issues reviewed during 2013 The Committee reviews key judgements on a twice-yearly basis prior to the publication of the full and half-year financial statements as well as considering the following significant issues in relation to the financial statements:

Significant issues considered by the How the issue was addressed by the Committee Committee Going concern The Committee considered, in respect of both the interim and financial statements, the Group’s forecasts for financial performance and compliance under both the existing and, at the time of the year-end financial statements, new banking facilities agreements, for a period of at least 18 months. The Group considers potential risks and reviewed analysis which applied related sensitivities to these forecasts, as well as potential mitigating actions. Based on these discussions, the Committee concurred with management’s recommendation to prepare the accounts on a going concern basis and recommended this approach to the Board. Further explanation on going concern is contained within the Group Finance Director’s Report on pages 16 to 19. Goodwill and acquired At the time of the interim financial statements, the Committee considered the carrying amount of intangible assets the goodwill and acquired intangible assets at that time, in light of value-in-use calculations prepared by management and taking into account other factors such as the Group’s market capitalisation. As a result, an impairment charge in respect of both goodwill (to reduce this to zero) and acquired intangible assets was recorded in the interim financial statements. At the year end, the Committee considered whether indications of impairment or reversal of impairment existed in respect of intangible assets, in light of the requirements of IAS 36 and value-in-use calculations prepared by management. As a result, a reversal of impairment in respect of acquired intangibles was recorded. The Committee also considered the extent and content of disclosures related to the assumptions used in preparing value-in-use calculations. Further explanation is contained in Note 17 to the consolidated financial statements. Exceptional items The Committee considered the application of the Group’s policy in respect of the treatment of exceptional items and the disclosures on these items in the consolidated financial statements. Further explanation of exceptional items is contained in Note 11 to the consolidated financial statements.

The Committee also considered and changed the nature of the External auditors Group audit function from an internal function to an outsource The Committee regularly monitors and approves the services arrangement during the year under review. This provides the provided to the Group by its external auditors, Ernst & Young Group with a more flexible option in order to meet the changing LLP, and has established a pre-approval requirement for the needs and strategic direction of the Company and the Group. provision of non-audit services to ensure that there is no impairment of auditor independence. For this purpose, Whistleblowing auditing the accounts of subsidiaries and associates pursuant The Committee is also responsible for reviewing the arrangement to legislation and other services provided pursuant to legislation which enables employees to raise any concerns they may have, in are regarded as audit services. Work may be given to the confidence, about possible wrongdoing, dishonest or unethical external auditor (not specifically the audit team) where it is behaviour. A whistleblowing policy is in place for this purpose and advantageous to the Group to use them in view of its knowledge the Code of Conduct makes it clear that anyone who steps forward and experience of the business. Any non-audit engagement to make such a disclosure is protected. Should a disclosure be performed by Ernst & Young LLP over £50,000 must be made, Group Internal Audit, in consultation with the Chairman of the agreed by the Chairman of the Committee and any individual Committee, will decide an appropriate method and level of engagement over £100,000 must be approved by the full investigation. The Committee is notified of all disclosures, results of Committee. The fees for audit and non-audit services paid to investigations and actions taken, and has the power to conduct the Ernst & Young LLP for the year under review are disclosed further inquiries itself or order additional actions as it sees fit. in Note 8 to the consolidated financial statements.

Internal audit An evaluation of the effectiveness of the external audit process The Group’s internal audit function is led by the Head of Group was carried out for the year under review by Group Internal Audit Audit who reports functionally to the Committee and the by way of a questionnaire, taking into account the views of the Group Finance Director. Up to November 2013, the role of relevant senior management and the Committee members. The the Head of Group Audit was performed by a secondee from conclusion of the evaluation was that the process was effective PricewaterhouseCoopers and thereafter the internal audit and areas for improvement were discussed with the external. function was outsourced to PricewaterhouseCoopers. The Committee is satisfied that Ernst & Young LLP has The purpose of the Group’s internal audit function is to review remained effective and independent as external auditor and and test key internal controls on which management seeks to recommended to the Board that they be proposed for re-election place reliance in its mitigation of risk. Where necessary it will by shareholders at the 2014 AGM. The Board accepted this make recommendations for improvement in controls and follow recommendation and a resolution will be included in the Notice up with management to ensure that agreed actions are taken on of the 2014 AGM. Ernst & Young LLP also confirmed to the a timely basis. The Committee receives internal audit reports Committee that they maintained appropriate internal safeguards from Group Internal Audit at every Committee meeting covering to ensure their independence and objectivity. areas such as the effectiveness of financial and IT controls and As disclosed last year, the Audit Committee maintains an on-going providing assurance over the Group’s many modernisation oversight of the external audit appointment and will consider the initiatives. The Committee reviewed the effectiveness of the need for a formal tender at least every five years. Ernst & Young internal audit function for the year under review and continues to were first appointed as auditors in 2005 and the Company has not monitor and provide direction to its activities. carried out a formal tender exercise since then.

Mecom Group plc Annual Report and Accounts 2013 33 Corporate Governance Report continued

Remuneration The Chairmen of the Audit, Remuneration and Nomination The Directors’ Remuneration Report, set out on pages 35 to 45, Committees will be available at the AGM to answer any queries. includes details of the Company’s remuneration policy and its In addition, the Non-executive Chairman encourages all implementation, the duties and activities of the Remuneration Directors to attend the AGM so shareholders will have an Committee. opportunity to meet them. Notice of the AGM is sent to shareholders at least 20 working days before the meeting. Dialogue with shareholders The Board as a whole has the responsibility for ensuring that a satisfactory dialogue with shareholders takes place. It encourages two-way communication with shareholders and responds quickly to all queries received orally or in writing.

There have been a number of meetings during the year under review with major shareholders to understand their views on the Company’s strategy, governance and Directors’ remuneration. In order to develop an understanding of the views and concerns of the major shareholders, the Board was updated by Stephen Davidson (the Chief Executive/Executive Chairman) up to his resignation from the Chairman role on 22 May 2013 and by Rory Macnamara (from 22 May 2013 following his appointment as the Chairman) or the Group Finance Director following their respective meetings with the major shareholders. Michael Hutchinson as the Senior Independent Director is available to shareholders. The Board also receives analysts’ and brokers’ reports as well as a monthly summary of the main movements in shareholdings. Shareholders are kept informed of the progress and performance of the Group through the Annual Report, half-year results, interim management statements, trading statements and the AGM. This information and other significant announcements of the Group are released to the London Stock Exchange and are made available on Mecom’s website.

Annual General Meeting At any general meeting, a separate resolution is proposed on each substantially separate issue including the resolution to approve the Annual Report and Accounts. For each resolution, the form of proxy will provide shareholders with the option to direct their proxy to vote either for or against the resolution or to withhold their vote. However a “vote withheld” is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against the resolution. All validly received forms of proxy are properly recorded and counted.

Voting on resolutions is conducted by polls at general meetings and voting results detailing the number of votes validly received, votes for or against or withheld are announced through the London Stock Exchange and are available on Mecom’s website. In line with Companies Act 2006 and best practice, the Company now supplies information such as notices of meetings, forms of proxy and the Annual Report and Accounts via its website. Shareholders are notified by email or post when new information is available on the website. The Company will continue to send hard copy communications to those shareholders who request it. Shareholders may at any time revoke a previous instruction to receive hard copies or electronic copies of shareholder information.

34 Mecom Group plc Annual Report and Accounts 2013 Directors’ Remuneration Report

Dear Shareholder cash bonuses equivalent to 170 per cent of salary, the Remuneration Committee, after consulting the executives, I am pleased to present to you, on behalf of the Board, the Directors’ awarded bonuses equivalent to 150 per cent of salary to the Remuneration Report for the year ended 31 December 2013. Chief Operating Officer (“COO”) and Group Finance Director (“GFD”). Of these awards, the executives will receive cash 2013 was a challenging year for Mecom, culminating in the equivalent to 90 per cent of salary. The balance will be deferred departure of our Chief Executive, Stephen Davidson, on and will be awarded in the form of a nil-cost option to acquire 31 October. In the meantime, the two remaining Executive Mecom shares having a market value at the grant date Directors and the senior management team have continued equivalent to 60 per cent of each executive’s salary. to implement our restructuring programme (especially in the Netherlands), which had started in the previous year. I am I have consulted our major investors in this connection. It is pleased to note that the Company’s share price has made intended that bonus payments and option grants will be made a strong recovery from its low point of 28p in June 2013. in April. Until that point, the Remuneration Committee will retain the discretion, having regard to the trading performance of the Our philosophy is that remuneration should support our business Group, to reduce (but not increase) the level of proposed bonus strategy, that rewards should reflect success in achieving our awards for 2013. strategic goals and that packages should provide an opportunity which is sufficiently attractive to recruit and retain the talent we Separate arrangements (described on page 40) have been need to run our business successfully for the benefit of all made for Stephen Davidson. stakeholders. Our remuneration policy, described fully in this report, has been formulated to ensure that the Company’s All bonus awards for 2014 will be subject to claw-back. The remuneration practices are consistent with this philosophy. Remuneration Committee believes that this outcome is consistent with the objectives of the 2014 annual bonus plan and is in the In 2013, the Executive Directors received no salary increases best interests of the Company. and their salaries have not been increased for 2014. The 2013 annual bonus plan, agreed and put in place at the beginning of No share options were granted to Directors in 2013. the year, was designed to reward Executive Directors for their success in implementing the Strategic Review and to recognise The restructuring plan, which was an integral part of the Strategic their loyalty to the Company at a difficult time. Each Executive Review announced in July 2012, continues. At present, the Director’s bonus potential was up to 200 per cent of salary, Directors’ principal concern is to manage the business and its payable in cash. The 2013 annual bonus plan focused on three assets so as to optimise value for investors in the short term. core financial KPIs and a mix of other strategic and commercial Consequently, the Remuneration Committee has set out a objectives. Further details are provided on page 37. Whilst one-year remuneration policy (described on pages 42 to 45) performance measured by reference to the specified bonus which we will submit for your binding approval at the Annual targets was assessed at 85 per cent and would have resulted in General Meeting on 21 May 2014 and which will come into force on 22 May 2014. We will re-submit our remuneration policy for your binding approval once again at the 2015 AGM.

I should like to take this opportunity to express my appreciation of the time and consideration afforded to me and Mecom’s Chairman by our institutional shareholders and of their willingness to engage with us in constructive consultation.

Michael Hutchinson Chairman of the Remuneration Committee

Mecom Group plc Annual Report and Accounts 2013 35 Directors’ Remuneration Report continued

Despite support from institutional shareholders for our current Report preparation, the Remuneration Committee and approach to remuneration, I am conscious that about 31 per cent its advisers of the votes cast were not in favour of the resolution to approve This report has been prepared in accordance with the Large and last year’s report. We recognise, therefore, that there is more Medium-sized Companies and Groups (Accounts and Reports) work to do. We have taken the following action to help meet (Amendments) Regulations 2013 (the “Regulations”) which investors’ concerns: came into force on 1 October 2013 and also in accordance with the requirements of the Listing Rules of the Financial Conduct • there will be no salary increases for existing Directors in 2014; Authority. It is divided into the following sections: • the maximum cash bonus award for 2014 will be 100 per cent of salary; • Annual report on remuneration for the year to 31 December 2013. • bonus award performance conditions will continue to be • Forward remuneration policy and its implementation in 2014. linked to core financial KPIs and strategic goals; and • bonus awards will be subject to claw-back in the event that Our forward remuneration policy will be subject to a separate the Group’s performance is misstated or of gross misconduct. binding shareholder vote at the Annual General Meeting on 21 May 2014. As has been the case in previous years, we will also be asking The following pages of this report explain Mecom’s remuneration for your non-binding approval to the other sections of this report at arrangements for the past year and describe our forward the AGM. remuneration policy for the next year (pages 42 to 45). If you wish to contact me in relation to any aspect of the Company’s The Remuneration Committee had five meetings during the year director and senior executive remuneration arrangements, under review (of which one meeting was unscheduled). Only please do so through the Company Secretary at the members of the Committee have the right to attend the meetings Company’s address. of the Remuneration Committee. However, the Committee asked Stephen Davidson, as Executive Chairman (up to 22 May 2013) Michael Hutchinson and Chief Executive (from 22 May 2013 to 31 October 2013), to Chairman of the Remuneration Committee attend certain parts of its meetings. No individual was present 17 March 2014 during discussions relating to his or her own remuneration.

The Remuneration Committee’s terms of reference are available on Mecom’s website. The Committee is responsible for setting the framework and policy for the remuneration of the Executive Directors and reviewing them annually for appropriateness and relevance. It is also responsible for determining the specific elements of the Executive Directors’ remuneration, their contractual terms and their compensation arrangements. In addition, the Remuneration Committee monitors the level and structure of remuneration for senior executives below Board level and approves the structure and targets for their bonus plans. It also oversees any major changes in employee benefit structures.

The members of the Remuneration Committee during 2013 were Michael Hutchinson (Chairman), Peter Allen (from 27 June 2013), Zillah Byng-Maddick, Steven van der Heijden, Rory Macnamara (from 27 June 2013), and Gerry Aherne (retired 22 May 2013). All members are Non-executive Directors and are considered by the Company to be independent.

During the year, the Remuneration Committee received independent advice from PricewaterhouseCoopers (“PwC”). During the year PwC’s fees for advice on remuneration matters was £5,900. The Company Secretary acted as Secretary to the Committee. The Committee was satisfied that the advice it received during the year was of an independent nature.

36 Mecom Group plc Annual Report and Accounts 2013 Annual report on remuneration (a) Table of single figures for each Director’s total remuneration (audited) The table below shows the single total figure of remuneration in 2013 for the Directors.

Long-term Total £’000 Year Salary/fees Benefits4 Bonus incentives/options Pensions remuneration Executive Keith Allen1 2013 325 4 488 – – 817 2012 325 4 163 – – 492 Henry Davies1 2013 280 3 420 – 42 745 2012 280 3 140 – 45 468 Stephen Davidson2,3 2013 248 4 274 – – 526 2012 233 1 – – – 234 Non-executive – Rory Macnamara5 2013 76 – – – – 76 2012 – – – – – – Peter Allen 2013 28 – – – – 28 2012 – – – – – – Zillah Byng-Maddick6 2013 55 – – – – 55 2012 53 – – – – 53 Steven van der Heijden 2013 45 – – – – 45 2012 45 – – – – 45 Michael Hutchinson7 2013 60 – – – – 60 2012 61 – – – – 61 Gerry Aherne7,8 2013 19 – – – – 19 2012 46 – – – – 46

Notes: 1. The 2013 bonuses for Keith Allen and Henry Davies set out above include amounts to be granted in the form of nil-cost options of £195,000 and £168,000, respectively, the terms of which are set out further on page 38. 2. Salary/fees for Stephen Davidson represent the amount paid to him up to his resignation on 31 October 2013. Up to 22 May 2013, Stephen Davidson received a fee at the rate of £365,000 per annum for the role of Executive Chairman. Thereafter, until his resignation, Stephen Davidson received a salary at the rate of £240,000 per annum for his role as Chief Executive. 3. Details of the termination payment to Stephen Davidson can be found under “Payments for loss of office” on page 40. 4. Benefits comprise taxable benefits which are private health insurance and life assurance. 5. Rory Macnamara’s fees represent the amount paid to him from his date of appointment and were partly paid to Fenford Limited. Rory Macnamara does not receive an additional fee as chairman of the Nomination Committee. 6. Zillah Byng-Maddick’s fees were partly paid to Byng & McKenzie Consultants Limited. 7. Michael Hutchinson and Gerry Aherne received an additional £1,000 during 2012 as a fee for attending the Strategic Review Committee meeting. 8. Salary/fees for Gerry Aherne represent the amount paid to him up to his resignation on 22 May 2013.

Annual bonus awards for 2013 (audited) Executive Directors, at the discretion of the Remuneration Committee, can be invited each year to participate in the annual bonus plan. Non-executive Directors are not eligible to participate in the annual bonus plan. The maximum bonus award for Executive Directors in respect of the invitation to participate in the bonus in 2013 was 200 per cent of salary. The performance measures (together with their respective weightings) used to determine annual bonus awards for 2013 are set out in the table below.

The performance measures (set at the discretion of the Remuneration Committee) were chosen because they were regarded by the Board to be the key indicators of the Company’s financial performance and progress towards its key strategic and operational goals. The targets set for 2013 remain commercially sensitive, given that the financial and other targets were set in the context of the Group’s then on-going Strategic Review. The Remuneration Committee will keep the question of commercial sensitivity under review and is committed to the disclosure of targets when, in the opinion of the Committee, these are no longer commercially sensitive.

Percentage of maximum Actual Level of Measure award performance achievement Award Adjusted EBITDA (euros m) 25% 89.0 100% 25% Adjusted EPS (euros cents) 25% 30.9 100% 25% Net debt (euros m) 20% 38.1 100% 20% Strategic and other commercial objectives 30% n/a 50% 15% Overall bonus award 100% 85%

Mecom Group plc Annual Report and Accounts 2013 37 Directors’ Remuneration Report continued

Ordinarily, this level of performance achievement would have resulted in cash bonus awards for 2013 of 170 per cent of salary. However, in light of the difficult circumstances of the Group’s trading statement in April, the Remuneration Committee, after consulting the executives, has exercised its discretion in reducing bonus awards to the Executive Directors; therefore the COO and GFD bonus awards have been reduced to 150 per cent of base salary.

The COO and GFD will receive 90 per cent of salary in cash. The balance of 60 per cent of salary will be deferred and will be awarded in the form of a nil-cost option to acquire Mecom shares having a market value at the grant date equivalent to 60 per cent of each executive’s salary. The options will be exercisable as to 50 per cent on each of the first and second anniversaries of the grant date.

Bonus payments and option grants to the COO and GFD will be made in April this year. Until that point, the Remuneration Committee will retain the discretion, having regard to the trading performance of the Group, to reduce (but not increase) the level of proposed bonus awards for 2013.

The bonus award for Stephen Davidson, who resigned as Chief Executive on 31 October 2013, has been reduced by the Remuneration Committee to a bonus equivalent to 90 per cent of his 2013 salary pro-rated to 31 October 2013, all of which will be deferred. The award will be made in Mecom shares, which will vest as to 50 per cent after one year and 50 per cent after two years.

(b) Share option grants and other share awards in 2013 (audited) The Company operated four equity-based incentive plans, all of which had been previously adopted by shareholders in general meeting:

A. Deferred Bonus Plan (“DBP”); B. The Executive Share Option Plan (“ESOP”); C. The Senior Executive Share Plan (“SESP”); and D. The Savings Related Share Option Scheme (“SAYE”).

Further details about these share plans are contained in the policy table on pages 43 and 44.

No share options were granted and no other share awards were made to Directors in 2013, nor did any previously granted options vest during the period.

(c) Directors’ interests in share options (audited) The following tables provide details of Directors’ share options and other share awards outstanding at 31 December 2013:

(i) Keith Allen:

No. of Shares/ Shares/ Shares/ Shares/ No. of shares/ options options options options shares/ options at granted in vested in lapsed in forfeited in options at Exercise Vesting Performance Exercise Scheme 1/1/13 year year year the year 31/12/13 Grant date price (£) date period period DBP 82,477 – – – – 82,477 20/03/12 nil 20/03/15 – – ESOP – – – – – – – – – – – SESP3 706,521 – – – 706,521 – 03/06/10 1.84 02/06/13 02/06/10 02/06/13 Market Value Joint Award 2010 to to 01/06/13 01/06/20 SESP3 128,544 – – – – 128,544 21/03/11 2.5283 21/03/14 21/03/11 21/03/14 Market Value Option 2011 to to 20/03/14 20/03/21 SAYE1 2,070 – – – – 2,070 08/06/10 1.7534 08/06/13 01/08/10 01/08/13 to to 31/07/13 31/01/14

38 Mecom Group plc Annual Report and Accounts 2013 (ii) Henry Davies:

No. of Shares/ Shares/ Shares/ Shares/ No. of shares/ options options options options shares/ options at granted in vested in lapsed in forfeited in options at Exercise Vesting Performance Scheme 1/1/13 year year year the year 31/12/13 Grant date price (£) date period Exercise DBP 101,510 – – – – 101,510 20/03/12 nil 20/03/15 ESOP2 1,927 – – – – 1,927 30/07/07 83 30/07/10 30/07/07 30/07/10 to to 29/07/10 29/07/17 ESOP2 4,800 – – – – 4,800 10/01/08 35 10/01/11 10/01/08 10/01/11 to to 09/01/11 09/01/18 ESOP2 156,250 – – – – 156,250 18/11/09 1.60 18/11/12 18/11/09 18/11/12 to to 17/11/12 17/11/19 SESP3 271,739 – – – 271,739 – 03/06/10 1.84 02/06/13 02/06/10 02/06/13 Market Value Joint Award 2010 to to 01/06/13 01/06/20 SESP3 110,746 – – – – 110,746 21/03/11 2.5283 21/03/14 21/03/11 21/03/14 Market Value Option 2011 to to 20/03/14 20/03/21 SAYE1 2,070 – – – – 2,070 08/06/10 1.7534 08/06/13 01/08/10 01/08/13 to to 31/07/13 31/01/14

(iii) Stephen Davidson (resigned on 31 October 2013): Stephen Davidson did not hold any share-based options/awards.

Notes: 1. The SAYE options granted to Keith Allen and Henry Davies lapsed on 1 February 2014. 2. The ESOP options granted to Henry Davies on 30 July 2007 and 10 January 2008 will lapse if the ESOP options granted to him on 18 November 2009 are exercised. The performance conditions associated with share options that have not vested are set out below:

The 2009 grant to Henry Davies vested in full on 18 November 2012 following the testing of the performance condition attached to the exercise of this option. The condition applying to this grant is set out below and was based on adjusted earnings per share (“EPS”) target for the financial year ended 31 December 2011. There is an exercise price of £1.60 per share to this 2009 grant. Henry Davies has not exercised this 2009 option.

Threshold Maximum Assessment of performance performance performance 2011 EPS (euro cents per share) 20.4 33.3 The performance target was met in Percentage of options in respect of which the option will vest 5% 100% full and the option has vested.

Following the satisfaction of the 2009 grant, there are no outstanding ESOP options granted to the Directors.

3. SESP 2011 grant For the SESP grant made in 2011, the extent to which the award vests is based on EPS performance, as set out in the table below. Threshold performance under the performance conditions must be achieved for the award to vest to any extent. The 2011 grant is due to be assessed in March 2014 to determine the final level of vesting.

Below or at threshold Maximum Current assessment performance performance of performance 2013 EPS (euro cents per share) <56.0 64.0 Not yet tested Percentage of shares in respect of which the award will vest 0% 100%

Between threshold and maximum performance points, the award will vest on a straight-line basis.

SESP 2010 award The 2010 award contains two conditions: a share price condition and an EPS condition. The extent to which the 2010 award vests will be established, first, by reference to the share price performance condition. The EPS performance condition will be applied second, to the extent that the award vests by reference to the share price performance condition. Threshold performance under each of the performance conditions must be achieved for the award to vest to any extent. This award was formally assessed in June 2013 and based on performance to date, the threshold targets were not met and there will be nil vesting under any of the elements of this award. These options lapsed during the year.

Except as referred to above, no Director had any interest in share options or other share awards as at 31 December 2013.

Mecom Group plc Annual Report and Accounts 2013 39 Directors’ Remuneration Report continued

The closing price of a share in the Company on 31 December 2013 was £0.8675. The range of market prices during the year was £0.28 to £0.975.

(d) Statement of Directors’ shareholdings and share interests (audited) The Directors’ shareholdings (including shares held by connected persons) as at 31 December 2013 are set out in the following table:

Share options: vested but Shares Share options: unvested unexercised

31 December 31 December 31 December 31 December 31 December 31 December Director 2013 2012 2013 2012 2013 2012 Keith Allen 12,812 12,812 211,021 213,091 2,070 – Henry Davies 879 879 212,256 214,326 158,320 156,250 Rory Macnamara1 75,000 – – – – – Peter Allen 50,000 – – – – – Zillah Byng-Maddick 36,114 36,114 – – – – Steven van der Heijden – – – – – – Michael Hutchinson 88,000 88,000 – – – –

Past Directors Gerry Aherne2 30,000 30,000 – – – – Stephen Davidson3 25,000 25,000 – – – –

Notes: 1. The number of shares held beneficially includes shares held by connected persons. The shares to which Rory Macnamara is beneficially entitled are held by Fenford Limited. 2. This figure represents the number of shares held by Gerry Aherne up until the date of his resignation on 22 May 2013. 3. This figure represents the number of shares held by Stephen Davidson up until the date of his resignation on 31 October 2013.

(e) Payments to past Directors (audited) Save as described below, in relation to a termination payment made to Stephen Davidson, there were no payments to past Directors in 2013.

(f) Payments for loss of office (audited) Stephen Davidson ceased to be Chairman on 22 May 2013. He continued to receive his fee as Chairman during his notice period as Chairman, until 22 November 2013, which totalled £62,500.

Stephen Davidson resigned as a Director and as Chief Executive on 31 October 2013. He received a termination payment of £70,417 in respect of his contractual notice period, and of various other contractual entitlements related to his benefits such as untaken accrued holidays and insurance policies.

In addition, Stephen Davidson will receive the award described on page 38 above.

(g) Pension entitlements (audited) There is no Company pension scheme for Directors. During 2013, the Company made a pension contribution in respect of Henry Davies, equivalent to 15 per cent of salary, to a pension plan nominated by him.

No other pension arrangements were in place for Directors in 2013.

From 1 January 2014, the Company has included the pension entitlement for Henry Davies within his base salary and will no longer make any pension contributions on his behalf.

40 Mecom Group plc Annual Report and Accounts 2013 (h) Company Total Shareholder Return and CEO pay The graph below illustrates the Company’s Total Shareholder Historical Total Shareholder Return index December 2008 = 100 Return (“TSR”) performance compared with the FTSE All Share £350 Media index over the last five years. This index was selected because it is considered to be an appropriate index for relevant £300 sectoral comparison. Indices are set at December 2008 = 100. This is equivalent to looking at the development of an investment £250 of £100 where any dividends received are re-invested in the relevant company’s shares. Please note that the Mecom return £200 index was 44 on 25 February 2014. £150

£100

Value of hypothetical £100 holding Value £50

£0 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13

Mecom Group plc FTSE All Share Media Companies TSR

The table below shows the single total figure of remuneration for the Chief Executive Officer for the last five years.

2009 2010 2011 2012 2013 CEO single figure of remuneration David Montgomery – salary 540 540 – – – – bonus – cash – – – – – – bonus – shares 435 723 – – – – benefits 44 46 – – – Total 1,019 1,309 – – – Tom Toumazis – salary – – 262 460 – – bonus – cash – – 250 – – – bonus – shares – – 188 – – – benefits – – 14 21 – – pension – – 32 110 – Total – – 746 591 – Stephen Davidson – salary – – 277 233 248 – bonus – shares – – – – 274 – benefits – – – 1 4 Total – – 277 234 526 Annual bonus pay-out (as % maximum opportunity) – David Montgomery 54% 89% 93% – – – Tom Toumazis – – 100% nil – – Stephen Davidson – – – – 90% ESOP/ESP vesting (as % maximum opportunity) – David Montgomery nil nil nil – – – Tom Toumazis – – nil nil – – Stephen Davidson – – nil nil nil

Note: In respect of bonuses taken in shares, indicative vesting amounts were disclosed in previous annual reports regarding DBP awards for David Montgomery and Tom Toumazis, whereas actual vested amounts are shown in the table above, in line with the new reporting regulations. No amounts have been included for David Montgomery in respect of 2011 since he stepped down as Chief Executive on 15 January 2011 and substantially all payments made to him in 2011 related to loss of office or periods when he was not Chief Executive. The single figure of total remuneration above includes (a) salaries (b) benefits and (c) the maximum amount receivable under bonus arrangements, including the uplift on bonuses granted under the DBP.

Mecom Group plc Annual Report and Accounts 2013 41 Directors’ Remuneration Report continued

The table below sets out the change in the pay of the Chief Executive from 2012 compared with that for all employees in the Group.

Chief Executive All employees

Year ended % change % change 31/12/13 from 2012 from 2012 £000 Salary 248 (64)% (1)% Benefits 4 (82)% 1% Bonus 274 n/a (35)%

(i) Relative importance of spend on pay The table below shows the total amount spent on the remuneration of all employees compared to dividends paid to shareholders and other key financial indicators:

€m 2013 2012 % change Total remuneration 370.0 486.0 (24)% Dividends paid 6.5 18.0 (64)%

(j) Voting at 2013 AGM At the Annual General Meeting held on 22 May 2013, votes cast by proxy and at the meeting in respect of the 2012 Directors’ remuneration were as follows:

Votes Total Votes Resolution Votes for % for against % against votes cast withheld Approval of the 2012 Remuneration Report 49,264,696 68.63 22,514,386 31.37 71,779,082 29,737,847

Directors’ future remuneration policy (a) Future remuneration policy table This section of the Directors’ Remuneration Report describes the future policy for Directors’ remuneration and describes the implementation of the policy in 2014. This policy has been formulated after consideration of remuneration policy and practice across the Group. Employees across the Group were not consulted.

This forward policy will be subject to a binding vote of approval at the 2014 AGM. Subject to shareholders’ approval, the policy will remain in place for one year from 22 May 2014, being the day following the 2014 AGM. At the 2015 AGM, shareholders will be asked to approve, through a further binding vote, the Company’s subsequent remuneration policy.

Executive Directors Base salary Purpose and link to strategy Part of overall strategy to recruit and retain talented management Operation No separate Directors’ fees; salary only Opportunity Paid monthly; reviewed annually in light of market conditions and contribution; there are no proposals to increase the salaries of existing Executive Directors for 2014 (other than the adjustment of pension contributions to salary for Henry Davies) Performance metrics None Benefits Purpose/link to corporate strategy Insured benefits provide protection for the long-term benefit of the employee and Company Operation Entitlement contained in service agreements. Insured benefits provided as part of Group schemes Opportunity Private medical insurance – premium family cover within Group scheme Life assurance – four times salary Income protection – 70 per cent of salary Performance metrics None

42 Mecom Group plc Annual Report and Accounts 2013 Executive Directors Annual bonus Purpose/link to corporate strategy Direct links to financial company KPIs used in the “performance metrics” section below; encourages achievement of both corporate financial and strategic targets; provides a competitive performance-related reward opportunity; voluntary deferral in shares encourages alignment with investors (see “Deferred Bonus Plan” below) Operation Discretionary plan; rewards based on targets set at or about the start of each financial year; claw-back for material misstatement or gross misconduct; Non-executive Directors are not eligible to participate Opportunity Maximum cash bonus potential for all Executive Directors is 100 per cent of salary; if opting to receive bonus in shares, participants receive shares worth 150 per cent of the cash bonus, as explained in the “Deferred Bonus Plan” section below Performance metrics The performance measures and weightings for 2014 are as follows: Adjusted EBITDA 35% Adjusted EPS 35% Strategic goals 30%

Details of specific targets are not disclosed on grounds of commercial sensitivity Deferred Bonus Plan Purpose/link to corporate strategy Part of strategy to retain key executives and to align reward with shareholders’ interests Operation Executives may be offered the opportunity to elect to receive all or part of annual bonus in options to acquire shares in the Company; deferred bonus awards may take the form of nil-cost options, nominal-cost options or conditional share awards Opportunity An additional 50 per cent of the amount of annual bonus deferred Performance metrics Grants of bonus shares under the Deferred Bonus Plan will not ordinarily have any performance conditions Executive Share Option Plan Purpose/link to corporate strategy Aligns executives with long-term interests of shareholders by rewards related to sustained long-term performance of the Company and share price improvement Operation Operates alongside the SESP (see below) within approved dilution limits; used to grant HMRC approved options; exercise price is market value at grant date; ordinarily, options become exercisable after three years and expire after 10 years; participants are selected at discretion of the Remuneration Committee; Non-executive Directors are not eligible to participate Opportunity Maximum market value (measured at the grant date) of shares subject to outstanding HMRC approved options is £30,000 Performance metrics The Remuneration Committee will normally, at the time of grant, impose performance conditions on the exercise of options (although there is no current intention to grant options under this scheme to Executive Directors in 2014); if the Remuneration Committee decides to grant any options to Directors under this plan, it will consult with the Company’s principal investors in advance Senior Executive Share Plan Purpose/link to corporate strategy Aligns executives with long-term interests of shareholders by rewards related to sustained long-term performance of the Company and share price improvement Operation Operates within approved dilution limits; participants may be granted options or interests in shares held jointly with the trustees of an employee benefit trust; ordinarily, options become exercisable or shares vest after three years; participants are selected at the discretion of the Remuneration Committee Opportunity Maximum value of awards is 400 per cent of salary annually; this limit will be reached only in exceptional circumstances (e.g. to recruit a new Executive Director); it is the Remuneration Committee’s intention to make awards of share options to Executive Directors and other senior executives under this scheme in 2014, which will be subject to performance conditions on exercise. The Remuneration Committee will consult with principal investors on the nature of these performance conditions in advance of making any awards. Subject to the Company’s policy on recruitment (see page 44) award levels for 2014 will not exceed 100 per cent of salary Performance metrics The Remuneration Committee may impose conditions on the exercise of options/vesting of shares; if the Remuneration Committee decides to grant any options to Directors under this plan, it will consult with the Company’s principal investors in advance

Mecom Group plc Annual Report and Accounts 2013 43 Directors’ Remuneration Report continued

Executive Directors Savings Related Share Option Scheme Purpose/link to corporate strategy Part of an overall strategy to provide the majority of employees with an opportunity for equity participation Operation Invitations to eligible employees are made at the discretion of the Board; ordinarily, options are exercisable after three years Opportunity Option holders committed to save up to £100 per month for three years; the option exercise price may be up to 20 per cent below the market value of the Company’s shares at the grant date Performance metrics None Non-executive Directors Annual fee Purpose/link to corporate strategy Competitive fee to recruit and retain Operation Fixed fee, paid wholly in cash; the Remuneration Committee recommends the Chairman’s fees to the Board and the Board decides on the level of fees for other Non-executive Directors, including the Senior Independent Director Opportunity Fee levels take account of market practice and are considered by the Committee on an annual basis; additional fees are payable for serving as Chairman of a Board Committee as noted below; there will be no change in the level of fees for current Non-executive Directors in 2014 Performance metrics None

Note: In addition, fees for Committee Chairs are as follows: Audit Committee: £10,000; Remuneration Committee £5,000.

