Daily Mail and General Trust plc Annual Report 2012

Plain-text annual report

2012 EMPOWERING PEOPLE THROUGH INFORMATIONRevenue 2012 2011 Adjusted operating profit* Adjusted profit before tax* 2012 2011 2012 2011 Statutory profit before tax Adjusted earnings per share* Dividend per share 2012 2011 2012 2011 2012 2011 % of digital revenue Total number of employees Profit split by B2B and B2C* 2012 2011 Global reach 2012 2011 2012 B2B B2C 2011 B2B B2C 27% 26%† 73% 74%† 55+ countries * Before exceptional items, impairment and amortisation of intangible assets arising on business contributions; see Consolidated Income Statement on page 82 and the reconciliation in Note 13 to the Accounts. † Restated to reflect a refinement of Hobsons’ approach to revenue recognition. See Notes to the Accounts. # From continuing and discontinued operations. Contents Strategic Report Business at a glance Marketplace Chairman’s Statement Chief Executive’s Review KPIs Risk Management Solutions dmg::information dmg::events Euromoney Institutional Investor A&N Media 02 02 06 08 10 20 22 24 26 27 29 Financial and Treasury Review 38 Corporate Responsibility Directors’ Report Chairman’s Overview 44 48 48 Board of Directors and Secretary 50 Governance Corporate Governance Remuneration Report Chairman of the Remuneration Committee’s Overview Financial Statements Independent Auditor’s Report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Consolidated cash flow statement 58 58 66 66 81 81 82 83 84 85 87 Significant accounting policies 89 Notes to the consolidated financial statements Principal Subsidiaries Five Year Financial Summary Independent Auditors’ Report – Company Company Balance Sheet Shareholder Information 99 175 176 178 179 187 Find out more at dmgt.com Visit dmgt.com to see what is happening across our business and the marketplaces in which we operate. Scan the QR code below to see how we are empowering people through information. Corporate brochure Take a look at our corporate brochure for a snapshot of our core strategic messages and key success stories from around our business. Companies Investors CR Careers News Annual Report 2012 02 WhO WE ARE DMGT is an international group quoted on the London Stock Exchange with a portfolio of market-leading digital, information, media and events businesses. The growing business-to-business (B2B) element of the Group comprises: • Risk Management Solutions • dmg::information • dmg::events • Euromoney Institutional Investor The consumer media element, A&N Media, comprises: • Mail newspapers • MailOnline • Northcliffe regional newspapers* • Metro free newspaper It also has interests in digital businesses, including the Evenbase group, owner of Jobsite and Jobrapido, and the Zoopla Property Group. DMGT exists to seek out innovative solutions to customers’ demands for information and to nurture and support a diverse group of high quality, entrepreneurial, media and information assets. DMGT’s ambition is to provide the highest quality content and services, across the most attractive growth markets in innovative, responsible and sustainable ways, building on its track record of earnings and dividend growth. Our world 6 5 3 1 2 4 5 7 RMS 1 Newark, CA 13 Bloomington 14 Peoria, US 23 Hoboken 27 Bermuda 33 London 35 Zurich 48 Noida 52 Beijing 56 Tokyo DMGT headquarters London 13 21 32 30 33 34 31 2426 25 23 27 16 20 15 19 8 14 11 10 12 9 17 18 24 22 29 28 39 35 36 38 37 40 42 44 43 41 46 48 45 47 52 55 56 51 53 54 49 50 dmg::information 2 Oakland 8 Boulder 11 Oklahoma City 15 Louisville 16 Cincinnati 20 Washington 23 New York 24 Massachusetts 25 Milford 26 Boston 33 London 34 Amsterdam 36 Dortmund 39 Prague 49 Kuala Lumpur 57 Melbourne 58 Sydney dmg::events 3 Portland 4 Los Angeles 5 Laguna Hills 6 Calgary 9 Puerto Vallarta 10 Dallas 23 New York 33 London 41 Jeddah 42 Kuwait City 43 Abu Dhabi 44 Dubai 45 Mumbai 46 New Delhi 47 Bangalore 50 Singapore 52 Beijing 55 Seoul 56 Tokyo 58 Sydney Euromoney 12 Houston 17 Miami 18 Venice 19 Pittsburgh 21 Montreal 22 Bogota 23 New York 26 Boston 29 São Paulo 33 London 52 Beijing 50 Singapore 51 Hong Kong 53 Shanghai 54 Manila 59 58 57 A&N Media 4 Los Angeles 6 Calgary 7 Newport Beach 23 New York 28 Buenos Aires 30 Dublin 31 Hampshire 32 Aberdeenshire 33 London 37 Milan 38 Frankfurt 40 Gyor 44 Dubai 48 Noida 58 Sydney 59 Brisbane *On 21st November, 2012, the company announced it had exchanged contracts for the disposal of its Northcliffe Media division to Local World. Daily Mail and General Trust Plc03 Strategic Report Directors’ Report Governance Financial Statements Our heritage 1896 Daily Mail founded Brothers Alfred and Harold Harmsworth launch the Daily Mail. 1902 Record circulation Daily Mail becomes the first newspaper with a circulation of over a million. 1922 DMGT founded DMGT is re-established to manage the family’s publishing interests. 1929 Esmond harmsworth appointed DMGT Chairman. 1932 London Stock Exchange flotation DMGT is listed on the London Stock Exchange. 1969 Euromoney founded Euromoney Magazine is launched as a business-to-business magazine focused primarily on the international finance sector. 1978 The third viscount Rothermere appointed DMGT Chairman. 1988 dmg::events established dmg::events is formed (under a different name) to manage and develop a portfolio of events assets. 1990 dmg::information founded dmg::information is formed (under a different name) to manage and develop a portfolio of business-to- business information companies. 1998 The fourth viscount Rothermere appointed DMGT Chairman. 1998 RMS joins DMGT DMGT acquires Risk Management Solutions, a fast-growing business in the emerging catastrophe risk-modelling sector. 2006 Euromoney acquires Metal Bulletin Euromoney acquires Metal Bulletin, the industry-leading intelligence service for metals and steel professionals. 2012 MailOnline overtakes New york Times MailOnline overtakes New York Times as the most visited newspaper website in the world. MARKET OvERvIEW Market developments globally and at the local level are opening up tremendous opportunities for all our businesses. Geopolitical forces and changing demographics are shifting the economic axis towards Asia and emerging markets. New patterns of consumer behaviour are creating different challenges for digital content delivery and feeding demand for precisely targeted information. Technology is reshaping the competitive arena. Nearly half a billion smartphones are already in the hands of consumers. Big data, mobile connectivity, cloud services and social networking are combining to deliver on the promise of rich, detailed information to every individual no matter where they are. With a third of the world now online compared with just 8% a decade ago, we now have many more potential customers. They are more engaged and more demanding about the services they expect. Increasingly, tailored and insightful content is at a premium. Our challenge as content providers is to get high quality, relevant information to the right people, where and when they want it. STRATEGy AND PERFORMANCE OvERvIEW DMGT’s strategic ambition is to become a global-growth company with increasing exposure to emerging economies and high-growth markets. We aim to achieve that by growing our business-to-business operations, developing our consumer media franchise and diversifying internationally into high-growth markets. The Group delivered a solid set of results in 2012, with underlying revenue and operating profit up 3% and 7% respectively. More than half of operating profits were earned outside the UK. Our international B2B companies increased both revenue and profits. RMS delivered another solid year of revenue and profit growth. The company continues to have strong growth prospects. It now offers a broad portfolio of products and data solutions. It is also seeing many more international opportunities. dmg::information contributed healthy increases in revenue and operating profit. Each of its four sectors – property, education, energy and finance – contributed. dmg::events registered 13% underlying growth in a year in which just one of its three marquee biennial events was staged. Euromoney Institutional Investor maintained its impressive history of profits growth. Its business has been transformed in recent years. Subscriptions now account for just over half of total revenues. The UK consumer business performed well in challenging trading conditions. At A&N Media, underlying revenues were up slightly, and operating profit rose strongly. This pleasing result demonstrates the success of our strategy of combining the best traditional and new media content in ways that make sense for our consumers. The Mail titles continued to outperform the market. Our free newspaper, Metro, also performed strongly. Our regional newspaper group, Northcliffe, improved profitability despite the secular decline in its revenue base. MailOnline had an excellent year, becoming the world’s most popular English language newspaper website in 2012. Our recruitment portal Evenbase acquired Jobrapido to extend its international footprint. Digital Property Group’s (DPG) merger with Zoopla has created a formidable new UK property search portal. PRIORITIES FOR ThE COMING yEAR The strategic priority for RMS remains its new platform, RMS (one), scheduled for a mid-2014 launch. It continues to develop supporting programmes, which are expected to yield additional revenue in 2013. dmg::information’s ambition to invest in must-have, high-growth, innovative business information companies remains unchanged, as does its remit to diversify DMGT by sector, by business model and by geography. dmg::events is expanding its significant footprint in the Middle East into Saudi Arabia, and on to Asia. It will continue to extend its successful global energy division. It is also developing digital solutions to complement its live events portfolio. Euromoney continues to pursue its strategy of growing international, digital and subscription-based revenues. A&N Media’s new print facility in Thurrock will yield significant cost reductions and environmental benefits. It will invest to drive even faster growth in its core digital businesses, particularly MailOnline. Mail Newspapers will launch paid-for tablet editions. At Evenbase international expansion remains a key priority. Our online discount business Wowcher is continuing to build up its database of affluent young female subscribers. Zoopla Property Group is implementing its integration plan following its recent merger with DPG. Annual Report 201204 Business activity Principal brands and products Capabilities and overview 7575 Gateway Boulevard Newark CA 94560, US Tel +1 510 505 2500 http://www.dmgt.com/companies/RMS 3 Stamford Landing Suite 400, 46 Southfield Ave Stamford, Connecticut CT 06902, US Tel +1 203 973 2940 http://www.dmgt.com/companies/dmginformation 3 Stamford Landing Suite 400, 46 Southfield Ave Stamford, Connecticut CT 06902, US Tel +1 203 973 2940 http://www.dmgt.com/companies/dmgevents Nestor House Playhouse Yard London EC4V 5EX England Tel +44 20 7779 8888 http://www.dmgt.com/companies/Euromoney Northcliffe House 2 Derry Street London W8 5TT England Tel +44 20 3615 0000 http://www.dmgt.com/companies/ANMedia Targeting the global property and casualty re-insurance industry, a world-leading producer of risk analysis models, services, expertise and data solutions for the quantification and management of catastrophe risks. A global, market-leading provider of B2B information for the property, education, energy and finance sectors. A global supplier of B2B exhibitions and associated conferences focusing on the energy, construction, interiors and digital marketing sectors. A B2B media group focused primarily on the international finance, metals and commodities sectors. A leading provider of electronic research and data, a trade publisher, both online and print, as well as running conferences, seminars and training courses. An international publisher with a market- leading print and digital portfolio. Assets include two of the UK’s most influential paid-for newspapers, the world’s most visited newspaper website, the world’s fourth largest digital recruitment business and a majority stake in the UK’s largest digital property businesses. In 2012, RMS generated solid revenue and profit growth and increased its investment programme on its strategically important RMS(one) platform. It continued to extend its presence in the global property and casualty re/insurance industry. It also built on its capabilities in the capital markets and life insurance industries. Strong organic growth and bolt-on acquisitions combined to generate double-digit revenue and profits increases in 2012. A strategic investment in US commercial property-listing business Xceligent grew its US footprint. Acquiring Intelliworks and PrepMe strengthened the education offering. The real-time energy information supplier, Genscape, continued to develop new products and services, grew revenue and gathered momentum with an increased order book. dmg::events achieved strong growth in a year featuring just one of its three biennial shows. Underlying revenues increased by 13% and underlying profit rose 21%. It focused resources on the global energy and digital marketing sectors and its fast-growing businesses in the Middle East and Asia. It completed the disposal of leadership networking and events business, Evanta, during the year. Euromoney continued to develop its global online financial information business. It strengthened its presence in emerging markets, increased the proportion of subscription-based revenues and continued to invest in technology and content delivery platforms, particularly for mobile users. Its acquisition of Global Grain added the world’s leading event for international grain traders to its portfolio. The business sharpened its focus on market-leading assets in profitable sectors. It sold non-core assets, including Teletext Holidays and motors.co.uk. Its merger of Digital Property Group with Zoopla has created a strong competitor in the online property market. Jobrapido’s acquisition adds the number two global job search engine in the world to its Evenbase recruitment business. Revenue (2011 £159m) Operating profit* (2011 £47m) Margin† (2011 30% ) Revenue (2011 £232m†) Operating profit* (2011 £42m†) Margin* (2011 18%†) Revenue (2011 £132m) Operating profit* (2011 £39m) Margin* (2011 29%) Revenue (2011 £363m) Operating profit* (2011 £93m) Margin* (2011 26%) Revenue# (2011 £1,098m) Operating profit*# (2011 £93m) Margin*# (2011 8% ) RMS(one) provides enterprise-wide re-insurance solutions in the cloud for measuring and managing risk. It remains a key strategic priority for the business. RMS will continue to serve its existing client base while devoting increasing resources to RMS(one) platform development in the run-up to the mid-2014 scheduled release date. dmg::information will continue to invest in innovation to broaden its range of products and services. It will deepen its relationships with business professionals by delivering mission-critical information in its four key sectors. The business benefits from strong brands in growing sectors and high-growth markets. It will build on successes to increase the frequency and quality of its events. It will continue its successful strategy of geo- cloning its most popular events, particularly in the Middle East and Asia. It is developing associated products, including conferences and online services. Subscription and emerging markets revenue streams afford some protection from the strong headwinds facing international financial market participants. The group will continue to invest in digital publishing and in improving the quality of its products. It will maintain tight control of operating costs and, where relevant, deploy its strong balance sheet to fund attractive acquisitions. A&N Media will continue to focus on increasing operational effectiveness in all of its businesses. Transferring operations to its new Thurrock printing facility will drive down costs and reduce waste. It will continue to develop Metro’s digital strategy and invest to accelerate the already rapid growth in core digital businesses, particularly MailOnline, Evenbase and Wowcher. Daily Mail and General Trust Plc 05 Strategic Report Directors’ Report Governance Financial Statements 7575 Gateway Boulevard Newark CA 94560, US Tel +1 510 505 2500 http://www.dmgt.com/companies/RMS 3 Stamford Landing Suite 400, 46 Southfield Ave Stamford, Connecticut CT 06902, US Tel +1 203 973 2940 http://www.dmgt.com/companies/dmginformation 3 Stamford Landing Suite 400, 46 Southfield Ave Stamford, Connecticut CT 06902, US Tel +1 203 973 2940 http://www.dmgt.com/companies/dmgevents Nestor House Playhouse Yard London EC4V 5EX England Tel +44 20 7779 8888 http://www.dmgt.com/companies/Euromoney Northcliffe House 2 Derry Street London W8 5TT England Tel +44 20 3615 0000 http://www.dmgt.com/companies/ANMedia Capabilities and overview Key activities in 2012 Financial highlights Priorities in 2013 Targeting the global property and casualty re-insurance industry, a world-leading producer of risk analysis models, services, expertise and data solutions for the quantification and management of catastrophe risks. A global, market-leading provider of B2B information for the property, education, energy and finance sectors. A global supplier of B2B exhibitions and associated conferences focusing on the energy, construction, interiors and digital marketing sectors. A B2B media group focused primarily on the international finance, metals and commodities sectors. A leading provider of electronic research and data, a trade publisher, both online and print, as well as running conferences, seminars and training courses. An international publisher with a market- leading print and digital portfolio. Assets include two of the UK’s most influential paid-for newspapers, the world’s most visited newspaper website, the world’s fourth largest digital recruitment business and a majority stake in the UK’s largest digital property businesses. In 2012, RMS generated solid revenue and profit growth and increased its investment programme on its strategically important RMS(one) platform. It continued to extend its presence in the global property and casualty re/insurance industry. It also built on its capabilities in the capital markets and life insurance industries. Strong organic growth and bolt-on acquisitions combined to generate double-digit revenue and profits increases in 2012. A strategic investment in US commercial property-listing business Xceligent grew its US footprint. Acquiring Intelliworks and PrepMe strengthened the education offering. The real-time energy information supplier, Genscape, continued to develop new products and services, grew revenue and gathered momentum with an increased order book. dmg::events achieved strong growth in a year featuring just one of its three biennial shows. Underlying revenues increased by 13% and underlying profit rose 21%. It focused resources on the global energy and digital marketing sectors and its fast-growing businesses in the Middle East and Asia. It completed the disposal of leadership networking and events business, Evanta, during the year. Euromoney continued to develop its global online financial information business. It strengthened its presence in emerging markets, increased the proportion of subscription-based revenues and continued to invest in technology and content delivery platforms, particularly for mobile users. Its acquisition of Global Grain added the world’s leading event for international grain traders to its portfolio. The business sharpened its focus on market-leading assets in profitable sectors. It sold non-core assets, including Teletext Holidays and motors.co.uk. Its merger of Digital Property Group with Zoopla has created a strong competitor in the online property market. Jobrapido’s acquisition adds the number two global job search engine in the world to its Evenbase recruitment business. Revenue (2011 £159m) Operating profit* (2011 £47m) Margin† (2011 30% ) Revenue (2011 £232m†) Operating profit* (2011 £42m†) Margin* (2011 18%†) Revenue (2011 £132m) Operating profit* (2011 £39m) Margin* (2011 29%) Revenue (2011 £363m) Operating profit* (2011 £93m) Margin* (2011 26%) Revenue# (2011 £1,098m) Operating profit*# (2011 £93m) Margin*# (2011 8% ) Percentage of Group revenue RMS(one) provides enterprise-wide re-insurance solutions in the cloud for measuring and managing risk. It remains a key strategic priority for the business. RMS will continue to serve its existing client base while devoting increasing resources to RMS(one) platform development in the run-up to the mid-2014 scheduled release date. Percentage of Group revenue dmg::information will continue to invest in innovation to broaden its range of products and services. It will deepen its relationships with business professionals by delivering mission-critical information in its four key sectors. Percentage of Group revenue Percentage of Group revenue Percentage of Group revenue The business benefits from strong brands in growing sectors and high-growth markets. It will build on successes to increase the frequency and quality of its events. It will continue its successful strategy of geo- cloning its most popular events, particularly in the Middle East and Asia. It is developing associated products, including conferences and online services. Subscription and emerging markets revenue