DMGT Annual Report 2008
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Notes to the Company Balance Sheet - UK GAAP
1 BASIS OF PREPARATION
The separate financial statements of the Company are prepared under the historical cost convention, modified to include the revaluation to fair value of certain financial instruments as described below, in accordance with the Companies Act 1985 and UK Generally Accepted Accounting Principles (UK GAAP). The following paragraphs describe the main accounting policies under UK GAAP, which have been applied consistently.
Profit for the financial year
As permitted by section 230 of the Companies Act 1985, a separate profit and loss account for the Company has not been included in these accounts. The Company’s loss after tax for the year, calculated on a UK GAAP basis, was £141.8 million (2007 profit £157.8 million).
Impact of new accounting standards
In the current year, the Company has adopted the following standards:
Amendment to FRS 3 Reporting Financial Performance (effective for periods beginning on or after 1st January, 2007). The amendment clarifies the required treatment of gains and losses on remeasurement and derecognition of certain financial instruments. The adoption of this standard did not have a significant impact on the Company’s financial statements where these are included in publicly available Consolidated Financial Statements which include disclosures that comply with FRS 29 (IFRS 7) Financial Instruments: Disclosures.
Amendment to FRS 26 Financial Instrument measurement (effective for periods beginning on or after 1st January, 2007). The amendment implements recognition and derecognition criteria of IAS 39. The adoption of this standard did not have a significant impact on the Company’s financial statements.
FRS 29 Financial Instruments Disclosures (effective for periods beginning on or after 1st January, 2007). The adoption of FRS 29 did not have an impact on the Company’s financial statements due to the exemption provided in the standard which states that disclosure of financial instruments is not required in the parent company financial statements where these are included in publicly available Consolidated Financial Statements which include disclosures that comply with FRS 29 (IFRS 7) Financial Instruments: Disclosures.
Amendment to FRS 17 Retirement Benefits (effective for periods beginning on or after 6th January, 2007). The amendment is a further alignment with IAS 19 such that quoted securities are valued at current bid price rather than the mid-market price. The adoption of this standard has had no impact on the Company’s financial statements.
At the date of authorisation of these financial statements, the following standards have been issued but not applied to the information in these financial statements since they do not apply to this reporting period.
Amendment to FRS 20 Share-based Payment – Vesting Conditions and Cancellations (effective for periods beginning on or after 1st January, 2009). The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect a significant impact from the adoption of this standard.
2 SIGNIFICANT ACCOUNTING POLICIES
Goodwill and other intangible assets
Impairment reviews of goodwill and intangible assets are carried out at the end of the first financial year after acquisition and where there is any indication of impairment.
Purchased intangible assets relating to newspaper publishing rights, titles, radio licences and certain other intangible assets are capitalised and amortised through the profit and loss account over the lower of their useful economic lives and a period of 20 years.
Tangible fixed assets
Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost or valuation, less estimated residual value, of each asset on a straight-line basis over its expected useful life. All of the Company’s tangible fixed assets are artworks with a residual value at least equal to cost and therefore no depreciation has been applied in the current period.
Foreign exchange
Transactions in currencies other than the entity’s functional currency are recorded at the exchange rate prevailing on the date of the transaction. At each Balance Sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rate prevailing on the date when fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period.
Investments
Investments in subsidiaries are stated at cost, less any provision for impairment, where appropriate.
Other investments which are classified as either held for trading or available-for-sale are measured at fair value or at cost less provision for impairment where fair value cannot be reliably determined.
Where securities are held for trading purposes, gain and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Impairment charges are recorded in the profit and loss account when they occur.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax is provided in full on timing differences that result in an obligation at the Balance Sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements.
Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
Financial instruments
Financial assets
Trade debtors
Trade debtors do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Available-for-sale investments
Investments and financial assets are recognised and de-recognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the time frame established by the market concerned, and are measured at fair value, including transaction costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, short-term deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Trade creditors
Trade creditors are not interest bearing and are stated at their nominal value.
Capital market and bank borrowings
Interest bearing loans and overdrafts are initially measured at fair value (which is equal to net proceeds at inception), and are subsequently measured at amortised cost, using the effective interest rate method. A portion of the Company’s bonds are subject to fair value hedge accounting and this portion is adjusted for the movement in the hedged risk to the extent hedge effectiveness is achieved. Any difference between the proceeds, net of transaction costs and the settlement or redemption of borrowings is recognised over the term of the borrowing.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is a legally enforceable right to settle on a net basis, or realise the asset and liability simultaneously.
