Johnston Press PLC Regulatory News (JPR)

Johnston Press plc

Interim unaudited results for the 26 week period ended 30 June 2018

Johnston Press plc and its subsidiaries ('the Group'), (LSE: JPR), announces its results for the 26 week period ended 30 June 2018.

Operational Highlights1

· A strong performance from the i newspaper, which saw a 61.0% increase in adjusted EBITDA on H1 2017 to £6.0m2, has helped to mitigate a broader decline in revenues.

· The Group has posted a statutory operating profit of £7.4m compared to £4.9m in the same period last year while delivering an adjusted EBITDA of £19m at a margin of 20.4%.

· Consistent with pressures seen across the industry, adjusted advertising revenues from continuing operations have fallen by 15.0% with revenue from classified advertising showing a decline of 28.5% compared to the same period last year.

· Digital audiences grew to a record 27.3m average unique users per month. However, the effects of algorithm and news feed changes by Google and Facebook contributed to total digital advertising revenues declining by 7.4% (down 4.3% excluding classifieds) on H1 2017 to £12.2m.

· Adjusted newspaper sales circulation revenues have proven resilient, falling by 1.7% on H1 2017 to £38.9m, with price rises broadly off-setting the impact of circulation declines.

· The Group's adjusted net debt position3, which excludes mark-to-market gains on our Bonds, is £203.2m - with interest payments consuming £9.5m of cash in the period.

Financial Highlights

Statutory results for the Group:

· Total revenue was £93.0m (H1 2017: £103.3m) down 10.0%

· Operating profit was £7.4m (H1 2017: £4.9m) up 50.1%

· Profit before tax was £6.2m (H1 2017: loss before tax of £10.2m) includes a non-cash impairment of £3.5m (H1 2017: £4.5m) and mark-to-market gain on the Bond of £8.8m (H1 2017: loss of £4.4m)

Adjusted1 results for the Group:

· Total adjusted revenue was £93.0m (H1 2017: £101.3m) down 8.2%, (down 4.1% excluding classifieds)

· Adjusted operating profit was £16.6m (H1 2017: £16.2m) up 2.4%

· Adjusted Group EBITDA was £19.0m (H1 2017: £19.7m) down 3.7%

· Adjusted EBITDA margin of 20.4% (H1 2017: 19.5%)

· Adjusted net debt3 was £203.2m at 30 June 2018 (as at 30 December 2017: £195.9m)

Strategic Review

· The Strategic Review is ongoing, and we will provide an update as soon as possible.

Commenting on the results, Chief Executive Officer David King said:

"There are two sets of issues affecting Johnston Press. The first is the Group's historical debts, including its pension obligations, which continue to weigh on our Balance Sheet. The second is the tough market conditions affecting the performance of our newspapers and websites. However, our resilient performance allowed us to generate an operating profit of £7.4m in the period, up from £4.9m in H1 2017.

"The strong performance of the i demonstrates that it is possible to grow a newspaper brand, despite the prevailing headwinds. The i grew its circulation revenues by 17% and its advertising revenues by 20% compared to H1 2017. The digital audience for inews.com grew to 4.2m in June, up from 1.3m in December last year.

"The market backdrop for regional/local newspapers is extremely difficult, as evidenced by the 15% drop in our adjusted advertising revenues from H1 2017. We have continued to make progress growing digital audiences to a record 27.3m average unique users per month. However, the continued challenges posed by Google and Facebook, seen most recently through algorithm and news feed changes, has contributed to total digital revenue decline, while Balance Sheet constraints has restricted the Group's ability to invest, and counter these effects. We will engage with the Cairncross Review into the future of high quality journalism with a view to helping address the challenges faced by local news organisations in monetising its content.

"As part of the Strategic Review, the Group continues to explore its options for the refinancing or restructuring of the Group's debt but, as yet, no decisions have been made nor agreements reached. We will provide an update as soon as possible." 

Statutory and adjusted basis

The statutory results are for the Group and include closed titles and businesses, exceptional items, asset impairment and mark-to-market movements on the Group's Bonds. The adjusted measures represent trading results before adjusting items which are defined in the Alternative Performance Measures section. The Directors present this supplemental financial information to provide a consistent view on the underlying trading of the Group.

The adjusted figures are not a financial measure defined or specified in the applicable financial reporting framework, and therefore may not be comparable to similar measures presented by other entities. When reviewing and selecting these adjusting items, the Directors considered the guidelines issued by the European Securities and Markets Authority ('ESMA'). A reconciliation of the statutory to adjusted figures is provided within the Financial Review and within the Adjusted Performance Measures section.

Forward-looking statements

The report contains forward looking statements. Although the Group believes that the expectation reflected in these forward- looking statements are reasonable, it can give no assurance that the expectations will prove to have been correct. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward looking statements. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Market abuse regulation

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

For more information, contact:

Johnston Press plc

David King, CEO 020 7612 2600

Panmure Gordon

Dominic Morley

Charles Leigh-Pemberton 020 7886 2500

Liberum

Neil Patel 020 3100 2000

Edelman

Alex Simmons

Ben Fenton 020 3047 2000

Johnston Press will host a conference call for institutional investors and analysts this morning at 9.30am (GMT). The presentation will be available through our partner Arkadin (https://event.on24.com/wcc/r/1823919-1/9D2D293F62993577FD1EFD5473E98289).