streams afford some protection from the strong headwinds facing international financial market participants. The group will continue to invest in digital publishing and in improving the quality of its products. It will maintain tight control of operating costs and, where relevant, deploy its strong balance sheet to fund attractive acquisitions. A&N Media will continue to focus on increasing operational effectiveness in all of its businesses. Transferring operations to its new Thurrock printing facility will drive down costs and reduce waste. It will continue to develop Metro’s digital strategy and invest to accelerate the already rapid growth in core digital businesses, particularly MailOnline, Evenbase and Wowcher. Annual Report 2012 06 ThE IMPACT OF TEChNOLOGy The IT industry is on the cusp of a generational shift. The new computing paradigm is being built on four enabling technologies – cloud services, mobile connectivity, big data and social networking. These technologies are reshaping the competitive landscape. Big data is forecast to drive rapid changes in infrastructure and $232 billion in IT spending through 2016. Spending on mobile networks exceeded fixed data networks for the first time in 2012. By 2015, Wi-Fi and mobile devices will account for over half of IP traffic. By 2016, global mobile data traffic will top 10 exabytes per month, a sixteen-fold increase, and mobile video will constitute over two-thirds of all mobile data traffic. The trend is for tailored content, getting the right information to the right person at the right time. In our own markets we are witnessing a proliferation of artificial intelligence and machine-learning applications processing large quantities of data to generate knowledge and insight in real-time. Applications connect with social networking services as a matter of course. Customisation and visualisation tools are becoming more important. The cloud is bringing cost-effective, scalable, tailored services to businesses and individuals in an unparalleled way. Analysts estimate that 80% of new commercial enterprise apps will be deployed on cloud platforms. Cloud-based services are revolutionising the way businesses operate. Instead of developing expensive proprietary software, businesses are sharing open-source applications. This is driving greater efficiencies and fomenting new business ecosystems. Our businesses compete in international markets by providing valuable content in the consumer media and business sectors. Market developments globally and at the local level are opening up tremendous opportunities. Data traffic levels continue to scale new heights. There are more customers in more territories with different expectations and better access to digital content. Adapting to changing customer behaviour and keeping pace with the technology they are using is a key challenge for content providers. ThE ExPLOSION IN DATA TRAFFIC Global IP traffic increased eightfold over the past five years and is expected to quadruple over the next five years, as sharing video and other rich-data forms becomes commonplace. Annual global IP data centre traffic is expected to reach 6.6 zettabytes by 2016. Globally, cloud traffic is expected to grow from 39% of total data centre traffic in 2011 to 64% of total data centre traffic in 2016. CuSTOMER BEhAvIOuR IS ChANGING Over a third of the world’s population is now online. That compares with just 8% a decade ago. Ten billion devices connect to the internet. By 2016, forecasts suggest that there may be as many as 19 billion internet- enabled devices. Mobile connectivity has entered the mainstream. Sales and shipments of mobile, smartphone and tablets outstripped PCs this year. Mobile-connected tablets will be the fastest-growing consumer mobile device, increasing from 25 million devices globally in 2011 to 200 million in 2016 People accessing content on the move have different requirements. They want contextually sensitive content for their devices. If they are on a smartphone they want to use capabilities like mapping and one-click calling. They expect touch-screen navigation and screen-responsive page design. More of our customers are becoming better connected. In 2011, over 679 million used social network services via mobile devices. That will reach 2.4 billion by 2016. There are great opportunities for high value content providers. High value, relevant and hard-to-replicate content will be at a premium. Daily Mail and General Trust Plc07 Strategic Report Directors’ Report Governance Financial Statements The growth of the world’s middle class is coming almost exclusively from developing countries. In advanced countries, where population and incomes are halting, the number of people in the middle classes may even be declining. Age demographics are changing. Advances in healthcare are triggering a rise in older populations. By 2050, more than one in three people in developed economies will be over 60. These trends raise important issues for public policy. We are evolving and adapting our information services to meet changing customer requirements, demographic change and the new opportunities in high-growth markets. ThE ShIFTING ECONOMIC CENTRE OF GRAvITy According to IMF forecasts, the total GDP of emerging economies could overtake the developed economies as early as 2014. Estimates indicate that 70% of world growth over the next few years will come from emerging markets, with as much as 40% from China and India. Leading emerging markets’ businesses will build on their domestic successes to compete internationally. These challenger brands have prospered without institutional backing and have strong entrepreneurial cultures. They have the potential to be a powerful disruptive force in the global competitive arena. The BRIC countries’ growing economic strength is leading to greater power to influence world economic policy. Emerging economies now have significant voting shares in the IMF. POPuLATION GROWTh The global population is expected to top nine billion by 2050. Over the same period there will be a near doubling in the urban population, to over six billion. Currently, urban migration adds up to a new city the size of Barcelona every 10 days. Meeting this additional capacity will require major infrastructure investment and radical new approaches to urban planning. Population growth will be matched by growing prosperity. A global middle class is emerging. By 2030, it is expected to more than double, from two billion today to 4.9 billion. The European and American middle classes, currently 50% of the total, will account for just 22%. Asia will provide 64% of the global middle class and 40% of global middle-class consumption. Annual Report 201208 The viscount Rothermere Chairman CORPORATE GOvERNANCE As Chairman I have always been committed to ensuring that DMGT maintains the highest standards of corporate governance and our Corporate Governance Report highlights how we continue to incorporate these principles into the delivery of our strategy. Last year I also highlighted the importance of diversity on our Board which is about ensuring that there is an appropriate range and balance of skills. I am pleased to now welcome Heidi Roizen onto the Board bringing invaluable experience, insight and skills from her career in Silicon Valley. Likewise, I would like to personally thank Nick Jennings who stood down as Company Secretary after 24 years of service over a time of immense change and progress for the Group. We welcome Claire Chapman, who joined us in September, as DMGT’s first General Counsel and Company Secretary. Read more about Corporate Governance on page 48 PADRAIC FALLON It is with great sadness that we say goodbye to Padraic Fallon who passed away on 13th October, 2012. A creative force, a genius journalist and a talented businessman, Padraic worked with the Group for over 40 years. Aged 28 he moved from his role as a financial journalist for the Daily Mail to become Editor and then Executive Director, Managing Director and finally Chairman of Euromoney, building a phenomenally successful brand that defined and set the pace, globally, for financial publishing. A gifted writer and a much-loved friend, his approach to life was underpinned by his inimitable Irish character and flair. He will be sorely missed by us all. Our thoughts are with his wife and four children. BuSINESS hIGhLIGhTS I am pleased to report another set of strong results in what remains a challenging global economy, again testament to the robust structure and dynamic nature of the Group. The world continues to change and grow at a staggering rate. The way consumers and businesses access and utilise information now underpins how people around the world interact, behave, even think. With that comes opportunity: to utilise the best technology; to innovate and develop new products; and to expand across geographies and sectors. As a Group we have a responsibility to ensure that we maximise that opportunity to the best of our ability. Technology is the tool, but our people are the ones who harness it to push new boundaries and build more value. That ingenuity is why we have been able to grow revenue and profits year on year and increase the proportion of revenues and profits coming from outside the UK, as well as our digital activities which are considerable and continue apace. The Group is well placed to capitalise on the significant changes we are seeing in our markets, from consumer behaviour to business-to-business needs in an increasingly volatile environment. People expect more and demand more, to which our response is to continue to challenge the status quo and to create outstanding products that answer those growing aspirations. We aim to set the agenda. Others follow. On 18 April 2012, FTSE announced that DMGT’s ‘A’ Ordinary Non-Voting Shares would no longer be eligible for inclusion in the UK Index Series. The Board of DMGT has considered at length, with the assistance of its advisors, the options available to it and the suitability of such options to meet the needs of its stakeholders to make the ‘A’ Ordinary Non-Voting Shares eligible for inclusion in the UK Index Series but no solution has to date been found. The FSA’s recently issued consultation paper on ‘Enhancing the effectiveness of the Listing Regime and feedback on CP12/2’ makes it more difficult to envisage how the Company can regain its premium listing. It is unlikely, therefore, that the ‘A’ Ordinary Non-Voting Shares will become eligible for inclusion in the index in the foreseeable future. However, DMGT’s ‘A’ Ordinary Non-Voting Shares will continue to be standard listed and traded on the London Stock Exchange and to be a member of other important indices such as MSCI, STOXX, S&P and the FTSE Global Equity Index Series and DMGT will continue to maintain the highest standard of governance and disclosure. Daily Mail and General Trust Plc09 Strategic Report Directors’ Report Governance Financial Statements REMuNERATION Earlier this year, we discussed some changes to our executive reward policy with our shareholders. These are set out in detail in our Remuneration Report. It is vitally important that the incentives offered to our senior leadership team are clearly aligned with the interests of our shareholders in promoting our long-term success, stability and growth. At an individual business level our long-term incentive plans are designed to share the value created by the leaders of those businesses in a way that supports our innovative and entrepreneurial culture by promoting an ownership mindset within the business. Read our full Remuneration Report on page 66 RISK MANAGEMENT We continue to apply a proactive approach to risk management across the Group, applying appropriate criteria and risk management best practices for the various areas in which we operate. Our Risk Committee has oversight and management of significant risks around the Group and regularly reports to the Board. See page 52 of the Corporate Governance report for further information on risk management NORThCLIFFE MEDIA At the end of November 2012 we announced an historic transaction. After more than 90 years of regional newspaper ownership, we agreed to sell Northcliffe Media to a powerful new group – Local World – to ensure a sustainable future for our 77 regional titles and numerous local websites. This transaction will enable management to focus resources on our world-class national newspapers, our expanding digital media operations and our important B2B and consumers businesses. TEChNOLOGy AND INNOvATION Over the past decade we have seen an astonishing pace of change, in consumer habits and business focus. At the heart of this is technology: offering businesses and consumers ever-increasing choice, speed and flexibility. That pace of change is only going to increase. I believe that DMGT’s future lies in its ability to respond to this opportunity, investing in products and services that harness the potential of the very best technological advances. We are committed to embracing innovative solutions to the treatment and sharing of data that is vital, live and personally relevant, whether in a business-to- business or a consumer capacity. The single fastest-growing medium in the world is mobile. That is why it will remain a key focus in every step of our strategic development and we will continue to invest time and resources to maximise its potential. Its effect on how people connect with each other and with the world around them, will revolutionise how we lead our lives. The opportunity it gives us to deepen and enhance the relationships we have with our customers is unprecedented. This is something that I am personally keen to promote across the Group so that the free flow and sharing of ideas underpins how we embrace change and the pace at which we progress. We have already had some significant successes with mobile, heralding much more to come. PEOPLE AND CuLTuRE In February we took senior management from across the Group to Bangalore to discuss and shape the future. I would like to thank so many of our non-executive directors for attending and for their active involvement in the debate about our future strategy. Personally, I found seeing the wealth and depth of talent, the creativity and potential of the ideas, and the quality and relevance of the discussions deeply inspiring. The event set a very clear vision for DMGT as a global growth company, driven by pride in our products and services, belief in the people who work in the Group and the courage to think innovatively and entrepreneurially. A crucial part of our culture is rooted in personal responsibility: each and every person in the Group has an individual role to play in our future success. Our organic growth, our ability to innovate internally and our proactive approach all testify to the entrepreneurial spirit that sits at the heart of DMGT. This strength also drives our ability to endure and prosper despite intense global pressures and I would like to applaud and congratulate staff across DMGT on the past year’s growing profits. It is a great source of pride for me that DMGT is defined by the high calibre of its talent. As a Group we will continue to champion and nurture that talent, bringing on the next generation of exceptional business leaders with the skills and experience to deliver our strategy. We have the momentum, the knowledge and the hunger to achieve great things. The viscount Rothermere Chairman Annual Report 201210 Martin Morgan Chief Executive Our strategic ambition is to become a global growth company, focused on three key areas: 1. Growing our business-to-business (B2B) companies 2. Developing our consumer media franchise 3. Diversifying internationally into high- growth markets INTRODuCTION My Chief Executive’s Review sets out our philosophy, strategy and progress made over the past year, as well as outlining the main operational and financial factors which underpin our ongoing development and performance. A Business Review of the performance of each of our operating divisions follows on pages 22 to 37. A Financial and Treasury Review is given on pages 38 to 43 and the principal risks and uncertainties the Group faces are set out on pages 52 to 55 of the Directors’ Report. STRATEGIC PRIORITIES Our overall ambition is to develop DMGT into a truly global growth company with an increasing exposure to emerging economies and high-growth markets. We have identified five strategic priorities to help us realise our objective: The first is rigorous and active portfolio management. We have brought a sharper focus to our portfolio so as to concentrate talent and resources on businesses and brands where we see the greatest potential for profitable growth. Every part of the DMGT portfolio is regularly scrutinised. We undertake periodic, disciplined assessments of all current businesses. All new investment and acquisition proposals are carefully but rapidly evaluated within a predetermined framework of capital allocation priorities and against our strict investment criteria. Second, we pursue organic growth through innovation. We encourage our business leaders to create ambitious long-term growth plans. OuR PuRPOSE Our core purpose is to seek out, invest in and grow a diverse group of high quality, entrepreneurially run businesses. The key to our long-term success is a culture where people are given the freedom to innovate in order to create outstanding products and services to meet customer needs. International growth is our third strategic priority. We are consciously diversifying internationally, with a special emphasis on growing our presence in high-growth markets. Our existing companies are looking for new international markets and are investing in bolt-on acquisitions that extend their geographic footprint. Throughout our long history, being controlled by the founding family has proved highly successful and well suited to the media and information industry. Our ownership structure allows us to take a longer-term perspective and gives us a competitive advantage. We are committed to remaining a diversified Group with exposure to both the B2B and consumer media sectors in a variety of geographies serving a variety of industry sectors. This approach provides us with a breadth of opportunities and the ability to spread risk. Our B2B arm is made up of Risk Management Solutions (RMS), dmg::information, dmg::events and Euromoney Institutional Investor. We manage our consumer media activities through A&N Media, comprising the Daily Mail, The Mail On Sunday, MailOnline, Metro, Evenbase (our digital jobs search business), Zoopla Property Group (our interest in digital property search) and our local media business, Northcliffe Media. During the year, we disposed of our remaining interest in dmg Radio Australia Pty Ltd. Since the financial end we announced an agreement for the sale of Northcliffe Media to a new company called Local World. Our fourth priority is technology. If we are to remain competitive we have to continue to embrace and harness new technologies. Owning both consumer media and business- to-business organisations gives us a special opportunity to grow and cross-fertilise technological developments. We have stepped up the rate of technological change right across the Group. Our fifth priority, developing entrepreneurial talent, is becoming increasingly important. In creative businesses, ideas – and the people that have them – are what matter most. So we have been raising the bar on talent. We are committed to attracting and retaining the best people to optimise our decentralised operating approach and meet our global growth ambitions. Ensuring we have the right technical capabilities is a particular priority. Financial discipline is the common factor underpinning all we do. Strong cash flows and a strengthened balance sheet give us the financial flexibility to take advantage of new opportunities and to weather adverse external events. Our capital allocation strategy prioritises organic growth supported by bolt-on acquisitions and investment in Daily Mail and General Trust Plc11 Strategic Report Directors’ Report Governance Financial Statements Group strategy Growing our business-to-business companies Developing our consumer media franchise A global growth company Diversifying internationally into high-growth markets industry segment clusters. Post financial end we announced a share buy back programme of up to £100 million over the coming year. processes. We clearly recognise that if we are to compete with new start-up companies we need to move away from expensive legacy systems and become more agile. PROGRESS IN ThE yEAR We made a great deal of progress in the pursuit of our strategic priorities over the last twelve months. As a way of measuring our success we monitor a series of key performance indicators (KPIs) covering both financial returns and strategic objectives. As can be seen on page 17 of this review, we have continued to derive the majority of our operating profit from our B2B companies and expanded our digital revenues. We completed several bolt-on acquisitions and selective disposals to ensure our capital is effectively utilised. All our acquisitions met our strict investment criteria. We invested additional resources to execute against our long-term plan for international growth. There has been an increased focus on technology and digital transformation both in terms of adapting existing products and services to the changing way in which our customers