Derivative financial instruments and hedge accounting
The Company uses various derivative financial instruments to manage its exposure to foreign exchange and interest rate risks. These have included currency swaps, forward foreign currency contracts and interest rate swaps.
The Company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates.
The use of financial derivatives is governed by the Group’s policies, which are set out in the Financial and Treasury Review and approved by the Board of Directors, which provide written principles on the use of financial derivatives consistent with the Company’s risk management strategy. The Company does not use derivative financial instruments for speculative purposes.
The Company does not apply hedge accounting except for fair value hedges. Gains and losses arising on derivatives that form part of net investment hedge or cash flow hedge relationships in the Consolidated Financial Statements are recorded in the Profit and Loss Account in the Company.
Fair value hedges
The Company’s policy is to use derivative instruments (primarily interest rate swaps) to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk to the extent that the hedge relationship is effective. When the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting, hedge accounting is discontinued.
Financial instruments – disclosures
The Company has taken advantage of the exemptions provided in FRS 29 which states that disclosure of financial instruments is not required in parent company financial statements where these are included in publicly available Consolidated Financial Statements which include disclosures that comply with FRS 29 (IFRS 7) Financial Instruments: Disclosures.
Cash flow statement
The Company has utilised the exemptions provided under FRS 1 (Revised) and has not presented a cash flow statement. A consolidated cash flow statement has been presented in the Group’s Report and Accounts.
Related party transactions
The Company has taken advantage of the exemptions of FRS 8 which states that disclosure of related party transactions is not required in the parent company financial statements when those statements are presented together with its Consolidated Financial Statements.
Share-based payments
The Company operates the Group’s LTIP and other Group share-based payment schemes, details of which can be found in note 38 of the Group’s Annual Report and Accounts.
3 EMPLOYEES
| 2008 Number |
2007 Number |
|
|---|---|---|
| Average number of persons employed by the Group by activity including Directors | 11 | 11 |
| 2008 £m |
2007 £m |
|
|---|---|---|
| Total staff costs comprised: | ||
| Wages and salaries | 5.6 | 5.4 |
| Share-based payments | 1.4 | 2.1 |
| Social security costs | 0.8 | 0.6 |
| Pension costs | 0.9 | 0.3 |
| 8.7 | 8.4 | |
4 INTANGIBLE ASSETS
| Trade marks £m |
|
|---|---|
| Cost | |
| At 30th September, 2007 | 146.0 |
| Disposals | (10.0) |
| At 28th September, 2008 | 136.0 |
| Accumulated amortisation | |
| At 30th September, 2007 | 19.1 |
| Charge for the year | 6.9 |
| Impairment | 25.5 |
| Disposals | (5.6) |
| At 28th September, 2008 | 45.9 |
| Net book value – 2007 | 126.9 |
| Net book value – 2008 | 90.1 |
The Company tests goodwill and intangible assets at the end of the first financial year after acquisition and where there is any indication of impairment, or more frequently if there are indicators that goodwill or intangibles assets might be impaired. When testing for impairment, the recoverable amounts for all the Company’s income generating units (IGUs) are measured at their value in use by discounting future expected cash flows. These calculations use cash flow projections based on management approved budgets and projections which reflect management’s current experience and future expectations of the markets in which the IGU operates.
The impairment charge recognised in the year relates to the Company’s interests in its local media IGUs. This has been determined using the methodology set out in note 17 to the Group’s Annual Report and Accounts. The risk adjusted discount rate used was 9.5%.