To dial in to the conference call, participants should dial:

United Kingdom Toll-Free: No: 08003589473

PIN: 87374769#

United Kingdom Toll: No: +44 3333000804

PIN: 87374769#

Johnston Press Legal Entity Identifier: 213800JFIBCR4LGUA242

About Johnston Press

Johnston Press is a leading multimedia business with a vibrant mix of news brands that reach national, regional and local audiences. We provide news and information services to local and regional communities through our extensive portfolio of hundreds of publications and websites.

Sharing information and opinion remains at the heart of what we do and our titles, which include iconic publications such as the i newspaper, The Scotsman, The Yorkshire Post and News Letter in Northern Ireland are read via traditional print, online platforms and mobile devices by an average of 39.51 million people every month.

We are experts in combining national reach with local targeting and are better equipped than ever to help advertisers tell their stories, too, through our trusted platforms. 

¹Total average audience consists of 27.3m unique users (H1 2017: 26.5m) and print audience of 12.2m (H1 2017: 13.7m).

FINANCIAL REVIEW

Introduction

This Financial Review provides commentary on the Group's Statutory and Adjusted (Alternative Performance Measures or "APMs") results for the 26 week period ended 30 June 2018 (H1 2017: 26 week period ended 1 July 2017).

Strategic Review

The Group's net debt (excluding mark-to-market) at period end was £203.2m. The Group's £220.0m 8.625% high yield bonds (the 'Bonds'), which become due for repayment on 1 June 2019, have been classified as current in the 2018 interim report. The Group also operates a defined benefit pension scheme, which was closed to future accrual on 30 June 2010. At 30 June 2018 it had a net deficit of £40.7m.

The Strategic Review process continues to be a key focus for the Group. The impact of this matter on the Directors' determination of the appropriateness of preparing the 2018 interim financial statements on a going concern basis, and their review of the Group's viability over the medium term is discussed in the 'Liquidity and going concern' section and the 'Viability Statement' section.

Basis of presentation of results

The statutory results are presented for the continuing Group. The East Anglia and East Midlands titles, disposed of in January 2017 and the Yorkshire Metro title publishing contract terminated on 30 June 2018 are included in the prior year statutory results but removed for comparability with the continuing business in the adjusted figures1. Continuing statutory results include closed titles and businesses, adjusting items, impairment of asset carrying values and mark-to-market gains/(losses) on the Group's Bonds.

To provide investors and other users of the Group's financial statements with additional clarity and understanding of both the cost of this business change program, and the resulting impact on the Group's underlying trading, the Directors believe that it is appropriate to additionally present the Alternative Performance Measures used by management in running the business and in determining management and executive remuneration.

In preparing commentary on performance, the financial impact of a number of significant accounting and operational items has been adjusted to determine the adjusted results included in this Financial Review. The adjusted results provide supplementary analysis of the 'underlying' trading of the Group.

A reconciliation of statutory to adjusted figures is provided below and in the Alternative Performance Measures section. 

1 Prior period comparative adjusted revenue, adjusted cost of sales and adjusted operating costs have been restated to adjust out amounts relating to the Yorkshire Metro closed during 2018. This ensures that adjusted results for H1 2018 and both prior periods are presented on a consistent basis, including only the operations of the Group that are continuing from 30 June 2018.The impact is an increase in cost of sales adjusting item (H1 2017: £0.8m, FY 2017: £1.8m) and operating cost adjusting item (H1 2017: £0.8m, FY 2017: £1.6m). Refer to Adjusted Performance Measures section for details.

Reconciliation of statutory and adjusted results

Adjusted operating profit of £16.6m (H1 2017: £16.2m) has been calculated after adjusting for restructuring, impairment, Strategic Review and other non-trading related costs.

Continuing statutory revenue has been adjusted for disposed titles, closed titles and digital products. During the period the Group terminated its contract to publish the Yorkshire Metro and has treated this publication as closed. As an onerous provision was recorded at 30 December 2017 for the 2018 losses expected from the Yorkshire Metro publishing contract, until termination on 30 June 2018, the adjustment to revenue relating to this closed title is £nil for H1 2018 (H1 2017: £1.5m and £3.2m for the full comparative year). On 17 January 2017, the Group sold its East Anglia and East Midlands titles to Iliffe Media Ltd. Adjustments made in the comparative periods in respect of these titles relate to revenue earned in the two-week period up to the date of disposal of £0.3m. This adjustment is necessary in order to present results for the Group's ongoing business portfolio.

Reconciliations of the statutory to adjusted figures are provided below and explained within the Financial Review and within the Statutory to Adjusted reconciliation in the APM's section.

Reconciliation of adjusted revenue

1 The prior year comparative figures have been restated to exclude revenue for the titles and products closed during H1 2018, in order to present results for the Group's ongoing business portfolio. Prior year total revenue of £1.5m for H1 2017 and £3.2m for FY 2017 has been adjusted on a like-for-like basis. The revenue on these related products has been adjusted so as to present the Group's underlying performance on a comparable basis as they do not earn revenue once closed.

Reconciliation of adjusted operating profit and adjusted EBITDA

Reconciliation of net debt to net debt excluding mark-to-market

1 The statutory results include the trading performance of the Midlands titles (H1 2017: 2 weeks), which were disposed of in January 2017.