access information, but also in terms of modernising our internal systems and We have completed the second DMGT Technology Summer School which focused on the implications of social networking, mobile technology and cloud computing. A&N Media created an Ideas Factory. A cross Group Council of Chief Technology Officers was set up, which I chair. We remain very much committed to reducing operational costs wherever possible. One significant example of the latter is the impending move of our London print operation to a new site in Essex. As mentioned before, we have elevated the priority given to talent and continued to refine and develop our leadership programme, which is now in its third year. This year saw the holding of a Chairman’s Conference for executives drawn from across the Group. It provided an outstanding opportunity to harness the depth and breadth of talent we have throughout our organisation. It was held in Bangalore to emphasise the seriousness of our intent to become a more global company. Annual Report 201212 Delivering our strategy Our strategy: three components Our five strategic priorities Growing our business-to- business companies Developing our consumer media franchise Diversifying internationally into high- growth markets Active portfolio management Fostering greater innovation to deliver organic growth Driving international growth Ensuring we have the technology to adapt to the changing market place Identifying, cultivating and developing entrepreneurial talent Daily Mail and General Trust PlcDelivering our strategy 13 Strategic Report Directors’ Report Governance Financial Statements Strategy in action Acquisitions v disposals 2012 Jobrapido, Intelliworks, Xceligent Global Grain, Geneva and Asia, PrepMe, Spring Rock Praedicat, BuilderRadius, Topper Newspapers 50% dmg radio Australia, Evanta, Teletext, Motors.co.uk Top-Consultant.com Fy2012 – £75m Fy2012 – £117m Zoopla Property Group The merger of our online property business The Digital Property Group with Zoopla has created a world-class property search company. DMGT retains a 52.25% share in the Zoopla Property Group. RMS LifeRisks LifeRisks is a licensable model to manage risks from longevity and excess mortality for the life insurance and pension risk industry. It enables companies to assess their life and annuity portfolios and is underpinned by detailed medical research and social change projections. Genscape Biofuel Monitoring The RIN Integrity Network was launched to insure greater market transparency in tracking the volume of renewable fuel produced in or imported into the United States. The Genscape product serves biodiesel producers, marketers and blenders. Asia Risk Centre Asia Risk Centre (ARC) is based in Singapore and is a spin-off from RMS. ARC’s risk analytics are designed to help emerging market populations manage catastrophe risk for the infrastructure, property and agriculture sectors. ARC is already active in India and China. Operating profit UK* North America Other 29% 56% 15% 2012 *Post Northcliffe disposal Big 5 Saudi Arabia In 2011 dmg::events launched their successful Big 5 construction show into Saudi Arabia. This year the show doubled in size enabling dmg::events to unlock the dynamic Saudi market. Technology Summer School The second DMGT Technology Summer School was held and focused on the implications of social networking, mobile technology and cloud computing. The event also saw the first meeting of the cross Group Council of Chief Technology Officers Chairman’s Conference 2012 At the second Chairman’s Conference in March, 100 delegates from all of DMGT’s businesses spent a week in Bangalore, India to learn about entering and investing in new geographies, to discuss strategy and to agree on big priorities for the Group. Revenue by type 31% 55% 14% Digital Print Other Revenue by type 39% 48% 13% Digital Print Other 2011 2012 *Figures exclude Northcliffe *Figures exclude Northcliffe Bolt-on acquisitions DMGT has a preference to bolt-on acquisitions where we can invest in businesses that complement our existing portfolio. We look for those led by entrepreneurial leaders who we can retain and support. Examples this year are the dmg:information acquisitions of Springrock, Intelliworks and PrepMe. Annual Report 201214 We continued to review the incentives and rewards we have in place at each operating company to ensure that they match our expectations for growth by encouraging and nurturing successful entrepreneurial leadership, so vital to raising performance over the longer term. On compensation, we do not apply a ‘one size fits all’ policy. This is a major strength, reflecting the value of the decentralised model and diversified nature of our portfolio of businesses. The Remuneration Committee ensures that compensation is aligned with the strategies and particular circumstances of each operating company. We continued to exercise financial discipline with strong cash flow conversion and active portfolio management resulting in a reduced level of net debt. This has been the fourth consecutive year when disposal proceeds have exceeded acquisition costs. In addition, the new pension guarantee structure, established in July 2012, is expected to reduce the near-term cash payments to the defined benefit pension fund. As a result we are increasingly able to finance the wealth of opportunities we see in front of us. OPERATIONAL MODEL We take a considerable amount of comfort in the fact that we know all our companies are run by chief executives with expert knowledge of the markets in which they operate. Autonomous management keeps decision making close to the customer, as real innovation comes from having a genuine customer focus. We deliberately strive to run DMGT in a manner which provides a fertile environment for our people to produce innovative ideas by adopting a decentralised structure. Maintaining this approach is of the utmost importance to me and my colleagues because we realise that to survive in a rapidly changing media world, you must be able to react quickly and effectively. We build value by creating conditions where diverse businesses can prosper and experience sustained growth. We give our businesses freedom to operate within a broad framework. The benefits are numerous. For example, it enabled us to respond rapidly to the economic downturn and to digital opportunities. At Group level, the Investment and Finance Committee of the Board oversees Group strategy development. It makes decisions on investment and capital allocation acting independently from the operating companies. The DMGT Leadership Team comprises the operating company leaders, together with the DMGT executive team. Its remit is to focus on furthering cross-Group co-operation when and where this makes sense, for example Group leadership courses, communications and international expansion. It complements the decision making and accountability structures in place through our decentralised operating structure. CORPORATE RESPONSIBILITy Across the Group we take corporate responsibility (CR) seriously and it permeates our outlook on the environment, the way we treat our employees, our customers and suppliers, as well as on local community issues. We recognise that our businesses have an impact on the environment, be that through our printing operations, offices, transport or other activities. We are truly committed to ensuring that, where possible, our impact on the environment is minimised. The greatest impact we make on the environment arises from our printing operations. Here, I am pleased to say that we have been diligent in measuring and reducing waste in our usage of materials, and through our analysis of our carbon footprint, monitoring and improving our efficiency in the use of energy. We started to measure our footprint in 2006 and the Group’s emissions have fallen steadily since then. This year we are announcing that we have set a new target for reducing carbon emissions over the next three years. At Harmsworth Quays, our largest printing plant, and Northcliffe House, the Company’s headquarters and the London base of Associated Newspapers, Northcliffe Media and dmg::events, we maintained the key international environmental standard ISO 14001. We also hold this standard at our Landmark office in Exeter. Community involvement is integral to the way we run our company, as is its importance to the personal motivation of our employees. We donate money, time and in-kind donations such as advertising space, and staff participate in a huge range of activities, including fund-raising, organising events and acting as trustees to charitable initiatives. Daily Mail and General Trust Plc15 Strategic Report Directors’ Report Governance Financial Statements remaining stake in DMG Radio Australia and the sale of dmg::event’s Evanta leadership and conference business. Total disposal proceeds amounted to £125 million. Post year-end on 21st November, 2012 we announced we had reached agreement to sell Northcliffe Media, to Local World, a newly formed media group. DMGT will receive consideration of £52.5 million in cash and a 38.7% shareholding in Local World, which will allow us to benefit from the potential upside from the evolution of the regional newspaper industry. This portfolio management activity has further improved the overall quality of the DMGT portfolio and reduced debt. We succeeded in our long-term goal of increasing exposure to international markets. ShARE PRICE PERFORMANCE Our share performance remains important to us as an indicator as to whether our strategy is understood and appreciated by institutional investors. The price of our widely traded ‘A’ Ordinary Non-Voting Shares has risen by 37% over the year, outperforming both the UK Media sector and the FTSE All-share index which provided returns of 18% and 14% respectively. As explained in last year’s Business Review, the decision by FTSE to adopt listing classifications for determining the weighting of share classes in their indices, resulted in DMGT’s weighting in the UK Index Series falling from 75% to 0%. The FTSE rules on standard listings means that DMGT ‘A’ shares are now no longer included in the FTSE UK Index Series. However, DMGT continues to be a member of a number of other important indices such as MSCI, STOXX and S&P. This change has made no impact on the approach DMGT takes to its obligations as a listed company. We will continue to adopt the obligations and practices of the UK Listing Rules as they have applied to DMGT historically, maintaining the highest standard of governance and disclosure including the application of the UK Corporate Governance Code. ACTIvE PORTFOLIO MANAGEMENT When I became Chief Executive in 2008, I recognised the need for us to focus on a narrower range of activities in order to concentrate human resources and financial capital where the most potential for long-term growth and value creation existed. I stated that we would be active managers of our portfolio of businesses and apply our investment criteria vigorously in determining where to allocate capital. At the same time we would maintain our long-term perspective and a high rate of internal investment to drive organic growth. The investment criteria that I identified then has encouraged investing in businesses which operate in attractive growth markets. Such businesses need to have products or services which are highly innovative and highly valued, ones which customers repeat buy. We prefer to invest in businesses that are either in international markets or offer scope to expand internationally, especially into high-growth economies. We have a strong bias towards market leaders and businesses with high-margin, cash-generative characteristics expected to produce a high return on capital. We are also focused on gaining access to and retaining entrepreneurial management and we give preference to businesses which can benefit from DMGT’s long-term perspective. In keeping with this approach, we have further refocused the portfolio with a range of disposals, acquisitions and selective investments throughout the year. We announced a series of bolt-on acquisitions at dmg::information including Intelliworks, PrepMe and SpringRock. Euromoney acquired Global Grain Geneva and Global Grain Asia and A&N Media acquired Jobrapido. We also announced the merger of our online property portal, The Digital Property Group, with Zoopla to create a world-class property search business. dmg::information also made a series of investments in the US property market through Xceligent, Real Capital Analytics and BuildFax. In total, acquisitions, including a slight increase in our shareholding in Euromoney to offset dilution from incentive plans, utilised £75 million of cash. Following the year-end we made a further bolt-on investment at Hobsons with their acquisition of the US website Beat the GMAT. We also made a number of disposals of non-core businesses. Disposals in the early part of the year were primarily focused in Associated (Top Consultant, motors.co.uk and Teletext) whilst in the second half of the year we announced the disposal of our Annual Report 201216 Because of continued strong cash flow generation, representing a 113% conversion rate of operating profits, and the proceeds from disposals, our financial strength improved. We continue to have a comfortable level of longer-term funding through £678 million of outstanding bonds, with maturities ranging from December, 2018 through to June, 2027. At the year-end, we also had unused bank facilities of £298 million. Given surplus cash of £107 million at the year end, we will consider buying back any bonds which become available, at the right price. Throughout the year, we have stayed well within our own internal net debt to EBITDA limit of 2.4 times with our year-end net debt to EBITDA ratio standing at 1.6 times. Whilst we can comfortably run the Group without having to raise new finance, we may want to do so in order to sustain the Group’s long-term growth ambitions. Regaining investment grade status remains an objective. We anticipate that capital allocation in the forthcoming year will continue to be funded from our existing capital structure and will be directed towards supporting the Group’s long-term growth ambitions as well as our continued commitment to growing the dividend in real terms. We believe that the creation of shareholder value over the long term requires a balanced approach to investing in growth and returning excess capital to shareholders, whilst maintaining a strong balance sheet. In reviewing our capital management programme the Board has decided to utilise part of its authority to make on market purchase of ‘A’ Ordinary Non-Voting Shares of up to £100 million over the coming year. Containing and eventually eliminating significant liability risk and volatility from our pension schemes remains a high priority. The recently announced pension guarantee structure is a significant step in that direction. WEIGhTING OF DMGT’S ‘A’ ShARES IN ThE FTSE INDICES On 18th April, 2012, FTSE announced that DMGT’s ‘A’ Ordinary Non-Voting Shares would no longer be eligible for inclusion in the UK Series Index. The Board of DMGT has considered at length, with the assistance of its advisors, the options available to it and the suitability of such options to meet the needs of its stakeholders to make the ‘A’ Ordinary Non-Voting Shares eligible for inclusion in the UK Series Index but no solution has to date been found. The FSA’s recently issued consultation paper on ‘Enhancing the effectiveness of the Listing Regime and feedback on CP12/2’ makes it more difficult to envisage how we can regain our premium listing. It is unlikely, therefore, that the ‘A’ Ordinary Non-Voting Shares will become eligible for inclusion in the index in the foreseeable future. However, DMGT’s ‘A’ Ordinary Non-Voting shares will continue to be standard listed and traded on the London Stock Exchange and to be a member of other important indices such as MSCI, STOXX, S&P and the FTSE Global Equity Index Series and DMGT will continue to maintain the highest standard of governance and disclosure. CAPITAL STRuCTuRE The Company has not made a capital call on its shareholders since 1933. Growth is funded by long-term debt and by retained earnings. Since the late 1980s, our strategy has been to seek to raise the dividend in real terms over the economic cycle. Since 2002, the Board’s policy has been to target a real rate of growth in the dividend in the region of 5% to 7% on the basis of the Directors’ confidence in the Group’s long-term financial health. Subject to shareholder approval, the Board is recommending payment on the issued Ordinary and ‘A’ Ordinary Non-Voting Shares, a final dividend of 12.4 pence per share for the year ended 30th September, 2012 (2011 11.7 pence). This will make a total of 18.0 pence (2011 17.0 pence per share). The final dividend will be paid on 8th February, 2013 to shareholders on the register at close of business on 30th November, 2012. This is an increase of 6% for the year. The compound dividend growth over the last 20 years is 8.9% in nominal terms, which is an increase of 6.1% in real terms. Daily Mail and General Trust Plc17 Strategic Report Directors’ Report Governance Financial Statements REvIEW OF ThE yEAR DMGT has delivered a solid set of results, with Group underlying revenue and operating profit up 3% and 7% respectively and our operating margin increasing to 15%. Our international B2B companies have continued to grow underlying revenues, up 7%, and profits, up 8%, reflecting the strength of their market positions as well as the success of new product launches and organic growth initiatives. We are pleased to report that our UK consumer business’s underlying revenue was flat overall in the face of continued challenging trading conditions, with circulation and digital revenue growth offsetting print advertising weakness. A strong focus on operational efficiency helped consumer underlying profits to grow by 7%. 73% of this year’s operating profit was generated from the Group’s B2B operations and 27% from Consumer, compared to 74% and 26% in 2011 and more than half of the Group’s operating profits were again derived from outside the UK, demonstrating the benefits of our international diversification. Adjusted PBT grew by 10%, and after a higher tax rate compared to the prior year, adjusted EPS was up 7% to 49.4p. The increase in the full year dividend per share of 6% reflects the pleasing Group results and our confidence in the future of DMGT and its ability to generate sustainable earnings growth. BuSINESS-TO-BuSINESS SuMMARy Our B2B operations achieved another year of good growth, with combined revenues of £899 million, 1% higher than last year, but up 7% on an underlying basis. Reported revenue growth was lower than underlying growth, reflecting the disposal of George Little Management (GLM) within dmg::events and Sanborn within dmg::information. Combined B2B operating profit increased by 7%, or 8% on an underlying basis, with an overall B2B margin of 26%. RISK MANAGEMENT SOLuTIONS RMS delivered a solid year of revenue and profit growth. Revenues increased by 3% on a reported basis, with an underlying increase of 6% reflecting the disposal of the third-party part of RMS’s Indian operation (RMSI). Operating profit rose by 18%, with underlying profits up 7%, the difference due to the absence of RMSI losses in the year compared to the prior year’s inclusion. Subscriptions continued to grow well, with a renewal rate of approximately 95%. RMS enjoys multiple drivers of growth. While continuing to focus on its core catastrophe- modelling business, growth is increasingly being driven by new products and solutions such as Data Management Services and mortality risk analysis. Opportunities are also presenting themselves with new customers in new geographies as RMS expands globally. A key part of RMS’s development is the significant investment programme in a new software platform which is now firmly under way and is expected to generate high levels of future revenue growth. As a result, RMS increased headcount, consulting and hosting costs. RMS spun off two development initiatives during the year. The Asia Risk Centre (ARC) was set up in Singapore under DMGT oversight. ARC is developing models for the agricultural insurance markets in Asia. The second spin-off was Praedicat which in partnership with the Rand Corporation is in the early stages of developing models for the liability insurance market. The minority shareholding in RMS Japan was acquired from the OYO Corporation. DMG INFORMATION dmg::information had a good year, with reported revenue up 9%, or 11% on an underlying basis. Operating profit grew by a healthy 14%, with underlying operating profit up 19%. dmg::information’s four sectors of education, property, finance and energy all contributed to growth, with a particularly strong performance from Hobsons serving the education market, and Landmark, serving the UK, and more recently German property markets with the acquisition of On-Geo. A series of bolt-on and adjacent sector investments were made. Its ambition to invest in must-have, high- growth, innovative business information companies remains unchanged, as does its remit to diversify DMGT by sector, by business model and increasingly by geography. Annual Report 201218 CONSuMER MEDIA At A&N Media, underlying revenues were in line with the prior year at £1,060 million, a decrease of 3% on a reported basis. Operating