(b) Remuneration Committee’s use of discretion Since the 2010 SESP jointly owned award had not vested and The Remuneration Committee may exercise the discretions was reversed into the trust in June 2013, the shares in the EBT contained in DBP, the ESOP, the SESP and the SAYE Scheme in were available to be used to satisfy any future share award and accordance with their respective rules as amended from time to share option exercise in accordance with a linking agreement time and as approved by shareholders. These discretions in place between the Company and the trustee of the EBT. include but are not limited to: Subsequently the shares were sold in the market. As at 31 December 2013, the Employee Benefit Trust no longer holds • Selection of participants. any shares in the Company. • Timing of grants/awards. • The level of awards. Existing options and awards granted under the various • Adjustments on a capital variation. Company share schemes to date (within the last 10 years) • Selection, review and adjustment of performance measures equate to approximately 4.14 per cent (2012: 6.20 per cent) of the and targets. current issued share capital of the Company.

Participation in the annual bonus scheme, the selection of (d) Recruitment policy participants, maximum bonus potential, performance measures The remuneration policy set out above will apply equally to new and targets, the assessment of performance and the making of and existing Directors. bonus awards are all matters for the discretion of the Remuneration Committee. However, a new director recruited from outside the Company may be offered a relocation or housing allowance and the (c) Dilution Remuneration Committee may recommend that the Board It is the Company’s current intention to satisfy the requirements agrees to compensate such a director for the loss of earnings or of its share plans in the method best suited to the interests of the the accrued value of incentive plans from his or her previous Company, either by acquiring shares in the market or by issuing employer. A new director appointed from within the Company, new shares. This will be done in compliance with institutional whose remuneration package falls outside the Company’s shareholder guidelines on dilution limits, principally an aggregate remuneration policy for directors, may receive any remuneration limit of 10 per cent of the issued share capital of the Company in to which he or she had become entitled prior to appointment as any 10-year period and a restriction that not more than 5 per cent a director. of the issued share capital of the Company from time to time may be issued or transferred from treasury pursuant to any plan which is operated for executives on a discretionary basis.

44 Mecom Group plc Annual Report and Accounts 2013 (e) Note about policy on termination payments • annual performance based: an expectation that (a) “in line” Executive Directors’ service contracts provide for 12 months’ performance bonuses will result in two-thirds payout (with notice. The letters of appointment for Non-executive Directors no uplift in this illustration for participation in the DBP) and provide for one month’s notice. The Chairman’s notice period is (b) “maximum” performance bonuses will result in full payout three months. with full uplift for participation in the DBP; and • longer-term performance based: assumptions have been On termination of an Executive Director’s service contract, the made about the fair value of options at the date of grant Company’s policy is to pay the salary and benefits to which the (which have been assumed to be 30 per cent of the award, executive is contractually entitled. There is no entitlement to excluding any performance conditions) and on vesting the receive any bonus or the value of any unexercised share options assumptions have been based on performance conditions or unvested awards under the Group’s share plans, other than being met at 25 per cent in the case of in-line and 100 per where the options relate to previous bonuses and where no cent in the case of maximum. performance conditions exist for the vesting of the options. Depending on the circumstances, the Remuneration Committee Chief Operating Officer may decide to recommend a bonus payment in respect of the £k period up to the termination date and to permit the exercise of 1,000 share options or the vesting of share awards in accordance with 11% the relevant plan rules as approved by shareholders on 53% adoption. It is not the Company’s policy to make any payments 750 in respect of bonus or to permit the exercise of options or the 4% vesting of share awards if the Company is entitled to dismiss a 38% director without notice. 500

(f) Shareholding guidelines 100% 58% 36% 250 Currently, there are no shareholding guidelines for directors. All directors on appointment are encouraged to hold shares in the Company. 0 Minimum In-line Maximum

(g) Obligations in Directors’ service contracts Non-performance based Longer-term If, in the event of a change in control of the Company, an Annual performance based performance based Executive Director is offered employment on terms which are no less favourable than the terms on which he is then employed by the Company and fails to accept such terms Group Finance Director within one month, the Company is entitled to terminate his £k service agreement either: 1,000 11% 1. by giving such notice as is required by section 86(3) of the Employment Rights Act 1996; or 750 53% 2. forthwith on paying the sum to which he would be entitled 4% during that period of notice. 500 38% Subject to the above, there are no obligations in Directors’ 100% 58% 36% service contracts or letters of appointment which will give rise 250 to any entitlement upon termination of the Director’s office or employment otherwise than as described above in the future policy table and the policy on termination payments. 0 Minimum In-line Maximum

(h) Illustrations of the application of the Company’s Non-performance based Longer-term performance based remuneration policy Annual performance based The charts below show the level of reward that each of the current Executive Directors can expect in the three scenarios: Consideration of conditions elsewhere in Group The Group’s activities are carried on exclusively outside the UK. 1. minimum performance – where no performance-related Our approach to reward generally has been to take account of remuneration is earned; local requirements whilst reflecting our overall philosophy on 2. performance in-line with expectations; and remuneration. 3. high performance, where the maximum annual bonus and long-term incentive vesting are earned. The Company’s policy is that Directors’ remuneration should reflect both the performance of the Group as a whole as well as In compliance with the Regulations, no account is taken of the contributions made by its respective divisions. possible share price increases. Statement of consideration of shareholders’ views The assumptions used in the compilation of the illustrative charts As stated in the letter from the Chairman of the Remuneration below are as follows: Committee at the start of this report, there is a constructive dialogue between the Remuneration Committee and the • non-performance based: annual salary and benefits; Company’s investors. The views of shareholders are taken into account when formulating the Company’s remuneration policy for Directors.

Mecom Group plc Annual Report and Accounts 2013 45 Directors’ Report: Additional Disclosures Greenhouse gas emissions reporting The Company is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which the Group is responsible, including the combustion of fuel and the operation of any facility. Details of our emissions during the year ended 31 December 2013 are set out within the Corporate Social Responsibility section of the Strategic Report on pages 22 to 25 and form part of the Directors’ Results and dividends Report disclosures. The consolidated income statement is set out on page 55 and shows a loss for the year ended 31 December 2013 of Acquisitions and disposals €61.6 million (2012: loss of €30.4 million). During the year, the Group made no major acquisitions. The following disposals were made: The Directors do not propose a final dividend for the year ended 31 December 2013 (2012: 5.5 euro cents). As explained in the • on 31 March 2013, the disposal of Wegener Digital B.V., half-yearly results announcement, the Board has concluded that which operates the Autrotrack.nl business to De Persgroep no dividend will be paid in respect of 2013, but will consider Nederland B.V., was completed. future dividend policy once further cost reduction plans have • on 1 June 2013, the disposal of three local free weekly titles been successfully implemented, any further disposals have been by Berlingske Media A/S (“Berlingske”) to Sjællandske Medier completed and existing borrowings have been refinanced. A/S was completed. • on 20 June 2013, the Company’s subsidiary, Wegener Going concern Nederland B.V. sold its 30 per cent economic interest The circumstances surrounding the preparation of the financial in Funda N.V. by way of a buy back by Funda N.V. of statements on a going concern basis, including the material the shareholding owned by Wegener Nederland B.V. uncertainties related to this, are explained in the Group Finance • on 30 August 2013, the disposals (to different purchasers) Director’s Report and in Note 4 to the consolidated financial of Berlingske’s effective interest of 43.2 per cent interest in statements. The auditors’ reports for the year ended Jobzonen A/S; 25 per cent of Boliga ApS; and Ballerup Bladet 31 December 2013 include reference to these circumstances were completed. above, to which the auditors drew attention by way of emphasis • on 17 September 2013, the sale to Den Sydvestjyske of matter without qualifying their reports. Venstrepresse ApS of five local free weekly titles in the southern part of Jutland together with its 50 per cent effective Directors and their interests interest in each of Vesterhavsposten I/S and Syddanske The current members of the Board, together with their committee Medier K/S was completed. memberships and brief biographical details, are set out on • on 31 October 2013, the disposal of Media Regionalne Sp. z o.o. page 26. Details of the Directors’ service contracts, their to Polskapresse sp. z o.o. was completed. remuneration and benefits and their interests (including the • on 1 November 2013, Berlingske disposed of its media centre interests of their connected persons) in the ordinary shares of the in Frederiksberg publishing six free weeklies and its 60 per cent Company (including options) for the year under review are set shareholding in Lokalaviserne Østerbro og Amager publishing out in the Directors’ Remuneration Report on pages 35 to 45. two free weeklies to North Media A/S Group.

Financial instruments Employees The Group’s financial risk management objectives and policies are The responsibility for formulating, implementing and ensuring discussed in Note 26 to the consolidated financial statements. adherence to employment policies and relevant legislation is the responsibility of the Human Resources director of each division. Directors’ insurance Each division in the Group fully supports the principle of equal As permitted by the Companies Act 2006, the Company purchases opportunity for all employees and opposes all forms of and maintains Directors’ and officers’ insurance cover against discrimination. It is also the policy of each division to give full certain legal liabilities and costs incurred by the Directors and and fair consideration to the recruitment of disabled persons. officers of the Group companies in the execution of their duties. Each division believes in open and continuous communication The Company also granted an indemnity to each of its Directors in as an important part of the employee engagement process and accordance with section 232 of the Companies Act 2006 in relation this is achieved through a variety of channels. Each division also to the Directors’ exercise of their powers, duties and responsibilities recognises that the development of its employees is important as Directors of the Company, save to the extent that any such for the success of that division as well as the Group as a whole. indemnity would be void under the Companies Act 2006. Further information on the Group’s policy on employee matters is provided in the Corporate Social Responsibility Report on Directors’ conflicts of interest pages 22 to 25. Details of the number of employees and their The Company’s Articles of Association enable the Board to remuneration are provided in Note 10 to the consolidated authorise conflicts of interest matters pursuant to section 175 of financial statements. the Companies Act 2006. The Company has put in place procedures for managing conflicts of interest. Any potential Charitable and political donations conflicts of interest are considered by, and if appropriate The Group made no political donations in the year (2012: €nil). authorised by, the Board. Directors have a continuing duty to The Group made charitable donations during the year of €2,000 update any changes to these conflicts. (2012: €47,000). Further information on the principal charities supported during the year is provided in the Corporate Social Responsibility Report on pages 22 to 25.

46 Mecom Group plc Annual Report and Accounts 2013 Major interests in shares Appointment and replacement of Directors At the date of this report, the Company had been notified, in The Articles provide that the number of Directors shall be no less accordance with the DTRs, of the following interests in the than two and no more than 15. Directors may be appointed by the ordinary shares of the Company: Company by ordinary resolution or by the Board. A Director appointed by the Board shall hold office only until the next AGM and Interests in Interests in shall then be eligible for re-appointment, but shall not be taken into issued share issued share capital as at capital as at account in determining the Directors or the number of Directors who 31 December 17 March Change since are to retire by rotation at that meeting. The Board may from time to 20131 20141 year end time appoint one or more Directors to hold executive office with the Aberforth Partners LLP 14.21% 14.21% – Company for such period (subject to the provisions of the Aviva plc 18.64% 16.70% (1.94)% Companies Act 2006) and upon such terms as the Board may decide and may revoke or terminate any appointment so made. In Blackrock Inc. 5.38% 5.38% – addition, any Director who would not otherwise be required to retire Governance for Owners 3.96% 3.96% – shall retire by rotation at the third annual general meeting after his Harwood Capital LLP 9.17% 5.25% (3.92)% last appointment or re-appointment. Henderson Global Below Under the Articles at every annual general meeting of the Investors notifiable (0.26)% Company, a minimum of one third of the Directors shall retire by 5.26% threshold at least rotation. The first Directors to retire by rotation shall be those who J O Hambro Management wish to retire and not offer themselves for re-election. Any further Group Ltd 4.66% 4.66% – Directors so to retire shall be those of the other Directors subject Legal & General plc 8.21% 5.04% (3.17)% to retirement by rotation who have been longest in office since their last election or re-election but, as between persons who Lloyds Banking Group 4.84% 4.841% – became or were last elected or re-elected Directors on the same Majedie Asset n/a below day, those to retire shall (unless they otherwise agree among Management Ltd threshold 5.11% +5.11% themselves) be determined by lot. However, the Company Norges Bank 1.52% 3.11% +1.5 9 % intends to comply with principle B.7.1 of the Code in this respect.

Old Mutual plc n/a below The shareholders of the Company may by ordinary resolution threshold 6.14% +6.14% remove any Director before the expiration of his term of office. SVG Investment Managers No special notice need to be given of any resolution to remove Ltd 4.93% 4.93% – a Director in accordance with the Articles and no Director proposed to be removed in accordance with the Article has UBS Investment Bank Below any special right to protest against his removal. notifiable (0.09)% 5.09% threshold at least A person ceases to be a Director as soon as: The Wellcome Trust Ltd 5.22% 5.22% – (i) that person ceases to be a Director by virtue of any provision 1 All interests shown include both direct and indirect holding where relevant. of the Companies Act 2006 or is prohibited from being a Director by law; Share capital (ii) a bankruptcy order is made against that person; The Company has a single class of shares which is divided into (iii) a composition is made with that person’s creditors generally ordinary shares of 60.85888 pence each. The ordinary shares in satisfaction of that person’s debts; are in registered form. At 1 January 2013, the Company’s issued (iv) a registered medical practitioner who is treating that person share capital was £73,768,872.39 comprising 121,212,997 gives a written opinion to the Company stating that that ordinary shares of 60.85888 pence each. At 31 December 2013 person has become physically or mentally incapable of acting and at the date of this report, the Company’s issued share capital as a Director and may remain so for more than three months; was £73,768,872.39 comprising 121,212,997 ordinary shares of (v) by reason of that person’s mental health, a court makes an 60.85888 pence each. order which wholly or partly prevents that person from personally exercising any powers or rights which that person Share warrants would otherwise have; At 1 January 2013, the Company had 692,646 warrants in issue (vi) notification is received by the Company from the Director each comprising the right to subscribe for one ordinary share that the Director is resigning or retiring from office, and such of 60.85888 pence, in aggregate representing approximately resignation or retirement has taken effect in accordance with 0.6 per cent of the Company’s issued share capital. As at its terms, or his office as a Director is vacated pursuant to 31 December 2013, there are 692,646 warrants in issue. Article 119; or (vii) that person receives notice signed by not less than three Articles of Association quarters of the other Directors stating that that person should The Company’s Articles of Association may only be amended by a cease to be a Director. In calculating the number of Directors special resolution passed at a general meeting of the shareholders. who are required to give such notice to the Director, (a) an alternate Director appointed by him acting in his Takeovers Directive capacity as such shall be excluded; and Pursuant to section 992 of the Companies Act 2006, which (b) a Director and any alternate Director appointed by him implements the EU Takeovers Directive, the Company is required and acting in his capacity as such shall constitute a to disclose the following additional information: single Director for this purpose, so that notice by either shall be sufficient.

Mecom Group plc Annual Report and Accounts 2013 47 Directors’ Report: Additional Disclosures Subject to any restrictions below, shareholders may attend any general meeting of the Company and, on a show of hands, every continued shareholder (or his representative) who is present at a general meeting has one vote on each resolution and, on a poll, every shareholder (or his representative) who is present has one vote on each resolution for every ordinary share of which they are the registered shareholder. A resolution put to the vote of a general meeting is decided on a show of hands unless (before or on the Powers of the Directors declaration of the result of a vote on a show of hands) a poll is Subject to the Articles, the Companies Act 2006 and any demanded by the chairman of the meeting, or by at least five directions given by special resolution, the business of the shareholders (or their representatives) present in person and Company will be managed by the Board, who may exercise all having the right to vote, or by any shareholders (or their the powers of the Company, whether relating to the management representatives) present in person having at least 10 per cent of of the business of the Company or not, including powers relating the total voting rights of all shareholders, or by any shareholders to the issue and/or buying back of the Company’s shares. (or their representatives) present in person holding ordinary In particular, the Board may exercise all the powers of the shares on which an aggregate sum has been paid up of at least Company to borrow money and mortgage or charge any of its 10 per cent of the total sum paid up on all ordinary shares. undertakings, property and assets and uncalled capital and to issue debentures and other securities for any debt, liability or Shareholders can declare final dividends by passing an ordinary obligation of the Company to any third party. The Directors have resolution but the amount of the dividends cannot exceed the authority in place for them to allot shares in the Company or amount recommended by the Board. The Board can pay interim grant rights to subscribe for, or convert any security into shares dividends on any class of shares of the amounts and on the in the Company (in accordance with section 551 of the dates and for the periods they decide provided the distributable Companies Act 2006) up to an aggregate nominal amount of profits of the Company justify such payment. The Board may, if £24,587,165 and have authority to allot in respect of a further authorised by an ordinary resolution of the shareholders, offer £24,594,542 in connection with an offer by way of a rights issue. any shareholder the right to elect to receive new ordinary shares, This authority expires at the 2014 AGM. which will be credited as fully paid, instead of their cash dividend.

Further details on the renewal of authorities are contained in Voting at general meetings the Chairman’s letter to shareholders accompanying the Notice Any form of proxy sent by the Company to shareholders in of AGM. relation to any general meeting must be delivered to the Company, whether in written form or in electronic form, not less Significant agreements than 48 hours before the time appointed for holding the meeting The Company is required to disclose any significant agreements or adjourned meeting at which the person named in the to which the Company is party that take effect, alter or terminate appointment proposes to vote. upon a change of control of the Company following a takeover bid, and the effects of any such agreements. No shareholder is, unless the Board decides otherwise, entitled to attend or vote either personally or by proxy at a general On 17 March 2014, the Group’s subsidiaries entered into two meeting or to exercise any other right conferred by being a financing agreements as described in Note 25 to the shareholder if he or any person with an interest in shares has consolidated financial statements. These agreements, when been sent a notice under section 793 of the Companies Act 2006 completed, will replace the Group’s current financing (which confers upon public companies the power to require agreements, details of which are also set out in Note 25 to the information with respect to interests in their voting shares) and he consolidated financial statements. or any interested person failed to supply the Company with the information requested within 14 days after delivery of that notice. The change of control provisions for the Directors’ service The Board may also decide where the relevant shareholding contracts and various share schemes operated by the Company comprises at least 0.25 per cent of the nominal value of the are provided in the Directors’ Remuneration Report on pages 35 issued shares of that class that no dividend is payable in respect to 45. of those default shares and that no transfer of any default shares shall be registered. On 22 July 2011 the Company entered into a five-year IT outsourcing agreement with HCL Technologies Limited to Transfers of shares outsource a significant portion of the Group’s IT operations. The Board may refuse to register a transfer of a certificated share Upon a change of control of the Company, this agreement may which is not fully paid, provided that the refusal does not prevent be terminable at the option of the Company. dealings in shares in the Company from taking place on an open and proper basis. The Board may also refuse to register a Rights attaching to shares transfer of a certificated share unless: (i) the instrument of The Company has one class of ordinary shares and the rights transfer is lodged, duly stamped (if stampable), at the registered attaching to the ordinary shares in addition to those conferred on office of the Company or any other place decided by the Board, their holders by law are defined in the Articles, copies of which can accompanied by the certificate for the share to which it relates be obtained from the Company Secretary. A shareholder whose and such other evidence as the Board may reasonably require to name appears on the Company’s register of members can choose show the right of the transferor to make the transfer; (ii) is in whether his shares are evidenced by share certificates (in respect of only one class of shares; and (iii) is in favour of not certificated form) or held in electronic (uncertificated) form in more than four transferees. CREST (the electronic settlement system in the United Kingdom). Transfers of uncertificated shares must be carried out using CREST and the Board can refuse to register a transfer of an uncertificated share in accordance with the regulations governing the operation of CREST.

48 Mecom Group plc Annual Report and Accounts 2013 Variation of rights Annual General Meeting If at any time the capital of the Company is divided into different The AGM of the Company will be held at St James’ Court Hotel, classes of shares, the special rights attaching to any class may be 54 Buckingham Gate, London SW1E 6AF on 21 May 2014 at varied or revoked either: (i) with the written consent of the holders 11.30 a.m. Full details of the business of the meeting, together with of at least 75 per cent in nominal value of the issues shares of the explanatory notes on the resolutions that will be put to the meeting, class; or (ii) with the sanction of a special resolution passed at a may be found in a separate circular with the Notice of AGM. separate general meeting of the holders of the shares of the class. Without prejudice to any rights conferred on the holders of any The Directors’ Report as set out on pages 26 to 49 has been existing shares or class of shares, any share may be issued with or approved by the Board. have attached to it such rights and restrictions as the Company may from time to time by ordinary resolution determine, or in the By order of the Board absence of such a resolution, as the Board may determine. Rory Macnamara Exercise of rights in employee share schemes Chairman The Company operates an EBT for the benefit of past, current 17 March 2014 and future employees of the Group. As at 1 January 2013, the 2,457,672 ordinary shares held by the EBT carry one voting right each and it is the intention of the trustee of the EBT not to vote on Registered Office: the rights in respect of these shares. If there is a general offer to Audley House the holders of shares, the trustee of the EBT may not accept or 13 Palace Street vote in favour of such an offer without prior consultation with the London SW1E 5HX Company, and otherwise may take into account the interests of current and future beneficiaries of the EBT. A Company Registered in England & Wales Number: 5372704

As the performance conditions of the jointly owned shares were not met at the testing date, these shares lapsed and were reverted back to the EBT. Some of the outstanding shares in the EBT were used to satisfy awards during the year and the remaining were sold in the market. Therefore, as at 31 December 2013, the EBT no longer hold any ordinary shares of the Company.

Directors’ compensation In accordance with the Takeover Directive, the Company is required to disclose any agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. The agreements between the Company and its Executive Directors which satisfy this requirement are disclosed in the Directors’ Remuneration Report on pages 35 to 45.

Directors’ statement as to disclosure of information to auditors In accordance with section 418 of the Companies Act 2006, each of the Directors in office at the date of this report confirms that:

• so far as he/she is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Auditors Resolutions to reappoint Ernst & Young LLP as the Company’s auditors and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM.

Mecom Group plc Annual Report and Accounts 2013 49 Statement of Directors’ Responsibilities

Statement of Directors’ responsibilities in relation to the Responsibility statement preparation of financial statements The Directors confirm to the best of their knowledge that: The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable United Kingdom (a) they have complied with the above requirements in preparing law and those International Financial Reporting Standards as the financial statements for the year ended 31 December adopted by the European Union, or in the case of the Company’s 2013, prepared in accordance with the applicable United financial statements, the applicable accounting standards in the Kingdom law and those International Financial Reporting United Kingdom. The Directors of Mecom Group plc are listed Standards as adopted by the European Union, and consider on page 26. that the Annual Report and Accounts taken as a whole give a true and fair view of the assets, liabilities, financial position In relation to the consolidated financial statements, the Directors and the loss of the Group and the undertakings included in are required by law to prepare financial statements for each the consolidation taken as a whole; and financial year which present fairly the financial position of the (b) they also confirm that the Strategic Report and Directors’ Group and its financial performance and cash flows for that Report contained on pages 6 to 49 provides shareholders period. In relation to the Company’s financial statements, the with the necessary information for shareholders to assess Directors are required by law to prepare financial statements for the Company’s performance business model and strategy each financial year that give a true and fair view of the state of the including the position of the Group and the undertakings affairs of the Company and its profit and loss for that period. In included in the consolidation taken as a whole, together preparing the consolidated and Company financial statements, with a description of the principal risks and uncertainties the Directors are required to: that they face.

• select suitable accounting policies and then apply them By order of the Board consistently; • present information including accounting policies in a manner Rory Macnamara Henry Davies that provides relevant, reliable, comparable and Chairman Group Finance Director understandable information; 17 March 2014 17 March 2014 • provide additional disclosures when compliance with the specific requirements in applicable accounting standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions of the entity’s financial position and performance; • state that the Group has complied with the applicable accounting standards, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and of the Company, and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Annual Report and Accounts of the Group and of the Company are also published on Mecom’s website. The maintenance and integrity of Mecom’s website is the responsibility of the Directors. Legislation in the United Kingdom governing the preparation and the dissemination of financial statements may differ from legislation in other jurisdictions.

50 Mecom Group plc Annual Report and Accounts 2013 Index to the Consolidated and Company Financial Statements

Consolidated Financial Statements 106 30. Employee benefit obligations 52 Independent Auditors’ Report to the Members of Mecom Group plc 110 31. Obligations under finance leases 54 Consolidated Income Statement 110 32. Derivative financial instruments 55 Consolidated Statement of Comprehensive Income 110 33. Share capital and share premium 56 Consolidated Balance Sheet 111 34. Other reserves 57 Consolidated Statement of Changes in Equity 112 35. Share-based payments 58 Consolidated Cash Flow Statement 117 36. Commitments 117 37. Business combinations and acquisitions of Notes to the Consolidated Financial Statements non-controlling interests 59 1. Corporate information 118 38. Disposals of businesses 59 2. Definitions of terms 122 39. Related party transactions 59 3. New, amended, revised and improved Standards and 122 40. Group undertakings Interpretations 122 41. Events after the balance sheet date 60 4. Significant accounting policies 123 42. Reconciliation of loss for the year to cash generated from/ 70 5. Significant accounting judgements and key sources of (used in) operations estimation uncertainty 72 6. Revenue Company Financial Statements 72 7. Operating segments 124 Independent Auditors’ Report to the Members of Mecom Group plc 76 8. Group operating profit/(loss) 125 Company Balance Sheet 77 9. Key management compensation and Directors’ emoluments 78 10. Staff costs Notes to the Company Financial Statements 78 11. Exceptional items and amortisation of acquired intangibles 126 1. Accounting policies 82 12. Finance income and expense 127 2. Loss attributable to the Company 83 13. Tax 127 3. Dividends 84 14. Discontinued operations and assets classified as held for sale 127 4. Auditors’ remuneration 85 15. Dividends 128 5. Tangible fixed assets 86 16. Earnings per share 128 6. Intangible assets 87 17. Goodwill 128 7. Fixed asset investments 90 18. Other intangible assets 129 8. Debtors 91 19. Property, plant and equipment 129 9. Creditors – amounts falling due within one year 92 20. Interests in associates 129 10. Provisions for liabilities and charges 93 21. Interests in joint ventures 129 11. Authorised and called up share capital 93 22. Inventories 130 12. Share premium account and reserves 94 23. Trade and other receivables 130 13. Reconciliation of movements in shareholders’ funds 94 24. Cash and cash equivalents 130 14. Deferred tax 94 25. Borrowings 131 15. Share-based payments 98 26. Financial risk management 135 16. Obligations under lease contracts 103 27. Deferred tax 135 17. Related party transactions 104 28. Trade and other payables 135 18. Events after the balance sheet date 105 29. Provisions

Mecom Group plc Annual Report and Accounts 2013 51 Independent Auditors’ Report to the Members of Mecom Group plc

We have audited the consolidated financial statements of Mecom Group plc for the year ended 31 December 2013 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cashflow statement and the related notes 1 to 42. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 50, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2013 and of the group’s loss for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Our assessment of risk of material misstatement We identified the following risks that have the greatest impact on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team: • Going concern of the group; • Advertising revenue recognition – in particular the treatment of rebates and volume discounts; • The assessment of the carrying value of goodwill and intangible assets; and • Recognition and classification of exceptional items. Our application of materiality We determined materiality for the group to be €1,752,000 (2012: €1,844,000), which is approximately 2% (2012: 2%) of EBITDA. This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures. On the basis of our risk assessments, together with our assessment of the overall control environment, our judgement is that performance materiality was 50% (2012: 50%) of our materiality, ie €876,000 (2012: €922,000). Our objective in adopting this approach was to ensure that uncorrected and undetected audit differences in all accounts did not exceed our planning materiality level. We agreed with the Audit Committee that we would report to them corrected and uncorrected audit differences in excess of €87,600 (2012: €92,200), as well as differences below that threshold that in our view warranted reporting on qualitative grounds. An overview of the scope of our audit We adopted a risk-based approach in determining our audit strategy. This approach focuses audit effort towards higher risk areas, such as management judgements and estimates and on locations that are considered significant based upon size, complexity and risk. Our group audit scope focused on key locations which were the Netherlands and Denmark, which were both full scope locations. They were selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Together with the group functions, which are also subject to audit, these locations represent the principal business units of the group and account for 100% (2012: 95%) of the group’s total assets, 96% (2012: 82%) of the group’s revenue and 100% (2012: 84%) of the group’s EBITDA. All locations within the scope were subject to audit procedures and the extent of audit work was based on our assessment of the risks of material misstatement and of the materiality of the group’s business operations at those locations. For the remaining locations, we performed other procedures to ensure there were no significant risks of material misstatement in the group financial statements. The group audit team continued to follow a programme of planned visits that were designed to ensure that the Senior Statutory Auditor or his designates visit each of the locations where the group audit scope was focused at least once a year. This year, the group team visited all full scope locations and reviewed work performed by local teams in key risk areas as part of the year end audit fieldwork.

52 Mecom Group plc Annual Report and Accounts 2013 Our response to the risks of material misstatement identified above included the following procedures: Going concern of the group • we challenged management’s assessment of going concern, including the key inputs of the forecast cash flows, the growth rate assumed and the historical accuracy of budgets; • we evaluated management’s sensitivity analysis; • we performed testing in relation to covenant compliance; • we inspected the terms and conditions of the proposed facility agreements and outstanding conditions precedent; and • we agreed that the financial statement disclosures are in line with the requirements of accounting standards and in accordance with the Companies Act 2006. Advertising revenue recognition – in particular the treatment of rebates and volume discounts • for a sample of advertising contracts we tested rebates and volume discounts to ensure advertising revenue is appropriately accounted for and the revenue recognition policies adopted complied with IFRS; • we carried out testing relating to controls over revenue recognition, including the timing of revenue recognition; • we performed analytical procedures, cut-off testing around the period end and journal testing around revenue; and • we agreed the financial statement disclosures. The assessment of the carrying value of goodwill and intangible assets • we challenged management’s assessment of impairment, including the key inputs of the forecast cash flows, the discount rate used, the growth rate assumed and the historical accuracy of budgets and we used a valuation specialist to assist us with our consideration of the discount rate and underlying assumptions used; • we evaluated management’s sensitivity analysis; and • we agreed that the financial statement disclosures were in line with the requirements of accounting standards. Recognition and classification of exceptional items • we agreed to supporting documentation; and • we agreed the financial statement disclosures were in accordance with IFRS and accounting policies. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • is otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or • the parts of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement, set out on page 18, in relation to going concern; and • the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review. Other Matter We have reported separately on the parent company financial statements of Mecom Group plc for the year ended 31 December 2013 and on the information in the Directors' Remuneration Report that is described as having been audited. Kevin Harkin (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 17 March 2014

Mecom Group plc Annual Report and Accounts 2013 53 Consolidated Income Statement for the year ended 31 December 2013

Year ended 31 December 2013 Year ended 31 December 2012 Before Exceptional After Before Exceptional After exceptional items and exceptional exceptional items and exceptional items and amortisation items and items and amortisation of items and amortisation of acquired amortisation amortisation acquired amortisation of of acquired intangibles of acquired of acquired intangibles acquired intangibles (Note 11) intangibles intangibles (Note 11) intangibles Note €m €m €m €m €m €m Continuing operations Revenue 6,7 807.9 – 807.9 910.5 – 910.5 Cost of sales (243.5) – (243.5) (281.6) – (281.6) Gross profit 564.4 – 564.4 628.9 – 628.9 Operating costs (508.9) (155.0) (663.9) (576.5) (138.7) (715.2) Share of results of associates 1.1 – 1.1 1.6 – 1.6 Operating profit/(loss) 7,8 56.6 (155.0) (98.4) 54.0 (138.7) (84.7) Finance income 12 0.5 – 0.5 1.0 – 1.0 Finance expense 12 (9.2) (0.6) (9.8) (15.1) (2.6) (17.7) Gain/(loss) on disposal of businesses and investments 38 – 36.6 36.6 (0.2) (0.7) (0.9) Profit/(loss) before tax 47.9 (119.0) (71.1) 39.7 (142.0) (102.3) Income tax (expense)/credit 13 (11.7) 18.2 6.5 (10.4) 27.2 16.8 Profit/(loss) for the year from continuing operations 36.2 (100.8) (64.6) 29.3 (114.8) (85.5)

Discontinued operations Profit for the year from discontinued operations 14 1.1 1.9 3.0 12.2 42.9 55.1 Profit/(loss) for the year 37.3 (98.9) (61.6) 41.5 (71.9) (30.4)

Attributable to: (restated) (restated) Mecom Group plc shareholders 36.9 (98.9) (62.0) 39.9 (67.1) (27.2) Non-controlling interests 0.4 – 0.4 1.6 (4.8) (3.2)

(restated) Earnings/(loss) per share Non-IFRS IFRS Non-IFRS IFRS (euro cents per share) Note measures measures measures measures From continuing operations Basic 16 30.1 (54.3) 24.3 (73.4) Diluted 16 30.1 (54.3) 24.3 (73.4)

From discontinued operations Basic 16 0.8 2.4 10.3 49.8 Diluted 16 0.8 2.4 10.3 49.8

From continuing and discontinued operations Basic 16 30.9 (51.9) 34.6 (23.6) Diluted 16 30.9 (51.9) 34.6 (23.6)

The 2012 figures for earnings per share from discontinued operations and earnings per share from continuing and discontinued operations, as well as the allocation of profit/(loss) for the year between Mecom Group plc shareholders and non-controlling interests have been restated, as further described in Note 4.