2 The % change variance has been calculated based on unrounded numbers.

3 Total costs include cost of sales and are stated before depreciation and amortisation.

4 EBITDA is earnings before interest, tax, depreciation and amortisation. A reconciliation of Adjusted EBITDA is provided in the Alternative Performance Measures section.

5 Prior period comparative revenue, and total costs have been restated to adjust out amounts relating to the Yorkshire Metro closed during 2018. This ensures that adjusted results for H1 2018 and both prior periods are presented on a consistent basis, including only the operations of the Group that are continuing from 30 June 2018.The impact is an increase in total cost adjusting item (H1 2017: £0.8m).

Revenue

Total adjusted revenues of £93.0m were down 8.2% for the period. Revenue declines reflect the continued downward pressure on revenue, with adjusted classified and other advertising down 28.5% period-on-period and a slowdown in digital revenue during the period. Total statutory revenues were down 10.0% for the period.

Newspaper sales

Statutory newspaper sales revenue was £38.9m for the 26 weeks 30 June 2018, compared to £39.6m for the 26 weeks to 1 July 2017. This performance reflected price rises of 10p on the Monday to Friday and 20p on the Saturday editions of the i from September 2017. The strategy of investing in our largest titles has also allowed us to increase prices without a material detrimental impact on circulation numbers, which have seen modest falls during the period.

Contract printing

Statutory contract print revenues were £6.6m in the first half of the year, a 3.2% decline on the prior period. The Group has continued to win new contract work, benefiting from additional revenues of £0.5m generated from new contracts in H1 2018, which has helped mitigate the decline in print volumes from existing contracts and the impact of the change in format of the Guardian and Observer printed by the Group in Northern Ireland. There have been no print contract losses since October 2014.

Advertising Revenue

Total adjusted advertising revenue was down 15.0% period-on-period, reflecting challenging industry conditions.

Print and Digital publishing advertising adjusted revenue analysis

The sharpest fall in advertising continued to be in classified, down 28.5% or £4.8m of the £7.6m decrease in adjusted advertising revenue for H1 2018. Classifieds revenue now represents 13.0% of the total revenue of the Group (H1 2017: 16.7%).

1 Partnership revenues include partnership revenues, reader holidays and other B2B services (formerly described as Enterprise).

2 The % change variance has been calculated based on unrounded numbers.

The table below presents the total print and digital revenues, for the purpose of reconciling to the Group's statutory breakdown in the notes to the financial statements.

1 The % change variance has been calculated based on unrounded numbers.

2 In addition, digital syndication revenue of £0.6m (H1 2017: £0.5m) are included in Leaflet, syndication and other revenue.

3 Total average audience consists of 27.3m unique users (H1 2017: 26.5m) and print audience of 12.2m (H1 2017: 13.7m).

The continued challenges posed by Google and Facebook, seen most recently through algorithm and news feed changes, has contributed to total digital revenue decline, while Balance Sheet constraints has restricted the Group's ability to invest, and counter these effects.

Leaflets, syndication and other revenues

Leaflets, syndication and other revenues, (which includes Transitional Services Agreement (TSA) income, events, reader offers and waste sales) improved by 6.2% period on period, on an adjusted basis.

Operating profit

The Group achieved adjusted operating profit of £16.6m in the first half (H1 2017: £16.2m), an improvement of 2.6% on the prior period and a strong adjusted EBITDA margin of 20.4% (H1 2017: 19.5%).

Adjusted total costs (excluding depreciation and amortisation) of £74.0m have been achieved, representing a £7.6m cost reduction compared to the prior period. The adjusted depreciation charge of £2.4m compares to £3.5m in the prior period. Cost savings continue to be made across all parts of the business including production, editorial, sales and overheads.

A statutory operating profit of £7.4m (H1 2017: £4.9m profit), is reported after an impairment charge in the period of £3.5m (H1 2017: £4.5m).

i performance

The i's first half adjusted EBITDA performance increased 61.0% to £6.0m on H1 2017 as a result of strong statutory revenue performance - up 18.3% on H1 2017. Within this, statutory newspaper sales revenue grew to £12.9m, an increase of 16.9% on H1 2017, whilst total advertising revenues were £3.6m, an increase of 20.0% from H1 2017. Management has continued its focus on the cost base and margins. 

The i newspaper has continued to thrive, following its acquisition in April 2016 for £24.0m. Since acquisition, it has generated £18.6m of adjusted EBITDA for the Group.

In the period total revenue was up 18.3%, with circulation revenue up 16.9% and advertising up 20.0%.

Overall circulation of Monday to Friday maintained a 19.5% share of the quality market.

The i has also seen significant growth in its digital traffic, with unique users hitting 4.2m in June, up from 1.3m in December 2017.

1 No corporate costs have been allocated to the i for the purposes of the results presentation.

2 The % change variance has been calculated based on unrounded numbers.

3 EBITDA is not a statutory measure and therefore has been labelled as Adjusted EBITDA. However, there are no adjusting items included in this figure.

Finance income and costs

Adjusted net finance costs were £9.5m in the period, flat period-on-period. In the period, a fair value gain on the Bonds amounted to £8.8m as a result of a drop in market prices in the period (H1 2017: £4.4m gain).