profit increased by 12%, with an operating margin of 10%. This was a very pleasing result in the context of continued challenging trading conditions in the UK, and is a testament to the success of our strategy to exploit the very best of traditional and new media, and bring them together in a way that meets the constant and rapidly changing demands of our consumers. Digitalisation and advances in technology have given A&N Media the ability to be more productive and efficient. Introducing less labour-intensive processes has enabled costs to be taken out of the business without sacrificing quality. This drive for efficiency has delivered a leaner and more robust foundation on which to grow, with headcount at A&N Media reducing by 855 (12%) in the year. ASSOCIATED NEWSPAPERS The Mail titles continued to outperform the market, with circulation revenues growing by 3% due to the benefit of cover price increases. Market share increased to 21.6% and 20.8% for the Daily Mail and The Mail on Sunday respectively. Content has been at the heart of the Group’s success at Associated and we continue to invest in editorial quality. Metro, the Group’s free newspaper, also continued to perform strongly. MailOnline had an excellent year, becoming the world’s most visited newspaper website, with 106 million global unique browsers in August, 2012. Revenues grew by 74% and the business was profitable in the second half of the year. The international expansion of MailOnline continued apace, and will be a key aspect driving its long-term growth potential. Other digital initiatives, such as Wowcher, our consumer daily deals voucher business, saw strong growth and attracted additional investment in marketing and promotion. DMG EvENTS dmg::events delivered highly satisfactory results in a year which included only one of the three major biennial events which, alongside the sale of GLM, resulted in reported revenue being down 33%. Adjusting for these factors, underlying revenue increased by 13%, reflecting good organic growth across the portfolio. Reported operating profit decreased by 46%, but underlying growth of 21% was achieved. dmg::events continued to refine its structure, with the disposal of Evanta, a conference business, announced in September, 2012. dmg::events is now focused on the growth verticals of Energy and Digital Marketing and in expanding its significant footprint in the Middle East into new countries such as Saudi Arabia, and into Asia. EuROMONEy INSTITuTIONAL INvESTOR Euromoney’s record operating profit was up 9%, before its capital appreciation plan (CAP) expense, maintaining its impressive recent history of profits growth. These results confirm the value of Euromoney’s strategy to build a more resilient and better-focused business by increasing the proportion of revenues derived from subscription products, with subscriptions now accounting for nearly half of total revenues. A predominantly publishing-driven business has been transformed to one with significant activities in electronic information and database services. Euromoney has outperformed expectations, allowing management to shift its focus to positioning the business for growth, both from existing products as markets recover, and from investment in technology and new products. Euromoney’s performance and its shift into more subscription and digital activity and its global reach mean that the Board regards it as core to DMGT’s own strategic global growth ambitions. Euromoney’s separate listing on the London Stock Exchange has enabled it to introduce incentive plans which have motivated management to grow the company significantly over recent years. We remain a supportive shareholder, fully backing its management’s expansion strategy. We have slightly increased our equity interest to around 68%. Daily Mail and General Trust Plc19 Strategic Report Directors’ Report Governance Financial Statements A&N Media’s recruitment and property online portals both had an exciting year. Evenbase, our online recruitment businesses, acquired Jobrapido to establish an international footprint for expansion. At the end of May, The Digital Property Group merged with Zoopla to create a world-class property search platform and a genuine contender to challenge the dominant UK market leader. Our consumer digital revenues across all our consumer digital platforms including MailOnline, metro.co.uk, Evenbase, Zoopla Property Group and Wowcher were in the region of £140 million on a pro forma basis in 2012. As a result of circulation revenue growth and strong progress in digital revenues, overall underlying revenues at Associated were up 2% in the year, despite another challenging year for print advertising. NORThCLIFFE MEDIA Northcliffe’s revenue performance, down 10% on a reported basis, reflects another difficult year for the UK regional press and continued advertising pressure. The lower underlying revenue decline of 6% reflects our efforts to transition the portfolio of titles, including the conversion of several titles from a daily to weekly basis. The transformation of the cost base continued rapidly, with costs down a further 15% in the year. This resulted in Northcliffe’s operating profit increasing by an impressive 54%, achieving a margin of 12%. OuTLOOK We have entered our new financial year with our companies performing well and in line with our expectations. All of our B2B businesses are expected to deliver underlying revenue and profit growth in the year ahead. On the consumer side, we expect stable revenues and margins, reflecting an uncertain advertising environment balanced against continued growth in digital areas. RMS has started the year as expected, with a solid sales pipeline and a range of significant development programmes in place. RMS expects to achieve revenue growth in the high to mid-single digits, a slight decline from the trend of recent years, as it focuses its sales efforts on preparing for the new generation of products. RMS is expected to deliver a slightly reduced margin of around 30% as investment increases ahead of the launch in 2014. dmg::information expects to drive double- digit organic growth as the portfolio of businesses continues to benefit from new product initiatives and stronger customer demand. The Education and Property businesses will continue to be key drivers of overall growth, with Energy expected to gather further momentum during the year. We expect operating margins to be maintained. At dmg::events, our refocused portfolio is expected to deliver double-digit underlying growth and it will also benefit from two of the three major biennial events taking place this financial year. Margins are anticipated to be around 25%. Euromoney’s first quarter trading has started in line with expectations. The uncertainty over Europe remains, as does a solution to the pending US fiscal cliff. Meanwhile global financial institutions face the combined challenges of difficult markets, increased capital requirements and a tougher regulatory environment. Inevitably they have responded by cutting costs, particularly people, and exiting some parts of their business. The Euromoney board expects this challenging trading background to continue at least into the early part of 2013. Subscriptions account for half of Euromoney’s revenues and therefore provide some protection against weak markets in 2013, as does Euromoney’s reliance on emerging markets for more than a third of its revenues. However, the negative trends in advertising and delegate revenues in the last quarter are expected to continue into the first quarter of financial year 2013, although the outlook for event sponsorship is more positive. Within A&N Media, national advertising revenue at Associated in the first seven weeks of the year was down 5% on last year, with digital continuing to grow strongly, but visibility remaining limited on print advertising. Overall, Associated expects to achieve broadly stable revenues in the year, with cost efficiency helping to maintain operating margins at around 9%. For the Group as a whole, we will continue to invest in order to secure future growth and ensure that our financial and talent resources are appropriately managed. My colleagues and I remain confident that DMGT is well placed for 2013 and beyond. Martin Morgan Chief Executive Annual Report 201220 Description Relevance Performance Narrative underlying revenue growth# Our underlying revenue growth (after adjusting for M&A activity) is an important indicator of the health and trajectory of our businesses. Group adjusted profit before tax*# As a portfolio-based Group, DMGT periodically buys and sells businesses. This KPI monitors the Group’s adjusted profit before tax. Operating margin %*# DMGT’s investment criteria emphasises profitable, high-growth sectors. In the long term, increasing adjusted operating margin indicates an improvement in the quality of its business assets. 1,865 1,920 underlying revenue growth 2011 +3%† Our businesses grew their revenue by 3% on average during the year. B2B grew by 7% while Consumer remained stable. 2011 2012 248.4 255.4 Group adjusted profit before tax 227.7 232.1 185.6 2011 £232m† Group adjusted profit before tax grew by an impressive 10% helped by good profit growth across almost all of our businesses. 2008 2009 2010 2011 2012 Operating margin 15.2% 15.3% 14.2% 13.4% 12.3% 2008 2009 2010 2011 2012 2011 14%† Our Group operating margin improved from 14% to 15% as we improved the efficiency of our businesses and either sold or closed down several businesses that were operating at margins below the Group average. Net debt: EBITDA Net debt: EBITDA# Management aims to regain DMGT’s investment-grade status by reducing net debt and targets a net debt: EBITDA ratio of between 1.5 and 2.0 times. 3.1 2.7 2.3 2.0 1.6 2011 2.0 times Through strong operational cashflows, continued portfolio management and tight control of working capital, we have brought our net debt: EBITDA level down to its lowest level in years. 2008 2009 2010 2011 2012 Earnings per share*# Management seeks above- average growth in adjusted earnings per share to maximise overall returns for its owners. 46.2 46.0 46.1 49.4 Earnings per share 33.9 2008 2009 2010 2011 2012 2011 46.1p† Our earnings per share grew by 7% helped by the 10% growth in profit before tax offset by the small increase in our effective tax rate (up from 14.4% to 15.2%) Dividend per share The Board’s policy is to maintain dividend growth in real terms over the economic cycle. 14.7p 14.7p 16.0p 17.0p 18.0p Dividend per share 2008 2009 2010 2011 2012 2011 17.0p We were able to continue our strong track record of dividend growth and have proposed a full year dividend of 18.0p, up by 5.9% from last year. Daily Mail and General Trust Plc21 Strategic Report Directors’ Report Governance Financial Statements Description Relevance Performance Narrative Performance of DMGT ‘A’ and FTSE All Share Index relative to values at 30th September, 1992 (£) B2B share of total operating profit Share price vs. FTSE All-Share Index Management monitors the DMGT share price against the FTSE All-Share Index to assess the Group’s relative performance against other UK companies. 8 6 4 2 0 The growth and profitability of its business divisions are key components of DMGT’s strategy. This KPI tracks the proportion of operating profit attributable to B2B activities. North American share of total operating profit DMGT is committed to maintaining a significant, sustainable presence in North American markets. This KPI allows management to monitor the relative profitability of its North American units. International share of total revenues This measures the proportion of revenue generated outside the UK. DMGT’s long-term strategic objective is to develop into a global growth company. The KPI measures DMGT’s success in internationalising the business. Digital share of total revenues We expect digital activities to account for the majority of DMGT’s future growth. This KPI tracks the rate at which the Group is monetising its digital content. Subscription share of total revenues Subscription-based B2B revenue is a more stable and less cyclical revenue source than advertising. It is also a good proxy for monitoring growth in B2B digital revenues. This KPI tracks the Group’s ability to generate high quality, digital B2B earnings. DMGT A FT All Share Performance of DMGT ‘A’ and FTSE All Share Index relative to values at 30th September, 1992 (£) 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2012 73% (74% 2011) (2011 74%) 51% (51% 2011) (2011 51%) 37% (35% 2011) (2011 35%) 35% (29% 2011) (2011 29%) 53% (48% 2011) (2011 48%) 2011 +4.4% pa Our share price has largely tracked the FTSE All-Share Index over the last 20 years. B2B share of operating profit 2011 74%† North American share of operating profit 2011 51%† International share of revenues 2011 29% Digital share of revenues 2012 2011 29% Subscription share of B2B revenues 2011 48% Annual Report 201222 hemant Shah President and Chief Executive Officer Revenue 2011 £159m Operating profit* 2011 £47 Operating margin* 2011 30% BuSINESS DESCRIPTION RMS continues to focus primarily on the commercial catastrophe-modelling business, which includes modelling of natural hazards risks such as earthquake, hurricane and flood, as well as terrorism risk and risk from pandemic diseases. Its primary market is the global property and casualty re/insurance industry, where it currently serves hundreds of customers around the world. Products and services are developed and delivered through the activity of more than 1,000 RMS employees in North America, Europe, India, Japan and China. RMS models are deeply embedded in risk decision-making processes throughout the re/insurance vertical, including insurance companies, insurance and reinsurance brokers, reinsurers and the capital markets. In addition, RMS also provides models and solutions in the capital markets and life insurance industries. STRATEGy RMS’s primary strategic focus continues to be its new platform, now branded as RMS(one), which is designed to provide complete solutions in the cloud for its clients across the re/insurance value chain, including access to sophisticated models, an ability to integrate those models into enterprise-wide business processes, and analytics to help clients make better decisions. Clients seek upstream capability to acquire and manage high quality exposure data, and downstream capability to open and interpret the models, and then apply these insights to deliver targeted decision support for underwriting, pricing and managing their business. RMS has undertaken a significant development effort of its new software platform, RMS(one), and is working towards a release in mid 2014 to deliver the full range of new capabilities and solutions to its global client base. In the meantime, RMS continues to pursue selected growth areas in its Core modelling franchise, as well as in its Capital Markets and LifeRisks initiatives. ACTIvITy WIThIN ThE REPORTING yEAR RMS had a solid year of revenue and profit growth, while increasing its investment programme that is expected to be a key driver of future, multi-year growth. On a reported basis, revenues increased by 3% and operating profits by 18%, which includes the benefit of capitalising software development expenses related to RMS(one), a program that is expected to continue through to the launch in 2014. BuSINESS MODEL RMS leads the market for delivering scientifically-based catastrophe models that have become the standard in the industry for quantifying and managing catastrophe risk. The main revenue streams are from licensing the models through an annual subscription model, but RMS also provides a range of professional services that are complementary to the core modelling business. RMS’s client relationships are characterised by their longevity and high renewal rates. Over the past 10 years, RMS has invested over $200 million in developing and updating its products to incorporate the latest in scientific research and enhance model resolution, which is delivered to clients through the release of annual updates. MARKET ENvIRONMENT The re-insurance industry experienced slow growth in 2012 as a result of poor global economic decisions, and the lingering financial effects of the worldwide catastrophes in 2011. Many in the industry are experiencing pressure to cut costs and exit lines of business perceived to be too risky. In addition, there was greater M&A activity in 2012 as weaker performing companies became acquisition targets. Daily Mail and General Trust Plc 23 Strategic Report Directors’ Report Governance Financial Statements SEGMENT BuSINESS PERFORMANCE Core business RMS’s core business, which includes natural catastrophe and terrorism modelling, was impacted by slower growth in the re-insurance industry. The core business relies heavily upon existing clients expanding their relationship with RMS by licensing additional models and services. In a year where many clients were tightening their budgets, this proved to be a challenge. In an effort to seize new opportunities for growth, RMS continued to invest in new markets for its core suite of models. Capital Markets The insurance-linked securities market rebounded in 2012, with strong demand and an influx of new capital driving a forecast $6 billion of issuance for the year. RMS participated in a number of transactions, particularly related to the transfer of life and health risk (excess mortality and longevity). The capital markets business continued to face headwinds from the adoption of the version 11 models, but RMS was able to establish itself as the leading portfolio risk management platform provider amongst ILS funds, with the vast majority of the dedicated ILS funds now RMS users. RMS continues to see major growth opportunities in the capital markets space, especially around longevity risk transfer. LifeRisks RMS’s LifeRisks business has developed innovative models for the life insurance industry to manage the risk of excess mortality and the longevity risk associated with pensions and annuities. RMS tools have been instrumental in helping companies aggressively grow through risk swaps and acquisitions. The power and transparency of RMS’s model methodologies is leading many insurers to adopt RMS technology for use in their response to Solvency II capital adequacy tests. In 2012, LifeRisks’ growth trajectory was modestly slower than planned due to the complexity of model and software development, along with regulator delays in implementing Solvency II, but RMS remains bullish on the prospects for the initiative. PRIORITIES FOR ThE COMING yEAR 2013 represents a key pre-launch period for RMS in advance of the release of RMS(one), scheduled for mid 2014. The investment programmes established in support of all its new initiatives will continue throughout 2013 and are expected to result in similar growth characteristics as in 2012. Annual Report 201224 Suresh Kavan Chief Executive Officer Revenue 2011 £232m† Operating profit* 2011 £42m† Operating margin* 2011 18%† PROPERTy INFORMATION Underlying revenues from the property information businesses grew by 11% while underlying profits grew by 25%. Revenues and profits were £106 million and £24 million respectively, representing the largest of our business sectors and accounting for 42% of revenues. The market conditions have remained relatively benign in both the UK housing market, served by Landmark, and the commercial real estate market in the UK and US, served by Landmark and EDR respectively. Our revenues are influenced by transaction volumes which have grown only marginally year on year. Underlying revenues in the UK and US grew by 6% in aggregate. In 2011 we acquired On-Geo in Germany, complementing our existing German business, and we have enjoyed a highly successful year with underlying revenues growing strongly and integration plans ahead of schedule. BuildFax, a provider of planning consent (building permits) and related property information to the US insurance and financial services markets, is an early-stage business that continues to develop well. In April, we made a strategic investment in Xceligent, one of only two companies in the US that provides fully researched property and listing information to the commercial real estate community. Since our initial investment the business has developed in line with expectations and we are supporting the expansion of its strategy to increase the number of major US locations covered. BuSINESS DESCRIPTION dmg::information operates B2B information companies in four sectors, namely Property Information (Environmental Data Resources, Landmark Information Group and BuildFax), Educational Information (Hobsons), Energy Information (Genscape) and Financial Information (Trepp and Lewtan). We also have a number of strategic investments in the property information sector, including Xceligent, Real Capital Analytics and TreppPort. dmg::information’s business model prioritises annual subscriptions and highly repetitive transactions, which account for 85% of the total revenue, and all our businesses are market leaders providing their clients with crucial, mission-critical information. ACTIvITy WIThIN ThE REPORTING yEAR dmg::information’s underlying revenues and profits both grew strongly in the year at 11% and 19% respectively, largely driven by strong organic growth and complemented by the performance of small bolt-on acquisitions. Reported revenue increased by 9% to £253 million and reported