54 Mecom Group plc Annual Report and Accounts 2013 Consolidated Statement of Comprehensive Income for the year ended 31 December 2013

Year ended Year ended 2013 2012 €m €m Loss for the year (61.6) (30.4) Other comprehensive income for the year Other comprehensive income to be reclassified to profit or loss in subsequent year: Changes in fair value of cash flow hedges – 2.9 Tax effect – (0.2) – 2.7 Transfer from the currency translation reserve to the consolidated income statement of cumulative exchange differences on disposal of foreign operations (1.9) 21.2 Exchange differences on retranslation of foreign operations 0.2 6.6 Net other comprehensive (loss)/income to be classified to profit or loss in subsequent year (1.7) 27.8

Items not to be reclassified to profit or loss in subsequent periods: Actuarial income/(loss) on defined benefit schemes 0.1 (1.0) Tax effect of actuarial loss on defined benefit schemes – 0.3 Net other comprehensive income/(loss) not being classified to profit or loss in subsequent year 0.1 (0.7) Other comprehensive (loss)/income for the year, net of tax (1.6) 29.8 Total comprehensive loss for the year, net of tax (63.2) (0.6)

Attributable to: (restated) Mecom Group plc shareholders (63.6) 2.0 Non-controlling interests 0.4 (2.6)

Mecom Group plc Annual Report and Accounts 2013 55 Consolidated Balance Sheet at 31 December 2013

(restated) 2013 2012 Note €m €m Non-current assets Goodwill 17 – 91.7 Other intangible assets 18 319.0 389.8 Property, plant and equipment 19 104.5 127.6 Interests in associates 20 3.9 9.7 Deferred tax assets 27 19.3 23.5 Total non-current assets 446.7 642.3 Current assets Inventories 22 3.6 4.2 Trade and other receivables 23 70.8 91.7 Cash and cash equivalents 24 46.7 35.4 Other investments – current 0.1 1.1 Current tax assets 0.3 0.6 Total current assets 121.5 133.0 Assets classified as held for sale 14 – 18.3 Total assets 568.2 793.6 LIABILITIES Non-current liabilities Borrowings 25 (3.5) (3.7) Other payables (0.4) (0.4) Provisions 29 (15.1) (8.5) Employee benefit obligations 30 (21.8) (38.5) Deferred tax liabilities 27 (76.7) (91.9) Total non-current liabilities (117.5) (143.0) Current liabilities Borrowings 25 (81.3) (170.9) Trade and other payables 28 (244.2) (285.8) Provisions 29 (28.6) (25.4) Employee benefit obligations 30 (5.2) – Current tax liabilities (1.2) (0.6) Obligations under finance leases 31 – (0.3) Derivative financial instruments 32 – (0.7) Total current liabilities (360.5) (483.7) Liabilities directly associated with assets classified as held for sale 14 – (6.6) Total liabilities (478.0) (633.3) Net assets 90.2 160.3 EQUITY Issued share capital 33 89.7 89.7 Share premium 33 8.9 8.9 Retained earnings (22.2) 42.1 Other reserves 34 12.3 13.8 Accumulated amounts recognised directly in equity relating to a disposal group held for sale 14 – 1.7 Equity attributable to Mecom Group plc shareholders 88.7 156.2 Non-controlling interests 1.5 4.1 Total equity 90.2 160.3

The 2012 figures for retained earnings and non-controlling interest have been restated, as further described in Note 4.

These consolidated financial statements were approved by the Board of Directors on 17 March 2014 and were signed on its behalf by:

Rory Macnamara Henry Davies Chairman Group Finance Director

56 Mecom Group plc Annual Report and Accounts 2013 Consolidated Statement of Changes in Equity for the year ended 31 December 2013

Accumulated amounts recognised Other reserves directly in equity Equity relating to a attributable Issued Cash flow Share-based Currency disposal to Mecom Non- share Share Retained hedge payment Own translation group held Group plc controlling Total capital premium earnings reserve reserve shares reserve for sale shareholders interests equity €m €m €m €m €m €m €m €m €m €m €m Balance at 31 December 2011 83.2 – 102.4 (2.7) 10.1 (5.6) 6.9 (23.0) 171.3 16.8 188.1 Loss for the year (restated) – – (27.2) – – – – – (27.2) (3.2) (30.4) Other comprehensive (loss)/income: Actuarial loss on defined benefit pension schemes – – (0.7) – – – – – (0.7) – (0.7) Changes in fair value of cash flow hedges – – – 2.7 – – – – 2.7 – 2.7 Transfer from the currency translation reserve to the consolidated income statement of cumulative exchange differences on disposal of foreign operations – – – – – – – 21.2 21.2 – 21.2 Exchange differences on retranslation of foreign operations – – – – – – 6.0 – 6.0 0.6 6.6 Total comprehensive (loss)/income for the year – – (27.9) 2.7 – 6.0 21.2 2.0 (2.6) (0.6) Credit in respect of share-based payments – – – – 0.1 – – – 0.1 – 0.1 Shares held by EBT used to satisfy employee share awards – – (0.1) – – 0.1 – – – – – Transfer on exercise of options – – 0.3 – (0.3) – – – – – – Transfer of accumulated amounts recognised directly in equity relating to a disposal group held for sale – – – – – – (3.5) 3.5 – – – Acquisition of shares in non-wholly owned subsidiaries 6.5 8.9 (14.3) – – – – – 1.1 (1.5) (0.4) Transaction costs relating to acquisition of shares in non-wholly owned subsidiaries – – (0.3) – – – – – (0.3) – (0.3) Movement in non-controlling interest due to disposals – – – – – – – – – (8.6) (8.6) Capital contribution – – – – – – – – – 0.7 0.7 Dividends paid – – (18.0) – – – – – (18.0) (0.7) (18.7) Balance at 31 December 2012 89.7 8.9 42.1 – 9.9 (5.5) 9.4 1.7 156.2 4.1 160.3 (Loss)/income for the year – – (62.0) – – – – – (62.0) 0.4 (61.6) Other comprehensive (loss)/income: Actuarial income on defined benefit pension schemes – – 0.1 – – – – – 0.1 – 0.1 Transfer from the currency translation reserve to the consolidated income statement of cumulative exchange differences on disposal of foreign operations – – – – – – (1.9) (1.9) – (1.9) Exchange differences on retranslation of foreign operations – – – – – – 0.2 – 0.2 – 0.2 Total comprehensive (loss)/income for the year – – (61.9) – – – 0.2 (1.9) (63.6) 0.4 (63.2) Credit in respect of share-based payments – – – – 0.6 – – – 0.6 – 0.6 Shares held by EBT used to satisfy employee share awards – – (1.4) – – 1.4 – – – – – Transfer on exercise of options – – 1.4 – (1.4) – – – – – – Transfer on cancellation, forfeiture and lapse of options – – 6.2 – (6.2) – – – – – – Transfer of accumulated amounts recognised directly in equity relating to a disposal group held for sale – – – – – – (0.2) 0.2 – – – Acquisition of non-controlling interest without a change of control – – 1.0 – – – – – 1.0 (1.9) (0.9) Disposal of EBT shares – – (2.6) – – 4.1 – – 1.5 – 1.5 Movement in non-controlling interest due to disposals – – (0.3) – – – – – (0.3) (0.9) (1.2) Dividends paid – – (6.7) – – – – – (6.7) (0.2) (6.9) Balance at 31 December 2013 89.7 8.9 (22.2) – 2.9 – 9.4 – 88.7 1.5 90.2

Mecom Group plc Annual Report and Accounts 2013 57 Consolidated Cash Flow Statement for the year ended 31 December 2013

Year ended Year ended 31 December 31 December 2013 2012 Note €m €m Operating activities Cash generated from/(used in) operations 42 37.6 (26.1) Income tax paid (0.6) (4.8) Net cash generated from/(used in) operating activities 37.0 (30.9)

Investing activities Proceeds from sale of property, plant and equipment 2.6 4.0 Capital expenditure on: Other intangible assets (3.0) (10.9) Property, plant and equipment (3.1) (18.7) Acquisition of subsidiaries, net of cash acquired – (1.5) Divestment of businesses and investments, net of cash sold 38 70.9 215.2 Interest received 0.8 1.6 Dividends received 3.1 3.2 Net cash from investing activities 71.3 192.9

Financing activities Net proceeds from drawdowns under revolving credit facilities – 42.0 Net repayment of borrowings (85.2) (221.1) Repayment of obligations under finance leases (0.3) (1.4) Disposal of EBT shares 33,34 1.5 – Interest and other finance expenses paid (7.7) (14.1) Costs related to the extension and renegotiation of Group’s bank facilities (3.8) – Costs related to acquisition of shares in non-wholly owned subsidiaries – (0.5) Acquisition of non-controlling interest 37 (0.9) (0.3) Dividends paid (6.7) (18.7) Net cash used in financing activities (103.1) (214.1)

Net increase/(decrease) in cash and cash equivalents 5.2 (52.1) Net foreign exchange differences (0.6) 3.1 Cash and cash equivalents at beginning of the year 24 28.6 77.6 Cash and cash equivalents at end of the year 24 33.2 28.6

58 Mecom Group plc Annual Report and Accounts 2013 Notes to the Consolidated Financial Statements for the year ended 31 December 2013

1. Corporate information 3. New, amended, revised and improved Standards and Interpretations Mecom Group plc (the “Company”) is a public limited company incorporated and domiciled in England and Wales. The From 1 January 2013, the Group has adopted the following registered office of the Company is Audley House, 13 Palace amendments to Standards and new Standards: Street, London, SW1E 5HX. Its ordinary shares are traded on the New, amended and improved Standards Effective date London Stock Exchange (LSE). Amendment to IAS 1 These consolidated financial statements for the year ended 31 Presentation of Items of Other Comprehensive December 2013 were approved by the Board of Directors on Income 1 July 2012 17 March 2014. Amendment to IFRS 1 Government Loans 1 January 2013 2. Definitions of terms Amendment to IFRS 7 Disclosures – Offsetting Financial Assets and The Group uses the following terms, with the definition given, in Financial Liabilities 1 January 2013 these consolidated financial statements and in its internal monitoring of financial performance: IFRS 13 Fair Value Measurement 1 January 2013 Adjusted EBITDA/Adjusted EBITDA margin Annual improvements to IFRS (May 2012) The Group monitors the performance of its segments on an Various standards (IFRS 1 – IAS 1 – IAS 16 – earnings before interest, tax, depreciation and amortisation IAS 32 – IAS 34) 1 January 2013 (“EBITDA”) basis. This measure includes any profit or loss from IAS 19 (as revised in 2011) associates but excludes any exceptional items. Adjusted EBITDA Employee Benefits 1 January 2013 margin (expressed as a percentage) is defined as adjusted EBITDA for a period divided by external revenue for the same period. The Amendments and new Standards have had no material impact on the Group’s financial position, performance or its disclosures. Adjusted operating profit/Adjusted operating profit margin Adjusted operating profit or loss is stated before exceptional New, amended, revised and improved Standards and items and amortisation of acquired intangibles. Adjusted Interpretations issued but not adopted in 2013 operating profit margin (expressed as a percentage) is defined At the date of authorisation of these consolidated financial statements, as adjusted operating profit for a period divided by external the following Standards and Interpretations, which have not been revenue for the same period. applied in these consolidated financial statements, are in issue but were not effective for annual periods beginning on 1 January 2013: Exceptional items New, amended and improved Standards Effective date The Group presents as exceptional items on the face of the consolidated income statement those material items of income IFRS 10 and expense which, because of their nature and/or expected Consolidated Financial Statements 1 January 2014 infrequency of the events giving rise to them, merit separate IFRS 11 presentation to allow shareholders to understand better the Joint Arrangements 1 January 2014 elements of financial performance in the period, so as to facilitate IFRS 12 comparison with prior periods. Disclosure of Interests in Other Entities 1 January 2014 Net debt Amendments to IFRS 10, IFRS 11 and IFRS 12 The Group presents as “net debt” the net of cash and cash Consolidated Financial Statements, Joint equivalents, borrowings and obligations under finance leases. Arrangements and Disclosure of Interests in The Group also includes in net debt any of the above items that Other Entities: Transition Guidance 1 January 2014 have been classified as held for sale. IAS 27 (as revised in 2011) Separate Financial Statements 1 January 2014 IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures 1 January 2014 Amendments to IFRS 10, IFRS 12 and IAS 27 Investment entities 1 January 2014 Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 1 January 2014 IFRS 9 (as revised in 2010) Financial Instruments 1 January 2015 Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures 1 January 2015

Mecom Group plc Annual Report and Accounts 2013 59 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

3. New, amended, revised and improved Standards and The Group continues to face the structural pressures on Interpretations continued revenues that come with changing media consumption and, notwithstanding recent improvements in many indicators in the The Group expects to adopt these Standards and Interpretations Netherlands, the risk that economic conditions will have an in the financial period for which they become effective. adverse effect on the Group’s financial performance. As set out earlier in this report, the Group has strategies in place to seek IFRS 11 describes the accounting for arrangements in which there new revenue streams and plans further cost reductions to is joint control; proportionate consolidation is not permitted for joint protect against these effects; the cash flows associated with ventures (as newly defined). As a result of this, the Group’s jointly these cost reduction plans form part of the business plans on controlled entities (“JCEs”) will now be classified as joint ventures which the new banking facilities have been based. Taking into (as newly defined) and will be equity accounted for and their results account these factors, the Board considered that the covenants that are attributable to the Group will be presented within a single line under the new facilities allow adequate headroom against the in the income statement. The Directors of the Company reviewed risks and uncertainties facing the business over this period. and assessed the classification of the Group’s investments in joint arrangements in accordance with the requirements of IFRS 11. The Directors, having made appropriate enquiries, have a This change in accounting standards is likely to reduce the Group reasonable expectation that the Company and the Group have revenues by approximately €40.0m and to reduce adjusted EBITDA adequate resources to continue in operational existence for the by approximately €1.0m, almost all of which will arise in Denmark. foreseeable future. For this reason, they continue to adopt the Earnings per share should not be affected. going concern basis of accounting in preparing the Annual Accounts of the Company. IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates Basis of preparation: (ii) Group’s presentation currency and/or unconsolidated structured entities. In general, the Since a significant portion of the Group’s operations are carried application of IFRS 12 will result in more extensive disclosures out in the Netherlands and Denmark (whose currency is in the consolidated financial statements. effectively pegged to the euro) and the significant majority of the Group’s net debt is denominated in euros, the Directors continue Apart from the effect of IFRS 11 Joint arrangements and IFRS 12 to select the euro as the Group’s presentation currency. Disclosure of interest in other entities, the Directors do not currently anticipate that the adoption of the other Standards and Interpretations The Company’s functional currency is pounds sterling and so is set out above will have a material impact on the Group’s consolidated different to the presentation currency of the Group. financial statements in the period of initial application. Basis of preparation: (iii) Prior period restatement 4. Significant accounting policies As at 31 December 2012 the Group classified its remaining Polish operations (Media Regionalne) as held-for-sale, from Statement of compliance which point the assets and liabilities were presented separately The Group’s consolidated financial statements have been in the consolidated balance sheet. At that time the Group prepared in accordance with International Financial Reporting determined that the fair value less costs to dispose of the Polish Standards (“IFRS”) as adopted by the European Union as they operations was lower than the carrying value of the relevant apply to the financial statements of the Group for the year ended assets and liabilities in the consolidated balance sheet, and an 31 December 2013. A summary of the Group’s significant impairment of €15.4m of was recognised accordingly. accounting policies now follows. In accordance with IFRS, the impairment charge was calculated Basis of preparation: (i) Preparation of the consolidated financial on a consolidated basis, i.e. with a value imputed for the statements on the going concern basis non-controlling interests in certain subsidiaries of Media The Group’s financial and liquidity risk factors, and the approach Regionalne, and the impairment charge was recorded in the to managing them, are set out in Note 26 to the consolidated consolidated income statement correctly. However, the Group financial statements. recorded the full value of the impairment charge against the equity attributable to Group shareholders, with no charge The Group agreed new financing facilities in March 2014 (as set out allocated to the equity value associated with non-controlling in Note 25 to the consolidated financial statements), replacing the interests. As such, the 2012 comparatives presented in these previous facilities (also described in Note 25 to the consolidated consolidated financial statements have been restated to reflect financial statements), which had been in place since late 2007, and the allocation of a proportion of the impairment charge to the expects to refinance its current borrowings through these facilities non-controlling interests’ share of equity. before 31 March 2014, once conditions precedent (that are under the Group’s control) have been met. The new facilities provide financing for at least three years and have been entered into on a local basis with lenders who are closer to the economic and operating environment in which the Group operates. The new facilities require further reduction in the Group’s borrowings, through the amortisation of term borrowings from cash flow over that period, anticipating a further strengthening of the Group’s financial position over time.

60 Mecom Group plc Annual Report and Accounts 2013 4. Significant accounting policies continued

The effects of this restatement are shown below:

Before Exceptional After exceptional items and exceptional items and amortisation items and amortisation of acquired amortisation of acquired intangibles of acquired intangibles (Note 11) intangibles Consolidated income statement €m €m €m 2012: as reported Profit/(loss) for the year 41.5 (71.9) (30.4) Attributable to: Mecom Group plc shareholders 39.9 (69.8) (29.9) Non-controlling interests 1.6 (2.1) (0.5) Effect of restatement Profit/(loss) for the year – – – Attributable to: Mecom Group plc shareholders – 2.7 2.7 Non-controlling interests – (2.7) (2.7) 2012: restated Profit/(loss) for the year 41.5 (71.9) (30.4) Attributable to: Mecom Group plc shareholders 39.9 (67.1) (27.2) Non-controlling interests 1.6 (4.8) (3.2)

From continuing From From and continuing discontinued discontinued Earnings per share operations operations operations 2012: as reported Earnings per share (IFRS basis): Basic (73.4) 47.5 (25.9) Earnings per share (IFRS basis): Diluted (73.4) 47.1 (25.9) Effect of restatements Earnings per share (IFRS basis): Basic – 2.3 2.3 Earnings per share (IFRS basis): Diluted1 – 2.7 2.3 2012: restated Earnings per share (IFRS basis): Basic (73.4) 49.8 (23.6) Earnings per share (IFRS basis): Diluted (73.4) 49.8 (23.6)

1 The effect of restatements on diluted earnings per share from discontinued operations includes 0.4 cents relating to a separate restatement to 2012 diluted earnings per share, as described in Note 16.

Consolidated balance sheet €m 2012: as reported Equity attributable to Mecom Group plc shareholders 153.5 Non-controlling interests 6.8 Total equity 160.3

Effect of restatement Equity attributable to Mecom Group plc shareholders 2.7 Non-controlling interests (2.7) Total equity –

2012: restated Equity attributable to Mecom Group plc shareholders 156.2 Non-controlling interests 4.1 Total equity 160.3

Mecom Group plc Annual Report and Accounts 2013 61 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

4. Significant accounting policies continued

Basis of preparation: (iv) Other Business combinations These consolidated financial statements have been prepared Business combinations are accounted for using the acquisition on an historical cost basis, except for available-for-sale financial method. The cost of a business combination is measured assets, derivative financial instruments, employee benefit assets as the aggregate of the consideration transferred, measured at and obligations and share-based payments that have been acquisition date fair value and the amount of any non-controlling measured at fair value. interests in the acquiree. For each business combination, the acquirer measures the non-controlling interests in the acquiree As noted above, these consolidated financial statements are either at fair value or at the proportionate share of the acquiree’s presented in euros and, except when otherwise stated, all values identifiable net assets. are shown in millions, rounded to the nearest one hundred thousand euros. The significant exchange rates for the Group The cost of a business combination is measured as the (against the euro), applied during the current year and prior aggregate of the fair values, at the date of exchange, of assets years are as follows: given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Average rate for year ended Spot rate at 31 December 31 December Acquisition-related costs are recognised in the consolidated 2013 2012 2013 2012 income statement as incurred. NOK n/a 7.49 n/a 7.36 DKK 7.46 7.44 7.46 7.46 If a business combination is achieved in stages, the acquisition PLN n/a 4.19 4.15 4.09 date fair value of the acquirer’s previously held equity interest in GBP 0.85 0.81 0.83 0.82 the acquiree is re-measured to fair value at the acquisition date through profit and loss.

Differences in spot rates from 31 December 2012 to 31 December Any contingent consideration to be transferred by the acquirer 2013 have caused the Group’s non-euro denominated assets is recognised at fair value at the acquisition date. Subsequent and liabilities to increase (on a net basis) in value when changes to the fair value of the contingent consideration which retranslated into euros, resulting in foreign exchange differences is deemed to be an asset or liability, is recognised either in of €0.2m credit to reserves in the year ended 31 December 2013 the consolidated income statement or as a change to other (year ended 31 December 2012: credit to reserves of €6.6m). comprehensive income. If the contingent consideration is At 31 December 2013 translation of non-euro denominated assets classified as equity, it is not re-measured until it is finally settled and liabilities took place on DKK and GBP amounts. within equity.

The accounting policies which follow set out those policies Goodwill arising on a business combination is recognised which apply in preparing the consolidated financial statements as an asset and initially measured at cost, being the excess for the year ended 31 December 2013. Judgements made by of aggregate of the consideration transferred and the amount management in the application of IFRS that have a significant recognised for non-controlling interests over the fair value of net effect on these consolidated financial statements and estimates identifiable assets (including other intangible assets) acquired with a significant risk of material adjustment in the next year are and liabilities assumed. If this consideration is lower than the fair discussed in Note 5. value of the net assets of the subsidiary or business acquired, any negative goodwill is recognised immediately in the Basis of consolidation consolidated income statement. The consolidated financial statements comprise the financial statements of the parent company (Mecom Group plc) and Foreign currencies its subsidiary undertakings (the “Group”). Subsidiaries are (a) Within individual companies fully consolidated from the date of acquisition, being the date To the extent the Company or its individual subsidiary on which the Group obtains control, and continue to be companies are involved in transactions in foreign currencies, consolidated until the date such control ceases. All intra-group such transactions are translated to the Company’s functional balances, transactions, income and expenses and profits and currency using the spot rate. At each balance sheet date, losses resulting from intra-group transactions are eliminated monetary assets and liabilities denominated in foreign in full. currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising on settlement and on Non-controlling interests represent the portion of profit or loss retranslation of foreign currency monetary assets and liabilities and net assets not held by the Group and is presented within items are included in the income statement. equity in the consolidated balance sheet, separately from parent shareholders’ equity.

62 Mecom Group plc Annual Report and Accounts 2013 4. Significant accounting policies continued

(b) Retranslation within the consolidated financial statements (c) Finance income At each balance sheet date, the assets and liabilities of (i) the Finance income includes bank interest receivable which is Company and (ii) its subsidiaries which are non-euro functional recognised as interest accrues, using the effective interest currency are translated into euros at the rates prevailing on the method. Finance income also includes the unwinding of balance sheet date with differences recognised within the discounts on receivables which have been previously consolidated statement of other comprehensive income. It is the discounted to their present value. policy of the Group to translate all transactions that affect issued share capital and the share premium account (which occur in Government grants the books of the Company that has a functional currency of Government grants are recognised where there is reasonable pounds sterling), retained earnings and other reserves at either assurance that the grant will be received and all attached the average rate for the year or at the spot rate on the date of the conditions will be complied with. All of the Group’s government specific transaction concerned. The resulting euro amounts are grants are cash-based, relate to expense items (as opposed not revalued at each balance sheet date but are carried at to assets) and are, therefore, recognised as credits in the historic values. However, the Group’s non-euro non-controlling consolidated income statement over the period necessary interests balances are revalued at each balance sheet date. to match the grant on a systematic basis to the costs that it is intended to compensate. Where income from a grant exceeds Differences on the retranslation of the Group’s net investment in the related operating costs, the surplus amount is recognised a foreign operation (including monetary items that form part of within revenue. the net investment) at the balance sheet date are recognised directly in equity. In the event of the disposal of the net Borrowing costs investment, cumulative foreign currency differences recorded Borrowing costs, including finance expense, are recognised in in equity related to that investment are recognised in the the consolidated income statement in the period in which they consolidated income statement as part of the gain or loss are incurred. Borrowing costs are accounted for using the on disposal. effective interest rate method.

Revenue recognition Tax Revenue is recognised to the extent that it is probable that the (a) Income tax economic benefits will flow to the Group and the revenue can be The income tax expense/credit represents the sum of current reliably measured. Revenue is measured at the fair value of the income tax and deferred tax. consideration receivable for the sale of goods and rendering of services, net of discounts, rebates and excluding other sales The current income tax amount is based on taxable profit for the taxes or duty. period. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or The proportion of sales revenue relating to the future provision expense that are taxable or deductible in other years and it of services and goods is recorded as deferred revenue in further excludes items that are never taxable or deductible. The the consolidated balance sheet and is recognised in the Group’s asset or liability for current tax is calculated using tax consolidated income statement as and when the services rates that have been enacted or substantively enacted by the and goods are provided. balance sheet date.

Further details on the Group’s categories of revenue are (b) Deferred tax assets and liabilities provided below and in Note 6. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and (a) Sale of goods liabilities in the financial statements and the corresponding Sale of goods consists of the sale of advertising, newspapers tax bases used in the computation of taxable profit, and is and other goods to newspaper and website customers. accounted for using the liability method. Deferred tax liabilities Revenue from the sale of goods is recognised at the time of are generally recognised for all taxable temporary differences delivery. Estimated returns on non-subscription sales of and deferred tax assets are recognised to the extent that it is newspapers are deducted from revenue. probable that sufficient future taxable profits will be available against which deductible temporary differences can be utilised. (b) Rendering of services Rendering of services consists primarily of the sale of services Deferred tax liabilities are recognised for all taxable temporary in respect of printing and distribution but also includes marketing differences, except where the deferred tax liability arises from and promotional services and digital and mobile services. the initial recognition of goodwill or from an asset or liability in a This revenue is recognised as and when services are provided. transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit and loss.

Mecom Group plc Annual Report and Accounts 2013 63 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

4. Significant accounting policies continued

Deferred tax liabilities are recognised for taxable temporary In the consolidated income statement of the reporting period, differences arising on investments in subsidiaries and and of the comparable period of the previous year, income and associates, except where the Group is able to control the expenses from discontinued operations are reported separately reversal of the temporary difference and it is probable that the from continuing income and expenses. The resulting profit or temporary difference will not reverse in the foreseeable future. loss (after taxes) is reported separately in the consolidated income statement. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer In certain notes to these consolidated financial statements, the probable that sufficient future taxable profits will be available to Group differentiates between items relating to the “continuing allow all or part of the asset to be recovered. operations” and items relating to the “discontinued operations”.

Deferred tax assets and liabilities are measured on an Goodwill undiscounted basis at the tax rates that are expected to apply Goodwill arising on a business combination is recognised as to the year when the asset is realised or the liability is settled, an asset and initially measured at cost, being the excess of the based on tax rates (and tax laws) that have been enacted or aggregate of the consideration transferred and the amount substantively enacted at the balance sheet date. Deferred tax is recognised for non-controlling interests over the fair value of net charged or credited to the consolidated income statement, except identifiable assets (including other intangible assets) acquired when it relates to items charged or credited directly to equity, in and liabilities assumed. Transaction costs directly attributable to which case the deferred tax is also dealt with directly in equity. the acquisition form part of the acquisition cost for business combinations prior to 1 January 2010 but from that date such Leases costs are written off to the consolidated income statement and The determination of whether an arrangement is, or contains, a do not form part of goodwill. Following initial recognition, lease is based on the substance of the arrangement at inception goodwill is measured at cost less any accumulated date, whether fulfilment of the arrangement is dependent on the impairment losses. use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified As required by IFRS, goodwill is tested for impairment at least in an arrangement. annually or at other times when circumstances indicate that the carrying value of goodwill may be impaired. Assets acquired under a lease that transfer substantially all of the risks and rewards of ownership to the Group are capitalised Where goodwill forms part of a cash-generating unit (or group as property, plant and equipment. Lease payments are of cash-generating units) and the cash-generating unit or an apportioned between the finance charge and the reduction of operation within that unit is disposed of, the goodwill associated the outstanding liability. The finance charge is allocated to each with the cash-generating unit or operation disposed of is period during the lease term resulting in a constant periodic rate included in the carrying amount when determining the gain or of interest on the remaining balance of the liability. loss on disposal.

All other leases are classified as operating leases and rentals The Group had no goodwill on its balance sheet as at payable are charged to the consolidated income statement on a 31 December 2013. straight-line basis over the lease term. Other intangible assets Exceptional items An intangible asset acquired as part of a business combination As explained on page 59, the Group presents as exceptional is recognised outside goodwill if the asset is separable or arises items on the face of the consolidated income statement those from contractual or other legal rights and its fair value can be material items of income and expense which, because of their measured reliably. nature and/or expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to The cost of intangible assets acquired in a business combination understand better the elements of financial performance in the is the fair value as at date of acquisition. Following initial period, so as to facilitate comparison with prior periods. recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment Continuing and discontinued operations losses. Amortisation is calculated on a straight-line basis over A discontinued operation is a component of the Group that has the useful life of the assets. either been disposed of, or is classified as held for sale (see Note 14 for further details) and (i) represents a separate major From time to time, the Group may purchase specific rights to line of business or geographical area or (ii) is part of a single publish existing newspaper titles. Such intangible assets are co-ordinated plan to dispose of separate major lines of business initially recognised at cost. Following initial recognition, or geographical areas of operations or (iii) was acquired publishing rights are carried at cost less any accumulated exclusively with a view to resale. amortisation and any accumulated impairment losses. Amortisation is calculated on a straight-line basis over the useful life of the assets.

64 Mecom Group plc Annual Report and Accounts 2013 4. Significant accounting policies continued

Internally developed IT infrastructure and software assets (for Property, plant and equipment is depreciated over the own use) are initially recognised at cost. Such intangible assets following periods: are recognised on clearly defined projects when the recognition criteria of IAS 38 Intangible Assets, are met. Otherwise such Buildings 10 – 50 years expenditure is written off as incurred. Leasehold improvements Shorter of 20 years and term of lease Software purchased from third-parties is initially recognised Machinery and equipment 6 – 20 years at cost. Fixtures and fittings, motor vehicles, 3 – 10 years computers and other operational assets Intangible assets with finite lives are amortised over their useful lives and assessed for impairment whenever there is an Interests in associates indication that the intangible asset may be impaired. The The Group’s interests in its associates are accounted for using amortisation period and the amortisation method for an the equity method of accounting. intangible asset with a finite useful life are reviewed at least at each financial year-end. Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus Intangible assets are amortised over the following periods: post‑acquisition changes in the Group’s share of net assets of the associate less any distributions received and any impairment in value. Goodwill relating to an associate is included in the Customer relationships 4 – 14 years carrying amount of the investment and is not amortised. The Brands 4 – 20 years consolidated income statement reflects the share of the results Publishing rights Shorter of 20 years of operations of the associate after tax. Profits and losses and term of contract resulting from the transactions between the Group and the Purchased and developed software 2 – 7 years associate are eliminated to the extent of the interest in the associate. The financial statements of the Group’s associates No intangible assets are assessed as having indefinite lives. are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting Property, plant and equipment policies in line with those of the Group. Property, plant and equipment is stated at cost, less accumulated depreciation and accumulated impairment in Interests in joint ventures value. Depreciation is calculated on a straight-line basis over the The Group has interests in joint ventures which are jointly useful life of the assets. Costs associated with assets under controlled entities. The Group recognises its interest in joint construction are capitalised during the construction period and ventures using proportionate consolidation, under which the are not depreciated. On completion of the project construction Group combines its share of each of the assets, liabilities, the asset is transferred to another property, plant and equipment income and expenses of the joint venture with similar items, asset category, as appropriate. line-by-line, in its consolidated financial statements. The financial statements of the Group’s joint ventures are prepared for the The carrying amounts of property, plant and equipment are same reporting period as the Group. Where necessary, reviewed for impairment when events or changes in adjustments are made to bring the accounting policies in line circumstances indicate that the carrying amounts may not with those of the Group. be recoverable. Impairment of non-financial assets The Group reviews residual values and useful lives on an annual The carrying amounts of the Group’s non-financial assets are basis and any adjustments are made prospectively. tested annually for impairment (as required by IFRS in the case of goodwill) or when circumstances indicate that the carrying An item of property, plant and equipment is derecognised upon amounts may be impaired or that previously recognised disposal or when no future economic benefits are expected to impairments may have reversed. arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is recorded in the consolidated income statement in the period of derecognition.