1 Adjusted finance costs exclude the Bonds mark-to-market and pension finance costs. A reconciliation and explanation of statutory to adjusted figures is provided in the Alternative Performance Measures section.

Asset impairment

The carrying value of assets is reviewed for impairment at least annually or more frequently if there are indications that they might be impaired. In light of the adverse trading conditions impacting the sector an impairment review was undertaken resulting in a write-down of £3.5m in the first half of 2018 (H1 2017: £4.5m). The impairment is largely a function of the downward pressure on revenue. The write-down reduces the asset carrying value of publishing units to £82.3m and the carrying value of print presses to £18.3m at period-end. Refer to Note 8 and 9 in the financial statements.

Taxation

Corporation tax for the interim period is charged at 39.4% (H1 2017: credited at 45.0%), including deferred tax. The tax charge of £2.4m in the period includes a deferred tax charge of £2.5m, of which £2.2m arises on the Bonds due to different accounting treatment adopted at Group and subsidiary levels due to statutory requirements.

The Group expects that, subject to the uncertain outcome of the Strategic Review, the effective tax rate will remain relatively consistent with the current and prior year and reflect the reduction of UK corporate tax rates over the next few years.

In November 2017, the UK government introduced new rules with effect from 1 April 2017 which would restrict the deductibility of net interest costs. In the current year the £2.0m tax impact of these new restrictions is included in the calculation of the current year tax charge. Due to uncertainty regarding the Group's ability to recover the disallowed interest which can be carried forward under these rules, no deferred tax asset has been recognised in relation to the disallowed amount.

The Group published its tax strategy on the Group's website on 14 December 2017, and is available at http://www.johnstonpress.co.uk/tax-strategy.

Earnings per share and dividends

1 Rounded to the nearest million. Refer to Note 7 for further disclosure on Statutory to Adjusted EPS.

No ordinary or preference share dividends were declared or paid in the period, due to restrictions in the Bonds terms and the Group having insufficient distributable reserves. The provisions of the Group's Bonds restrict the Company's ability to pay dividends on the Company's ordinary shares until certain conditions, including that net leverage is below 2.25x EBITDA, are met.

Disposal

On 17 January 2017, the Group completed the disposal of the entire issued capital of Johnston Publishing East Anglia Limited, which owned 13 publishing titles and associated websites in East Anglia and East Midlands (Midlands titles), to Iliffe Media Limited for cash consideration of £17.0m.

Cash flow/Net debt

The Group's net debt position was £203.2m on 30 June 2018 excluding Bonds mark-to-market and Bonds discounts totalling £63.0m. In the period, a £8.8m fair value movement gain has been recognised (H1 2017 £4.4m loss) (Note 5b). The net debt after mark-to-market adjustments was £140.2m (Note 12).

Cash generated from operations of £3.9m is after pension contributions of £5.3m.

Cash held at 30 June 2018 was £17.6m. The decrease from 30 December 2017 was due to the costs incurred in relation to the Strategic Review of £3.2m and the reduction in trade creditors of £3.0m during the period. The Group continues to maintain tight control of capital expenditure with £2.1m having been spent on asset purchases (H1 2017: £1.6m).

Cash interest paid in the first half was £9.5m (H1 2017: £9.5m).

Reconciliation of net debt to net debt excluding mark-to-market

Net liabilities position

At the period end, the Group had net liabilities of £88.3m, an improvement of £5.2m since 30 December 2017 due to the reduction in the pension deficit in the period of £6.4m, movements in the market value of the Bonds (£8.8m) and a reduction in trade creditors of £2.7m, offset by reduction in the cash balance of £7.4m following the payment of Bonds interest, impairment charges to assets of £3.5m and increases to deferred tax liabilities of £2.8m during the period.

Pensions

The Group's defined benefit pension plan deficit has reduced by £6.4m to £40.7m since 31 December 2017 reflecting contributions in the period of £5.3m and the benefit of a higher discount rate due to corporate bond yields rising during the period. This has enabled us to increase the discount rate by 0.20% to 2.70% at 30 June 2018. Applying the updated CMI 2017 model increased the life expectancy of males and females currently aged 65 years, and females currently aged 50 years by 0.1 years to 19.8, 21.5 and 22.4 respectively.

All other assumptions are materially consistent with the year-end.

The Pension Framework Agreement and the required level of contributions are subject to review as part of the 31 December 2015 triennial valuation which will be settled as part of the Strategic Review conclusion (Note 13).

Events after the balance sheet date

Refer to Note 18 for details of significant post balance sheet events.

Related party transactions

During the period the Group paid £0.5m in retention bonuses to retain key employees as part of the Strategic Review. No Directors received retention bonuses. Refer to Note 17 and the Alternative Performance Measures section for further details.

Principal risks and uncertainties

There are a number of potential risks and uncertainties which have been identified by the Company that could have a material impact on the Group's long-term performance.

The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the 52 week period ended 30 December 2017. A detailed explanation of the risks summarised below, and information about how the Group seeks to mitigate the risks can be found on pages 20 to 21 of the Annual Report, available at http://www.johnstonpress.co.uk/investors/reports-results-presentations. The most significant risks are summarised below:

Refinancing June 2019

Failure to repay, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture and could have a material impact on the Group's operations and its ability to continue as a going concern. Media speculation around the Strategic Review could have a negative impact on employees, customers and suppliers.