operating profits increased by 14% to £48 million, with margins up to 19% from 18%. BuSINESS MODEL As a portfolio of B2B information businesses, dmg::information has a variety of business models. The majority of our revenue is made up of high renewal rate, recurring subscription fees and high-repeat transactions. MARKET ENvIRONMENT The markets we serve are large and complex. Information volumes grow exponentially and our professional customers look to our portfolio companies to provide them with unique, must-have content, incisive and timely analyses and powerful, flexible analytics. In many cases, our datasets are proprietary and extremely difficult to replicate and we are seen as class leaders in the markets we serve. Daily Mail and General Trust Plc 25 Strategic Report Directors’ Report Governance Financial Statements EDuCATION INFORMATION Hobsons, our educational information business, enjoyed a very successful year. Underlying revenues increased by 20% and reported revenues by 27% as we also completed two important bolt-on acquisitions. In February we acquired PrepMe, providing sophisticated software to guide students in college preparation tests, and in December acquired Intelliworks, providing subscription- based software services to higher education institutions that are highly complementary with Hobsons’ existing business. Hobsons is growing strongly in both its K-12 division, serving US high schools, and its HE division, serving higher education institutions in both the US and internationally. Our strategy is to continue to develop must-have products in both these divisions and to extend our footprint internationally. FINANCIAL INFORMATION The fragility that has existed in the financial information market for the last couple of years continued to prevail through 2012. In these challenging market conditions we are pleased that our businesses serving this sector. Trepp and Lewtan, grew underlying revenues by 2%. Trepp, the market leader of information about Commercial Mortgage-Backed Securities (CMBS), provides information that is mission critical to participants in the CMBS marketplace and has also successfully expanded its product offerings with new products targeted at banks and other loan providers. Lewtan, offering products to both investors and issuers in the asset-backed securities market, continued to improve their market position with the delivery of several important new product enhancements. ENERGy INFORMATION Genscape, the market-leading provider of real-time ‘supply-side’ energy information, has continued to grow. Underlying revenues grew by 7% but this underplays the increasing momentum in the business which grew net bookings by 13% in the second half of the year and launched some exciting new initiatives. We have invested significantly in both products and people. As a result, the business is well positioned for the future, with a strengthened management team, an expanded sales force and a number of newly launched products, with more in the pipeline. PRIORITIES FOR ThE COMING yEAR Our property and financial information businesses are exposed to the cyclicality of the UK and US property and financial markets which remain subdued. Despite this headwind, our continuous investment in innovation has resulted in a strong and continuing pipeline of new products and services that continue to propel our growth. Furthermore, individual market issues are attenuated through the portfolio effect of our businesses. Overall we operate in long-term, attractive grow markets that are global in scope such as education, energy and property. These markets have extended runways for growth. Genscape is a thought-leader and innovator in its market. During the year we launched a compliance and information service that will provide physical verification of biodiesel production in the US and, in addition to this organic growth initiative, have also added modelling and forecasting capabilities with a small bolt-on acquisition of a company called SpringRock. The explosive growth of information and technology in these areas means a strong and steady demand for support and insight from specialist businesses such as ours. We enjoy deep relationships with our customers which help us to identify and then deliver innovative new products and services that help our customers find the ‘signal’ amongst the ‘noise’. Annual Report 201226 Suresh Kavan Chairman and Chief Executive Officer Revenue 2011 £132m Operating profit* 2011 £39m Operating margin* 2011 29% High energy prices drive continued investment in energy development and technology, which along with deep market connection, drive the growth of our events. Gastech, held in London in November 2012 is a market-leading brand that is extending its reach through the launch of a series of complementary regional satellite events. The digital marketing-focused business is centred around the ad:tech shows and conferences, with significant events held annually in New York, San Francisco and London and recent new launches in Tokyo, New Delhi and Singapore. Overall, underlying revenues grew by 5%. dmg::events operates a number of market- leading events in the Middle East, organised by our operations based in Dubai. The largest events are the annual Big 5 show, serving the construction sector, and the biennial Adipec show, serving the Energy sector. In 2012, Big 5 continued to grow despite difficult economic conditions through the continued success of its geo-cloning programme in Saudi Arabia. Overall we enjoyed a very satisfactory 15% underlying revenue growth in the Middle East region, fuelled by an aggressive launch programme. Additionally, we are pleased to have reached an agreement to hold the large Adipec event in Abu Dhabi annually with effect from 2014. PRIORITIES FOR ThE COMING yEAR Our events in the United Arab Emirates have traditionally enjoyed a high degree of participation from European delegations and exhibitors. The recent economic downturn has proved challenging for those exhibitors. However, our brands are big, strong, class-leaders and thus have proved remarkably resilient and have responded by forging deeper relationships with emerging Asian and intra-regional exhibitors. Strong brands in growing sectors allied to powerful relationships position dmg::events well for the future. Our brands lend themselves to geo-cloning. Our sector expertise lends itself to the creation of adjacent products such as conferences and online services and our relationships facilitate a high velocity of new show launches. BuSINESS DESCRIPTION dmg::events organises B2B exhibitions with associated conferences focusing on the energy, construction and digital marketing sectors. Events are held across 12 countries including the US, UK, Canada and the United Arab Emirates. ACTIvITy WIThIN ThE yEAR dmg::events enjoyed a strong year with growth in underlying revenues of 13% and underlying profits increasing by 21%. Reported revenue reduced by 33% to £89 million and reported operating profits reduced by 46% to £21 million, due to the disposal of GLM in September, 2011 and the cycle of biennial shows which meant only one of dmg::events’ large biennials occurred in 2012 compared with two in the prior year. At the end of the financial year dmg::events completed the disposal of Evanta, a leadership and conferences business, as we continue to focus our capital and talent resources towards further expanding our fast-growing businesses operating in the Middle East and Asia region, and energy and digital marketing sectors. BuSINESS MODEL dmg::events organises B2B events with the majority of revenue derived from trade show exhibitors, conference attendees and corporate sponsors. Unlike consumer trade shows, admittance is a nominal revenue stream. Following the disposal of Evanta in September, 2012 our exposure to sponsorship revenues has been significantly reduced. MARKET ENvIRONMENT dmg::events organises B2B events serving the energy and digital marketing sectors as well as the geographical Middle East market. Our brands are class leaders in their respective arenas and include the Big 5, Adipec, Gastech, the Global Petroleum Show and ad::tech to name a few. Our exhibitors and attendees are the professionals in these fast- changing markets for whom face-to-face meeting opportunities are a critical part of their annual calendars. PERFORMANCE In the Energy sector, underlying revenue growth was impressive at 22%, with a particularly good performance from the Global Petroleum Show (GPS), held biennially in Calgary, Canada and supplemented by a number of successful new launches. Daily Mail and General Trust Plc27 Strategic Report Directors’ Report Governance Financial Statements Richard Ensor Executive Chairman Revenue 2011 £363m Operating profit* 2011 £93m Operating margin* 2011 26% BuSINESS DESCRIPTION Euromoney is a leading international B2B media group focused primarily on the international finance, metals and commodities sectors. It publishes more than 70 titles in both print and online formats and is a leading provider of electronic research and data. It also runs an extensive portfolio of conferences, seminars and training courses for financial markets. STRATEGy Euromoney’s strategy remains focused on the building of a robust and tightly focused global online information business with an emphasis on emerging markets. This strategy is being executed through increasing the proportion of revenues derived from electronic subscription products; using technology efficiently to assist the online migration of print products as well as developing new electronic information services; investing in products of the highest quality; eliminating products with a low margin or too high a dependence on print advertising; maintaining tight cost control at all times, and retaining and fostering an entrepreneurial culture. Driving revenue growth from existing as well as new products is a key part of Euromoney’s strategy. Since 2010, the business has been investing heavily in technology and content delivery platforms, particularly for the mobile user, and in new digital products as part of its transition to an online information business. In 2012, as in 2011, Euromoney spent approximately £10 million on this transition, which is expected to continue in 2013. In addition, work has commenced to build a new platform for authoring, storing and presenting content, with a view to both improving the quality of existing subscription products and increasing the speed to market of new online information services. This project is expected to have a capital cost of approximately £6 million in 2013. ACTIvITy IN ThE REPORTING yEAR Acquisitions remain a key part of the Euromoney strategy. In February, Euromoney purchased Global Grain for £6 million. Global Grain’s main asset, Global Grain Geneva, is the world’s leading event for international grain traders. The event is held in November each year and is on track to exceed last year’s attendance by at least 10%, while an event for the Asia-Pacific region was launched successfully in March and two further new events are planned for 2013. BuSINESS MODEL Financial publishing Financial publishing includes an extensive portfolio of magazines, newsletters, journals, surveys and research, directories, and books covering the international capital markets as well as a number of specialist financial titles. Business publishing The business publishing division produces specialist magazines and other publications covering the metals and mining, legal, telecoms and energy sectors. Training The training division runs a comprehensive range of banking, finance, legal and audit, and information security market courses, both public and in-house. Courses are run all over the world for both financial institutions and corporates. Conferences and seminars Euromoney runs a large number of sponsored conferences and seminars for the international financial markets, energy sector, telecoms and information security markets. Research and data The business provides a number of subscription-based research and data services for financial markets. MARKET ENvIRONMENT The outlook for financial markets remains challenging. The continuing uncertainty over the future of the Eurozone, along with increasing political instability in the region, is holding back growth and causing European financial institutions to implement tough cost measures. In contrast, sentiment for US markets is improving, and emerging markets remain in reasonable health as measures to control inflation in key markets such as China appear to be working. PERFORMANCE Total revenues for the year increased by 9% to £394 million. Underlying revenues, excluding acquisitions, increased by 2%. The acquisition of Ned Davis Research (NDR) in August 2011 has helped increase the proportion of revenues generated from subscriptions to more than 50% for the first time. Headline subscription revenues increased by 17% to £200 million and underlying subscriptions, excluding NDR, by 5%, with growth driven largely by electronic information services industry BCA Research and CEIC Data. Annual Report 201228 PRIORITIES FOR ThE COMING yEAR The uncertainty over Europe remains, as does a solution to the pending US fiscal cliff. Meanwhile global financial institutions face the combined challenges of difficult markets, increased capital requirements and a tougher regulatory environment. Inevitably they have responded by cutting costs, particularly people, and exiting some parts of their business. The board expects this challenging trading background to continue at least into the early part of 2013. Subscriptions account for half of Euromoney’s revenues and therefore provide some protection against weak markets in 2013, as does the group’s reliance on emerging markets for more than a third of its revenues. However, the negative trends in advertising and delegate revenues in the last quarter are expected to continue into the first quarter of financial year 2013, although the outlook for event sponsorship is more positive. First- quarter trading has started in line with the board’s expectations but as usual at this time, forward revenue visibility beyond the first quarter is limited, other than for subscriptions. For 2013, Euromoney plans to continue its programme of investing in the digital transformation of its publishing businesses and in improving the quality of its products. The board is confident its strategy for investing in new products and digital publishing and using its strong balance sheet to fund acquisitions, its exposure to emerging markets, and its tight control of operating costs will continue to sustain it through these difficult market conditions. As the world economy begins an albeit slow recovery, financial and other markets will also gradually improve, enhancing our prospects. A 7% fall in advertising revenues reflects two very different trends. Financial titles have experienced falls of as much as 20% in the face of deep cuts by global financial institutions. But this has been partly offset by increases in online advertising, a greater appetite for print advertising from emerging markets and growth in advertising from sectors outside finance, particularly energy. Event revenues broadly comprise an equal mix of sponsorship and paying delegates. Event sponsorship, which is heavily financial market focused, has suffered in a similar way to advertising, although to a lesser degree. Events, particularly those outside the financial sector which tend to be more delegate driven, performed well in the first half but growth has been more difficult to achieve in the second and some smaller events were cut. The adjusted operating margin was 28%, up 2% on the prior year. Costs, particularly headcount, have remained tightly controlled throughout the year. At the same time, the group has increased its investment in technology and new products as part of its online growth strategy. Euromoney derives nearly two-thirds of its total revenue in US dollars and movements in the sterling-US dollar rate can have a significant impact on reported revenues. However, this was not the case in 2012 and headline revenue growth rates are similar to those at constant currency. BuSINESS REvIEW Financial Publishing: revenues fell by 8% to £77 million and adjusted operating profits by 12% to £25 million. Advertising, which accounts for approximately half the division’s revenues, has been under pressure all year from cuts in spend by global financial institutions as well as a gradual shift away from print advertising across the sector. As a result, financial advertising fell by 13%, although the impact of more severe cuts by Wall Street banks was offset by a stronger performance from emerging markets which helped sustain titles such as Euromoney and Asiamoney. Revenues from subscription products were flat, helped by the launch of new products. Business Publishing: Euromoney’s activities outside finance cover a number of sectors including metals, commodities, energy, telecoms and law, and provide a strong counterbalance to the more volatile financial publishing division. Revenues increased by 9% to £65 million and adjusted operating profits by 5% to £25 million, with growth achieved from both advertising, particularly in the energy sector, and subscriptions, for which Metal Bulletin is the biggest driver. This year is the first that profits from Business Publishing have been similar to those from Financial Publishing. Training: Euromoney’s training division predominantly serves the global financial sector. However, more than half its revenues are derived from emerging markets, and this has helped mitigate the impact of cuts in bank headcount and training budgets. Training revenues fell by 4% to £31 million and adjusted operating profits by 11% to £7 million. The decline in operating margin from 24% to 22% was largely due to the completion at the end of 2011 of a long-term training contract in Asia, and the margin in the second half recovered to 25%. Conferences and Seminars: revenues comprise both sponsorship and paying delegates and increased by 7% to £92 million, with adjusted operating profits up 9% to £29 million. After a strong first half, markets became more challenging during the third quarter, the most important of the year for the events businesses. Financial market events, with a heavy emphasis on sponsorship revenues, have been under pressure from cost cutting among global financial institutions. In contrast, events in sectors outside finance, particularly in the commodities and energy sectors, have performed better. The division also generates nearly 20% of its revenues from subscriptions to membership organisations for the asset management industry. These have continued to grow, helped by a significant investment in Institutional Investor’s Investor Intelligence Network, a private online community for senior executives from institutional investors and asset owners worldwide. Research and Data: revenues are derived predominantly from subscriptions and increased by 25% to £130 million. Underlying growth, excluding NDR, was 6%. The trends seen in the first half have continued, with the main drivers of growth being BCA, the group’s independent macroeconomic research house, CEIC, the emerging market data provider, and the capital market databases run as a joint venture with Dealogic. Renewal rates for all these products have held up well, although new sales have been harder to generate. Adjusted operating profits increased by 30% to £55 million including a £9 million contribution from NDR. Daily Mail and General Trust PlcAnnual Report 2012 29 Strategic Report Directors’ Report Governance Financial Statements BuSINESS DESCRIPTION A&N Media, the consumer media company of DMGT plc, is a leading international multi-channel media company comprising Associated Newspapers and Northcliffe Media. The portfolio includes iconic newspaper titles such as the Daily Mail, The Mail on Sunday, Metro, over 70 local newspapers, an extensive network of local web portals, MailOnline, Evenbase (an international digital recruitment business), Wowcher (a daily deals business) and a 52.3% interest in the Zoopla Property Group. STRATEGy A&N Media has transitioned in recent years to focus on market-leading assets which will be the material profit generators of the future. Over the next three years, the business will continue its transformation, investing in its digital businesses in order to rebalance revenues from print towards digital to evolve the business to reflect broader changes in consumer media consumption. Over the last 12 months, the business has streamlined its portfolio, exiting assets that are non-core or unable to deliver sizeable profits. This has resulted in the sale of motors. co.uk, Teletext Holidays, and the merger of the Digital Property Group with Zoopla to create a strong business in the online property market. In April 2012, Jobrapido, the number two global job search engine in the world, was acquired. Jobrapido delivers over 850 million visits per year in more than 50 countries. The A&N Media portfolio is now simpler with a focus on a smaller number of objectives for growth aligned to its core assets. On 21st November, 2012, the company announced it had exchanged contracts for the disposal of its Northcliffe Media division to Local World in return for £52.5 million cash and a 38.7% holding in Local World. MARKET ENvIRONMENT The boundaries of where A&N Media’s businesses operate and compete have extended over recent years as it enters new adjacent markets, utilises new channels such as mobile and tablet, and deploys different business models. As the competitive silos between media channels are broken down, the business faces competition from a growing range of competitors for advertising revenues and customer engagement. By developing and extending products and services into these high-growth advertising areas and expanding internationally, the business is positioning itself well for the changing market environment, whilst the enduring strength of its newspaper assets will ensure it outperforms the broader newspaper market and provides the strong support to enable this transition. PERFORMANCE Reported revenues# for the year were £1,060 million, an underlying increase of £1 million or 0.1%, though 3% lower on a reported basis, mainly reflecting the disposal of Motors, Property and Travel digital businesses during the year and the loss of low-margin printing contracts. The testing economic conditions adversely affected both Northcliffe’s classified revenues and the Mail titles’ display advertising revenues, although the latter showed a marked improvement in the last four months of the year. Although investment continues to be made (headcount and promotional activity mainly) in the digital businesses, a reduction in the price of newsprint, headcount reducing by 855 (12%) during the year and continued tight control over all expenditure, led to a 5% reduction in costs. Operating profits#* increased by £11 million (+12%) to £104 million, with margins increasing from 8% to 10%. Including a significantly improved performance from associate companies (principally Zoopla and Mail Today in India), operating profits* of £107 million this year were £17 million (19%) better than last year. All underlying year-on-year comparisons are on a like-for-like basis, excluding disposed and acquired businesses. PRIORITIES FOR ThE COMING yEAR A&N Media will continue to focus on driving operational effectiveness and efficiency across all of its businesses whilst investing to drive even faster growth in the core digital businesses, particularly MailOnline, Evenbase and Wowcher, together with Metro’s digital strategy. Kevin Beatty Chief Executive, A&N Media Revenue# 2011 £1,098m Operating profit* 2011 £93m Operating margin* 2011 8% #Continuing and discontinued operations. 