5 TANGIBLE ASSETS
| Plant and equipment £m |
|
|---|---|
| Cost | |
| At 30th September, 2007 | 0.8 |
| Disposals | (0.2) |
| At end of year | 0.6 |
| Accumulated depreciation | |
| At beginning and end of year | 0.2 |
| Net book value – 2007 | 0.6 |
| Net book value – 2008 | 0.4 |
6 INVESTMENTS IN GROUP UNDERTAKINGS (as listed in Principal Subsidiaries)
| Cost £m |
Provision £m |
Net book value £m |
|
|---|---|---|---|
| At beginning of year | 1,862.8 | (1.7) | 1,861.1 |
| Additions | 159.4 | – | 159.4 |
| Disposals | (196.6) | 1.7 | (194.9) |
| At end of year | 1,825.6 | – | 1,825.6 |
7 OTHER INVESTMENTS
| £m | |
|---|---|
| Cost or valuation | |
| At beginning of year | 1.1 |
| Provided during year | (0.2) |
| Exchange adjustment | 0.1 |
| At end of year | 1.0 |
Other investments comprise non-current equity investments which are held as available-for-sale. They are recorded at fair value and are analysed as follows:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Unlisted | ||
| JEGI Internet Economy Partners, L.P. | 1.0 | 1.1 |
The Company owns a 23% share of the partnership capital.
8 DEBTORS
| 2008 £m | 2007 £m | |
|---|---|---|
| Amounts falling due within one year | ||
| Trade debtors | – | 2.9 |
| Amounts owed by Group undertakings | 70.4 | 88.6 |
| Prepayments and accrued income | 8.5 | 1.5 |
| Corporation tax | 65.9 | 67.1 |
| Derivative financial assets | 3.0 | 12.3 |
| 147.8 | 172.4 | |
The Company’s corporation tax debtor represents amounts due from subsidiaries for Group relief and payments made to UK HM Revenue and Customs on account of the 2007 liability.
9 CASH AND CASH EQUIVALENTS
| 2008 £m |
2007 £m |
|
|---|---|---|
| Cash and cash equivalents | - | 0.1 |
10 CREDITORS
| 2008 £m |
2007 £m |
|
|---|---|---|
| Due within one year | ||
| Bank overdrafts | 4.0 | 2.7 |
| Loan notes | 2.5 | 2.8 |
| Interest payable | 32.4 | 32.9 |
| Amounts owing to Group undertakings | 163.8 | 112.3 |
| Accruals and deferred income | 0.6 | 2.2 |
| Derivative financial liabilities | 1.6 | 0.6 |
| 204.9 | 153.5 | |
Loan notes attract interest at approximately LIBOR minus 1% and were issued as part of the consideration for various acquisitions. The loan notes are repayable at the option of the loan note holder.
11 CREDITORS
| 2008 £m |
2007 £m |
|
|---|---|---|
| Due after more than one year | ||
| 7.5% Bonds 2013 | 299.4 | 299.1 |
| 5.75% Bonds 2018 | 173.5 | 173.1 |
| 10% Bonds 2021 | 168.2 | 168.5 |
| 6.375% Bonds 2027 | 197.8 | 197.8 |
| Bank loans | 105.4 | 67.6 |
| Derivative financial liabilities | 31.1 | 8.1 |
| 975.4 | 914.2 | |
The nominal values of the bonds are as follows:
| 2008 £m |
2007 £m |
|
|---|---|---|
| 7.5% Bonds 2013 | 300.0 | 300.0 |
| 5.75% Bond 2018 | 175.0 | 175.0 |
| 10% Bonds 2021 | 156.4 | 156.4 |
| 6.375% Bonds 2027 | 200.0 | 200.0 |
| 831.4 | 831.4 |
The Company’s bonds have been adjusted from their nominal values to offset the premia paid on settlement or redemption, direct issue costs and discounts. The issue costs, premia and discounts are being amortised over the expected lives of the bonds using the effective interest method. The unamortised issue costs amount to £3.4 million (2007 £3.7 million), the unamortised premia £15.1 million (2007 £16.2 million).
Details of the fair value of the Company’s bonds are set out in note 29 of the Group’s Annual Report and Accounts. The book value of the Company’s other borrowings equates to fair value.