Print-based revenues

Print advertising and circulation revenues continue to decline at current levels, or accelerate further.

New revenue streams

Digital revenues decline, or do not grow at the rate needed to offset print decline over the short to medium term.

Pension scheme

The Company is engaged in negotiations with the trustees of its final salary pension scheme as part of the scheme's triennial review. The Company agreed with Trustees to put its triennial negotiations on hold, while it carried out its strategic review. An affordable revised schedule of contributions dealing effectively with the scheme's deficit is to be agreed.

Liquidity

The Group is expected to have full year interest costs of £19.0m and pension contributions of £10.6m. Further downward pressure on revenues could reduce operating cash flow below the level required to service interest and pension commitments.

Cost reduction

The Group is required to invest in cost reduction and is constrained in its ability to invest in development.

Data security

The Company's systems and data integrity could be vulnerable to disruption and/or loss of, or loss of access to, data. Poor quality data or data which the Company cannot lawfully process could limit the realisation of marketing and business opportunities.

The Group is required to comply with the new General Data Protection Regulation (GDPR) requirements which came into effect in May 2018.

Economy

The impact of changes in the economy and United Kingdom economic performance, including from Brexit, may have an impact on the Group's operations.

Investment in growth

The Company's ability to invest in new digital product development and technology is limited. This hinders its ability to stay competitive and invest in the digital products necessary in a rapidly changing environment.

Liquidity and going concern

As at 30 June 2018, the Group had net debt of £203.2m (excluding mark-to-market accounting adjustment), comprising cash of £17.6m and borrowings of £220.0m. The borrowings comprise £220.0m of high yield bonds ('the Bonds'), which are repayable on 1 June 2019 and are not subject to any financial maintenance covenants.

On 29 March 2017, the Group announced it had commenced a Strategic Review, working with its advisers NM Rothschild & Sons and Ashurst LLP, to assess the financing options open to the Group in relation to the Bonds. As a key part of this Strategic Review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, the Pension Trustees and the Pensions Regulator. 

On 10 October 2017, the Group announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders ('the Bondholder Committee') to consider in greater detail certain potential amendments to the Group's capital structure, combined with certain proposed amendments to the Group's pension scheme. On 2 November 2017, the Group confirmed that the Bondholder Committee had been formed.

As announced by the Group on 5 June 2018, no agreement on those potential amendments has been reached. However, the Group is continuing to work with the Bondholder Committee and its other stakeholders on a number of alternative strategic options for the repayment, restructuring, refinancing, satisfaction or other retirement of the Bonds prior to June 2019. As clarified in a further announcement on 5 June 2018, one of the strategic options being explored is a Regulated Apportionment Arrangement in relation to the Group's defined benefit pension scheme, in respect of which the Group has recently commenced discussions with the relevant parties, including the Pension Trustees and the Pension Regulator.

The Board is satisfied with the constructive engagement of the Group's major stakeholders during the Strategic Review process. However, there can be no certainty that any formal proposal will be forthcoming from the Group's continued discussions with these stakeholders, and any formal proposal that may result will remain subject to negotiation and the consent of relevant stakeholders.

In conducting its review of the appropriateness of adopting the going concern basis, the Group has made the assumption that it can secure an appropriate restructuring or refinancing of the Bonds on, or before, 1 June 2019 and that there would be no reduction in interest payments and pension contributions during the twelve month period of the review. The Group has performed the review of its financial resources taking into account, inter alia, the cash currently available to the Group, the absence of financial maintenance covenants in the Bonds, and the Group's cash flow projections for the twelve month period from the date of this report, and, based on these assumptions and this review, and after considering reasonably possible trading downside sensitivities and uncertainties, the Board is of the opinion that, subject to the material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms (referred to below), the Group has adequate financial resources to meet its operational cash flow requirements for the next twelve months from the date of this report. Subject to that same material uncertainty, the Directors also anticipate that the Group will remain in a position to meet its obligations in respect of the Bonds, including with regard to the payment of interest, in the period prior to their maturity.

However, given the challenges faced by the newspaper and printing industry as a whole, the current trading experience of the Group, and the likely financial position of the Group at the time the Bonds are due for repayment in June 2019, there is material uncertainty surrounding the Group's ability to restructure or refinance the Bonds at par in the market on commercially acceptable terms. Failure to repay, restructure, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture governing the Bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and if the Strategic Review does not deliver a solution for the Group then it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Group's ability to continue as a going concern is directly dependent on the outcome and timing of the Strategic Review. Taking into account that (i) the Strategic Review is ongoing, (ii) subject to the material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms (referred to above), the Group has adequate financial resources to meet its operational cash flow requirements for the twelve month period from the date of this report, and (iii) subject to that same material uncertainty the Group is, and is anticipated to remain, in a position to meet its obligations in respect of the Bonds in the period prior to their maturity, the Directors have concluded it is appropriate to prepare the Group financial statements on a going concern basis.