Mecom Group plc Annual Report and Accounts 2013 65 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

4. Significant accounting policies continued

If any such indication exists the Group makes an estimate of the 1) Initial recognition asset’s recoverable amount. The recoverable amount is the Financial assets are recognised initially at fair value plus, in the higher of an asset’s or cash-generating unit’s (“CGU”) fair value case of investments not at fair value through profit or loss, less costs to sell and its value-in-use (“VIU”) and is determined directly attributable transaction costs. for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets The Group determines the classification of its financial assets or groups of assets. Where the carrying amount of an asset or at initial recognition and, where allowed and appropriate, CGU exceeds its recoverable amount, the asset is considered to re-assesses this designation at each balance sheet date. be impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are Purchases or sales of financial assets that require delivery discounted to their present value using a pre-tax discount rate of assets within a time frame established by regulation or that reflects current market assessments of the time value of convention in the marketplace (“regular way purchases”) money and the risks specific to the asset or CGU. In determining are recognised on the trade date, i.e. the date that the Group fair value less costs to sell, an appropriate valuation model is commits to purchase or sell the asset. used. These calculations are corroborated by valuation multiples or other available fair value indicators. The Group’s financial assets at 31 December 2013 include cash and cash equivalents, trade and other receivables, and loans Impairment losses and credits on reversal are recognised in the and other receivables. consolidated income statement as exceptional items. 2) Subsequent measurement Inventories The subsequent measurement of financial assets depends on Inventories are stated at the lower of cost, including the cost their classification as follows: incurred in bringing each product to its present location and condition and net realisable value. The cost of inventories is (i) Loans and receivables measured on a first-in, first-out basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active Net realisable value is the estimated selling price in the ordinary market, do not qualify as trading assets and have not been course of business, less estimated costs of completion and the designated as either fair value through profit and loss or estimated costs necessary to make the sale. available-for-sale.

Assets classified as held for sale They are included in current assets, except for those with Disposal groups classified as held for sale are measured at the maturities of more than 12 months after the balance sheet date lower of their carrying amount and fair value less costs to sell. which are classified as non-current assets. Accounts receivable Disposal groups are classified as held for sale if their carrying and cash and cash equivalents are classified as loans and amount will be recovered principally through a sale transaction receivables in the consolidated balance sheet. rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the disposal Such assets are carried at amortised cost using the effective group is available for immediate sale in its present condition. interest method if the time value of money is significant. Where Management must be committed to the sale which should be discounting is used, the increase in the receivable due to expected to qualify for recognition as a completed sale within unwinding the discount is recorded within finance income. one year from the date of classification. Gains and losses are recognised in the consolidated income Property, plant and equipment and intangible assets, once statement when the loans and receivables are derecognised or classified as held for sale, are not depreciated or amortised. impaired (see below), as well as through the amortisation process. Financial instruments Financial assets and financial liabilities are recognised in the (ii) Derivatives designated as hedging instruments in an consolidated balance sheet when the Group becomes a party to effective hedge the contractual provisions of the instrument. Refer to page 68 for the accounting policy on items within this classification. (a) Financial assets The Group recognises financial assets when it becomes party to the contracts that give rise to them and are classified as:

• loans and receivables; or • derivatives designated as hedging instruments in an effective hedge, as appropriate.

66 Mecom Group plc Annual Report and Accounts 2013 4. Significant accounting policies continued

(iii) Impairment of financial assets (ii) Derivatives designated as hedging instruments in an In relation to trade receivables, a provision for impairment is effective hedge made when there is objective evidence (such as the probability Refer to page 68 for the accounting policy on items within this of insolvency or significant financial difficulties of the debtor) that classification. the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the (iii) Financial liabilities at fair value through profit or loss receivable is reduced through use of an allowance account. Financial liabilities at fair value through profit or loss includes Impaired trade receivables are derecognised when they are financial liabilities held for trading and financial liabilities assessed as irrecoverable. designated upon initial recognition as at fair value through profit or loss. (iv) Derecognition of financial assets A financial asset is derecognised when the contract that gives Financial liabilities are classified as held for trading if they are rise to it is settled, sold, cancelled or expires. acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered (b) Cash and cash equivalents into by the Group that do not meet the hedge accounting Cash and cash equivalents in the consolidated balance sheet criteria as defined by IAS 39 Financial Instruments: Recognition comprise cash at bank and in-hand and short-term deposits with and Measurement. an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash Gains or losses on liabilities held for trading are recognised in equivalents consist of cash and cash equivalents as defined the consolidated income statement. above, net of outstanding bank overdrafts. Gains and losses are recognised in the consolidated income (c) Trade receivables statement when the liabilities are derecognised as well as Trade receivables are stated at their nominal value as reduced through the amortisation process. Gains and losses on by appropriate allowances for estimated irrecoverable amounts. the repurchase, settlement or otherwise cancellation of A provision is made and charged to the consolidated income borrowings are recognised in finance income and finance statement where there is objective evidence that the Group will expense, respectively. not be able to collect all amounts due according to the original terms. (e) Trade payables Trade payables are stated at their nominal value. (d) Financial liabilities Financial liabilities and equity instruments are classified (f) Derivative financial instruments according to the substance of the contractual arrangements The Group uses derivative financial instruments, such as interest entered into. The Group’s financial liabilities at 31 December rate swaps, to hedge its risks associated with interest rate 2013 include borrowings, trade and other payables (and fluctuations. Such derivative financial instruments are initially derivative financial instruments). recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair (1) Initial recognition value. Derivatives are carried as assets when the fair value is Financial liabilities are classified as: positive and as liabilities when the fair value is negative.

• loans and borrowings; Derivative financial instruments are classified as current or • derivatives designated as hedging instruments in an effective non-current or separated into a current and non-current portion hedge; or as based on an assessment of the facts and circumstances • financial liabilities at fair value through profit or loss, as (i.e., the underlying contracted cash flows). appropriate. The Group has a policy not to undertake any speculative activity The Group determines the classification of its financial liabilities in financial instruments. at initial recognition. Financial liabilities are recognised initially at fair value and in the case of loans and borrowings, directly The fair value of interest rate swaps is determined by reference attributable transaction costs. to market values for similar instruments.

(2) Subsequent measurement The measurement of financial liabilities depends on their classification as follows:

(i) Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.

Mecom Group plc Annual Report and Accounts 2013 67 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

4. Significant accounting policies continued

(i) Hedge accounting If a forecast transaction is no longer expected to occur, For those derivative financial instruments designated as hedges amounts previously recognised in equity are transferred to and for which hedge accounting is desired, the hedging the consolidated income statement. If the hedging instrument relationship is formally designated and documented at its expires or is sold, terminated or exercised without replacement inception. This documentation identifies the risk management or rollover, or if its designation as a hedge is revoked, amounts objective and strategy for undertaking the hedge, the hedging previously recognised in equity remain in equity until the instrument, the hedged item or transaction, the nature of the forecast transaction occurs and are transferred to the risk being hedged and how effectiveness will be measured consolidated income statement or to the initial carrying amount throughout its duration. Such hedges are expected at inception of a non-financial asset or liability, as above. to be highly effective in offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that (iii) Hedges of a net investment in a foreign operation they actually have been highly effective throughout the reporting Hedges of a net investment in a foreign operation, including period for which they were designated. a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow For the purpose of hedge accounting, the Group classifies its hedges. Gains or losses relating to the effective portion are hedges as either: recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the consolidated • cash flow hedges when hedging exposure to variability in income statement. On disposal of the foreign operation, the cash flows that is either attributable to a particular risk cumulative value of any such gains or losses recognised directly associated with a recognised asset or liability or a highly in equity is transferred to the consolidated income statement. probable forecast transaction; or • hedges of a net investment in a foreign operation. (g) Derecognition of financial liabilities A financial liability is generally derecognised when the contract Any gains or losses arising from changes in fair value of that gives rise to it is settled, sold, cancelled or expires. Where derivative financial instruments that do not qualify for hedge an existing financial liability is replaced by another from the accounting are taken directly to the consolidated income same lender on substantially different terms, or the terms of an statement (see above). existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability The treatment of gains and losses arising from revaluing and the recognition of a new liability, such that the difference in derivative financial instruments designated as hedging the respective carrying amounts together with any costs or fees instruments depends on the nature of the hedging relationship, incurred are recognised in the consolidated income statement. as follows: Debt issue costs (ii) Cash flow hedges All costs incurred by the Group that are directly attributable to The Group applies cash flow hedge accounting when it hedges the issue of debt are initially capitalised and deducted from the exposure to variability in cash flows associated with a recognised amount of gross borrowings. Such costs are then amortised asset or liability or a highly probable forecast transaction and through the consolidated income statement over the term of the where the hedge is expected to be highly effective. instrument using the effective interest rate method.

The effective portion of the gain or loss on the hedging Should the underlying instrument be extinguished (whether on instrument is recognised directly in equity, while any ineffective repayment, refinancing or otherwise), any remaining portion is recognised immediately in the consolidated income unamortised debt issue costs are immediately written off to the statement (see above). consolidated income statement as an exceptional finance cost. Costs incurred on a modification of the underlying instrument Amounts taken to equity are transferred to the consolidated which does not constitute an extinguishment are capitalised and income statement when the hedged transaction affects the amortised along with the unamortised original debt issue costs consolidated income statement. Where the hedged item is the over the remaining term of the instrument, again using the cost of a non-financial asset or non-financial liability, the effective interest rate method. amounts previously taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

68 Mecom Group plc Annual Report and Accounts 2013 4. Significant accounting policies continued

Business disposal costs Dividends All costs incurred by the Group that are directly attributable to Distributions to equity holders are not recognised in the the disposal of businesses are expensed to the consolidated consolidated income statement under IFRS, but are disclosed income statement as incurred. as a component of the movement in shareholders’ equity. A liability is recorded for a dividend when the dividend is approved Provisions by the Company’s shareholders. Interim dividends are Provisions are recognised when the Group has a present recognised as a distribution when paid. obligation as a result of a past event, where the obligation can be estimated reliably, and where it is probable that an outflow of Equity instruments economic benefits will be required to settle that obligation. An equity instrument is any contract that evidences a residual Provisions are measured at the Directors’ best estimate of the interest in the assets of the Group after deducting all of its expenditure required to settle the obligation at the balance sheet liabilities. Equity instruments issued by the Company are date, and are discounted to present value where the effect is recorded at the proceeds received, net of direct issue costs. material. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a Share-based payments finance expense. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at Employee benefits the date of grant. Accounting for share-based payments under The employee benefits consist of pensions and other deferred the Deferred Bonus Plan are treated identically, except that the employee benefits. fair value of any grants are valued at the closing share price on the date of the grant. Pensions All current existing pension plans within the Group are classified At each balance sheet date before vesting, the cumulative as defined contribution plans. Payments to defined contribution expense is calculated, representing the extent to which the benefit plans are recognised as an expense when employees vesting period has expired and management’s best estimate of have rendered service entitling them to the contributions. the achievement or otherwise of non-market performance conditions, and hence the number of equity instruments that will Unfunded employee benefits (defined benefit obligations) ultimately vest. The movement in cumulative expense since the The Group has a number of unfunded employee benefit previous balance sheet date is recognised in the consolidated obligations mostly consisting of early retirement and jubilee income statement, with a corresponding entry in equity. obligations and, in 2012, the “Moratorium shortfall” funding commitment, which are explained further in Note 30. For these employee benefit arrangements, the unfunded employee benefit obligation is calculated using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement comprising actuarial gains and losses is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability.

Mecom Group plc Annual Report and Accounts 2013 69 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

5. Significant accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are assessments of probability and timing to be formed based on described in Note 4 above, the Directors are required to make the facts of each process, the attitudes and actions of the parties judgements, estimates and assumptions that affect the amounts involved and the broader strategic context. reported for assets and liabilities at the balance sheet date and the amounts reported for revenues and expenses during the Estimates and assumptions year. The nature of estimation means that actual outcomes could The key assumptions concerning the future and other key differ from those estimates. sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the The estimates and underlying assumptions are reviewed carrying amounts of assets and liabilities within the next financial on an on-going basis. Revisions to accounting estimates are year are discussed below. recognised in the period in which the estimate is revised if the revision affects that period only, or in the period of the revision (a) Impairment of acquired intangibles and future periods if the revision affects both current and The Group assesses at least annually whether there is any future periods. indication of any of its acquired intangibles (comprising customer relationships, brands and publishing rights) being Critical judgements in applying the Group’s accounting policies impaired, or of any previous impairment having been reversed. In the process of applying the Group’s accounting policies, In making this assessment the Directors consider numerous the Directors have made the following judgements, apart from factors, internal and external to the Group, including whether those involving estimations, which have the most significant there have been significant changes to the economic or effect on the amounts recognised in these consolidated commercial environment in which the Group’s cash-generating financial statements: units (“CGUs”) operate and whether the trading performance and outlook of each CGU has changed in a material and (a) Taxation sustained way since the date of the last impairment test, to the The Company and its subsidiaries are subject to routine tax extent that the Group’s underlying cash flow forecasts for that audits and also a process whereby tax computations are CGU have changed substantially. Any available, reliable and discussed and agreed with the appropriate authorities. Whilst relevant external valuations of the CGU are also considered. the ultimate outcome of such tax audits and discussions cannot be determined with certainty, management estimates the level of If an indication of impairment or reversal is identified, the CGU’s provisions required for both current and deferred tax on the recoverable amount is measured and, if necessary, an basis of professional advice and the nature of current impairment charge or credit is recorded. This requires an discussions with the tax authority concerned. estimation of the value-in-use of the CGUs to which the intangible assets are allocated. Estimating a value-in-use (b) Recoverability of deferred tax assets amount requires the Directors to make an estimate of the Deferred tax assets are recognised for all unused tax losses to expected future cash flows from the CGU and also to choose a the extent that it is probable that a taxable profit or loss will be suitable discount rate in order to calculate the present value of utilised. Significant management judgement is required to those cash flows. As part of the Group’s 2013 Interim Financial determine the amount of deferred tax assets that can be Statements an impairment charge of €45.3m was recorded recognised, based upon the likely timing and level of future against the Group’s intangible assets (2012: nil), which was taxable profits. Details of deferred tax balances are contained in reversed following a further impairment test performed as at Note 27. 31 December 2013. See Note 17 for further details.

(c) Designation of assets and disposal groups as held-for-sale At 31 December 2013, the total carrying amount of the Group’s At each balance sheet date the Group is required to make an acquired intangibles was €310.3m (2012: €370.1m). Further assessment as to whether any of its assets or groups of assets details of acquired intangibles are contained in Note 18. constitute a disposal group which is held-for-sale. Such assessments, which have had particular relevance during a year At 31 December 2012 the Group held goodwill on its balance in which numerous disposals have been contemplated as part of sheet totalling €91.7m. Historically, the Group has determined a strategic review of the Group’s assets, require consideration of whether goodwill was impaired at least on an annual basis whether each asset or group of assets was available for (see Note 17), and more frequently if an indication of impairment immediate sale at the balance sheet date, whether a disposal of was identified. As at 30 June 2013 such an indication was the asset was highly probable at the balance sheet date and identified, resulting in an impairment charge of €75.7m in the whether the disposal was expected to take place within one year Group’s Interim Financial Statements (2012: €46.8m). Following of the balance sheet date. When all three of these conditions are this impairment and disposals in 2013 the Group no longer determined to be satisfied the assets associated with the holds any goodwill on its consolidated balance sheet. disposal Group are presented separately in the consolidated balance sheet. Ascertaining whether the criteria were satisfied at each balance sheet date requires necessarily subjective

70 Mecom Group plc Annual Report and Accounts 2013 5. Significant accounting judgements and key sources of estimation uncertainty continued

(b) Useful lives of acquired intangibles (f) Employee benefit obligations On acquisition of subsidiaries the Group will consider the useful The Group operates no separate funded pension schemes, but lives of any intangible assets acquired. The length of useful lives still has a number of unfunded employee benefit obligations that of customer relationships is assessed based on the average fall to be accounted for as defined benefit obligations, mostly lives of historic customer relationships for all main titles. The consisting of early retirement and jubilee arrangements, as length of useful lives of brands and publishing rights is assessed explained further in Note 30. The actuarial valuation of these based on the Directors’ view of the market, the length of the time unfunded obligations involves making assumptions about that the main titles have been established and, in the case of discount rates, future salary increases and mortality rates. publishing rights, the term of any contract. Due to the nature of these plans, such estimates are subject to The amortisation period and the amortisation method for an uncertainty. At 31 December 2013, the carrying amount of the intangible asset with a finite useful life are reviewed at least at unfunded employee benefit obligations was €8.2m each financial year-end. Details of asset lives are contained in (2012: €38.5m). Details of employee benefit obligations are set Note 4. out in Note 30.

(c) Property, plant and equipment (“PPE”) PPE is valued at historical cost, less depreciation and accumulated impairment charges. The carrying value is therefore, in part, a function of the Directors’ estimate of the useful economic life of each class of asset (as set out in Note 4 above) and an assessment each year of whether indications of impairment have been identified in respect of any asset. Where indications of impairment are identified, the Directors estimate the fair value of the asset, taking into account both its value-in- use and value that might be realised were the asset to be sold. If the higher of these two fair value estimates is lower than the current carrying value, an impairment will be recognised.

(d) Provision for doubtful debts At each balance sheet date the Directors make an assessment of the likelihood of recovery of each of the Group’s receivables. In circumstances where it is not considered likely that the receivable will be paid, the Group records a provision against the receivable. In making their assessment of recoverability, the Directors consider the specific circumstances of each receivable including the counterparty and its ability to settle the receivable, the length of time for which the receivable has been outstanding and any known or expected disputes relating to the receivable. To the extent that circumstances change, the actual recovery made against trade receivables may be higher or lower than the balance sheet carrying value.

(e) Provisions The amounts provided for all categories of provisions (which principally relate to restructuring costs and onerous leases) are based on the Directors’ best estimates of costs likely to be incurred to the extent that they are recognisable under relevant reporting standards. In making these estimates, the Directors are required to make assumptions regarding variables including redundancy costs, future potential for sub-letting unused space in the Group’s rented premises (and likely rents thereon) and appropriate discount rates. To the extent that these variables or others differ in the future, the carrying amount of provisions may change. At 31 December 2013, the carrying amount of provisions was €43.7m (2012: €33.9m). Details of provisions are contained in Note 29.

Mecom Group plc Annual Report and Accounts 2013 71 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

6. Revenue

An analysis of the Group’s revenue is as follows:

Year ended Year ended 31 December 31 December 2013 2012 Note €m €m Continuing operations Sales of goods 718.2 810.8 Rendering of services 89.7 99.7 Revenue per face of the consolidated income statement 807.9 910.5 Total finance revenue 12 0.5 1.0 Total revenue from continuing operations 808.4 911.5

Discontinued operations Sales of goods 33.2 161.9 Rendering of services 3.9 32.8 Revenue from discontinued operations 14 37.1 194.7 Total finance revenue 12,14 0.2 0.6 Total revenue from discontinued operations 37.3 195.3 Total Group revenue 845.7 1,106.8

Included within total revenue from continuing operations for the year of €808.4m (2012: €911.5m) is €3.6m (2012: €4.0m) arising from exchanges of goods or services. The corresponding amount for discontinued operations is €nil (2012: €1.3m). A surplus of government grant income over related costs of €0.4m is included within rendering of services (2012: €0.5m).

7. Operating segments

For management and therefore internal reporting purposes, at 31 December 2013 the Directors have organised the Group into divisions based on geographical location.

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

• The Netherlands; and • Denmark

As set out in Note 14, in 2012 the Group categorised its Polish operations (Media Regionalne) as held-for-sale. The Polish operations were subsequently sold in October 2013. Consequently, under IFRS the Group has accounted for this business as a discontinued operation in both the current and prior periods.

During 2011 the Group agreed to sell its entire Norwegian business (which was subsequently sold in June 2012). As such, the results of the Norwegian business were accounted for as discontinued in 2012.

Such separation allows the Board to focus on the financial performance of the continuing businesses, the total of which is shown in the Group’s internal financial reports in 2013 and 2012 as “Mecom continuing”.

“Corporate” is also part of “continuing” and comprises the Group’s head-office activities, which are primarily located in the UK. Certain Group-wide costs have been recharged to the Group’s reportable operating segments, being charged to their respective adjusted EBITDA amounts, unless the amounts being recharged are financing costs.

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

72 Mecom Group plc Annual Report and Accounts 2013 7. Operating segments continued

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

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

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

The following tables present (i) financial information as internally reported to the Directors for the years ended 31 December 2013 and 2012 in respect of the Group’s reportable operating segments and (ii) reconciliations of financial information as internally reported to financial information as reported under IFRS.

Mecom Group plc Annual Report and Accounts 2013 73 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

7. Operating segments continued

(i) Financial information as internally reported to the Directors for the year ended 31 December 2013

Mecom discontinued The Mecom Mecom Netherlands Denmark Corporate1 continuing Poland Group total €m €m €m €m €m €m Revenue: External sales: Advertising 177.0 110.8 – 287.8 13.1 300.9 Circulation 254.2 137.1 – 391.3 18.7 410.0 Other 41.2 87.6 – 128.8 5.3 134.1 Total revenue as internally reported 472.4 335.5 – 807.9 37.1 845.0 Total costs (including share of results of associates, excluding depreciation) (405.4) (308.3) (6.3) (720.0) (36.1) (756.1) Adjusted EBITDA as internally reported 67.0 27.2 (6.3) 87.9 1.0 88.9 Depreciation (including amortisation of software) (19.6) (11.7) – (31.3) – (31.3) Adjusted operating profit/(loss) as internally reported 47.4 15.5 (6.3) 56.6 1.0 57.6 Total exceptional items2 (83.2) 7.5 (3.0) (78.7) 1.9 (76.8) Amortisation of acquired intangibles (34.3) (6.0) – (40.3) – (40.3) Segment result as internally reported (70.1) 17.0 (9.3) (62.4) 2.9 (59.5) Reconciliation to IFRS (loss)/profit for the year Net finance (expense)/income (8.7) 0.2 (8.5) Income tax credit/(charge) 6.5 (0.1) 6.4 (Loss)/profit for the year ended 31 December 2013 (64.6) 3.0 (61.6)

Assets and liabilities Operating assets 405.5 153.2 9.5 568.2 – 568.2 Operating liabilities (285.6) (118.5) (73.9) (478.0) – (478.0)

Other information Digital revenue 7.9 24.9 – 32.8 2.8 35.6 Revenue from businesses disposed during 2013 2.3 42.1 – 44.4 37.1 81.5 Adjusted EBITDA from businesses disposed during 2013 1.7 6.2 – 7.9 1.0 8.9 Impairment charges in respect of: goodwill, acquired intangibles, software and property, plant and equipment (79.9) (2.0) – (81.9) – (81.9) Adjusted EBITDA margin 14.2% 8.1% n/a 10.9% 2.7% 10.5% Adjusted operating profit margin 10.0% 4.6% n/a 7.0% 2.7% 6.8% Non-current assets 345.2 82.2 – 427.4 – 427.4 Interests in associates 2.8 1.1 – 3.9 – 3.9 Capital expenditure on property, plant and equipment and software3 3.8 2.3 – 6.1 – 6.1 Additions to non-current assets 3.8 2.3 – 6.1 – 6.1

1 Corporate operating liabilities of €73.9m at 31 December 2013 include €69.7m of gross borrowings. 2 For internal reporting purposes, total exceptional items include both operating and finance exceptional items together with all gains/losses on disposal of business. 3 Capital expenditure in this instance relates to book amounts as set out in Notes 18 and 19.

74 Mecom Group plc Annual Report and Accounts 2013 7. Operating segments continued

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

Mecom discontinued The Mecom Discontinued Mecom Netherlands Denmark Corporate1 continuing Norway Poland operations Group total €m €m €m €m €m €m €m €m Revenue: External sales: Advertising 231.3 133.1 – 364.4 75.5 19.5 95.0 459.4 Circulation 259.8 148.4 – 408.2 37.5 23.8 61.3 469.5 Other 48.4 89.5 – 137.9 31.9 6.5 38.4 176.3 Total revenue as internally reported 539.5 371.0 – 910.5 144.9 49.8 194.7 1,105.2 Total costs (including share of results of associates, excluding depreciation) (469.5) (347.0) (6.5) (823.0) (128.4) (47.8) (176.2) (999.2) Adjusted EBITDA as internally reported 70.0 24.0 (6.5) 87.5 16.5 2.0 18.5 106.0 Depreciation (including amortisation of software) (18.4) (15.1) – (33.5) – (2.4) (2.4) (35.9) Adjusted operating profit/(loss) as internally reported 51.6 8.9 (6.5) 54.0 16.5 (0.4) 16.1 70.1 Total exceptional items2 (78.8) (13.7) (2.2) (94.7) 63.0 (20.8) 42.2 (52.5) Amortisation of acquired intangibles (39.9) (7.4) – (47.3) – (0.2) (0.2) (47.5) Segment result as internally reported (67.1) (12.2) (8.7) (88.0) 79.5 (21.4) 58.1 (29.9) Reconciliation to loss for the year Net finance (expense)/income (14.1) 0.4 (13.7) Income tax credit/(expense) 16.8 (3.4) 13.4 Loss on disposal of interest in associates (0.2) – (0.2) Loss for the year ended 31 December 2012 (85.5) 55.1 (30.4)

Assets and liabilities Operating assets 539.2 206.4 29.7 775.3 – 18.3 18.3 793.6 Operating liabilities (386.2) (141.1) (99.4) (626.7) – (6.6) (6.6) (633.3)

Other information Digital revenue 23.4 27.3 – 50.7 20.4 3.6 24.0 74.7 Revenue from businesses disposed during 2012 and 2013 12.4 61.0 – 73.4 144.9 49.8 194.7 268.1 Adjusted EBITDA from businesses disposed during 2012 and 2013 5.5 8.8 – 14.3 16.5 2.0 18.5 32.8 Impairment charges in respect of: goodwill, acquired intangibles, software and property, plant and equipment (46.8) – – (46.8) – (19.5) (19.5) (66.3) Adjusted EBITDA margin 13.0% 6.5% n/a 9.6% 11.4% 4.0% 9.5% 9.6% Adjusted operating profit margin 9.6% 2.4% n/a 5.9% 11.4% (0.8)% 8.2% 6.3% Non-current assets 471.7 124.4 22.7 618.8 – – 618.8 Interests in associates 7.0 2.7 – 9.7 – – – 9.7 Capital expenditure on property, plant and equipment and software3 15.1 9.2 – 24.3 3.0 0.8 3.8 28.1 Additions to non-current assets 15.7 11.1 – 26.8 3.0 0.8 3.8 30.6

1 Corporate operating liabilities of €99.4m at 31 December 2012 include €94.7m of gross borrowings. 2 For internal reporting purposes, total exceptional items include both operating and finance exceptional items together with all gains/losses on disposal of business. 3 Capital expenditure in this instance relates to book amounts as set out in Notes 18 and 19.

Mecom Group plc Annual Report and Accounts 2013 75 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

8. Group operating profit/(loss)

Operating profit/(loss) is stated after charging/(crediting):

Year ended 31 December 2013 Year ended December 2012 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Note €m €m €m €m €m €m Depreciation of property, plant and equipment 22.5 – 22.5 21.9 2.0 23.9 Amortisation of software 8.8 – 8.8 11.6 0.4 12.0 Amortisation of acquired intangibles 40.3 – 40.3 47.3 0.2 47.5 Impairment charges in respect of: goodwill 75.7 – 75.7 46.8 – 46.8 acquired intangibles 2.0 – 2.0 – 4.1 4.1 software 4.0 – 4.0 – 1.2 1.2 property, plant and equipment 0.2 – 0.2 – 14.2 14.2 Staff costs 10 386.6 14.5 401.1 437.6 90.5 528.1 Government grants (12.1) – (12.1) (10.8) (0.5) (11.3) Cost of inventories recognised as expense 64.8 5.3 70.1 83.9 20.7 104.6 Provision against trade receivables recognised in operating costs 0.1 0.1 0.2 2.5 0.2 2.7 Operating lease payments 18.2 – 18.2 20.4 3.3 23.7

The total remuneration of the Group’s auditors was as follows:

Year ended Year ended 31 December 31 December 2013 2012 €m €m Fees payable to the Group’s auditors for the audit of the Company and consolidated financial statements 0.4 0.3 Fees payable to the Group’s auditors and its associates for other services: The audit of the Group’s subsidiaries pursuant to legislation 0.8 0.9 Tax services 0.2 0.2 Corporate finance services 0.1 0.3 All other services 0.1 0.3 Total 1.6 2.0

76 Mecom Group plc Annual Report and Accounts 2013 9. Key management compensation and Directors’ emoluments

Key management compensation The Directors are of the opinion that the key management of the Group in the years ended 31 December 2013 and 2012 comprised both the Executive and Non-executive Directors of Mecom Group plc. These persons have authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. At 31 December 2013, key management comprised seven people (2012: seven people).

The aggregate amounts of key management compensation are set out below:

Year ended Year ended 31 December 31 December 2013 2012 €m €m Short-term employee benefits1 3.4 2.7 Post-employment benefits 0.1 0.2 Termination benefits 0.1 1.2 Share-based payment2 – 0.3 Total 3.6 4.4

1 Short-term employee benefits includes for 2013 social security contributions of €0.4m (2012: €0.4m), as required by IFRS, but which are not included in the table for Directors’ emoluments. 2 The share-based payment expense of €nil (2012: €0.3m) is included within the Group’s total share-based payment expense of €0.6m (2012: €0.1m including exceptional items) which is set out in Note 35.

Directors’ emoluments The aggregate emoluments of the Directors of the Company are set out below:

Year ended Year ended 31 December 31 December 2013 2012 €m €m Aggregate emoluments in respect of qualifying services 3.0 2.3 Pension contributions – 0.2 Termination benefits 0.1 1.0 Total 3.1 3.5

Detailed disclosures of Directors’ emoluments are shown in the Directors’ Remuneration Report.

Mecom Group plc Annual Report and Accounts 2013 77 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

10. Staff costs

The average numbers of employees, including Directors, are presented below.

Year ended Year ended 31 December 31 December 2013 2012 Average number of employees: Editorial 1,951 2,419 Sales and distribution 1,504 2,046 Production 866 1,190 Administration 643 810 Total 4,964 6,465

Included in the table above is the average number of employees of the discontinued operation, being 791 employees for Polish operations for 2013 (2012: 1,726 employees of the Norwegian and Polish operations). The table below presents the Group’s staff costs from continuing and discontinued operations before and after exceptional items.

Year ended 31 December 2013 Year ended 31 December 2012 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Note €m €m €m €m €m €m Staff costs before exceptional items: Wages and salaries 306.7 12.6 319.3 338.3 76.3 414.6 Social security costs 22.8 1.7 24.5 28.0 10.7 38.7 Employee benefit costs 30 25.6 – 25.6 29.2 3.0 32.2 Share-based payment expense 35 0.6 – 0.6 0.2 – 0.2 Total staff costs before exceptional items 355.7 14.3 370.0 395.7 90.0 485.7

Staff costs/(credits) included within exceptional items: Wages and salaries 32.5 0.2 32.7 32.9 0.5 33.4 Social security costs 2.9 – 2.9 1.3 – 1.3 Employee benefit (credits)/costs 11,30 (5.7) – (5.7) 4.8 – 4.8 Other 1.2 – 1.2 2.9 – 2.9 Total exceptional staff costs 30.9 0.2 31.1 41.9 0.5 42.4 Total staff costs after exceptional items 386.6 14.5 401.1 437.6 90.5 528.1

11. Exceptional items and amortisation of acquired intangibles

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

78 Mecom Group plc Annual Report and Accounts 2013 11. Exceptional items and amortisation of acquired intangibles continued

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

Year ended 31 December 2013 Year ended 31 December 2012 Amortisation Amortisation Exceptional of acquired Exceptional of acquired items intangibles Total items intangibles Total Note €m €m €m €m €m €m Continuing operations

Amounts recognised in operating loss: Restructuring costs Staff redundancy costs (36.6) – (36.6) (37.1) – (37.1) IT outsourcing costs – – – (0.7) (0.7) Other – – – (2.8) – (2.8) Total restructuring costs (36.6) – (36.6) (40.6) – (40.6)

Other exceptional operating credits/ (costs) Credit relating to fine imposed by the Netherlands Competition Authority 0.7 – 0.7 7.6 – 7.6 Credit/(charge) in respect of employee benefit obligations 30 5.7 – 5.7 (4.8) – (4.8) Charge in respect of strategic review costs – – – (0.9) – (0.9) Charge in respect of provisions for onerous contracts (2.6) – (2.6) (5.9) – (5.9) Total other exceptional operating credits/ (costs) 3.8 – 3.8 (4.0) – (4.0)

Amortisation and impairment charges Amortisation of acquired intangibles 18 – (40.3) (40.3) – (47.3) (47.3) Impairment charges in respect of: Goodwill 17 (75.7) – (75.7) (46.8) – (46.8) Acquired intangibles 18 (2.0) – (2.0) – – – Software 18 (4.0) – (4.0) – – – Property, plant and equipment (0.2) – (0.2) – – – Total amortisation and impairment charges (81.9) (40.3) (122.2) (46.8) (47.3) (94.1) Total recognised in operating loss (114.7) (40.3) (155.0) (91.4) (47.3) (138.7)

Amounts recognised in finance expense: Interest rate swaps accounting: mark-to- market – – – (1.2) – (1.2) Notional interest on exceptional provisions 29 (0.3) – (0.3) (0.3) – (0.3) Notional interest on exceptional items in other payables – – – (0.4) – (0.4) Costs related to extension and renegotiation of bank facilities (0.3) – (0.3) (0.7) – (0.7) Total recognised in finance expense (0.6) – (0.6) (2.6) – (2.6) Gain/(loss) on disposal of businesses and investments 36.6 – 36.6 (0.7) – (0.7) Total recognised in loss before tax (78.7) (40.3) (119.0) (94.7) (47.3) (142.0) Exceptional income tax credit 7.2 11.0 18.2 13.7 13.5 27.2 Total recognised in loss for the year from continuing operations (71.5) (29.3) (100.8) (81.0) (33.8) (114.8)

Mecom Group plc Annual Report and Accounts 2013 79 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

11. Exceptional items and amortisation of acquired intangibles continued

Year ended 31 December 2013 Year ended 31 December 2012 Amortisation Amortisation Exceptional of acquired Exceptional of acquired items intangibles Total items intangibles Total Note €m €m €m €m €m €m Discontinued operations

Amounts recognised in profit before tax: Restructuring costs Staff redundancy costs (0.2) – (0.2) (0.5) – (0.5) Other – – – – – – Total restructuring costs (0.2) – (0.2) (0.5) – (0.5)

Amortisation charges and impairment brands Amortisation of acquired intangibles 18 – – – – (0.2) (0.2) Impairment in respect of: Brands – – – (4.1) – (4.1) Software – – – (1.2) – (1.2) Property, plant and equipment – – – (14.2) – (14.2) Total amortisation and impairment charges – – – (19.5) (0.2) (19.7) Total recognised in operating profit (0.2) – (0.2) (20.0) (0.2) (20.2) Gain on disposal of businesses and investments 14,38 2.1 – 2.1 62.2 – 62.2 Total recognised in profit before tax 1.9 – 1.9 42.2 (0.2) 42.0 Exceptional income tax credit – – – 0.9 – 0.9 Total recognised in profit for the year from discontinued operations 1.9 – 1.9 43.1 (0.2) 42.9

Continuing operations Restructuring costs Restructuring costs of €36.6m (2012: €40.6m) comprise entirely of staff redundancy costs associated with the Group’s cost reduction programmes (in 2012, €37.1m of the total related to such staff redundancy costs). The staff redundancy costs include charges for restructuring in the Netherlands of €30.4m (2012: €24.7m) and in Denmark of €5.5m (2012: €11.1m).