30 Lord Rothermere Chairman, Associated Newspapers Paul Dacre Editor-in-Chief, Associated Newspapers Revenue 2011 £862m Operating profit* 2011 £76m Operating margin* 2011 9% BuSINESS DESCRIPTION Associated Newspapers is one of the UK’s largest publishers of national newspapers and consumer websites. In the Daily Mail and The Mail on Sunday, the business publishes two of the UK’s most influential paid-for newspapers. The urban daily Metro, the third most-read national newspaper. The portfolio also includes MailOnline, the world’s largest online newspaper site, Evenbase, the world’s fourth largest digital recruitment business, Wowcher (the UK’s second largest daily deals business) and a 52.3% stake in the Zoopla Property Group. KEy hIGhLIGhTS • Circulation market share of both Mail newspaper titles increased again. • Record revenues for Metro driven by continued outperformance of the advertising market. • Strong growth in MailOnline visitors and revenue. MailOnline unique browsers 102 million in September, 51% year-on-year growth, revenues up 74% for the year. • Continued portfolio and asset management. Disposals of motors.co.uk, Top Consultant, Production Base and 50% of Teletext Holidays. • Merger of Digital Property Group with Zoopla. Associated retains 52.3% of the combined business. • Acquisition of world’s second largest jobs search business, Jobrapido, into the renamed Evenbase digital recruitment division. • Successful development of Wowcher into the UK’s second largest daily deals business. • Despite lower print advertising revenues, increased circulation and digital revenues alongside reduced costs delivers strong growth in operating profit. • Costs £16 million or 2% lower than last year – headcount 530 (12%) lower, Derby press closed in first half of the year. DIvISIONAL PERFORMANCE REvIEW After a difficult first half, which saw profits significantly lower than last year (in part due to lower display revenues at the two Mail print titles and to increased investment in our digital businesses, headcount and promotional activity) the second half of the year has seen a marked improvement with better performances from print display advertising, non-repeated net costs incurred last year following The News of the World closure and a reduction in newsprint prices from July, 2012. Total revenues were down £15 million or 2%, due mainly to the impact of disposed businesses, printing contracts ending and lower display revenues from the two Mail titles. Improved revenues were seen from the Daily Mail cover price increases, Metro, MailOnline, Wowcher and the Evenbase digital recruitment businesses, resulting in total underlying revenues of £834 million, 2% ahead of last year. Total advertising revenues of £389 million, excluding acquisitions and disposals, were unchanged from last year. The reported fall in national print revenues, the growth of digital, the reduced price of newsprint and cost-savings following the closure of the press at Derby in the first half of the year resulted in operating profit for the year increasing by £2 million (+3%) to £78 million. Operating margins rose by 0.4% to 9.2%. Including a significantly improved performance from associate companies (principally Zoopla and Mail Today in India), profits of £81 million this year were £8 million (11%) better than last year. An exceptional operating charge of £60 million (£35 million of which was non-cash) was made for restructuring and closure costs, the largest portion relating to print site restructuring and closures and to severance costs relating to the reduction in headcount as reported above. uK NEWSPAPER-RELATED OPERATIONS Circulation revenues grew by £10 million (3%) to £353 million. Lower copy sales were offset by the full-year benefit of cover prices increases in the final quarter of the 2011 financial year and from the temporary price discounting by The Mail on Sunday last year, in an initiative to attract new readers following the closure of The News of the World in July 2011. Advertising revenues were 2% lower at £332 million, a strong performance by Metro and MailOnline in particular offset lower revenues on both Mail titles. Our three largest categories, retail, travel and financial saw revenues decline by 7%, 16% and 10% respectively, but there was a 6% growth in total from other categories. Overall trends have improved, with a 6% decline in the first half of the year but 2% growth in the second half. Print advertising revenues declined by 6% this year, but digital revenue from the newspaper titles’ companion sites increased by 72% to £31 million. Daily Mail and General Trust Plc31 Strategic Report Directors’ Report Governance Financial Statements Operating profits (excluding associates) can be analysed as follows: 2012 £m 101 11 (8) - 4 4 (34) 78 2011 £m 94 5 (2) 1 4 1 (27) 76 OuTLOOK For 2012/13, Associated expects revenues to be broadly in line with the current year, with continued print advertising and circulation declines offset by growth in digital activities. The positive revenue impact of the Olympics this year will not be repeatable in 2013. Newsprint prices expected to be similar to this year. REvENuE AND PROFIT ANALySIS Revenues can be analysed by division as follows: Newspaper operations Digital-only UK businesses Evenbase Wowcher Other International Disposed operations (net) 2011 £m Change 608 (3%) Other costs Total 2012 £m 590 89 27 44 27 25 802 14 32 +8% +74% +14% (7%) +39% +1% 82 16 39 30 18 793 – 69 Daily Mail/The Mail on Sunday Metro MailOnline Evenbase International Other Acquisitions Disposals, print contracts Total REvIEW OF KEy BuSINESSES Mail Newspapers BuSINESS DESCRIPTION Mail Newspapers comprises the UK’s biggest selling mid-market newspapers, the Daily Mail and The Mail on Sunday. STRATEGy AND ACTIvITy Mail Newspapers has defined its vision for the next three years as ‘More women, More engaged with More Mail’. Whilst women are not the only audience, the Mail titles are uniquely placed with this audience to have a bias and scale that other newspapers can’t replicate. Working cohesively with the existing and emerging digital businesses, Mail Newspapers is targeting revenue growth from both direct-to-business and direct-to- consumer channels, including offering broader marketing solutions for clients. There has been a continued drive to reduce the cost base of both titles, yielding significant annual savings, which has included further rationalisation of production facilities, de-manning, lower newsprint usage, greater promotional efficiency and reduced distribution charges. This year has seen the successful development of the Mail Rewards Club, now rolled out to seven days, and grown to 750,000 members, to help support circulation whilst opening up a range of new direct-to- consumer revenue opportunities. 848 862 (2%) Excluding acquisitions and disposals, revenues can be further analysed by type of revenue as follows: 2012 total 46% 32% 6% 4% 2% 3% 92% 7% 1% 2012 £m 362 259 46 31 13 24 735 60 7 2011 £m Change 352 276 51 18 10 26 733 50 10 +3% (6%) (10%) +72% +29% (8%) – +20% (26%) 100% 802 793 0% Circulation Advertising – display Advertising – classified Digital Commercial enterprise Other Newspaper operations Digital-only businesses UK contract print Total – underlying Annual Report 201232 MARKET ENvIRONMENT Print advertising continues to face a challenging market environment. Technology changes such as the rise of tablets and eReaders and increasing non-traditional entertainment and news sources continue to pose a challenge to the traditional print products. Mail Newspapers aims to tackle and capitalise upon these changes by increasing distribution through digital devices and by strengthening engagement with the brand outside of the traditional newspaper environment. PERFORMANCE Over the year, the Daily Mail increased its circulation revenue by 4% to £257 million, benefiting from the full-year impact of the July, 2011 5 pence weekday cover price increase and also 10 pence Saturday edition increase in October, 2011. Its share of the national daily newspaper market rose by 0.6% to 21.6%, a new record. Average daily circulation declined by 5.4% to 1.96 million copies, but outperformed the rest of the daily market which declined by 8.5%. The Mail on Sunday’s circulation revenue remained broadly stable at £96 million. The title continued to grow its share of the total market, increasing share by 0.2% to 20.8%, despite the launch of Sun on Sunday in February. Average daily circulation declined by 6.7% to 1.85 million, against a market that contracted by 7.7%. Print advertising revenues declined by 10%, after allowing for one fewer issue of The Mail on Sunday. There was, however, a marked improvement in revenue during the second half of the year, and particularly the final quarter when advertising declined by a more modest 5%. PRIORITIES FOR ThE COMING yEAR Further cost savings are planned next year, most notably the transfer of Mail Newspapers’ main print facilities from Surrey Quays to Thurrock in the summer of 2013, which will yield material reductions in the underlying cost base and create greater efficiency of internal resources. A paid-for tablet version of the Daily Mail and The Mail on Sunday, Mail Plus, will be launched in the first quarter of the new financial year. MailOnline BuSINESS DESCRIPTION AND STRATEGy MailOnline grew its audience significantly during the year to become the world’s largest online news site, surpassing The New York Times and reaching a new high of 106 million browsers during August 2012, a 41% year-on-year increase. Daily unique browsers leapt by more than 50% to 6.4 million in September, 2012, of which 2.8 million were in the in UK and 1.7 million in the US. During the year, an Indian version of the site was launched supported by content from Mail Today. ACTIvITy The number of users accessing MailOnline on a mobile device has grown to now account for 34% of daily visits to MailOnline, in addition our iPhone, iPad and Android apps have gained UK market-leading levels of engagement with more than 445,000 users every day. Advertising revenue is growing more rapidly than our audience, up 74% year on year to reach £27 million. This growth comes from strong demand for premium advertising in the UK market, as well as increasing demand for MailOnline advertising inventory in other parts of the world, such as the USA, Canada and Australia. Mobile and video revenues are also showing strong growth. MailOnline was profitable in the UK in the second half of the year PRIORITIES FOR ThE COMING yEAR Over the next year MailOnline will continue to increase investment to expand the editorial bureaus opened in New York and Los Angeles where our content is already well received. The existing team of video editors in the UK and US will be built upon to match the commercial appetite for video inventory as well as starting to test longer-term video-creation strategies. Commercially the US sales team will be expanded to capitalise on increasing traffic and awareness in the US market. In the UK delivering even deeper partnerships with larger advertisers coupled with innovative advertising formats are expected to support MailOnline in continuing to outperform the market, with strong revenue growth expected to continue. Daily Mail and General Trust Plc33 Strategic Report Directors’ Report Governance Financial Statements Key developments Market share of national titles increased again. Strong growth in MailOnline visitors and revenue. Profit higher due to digital growth, cover price benefits and cost efficiencies. Continued portfolio management: – Disposal of motors and Teletext business and acquisition of Jobrapido. – Merger of Digital Property Group with Zoopla. Wowcher developed into UK’s second largest daily deals business. MARKET ENvIRONMENT AND PERFORMANCE Despite the challenging economic conditions, Metro continued to outperform the market. Unique access to distribution through its contracts with transport providers delivers a significant competitive advantage. The opportunity now is for Metro to convert this strong print position and consumer relationship onto mobile devices and to retain this advantage. Daily mobile audience grew 213% in the last 12 months to over 319 thousand whilst the proportion of mobile traffic to metro.co.uk has increased from 20% to 41%. Downloads of the digital edition products are now in excess of 1.2 million. Metro grew its revenues +8% (print +8% and digital +39%) and its profits +14% (on a like-for-like basis excluding strategy investment of £2.1 million). PRIORITIES FOR ThE COMING yEAR Metro will pursue its focus on further mobile product development, the mobilisation of content across all platforms, the launch of Metro Play and marketing activity to drive customer acquisition, frequency and brand engagement. The expectation for FY13 is that a general decline in the national press advertising market coupled with the absence of the Olympics will negatively impact on Metro’s print revenues but this will be offset by growing digital revenues. Metro will continue to invest in its strategic digital priorities during the year. Evenbase BuSINESS DESCRIPTION AND STRATEGy The digital recruitment business was renamed Evenbase during the year, reflecting the wider scope and international reach of the enlarged group. The business now includes the flagship job board brands Jobsite and OilCareers; the leading candidate-sourcing provider Broadbean; recruitment partnerships with brands such as the UK’s National Health Service (NHS) and Jobrapido, the number two global job search engine in the world. Acquired in April, Jobrapido delivers over 850 million visits per year in more than 50 countries. Metro BuSINESS DESCRIPTION Metro is a consumer media brand targeting urbanites, a segment of hard-to-reach, on-the-move, attitudinally young urban professionals. The newspaper is the UK’s third largest daily, read by 3.6 million commuters every weekday, while metro.co.uk has 7.5 million unique browsers per month (September, 2012). STRATEGy ‘Urbanites on the move get more from the city with Metro.’ Addressing changing consumption habits, Metro is investing in reaching more urbanites on the move, through new mobile platforms, on a more frequent basis. Four key products underpin this: • Metro editions – interactive edition-based products designed for tablets and smartphones • metro.co.uk – optimised responsive and adaptive experience for smartphone, tablet and web consumption • Metro Play – gaming offerings with compelling gameplay and social interaction • Metro unEdited – a content-sharing platform for urbanites This investment will shift Metro to being a mobile-led, urbanite lifestyle business, focused on driving audience engagement, loyalty and brand strength. ACTIvITy Building new mobile and digital products and capabilities has been a key focus over the last six months. The successful launch of Metro’s tablet edition, which won Newspaper App of the Year, was built upon with the launch of further digital editions. A redesign of the print product alongside a detailed review of logistics processes for delivery of the newspapers, allowed Metro to deliver record readership levels (+11% year on year). Metro’s focus on the Olympics helped deliver the most successful newspaper operation in the market, expanding its product suite across both print and digital platforms and carrying the two largest newspaper deals for the Olympics in the UK. The Games exceeded all revenue and profit targets for Metro, while taking the greatest share of revenue and volume in the national newspaper market. Annual Report 201234 The Evenbase vision is to transform from a network of UK-based jobs’ boards, to an international recruitment business. The acquisition of Jobrapido is a key step in this strategy, while OilCareers and Broadbean continue to make successful progress in their international expansion into the Middle East, North America and AsiaPac. This strategy moves Evenbase beyond the UK online recruitment listings sector into the broader global recruitment market, which offers a range of high-growth opportunities. The fast adoption of mobile by consumers is impacting the recruitment industry, presenting both opportunities and challenges. The key Evenbase brands experience 20–25% of site traffic coming from mobile devices – and Jobsite holds the UK’s number-two position for mobile traffic. MARKET ENvIRONMENT Competition for Evenbase includes job boards and international aggregators as well as country-specific players. Through the combination of its assets, Evenbase is positioned as the fourth largest digital recruitment group in the world with c.41 million monthly unique users. The key Jobsite brand is positioned as one of the UK’s largest job boards. ACTIvITy AND PERFORMANCE During the year the job board portfolio was rationalised, exiting non-core job boards, allowing investment and management time to be focused on those brands which have greater growth prospects. Evenbase launched a pay-per-download model for CV access and ‘Jobsite White’, a simple-to-use white label job board aimed at SMEs, trade publications and associations. This year saw 11% growth in client numbers and 7% growth in candidates on a like-for-like basis excluding Jobrapido. Underlying revenues have grown 14% year on year to £44 million, driven by product innovation and international expansion. Jobrapido revenues for the six months post acquisition were an additional £14 million. PRIORITIES FOR ThE COMING yEAR International expansion remains a key priority for the coming year. The acquisition of Jobrapido delivers an opportunity to accelerate global expansion and investment continues in expanding OilCareers and Broadbean in other countries. For candidates and clients there will be more new products to make the recruitment process more straightforward and efficient, enabling greater choice for candidates and providing clients with the tools to most easily match talent with opportunities. Wowcher BuSINESS DESCRIPTION AND STRATEGy Wowcher is A&N Media’s daily deals and online discounts business offering a wide range of both local and national deals, now sending an average of 3.3 million emails per day. Wowcher.co.uk was launched by A&N Media in April, 2011 and since that time has grown rapidly to become the number two in the UK market (source: Comscore, September, 2012). Wowcher targets affluent, urban female customers largely between the ages of 18–44 and focuses on delivering deals that appeal to this audience base. This affluent, differentiated and attractive demographic allows Wowcher to compete effectively on the basis of consumer quality, which has seen high levels of merchant satisfaction, 76% of all merchants choosing to run repeat deals with the business. There is strong synergy between Wowcher and the wider set of A&N Media assets. The business is able to leverage the existing A&N Media customer database assets to extend the reach of its deals. At the same time the ability to offer additional media support to deals through both online and in printed promotion of deals acts as a strong brand differentiator to