Viability Statement

In the 2017 Annual Report and Accounts dated 16 April 2018, the Directors presented a Viability Statement in accordance with provision C.2.2 of the Corporate Governance Code. A Viability Statement is not formally required to be presented in interim results announcements. The Viability Statement is included on pages 46 and 47 of the 2017 Annual Report and Accounts dated 16 April 2018. The Directors confirm that, subject to the material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms, the Viability Statement covering the period to1 June 2019 included in the 2017 Annual Report remains valid as at the date of this announcement.

Responsibility statement

The Directors confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks and description of principal risks and uncertainties for the remaining 26 weeks of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Address of Registered office

Johnston Press plc,

Orchard Brae House

30 Queensferry Road

Edinburgh EH4 2HS

Group Income Statement

for the 26 week period ended 30 June 2018

The accompanying notes are an integral part of these financial statements. The comparative period is for the 26 week period ended 1 July 2017.

Group Statement of Comprehensive Income

for the 26 week period ended 30 June 2018 

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

Group Statement of Comprehensive Income

for the 26 week period ended 1 July 2017

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

1 Movements in the translation reserve relate to the translation of interests in dormant Irish subsidiaries.

Group Statement of Changes in Equity

for the 26 week period ended 30 June 2018

Group Statement of Changes in Equity 

for the 26 week period ended 1 July 2017

1 Prior period comparatives have been restated, refer to Note 2.

Group Statement of Changes in Equity 

for the 52 week period ended 30 December 2017

Group Statement of Financial Position

As at 30 June 2018

1 Prior half year comparatives have been restated, refer to Note 2.

2 Prior half year comparatives have been re-presented, refer to Note 12.

Group Statement of Cash Flows

for the 26 week period ended 30 June 2018

1 Prior half year comparatives have been re-presented, refer to Note 12

Notes to the Condensed Financial Statements

for the 26 week period ended 30 June 2018

1. General information

The condensed financial information for the 26 weeks to 30 June 2018 does not constitute statutory accounts for the purposes of Section 434 of the Companies Act 2006 and has not been audited. No statutory accounts for the period have been delivered to the Registrar of Companies. This interim financial report (Interim Report) constitutes a dissemination announcement in accordance with Rule 6.3 of the Disclosure and Transparency Rules of the United Kingdom Listing Authority.

The condensed financial information in respect of the 52 weeks ended 30 December 2017 has been produced using extracts from the statutory accounts for this period. Consequently, this does not constitute the statutory information (as defined in section 434 of the Companies Act 2006) for the 52 weeks ended 30 December 2017, which was audited. The statutory accounts for this period have been filed with the Registrar of Companies. The auditor's report was unqualified with a material uncertainty relating to going concern and did not contain a statement under Sections 498 (2) or 498 (3) of the Companies Act 2006.

The next annual financial statements of the Group for the 52 weeks to 29 December 2018 will be prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). The condensed set of financial statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. The financial information in this Interim Report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules and Disclosure and Transparency Rules. The auditor has reviewed the financial information in this Interim Report and their report is included in this report.

The Interim Report was approved by the Directors on 28 August 2018 and is being made available to shareholders on the same date on the Company's website at www.johnstonpress.co.uk.

Going Concern

As at 30 June 2018, the Group had net debt of £203.2m (excluding mark-to-market accounting adjustment), comprising cash of £17.6m and borrowings of £220.0m. The borrowings comprise £220.0m of high yield bonds ('the Bonds'), which are repayable on 1 June 2019 and are not subject to any financial maintenance covenants.

On 29 March 2017, the Group announced it had commenced a Strategic Review, working with its advisers NM Rothschild & Sons and Ashurst LLP, to assess the financing options open to the Group in relation to the Bonds. As a key part of this Strategic Review process, the Board has engaged with its major stakeholders, including shareholders, holders of the Bonds, the Pension Trustees and the Pensions Regulator.

On 10 October 2017, the Group announced that it was approaching its largest bondholders regarding the formation of an ad hoc committee of bondholders ('the Bondholder Committee') to consider in greater detail certain potential amendments to the Group's capital structure, combined with certain proposed amendments to the Group's pension scheme. On 2 November 2017, the Group confirmed that the Bondholder Committee had been formed.

As announced by the Group on 5 June 2018, no agreement on those potential amendments has been reached. However, the Group is continuing to work with the Bondholder Committee and its other stakeholders on a number of alternative strategic options for the repayment, restructuring, refinancing, satisfaction or other retirement of the Bonds prior to June 2019. As clarified in a further announcement on 5 June 2018, one of the strategic options being explored is a Regulated Apportionment Arrangement in relation to the Group's defined benefit pension scheme, in respect of which the Group has recently commenced discussions with the relevant parties, including the Pension Trustees and the Pension Regulator.

The Board is satisfied with the constructive engagement of the Group's major stakeholders during the Strategic Review process. However, there can be no certainty that any formal proposal will be forthcoming from the Group's continued discussions with these stakeholders, and any formal proposal that may result will remain subject to negotiation and the consent of relevant stakeholders.