In 2012 the Group recognised an additional charge of €0.7m in 2012 in respect of the group-wide IT outsourcing arrangement including transition costs, third party exit costs, redundancy costs and related professional fees.

The other restructuring costs in 2012 included €2.2m for the start-up of a central press agency for regional news in the Netherlands, including the exit costs of the existing agency.

The redundancy and restructuring costs above included the net effect of new provisions made in the year of €38.1m (2012: €36.6m), as set out in Note 29.

Other exceptional operating credits/(costs) Fine imposed by the Netherlands Competition Authority The difference between the reduced fine as imposed by the NMa and the carrying amount of the provision at settlement date in December 2012 of €7.6m was recorded as credit to exceptional operating costs in 2012. The advisory costs related to the NMa fine were covered by an insurance contract, which led to a €0.7m exceptional credit to the income statement in 2013.

80 Mecom Group plc Annual Report and Accounts 2013 11. Exceptional items and amortisation of acquired intangibles continued

Credit/charge in respect of employee benefit obligations In 2013, following an agreement reached with the works councils in the Netherlands on a retrenchment of labour conditions, €4.9m was released from the “Jubilee” provision for long-term service entitlements. In addition, a release of expired back service obligations led to a further €0.8m exceptional credit being recognised in the income statement.

In November 2012 an agreement was reached that future pensions related to LMG would be provided by the PGB (see Note 30). The total cost of exiting the LMG Scheme amounted to €4.8m.

Charge in respect of strategic review costs The €0.7m of charges in 2012 reflects costs incurred related to the strategic review initiated during that financial year.

Charge in respect of provisions for onerous contracts The Group charged €2.6m during the year (2012: €5.9m) to previously established onerous contract provisions, with the increase in provision in both years relating principally to an increase of vacant office space and expectations regarding future lease rental terms.

Amortisation and impairment charges In the year ended 31 December 2013, the Group recorded an amortisation charge of €40.3m (2012: €47.3m) in respect of its acquired intangibles. Note 7 analyses the amortisation of acquired intangibles by operating segment.

Notes 17 and 18 provide details of the impairment charges in 2013, of which €75.7m was recorded against goodwill (2012: €46.8m). An impairment charge of €45.3m was made against acquired intangibles as at 30 June 2013, although this was largely reversed following a second impairment test carried out as at 31 December 2013. The net effect of the impairment and subsequent reversal of acquired intangibles (€2.0m) is shown above, and reflects the amortisation which would have applied to these assets had they not been treated as impaired for part of the year.

The carrying value of software was written down by €4.0m in 2013 (2012: €nil) following an assessment of the recoverable amount of two I.T. systems. Other impairment charges of €0.2m were recorded in 2013 related to buildings in the Netherlands.

Amounts recognised in finance expense The outstanding interest rate swaps expired in 2013. In 2012 mark-to-market movements in interest rate swaps resulted in a charge of €1.2m. Other finance exceptional items in 2013 relate to the unwinding of notional interest on exceptional provisions and onerous contracts not in provisions of €0.3m (2012: €0.7m).

Costs related to extension and renegotiation of bank facilities (which is described more fully in Note 25) amount to €0.3m in 2013 (2012: €0.7m).

Gain/(loss) on disposal of businesses and investments During 2013 a number of disposals of non-core businesses were made. Further details of these disposals and the related gains are set out in Note 38.

Losses in 2012 were related to the disposal of certain small businesses in Denmark.

Exceptional income tax credit An exceptional income tax credit of €18.2m was recorded in 2013 (2012: €27.2m). €11.0m (2012: €13.5m) of this is due to tax credits arising on the amortisation of the Group’s acquired intangibles and €7.2m (2012: €13.7m) relates to exceptional tax credits recorded on exceptional operating and finance items.

Discontinued operations Restructuring costs Staff redundancy costs associated with cost reduction programmes of €0.2m were recorded in 2013 (2012: €0.5m).

In 2012 the discontinued operations recorded an amortisation charge of €0.2m in respect of acquired intangibles. In addition to this the Group recorded an impairment charge of €4.1m (and related tax credit of €0.8m) against the brands (an acquired intangible presented within other intangible assets) of Mecom Poland. The impairment of software and property, plant and equipment in 2012 also related to Mecom Poland as further explained in Note 14.

Mecom Group plc Annual Report and Accounts 2013 81 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

11. Exceptional items and amortisation of acquired intangibles continued

Gain on disposal of businesses and investments The gain on disposal for 2013 relates to the disposal of the Group’s Polish operations on 31 October 2013 as well as to the preceding disposal of certain radio operations in Poland (in March 2013). The gain on disposal for 2012 included the gain on disposal of Mecom Norway (€63.3m).

For further details on the gain on disposal of businesses and investments, reference is made to Notes 14 and 38.

Exceptional income tax credit An exceptional income tax credit of €0.9 was recorded in 2012, which relates to tax credits recorded on exceptional operating items.

12. Finance income and expense

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

Year ended 31 December 2013 Year ended 31 December 2012 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total Note €m €m €m €m €m €m Bank interest receivable 0.5 0.2 0.7 0.8 0.6 1.4 Other – – – 0.2 – 0.2 Total finance income before exceptional items 0.5 0.2 0.7 1.0 0.6 1.6

Interest payable on loans and overdrafts (6.0) – (6.0) (11.9) (0.1) (12.0) Amortisation of debt issue costs (2.4) – (2.4) (1.5) – (1.5) Commitment fees on bank loans and overdrafts (0.7) – (0.7) (1.2) – (1.2) Finance charges payable under finance leases – – – (0.1) – (0.1) Foreign currency exchange losses – – – (0.2) (0.1) (0.3) Unwinding of discounts (0.1) – (0.1) (0.2) – (0.2) Total finance expense before exceptional items (9.2) – (9.2) (15.1) (0.2) (15.3) Net finance (expense)/income before exceptional items (8.7) 0.2 (8.5) (14.1) 0.4 (13.7) Exceptional items: Exceptional finance expense 11 (0.6) – (0.6) (2.6) – (2.6) Total finance income 0.5 0.2 0.7 1.0 0.6 1.6 Total finance expense (9.8) – (9.8) (17.7) (0.2) (17.9)

The Group used interest rate swaps until 2013, to hedge its interest rate risk on its floating rate bank borrowings. As these interest rate swaps are no longer being accounted for as cash flow hedges in 2013 no differences between floating rates received and fixed rates paid are included within “interest payable on loans and overdrafts” above (2012: charge €2.7m). This amount for 2013 mainly consists of the variable rate interest expense incurred on the underlying bank borrowings.

82 Mecom Group plc Annual Report and Accounts 2013 13. Tax

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

Year ended 31 December 2013 Year ended 31 December 2012 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total €m €m €m €m €m €m Current income tax Current year (1.5) – (1.5) (1.9) – (1.9) Adjustments in respect of prior years – – – 2.2 (0.1) 2.1 (1.5) – (1.5) 0.3 (0.1) 0.2 Deferred tax Current year 7.7 (0.1) 7.6 13.0 (3.3) 9.7 Adjustments in respect of prior years 0.3 – 0.3 3.5 – 3.5 8.0 (0.1) 7.9 16.5 (3.3) 13.2 Income tax credit/(charge) reported in the consolidated income statement 6.5 (0.1) 6.4 16.8 (3.4) 13.4 Of which: Expense in respect of profit before exceptional items and amortisation of acquired intangibles (11.7) (0.1) (11.8) (10.4) (4.3) (14.7) Credit in respect of exceptional items and amortisation of acquired intangibles 18.2 – 18.2 27.2 0.9 28.1

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

Year ended Year ended 31 December 31 December 2013 2012 €m €m Income tax charge arising on change in fair value of cash flow hedges – (0.2) Income tax credit arising on actuarial (gain)/loss on defined benefit pension schemes – 0.3 Income tax credit recognised directly in equity – 0.1

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

Year ended Year ended 31 December 31 December 2013 2012 Note €m €m Loss from continuing operations before tax (71.1) (102.3) Profit from discontinued operations before tax 14 3.1 58.5 Less: share of results of associates of above (1.1) (2.9) Accounting loss before tax before share of results of associates (69.1) (46.7) At the weighted average UK corporation tax rate of 23.3% (2012: 24.5%) 16.1 11.4 Effect of: Non-deductible expenses (14.5) (18.2) Tax exempt income 1.9 15.5 Current year losses for which no deferred tax is recognised (0.1) (2.7) Over provision in prior periods 0.3 5.7 Differences in overseas tax rates 2.0 0.1 Recognition of previously unrecognised losses 0.9 1.4 Other differences (0.2) 0.2 Total income tax credit reported in the consolidated income statement 6.4 13.4

Mecom Group plc Annual Report and Accounts 2013 83 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

13. Tax continued

Non-deductible expenses in 2013 mainly relate (€18.9m) to the impairment of goodwill in the Netherlands CGU (2012: Poland CGU €3.2m and Netherlands CGU €5.2m). Also included in 2012 is a restriction on interest costs (€1.3m) and the settlement of the fine imposed by the NMa. As set out in Note 11, in 2012 €7.6m of the provision relating to this fine was credited back to exceptional operating costs in the consolidated income statement. Part of this amount did not attract any tax charges in 2012, resulting in a credit of €1.7m, being included within non-deductible expenses.

In 2013, the Group wrote-back to the consolidated balance sheet €0.9m (2012: €1.4m) of previously unrecognised deferred tax assets. In 2013 this predominantly relates to the Netherlands, where the Directors have assessed that they expect sufficient future taxable profits will arise against which the asset can be recovered. In 2012 the recognition of previous unrecognised losses at principally related to Denmark.

14. Discontinued operations and assets classified as held for sale

Mecom Poland As at 31 December 2012, the Group considered its Polish operations, which were in advanced stages of a disposal process and which otherwise met the criteria in IFRS 5, to be held for sale. At this time, as required by IFRS 5, the Group made an assessment of the fair value less costs to dispose of the Polish operations. As this value was below the carrying value of assets and liabilities associated with Mecom Poland, the Group recorded an impairment charge of €15.4m against the Polish operations (see Note 11). On 20 March 2013, the Company reached agreement for the sale of its remaining Polish operations, as a result of which all operations in Poland are discontinued. The sale of Media Regionalne was completed on 31 October 2013. The Group has reported the income and expenses of this discontinued operation separately from income and expenses of its continuing operations for the years ending 31 December 2013 and 2012.

Mecom Norway On 4 December 2011 the Group entered into a binding sale agreement to dispose of its entire media business in Norway (Edda Media AS) to A-pressen AS. As described in further detail in Note 38, the sale of Mecom Norway completed on 28 June 2012. The Group has reported the income and expenses of this discontinued operation separately from income and expenses of its continuing operations for the year ending 31 December 2012.

The results of Mecom Poland and, for 2012, also the results for the Norway discontinued operations which have been included in the consolidated income statement are set out below.

Year ended 31 December 2013 Year ended 31 December 2012 Before Exceptional After Before Exceptional After exceptional items and exceptional exceptional items and exceptional items and amortisation items and items and amortisation items and amortisation of acquired amortisation amortisation of acquired amortisation of acquired intangibles of acquired of acquired intangibles of acquired intangibles (Note 11) intangibles intangibles (Note 11) intangibles Note €m €m €m €m €m €m Revenue 6 37.1 – 37.1 194.7 – 194.7 Cost of sales (15.2) – (15.2) (49.2) – (49.2) Gross profit 21.9 – 21.9 145.5 – 145.5 Operating costs (20.9) (0.2) (21.1) (130.7) (20.2) (150.9) Share of results of associates – – – 1.3 – 1.3 Operating profit/(loss) 1.0 (0.2) 0.8 16.1 (20.2) (4.1) Finance income 12 0.2 – 0.2 0.6 – 0.6 Finance expense 12 – – – (0.2) – (0.2) Gain on disposal of businesses and investments 11, 38 – 2.1 2.1 – 62.2 62.2 Profit before tax 1.2 1.9 3.1 16.5 42.0 58.5 Income tax (expense)/credit (0.1) – (0.1) (4.3) 0.9 (3.4) Profit for the year from discontinued operations 1.1 1.9 3.0 12.2 42.9 55.1

Attributable to: (restated) (restated) Mecom Group plc shareholders 1.0 1.9 2.9 11.9 45.6 57.5 Non-controlling interests 0.1 – 0.1 0.3 (2.7) (2.4)

84 Mecom Group plc Annual Report and Accounts 2013 14. Discontinued operations and assets classified as held for salecontinued

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

Year ended Year ended 31 December 31 December 2013 2012 €m €m Net cash from/(used in) operating activities 1.0 (8.9) Net cash from investing activities 0.3 1.3 Net cash flows used in financing activities – (0.3)

The loss recognised in 2012 as a result of measuring the Polish operations at fair value less costs to sell is included within exceptional operating costs above.

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

At the 2012 year-end the Group’s Poland operations (comprising at that time Media Regionalne) were classified as a disposal group held for sale and were presented separately in the consolidated balance sheet at 31 December 2012. On 20 March 2013, the Company reached agreement for the sale of its remaining Polish operations and on 31 October 2013 the sale was completed. The major classes of assets and liabilities comprising the operations classified as held for sale at 31 December 2012 were as follows:

Year ended Year ended 31 December 31 December 2013 2012 €m €m Property, plant and equipment – 0.3 Deferred tax assets – 1.3 Inventories – 1.0 Trade and other receivables – 5.7 Cash and cash equivalents – 10.0 Total assets classified as held for sale – 18.3 Provisions – (0.4) Deferred tax liabilities – (0.6) Trade and other payables – (5.6) Total liabilities directly associated with assets classified as held for sale – (6.6) Net assets of disposal group – 11.7

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

15. Dividends

Year ended Year ended 31 December 31 December 2013 2012 €m €m Dividends on ordinary shares of the Company declared and paid during the year: Final dividend 2012 paid at 5.5 euro cents per share 6.7 – Interim paid 2012 at 6.0 euro cents per share – 7.1 Final dividend 2011 paid at 9.9 euro cents per share – 10.9

The Directors have not proposed a final dividend in respect of the financial year ended 31 December 2013.

Mecom Group plc Annual Report and Accounts 2013 85 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

16. Earnings per share

Basic earnings per share is calculated by dividing net profit/(loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period, excluding own shares held by the Mecom Employee Benefit Trust (“EBT”), which are treated as cancelled. The shares held by the EBT were sold during 2013 (see Notes 33 and 34 for further details).

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

Diluted earnings per share and diluted adjusted earnings per share are calculated after assessing the effect of potentially dilutive shares issued under (i) the Group’s share-based payment awards and (ii) share warrants, in both cases only where the exercise price is less than the average market price of the Company’s ordinary shares during the year.

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

Year ended Year ended 31 December 31 December 2013 2012 000s 000s Weighted average number of ordinary shares for basic earnings per share and adjusted basic earnings per share 119,413 115,387 Potentially dilutive shares: Share-based payment awards 492 1,048 Weighted average number of ordinary shares for diluted earnings per share and adjusted diluted share earnings per share 119,905 116,435

(restated) Year ended Year ended 31 December 31 December 2013 2012 Earnings per share (euro cents per share): IFRS measures Basic: continuing operations (54.3) (73.4) discontinued operations 2.4 49.8 continuing and discontinued operations (51.9) (23.6)

Diluted: continuing operations (54.3) (73.4) discontinued operations 2.4 49.8 continuing and discontinued operations (51.9) (23.6)

Non-IFRS Adjusted basic: continuing operations 30.1 24.3 discontinued operations 0.8 10.3 continuing and discontinued operations 30.9 34.6

Adjusted diluted: continuing operations 30.1 24.3 discontinued operations 0.8 10.3 continuing and discontinued operations 30.9 34.6

The potentially dilutive share-based payment awards would in 2013 and 2012 not have had a dilutive effect on basic earnings per share from continuing operations. As such, there is considered to be no effective dilution on any of the earnings per share measures presented above. The 2012 figures presented in the table above have been restated accordingly.

Earnings per share for the years ended 31 December 2013 and 2012 from continuing operations exclude the discontinued Polish and Norwegian operations, as discussed in Note 14.

86 Mecom Group plc Annual Report and Accounts 2013 16. Earnings per share continued

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

Year ended 31 December 2013 Year ended 31 December 2012 (restated) Euro cents Euro cents Note €m per share €m per share Basic earnings (62.0) (51.9) (27.2) (23.6) Add back exceptional items (5.1) (4.3) (13.7) (11.9) Add back amortisation of acquired intangibles 40.3 33.8 47.5 41.1 Add back impairments 81.9 68.5 66.2 57.3 Deduct exceptional tax credits for year (18.2) (15.2) (28.1) (24.2) Deduct non-controlling interests’ share of above – – (4.8) (4.1) Adjusted earnings 36.9 30.9 39.9 34.6 Deduct adjusted earnings of discontinued operations 14 (1.0) (0.8) (11.9) (10.3) Adjusted earnings – continuing operations only 35.9 30.1 28.0 24.3

17. Goodwill

€m Cost At 31 December 2011 823.9 Transfer to assets classified as held for sale (14.8) Exchange differences 0.4 At 31 December 2012 809.5 Disposal of businesses (18.3) Reclassification to other intangible assets (1.0) At 31 December 2013 790.2 Accumulated impairment losses At 31 December 2011 (685.4) Transfer to assets classified as held for sale 14.8 Impairment losses (46.8) Exchange differences (0.4) At 31 December 2012 (717.8) Disposal of businesses 3.3 Impairment losses (75.7) At 31 December 2013 (790.2) Net book value At 31 December 2011 138.5 At 31 December 2012 91.7 At 31 December 2013 –

In 2013, following a review of the Group’s remaining goodwill balances, €1.0m of goodwill in respect of the Denmark CGU was reclassified as acquired brands within intangible assets (see Note 18).

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

2013 2012 CGUs €m €m The Netherlands – 89.1 Denmark – 2.6 Total – 91.7

Mecom Group plc Annual Report and Accounts 2013 87 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

17. Goodwill continued

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

Impairment testing The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. Additionally, the Group assesses at least annually whether there is any indication of any of its cash generating units’ acquired intangible assets (comprising customer relationships, brands and publishing rights) being impaired, or of a previous impairment of assets other than goodwill being reversed. If there is such an indication, the recoverable amount of the CGU is measured and, if necessary, an impairment charge or reversal is recorded.

As at 30 June 2013, the Directors considered there to be an indication of impairment in respect of the carrying amount of goodwill and acquired intangibles of its continuing CGUs, being Mecom Netherlands and Mecom Denmark. The Directors considered the decline in advertising across the Group in the first six months of 2013 together with the continued macro-economic uncertainty to be indicators of impairment, and therefore tested for impairment as at 30 June 2013. Additionally, under International Accounting Standard 36 (“IAS 36”), the Group was not able to take account in its assessment of value-in-use at 30 June 2013 the forecast costs and benefits associated with a specific restructuring programme in the Netherlands which the Group had planned in detail, but to which it was not formally committed at the time of performing the impairment test.

This impairment test resulted in an impairment of goodwill (€75.7m) and acquired intangible assets (€45.3m, with a reduction in associated deferred tax liabilities of €11.3m) in the Netherlands CGU. No impairment was identified in respect of the Denmark CGU.

Following agreement with works councils and trade unions on the final terms of the new restructuring programme in the Netherlands during the second half of 2013 and subsequent implementation, the medium-term financial forecasts of the Netherlands CGU, which can be used for IAS 36 value-in-use calculations, improved and the Directors identified an indicator of reversal in the Netherlands CGU as at 31 December 2013. A second impairment test was therefore performed, as a result of which the Group has reversed the impairment charge recorded against intangible assets in the Interim Financial Statements. In accordance with IAS 36, the impairment charges previously recorded against goodwill have not been reversed.

Key assumptions in the value-in-use calculations When an impairment test is performed, the recoverable amount of each CGU is determined either from (a) value-in-use calculations, using cash flow projections based on the most recent financial budgets approved by the Board and management forecasts beyond the period of these budgets or, if higher, (b) current valuations of disposal proceeds less costs to sell, based on prospective transactions involving specific Group assets, if available or, if not, recent comparable transactions or valuations of publicly traded companies.

The key assumptions to which the value-in-use calculations are most sensitive are: • revenue assumptions (particularly those relating to advertising), and the direct effect these have on operating profit margins; • discount rates; and • terminal growth rates.

Revenue growth/decline rates are based on past experience and expected future developments in the Group’s CGUs. Cash flows for periods beyond the Group’s own budgets and forecasts (which are typically available for a period of 3-4 years from the balance sheet date) are projected at rates that take into consideration forecast Gross Domestic Product (“GDP”) growth rates for each country, as well as more specific expectations for the markets in which the Group operates. Longer-term and perpetuity growth rates do not exceed the average long-term GDP growth rate forecasts for each country of the Group’s operations.

As noted previously, IAS 36 requires the Group to exclude from its VIU calculations benefits and up-front costs associated with restructuring actions which have not been committed to at the date of the impairment test. In common with the wider publishing industry, such restructuring actions can be a fundamental element of the Group’s strategy. As such the valuation implied by any VIU calculation performed in accordance with IAS 36 may not adequately reflect the Group’s economic assessment of the fair value of its CGUs. This accounting requirement was one of the main reasons that an impairment charge was taken against the Netherlands CGU as at 30 June 2013.

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

88 Mecom Group plc Annual Report and Accounts 2013 17. Goodwill continued

The Netherlands As described earlier, the Directors identified an indication of impairment in respect of the Netherlands CGU at the 2013 half year and an indication of reversal of this impairment as at 31 December 2013, and performed impairment tests accordingly. The discount rate and terminal growth rate applied in the VIU calculations, along with the discount rate and growth rate applied in the previous annual impairment test, are set out below:

31 December 30 June 31 December 2013 2013 2012 % % % Discount rate 12.7% 11.2% 11.9% Terminal growth rate1 0.0% 0.0% 0.0%

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

The impairment test performed as at 30 June 2013 led to an impairment charge of €109.7m (December 2012: €46.8m), of which €75.7m was recognised against goodwill (2012: €46.8m) and €34.0m against acquired intangible assets (comprising a gross charge against intangibles of €45.3m less derecognition of associated deferred tax liabilities of €11.3m). The impairment test performed as at 31 December 2013 resulted in a reversal of the previously recorded impairment of intangible assets in an amount of €43.3m. The difference between the original impairment charge and the subsequent reversal reflects the amortisation charge associated with the temporarily impaired intangible assets for the period of their impairment, in accordance with the requirements of IAS 36. Following these adjustments, goodwill in the Netherlands was €nil at 31 December 2013 and acquired intangibles were €268m.

The Group performs sensitivity analysis to assess the impact of alternative assumptions on the results of impairment tests performed. Sensitivity testing carried out as part of the impairment test at 31 December 2013 indicated that a reasonably possible change in any of the key assumptions in the value-in-use calculation (being a 5 per cent reduction in revenue each year, a one percentage point decline in the discount rate or a one percentage point decline in the terminal growth rate), in each case applied mutually exclusively, would not have resulted in a reduction in the amount of the impairment reversal.

Denmark As noted above, the remaining goodwill on the balance sheet relating to the Denmark CGU following disposals of businesses made during the year, (€1.0m) was reclassified to acquired intangible assets during the year. As such, the Group has no goodwill on its balance sheet at 31 December 2013 relating to the Denmark CGU.

Following identification of an indication of impairment as at 30 June 2013, the Group performed an impairment test in respect of its Denmark CGU. The discount rate and terminal growth rate applied in the VIU calculations, along with the discount rate and growth rate applied in the previous annual impairment test, are set out below:

30 June 31 December 2013 2012 % % Discount rate 11.1% 10.6% Terminal growth rate1 0.0% 0.0%

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

The impairment test performed at the 2013 half year did not result in any impairment charge being recognised in the year (2012: €nil impairment charge).

Sensitivity testing performed at the time the impairment test was carried out showed that a reasonably possible adjustment to any of the key assumptions would not have led to an impairment of the carrying value of the assets of the Denmark CGU.

No indications of impairment have been identified in respect of the Denmark CGU as at 31 December 2013, following the impairment test carried out as at 30 June 2013.

Mecom Group plc Annual Report and Accounts 2013 89 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

18. Other intangible assets

Brands and Software Customer publishing under relationships rights Software construction Total Note €m €m €m €m €m Cost At 31 December 2011 376.5 358.2 74.9 2.6 812.2 Business combinations 0.4 1.5 – – 1.9 Additions – purchases from third parties 0.6 – 1.9 8.7 11.2 Transfer to assets classified as held for sale (6.2) (13.2) (5.7) (0.1) (25.2) Reclassification between property, plant and equipment and software – – (1.9) – (1.9) Disposals – (16.0) (2.3) – (18.3) Disposal of businesses – (0.2) – – (0.2) Transfer between categories – – 7.9 (7.9) – Exchange differences 0.1 0.4 0.2 – 0.7 At 31 December 2012 371.4 330.7 75.0 3.3 780.4 Additions – purchases from third parties – – 0.2 2.8 3.0 Reclassification between property, plant and equipment and software – – – 0.4 0.4 Disposals – – (4.1) – (4.1) Disposal of businesses (0.1) (30.2) (3.1) (0.7) (34.1) Transfer between categories (0.4) 0.4 4.8 (4.8) – Reclassification from goodwill – 1.0 – – 1.0 At 31 December 2013 370.9 301.9 72.8 1.0 746.6 Amortisation and impairment At 31 December 2011 (210.9) (104.6) (51.5) – (367.0) Amortisation charge for the year (29.2) (18.3) (12.0) – (59.5) Impairment charge for the year – (4.1) (1.2) – (5.3) Transfer to assets classified as held for sale 6.2 13.2 5.8 – 25.2 Reclassification between property, plant and equipment and software – – (1.1) – (1.1) Disposals – 16.0 1.6 – 17.6 Disposal of businesses – 0.2 – – 0.2 Exchange differences (0.1) (0.4) (0.2) – (0.7) At 31 December 2012 (234.0) (98.0) (58.6) – (390.6) Amortisation charge for the year (23.3) (17.0) (8.8) – (49.1) Impairment charge for the year (1.4) (0.6) (4.0) – (6.0) Disposals – – 4.0 – 4.0 Disposal of businesses – 11.8 2.3 – 14.1 At 31 December 2013 (258.7) (103.8) (65.1) – (427.6)

Net book value At 31 December 2011 165.6 253.6 23.4 2.6 445.2 At 31 December 2012 137.4 232.7 16.4 3.3 389.8 At 31 December 2013 112.2 198.1 7.7 1.0 319.0

As at 30 June 2013, an impairment charge of €45.3m was recorded against the customer relationships (€25.6m) and the brands (€19.7m) of Mecom Netherlands as part of the impairment review performed at the 2013 half year as further explained in Note 17. These impairment charges were subsequently reversed following a second impairment test performed as at 31 December 2013. The net effect of these two accounting entries (€1.4m in respect of customer relationships and €0.6m in respect of brands) is shown above, reflecting the amount by which each of these groups of assets would have been amortised had they not been treated as impaired between 30 June 2013 and 31 December 2013.

90 Mecom Group plc Annual Report and Accounts 2013 18. Other intangible assets continued

In 2012, an impairment charge of €4.1m was recorded against the brands of Mecom Poland as part of an impairment review performed at the 2012 half year upon identification by the Directors of an indicator of impairment (being a decline in the CGU’s print advertising and continued macroeconomic uncertainty). On classifying the Polish operations as held for sale in 2012, measurement of those net assets at fair value less costs to sell resulted in an a further impairment charge being made, of which €1.2m related to software as shown above.

19. Property, plant and equipment

Fixtures and fittings, motor vehicles, Land, computers buildings Machinery and other and leasehold and operational Assets under improvements equipment assets construction Total €m €m €m €m €m Cost At 31 December 2011 71.2 159.7 29.8 2.3 263.0 Additions 0.1 2.6 2.5 12.2 17.4 Disposals – (7.3) (14.1) – (21.4) Transfer to assets classified as held for sale (10.5) (13.0) (4.6) – (28.1) Disposal of businesses (0.9) (2.6) – – (3.5) Acquisitions – – 0.1 – 0.1 Reclassification between property, plant, equipment and software – 3.0 – – 3.0 Transfer between categories (0.2) (1.5) 11.0 (9.3) – Exchange differences 0.4 0.2 0.4 – 1.0 At 31 December 2012 60.1 141.1 25.1 5.2 231.5 Additions – 0.4 0.3 2.4 3.1 Disposals (2.6) (1.2) (2.4) – (6.2) Disposal of businesses – (2.6) (1.8) – (4.4) Reclassification between property, plant, equipment and software – – – (0.4) (0.4) Transfer between categories – 1.5 0.6 (2.1) – Exchange differences – – – – – At 31 December 2013 57.5 139.2 21.8 5.1 223.6 Depreciation and impairment At 31 December 2011 (17.6) (71.9) (24.8) – (114.3) Depreciation charge for the year (4.5) (12.6) (6.8) – (23.9) Impairment charge for the year (6.9) (7.7) 0.4 – (14.2) Transfer to assets classified as held for sale 10.2 13.0 4.6 – 27.8 Disposals (0.1) 5.5 13.2 – 18.6 Disposal of businesses 0.6 2.0 – – 2.6 Transfer between categories 0.4 – (0.4) – – Exchange differences (0.1) – (0.4) – (0.5) At 31 December 2012 (18.0) (71.7) (14.2) – (103.9) Depreciation charge for the year (3.8) (12.4) (6.3) – (22.5) Impairment charge for the year (0.2) – – – (0.2) Disposals 0.7 1.2 2.1 – 4.0 Disposal of businesses – 2.2 1.3 – 3.5 At 31 December 2013 (21.3) (80.7) (17.1) – (119.1)

Net book value At 31 December 2011 53.6 87.8 5.0 2.3 148.7 At 31 December 2012 42.1 69.4 10.9 5.2 127.6 At 31 December 2013 36.2 58.5 4.7 5.1 104.5

Mecom Group plc Annual Report and Accounts 2013 91 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

19. Property, plant and equipment continued

Impairment charges of €0.2m in 2013 are related to buildings in the Netherlands due to the difference between the fair value less costs to sell versus the net book value of these buildings.

On classifying the Polish operations as held for sale in 2012, measurement of those net assets at fair value less costs to sell resulted in an impairment being recognised as discussed in Note 11, of which €14.2m related to property, plant and equipment.

The net book value of machinery and equipment held under finance leases and hire purchase contracts at 31 December 2013 was €nil (2012: €0.3m). The net book value of fixtures and fittings, motor vehicles, computers and other operational assets held under finance leases and hire purchase contracts at 31 December 2013 was€ nil (2012: €nil). Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.

20. Interests in associates

The Group’s interests in associates are as follows:

2013 2012 €m €m Balance at 1 January 9.7 10.2 Share of results of associates 1.1 2.9 Disposals (3.8) (0.2) Dividends received (3.1) (3.2) Balance at 31 December 3.9 9.7

The Group’s principal associated undertakings at 31 December 2013 were as follows:

Share owned Name Nature of operations Country of incorporation % L1 Televisie Regional television station The Netherlands 45.0% L1 Radio Regional radio station The Netherlands 40.0% Zeeuws Vlaams Mediabedrijf B.V. Regional free door-to-door newspaper publisher The Netherlands 49.0% Gunner Knudsens Forlag ApS Shareholder in a free newspaper and book publisher Denmark 30.0% Papirforeningen (DDPFF) Paper trading Denmark 20.0% Bornholms Tidende A/S Regional newspaper publisher Denmark 25.0%

There were no unrecognised losses relating to the Group’s interests in associates in the years ended 31 December 2013 and 2012. The Directors note that there are no significant restrictions on the ability of associates to transfer funds to the Group and no associate interest has a reporting date different to that of the Group. The Group’s share of the aggregate amounts related to associates, all of which are accounted for under the equity method, are as follows:

2013 2012 €m €m Total assets 3.9 10.4 Total liabilities (0.1) (0.7) Revenues 1.0 19.2 Share of results of associates 1.1 2.9

92 Mecom Group plc Annual Report and Accounts 2013 21. Interests in joint ventures

The Group has interests in a number of joint ventures, mainly for printing, distribution, advertising and news-gathering, and accounts for these by proportionate consolidation. The Group’s joint ventures at 31 December 2013 were as follows:

Share owned Name Nature of operations Country of incorporation % Mensenlinq B.V. Family announcements website The Netherlands 65.0% V.O.F. Over Media Media in leisure segment The Netherlands 50.0% MediaHaus Wegener GmbH Publishing Germany 50.0% Bladkompagniet A/S Distribution Denmark 50.0% Dansk Distributioncenter P/S Distribution Denmark 50.0% Infomedia A/S News surveillance Denmark 43.9% Bilzonen A/S Online classified vehicles Denmark 29.8%

At 31 December 2013 and 2012, the Group’s stake in Mensenlinq B.V. of 65.0% is classified as a joint venture because, whilst the Group owns more than 50.0% of this entity, it only has joint (rather than sole) control of its operating and financial policies.