prospective merchants. Wowcher was launched during 2011 and has been a focus point for investment, particularly in marketing, over this year. On the back of this investment Wowcher has had a very strong first full year of operation, growing the subscriber database to more than 1.3 million at a low cost of acquisition and is now operational in 14 areas across the UK. Daily Mail and General Trust Plc35 Strategic Report Directors’ Report Governance Financial Statements Central and Eastern Europe A&N International Media’s operating profits (excluding associates) grew by £0.2 million (5%) to £3.9 million on revenues down 8% to £27 million. On an underlying basis revenues grew by 5%, with print advertising revenues declining by 7%, but circulation and digital revenues growing by 2% and 14% respectively. Contract printing revenues have also grown strongly. Digital advertising now represents 58% of total advertising, up from 52% last year. Headcount has been reduced by 5% and significant cost savings were made, profit margins improving by 2% to 14%. Subsequent event Since the year-end A&N International Media has disposed of its digital operations in central Europe. PRIORITIES FOR ThE COMING yEAR Looking forward, Wowcher intends to extend its offering of discounted products and services to its subscriber base both broadening the breadth and quality of daily deals offered and the range of additional discount services that the platform provides. Wowcher is also building tools to encourage site loyalty and stickiness. These investments include the building of a market-leading rewards and points programme to incentivise repeat engagement and purchase. Alongside this, Wowcher is developing a suite of tools to improve personalisation and relevancy of deals to drive increased engagement and purchase propensity. The business will continue to invest in growing the database through a marketing strategy that seeks to attract this affluent female subscriber base through a blend of online and offline media channels. Zoopla Property Group (ZPG) BuSINESS DESCRIPTION This year we merged our Digital Property Group assets with Zoopla to form the Zoopla Property Group in which A&N Media holds a 52.3% stake. The combined business is aiming to emerge as a leader in the digital property space, delivering high volumes of leads to its estate agent and developer members. PRIORITIES FOR ThE COMING yEAR The technical and people integration of the business was completed at the end of the year. Over the next year there will be significant efficiency savings from bringing the businesses together, as well as building on the opportunity that the strong platform, combined customer reach and lead generation creates for revenue growth. Revenue growth in the period since merger has been 22% and we expect to see this increase as the combined strength of the Group’s assets are brought to full effect. Profits from our share of ZPG were £4 million for the four months post completion. Annual Report 201236 Steve Auckland Chief Executive Officer, Northcliffe Media Revenue 2011 £236m Operating profit* 2011 £17m Operating margin* 2011 7% BuSINESS DESCRIPTION Northcliffe is one of the largest local media publishers in the UK, publishing local newspapers and hosting local websites. Encompassing a portfolio of 77 print titles across the United Kingdom, including titles such as the Leicester Mercury, the Cornishman, the Western Morning News, and the Hull Daily Mail, Northcliffe Media has an average issue readership (Source JICREG) of 5.8 million readers across the UK. The business also has 26 local news, information and classified websites under the ‘thisis’ banner and more than 160 local community sites under the ‘localpeople’ brand, covering counties, cities and smaller local communities. KEy FIGuRES Advertising – print Circulation Digital Other Revenue Costs Operating profit Profit margin 2012 £m 132 2011 £m 151 57 18 6 213 187 26 60 18 7 236 219 17 12% 7% Reported % Underlying % -9% 1% 6% -7% -6% -13% -6% 2% -8% -10% -15% 54% ACTIvITy AND PERFORMANCE REvIEW Northcliffe’s print portfolio continued to attract significant management focus in a year challenged by sluggish advertising markets and a change of national sales house. Advertising performances continue to be in line or slightly better than comparable local media businesses. Four daily paid-for titles in Exeter, Torquay, Lincoln and Scunthorpe have been converted to a weekly format over the past 15 months. During the financial year, Northcliffe sold the Chew Valley Gazette, closed a further 10 non core-free titles and purchased ‘The Topper’ free title in Nottingham. Digital revenues Northcliffe digital revenues grew by an underlying 6% and now represent 9% of total revenues. Revenues not associated with a print sale grew to account for 30% of digital income, up from 11% last year. The strength of the digital offering and continued audience growth has enabled revenue increases in key categories. The Northcliffe Digital audience has continued to grow with unique users across the thisis and localpeople networks reaching seven million in September, a growth of 30% versus last year. Currently 30% of all visits are by mobile. Newspaper sales Reported newspaper sales revenues fell by 6% or £3.4 million. On a like-for-like basis (excluding a change in accounting treatment for distribution costs, daily to weekly switches and divestments), revenues were up 1%. Cover price increases were implemented across the majority of titles where prices had historically been below the industry average. For the January to June, 2012 ABC period, circulation of the dailies was down 8.8% in line with the average decline experienced by the top four regional publishers. The weekly paid-for portfolio continued to perform ahead of the industry average. For the January to June, 2012 ABC period, circulation was down 7.1%, outperforming the average of the top four regional publishers, which were down 7.6%. Daily Mail and General Trust Plc 37 Strategic Report Directors’ Report Governance Financial Statements Key developments Underlying decline in UK revenues of £13 million (6%). Restructuring activities helped to deliver year-on-year cost savings of £32 million or 15%. Headcount reduces by a further 325 (or 13%) during the year. Sale to Local World announced 21st November, 2012. MARKET ENvIRONMENT As noted above, both the print advertising and circulation market places remain very challenging, but Northcliffe’s performance remains in line or slightly better than its peers. Subsequent event On 21st November, 2012, A&N Media announced the exchange of contracts for the disposal of the division to Local World in exchange for cash of £52.5 million and a 38.7% holding in Local World. Print advertising Excluding the title disposals, divestments and acquisitions noted above, advertising revenues are down 9% for the year (compared with a headline reported decline of 13%). Print revenue performance represents a mix of fortunes, stronger underlying local performance (-5%), offset by a weak national performance (-20%). In the first quarter of the year Northcliffe gave notice to change its national advertising sales house which resulted in some performance disruption during the period. Total recruitment category revenues declined by an underlying 19% (compared with a 31% decline in the prior year). Northcliffe’s rate and advertising package restructure mitigated the impact of continued low private sector demand and volume growth. Weak national property, motors and retail market performance has been compounded by national sales house disruption and underlying declines were -9%, -14% and -12% respectively. Costs The company continued its restructuring and process innovation and delivered year-on-year cost savings of £32 million or 15%. Restructuring costs of c. £10 million are treated as exceptional items this year. Total headcount reduced by a further 13%, or 325 people. Staff costs fell by £9.4 million as the benefits of last year’s structural changes took effect in addition to further headcount reductions during the year. Production costs have reduced by £6.7 million or 16% and distribution costs by £6.8 million or 32%. Some savings were as a consequence of lower activity levels, however, more significant reductions have been made through the changes to the product portfolio, distribution changes and lower newsprint costs. Annual Report 201238 KEy hIGhLIGhTS • Good year of performance. • Good growth from B2B with underlying revenues up 7% and profits up 8%. • Underlying revenue up 2% at Associated. • Underlying Group operating profit up 7% and operating margin increased from 14% to 15%. • Continued active portfolio management. • Net debt to EBITDA ratio of 1.6 times, with net debt down £107 million to £613 million. • Dividend increased by 6%. ACCOuNTS This Financial and Treasury Review focuses principally on the adjusted results* to give a more comparable indication of the Group’s underlying business performance. All year-on-year comparisons are on a like-for-like basis. A discussion of restructuring and impairment charges and other items included in the statutory results is set out after the divisional performance review and in the segmental note. The adjusted results are summarised as follows: Adjusted results* Revenue Operating profit Income from joint ventures and associates Net finance costs Profit before tax Tax charge Minority interest Group profit Adjusted earnings per share 2012 £m 2011 £m Change 1,960 1,985 300 13 (58) 255 (39) (27) 189 281 5 (54) 232 (34) (22) 177 49.4p 46.1p -1% +7% +10% +7% +7% Underlying revenue growth was 3%. Adjusted profit before tax rose by 10% to £255 million following the 7% increase in operating profit and the benefit of increased income from joint ventures and associates. Stephen Daintith Finance Director Revenue# 2011 £1,985m† Operating profit#* 2011 £281m† Earnings per share#* 2011 46.1p† #Continuing and discontinued operations. Daily Mail and General Trust Plc39 Strategic Report Directors’ Report Governance Financial Statements REvENuE Group revenue# for the year was £1,960 million compared with £1,985† million for the prior year, a decrease of 1% on a reported basis but an underlying increase of 3%. Revenues from the B2B segments totalled £899 million, 1% higher than last year, with an underlying increase of 7%. RMS delivered continued growth driven by its core modelling business. Strong growth at dmg::information with reported revenue up 9% at £253 million reflecting the execution of organic growth plans, complemented by bolt-on acquisitions. Underlying revenues grew by 11% following last year’s disposal of Sanborn. dmg::events performed as expected delivering an underlying revenue increase of 13%. Reported revenues declined following the sale of George Little Management (GLM) in September, 2011 and the cycle of biennial shows which meant that one of the three large biennial events took place during the year compared with two last year. Euromoney reported underlying revenue growth of 2% driven by a 5% increase in subscriptions revenue. Consumer revenues# of £1,060 million were 3% down on £1,098 million in the prior year, but in line with last year on an underlying basis. Within Consumer, Associated’s underlying revenues were up 2% due to improved revenues from digital, as well as the benefit of cover price increases on circulation revenues. Testing economic conditions continued to adversely affect Northcliffe’s revenues which were down 6% on an underlying basis. An analysis of revenue is illustrated on the following charts, which show that the percentage of total revenue from print- based products has fallen by 6% this year and is now 53% of total revenues, reflecting both digital growth and print decline. These also demonstrate that 63% of total revenue by source was generated by UK businesses, down 4% on the prior year. Revenue by type (%)# Set out below is a split of revenue by type. Subscriptions and circulation print Advertising print Subscriptions non print Events, training and conferences Other non print Advertising non print Other print 2012 2008 £649m £501m £245m £204m £147m £133m £81m £1,960m £864m £578m £318m £211m £82m £102m £98m £2,253m† Revenue by geographical area (%)# Set out below is a split of revenue by geographic location. UK North America Rest of the world Rest of Europe Australia 2012 2008 £1,235m £560m £83m £68m £14m £1,960m £1,614m £482m £71m £16m £70m £2,253m† 33% 26% 12% 10% 8% 7% 4% 38% 26% 14% 9% 4% 5% 4% 63% 29% 4% 3% 1% 72% 21% 3% 1% 3% Annual Report 201240 OperAtiNG prOfit*# Operating profit of £300 million was up £19 million or 7% on the equivalent figure for the prior year. Overall operating margin increased from 14% to 15% following margin improvement from both the B2B and consumer businesses. Operating profit is stated before charging £86 million of exceptional operating costs, principally within Associated. This charge includes reorganisation costs of £40 million, accelerated depreciation of property, plant and equipment of £39 million, principally relating to the proposed move to Thurrock and impairments of fixed assets of £7 million. The charge for amortisation of intangible assets fell by £7 million to £39 million. The Group also made a charge for the impairment of intangible assets of £21 million, largely relating to a business in the financial sector of the business information segment. 73% of this year’s operating profit was generated from the Group’s B2B operations and 27% from Consumer, compared to 58% and 42% in 2008. These percentages have been calculated after allocating Head Office costs on the basis of revenues. More than half of the Group’s operating profits were again derived from outside the UK, with 51% coming from the US. The Group’s B2B companies increased their overall profit by £11 million or 6%. The average sterling:US dollar exchange rate for the year was £1:$1.58 (against £1:$1.61 last year). Within Consumer, profits increased by £6 million or 10%. At Associated Newspapers, operating profit increased by £2 million or 3% to £78 million following a range of cost efficiencies. Northcliffe’s profits increased by £9 million or 54% following year-on-year cost savings and growth in digital revenues. NET FINANCING COSTS As the table below shows, net interest payable and similar charges (including deemed finance charges and interest receivable) fell by £8 million to £61 million due to lower average debt and management of the debt portfolio. Net finance costs included a £6 million charge for the premium on early redemption of £110 million of 7.5% bonds due 2013. Operating profit by activity*# Set out below is a split of operating profit by activity. Euromoney National media RMS Business information Local media Events Corporate costs 2012 2008 £112m £78m £56m £48m £26m £21m (£41m) £300m £33m £31m £38m £76m £75m £60m (£15m) £298m† 37% 26% 19% 16% 9% 7% (14%) 11% 10% 13% 26% 25% 20% (5%) There was a £3 million reduction in pension finance due to the lower pension fund deficit as at 2nd October, 2011. Other investment revenue fell by £2 million due largely to a one-off dividend from an internet investment fund in the prior year. Net interest payable and similar charges Premium on bond buy back Pension finance Investment Income Total 2012 £m (61) 2011 £m (69) Change (13%) (6) - 9 1 12 3 (57) (54) 6% Daily Mail and General Trust Plc41 Strategic Report Directors’ Report Governance Financial Statements PENSIONS The Group’s defined benefit pension schemes provide retirement benefits for UK staff, largely in A&N Media. The deficit in these schemes has fallen from £336 million at the beginning of the year to £324 million at 30th September, 2012 (calculated in accordance with IAS 19). Corporate bond yields continued to fall over the period, (from 5.2% to 4.4%) which resulted in a higher value of the defined benefit obligation. However, this has been more than offset by an increase in the schemes’ assets and funding payments into the main schemes of £64 million, in accordance with the funding agreements with the Trustees, which included £24 million of surplus properties, previously solely used by the regional newspapers. The property transfer, in combination with a £12 million funding payment made in October, 2012 satisfies the £36 million October, 2012 funding payment requirement previously agreed with the Trustees under the payment recovery plan. In July, 2012 DMGT created a guarantee structure in collaboration with its principal defined benefit pension scheme, Harmsworth Pension Scheme (HPS). The structure provides HPS with a valuable contingent asset, a £150 million guaranteed loan note, and will reduce the need for additional cash contributions to HPS in the medium term. Whilst the loan note is treated as an asset of the scheme and reduces the actuarial deficit within the scheme, under IAS 19 it is not included as an asset and is excluded from the calculation of the £324 million year-end deficit. The defined benefit pension schemes are closed to new entrants, and measures were introduced in April 2011 to reduce costs and risks, in particular to eliminate longevity risk on accrued pensions since that date, and help secure the schemes’ and employers’ financial health into the future. All new employees of A&N Media are now being offered a defined contribution pension plan, in line with our other newer and more internationally focused divisions where we have long considered this type of pension plan to be the most appropriate. JOINT vENTuRES AND ASSOCIATES The Group’s share of the adjusted results of its joint ventures and associates rose by £8 million to £13 million. It includes income from dmg Radio Australia Pty Ltd and the Zoopla Property Group. OThER INCOME STATEMENT ITEMS The Group recorded other net gains on disposal of businesses and investments of £158 million, compared to £15 million last year. These include the sales of Evanta, the Group’s digital property businesses and the Group’s remaining 50% stake in dmg Radio Australia Pty Ltd. Northcliffe Media was held for sale at 30th September, 2012 and is therefore treated as a discontinued operation together with the result from the Group’s investment in dmg radio Australia. Profit attributable to operations treated as discontinued amounted to £55 million (2011 loss of £5 million). RESuLT BEFORE TAx The statutory profit before tax for the year was £206 million, after charging £57 million of amortisation charges and impairment losses and £41 million of net exceptional charges. TAxATION The adjusted tax charge of £39 million (2011 £34† million) is stated after adjusting for the effect of exceptional items. The adjusted tax rate for the year rose to 15.2% from 14.4% in 2011, largely due to a change in the mix of chargeable profits. The continued low rate reflects tax reductions from tax-efficient financing and tax-deductible amortisation in the USA that are expected to be in place for the next few years although the mix of chargeable profits is expected to continue to change. There were net exceptional tax credits of £49 million, arising on disposals, assets held for sale, operating exceptional costs, the accelerated depreciation of property and equipment and the recognition of tax losses. PROFIT AFTER TAx Adjusted Group profit* after tax and minority interests was up 7% to £189 million. Statutory profit after was £225 million, up from £130† million, due to increased other gains and losses in the current year. Annual Report 201242 Net debt 2011 £719m undrawn committed bank facilities 2011 £328m Net Debt:EBITDA 2011 2.0 times CASh FLOW AND NET DEBT Net debt has fallen by £106 million during the year from £719 million to £613 million and by £196 million since the half year. The Group generated operating cash flows of £339 million, a 113% conversion rate of operating profits*. These funded capital costs at Thurrock of £39 million, capitalised software development of RMS’s Next Generation product of £18 million, taxation of £34 million, interest of £70 million, pension funding of £40 million and dividends totalling £76 million. Operating cash flows are stated after capital expenditure of £42 million, excluding that on Thurrock and RMS’s Next Generation product, and exceptional operating items of £37 million. Net proceeds from disposals and acquisitions were £42 million. Acquisitions totalled £75 million and included Jobrapido for closing consideration of £29 million; Intelliworks, Xceligent, PrepMe and Spring Rock within the dmg::information portfolio; Praedicat by RMS, and Global Grain Geneva and Global Grain Asia by Euromoney. Business disposals totalled £117 million and included the sale of Evanta and the remaining 50% stake in dmg radio Australia in September. The Group’s principal debt remains in long-term bonds. At the year end, the Group had £725 million of bonds with repayments due in 2013 (£47 million), 2018 (£308 million), 2021 (£171 million) and 2027 (£199 million). In December 2011, the Group acquired £110 million of the 7.5% bonds, due 2013, and will consider acquiring further bonds where financially sensible. The Group’s ratio of year-end net debt to adjusted profits* before interest, depreciation and amortisation (EBITDA) was 1.6 times, comfortably below the Group’s internal limit of 2.4 times and preferred level of around 2.0 times, and well within the requirements of the Group’s bank covenants. The Group’s Cash flow and net debt corporate credit ratings are BBB- from Fitch, and BB+ from Standard & Poor’s. During the year