In conducting its review of the appropriateness of adopting the going concern basis, the Group has made the assumption that it can secure an appropriate restructuring or refinancing of the Bonds on, or before, 1 June 2019 and that there would be no reduction in interest payments and pension contributions during the twelve month period of the review. The Group has performed the review of its financial resources taking into account, inter alia, the cash currently available to the Group, the absence of financial maintenance covenants in the Bonds, and the Group's cash flow projections for the twelve month period from the date of this report, and, based on these assumptions and this review, and after considering reasonably possible trading downside sensitivities and uncertainties, the Board is of the opinion that, subject to the material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms (referred to below), the Group has adequate financial resources to meet its operational cash flow requirements for the next twelve months from the date of this report. Subject to that same material uncertainty, the Directors also anticipate that the Group will remain in a position to meet its obligations in respect of the Bonds, including with regard to the payment of interest, in the period prior to their maturity.

However, given the challenges faced by the newspaper and printing industry as a whole, the current trading experience of the Group, and the likely financial position of the Group at the time the Bonds are due for repayment in June 2019, there is material uncertainty surrounding the Group's ability to restructure or refinance the Bonds at par in the market on commercially acceptable terms. Failure to repay, restructure, refinance, satisfy or otherwise retire the Bonds at their maturity would give rise to a default under the indenture governing the Bonds dated 16 May 2014, and this possibility indicates a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern and if the Strategic Review does not deliver a solution for the Group then it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Group's ability to continue as a going concern is directly dependent on the outcome and timing of the Strategic Review. Taking into account that (i) the Strategic Review is ongoing, (ii) subject to the material uncertainty surrounding the Group's ability to refinance the Bonds at par in the market on commercially acceptable terms (referred to above), the Group has adequate financial resources to meet its operational cash flow requirements for the twelve month period from the date of this report, and (iii) subject to that same material uncertainty the Group is, and is anticipated to remain, in a position to meet its obligations in respect of the Bonds in the period prior to their maturity, the Directors have concluded it is appropriate to prepare the Group financial statements on a going concern basis.

2. Restatements

Sales ledger credit write-offs

In the 52 week prior comparative period ended 30 December 2017, it was noted that there had been historic releases of sales ledger credit balances made up predominantly of overpayments by customers. These should not be released unless six years has passed under the Limitations Act of 1980. The comparative 26 week period ended 1 July 2017 has been restated to reflect this. The impact of the restatement on the comparative figures for the 26 week period to 1 July 2017 has been to:

· decrease opening retained earnings by £1.4m with a corresponding increase to trade and other creditors at 1 January 2017; and

· increase closing trade and other creditors by £1.6m and increase trade and other receivables by £0.2m at 1 July 2017, resulting in a decrease in closing retained earnings of £1.4m. There was no impact on net profit after tax and therefore EPS for the 26 weeks to 1 July 2017.

3. Accounting policies

Basis of preparation

The interim financial information has been prepared on the historical cost basis, except for the revaluation of certain properties, pension balances and financial instruments including borrowings. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The Directors are satisfied, subject to the material uncertainty disclosed within the Going Concern section, that it is appropriate to prepare the Group financial statements on a going concern basis. Accordingly, the unaudited condensed consolidated interim financial statements have been prepared on a going concern basis (discussed further in the Financial Review section and under the historical cost basis except for the revaluation of certain properties and financial instruments, share-based payments and defined benefit pension obligations that are measured at revalued amounts or fair value at the end of each reporting period.

Basis of accounting

The accounting policies, significant judgments and key sources of estimation adopted in the preparation of the Condensed set of Consolidated Financial Statements are consistent with those applied by the Group in its Consolidated Financial Statements for the year ended 30 December 2017.

New and amended standards applicable for annual periods beginning in 2018 and beyond

The following new standards, which are applicable to the Group, have been published but are not yet effective and have not yet been adopted by the EU:

* Not yet EU endorsed.

4. Operating segments

Information reported to the Chief Executive Officer for the purpose of resource allocation and assessment of segment performance is focused on the two areas of publishing (in print and online) and contract printing. Geographical segments are not presented as the Group operates solely in the UK. The segment analysis has not been adjusted to reflect disposed or closed titles or products.

a) Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment:

1 Inter-segment sales are charged at market rates.

2 Revenue from sale of goods and services for H1 2018 was £93.0m (H1 2017: £103.3m, FY 2017: £201.6m). There was other operating income in the period of £0.4m (H1 2017: £0.4m, FY 2017: £0.8m) relating to rental income on sub-let properties. This means total revenue as defined by IAS 18 is £93.4m (H1 2017: £103.7m, FY 2017: £202.4m).

3 Total adjustments presented in the Alternative Performance Measures section of £9.2m (H1 2017: £11.1m, FY 2017: £83.5m) consists of impairment and write downs of £3.5m (H1 2017: £4.5m, FY 2017: £64.4m) and adjustments (excluding impairment and write downs) of £5.7m (H1 2017: £6.6m, FY 2017: £19.1m). The comparative figures for the 26 week period ended 1 July 2017 have been re-presented to separately present impairment and write downs, adjustments (excluding impairment and write downs) and operating costs. The financial statements for the 26 week period ended 1 July 2017 disclosed total operating costs of £93.9m. In the disclosure below this amount has been split into adjustments (excluding impairment and write downs) of £6.6m and operating costs £87.3m.

4 Includes depreciation and amortisation.

1 Inter-segment sales are charged at market rates.

2 Revenue from sale of goods and services for H1 2018 was £93.0m (H1 2017: £103.3m, FY 2017: £201.6m). There was other operating income in the period of £0.4m (H1 2017: £0.4m, FY 2017: £0.8m) relating to rental income on sub-let properties. This means total revenue as defined by IAS 18 is £93.4m (H1 2017: £103.7m, FY 2017: £202.4m).