At 31 December 2013 and 2012, the Group’s stakes in Infomedia A/S and Bilzonen A/S are classified as a joint ventures because, whilst the Group owns less than 50.0% of these entities, it does have joint control of their operating and financial policies.

The Group’s share of the assets and liabilities of the joint ventures as reported in these consolidated financial statements at 31 December 2013 and 2012 is set out in the following table.

2013 2012 €m €m Non-current assets 4.6 7.6 Current assets 11.5 21.5 Total assets 16.1 29.1 Non-current liabilities – – Current liabilities (9.3) (19.7) Total liabilities (9.3) (19.7)

The Group’s share of the revenues and operating profit for the joint ventures as reported in these consolidated financial statements for the years ended 31 December 2013 and 2012 is set out in the following table.

Year ended Year ended 31 December 31 December 2013 2012 €m €m Revenue 63.9 104.8 Expense (60.8) (99.2) Operating profit 3.1 5.6 Profit for the year 1.7 4.1

22. Inventories

2013 2012 €m €m Raw materials 2.9 3.2 Work in progress 0.1 0.2 Finished goods and merchandise 0.6 0.8 Total 3.6 4.2

Mecom Group plc Annual Report and Accounts 2013 93 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

23. Trade and other receivables

2013 2012 Note €m €m Trade receivables 66.1 82.2 Less: provision for doubtful debts 26 (9.2) (10.9) Net trade receivables 56.9 71.3 Prepayments 6.8 6.2 Other receivables 7.1 14.2 Total 70.8 91.7 Classified between financial assets and non-financial assets as: 26 Financial assets 64.0 85.5 Non-financial assets 6.8 6.2

Under IFRS, prepayments of €6.8m (2012: €6.2m) are classified as non-financial assets.

There are no significant concentrations of credit risk within the Group. The maximum credit risk exposure relating to financial assets is represented by their carrying amount at the balance sheet date.

24. Cash and cash equivalents

2013 2012 Note €m €m Cash at bank and in-hand 46.7 35.4 Bank overdrafts (13.5) (16.8) Cash and cash equivalents classified as assets held for sale 14 – 10.0 Cash and cash equivalents per the consolidated cash flow statement 33.2 28.6

As at 31 December 2013 €15.8m of the cash at bank was held in accounts which were eligible for offset under the Group’s financing arrangements against the bank overdrafts (2012: €13.5m).

25. Borrowings

2013 2012 €m €m Bank overdrafts (13.5) (16.8) Bank borrowings (67.5) (153.8) Other (3.8) (4.0) Total (84.8) (174.6)

Shown in the consolidated balance sheet as: Non-current (3.5) (3.7) Current (81.3) (170.9)

At 31 December 2013, current borrowings of €81.3m (2012: €170.9m) comprise gross bank borrowings of €69.7m under the bank facility that has been extended and which includes repayments of €7.3m (2012: €14.6m) which will be paid in three quarterly instalments of 5.00% over the outstanding term loans at 31 March 2014 to 30 September 2014 (2012: repaid in quarterly instalments of 3.75% over the outstanding term loans in 2013), unamortised debt issue costs of €2.2m (2012: €0.9m), bank overdrafts of €13.5m (2012: €16.8m) and other borrowings of €0.3m (2012: €0.3m).

94 Mecom Group plc Annual Report and Accounts 2013 25. Borrowings continued

The Group’s net debt is as follows:

2013 2012 Note €m €m Cash and cash equivalents 24 46.7 35.4 Cash and cash equivalents included within assets classified as held for sale 14, 24 – 10.0 Borrowings (84.8) (174.6) Obligations under finance leases 31 – (0.3) Total net debt (38.1) (129.5)

The Group’s average net debt for 2013 was €114.7m (2012: €224.5m).

The movement in the Group’s net debt in the years ended 31 December 2013 and 2012 is presented below. Since the proceeds and repayment of borrowing obligations from cash and cash equivalents have no effect on net debt, various financing flows from the consolidated cash flow statement itself do not appear in the table.

2013 2012 Note €m €m Net debt at 1 January (129.5) (258.5) Non-cash movements: Amortisation of debt issue costs 12 (2.4) (1.5) Finance charges payable under finance leases 12 – (0.1) Capitalisation of debt issue costs 3.6 – Cash movements: Net cash from/(used in) operating activities 37.0 (30.9) Net cash from investing activities 71.3 192.9 Interest and other finance expenses paid (7.7) (14.1) Fees paid on renegotiation of Group’s bank facilities (3.8) – Other fees paid – (0.5) Acquisition of non-controlling interest (0.9) (0.3) Sale of own shares 1.5 – Dividends paid (6.7) (18.7) Exchange differences (0.5) 2.2 Net debt at 31 December (38.1) (129.5)

Mecom Group plc Annual Report and Accounts 2013 95 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

25. Borrowings continued

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

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

Previous facility Amended facility (until 25 February 2013) (from 25 February 2013) Facility amount Term €71.7m (2011: €292.6m) €135.0m RCF €200.0m (2011: €200.0m) €115.0m Total €271.7 m (2011: €492.6m) €250.0m Expiry date 31 October 2013 31 October 2014 Margin Term Loan Leverage greater than 3.0x 3.5% n/a Leverage greater than 2.5x but equal to or less than 3.0x 3.0% n/a Leverage greater than 2.0x but equal to or less than 2.5x 2.5% 4.0% to 31/12/13 4.5% to 31/10/14 Less than 2.0x 2.0% 3.25% to 31/12/13 3.75% to 31/10/14 RCF Loans Leverage greater than 2.0x 3.0% As above Leverage less than or equal to 2.0x 2.5% As above Financial covenants Leverage 3.0x Up to 31/12/13 – 2.5x From 31/03/14 – 2.25x Interest Cover 4.0x 4.5x Free Cash Flow €63.0m €63.0m up to 31/03/13 Debt Service Cover ratio n/a Not to be less than 1.1x from 30 June 2013 Amortisation – Term Loan €5.0m per quarter From 30 June 2013 to 31 December – 3.75% of loans outstanding From 31 March 2014 – 5.00% of loans outstanding

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

An amendment fee of 100 basis points was paid to the banks on completion of the extension agreement in February 2013; a further duration fee of 50 basis points is payable on 1 April 2014 on any facility commitments outstanding at that date, although the Group expects to have replaced the current facilities before then.

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

96 Mecom Group plc Annual Report and Accounts 2013 25. Borrowings continued

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

• acquisitions – approval of the lending banks is needed for any acquisition of consideration greater than €10m; • disposals – disposals made by the Group must result in a reduction in the Group’s leverage; • restrictions on total capital expenditure and exceptional items to be tested annually; • dividends – the Group is permitted to make dividends only in accordance with the Group’s current dividend policy and only if the leverage of the Group, taking into account the dividend, is less than 2.5 times in respect of dividends related to earnings, is less than 2.25 times in respect of dividends related to 2013 earnings and less than 2.0 times in respect of dividends related to 2014 earnings; • negative pledge – the Group is restricted from entering into other borrowing arrangements, subject to a de-minimus allowance of €5m and excluding certain existing borrowing arrangements; and • events of default – various events will result in an event of default under the facility, including (but not limited to) cross-defaults, insolvency of obligors or guarantors, litigation which is likely to have a material adverse effect on the financial position of the Group and a qualified audit opinion. The facilities agreement also contains a provision that it will be an event of default if shareholders of Mecom fail to provide their approval (where such approval is required) to a disposal where the Group has agreed the terms for such disposal with a prospective purchaser.

At 31 December 2013 and 2012, the Group’s bank borrowings were secured by a charge over certain of the Group’s assets, primarily through pledges over the shares of its subsidiaries.

Warrants were issued to the Group’s lending banks as part of the amendment of terms in May 2009. Warrants over 692,646 (2012: 692,646) of the Company’s shares were outstanding at the balance sheet date.

(ii) Repayment profiles of bank borrowings at 31 December 2013 and 2012 In the year the Group repaid €7.9m of term loan (2012: €20.0m) under the terms of the facility (being three quarterly repayments of €3.3m, €2.6m and €2.0m, respectively, on 30 June 2013, 30 September 2013 and 31 December 2013) and €76.1m from various disposals made during the year. Total bank borrowings were further reduced by €1.0m due to lower drawings under the RCF. At 31 December 2013 and 2012, the outstanding term loan had the following repayment profile:

2013 2012 €m €m Amended facility: June, September and December 2013 (3.75% of the outstanding term loan) – 14.6 March, June and September 2014 (5.0% of the outstanding term loan) 7.3 17.2 October 2014 43.7 103.2 Total 51.0 135.0

The repayment profile for 2013 shows the repayments as agreed under the amended facility.

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

(iii) Analysis of bank borrowings at 31 December 2013 and 2012 At 31 December 2013 and 2012, the amounts drawn under terms loans and the RCF, together with the amount of related unamortised debt issue costs, are set out below.

2013 2012 €m €m Term loans (51.0) (71.7) RCF (18.7) (83.0) Total bank borrowings (gross) (69.7) (154.7) Related unamortised debt issue costs 2.2 0.9 Total bank borrowings (net) (67.5) (153.8)

Although the Group’s term loans and RCF are multi-currency facilities, at 31 December 2013 and 2012 all actual underlying gross bank borrowings (terms loans and RCF) were denominated in euros.

Mecom Group plc Annual Report and Accounts 2013 97 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

25. Borrowings continued

(iv) Leverage ratios for years ended 31 December 2013 and 2012

2013 2012 Term loans and RCF €m €m Leverage 0.5 1.4 Interest cover 14.7 7.6

The Group’s leverage covenant under its facility agreement (which is calculated on the same basis as the above), is for actual leverage to be less than 2.5 times at 31 December 2013.

(v) New bank facilities agreed post-balance sheet date The Group signed facilities agreements for two new standalone banking facilities, one in Denmark and one in the Netherlands (together totalling €140.0m) on 17 March 2014 and expects to complete the repayment of its existing amended facilities by 31 March 2014. The key terms of the new facilities are as follows.

The Danish facilities total DKK300.0m (c.€40.0m) and comprise a term loan of DKK225.0m (c.€30.0m) and revolving credit facilities of DKK75.0m (c.€10.0m). Margin of 325 basis points is payable under the facilities, reducing to 250 points below leverage (as defined in the agreement) of 0.5 times. The revolving facilities expire in four years and the term loan amortises within three years.

The Dutch facilities total €100.0m and comprise a term loan of €25.0m and revolving credit facilities of €75.0m. Margin of 300 basis points is payable on term loan borrowings and margin of 225 basis points is payable on revolving credit borrowings. The revolving facilities expire in three years and the term loan amortises within three years.

Each facility contains financial covenants that are customary in each banking market and certain restrictions related to the operation of the business (such as requiring consent from lending banks for certain corporate activities) and to maintaining financial separation between the two banking facilities (such as restricting certain cash flows from each financing). The term loans in each set of facilities are required to be prepaid in certain events, such as the disposal of businesses.

Other loans Other loans at 31 December 2013 include a floating-rate mortgage of€ 0.3m (2012: €0.3m) that expires in December 2017. During 2013, the average interest rate of this mortgage was 4.0% (2012: 4.0%).

Also included in other loans at 31 December 2013 is a variable-rate unsecured Danish krone loan for €0.5m (2012: €0.5m). This loan expires in 2018, with interest being charged at CIBOR plus 2.0%.

At 31 December 2013, the Group, via certain of its subsidiaries, also has two fixed-rate Danish krone loans (one secured, one unsecured) for €3.0m (2012: €3.0m) which expire in 2039 and 2015 respectively. Interest is charged on the secured loan at 6.0% and on the unsecured loan at 4.0%.

26. Financial risk management

Overview The Board has overall responsibility for the establishment and oversight of the Group’s risk management, including financial risks. The Group’s Audit Committee has been given delegated responsibility for developing and monitoring the Group’s risk management policies.

The Group’s principal financial instruments comprise bank borrowings and cash and cash equivalents, the main purpose of which is to provide finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operating activities.

The Group’s key financial risks arising from its operating activities and its financial instruments are:

• market risk (including interest rate risk, foreign exchange risk and funding risk); • liquidity risk; and • credit risk.

The Group used derivatives and other financial instruments (principally interest rate swaps) in the past to reduce these risks in accordance with the Group’s financial policy as set out below. The Group did not trade or enter into any speculation in derivatives.

98 Mecom Group plc Annual Report and Accounts 2013 26. Financial risk management continued

Interest rate risk Interest rate risk arises primarily from the Group’s long-term borrowings, being the risk that a movement in interest rates will affect the Group’s obligations, cash flows and net earnings. The Group previously decided, in light of the Strategic Review process and the relatively low interest rate risk profile, not to hedge interest rates under the amended and extended facility. The Group expects to enter into hedges under one or both of the new facilities explained above to match the policy explained in the Group Finance Director’s Report.

Below is a profile of the Group’s fixed rate and variable rate instruments that comprise net debt.

Carrying amount 2013 2012 Note €m €m Fixed rate instruments: Bank borrowings (see below for further details) – (100.0) Other borrowings 25 (3.0) (3.2) Obligations under finance leases 31 – (0.3) Total fixed rate instruments (3.0) (103.5) Variable rate instruments: Cash and cash equivalents (including amounts classified as held for sale) 24 46.7 45.4 Bank overdrafts 25 (13.5) (16.8) Bank borrowings (see below for further details) (69.7) (54.7) Other borrowings 25 (0.8) (0.8) Total variable rate instruments (37.3) (26.9) Total fixed rate and variable rate instruments (40.3) (130.4) Unamortised debt issue costs 25 2.2 0.9 Net debt 25 (38.1) (129.5)

Bank borrowings of €100.0m classified as fixed rate instruments at 31 December 2012 represent floating borrowings where the exposure was effectively fixed at that date due to assigned floating to fixed interest rate swaps. No such swap contracts were outstanding as at 31 December 2013.

Interest charges on financial instruments classified as floating rate were re-priced at intervals of less than one year. Interest on financial instruments classified as fixed rate were fixed until the maturity of the instrument. The other financial instruments of the Group are not included in the table above because they are non-interest bearing and therefore not subject to interest rate risk.

Floating rate financial assets comprise cash and deposits on money market deposits at call, seven day and monthly rates.

The Group’s other financial assets do not accrue interest and have no fixed maturity date.

Interest rate swap contracts With interest rate swap contracts, the Group enters into an agreement to exchange the difference between floating and fixed rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to manage the risk of a change in underlying interest rates on the Group’s cash flows, as further explained in the Group Finance Director’s Report. The fair value of the interest rate swaps at the balance sheet date is determined by discounting the future cash flows using yield curves at the balance sheet date. As set out in Note 32, the fair value of interest rate swaps at 31 December 2013 was €nil liability (2012: €0.7m net liability).

Mecom Group plc Annual Report and Accounts 2013 99 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

26. Financial risk management continued

The position with regard to interest rate swaps at 31 December 2012 was as follows:

Average fixed Notional Floating Year of interest Currency principal rate basis maturity rate Interest rate swaps at 31 December 2012 Not part of a cash flow hedge arrangement Euro 65.0m Quarterly 2013 1.6% (floating rate proceeds with fixed rate payments) Euro 35.0m Quarterly 2013 2.3%

The movements in the cash flow hedge reserve are disclosed in the consolidated statement of changes in equity on page 57.

Sensitivity analysis for variable rate instruments The following table shows the sensitivity of the Group’s profit before tax and net assets or equity, arising from the effect on the Group’s variable rate financial assets and liabilities, to an interest rate and parallel yield curve shift of 2%. This assumes the interest- bearing borrowings in existence at these dates remain constant at the underlying interest rates, with all other variables held constant.

Effect on profit before tax Effect on net assets/equity 2% increase 2% decrease 2% increase 2% decrease €m €m €m €m 31 December 2013 (0.7) 0.7 (0.7) 0.7 31 December 2012 (2.0) 2.0 (2.0) 2.0

A 2% increase in interest rates has been used and represents the assessment of a reasonably possible change.

Foreign exchange risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. In the case of the Group’s operations themselves, the exposure of the Group to this risk is limited because in general each of the operating companies sells its products and incurs its costs in the territory where it operates. Consequently, there is an immaterial amount of assets and liabilities denominated in a currency other than the functional currency of the holder.

Funding risk Funding risk is the risk associated with maintaining the Group’s long-term borrowing arrangements. This includes the risk of obtaining less favourable terms on refinancing, the risk of not meeting covenant requirements and the risks associated with a concentration of maturity or counterparty.

Capital management Capital comprises equity attributable to Mecom Group plc shareholders. The Group’s capital management policy is to ensure appropriate capital ratios are maintained in order to support the business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. The Board has proposed no dividend in respect of 2013 and has concluded that no dividend will be paid in respect of the 2014 financial year. No other changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2013 and 31 December 2012.

The Group monitors its capital and funding structure using net debt to adjusted Group EBITDA ratio.

2013 2012 Note €m €m Cash and cash equivalents (including amounts classified as held for sale) 24 46.7 45.4 Borrowings 25 (84.8) (174.6) Obligations under finance leases 31 – (0.3) Total net debt (38.1) (129.5) Adjusted EBITDA1 7 80.0 89.5 Net debt to adjusted EBITDA ratio (times) 0.5 1.4

1 Excludes the results of businesses disposed of during the period, as required for covenant reporting purposes.

100 Mecom Group plc Annual Report and Accounts 2013 26. Financial risk management continued

Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group aims to mitigate liquidity risk by ensuring the presence of flexible borrowing facilities and managing the cash generation of its operations. The Group places the majority of its cash in interest-bearing bank accounts and on short-term deposit. The Group monitors short- and medium- term interest rates and places cash on deposit for periods to optimise the amount of interest earned while maintaining access to sufficient funds to meet day-to-day cash requirements.

Debt maturities are spread over a range of dates where possible and the Group makes early repayments where possible, thereby ensuring that the Group is not exposed to excessive refinancing risk in any one year. The Group’s liquidity risk arises from timing differences between cash inflows and outflows. The Group manages these risks through committed credit facilities. As further described in Note 25, the Group’s current bank borrowing facilities expire in October 2014 and the Group has agreed new financing facilities that extend for at least three years.

The following are the contractual undiscounted cash flows of the Group’s financial liabilities:

More than Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total 31 December 2013 €m €m €m €m €m €m €m Bank overdrafts (13.5) – – – – – (13.5) Bank borrowings (72.0) – – – – – (72.0) Other loans (0.3) (0.3) (0.2) (0.2) (0.3) (4.5) (5.8) Trade and other payables (80.4) (0.1) – – – – (80.5) Obligations under finance leases – – – – – – – Onerous contract provisions (3.2) (2.6) (1.4) (1.1) (0.6) (2.1) (11.0) Total (169.4) (3.0) (1.6) (1.3) (0.9) (6.6) (182.8)

More than Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total 31 December 2012 €m €m €m €m €m €m €m Bank overdrafts (16.8) – – – – – (16.8) Bank borrowings (159.5) – – – – – (159.5) Other loans (0.5) (0.5) (0.5) (0.4) (0.3) (4.4) (6.6) Trade and other payables (101.3) (0.4) – – – – (101.7) Obligations under finance leases (0.3) – – – – – (0.3) Onerous contract provisions (2.7) (2.1) (1.6) (1.0) (0.9) (2.7) (11.0) Interest rate swaps – cash flow hedges (0.7) – – – – – (0.7) Total (281.8) (3.0) (2.1) (1.4) (1.2) (7.1) (296.6)

Contractual undiscounted cash flows under bank borrowings of €72.0m at 31 December 2013 (2012: €159.5m) represent the repayment of gross bank borrowings in the consolidated balance sheet (see Note 25) at 31 December 2013 of €69.7m (2012: €154.7m) together with the estimated future interest payments of €2.3m (2012: €4.8m).

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. The Group has procedures and guidelines in place to limit credit risks for each counterparty or market as follows:

• credit is only extended to new customers after their credit-worthiness has been assessed. External agencies are used to assess the credit-worthiness of significant customers; • credit limits are reviewed at least annually; and • new sales orders are not approved if the customer is in excess of its approved credit limit and/or payments are overdue.

Credit risk is reduced further by requiring that subscriptions to the Group’s newspapers are payable in advance.

Mecom Group plc Annual Report and Accounts 2013 101 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

26. Financial risk management continued

Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 December 2013 and 2012 was:

Carrying amount 2013 2012 Note €m €m Trade and other receivables 23 64.0 85.5 Cash at bank and in-hand (including amounts classified as held for sale) 24 46.7 39.0 Short-term deposits (including held for sale) 24 – 6.4 Total 110.7 130.9

The maximum exposure to credit risk for trade receivables at 31 December 2013 and 2012 by geographic region was:

Carrying amount 2013 2012 €m €m The Netherlands 28.3 35.1 Denmark 28.7 36.2 Total 57.0 71.3

The movements in the provision for doubtful debts in respect of trade receivables in 2013 and 2012 were as follows:

2013 2012 €m €m Balance at 1 January (10.9) (12.5) Net total of disposals of businesses and business combinations 0.2 – Transfer to assets held for sale – 1.1 Provision recognised during the year (0.2) (2.7) Utilisation 1.7 3.2 Balance at 31 December (9.2) (10.9)

The provision for doubtful debts is used to record provisions unless the Group is satisfied that no recovery of the amount owing is possible; at that point amounts outstanding are considered irrecoverable and written-off against the trade receivable directly.

2013 2012 Gross Amount Unimpaired Gross Amount Unimpaired receivables provided amount receivables provided amount Days past due €m €m €m €m €m €m Not past due 42.2 (1.6) 40.6 47.5 (1.0) 46.5 Up to 90 days 16.1 (1.8) 14.3 25.4 (3.0) 22.4 Greater than 90 days but less than 120 days 0.4 (0.1) 0.3 0.7 (0.3) 0.4 Greater than 120 days but less than 180 days 0.8 (0.4) 0.4 1.2 (0.5) 0.7 Greater than 180 days 6.6 (5.3) 1.3 7.4 (6.1) 1.3 Balance at 31 December 66.1 (9.2) 56.9 82.2 (10.9) 71.3

Interest rates used for determining fair value Interest rates related to bank borrowings for the Group at 31 December 2013 and 2012 were linked to EURIBOR. At 31 December 2013 and 2012, certain other loans were linked to CIBOR.

Fair value of financial assets and financial liabilities As permitted by IFRS, the Group does not disclose the fair value of its financial assets and financial liabilities for both 2013 and 2012 because the carrying amounts of these are a reasonable approximation of fair value.

The fair value of interest-bearing loans is calculated based on discounting expected future principal and finance cash flows using the prevailing interest rate applicable to each loan. The fair value of interest rate swaps is calculated by discounting the expected future cash flows using prevailing market interest rates as at the balance sheet date.

102 Mecom Group plc Annual Report and Accounts 2013 26. Financial risk management continued

Assets and liabilities measured at fair value IFRS 13 Fair Value Measurement uses a three-level hierarchy for determining the fair value of financial instruments: valuation at level one is done on the basis of quoted market prices; valuation at level two involves the use of models with input variables based on identifiable market values; and level three concerns valuation in cases in which the value of financial instruments cannot be derived from market values. The method selected for the Group’s financial instruments, being interest rate swaps, comes under level two.

2013 2012 Level two Level two Description €m €m Financial liabilities at fair value through profit or loss – Interest rate swaps – (0.7) Total – (0.7)

27. Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate relevant to each tax jurisdiction. Deferred tax assets and liabilities are attributable to the following items: Assets Liabilities Net 2013 2012 2013 2012 2013 2012 €m €m €m €m €m €m Amounts relating to: Accelerated tax/(book) depreciation 0.3 0.3 0.1 (0.4) 0.4 (0.1) Employee benefits 6.4 7.5 (0.8) – 5.6 7.5 Tax losses 12.2 15.7 – – 12.2 15.7 Acquired intangibles – – (76.1) (90.8) (76.1) (90.8) Other temporary differences 0.4 – 0.1 (0.7) 0.5 (0.7) Total 19.3 23.5 (76.7) (91.9) (57.4) (68.4)

The movements in deferred tax assets and liabilities during the years ended 31 December 2013 and 2012 are shown below.

Deferred tax assets Amounts relating to: Accelerated Other tax Employee Financial temporary depreciation benefits Tax losses instruments differences Total €m €m €m €m €m €m At 31 December 2011 0.2 5.6 14.6 0.2 3.2 23.8 Transfer to assets classified held for sale (0.8) (0.1) (0.5) – 0.1 (1.3) Credit/(charge) to income 0.5 2.0 1.1 – (3.3) 0.3 Charge to equity – – – (0.2) – (0.2) Acquisition – – 0.1 – – 0.1 Divestments 0.4 – 0.4 – – 0.8 At 31 December 2012 0.3 7.5 15.7 – – 23.5 Credit/(charge) to income 0.1 (0.7) (4.2) – 0.8 (4.0) Divestments (0.1) (0.4) 0.7 – (0.4) (0.2) At 31 December 2013 0.3 6.4 12.2 – 0.4 19.3

Deferred tax assets are recognised to the extent that the Group expects there to be sufficient future taxable profits against which the asset can be recovered. The carrying amounts of deferred tax assets are reviewed at each balance sheet date.

Included within the charge to the consolidated income statement of €4.0m (2012: €0.3m) is a credit of €0.9m (2012: €1.4m) relating to the recognition of previously unrecognised deferred tax assets, as discussed further in Note 13.

Mecom Group plc Annual Report and Accounts 2013 103 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

27. Deferred tax continued

Unrecognised deferred tax assets At 31 December 2013, the Group had gross tax losses of €87.9m (2012: €95.4m) that are available indefinitely for offset against future taxable profits of the companies in which these losses arose but in respect of which no deferred tax assets have been recognised. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group and they have arisen in subsidiaries and joint ventures in which the likelihood of generating sufficient taxable profits in the foreseeable future to utilise these assets is not high enough to warrant recognition in the balance sheet.

At 31 December 2013, the amount of unrecognised deferred tax assets was €53.3m, (including the tax losses noted above as well as available tax depreciation in Denmark and other temporary differences), all of which is attributable to subsidiaries of the Group. At 31 December 2012, unrecognised deferred tax assets totalled €65.2m all of which was attributable to subsidiaries of the Group.

Deferred tax liabilities

Amounts relating to: Accelerated Other Acquired book Employee temporary intangibles depreciation benefits differences Total €m €m €m €m €m At 31 December 2011 (105.0) (1.9) (0.3) (0.3) (107.5) Transfer to liabilities directly associated with assets classified as held for sale – 0.6 – – 0.6 Credit/(charge) to income 14.2 1.0 – (2.3) 12.9 Charge to equity – – 0.3 – 0.3 Divestments – (0.1) – 1.9 1.8 At 31 December 2012 (90.8) (0.4) – (0.7) (91.9) Credit/(charge) to income 11.5 0.1 (0.2) 0.5 11.9 Divestments 3.2 0.4 (0.6) 0.3 3.3 At 31 December 2013 (76.1) 0.1 (0.8) 0.1 (76.7)

Temporary differences associated with Group investments At 31 December 2013 and 2012, there were no recognised deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, interests in associates and joint ventures because the Group is able to control the timing of any such remittance.

The Directors have performed a review at 31 December 2013 and 2012 to identify temporary differences associated with investments in subsidiaries, interests in associates and joint ventures for which deferred tax liabilities have not been recognised. Based on that review the Directors are satisfied that no significant temporary differences of this nature exist.

28. Trade and other payables

2013 2012 €m €m Trade payables (38.7) (38.8) Prepaid subscriptions (94.7) (101.3) Holiday pay and holiday allowances (36.8) (44.9) Payroll taxes (6.9) (7.1) Other payables and accrued expenses (67.1) (93.7) Total (244.2) (285.8) Classified between financial liabilities and non-financial liabilities (see Note 26) as: Financial liabilities (80.4) (101.3) Non-financial liabilities (163.8) (184.5)

Other payables and accrued expenses at 31 December 2013 and 2012 principally comprise amounts outstanding for general operating costs that are un-invoiced and unpaid staff costs.

Trade and other payables classified as financial liabilities at 31 December 2013 include trade payables €38.7m (2012: €38.8m) and amounts within other payables and accrued expenses of €41.7m (2012: €62.5m) which exclude, amongst other things, VAT and other taxes payable and certain accrued staff-related costs.

104 Mecom Group plc Annual Report and Accounts 2013 29. Provisions

Restructuring and Onerous redundancy contracts Total €m €m €m At 31 December 2012 (23.6) (10.3) (33.9) Provisions recognised in year (38.1) (2.6) (40.7) Utilisation of provisions 26.8 2.6 29.4 Reversal of provisions 1.8 – 1.8 Unwinding of discounts (0.1) (0.2) (0.3) At 31 December 2013 (33.2) (10.5) (43.7) Shown in the consolidated balance sheet as: Non-current (7.8) (7.3) (15.1) Current (25.4) (3.2) (28.6)

The expected phasing of the utilisation of the Group’s non-current provisions at 31 December 2013 is as follows:

Restructuring and Onerous redundancy contracts Total €m €m €m After one year but not more than two years (payable 2015) (6.6) (2.5) (9.1) After two years but not more than three years (payable 2016) (1.2) (1.3) (2.5) After three years but not more than four years (payable 2017) – (1.0) (1.0) After four years but not more than five years (payable 2018) – (0.6) (0.6) More than five years (payable 2019 and beyond) – (1.9) (1.9) At 31 December 2013 (7.8) (7.3) (15.1)

Restructuring and redundancy Restructuring and redundancy provisions represent future cash flows related to the cost of redundancy plans, outplacement, supplementary unemployment benefits and senior staff benefits. Such provisions are only recognised when restructuring or redundancy programmes are formally adopted and announced publicly and the general recognition criteria of IAS 37 Provisions, Contingent Liabilities and Contingent Assets are met.

Where discounting is used, the increase in the provision due to unwinding the discount is recognised as an exceptional finance expense. Charges arising from unwinding of discounts during the year amounted to €0.1m (2012: €0.4m). The change in the discount rate used in the year did not have a significant impact on this charge.

These provisions are expected to be utilised within three years from the balance sheet date (2012: within two years).

Onerous contracts Provisions for onerous contracts are recognised when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and the general recognition criteria of IAS 37Provisions, Contingent Liabilities and Contingent Assets are met. Any changes in provisions for onerous contracts that impact the consolidated income statement (other than the unwinding of discounts) are generally treated as exceptional operating items (see Note 11). Where discounting is used, the increase in the provision due to unwinding the discount is generally recognised as an exceptional finance expense.

Vacant office space The onerous contract provision is related to vacant office space and amounts to €10.5m at 31 December 2013 (2012: €10.3m). An additional charge of total €2.6m was made as a consequence of an increase of vacant office space during 2013. Charges arising from unwinding of discounts during the year amounted to €0.2m (2012: €0.2m). €2.6m of this provision was utilised in 2013 (2012: €1.4m). The onerous contracts provision is expected to be utilised by early 2022, which is approximately nine years from the balance sheet date (31 December 2012: within five years).

Mecom Group plc Annual Report and Accounts 2013 105 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

30. Employee benefit obligations

2013 2012 €m €m “Moratorium agreement” obligation (18.8) – Unfunded employee benefit obligations (8.2) (38.5) Total employee benefit obligations (27.0) (38.5)

Defined contribution plans The Group participated in defined contribution pension plans in the Netherlands and Denmark in 2013 and also in the Norwegian discontinued operations for the year 2012.

During the year, the Group recognised expenses for defined contribution plans of €22.9m (2012: €25.9m) from continuing operations and €nil (2012: €3.0m) from discontinued operations.

Moratorium agreement In 2013, agreement was reached at Wegener for changes with regard to the unfunded “moratorium shortfall” commitment (explained further below). As a result, Wegener’s total commitment in respect of the moratorium is now fixed at€ 19.7m over a period of 72 months, starting from 1 January 2014. In the new agreement it is stipulated that actuarial effects are no longer for the account of Wegener. As a result of these changes, the unfunded “moratorium shortfall” commitment no longer meets the defined benefit obligation criteria and is therefore reclassified as an obligation in respect of “moratorium agreement” at the end of 2013. This commitment is recorded as its discounted value of €18.8m (2012: €nil).