The Company’s bank loans are denominated in US dollars and Sterling. The interest rates on these borrowings ranged as follows:
| 2008 High |
2008 Low |
2007 High |
2007 Low |
|
|---|---|---|---|---|
| Sterling | 7.35% | 5.23% | 7.30% | 4.23% |
| US dollar | 6.23% | 2.50% | 6.23% | 5.32% |
The maturity profile of the Company’s borrowings is as follows:
| Overdrafts £m |
Bank loans £m |
Bonds £m |
Loan notes £m |
Total £m |
|
|---|---|---|---|---|---|
| 2008 | |||||
| Within one year | 4.0 | – | – | 2.5 | 6.5 |
| Between two and five years | – | 28.2 | – | – | 28.2 |
| Over five years | – | 77.2 | 838.9 | – | 916.1 |
| – | 105.4 | 838.9 | – | 944.3 | |
| 4.0 | 105.4 | 838.9 | 2.5 | 950.8 | |
| 2007 | |||||
| Within one year | 2.7 | – | – | 2.8 | 5.5 |
| Between two and five years | – | 67.6 | – | – | 67.6 |
| Over five years | – | – | 838.5 | – | 838.5 |
| – | 67.6 | 838.5 | – | 906.1 | |
| 2.7 | 67.6 | 838.5 | 2.8 | 911.6 | |
12 PROVISIONS FOR LIABILITIES
| Note | 2008 £m |
2007 £m |
|
|---|---|---|---|
| Deferred taxation | 13 | 0.2 | 0.2 |
| Other provisions | (i) | 0.6 | 1.1 |
| 0.8 | 1.3 | ||
|
(i) Movements on other provisions were as follows: At beginning of year |
1.1 | 1.5 | |
| Utilised during year | (0.5) | (0.4) | |
| At end of year | 0.6 | 1.1 |
The provision relates to probable costs associated with subsidiary disposal commitments and is expected to be utilised within the next 12 months.
13 DEFERRED TAXATION
| 2008 £m |
2007 £m |
|
|---|---|---|
| Other timing differences | 0.2 | 0.2 |
Movements on the provision for deferred taxation were as follows:
| 2008 £m |
2007 £m |
|
|---|---|---|
| At beginning of year | 0.2 | 0.2 |
| LTIP charge | – | 0.1 |
| Net credit to profit and loss account | – | (0.1) |
| At end of year | 0.2 | 0.2 |
14 RESERVES
Share premium account
| 2008 £m |
2007 £m |
|
|---|---|---|
| At beginning of year | 12.4 | 9.7 |
| Issued on shares | – | 2.7 |
| At end of year | 12.4 | 12.4 |
Shares held in treasury
| 2008 £m |
2007 £m |
|
|---|---|---|
| At beginning of year | (44.4) | (63.1) |
| Additions | (88.3) | (32.8) |
| Own shares released on vesting of share options | 21.0 | 4.9 |
| Own shares cancelled | 18.2 | 46.6 |
| At end of year | (93.5) | (44.4) |
The Company’s investment in its own shares is classified within shareholders’ funds as Shares held in treasury. At 28th September, 2008 this investment comprised the cost of 18,215,407 ‘A’ Ordinary Non-Voting shares (2007 6,353,906 shares). The market value of these shares at 28th September, 2008 was £59.1 million (2007 £40.0 million). The treasury shares are considered to be a realised loss for the purposes of calculating distributable reserves.
Details of the Company’s share capital can be found within note 34 of the Group’s Annual Report and Accounts.
15 CAPITAL REDEMPTION RESERVE
| £m | |
|---|---|
| At beginning of year | 0.8 |
| On cancellation of Ordinary shares | 0.3 |
| At end of year | 1.1 |
16 PROFIT AND LOSS ACCOUNT
| £m | |
|---|---|
| At beginning of year | 1,075.0 |
| Net loss for the year | (85.5) |
| Dividends paid | (56.3) |
| On cancellation of ‘A’ Ordinary shares | (18.2) |
| Other movements on share option schemes | (0.3) |
| At end of year | 914.7 |
| Total reserves – 2007 | 898.2 |
| Total reserves – 2008 | 834.7 |
The Company estimates that £611.7 million of the Company’s profit and loss account reserve is not distributable (2007 £596.1 million).
17 CONTINGENT LIABILITIES
At 28th September, 2008 the Company had guaranteed borrowing facilities of subsidiaries under which £60.0 million (2007 £82.9 million) were outstanding. The Company had also guaranteed a subsidiary’s interest rate derivatives with a principal value of £489.6 million (2007 £186.9 million) and letters of credit of £9.1 million (2007 £5.7 million). The Company has also issued standby letters of credit in favour of the Trustees of the Group’s defined benefit pension fund amounting to £64.3 million (2007 £nil).
18 CONTROLLING PARTY
The Company’s ultimate controlling party is the Viscount Rothermere, the Company’s Chairman. Transactions relating to the remuneration and shareholdings of the Viscount Rothermere are given in the Remuneration Report.