3 Total adjustments presented in the Alternative Performance Measures section of £9.2m (H1 2017: £11.1m, FY 2017: £83.5m) consists of impairment and write downs of £3.5m (H1 2017: £4.5m, FY 2017: £64.4m) and adjustments (excluding impairment and write downs) of £5.7m (H1 2017: £6.6m, FY 2017: £19.1m). The comparative figures for the 26 week period ended 1 July 2017 have been re-presented to separately present impairment and write downs, adjustments (excluding impairment and write downs) and operating costs. The financial statements for the 26 week period ended 1 July 2017 disclosed total operating costs of £93.9m. In the disclosure below this amount has been split into adjustments (excluding impairment and write downs) of £6.6m and operating costs £87.3m.

4 Includes depreciation and amortisation.

1 Inter-segment sales are charged at market rates.

2 Revenue from sale of goods and services for H1 2018 was £93.0m (H1 2017: £103.3m, FY 2017: £201.6m). There was other operating income in the period of £0.4m (H1 2017: £0.4m, FY 2017: £0.8m) relating to rental income on sub-let properties. This means total revenue as defined by IAS 18 is £93.4m (H1 2017: £103.7m, FY 2017: £202.4m).

3 Total adjustments presented in the Alternative Performance Measures section of £9.2m (H1 2017: £11.1m, FY 2017: £83.5m) consists of impairment and write downs of £3.5m (H1 2017: £4.5m, FY 2017: £64.4m) and adjustments (excluding impairment and write downs) of £5.7m (H1 2017: £6.6m, FY 2017: £19.1m). The comparative figures for the 26 week period ended 1 July 2017 have been re-presented to separately present impairment and write downs, adjustments (excluding impairment and write downs) and operating costs. The financial statements for the 26 week period ended 1 July 2017 disclosed total operating costs of £93.9m. In the disclosure below this amount has been split into adjustments (excluding impairment and write downs) of £6.6m and operating costs £87.3m.

4 Includes depreciation and amortisation.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in the Group's annual consolidated financial statements for the 52 weeks to 30 December 2017. Segment result represents the profit earned by each segment, investment income, finance costs (including in relation to pension assets and liabilities) and income tax expense or credit. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segment performance.

The Group, in common with the rest of the publishing industry, is subject to the main holiday periods of Easter, summer and Christmas as well as school and bank holidays. Since these fall across both half years, the Group's financial results are not usually subject to significant seasonal variations from period-to-period.

b) Segment assets

1 Prior period comparatives have been restated, refer to Note 2.

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Executive Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments and unless specifically part of contract printing business, they are allocated to publishing, with the exception of available for sale investments and derivative financial instruments. 

c) Other segment information

1 Includes amortisation of digital intangible assets (Note 8) and depreciation charge on property plant and equipment (Note 9).

5. Finance costs

a) Net finance expense on pension (liabilities)/assets

b) Fair value adjustment

The fair value movement on the 8.625% Senior Secured Bonds due 1 June 2019 was as follows:

c) Finance costs

1 RCF issuance costs written off as a consequence of termination of the facility in 2017.

6. Tax

The tax charge/(credit) comprises:

UK corporation tax is calculated at 19.0% (H1 2017: 19.5%, FY 2017: 19.25%) of the estimated assessable profit for the period. The corporation tax rate of 19.0% will apply throughout 2018. The 19.25% basic tax rate applied for the 2017 accounting year was a blended rate, being a mix of 20% up to 31 March 2017 and 19% from 1 April 2017. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdiction.

Corporation tax for the interim period is charged at 39.4% (H1 2017: credited at 45.0%, FY 2017 credited at 17.3%), including deferred tax. This represents the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

In the period, the effective tax rate was higher than the prevailing UK corporation tax rate of 19.0% largely due to the disallowance of corporate interest restriction amounts, the difference between current and deferred tax rates and the impact of deferred tax not recognised overall increasing the effective tax rate by 29.0%. 

In November 2017, the UK government introduced new rules with effect from 1 April 2017 which would restrict the deductibility of net interest costs. In the current year the £2.0m tax impact of these new restrictions is included in the calculation of the current year tax charge. Due to uncertainty regarding the Group's ability to recover the disallowed interest which can be carried forward under these rules, no deferred tax asset has been recognised in relation to the disallowed amount.

The Income Statement includes a tax charge of £2.4m which comprises a current tax credit of £0.1m and deferred tax charge of £2.5m. £2.2m of the deferred tax charge has arisen on the Group's Bonds due to different accounting treatment applied on the Bonds at the Group level in contrast with that applied at the subsidiary entity level due to statutory reporting requirements.

The Group expects that, subject to the uncertain outcome of the strategic review, the effective tax rate will remain relatively consistent with the current and prior year and reflect the reduction of UK corporate tax rates over the next few years.

At the reporting date the Group has recorded £0.1m of uncertain tax positions where tax could become payable in the future.

7. Earnings per Share

The calculation of Earnings per Share is based on the following loss and weighted average number of shares:

Continuing and discontinued operations