The expected phasing of the utilisation of the Group’s moratorium agreement obligation at 31 December 2013 is as follows:

Moratorium €m Within one year (payable 2014) (3.3) After one year but not more than two years (payable 2015) (3.2) After two years but not more than three years (payable 2016) (3.2) After three years but not more than four years (payable 2017) (3.1) After four years but not more than five years (payable 2018) (3.0) More than five years (payable 2019 and beyond) (3.0) Total employee benefit obligations (18.8)

From 1 January 2010, the Pensioenfonds voor de Grafische Bedrijven (“PGB”), a multi-employer pension arrangement for the Dutch graphical industry, administers all pension plans for Wegener employees. Under the terms of the arrangement between Wegener and the PGB, it was agreed that Wegener would pay a total pension premium of 25.7% to the PGB. It was also agreed that of this premium, 4.2% would be allocated to fund certain benefits for members of that scheme up to 2012, known as the “moratorium shortfall” within Wegener. This moratorium shortfall related to a service accrual which was not granted for salary increases between 2002 and 2004, when the Algemeen Pensioenfonds Wegener (“APW”, a former Wegener pension plan), which was then a final salary pension plan, faced funding difficulties and negotiations to determine Wegener’s pension arrangements were underway between the APW, Wegener and workers’ representatives. Neither APW, nor Wegener, were obliged to compensate for any of such non-granted commitments at a later time (although the APW had stated its ambition to provide the relevant past service benefits over time to the extent that it was able to do so and in practice had granted these benefits as cohorts of employees entered retirement) and, consequently, no balance sheet reserves were established. As part of the transfer of the APW to the PGB, it was agreed that a commitment would be made to fund this moratorium shortfall, with these benefits to be provided to scheme members in the future by the PGB once the transfer of the APW had been completed. Initially, the premium of 4.2% continued to be payable by Wegener until this shortfall had been funded. Following an adjustment in 2013, however, the Group’s commitment has been fixed to the payments set out in the table above.

Defined benefit obligations Pensions The Group has no separate funded schemes. In 2012 all funded schemes within the Group were derecognised due to the sale of the Norway activities and the agreement that future pensions of LMG would be provided by the PGB, resulting in the derecognition of this plan since it no longer met the defined benefit obligation criteria as explained below.

106 Mecom Group plc Annual Report and Accounts 2013 30. Employee benefit obligations continued

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

As part of the pension changes, the Company agreed to make a further contribution to the scheme. An accrual of €3.2m was made in this regard at the end of 2012, which was paid to the PGB during 2013.

The funding accrual and costs related to the transfer of this pension plan in 2012 were accrued as an exceptional item in the accounts as set out in Note 11.

Unfunded employee benefit obligations The Group has a number of unfunded employee benefit obligations that fall to be accounted for as a defined benefit obligation, mostly consisting of early retirement and jubilee obligations.

The unfunded employee benefit obligations can be specified as follows:

2013 2012 €m €m Unfunded defined benefit obligations Early retirement plans (4.4) (7.4) “Moratorium shortfall” commitment – (19.1) Jubilee (2.5) (8.2) Other (1.3) (3.8) Total unfunded defined benefit obligations (8.2) (38.5)

The expected phasing of the utilisation of the Group’s unfunded employee benefit obligation at 31 December 2013 is as follows:

Unfunded employee benefit obligations €m Within one year (payable 2014) (1.9) After one year but not more than two years (payable 2015) (0.8) After two years but not more than three years (payable 2016) (0.4) After three years but not more than four years (payable 2017) (0.5) After four years but not more than five years (payable 2018) (0.5) More than five years (payable 2019 and beyond) (4.1) Total employee benefit obligations (8.2)

Liabilities and costs for the Group’s unfunded employee benefit obligations are calculated by independent actuaries, using the projected unit credit method.

Mecom Group plc Annual Report and Accounts 2013 107 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

30. Employee benefit obligations continued

Key assumptions The key assumptions relating to the unfunded employee benefit obligations which exist at 31 December 2013 can be summarised as follows:

2013 2012 Mortality tables AG 2012–2062 AG 2012–2062 Discount rate 1.7% 1.9% Expected inflation 2.0% 2.0% General pay rise 2.25% 2.25% Career-related pay rise 3% to age 45 3% to age 45 0% from age 45 and up 0% from age 45 and up Chance of dismissal 10% to age 26 10% to age 26 straight-line reduction to 0% from age 26 to age 60 straight-line reduction to 0% from age 26 to age 60 Mortality trend mark-up TW – mortality experience TW – mortality experience

The Group has performed sensitivity analysis on the carrying value of its employee benefit obligations. Based on this analysis the Directors have concluded that a reasonably possible change in any of the key assumptions used to calculate the employee benefit obligations (being a 1 percentage point change in either discount rate or expected salary increases or a one year change in life expectancy) would not result in a change of more than €0.5m to the carrying value of employee benefit obligations. The relatively low sensitivity of the obligations to these assumptions is a function of the size of the remaining liabilities, their relatively short remaining lives and the terms of the various schemes.

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

Year ended Year ended 31 December 31 December 2013 2012 €m €m Opening liabilities at 1 January (38.5) (162.8) Current service cost (0.4) (1.4) Past service (cost)/credit (1.7) 3.5 Interest cost (0.6) (10.2) Contributions by plan participants – (1.5) Curtailment gains 6.6 – Benefits paid 7.5 13.1 Actuarial gains/(losses) 0.1 (41.3) Derecognition of moratorium obligations and LMG plan liabilities 18.8 162.1 Closing liabilities at 31 December (8.2) (38.5)

The curtailment gains are related to the release of “jubilee” provision for long-term service entitlements and expired back service obligations as set out in Note 11.

All of the present value of employee benefit obligations at 31 December 2013 and 2012 relates to the Netherlands operating segment.

108 Mecom Group plc Annual Report and Accounts 2013 30. Employee benefit obligations continued

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

Year ended 31 December 2013 Year ended 31 December 2012 Before Exceptional After Before Exceptional After exceptional items exceptional exceptional items exceptional items (Note 11) items items (Note 11) items €m €m €m €m €m €m Recognised within operating costs: Continuing operations: Current service cost (0.4) – (0.4) (1.4) – (1.4) Past service (cost)/credit (1.7) – (1.7) 3.5 – 3.5 Curtailment gains/(losses) 0.9 5.7 6.6 – (4.8) (4.8) Interest cost (0.6) – (0.6) (10.2) – (10.2) Expected return on plan assets – – – 4.8 – 4.8 Total recognised within Group operating costs (1.8) 5.7 3.9 (3.3) (4.8) (8.1)

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

Year ended Year ended 31 December 31 December 2013 2012 €m €m Experience gains and losses 0.1 (0.2) Actual return less expected return on plan assets n/a 8.5 Changes in assumptions underlying present value of liabilities n/a (41.1) Effect of asset capping recognised directly in equity n/a 31.8 Total 0.1 (1.0)

The cumulative amount of actuarial gains and losses recognised in other comprehensive income within the consolidated statement of comprehensive income (on a pre-tax basis) up to 31 December 2013 is a charge of €10.1m (up to 31 December 2012: €10.2m).

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

Year ended Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 31 December 2013 2012 2011 2010 2009 Experience gains and losses on employee benefit obligations (€m) (0.1) 0.9 1.5 2.3 0.3 Above as percentage of plan liabilities (%) 0.4% (2.7)% (3.8)% (5.1)% (0.8)%

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

Mecom Group plc Annual Report and Accounts 2013 109 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

31. Obligations under finance leases

Present value of minimum lease Minimum lease payments payments 2013 2012 2013 2012 €m €m €m €m Amounts payable under finance leases:

– within one year – (0.3) – (0.3) – in the second to fifth year inclusive – – – – – after five years – – – – – (0.3) – (0.3) Less: future finance charges – – n/a n/a Present value of lease obligations – (0.3) n/a n/a Shown in the consolidated balance sheet as: Non-current – – Current – (0.3)

At 31 December 2013 there were no outstanding obligations under finance leases. In 2012 the average lease term was 0.8 years and the average borrowing rate was 4.0%.

32. Derivative financial instruments

2013 2012 €m €m Fair value of derivatives that are not designated and effective as hedging instruments: Interest rate swaps included within: – current liabilities – (0.7) Total – (0.7)

Further details of derivative financial instruments are provided in Note 26.

33. Share capital and share premium

Authorised share capital As at 31 December 2013 and 31 December 2012 the Group had authorised share capital of £89.1m, being 146,352,049 shares with a nominal value of 60.85888 pence each.

Called up share capital 2013 2012 Number Number of shares Value of shares Value ‘000 €m ‘000 €m Issued and fully paid Balance at 1 January 121,213 89.7 112,554 83.2 Issue of ordinary shares – – 8,659 6.5 Balance at 31 December 121,213 89.7 121,213 89.7

At 31 December 2013 and 2012, the Company had one class of share capital.

During the year, 615,161 ordinary shares (2012: 43,889 ordinary shares) previously issued to the Mecom Employee Benefit Trust (“EBT”, see below for further details) were used to satisfy certain employee share awards. The remaining 1,842,511 shares held by the EBT were sold during 2013.

At 31 December 2013, the Company’s issued share capital comprised 121,212,997 (2012: 121,212,997) ordinary shares with a nominal value of 60.85888 pence each (equivalent to €89.7m at 31 December 2013 and €89.7m at 31 December 2012). For earnings per share purposes none of these ordinary shares (2012: 2,457,672 ordinary shares held by the EBT) are treated as cancelled.

110 Mecom Group plc Annual Report and Accounts 2013 33. Share capital and share premium continued

On 21 May 2012, the Group acquired 5,980,800 depository receipts for ordinary shares in Koninklijke Wegener N.V. (“Wegener”) from funds managed by Governance for Owners. Subsequent to this transaction, the Group’s interest in Wegener for accounting purposes increased from approximately 86.4% to 100.0%. Consequently, the non-controlling interest in the consolidated balance sheet relating to Wegener of €1.5m has been extinguished. As consideration for the acquisition, the Company issued 8,659,201 new ordinary shares with a nominal value of £0.6085888 (equivalent to €0.75325 using the spot rate on the date of the transaction). The total market value of the issued shares on the date of the acquisition was €15.4m, with €6.5m and €8.9m being recorded in issued share capital and share premium, respectively. The difference between the amounts recorded in non-controlling interest (debit of €1.5m) and the total market value of the issued shares (credit of €15.4m) was recorded directly in retained earnings.

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

Contingent rights to shares At 31 December 2013 and 2012, options that were outstanding over ordinary shares were those granted in connection with the operation of the Senior Executive Share Plan (“SESP”) and those granted under the Deferred Bonus Plan (“DBP”), the Savings Related Share Option Scheme and the Executive Share Option Plan (“ESOP”). In addition, share warrants were outstanding at 31 December 2013 and 2012.

Further details of options may be found in the Directors’ Remuneration Report and also in Note 35 to the consolidated financial statements.

34. Other reserves

2013 2012 €m €m Share-based payment reserve 2.9 9.9 Own shares – (5.5) Currency translation reserve 9.4 9.4 Total 12.3 13.8

Share-based payment reserve This reserve represents the accumulated share-based payment expenses the Group has recorded less the accumulated amount of share options and warrants that have been exercised (whether the Company has elected to settle these in shares or cash), forfeited, cancelled or lapsed. In 2013, 633,019 share options and no warrants were exercised (2012: 43,889 share options and 11,789 warrants), and debits totalling €1.4m (2012: €0.1m) were accordingly recorded against this reserve. In addition, during the year the Company made a transfer of €6.2m from this reserve to retained earnings, reflecting accumulated amounts in respect of share options and warrants forfeited, cancelled, lapsed or exercised as at 31 December 2013.

Own shares This reserve represents the value of ordinary shares that were issued to the Mecom Employee Benefit Trust (“EBT”) under a joint ownership award. On initial recognition, any debits recorded in this reserve are matched with corresponding credit entries to issued share capital and the share premium account, with no effect on equity.

As set out in Note 33, in 2013 615,161 (2012: 43,889) ordinary shares held by the EBT were used to satisfy certain employee share awards, with the value of those shares being transferred from the own shares reserve to retained earnings, as shown in the consolidated statement of changes in equity on page 57.

As described earlier, following the satisfaction of the 2013 employee share awards the EBT disposed of its remaining 1,842,511 shares in two separate market transactions, receiving cash in exchange. As the EBT is consolidated in these accounts, the proceeds of this disposal are included in cash and cash equivalents as shown in the consolidated balance sheet. Following this disposal the EBT no longer holds shares in the Company, and as such the own shares reserve has been written down to zero as at 31 December 2013, with the difference between the cash proceeds received and the original issue price recorded as a debit to retained earnings. Future share awards and warrants will be satisfied either through the Company issuing new ordinary shares or buying shares in the open market, at the Company’s discretion under the terms of the applicable scheme rules/warrant agreements. Alternatively, the Company may elect to settle the options/warrants in cash.

Mecom Group plc Annual Report and Accounts 2013 111 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

34. Other reserves continued

Currency translation reserve The currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the Company and its subsidiaries whose functional currency is not euros and borrowings treated as net investment hedges. As shown in the consolidated statement of comprehensive income on page 55, during 2013 a debit amount of €1.9m (2012: credit of €21.2m) was transferred from the currency translation reserve to the consolidated income statement on the disposal of foreign operations.

35. Share-based payments

Overview The Company’s various share option plans at 31 December 2013 and 2012 are set out below:

(a) Senior Executive Share Plan (“SESP”); (b) Deferred Bonus Plan (“DBP”); (c) Savings Related Share Option Scheme; and (d) Executive Share Option Plan (“ESOP”).

The Company has also issued share warrants over a number of its shares.

Summary of the share-based payment expense A summary of the Group’s share-based payment expense recognised in the consolidated income statement for 2013 and 2012 is shown below:

Year ended Year ended 31 December 31 December 2013 2012 €m €m Employee costs included in adjusted EBITDA: SESP1 0.1 (0.5) DBP 0.5 0.9 Savings Related Share Option Scheme – 0.1 ESOP1 – (0.3) Total employee costs included in adjusted EBITDA 0.6 0.2 Employee costs included in exceptional items: Net reversal of accumulated SESP and DBP charges for good leavers1 – (0.1) Total employee costs included in exceptional items – (0.1) Total share-based payment expense 0.6 0.1

1 In 2012 performance criteria were not met, or were only partially met, resulting in an accumulated release of previously recognised expense.

(a) SESP (i) Summary of arrangements

Nature Grant of options, including options to buy shares under a joint-ownership award Vesting conditions Share price and EPS performance conditions (2011 grant); no vesting conditions other than service (2013 grant) Service period 3 years Maximum term 10 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Further information on the SESP can be found in the Directors’ Remuneration Report on pages 35 to 45.

112 Mecom Group plc Annual Report and Accounts 2013 35. Share-based payments continued

(ii) Information relating to option valuation techniques Options granted under the SESP in 2013 were valued using a binomial option pricing model. Assumptions used by the model are as follows:

Expected volatility In respect of the 2013 grant, expected volatility was set at 85 per cent, based on historical movements in the share price of the Company.

Expected dividend yield A dividend yield of nil was assumed in the valuation of the options granted in 2013. Actual future dividend yields may be different to the assumption made in this valuation.

Risk-free rate The assumption was based on the yield available on similar dated zero-coupon UK government bonds at the time the options were granted, using historical information taken from the Bank of England. The risk-free rate assumption varied from 0.73 per cent to 1.62 per cent, depending on the date of the grant.

Participants’ exercise behaviour The possibility of erratic exercise behaviour was incorporated into the valuation by applying a sub-optimal coefficient of 1.8, based on historical information from companies of a similar size to Mecom Group plc.

A forfeiture rate of 0% was assumed for the purposes of valuing the options.

No features of the option grant, other than those described above, were incorporated into the measurement of fair value.

(iii) Reconciliation of movement in the number of options Weighted Number of average options exercise price ‘000s (pence) Balance at 31 December 2011 5,718 202.7 Forfeited in year (332) 188.1 Balance at 31 December 2012 5,386 203.6 Granted in year 1,460 39.3 Forfeited in year (39) 264.8 Lapsed in year (3,097) 184.0 Balance at 31 December 2013 3,710 154.7 No options were exercisable at 31 December 2013 and 2012 under the SESP.

(iv) Options outstanding at the end of the year At 31 December 2013, details of the options outstanding were as follows:

Weighted average remaining lives (years) Weighted Number average of options exercise price Vesting Contractual Exercise price (pence) ‘000 (pence) years years 35.0p 350 35.0 2.58 9.58 36.7p 480 36.7 2.75 9.75 40.5p 280 40.5 2.83 9.83 46.4p 350 46.4 2.33 9.33 210.5p 1,235 210.5 0.67 7.67 252.8p 1,015 252.8 0.25 7.25 Options outstanding at 31 December 2013 3,710 154.7 1.32 8.32

At 31 December 2012, there were 5,386,184 share options outstanding with a weighted average exercise price of 203.6 pence, a weighted average remaining vesting period of 0.90 years and a weighted average remaining contractual period of 7.90 years.

Mecom Group plc Annual Report and Accounts 2013 113 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

35. Share-based payments continued

(b) DBP (i) Summary of arrangements

Nature Award of shares in the form of a nil cost option Service period No service period for shares received in lieu of cash bonus; 3 years for 50% uplift Vesting conditions None Time from grant date to settlement 3 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Under the terms of the DBP, participants can elect to receive all or part of their annual bonus in shares rather than cash. To the extent that a participant opts to receive shares, he or she receives an award (in the form of a nil cost option) over shares worth 150% of the cash bonus that would otherwise have been paid. In any event, a participant who leaves the DBP never loses their right to the cash bonus otherwise paid which has been taken as shares. Bad leavers lose their rights to the 50% uplift but generally good leavers retain a pro-rated number of uplifted shares. In exceptional circumstances, and at the discretion of the Remuneration Committee, a good leaver may be allowed to retain all of their shares under the DBP. Further information on the DBP can be found in the Directors’ Remuneration Report.

The information in the tables at (iii) and (iv) below relates only to those shares awarded as part of the 50% uplift, as the element of the award that relates to the original annual bonus is considered to vest immediately upon award. Full information about the total value of shares awarded and outstanding under the DBP is included in the Directors’ Remuneration Report.

(ii) Information relating to valuation Share awards are valued at the closing share price on the date of grant.

(iii) Reconciliation of movement in the number of shares under award (restated) Weighted average share Number of price on share awards grant date ‘000s (pence) Balance at 31 December 2011 219 415.6 Granted in year 176 165.5 Exercised in year (14) 3,290.0 Balance at 31 December 2012 381 198.6 Entitlement increased in year 13 165.5 Forfeited in year (45) 165.5 Exercised in year (130) 186.0 Balance at 31 December 2013 219 210.9

440,532 shares under the DBP have fully vested at 31 December 2013 (2012: 764,181).

(iv) Share awards outstanding at the end of the year At 31 December 2013, details of the share awards outstanding were as follows:

Weighted average Number of remaining share awards vesting Share price on grant date (pence) ‘000 years 253.8p 114 0.25 165.5p 105 1.25 Shares outstanding at 31 December 2013 219 0.73

114 Mecom Group plc Annual Report and Accounts 2013 35. Share-based payments continued

At 31 December 2012, details of the share awards outstanding were as follows:

(restated) Weighted (restated) average Number of remaining shares awards vesting Share price on grant date (pence) ‘000 years 194.6p 91 0.25 253.8p 114 1.25 165.5p 176 2.25 Shares outstanding at 31 December 2012 381 1.47

(c) Savings Related Share Option Scheme The Company operates its Savings Related Share Option Scheme in the UK and certain other countries. In 2010, participants were granted an option to purchase Mecom shares at a discounted price, using the proceeds of a savings account to which they make monthly contributions for a three-year period. In common with most schemes of this type, the scheme is not subject to performance conditions.

(i) Summary of arrangements

Nature Grant of options Service period 3 years Vesting conditions None Time from grant date to settlement 3.5 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Further information on the Savings Related Share Option Scheme can be found in the Directors’ Remuneration Report on pages 35 to 45.

(ii) Reconciliation of movement in the number of options Number Exercise of options price ‘000 (pence) Balance at 31 December 2011 980 175.3 Forfeited in year (28) 175.3 Cancelled in year (98) 175.3 Lapsed in year (481) 175.3 Balance at 31 December 2012 373 175.3 Forfeited in year (33) 175.3 Cancelled in year (54) 175.3 Lapsed in year (16) 175.3 Balance at 31 December 2013 270 175.3

269,726 options were exercisable at 31 December 2013 (2012: 731) under the Savings Related Share Option Scheme.

(iii) Options outstanding at the end of the year At 31 December 2013, there were 269,726 share options (2012: 372,709 share options) outstanding with a weighted average exercise price of 175.3 pence (2012: 175.3 pence), a weighted average remaining vesting period of zero years (2012: 0.5 years) and a weighted average remaining contractual period of 0.08 years (2012: 0.99 years).

(d) ESOP The final grant related to the ESOP was made in 2009. From 2010 this plan was effectively replaced by the SESP. The Group continued to incur share-based payment charges under this plan up to October 2012, being three years from the date of the last grant.

Mecom Group plc Annual Report and Accounts 2013 115 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

35. Share-based payments continued

(i) Summary of arrangements

Nature Grant of options Service period 3 years Vesting conditions: 2007 and 2008 grants None 2009 grants 2011 adjusted EBITDA or adjusted EPS performance target Maximum term 10 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0% Option exercise price calculation Closing price at the end of the previous trading day

(ii) Reconciliation of movement in the number of options

Weighted Number average of options exercise price ‘000 (pence) Balance at 31 December 2011 1,287 169.0 Forfeited in year (685) 143.7 Balance at 31 December 2012 602 190.9 Lapsed in year (217) 263.4 Balance at 31 December 2013 385 150.1

385,489 options were exercisable at 31 December 2013 (2012: 602,334 options) at a weighted average exercise price of 150.1 pence (2012: 190.9 pence).

(iii) Options outstanding at the end of the year At 31 December 2013, details of the options outstanding were as follows:

Weighted average remaining lives (years) Weighted Number average of options exercise price Vesting Contractual Exercise price (pence) ‘000 (pence) years years 140.0p 199 140.0 – 5.50 160.0p 156 160.0 – 5.92 165.8p 30 165.8 – 5.83 Options outstanding at 31 December 2013 385 150.1 – 5.69

At 31 December 2012, details of the options outstanding were as follows:

Weighted average remaining lives (years) Weighted Number average of options exercise price Vesting Contractual Exercise price (pence) ‘000 (pence) years years 140.0p 400 140.0 – 6.50 160.0p 156 160.0 – 6.92 165.8p 30 165.8 – 6.75 186.0p 13 186.0 – 6.75 3,500.0p 2 3,500.0 – 5.00 8,000.0p 1 8,000.0 – 4.25 Options outstanding at 31 December 2012 602 190.9 – 6.61

116 Mecom Group plc Annual Report and Accounts 2013 35. Share-based payments continued

(e) Warrants On 22 May 2009, the Group reached an agreement with its syndicate of lending banks on certain amendments to its debt facilities. The amendments included a grant of warrants over 785,994 of the Company’s shares issued to the banks. All warrants have vested and 692,646 are still outstanding at 31 December 2013 (2012: 692,646).

(i) Summary of arrangements

Nature Grant of warrants Vesting period 39 days Vesting conditions Subject to a successful equity raise via a rights issue Maximum term Expire on 31 October 2014 Method of settlement Share distribution Expected departures (at grant date) 0% Warrant exercise price calculation £1.50

(ii) Reconciliation of movement in the number of options Number Exercise of options price ‘000 (pence) Balance at 31 December 2011, 2012 and 2013 692.0 150.0

692,646 warrants are exercisable at 31 December 2013 (2012: 692,646). No warrants (2012: 11,789 warrants) were exercised in the year.

36. Commitments

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

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

2013 2012 €m €m Within one year 25.8 35.2 After one year but not more than five years 49.4 80.7 More than five years 14.6 19.6 Total 89.8 135.5

Capital commitments Capital commitments contracted but not provided at 31 December 2013 were €22.0m (31 December 2012: €5.3m).

37. Business combinations and acquisitions of non-controlling interests

Business combinations and acquisitions of non-controlling interests during the year ended 31 December 2013 During 2013 the Group acquired the outstanding 25 per cent minority interest in one of its Danish subsidiaries for total cash consideration of €0.9m. As the subsidiary had previously been consolidated the acquisition had no impact on net assets other than in respect of the purchase consideration, although the transaction is reflected as a reserves transfer between non-controlling interests and equity attributable to the shareholders of Mecom Group plc.

Business combinations and acquisitions of non-controlling interests during the year ended 31 December 2012 During 2012, the Group made some very small acquisitions in Denmark that were individually immaterial to these consolidated financial statements.

As described in Note 33, during the year ended 31 December 2012 the Group also acquired the outstanding minority in Koninklijke Wegener N.V., using as consideration newly issued shares of the Company. The Group incurred costs of €0.3m in relation to this transaction, which were recorded against retained earnings.

Mecom Group plc Annual Report and Accounts 2013 117 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

38. Disposals of businesses

Disposals of businesses during the year ended 31 December 2013 Mecom Poland On 20 March 2013, the Company reached agreement for the sale of Media Regionalne Sp. z o.o., its remaining Polish business, to Polskapresse Sp. z o.o., subject to the conditions of a preliminary share purchase agreement, the most significant of which was the approval of the transaction by the Polish Competition Authorities. The assets and liabilities of Mecom Poland were treated as held for sale in the consolidated balance sheet as at 31 December 2012.

Following receipt of approval from the Polish Competition Authorities on 25 October 2013, the Group completed the disposal of Media Regionalne on 31 October 2013 for total net proceeds of €20.7m, comprising cash consideration of €21.5m less directly attributable costs recorded in the year of €0.8m. Earlier in the year, on 15 March 2013, the Group had disposed of certain radio operations owned by Media Regionalne to Multimedia Sp. z o.o. for total net proceeds of €1.9m (comprising cash consideration of €2.6m less directly attributable costs of €0.7m), resulting in a gain on disposal of €0.2m.

The profit before tax of Mecom Poland from 1 January 2013 up until the date of disposal was€ 1.0m, as set out in further detail in Note 14.

The book values of the net assets at 31 October 2013 (date of disposal) are summarised below, together with the related sales proceeds and the gain on disposal.

Book value of net assets at date of disposal €m Other intangible assets 0.2 Property, plant and equipment 0.8 Deferred tax assets 0.4 Current tax assets 0.1 Inventories 0.7 Trade and other receivables 4.1 Cash and cash equivalents 20.7 Total assets 27.0 Provisions (0.3) Deferred tax liabilities (0.7) Trade and other payables (4.1) Total liabilities (5.1) Net assets disposed of 21.9 Non-controlling interests’ share of above (1.2) Group share of net assets disposed of 20.7 Sales proceeds: Cash 21.5 Less: directly attributable costs (0.8) Total net proceeds 20.7 Gain on disposal before recycling of foreign exchange – Recycling of foreign exchange 1.9 Gain on disposal after recycling of foreign exchange 1.9

The net cash flow resulting from the disposal of the Polish business in the year ended 31 December 2013, including the effects of the sale of the radio operations, was €1.3m, comprising total cash proceeds received on disposal of €24.1m (including €2.6m received on disposal of the radio operations), less €1.5m of directly attributable costs paid across the two transactions, and net of €21.3m of cash disposed (of which €0.6m was disposed as part of the sale of the radio operations).

118 Mecom Group plc Annual Report and Accounts 2013 38. Disposals of businesses continued

Other disposals During the year the Group made various disposals of businesses and associates. A summary of the major categories of assets and liabilities disposed (in each case at the respective date of disposal), along with net cash proceeds and gain on disposal is set out below, with further details on each of the significant disposals or groups of similar disposals provided thereafter.

Syddanske Medier / Denmark Denmark AutoTrack Funda S. Jutland freesheets online JVs €m €m €m €m €m Goodwill 13.5 – – 1.6 – Other intangibles 1.5 – 7.3 10.7 0.5 Property, plant and equipment – – 0.7 – – Investment in associates – 3.4 – – – Trade and other receivables 1.6 – 7.3 0.1 0.3 Cash and cash equivalents – – 0.1 0.5 0.3 Other assets – – 2.1 0.3 0.2 Total assets 16.6 3.4 17.5 13.2 1.3 Trade and other payables (2.4) – (9.1) (0.2) (0.9) Other liabilities (0.5) – (1.3) (2.4) (0.1) Total liabilities (2.9) – (10.4) (2.6) (1.0) Net assets disposed of 13.7 3.4 7.1 10.6 0.3 Non-controlling interests’ share of above – – – (0.3) – Group share of net assets disposed of 13.7 3.4 7.1 10.3 0.3 Sales proceeds: Cash 26.4 15.1 11.8 18.1 2.6 Less: directly attributable costs (1.2) (0.3) (0.3) (0.7) – Total net proceeds 25.2 14.8 11.5 17.4 2.6 Gain on disposal 11.5 11.4 4.4 7.1 2.3

Wegener Digital B.V. (“AutoTrack”) On 31 March 2013 Mecom’s Dutch subsidiary, Wegener Nederland B.V., completed the sale of its online automotive classifieds business AutoTrack to De Persgroep Nederland B.V., via the sale of its shares in Wegener Digital B.V.

The revenue and profit before tax of AutoTrack from 1 January 2013 up until the date of disposal were €2.3m and €0.9m, respectively.

The net cash inflow resulting from the disposal in the year ended 31 December 2013 was €25.2m, comprising cash proceeds received on disposal of €26.4m less €1.2m of directly attributable costs paid.

Funda N.V. On 20 June 2013 Mecom’s Dutch subsidiary, Wegener Nederland B.V., completed the sale of its 30 per cent economic interest in Funda N.V., an online classified property business. The Group’s voting interest in Funda N.V. was approximately 13 per cent. The sale was effected by means of a buy back of the Group’s shareholding for a price of €15.1m.

In the period from 1 January 2013 up until the date of disposal Funda N.V. generated profit before tax of €3.4m. The Group accounted for its interest in Funda N.V. using the equity method and therefore included its economic share of Funda N.V.’s net profit after tax in its consolidated income statement. In the period from 1 January 2013 up until the date of disposal the Group recognised €0.7m in its profit before tax in respect of its interest in Funda N.V.

The net cash inflow in 2013 resulting from the disposal was €14.8m, comprising cash proceeds of €15.1m less €0.3m of directly attributable costs paid during the period.

Mecom Group plc Annual Report and Accounts 2013 119 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

38. Disposals of businesses continued

Syddanske Medier K/S (“JydskeVestkysten”) and certain free weekly titles in Southern Jutland On 15 September 2013 Mecom’s Danish subsidiary Berlingske Media A/S completed the sale, to Den Sydvestjyske Venstrepresse ApS, of the trade and assets associated with five free weekly newspaper titles distributed in the southern part of Jutland. At the same time, Berlingske Media disposed of its 50 per cent interest in Syddanske Medier K/S to the same buyer, through a transfer of its shares in that entity. Syddanske Medier publishes the paid daily title, JydskeVestkysten, and also operates certain radio and newspaper distribution activities. The Group had accounted for its interest in Syddanske Medier K/S as a joint venture, proportionally consolidating its results on a line by line basis.

In the period from 1 January 2013 up until the date of disposal, the Group’s share of the revenue and profit before tax of Syddanske Medier K/S and the five free weekly titles in Southern Jutland, as recognised in these consolidated financial statements, were €22.5m and €0.4m, respectively.

The net cash inflow from these disposals in the year ended 31 December 2013 was €11.4m, comprising cash proceeds of €11.8m, less associated cash costs of €0.3m, and net of disposed cash balances totalling €0.1m.

Weekly freesheets and associated media houses in Denmark During 2013 the Group disposed of its remaining portfolio of standalone free weekly titles in Denmark. In addition to the sale of the Southern Jutland titles as described above, this was achieved through four separate transactions to four different buyers, as summarised below:

Mecom Group’s economic Title(s)/businesses sold interest Share/asset sale Date of completion Taastrup-Vestegnen and Det Ny Odsherred media houses 100% Asset 1 June 2013 Ballerup media house 100% Asset 29 August 2013 Lokalaviserne Østerbro og Amager (“LØA”) and 60% (LØA) Share (LØA) Frederiksberg media house 100% (Frederiksberg) Asset (Frederiksberg) 1 November 2013 Frederiksværk and Helsinge media houses 100% Asset 1 December 2013

The above-named businesses contributed €18.3m of the Group’s revenue and €5.4m of the profit before tax for the year ended 31 December 2013 in the periods prior to their respective disposals.

The net cash inflow from these disposals in the year ended 31 December 2013 was €16.9m, reflecting cash proceeds of €18.1m, less directly attributable cash costs of €0.7m, less cash disposed of €0.5m.

Online joint ventures in Denmark During the year ended 31 December 2013 the Group disposed, to different buyers, of its 46 per cent equity interest in Jobzonen, an online classified automotive business, and its 25 per cent interest in Boliga, an online classified property business. Both investments had previously been accounted for as joint ventures and were proportionally consolidated up to the point of sale.

Net proceeds from these disposals totalled €2.6m. Taking into account cash deconsolidated on disposal of €0.3m, the net cash proceeds during the year ended 31 December 2013 from these disposals were €2.3m. Together, Jobzonen and Boliga contributed €1.3m of net revenue and a net loss of €0.1m to the Group’s results for 2013, up until the point of their sale (being the Group’s economic share of the total revenue and profit/loss before tax of the two companies).

Other The Group paid out cash amounts totalling €1.0m during the year ended 31 December 2013 in transaction costs not directly attributable to the disposals completed during the year. Of these, €0.9m related to the Group’s disposal, in 2012, of its Norwegian business, Edda Media AS (see below for further details). These costs had been fully accrued in previous years.

Disposals of businesses during the year ended 31 December 2012 Edda Media AS (“Mecom Norway”) On 4 December 2011, the Group entered into a binding sale agreement to dispose of its entire media business in Norway (Edda Media AS) to A-pressen AS. At 31 December 2011, the sale was subject to the terms and conditions of the sale and purchase agreement which included, amongst other things, the approval of Mecom’s shareholders and the approval of the Norwegian Competition Authority. Therefore, at 31 December 2011, the assets and liabilities of this operation were classified as held for sale in the consolidated balance sheet.

120 Mecom Group plc Annual Report and Accounts 2013 38. Disposals of businesses continued

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

The profit before tax of Mecom Norway from 1 January 2012 up to the date of disposal was €16.5m, which is set out in further detail in Note 14.

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

Book value of net assets at date of disposal €m Goodwill 49.4 Other intangible assets 64.2 Property, plant and equipment 36.6 Employee benefit assets 1.2 Interests in associates 33.9 Investments 0.2 Deferred tax assets 13.0 Inventories 2.6 Trade and other receivables 37.6 Cash and cash equivalents 7.1 Total assets 245.8 Provisions (1.2) Employee benefit obligations (5.7) Deferred tax liabilities (26.0) Trade and other payables (64.7) Bank overdrafts (22.9) Total liabilities (120.5) Net assets disposed of 125.3 Non-controlling interests’ share of above (8.5) Group share of net assets disposed of 116.8 Sales proceeds: Cash 205.5 Less: directly attributable costs1 (4.2) Total net proceeds 201.3 Gain on disposal before recycling of foreign exchange 84.5 Recycling of foreign exchange (21.2) Gain on disposal after recycling of foreign exchange 63.3

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

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

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

Mecom Group plc Annual Report and Accounts 2013 121 Notes to the Consolidated Financial Statements continued for the year ended 31 December 2013

39. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of other related party transactions are disclosed below.

Transactions with joint ventures and associates The following table summarises the sales, purchases and amounts owed to and by the Group’s associated undertakings and joint ventures.

Purchases Amounts Amounts Sales to from owed by owed to related parties related parties related parties related parties €m €m €m €m Associates 2013 0.1 3.2 – – 2012 1.4 1.4 – – Joint Ventures 2013 0.5 15.7 – 0.1 2012 0.9 18.4 0.1 0.1

Sales of goods and services to related parties were made at the Group’s usual list prices, less average volume discounts. Purchases were made at market prices. No provisions have been made for doubtful debts in respect of amounts owed by related parties.

Transactions with key management Key management of the Group is defined as the Executive Directors and the Non-executive Directors of Mecom Group plc. Their remuneration during the year is given in Note 9.

40. Group undertakings

The Group’s principal subsidiary undertakings are as follows:

Name of Group undertaking Status Country of incorporation Holding % Wegener Media B.V. Trading The Netherlands 100.0% Wegener NieuwsDruk B.V. Trading The Netherlands 100.0% Media Groep Limburg B.V. Trading The Netherlands 100.0% Grafisch Bedrijf Media Groep Limburg BV (trading as NieuwsDruk Limburg) Trading The Netherlands 100.0% Berlingske Media A/S Trading Denmark 100.0% Koninklijke Wegener N.V. Holding company The Netherlands 100.0% LMG Netherlands I B.V. Holding company The Netherlands 100.0% Mecom Finance Limited Holding company United Kingdom 100.0% Mecom Holding Coöperatief W.A. Principal holding and finance company within the Group The Netherlands 100.0%

All of the above subsidiary undertakings are owned indirectly by the Company.

41. Events after the balance sheet date

On 17 March 2014 the Group signed secured facilities agreements for two banking facilities to allow the repayment of existing bank borrowings, the details of which are set out in Note 25.

122 Mecom Group plc Annual Report and Accounts 2013 42. Reconciliation of loss for the year to cash generated from/(used in) operations

Year ended Year ended 31 December 31 December 2013 2012 Note €m €m Loss for the year (61.6) (30.4) Adjusted for1: Depreciation of property, plant and equipment 19 22.5 23.9 Amortisation of software 18 8.8 12.0 Amortisation of acquired intangibles 18 40.3 47.5 Impairment charges 17,18,19 81.9 66.3 Share-based payment expense 35 0.6 0.1 Gain on disposal of businesses and investments 11 (38.9) (61.3) Gain on disposal of property, plant and equipment (0.4) (1.1) Net finance expense 12 9.1 16.3 Income tax credit 13 (6.4) (13.4) Share of results of associates 20 (1.1) (2.9) Operating cash flow before changes in working capital, provisions and pensions 54.8 57.0 Decrease/(increase) in inventories 0.6 4.0 Decrease/(increase) in trade and other receivables 11.4 (5.4) Decrease in trade and other payables (27.4) (22.1) Increase/(decrease) in provisions 9.7 (59.1) Decrease in employee benefit obligations (11.5) (0.5) Cash generated from/(used in) operations 37.6 (26.1)

1 The items listed comprise amounts within both continuing and discontinued operations.

Mecom Group plc Annual Report and Accounts 2013 123 Independent Auditors’ Report to the Members of Mecom Group plc

We have audited the financial statements of Mecom Group Plc for the year ended 31 December 2013 which comprise the Company balance sheet and the related notes 1 to 18. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 50, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the company’s affairs as at 31 December 2013; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other Matter We have reported separately on the group financial statements of Mecom Group Plc for the year then ended. Kevin Harkin (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, London 17 March 2014

124 Mecom Group plc Annual Report and Accounts 2013 Company Balance Sheet at 31 December 2013

2013 2012 Note £000 £000 Fixed assets Tangible assets 5 8 11 Intangible assets 6 1 5 Fixed asset investments 7 227,301 261,091 227,310 261,107 Current assets Debtors 8 1,363 1,441 Cash at bank and in-hand 4,332 650 5,695 2,091 Current liabilities Creditors: amounts falling due within one year 9 (65,935) (49,106) Net current liabilities (60,240) (47,015) Total assets less current liabilities 167,070 214,092 Provision for liabilities and charges 10 (1,220) (1,573) Net assets 165,850 212,519 Equity Called up share capital 11 73,769 73,769 Share premium account 12 7,177 7,177 Capital redemption reserve 12 13 13 Share-based payment reserve 12 2,365 8,195 Own shares reserve 12 – (4,522) Profit and loss account 12 82,526 127,887 Shareholders’ funds 165,850 212,519

These financial statements were approved by the Board of Directors on 17 March 2014 and were signed on its behalf by:

Rory Macnamara Henry Davies Chairman Group Finance Director

Mecom Group plc Annual Report and Accounts 2013 125 Notes to the Company Financial Statements for the year ended 31 December 2013

1. Accounting policies

A summary of the Company’s significant accounting policies, Financial Instruments: Disclosures, the parent is exempt from the which have been applied consistently, is set out below. requirements of FRS 29 Financial Instruments: Disclosures.

Basis of preparation: (i) Preparation of the financial statements Tangible fixed assets on the going concern basis Tangible fixed assets are stated at cost less accumulated The Group’s financial and liquidity risk factors, and the approach depreciation and accumulated impairment losses. Depreciation to managing them, are set out in Note 26 to the consolidated is provided on all tangible fixed assets at rates calculated to financial statements. write-off the cost or valuation of each asset on a straight-line basis over its expected useful life, as follows: The Group agreed new financing facilities in March 2014 (as set out in Note 25 to the consolidated financial statements), replacing the previous facilities (also described in Note 25 to the Leasehold improvements Shorter of 20 years consolidated financial statements), which had been in place and term of lease since late 2007, and expects to refinance its current borrowings Fixtures and fittings 5 years through these facilities before 31 March 2014, once conditions Office equipment 3 years precedent (that are under the Group’s control) have been met. The new facilities provide financing for at least three years and The carrying values of tangible fixed assets are reviewed for have been entered into on a local basis with lenders who are impairment when events or changes in circumstances indicate closer to the economic and operating environment in which the the carrying value may not be recoverable. Group operates. The new facilities require further reduction in the Group’s borrowings, through the amortisation of term Intangible fixed assets borrowings from cash flow over that period, anticipating a further Intangible assets acquired separately from a business combination strengthening of the Group’s financial position over time. are measured on initial recognition at cost. Intangible assets with finite lives are amortised over their useful lives and assessed for The Group continues to face the structural pressures on impairment whenever there is an indication that the intangible revenues that come with changing media consumption and, asset may be impaired. The amortisation period and the straight- notwithstanding recent improvements in many indicators in the line basis amortisation method for an intangible asset with a finite Netherlands, the risk that economic conditions will have an useful life are reviewed at least at each financial year end. adverse effect on the Group’s financial performance. As set out earlier in this report, the Group has strategies in place to seek Intangible assets are amortised over the following periods: new revenue streams and plans further cost reductions to protect against these effects; the cash flows associated with these cost reduction plans form part of the business plans on Purchased software Shorter of 4 years or which the new banking facilities have been based. Taking into the period of the account these factors, the Board considered that the covenants licence under the new facilities allow adequate headroom against the risks and uncertainties facing the business over this period. The carrying values of intangible fixed assets are reviewed for impairment when events or changes in circumstances indicate The Directors, having made appropriate enquiries, have a the carrying value may not be recoverable. reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the Shares in Group undertakings foreseeable future. For this reason, they continue to adopt the Investments in subsidiaries are valued at cost less provisions going concern basis of accounting in preparing the annual for impairment. accounts of the Company. Provisions Basis of preparation (ii) Other Provisions are recognised when the Company has a present These financial statements are prepared under the historical obligation as a result of a past event, where the obligation can cost convention (except for share-based payments that have be estimated reliably, and where it is probable that an outflow of been measured at fair value), in accordance with the Companies economic benefits will be required to settle that obligation. Act 2006 and applicable accounting standards in the UK. Under Provisions are measured at the Directors’ best estimate of the section 408 of the Companies Act 2006 the Company is exempt expenditure required to settle the obligation at the balance from the requirement to present its own profit and loss account. sheet date.

The basis of preparation disclosures in respect of the Company Leasing are included in the consolidated accounts which have been Rentals payable under operating leases are charged against prepared in accordance with International Financial Reporting income on a straight-line basis over the lease term. Standards (“IFRS”) as adopted by the European Union and are presented on pages 52 to 123. As information has been disclosed in the consolidated financial statements in respect of IFRS 7

126 Mecom Group plc Annual Report and Accounts 2013 1. Accounting policies continued

Foreign currency At each balance sheet date before vesting, the cumulative Transactions denominated in foreign currencies have been expense is calculated, representing the extent to which the translated into sterling at the actual rates of exchange ruling vesting period has expired and management’s best estimate at the date of transaction. Monetary assets and liabilities of the achievement or otherwise of non-market performance denominated in foreign currencies have been translated at rates conditions, and hence the number of equity instruments that ruling at the balance sheet date. Exchange differences arising on will ultimately vest. There is a corresponding amount recognised translation are taken to the profit and loss account. in equity, equivalent to the total Group charge recorded in the period. The portion of the share-based payment expense Deferred tax relating to Company subsidiary employees is recharged to the Deferred tax is recognised, without discounting, in respect of respective entities. Accounting for share-based payments under all timing differences that have arisen but not reversed at the the Deferred Bonus Plan follows the policies as set out above, balance sheet date where transactions or events have except that the fair value of any grants are valued at the closing occurred at that date that will result in an obligation to pay share price on the date of the grant. more, or a right to pay less, or to receive more tax with the following exceptions: Cash flow statement The Company is exempt under the terms of FRS 1 (Revised • a provision is made for tax on gains on disposal of fixed 1996) Cash Flow Statements from the requirement to publish its assets that have been rolled over into replacement assets, own cash flow statement, as its cash flows are included within only to the extent that, at the balance sheet date, there is a the consolidated cash flow statement of the Group. binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all 2. Loss attributable to the Company available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into The loss for the financial year dealt with in the financial replacement assets and charged to tax only where the statements of the Company is £42,614,000 (2012: loss of replacement assets are sold; £52,281,000). • a provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries 3. Dividends and associates only to the extent that, at the balance sheet date, dividends have been accrued as receivable; and The Directors are not proposing a dividend in respect of the • deferred tax assets are recognised only to the extent that the financial year ended 31 December 2013. During the year, a Directors consider that it is more likely than not that there will dividend of 5.5 euro cents per share (equating to €6.7m of be suitable taxable profits from which the future reversal of shareholders’ funds) was paid in respect of the final dividend for the underlying timing differences can be deducted. the financial year ended 31 December 2012. Deferred tax is measured at the tax rates that are expected to 4. Auditors’ remuneration apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the The audit fees payable to the auditors for the audit of balance sheet date. the financial statements of the Company are £20,000 (2012: £20,000). Dividends Distributions to equity holders are not recognised in the Fees paid to the auditor and its associates for non-audit services Company’s profit and loss account under UK GAAP, but are to the Company itself are not disclosed in the individual disclosed as a component of the movement in shareholders’ accounts of the Company because consolidated financial equity. A liability is recorded for a dividend when the dividend is statements are prepared which are required to disclose such approved by the Company’s shareholders. Interim dividends are fees on a consolidated basis. recognised as a distribution when paid.

Share-based payments Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. Apart from the Deferred Bonus Plan, the fair value is calculated using either a Monte Carlo simulation model or a binomial model depending on the appropriateness of the model to the grant in question (for market-based performance conditions which are taken into account in the calculation of initial fair value, the Monte Carlo simulation model is used).

Mecom Group plc Annual Report and Accounts 2013 127 Notes to the Company Financial Statements continued for the year ended 31 December 2013

5. Tangible fixed assets

Leasehold Fixtures and Office improvements fittings equipment Total £000 £000 £000 £000 Cost At 1 January 2013 26 210 128 365 Additions – – 3 3 At 31 December 2013 26 210 131 367 Depreciation At 1 January 2013 (26) (210) (117) (353) Charge for the year – – (6) (6) At 31 December 2013 (26) (210) (123) (359) Net book value At 31 December 2012 – – 11 11 At 31 December 2013 – – 8 8

6. Intangible assets

Software £000 Cost At 1 January 2013 103 At 31 December 2013 103 Amortisation At 1 January 2013 (98) Charge for the year (4) At 31 December 2013 (102) Net book value At 31 December 2012 5 At 31 December 2013 1

7. Fixed asset investments

Shares in Group Capital undertakings contributions Total £000 £000 £000 Cost or valuation At 1 January 2013 987,286 108,790 1,096,076 Additions – – – At 31 December 2013 987,286 108,790 1,096,076 Impairment At 1 January 2013 (791,485) (43,500) (834,985) Impairment charge for the year – (33,790) (33,790) At 31 December 2013 (791,485) (77,290) (868,775) Net book value At 31 December 2012 195,801 65,290 261,091 At 31 December 2013 195,801 31,500 227,301

Through its subsidiary the Company indirectly holds all of the Group’s subsidiaries. Having carried out the annual impairment review of the fixed asset investments the Company wrote down the carrying value of its capital contribution to Mecom Media Scandinavia Holdings 1 B.V. (“MMSH1”) to zero. MMSH1 was placed into liquidation in December 2013, prior to which its assets were distributed to its sole shareholder, Mecom Finance Limited. No other impairments were identified and it is the opinion of the Directors that the recoverable amount of the Company’s investments in Group subsidiaries is not less than the carrying value of those investments at 31 December 2013.

128 Mecom Group plc Annual Report and Accounts 2013 7. Fixed asset investments continued

At 31 December 2013, the Company had direct investments in the following subsidiary undertakings and other investments:

Shares in Group undertakings Country of incorporation Principal activity Holding % Share type Mecom Finance Limited England and Wales Intermediate holding company that 100% Ordinary manages and administers the finance activities of Mecom Group plc

For details of principal subsidiary undertakings, see Note 40 to the consolidated financial statements.

8. Debtors

2013 2012 £000 £000 Amounts owed by subsidiary undertakings 376 593 Deferred consideration held in escrow 179 – Other taxation and social security 71 306 Prepayments and accrued income 724 480 Other debtors 13 62 Total 1,363 1,441

9. Creditors – amounts falling due within one year

2013 2012 £000 £000 Amounts owed to subsidiary undertakings (63,369) (47,122) Trade creditors (177) (441) Accruals and deferred income (2,254) (1,543) Dividends payable (135) – Total (65,935) (49,106)

10. Provisions for liabilities and charges

2013 2012 £000 £000 At 1 January (1,573) (1,045) Provisions made during the year – (714) Utilisation of provisions 353 186 At 31 December (1,220) (1,573)

Provisions for liabilities and charges relate to the expected costs to be incurred in respect of the Group-wide IT outsourcing project which include the final amounts due in respect of costs related to the disposed Norwegian division.

11. Authorised and called up share capital

2013 2012 Number Value Number Value of shares of shares of shares of shares ’000s £000 ’000s £000 Authorised share capital 146,352 89,068 146,352 89,068 Issued and fully paid At 1 January 121,213 73,769 112,554 68,499 Issue of ordinary shares – – 8,659 5,270 At 31 December 121,213 73,769 121,213 73,769

At 31 December 2013 and 2012, the Company had one class of share capital.

At 31 December 2013, the Company’s issued share capital comprised 121,212,997 (2012: 121,212,997) ordinary shares with a nominal value of 60.85888 pence each.

Mecom Group plc Annual Report and Accounts 2013 129 Notes to the Company Financial Statements continued for the year ended 31 December 2013

11. Authorised and called up share capital continued

During the year 615,161 (2012: 43,889) ordinary shares previously held by the Mecom Employee Benefit Trust (“EBT”, see below for further details) were used to satisfy certain employee share awards. The remaining 1,842,511 ordinary shares were sold by the EBT for a total consideration of £1,189,720, with the proceeds recognised in the Company’s accounts as a reduction in the own shares reserve. The disposal proceeds were £2,200,490 lower than the original issue price of the shares, and this difference in value has been reflected accordingly as a transfer to the profit and loss account of the remaining balance on the own shares reserve.

As explained in Note 33 of the Group accounts, on 21 May 2012, the Group acquired 5,980,800 depository receipts for ordinary shares in Koninklijke Wegener N.V. (“Wegener”) from funds managed by Governance for Owners. As consideration for the acquisition, the Company issued 8,659,201 new ordinary shares with a nominal value of £0.6085888. The total market value of the issued shares on the date of the acquisition was £12.1m, with £5.2m and £6.9m being recorded in issued share capital and share premium, respectively. The Company incurred costs of £0.3m of related transaction fees.

Contingent rights to shares At 31 December 2013 and 2012, options that were outstanding over ordinary shares were those granted in connection with the operation of the Senior Executive Share Plan (“SESP”) and those granted under the Deferred Bonus Plan (“DBP”), the Savings Related Share Option Scheme and the Executive Share Option Plan (“ESOP”). In addition, share warrants were outstanding at 31 December 2013 and 2012.

Further details of options may be found in the Directors’ Remuneration Report and also in Note 35 to the consolidated financial statements.

12. Share premium account and reserves

Share Capital Share-based Profit premium redemption payment Own and loss account reserve reserve shares account Total £000 £000 £000 £000 £000 £000 At 1 January 2013 7,177 13 8,195 (4,522) 127,887 138,750 Loss for the year – – – – (42,614) (42,614) Credit in respect of share-based payments – – 499 – – 499 Options exercised – – (1,142) – 1,142 – Cash settlement in respect of share options exercised – – (15) – – (15) Shares held by EBT used to satisfy employee share awards – – – 1,132 (1,132) – Disposal of EBT shares – – – 3,390 (2,200) 1,190 Transfer on cancellation, forfeiture and lapse of options – – (5,172) – 5,172 – Dividends paid and accrued – – – – (5,729) (5,729) At 31 December 2013 7,177 13 2,365 – 82,526 92,081

13. Reconciliation of movements in shareholders’ funds

2013 2012 £000 £000 Loss attributable to shareholders (42,614) (52,281) Acquisition of shares in a non-wholly owned subsidiary – 12,447 Disposal proceeds of EBT shares 1,190 – Cash settlement in respect of share warrants exercised (15) (2) Credit in respect of share-based payments 499 83 Dividends paid and accrued (5,729) (14,384) Net reduction in shareholders’ funds (46,669) (54,137) Opening shareholders’ funds 212,519 266,656 Closing shareholders’ funds 165,850 212,519

14. Deferred tax

At 31 December 2013, the Company has gross tax losses of £41.2m (2012: £43.0m) that are available indefinitely for offset against future taxable profits. Deferred tax assets have not been recognised in respect of these losses as the Company has been loss-making in the past and is expected to continue to be loss-making for the foreseeable future.

130 Mecom Group plc Annual Report and Accounts 2013 15. Share-based payments

The following disclosures relate to Mecom employees across the Mecom Group with the exception of disclosures relating to reconciliation of movement in the number of options which relate solely to employees of Mecom Group plc and therefore differ from the corresponding disclosures in the consolidated financial statements.

Overview The Company’s various share option plans at 31 December 2013 and 2012 are set out below: a) Senior Executive Share Plan (“SESP”); b) Deferred Bonus Plan (“DBP”); c) Savings Related Share Option Scheme; and d) Executive Share Option Plan (“ESOP”).

The Company has also issued share warrants over a number of its shares.

(a) SESP (i) Summary of arrangements

Nature Grant of options, including options to buy shares under a joint-ownership award Vesting conditions Share price and EPS performance conditions (2011 grant); no vesting conditions other than service (2013 grant) Service period 3 years Maximum term 10 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Further information on the SESP can be found in the Directors’ Remuneration Report on pages 35 to 45.

(ii) Information relating to option valuation techniques Options granted under the SESP in 2013 were valued using a binomial option pricing model. Assumptions used by the model are as follows:

Expected volatility In respect of the 2013 grant, expected volatility was set at 85 per cent, based on historical movements in the share price of the Company.

Expected dividend yield A dividend yield of nil was assumed in the valuation of the options granted in 2013. Actual future dividend yields may be different to the assumption made in this valuation.

Risk-free rate The assumption was based on the yield available on similar dated zero-coupon UK government bonds at the time the options were granted, using historical information taken from the Bank of England. The risk-free rate assumption varied from 0.73 per cent to 1.62 per cent, depending on the date of the grant.

Participants’ exercise behaviour The possibility of erratic exercise behaviour was incorporated into the valuation by applying a sub-optimal coefficient of 1.8, based on historical information from companies of a similar size to Mecom Group plc.

A forfeiture rate of 0% was assumed for the purposes of valuing the options.

No features of the option grant, other than those described above, were incorporated into the measurement of fair value.

Mecom Group plc Annual Report and Accounts 2013 131 Notes to the Company Financial Statements continued for the year ended 31 December 2013

15. Share-based payments continued

(iii) Reconciliation of movement in the number of options (Mecom Group plc employees only)

Weighted average Number exercise of options price (pence) At 31 December 2011 4,063,288 197.3 Granted in year – – Forfeited in year (236,479) 190.9 At 31 December 2012 3,826,809 197.7 Forfeited in year (17,427) 252.8 Lapsed in year (2,303,791) 184.0 At 31 December 2013 1,505,591 218.1

No options were exercisable at 31 December 2013 and 2012 under the SESP.

(iv) Options outstanding at the end of the year (Mecom Group plc employees only) At 31 December 2013, details of the options outstanding were as follows:

Weighted average remaining lives (years) Weighted average Number exercise Vesting Contractual Exercise price (pence) of options price (pence) years years 184.0p – – – – 210.5p 1,235,154 210.5 0.67 7.67 252.8p 270,437 252.8 0.25 7.25 Options outstanding at 31 December 2013 1,505,591 218.1 0.59 7.59

At 31 December 2012, there were 3,826,809 share options outstanding with a weighted average exercise price of 197.7 pence, a weighted average remaining vesting period of 0.93 years and a weighted average contractual period of 7.93 years.

(b) DBP (i) Summary of arrangements

Nature Award of shares in the form of a nil cost option Service period No service period for shares received in lieu of cash bonus; 3 years for 50% uplift Vesting conditions None Time from grant date to settlement 3 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Under the terms of the DBP, participants can elect to receive all or part of their annual bonus in shares rather than cash. To the extent that a participant opts to receive shares, he or she receives an award (in the form of a nil cost option) over shares worth 150% of the cash bonus that might otherwise have been paid. In any event, a participant who leaves the DBP never loses their right to the cash bonus otherwise paid which has been taken as shares. Bad leavers lose their rights to the 50% uplift but generally good leavers retain a pro-rated number of uplifted shares. In exceptional circumstances, and at the discretion of the Remuneration Committee, a good leaver may be allowed to retain all their shares under the DBP. Further information on the DBP can be found in the Directors’ Remuneration Report on pages 35 to 45.

The information in the tables at (iii) and (iv) below relates only to those shares awarded as part of the 50% uplift, as the element of the award that relates to the original annual bonus is considered to vest immediately upon award. Full information about the total value of shares awarded and outstanding under the DBP is included in the Directors’ Remuneration Report.

(ii) Information relating to valuation Share awards are valued at the closing share price on the date of grant.

132 Mecom Group plc Annual Report and Accounts 2013 15. Share-based payments continued

(iii) Reconciliation of movement in the number of shares under award (Mecom Group plc employees only) (restated)

Weighted average share price Number on grant of share date awards (pence) At 31 December 2011 169,900 227.8 Granted in year 103,625 165.5 At 31 December 2012 273,525 203.9 Exercised in year (74,552) 194.6 At 31 December 2013 198,973 207.3

434,948 shares under the DBP have fully vested at 31 December 2013 (2012: 584,052).

(iv) Share awards outstanding at the end of the year (Mecom Group plc employees only) At 31 December 2013, details of the share awards outstanding were as follows:

Weighted average Number of remaining Share price on grant date (pence) share awards vesting years 165.5p 103,625 1.25 253.8p 95,348 0.25 Shares outstanding at 31 December 2013 198,973 0.77

At 31 December 2012, details of the share awards outstanding were as follows:

(restated) Weighted (restated) average Number of remaining Share price on grant date (pence) share awards vesting years 165.5p 103,625 2.25 253.8p 95,348 1.25 194.6p 74,552 0.25 Shares outstanding at 31 December 2012 273,525 1.36

(c) Savings Related Share Option Scheme The Company operates its Savings Related Share Option Scheme in the UK and certain other countries. In 2010, participants were granted an option to purchase Mecom shares at a discounted price, using the proceeds of a savings account to which they make monthly contributions for a three-year period. In common with most schemes of this type, the scheme is not subject to performance conditions.

(i) Summary of arrangements

Nature Grant of options Service period 3 years Vesting conditions None Time from grant date to settlement 3.5 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0%

Further information on the Savings Related Share Option Scheme can be found in the Directors’ Remuneration Report on pages 35 to 45.

Mecom Group plc Annual Report and Accounts 2013 133 Notes to the Company Financial Statements continued for the year ended 31 December 2013

15. Share-based payments continued

(ii) Reconciliation of movement in the number of options (Mecom Group plc employees only)

Exercise Number price of options (pence) At 31 December 2011 20,700 175.3 Forfeited in year (10,350) 175.3 At 31 December 2012 and 2013 10,350 175.3

10,350 options were exercisable at 31 December 2013 under the Savings Related Share Option Scheme (2012: no options).

(iii) Options outstanding at the end of the year (Mecom Group plc employees only) At 31 December 2013, there were 10,350 share options (2012: 10,350 share options) outstanding with a weighted average exercise price of 175.3 pence (2012: 175.3 pence), the vesting period ended during the year (2012: weighted average of vesting period was 0.5 years) and a weighted average remaining contractual period of 0.1 year (2012: 1.0 year).

(d) ESOP The final grant related to the ESOP was made in 2009. From 2010 this plan was effectively replaced by the SESP. The Group has incurred share-based payment charges under this plan up to October 2012, being three years from the date of the last grant.

(i) Summary of arrangements

Nature Grant of options Service period 3 years Vesting conditions – 2007 and 2008 grants None – 2009 grants 2011 adjusted EBITDA or adjusted EPS performance target Maximum term 10 years Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0% Option exercise price calculation Closing price at the end of the previous trading day

(ii) Reconciliation of movement in the number of options (Mecom Group plc employees only)

Weighted average exercise Number of price options (pence) At 31 December 2011 and 2012 263,541 282.5 Forfeited (77,559) (574.2) At 31 December 2013 185,982 160.9

(iii) Options outstanding at the end of the year (Mecom Group plc employees only) At 31 December 2013, details of the options outstanding were as follows:

Weighted Weighted average average remaining lives (years) Number exercise price Vesting Contractual Exercise price (pence) of options (pence) years years 160.0p 156,250 160.0 – 5.92 165.8p 29,732 165.8 – 5.83 Options outstanding at 31 December 2013 185,982 160.9 – 5.90

At 31 December 2012, there were 263,541 share options outstanding with a weighted average exercise price of 282.5 pence, a weighted average remaining vesting period of 0.86 years and a weighted average contractual period of 6.80 years.

134 Mecom Group plc Annual Report and Accounts 2013 15. Share-based payments continued

(e) Warrants On 22 May 2009, the Company reached an agreement with its syndicate of lending banks on certain amendments to its debt facilities. The amendments included a grant of warrants over 785,994 of the Company’s shares issued to the banks. All warrants have vested and 692,646 are still outstanding at 31 December 2013 (2012: 692,646).

(i) Summary of arrangements

Nature Grant of warrants Vesting period 39 days Vesting conditions Subject to a successful equity raise via a rights issue Maximum term Expire on 31 October 2014 Method of settlement Share distribution or cash settlement Expected departures (at grant date) 0% Warrant exercise price calculation £1.50

(ii) Reconciliation of movement in the number of options 692,646 warrants are exercisable at 31 December 2013 at an exercise price of 150.0p (2012: 692,646 at 150.0p). No warrants were exercised in the year (2012: 11,789 warrants).

The total expense recorded in profit before tax in relation to share-based compensation for the year ended 31 December 2013 was £499,000 (2012: £83,000).

16. Obligations under lease contracts

Annual commitments under external non-cancellable operating leases for land and buildings can be broken down as follows:

2013 2012 £000 £000 Expire within one year 24 – Expire between two and five years 73 179

The total charge during the year relating to the above lease amounts to £139,000 (2012: £217,000).

17. Related party transactions

Advantage is taken of the FRS 8 Related Party Disclosures exemption from disclosing transactions or balances with wholly owned (directly or indirectly) Group entities.

18. Events after the balance sheet date

On 17 March 2014 the Group signed secured facilities agreements for two banking facilities to allow the repayment of existing bank borrowings (to which the Company was a party). The details of the new facilities are set out in Note 25 to the consolidated financial statements.

Mecom Group plc Annual Report and Accounts 2013 135 Shareholder Information

Registered office Financial calendar Audley House 13 Palace Street 2013 results announced 18 Mar 2014 25 Wilton Road Interim management statement 24 Apr 2014 London SW1E 5HX Annual General Meeting 21 May 2014 T +44 (0)207 925 7200 F +44 (0)207 925 7201 Half-year 2014 results announced 30 Jul 2014 Registered in England and Wales number 5372704 Interim management statement 23 Oct 2014 Website: www.mecom.com Final dates and any changes will be notified as appropriate. Ordinary shares The Company’s results announcements are published through The Company’s shares are listed on the London Stock the London Stock Exchange. All announcements and Annual Exchange with ISIN GB00B3P91873. Reports are available on the Group’s website www.mecom.com. Share price information Electronic communications The middle market price of a share of Mecom Group plc on Shareholders can also view up-to-date information about 31 December 2013 was £0.8675. During the year, the share price their shareholding and register to receive future electronic fluctuated between £0.28 and £0.975. The Company’s share communications from the Company by visiting the Investor price is available from the Group’s website www.mecom.com, Relations page on the Group’s website at www.mecom.com with a 15-minute delay. (shareholder reference number, shown on share certificate and tax vouchers, will be required). Alternatively, shareholders Registrars may elect to receive notification by email of the publication of All enquiries concerning existing shareholdings, change of financial reports by registering on www.capitashareportal.com. address or loss of share certificates should be directed to Shareholders may elect to receive the Annual Report in hard Capita Asset Services using any of the methods below: copy by contacting the Company’s registrars. In writing: Dividends Capita Asset Services Shareholders are encouraged to have their dividends paid The Registry directly into their bank account as it is more secure than 34 Beckenham Road receiving cheques by post and ensures that cleared funds Beckenham are available to shareholders on the dividend payment date. Kent To take advantage of this convenient method of payment visit BR3 4TU www.capitashareportal.com or contact Capita Asset Services. By telephone: • 0871 664 0300 (if calling from the UK) – calls cost 10p per minute plus network extras; or • +44 208 639 3399 (if calling from overseas).

Website: www.capitaassetservices.com

Analysis of shareholdings as at 31 December 2013 Number of Number Shares held holders % of holders of shares % of shares Up to 1,000 211 47.6298 61,664 0.0509 1,001 to 10,000 96 21.6704 372,778 0.3075 10,001 to 100,000 61 13.7697 2,331,752 1.9236 100,001 to 1,000,000 54 12.1896 18,730,001 15.4522 1,000,001 to 10,000,000 19 4.2889 63,024,356 51.9947 10,000,001 and over 2 0.4515 36,692,446 30.2710 474 121,212,997

ShareGift Shareholders with small holdings of shares who do not wish to sell because the sale commission applied would be disproportionate to the sale price may consider donating them to charity. The Orr Mackintosh Foundation operates a charity share donation scheme. ShareGift can be contacted at 17 Carlton House Terrace, London SW1Y 5AH or by telephone on +44 (0) 20 7930 3737 or online at www.sharegift.org.

136 Mecom Group plc Annual Report and Accounts 2013 Printed on FSC® certified paper. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled. This document is printed on PhoeniXmotion, a paper containing 100% virgin fibre sourced from well managed, sustainable, FSC certified forests. Mecom Group plc Annual Report and Accounts 2013 www.mecom.com T +44 (0)207 925 7200 (0)207 T +44 925 7201 (0)207 F +44 Mecom Group plc Audley House Palace Street 13 5HX SW1E London