the Group cancelled surplus bank facilities of £90 million maturing in December, 2012 and March, 2013. The Group continues to maintain sufficient committed debt facilities to meet its foreseeable requirements. It had unutilised committed facilities of £298 million at the year end and surplus cash of £107 million. OThER FINANCING The Company acquired 7.5 million ‘A’ Ordinary Shares in Treasury for £30 million, using seven million of them, valued at £32 million, to provide shares under various incentive plans. Following these transfers, DMGT has 382.8 million shares in issue, including 19.9 million ordinary shares together with 10.2 million ‘A’ Ordinary Shares held in Treasury to meet further obligations that may arise. TREASuRy POLICIES DMGT aims to have sufficient liquidity to meet both operational and capital cash flows and to impose the minimum cash constraints on the management and operation of the Group. Financial instruments, including derivatives, are used by the Group in order to manage the principal financial risks that arise in the course of business. These risks are liquidity or funding risk, foreign exchange risk, interest rate risk and counterparty risk. The instruments are used within the parameters set by the Investment & Finance Committee of the Board, and are not traded for a profit. The Group’s priority is to address the economic impact of financial risks using the most efficient or appropriate approach. This may result in IFRS accounting volatility. Full details of treasury policies are on pages 14 to 144. ) m £ ( t b e d t e N 800 700 600 500 400 300 200 100 0 719 339 76 70 39 18 51 7 613 40 34 Opening net debt Operating cashflows Taxation Pensions Interest Dividends Thurrock Next Gen M&A Debt revaluation Closing net debt Daily Mail and General Trust Plc 43 Strategic Report Directors’ Report Governance Financial Statements SALE OF NORThCLIFFE MEDIA The announcement that the Group has reached agreement to sell Northcliffe Media will improve the strength of our portfolio and the shape of our business. The following table summarises the shape of the Group excluding Northcliffe Media: Key metrics post Northcliffe B2B share of revenue B2B share of operating profit Print advertising share of total revenue Digital share of total revenues Subscription share of revenues Non-UK share of operating profit Operating margin Underlying revenue growth rate Before 46% 73% After 51% 79% 25% 20% 35% 39% 25% 28% 65% 71% 15% 3% 16% 4% OvERvIEW The Group has adequate committed debt finance to meet current trading requirements. The Group aims to have 70% to 80% of its debt at fixed interest rates to reduce the impact of interest rate fluctuations. Foreign exchange risk on transactions is not a large issue for the Group as the majority of its businesses operate in the country in which they are located. In principle, the underlying currency of net debt after taking account of derivatives is managed in proportion to the EBITDA in each currency. More than half of the Group’s profits are expected to be earned from revenue billed in US dollars outside the UK. The Group’s foreign assets are only partially hedged by its foreign currency debt and economically its earnings are most exposed to movements in value of the US dollar. CAPITAL RISK MANAGEMENT The Group’s strategy for capital risk management is set out in note 33 to the Accounts. GOING CONCERN The Directors have continued to adopt the going concern basis for the preparation of the accounts. This has been done since, after considering relevant information, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future (note 1). ShARE Buy BACK DMGT’s strong operational cash flow and disciplined business portfolio management has resulted in a net debt to EBITDA ratio of 1.6, falling to well below our stated internal limit of 2.4 times. The Board remains confident in the overall outlook for the Group and the operating cash flow that our businesses will generate. We believe that the creation of shareholder value over the long term requires a balanced approach to investing in growth and returning excess capital to shareholders whilst maintaining a strong balance sheet. We will therefore continue to look for attractive acquisitions and actively manage our business portfolio while maintaining our dividend policy of growing dividends by between 5% and 7% in real terms over the economic cycle. In reviewing our capital management programme, the Board has also decided to utilise part of its authority to make on market purchases of the ‘A’ Ordinary Non-Voting Shares. We anticipate spending up to approximately £100 million over the coming year. Annual Report 201244 l l i e N c M c a n o r B © : e g a m I David Dutton Chairman, Corporate Responsibility Committee Getting behind Team GB A&N Media’s donation to the Team 2012 appeal contributed to some outstanding performances by British athletes at London 2012. It also fired the starting gun for 18 months of events and activities. Staff met distinguished Olympians and Olympic and Paralympic hopefuls. Some tried their hands at goalball, judo and handball. They toured the Olympic Park and attended preview events. VIP access to Team GB House during the Games and to the celebratory parade afterwards capped a memorable summer of sport. Target reduction in tCO2/£ million revenue We try not to be prescriptive. Instead, we empower our businesses. We focus on equipping them with the knowledge, skills and, crucially, the permission to take effective action. A centre of excellence The Group’s diversity is a key source of strength. We identify the best transferable approaches by comparing our different CR programmes. We exchange experiences and record performance. We act as a sounding board and a forum for ideas. We find ways to improve and build on what’s already been achieved and we share our knowledge. Acting responsibly supports our objectives Our CR activities and responsible attitudes have a positive impact on long-term performance in at least three important respects: • By consistently acting responsibly we help the Group to stay relevant in a changing world. • They help us attract and retain talent. Most people want more than money from their working lives. They want to enjoy their work, meet challenges and make a difference. Our CR activities engage and motivate our people. • In a networked world, content providers succeed by staying at the heart of their communities. CR initiatives, particularly those that engage supply chain partners, instil a sense of common purpose. In the future, we will continue to share best practice across the Group and build on our strengths as a centre of excellence. David Dutton Chairman, Corporate Responsibility Committee www.dmgt.com has additional information about our CR initiatives. DMGT’s emissions per revenue 50.9 50.3 48.0 47.8 47.2 46.7 46.3 by 2015 e u n e v e r m £ / 2 O C t 2006 2007 2008 2009 2010 2011 2012 OuR APPROACh The Corporate Responsibility (CR) Committee reports, through me, directly to the Board. Committee members include interested parties with relevant Group-wide responsibilities and senior nominees from our five business units. We act in an advisory rather than an executive capacity. We aim: • To minimise our negative impact on the environment. • To promote employee health and welfare. • To build civilised relationships with customers and suppliers. • To engage with local communities and wider society. • To target 10% reduction in CO2 emissions per £m of revenue over the next three years • To give over £1.6 million in charitable donations CR drives long-term performance We start from the proposition that acting responsibly is first and foremost about securing the long-term future of our own company. This way of thinking comes naturally to us. With our heritage as a family-run business we have always evaluated performance in generational terms. As a group we are committed to sustainable, long-term performance. Managing our businesses and brands responsibly, valuing our own people, suppliers and customers and respecting the communities we serve are essential prerequisites for our own success. We believe that responsibility and performance are intimately interconnected. Embracing our responsibilities to society and the environment advances our own interests. Multiple programmes are more effective We manage a diverse portfolio of businesses and brands. As such, a one-size-fits-all CR policy would be counter-productive. Smart, highly skilled people run our companies. They are used to acting independently. They understand their own markets. Our various businesses have evolved distinct CR strategies to fit their cultures and underlying objectives. At group level we typically help them most by backing their judgement and providing resources. Daily Mail and General Trust Plc 45 Strategic Report Directors’ Report Governance Financial Statements Speed dating at Northcliffe house Media Trust helps charities get their voices heard. DMGT supported local charity The K&C Foundation hosted a speed dating evening for Media Trust at our London headquarters. The evening matched nine media personnel with nine charities. Abi Slater, Communications Manager at DMGT, was one who found a match: “It was great to use my network of contacts to help a small charity.” helping hands In 2006, a group of RMSers decided to help out for a day at their local Food Bank. The idea has caught on. In 2012, more than 90 RMS staffers helped out with the American Red Cross, at the local Food Bank, gardening, making lunch and dancing with carehome residents. “Helping Hands is a highlight of my year,” said one, “we’re doing simple things, but it’s always so appreciated. I get back to my desk energised and uplifted.” ENvIRONMENT We are progressively reducing our impact on the environment by lowering emissions, using energy more efficiently and minimising waste. Doing the right thing for the environment is saving us money and increasing our efficiency. CO2 reporting We are committed to comprehensive, transparent reporting of our environmental performance. For the sixth year in succession we have collected CO2 emissions data from each of our five business units. This data is collated and independently reviewed by the environmental consultancy, ICF International. DMGT has been a signatory to the international Carbon Disclosure Project (CDP) since 2008. We have now integrated our carbon data collection process with our financial reporting. This has streamlined administration and improved data reliability. Our emissions are calculated following the Greenhouse Gas Protocol (GHG Protocol) methodology which was developed by the World Resources Institute and the World Business Council for Sustainable Development. As per the methodology’s principles, we have updated this year the emission factors used in the calculations and used the most up-to-date figures. This resulted in a slight adjustment of previous years’ emissions. Our carbon footprint is expressed in the tonnes of Carbon Dioxide equivalent and includes all the Kyoto Protocol gases that are of relevance to our business. Our footprint covers emissions from all our global operations and the following emission sources: Scope 1 and 2 (as defined by the GHG Protocol), business travel and outsourced delivery activities. Our carbon footprint continued to shrink in 2012. CO2 emissions stood at 91,600 tCO2 (92,100 tCO2 in 2011), a 20% decrease against our 2007 baseline (113,800 tCO2). This year we have set a challenging new target for the Group. We plan to reduce our emissions per £ of revenue over the next three years by 10% against the 2012 baseline. The 2012 amount is 46.7 tCO2 /£million revenue targetting a 10% reduction to 42.0 tCO2 /£million revenue by 2015. Reducing environmental impacts DMGT’s headquarters at Northcliffe House, also the London base of A&N Media and dmg::events, retains the prized ISO 14001 international environmental standard. The transfer of our London printing production to a green field site in Thurrock will take place in the summer of 2013 and will transform performance, environmental efficiency and waste minimisation. This plant has been built to exacting environmental specifications. It has been designed to meet a BREEAM1 rating of Very Good. Promoting the green agenda As a content-led business, perhaps the biggest environmental contribution we can make is to promote the green agenda. Big 5 has hosted the Gaia awards, celebrating environmental excellence in construction since 2008. EDR was recognised at the 2012 Environmental Business Achievement awards with two honours. Commonground, its social network for environmental and commercial real estate professionals, won the Industry Leadership Award. PARCEL, a web-based platform for due diligence reporting won the Business Achievement Award for IT. At the UK National Business Awards, Landmark was shortlisted for the prestigious ICAEW Sustainability Award. Minimising waste The three areas where we generate most waste are paper, water and ink. In each area we continue to make progress across the supply chain. Carpets are the largest disposable items at trade shows. dmg::events recycles carpets at all its trade events. AdTech USA, digital marketing’s largest trade show, negotiated an agreement with Freeman to supply and collect recycled carpets at our New York and San Francisco shows. At RMS a Green Team meets bi-monthly to coordinate recycling initiatives. Simple measures can be surprisingly effective. By introducing mugs for hot drinks it halved paper cup consumption, from 10,000 cups monthly, in just four months. Our office-based divisions have limited direct environmental impact. We recycle paper in all our global offices. 1 Building Research Establishment Environmental Assessment Method Annual Report 201246 At school in Cambodia In February, Sheena Pabari from A&N Media’s London HQ and Nicky Burton from the Tunbridge Wells office set off for Cambodia with United World Schools (UWS). They blogged their experiences: 11.02.12 For the last couple of days we’ve been visiting Ol’ Tuch and the school being built here with the help of A&N Media’s donation. It is incredible to see how much this has changed the lives of these people. Activities today included Khamer – the Cambodian version of head, shoulders, knees and toes! Chaos, but very fun to watch! 18.02.12 Our final day of teaching. We introduced them to Play Doh! The boys made buffalos and mopeds, the girls made pots and tables. Championing inclusiveness In August, dmg::events launched AbilitiesME in the United Arab Emirates. The show builds awareness of special needs and disabilities across the Pan-Arabian Gulf. members from Kensington to California took up the challenge. One brave soul even agreed to a wax removal in exchange for a £100 donation. Talent and engagement We want all our people to feel a sense of connection between their values and their work with us. DMGT businesses support employee-led initiatives with matched funding and by encouraging volunteering and pro bono work. We have always promoted entrepreneurial activity. We nurture talent internally by encouraging individuals to develop their ideas into profitable opportunities. There was a step-change in our approach to encouraging entrepreneurs in 2012. A&N Media launched The Ideas Factory, a monthly contest to find the best business ideas. Staff with the best suggestions win cash prizes and professional support. They present business plans to a team led by the DMGT Chairman. Winning ideas may be adopted and brought to market. There is a separate budget for the professional development of successful participants. We communicate with our employees through multiple channels, including a group intranet, DMGT Chatter, our business- collaborative working platform, and a blog from the CEO. These channels keep employees informed about business developments that affect them both directly and indirectly. Specifically in the area of CR, there is a community of CR Champions who meet every quarter to share experiences and knowledge. Where the infrastructure supports it we embrace other waste management initiatives. Plastic, glass, metals, toner cartridges, mobile phones and IT equipment are all being recycled. We have extended our recycling programme for redundant office furniture to other businesses across the Group. Once again this year, this resulted in zero landfill. PEOPLE Our employees define who we are as a company. We pursue policies and practices to recruit and retain the best. We expect high standards of performance and behaviour. In return, everyone is entitled to respect and support. Policies and practices Employees sign up to the Group Code of Conduct. In addition, we require our journalists to comply with the Editor’s Code as set out in the Press Complaints Commission. We aim to promote an inspiring, healthy and inclusive work environment in all our businesses. We support equality, diversity and inclusion, and have published our Code of Conduct on our website, DMGT.com. We have set up a 24/7 Speak-Up service where employees can share grievances and concerns about misconduct. The service is managed independently by an external consultancy so they can be confident that their identities will be protected. This year A&N Media produced a video explanation of its equality, diversity and inclusion policy. This short feature won two awards at the 2012 International Visual Communication Association (IVCA) awards. It won gold for best animation, graphics and special effects and won silver for best script.2 health and wellbeing Landmark’s adoption of the World Health Organisation’s Global Corporate Challenge is promoting a healthy workforce. Health was at the forefront too as life got a little hairier in November. Employees from across the Group joined the global Movember event, raising £25,000 for testicular and prostate cancer charities. The ‘Mo Bros’ gathered sponsorship and sprouted facial hair. Their ‘Mo Sista’ supporters organised fund-raising activities. Over 100 staff 2 http://player.ivca.org/ivca/2012/graphics/1099/#top Daily Mail and General Trust Plc47 Strategic Report Directors’ Report Governance Financial Statements Taking on trachoma in Africa Trachoma is endemic in Ethiopia, over nine million children between one and nine suffer from the condition. It thrives in hot, dry and dusty areas where there is limited access to clean water. Repeated infection can cause blindness. Euromoney Institutional Investor is working with the African Medical and Research Foundation and the blindness treatment charity ORBIS on a £1.5 million five-year project to eliminate trachoma in the Ethiopia’s South Omo region. The project will benefit over half a million people, mostly women and children. The campaign got off to a flying start. The Euromoney Awards dinner raised £482,000 in a single evening. COMMuNITIES We invest in communities as a Group and as individuals. We encourage all our people to engage with society and get involved with charitable projects. Charitable giving Engagement starts at the top. We worked with the Leaders’ Quest social enterprise at our Chairman’s conference in Bangalore. Delegates visited seven charities in the area and a number of them elected to offer financial support. DMGT matched every pound donated. Total donations in 2012 reached over £1.6 million (2011 £1.4 million). Although each business has its own mechanism for selecting good causes, they frequently support similar projects, reflecting our shared values. Group businesses support projects that tackle basic needs, youth and education, and talent and self-reliance. Tackling basic needs Euromoney Institutional Investor has supported a series of projects in Africa that tackle poor sanitation and lack of clean water. A £100,000 central donation, client support and fund raising have raised well over £200,000 to bring clean water and sanitation to Ethiopia’s slum dwellings in Kechene. In Kenya, Euromoney and DMGT have joined forces with the Haller Foundation to build water wells and rain-fed dams for hard- pressed farmers and families in Mombasa. Landmark Information Group is applying its data management skills to water resourcing in a partnership with the international charity WaterAid. It has donated £22,000 alongside DMGT to develop the Water Point Mapper, a free application which pinpoints water supply services in rural and urban locations across Sub-Saharan Africa and Asia. Genscape employees raised over US$50,000 and teamed up with Plan International in 2010 to bring clean drinking water to Asiento Viejo, Nicaragua. The village water supply was contaminated with toxic levels of arsenic. Local people learnt how to make and maintain arsenic filters from local materials. A mini aqueduct was created. The project was completed in 2012. In London, Euro Week clients raised over £175,000 for Anchor House, a residential centre with workshops, training facilities and studio flats for homeless people. youth and education Funds raised last year by Euromoney for the Little Rock School in Nairobi’s Kibera slum bore fruit in 2012 as construction of its new school building and accompanying orphanage got underway. On top of the £597,000 raised in 2011 DMGT donated a further £10,000 in 2012 to sponsor a classroom there for a year. Hobsons has worked with Plan International for seven years to build schools in some of the world’s poorest countries. In 2012, employees visited the latest in the Dominican Republic. DMGT supports youth through its membership of the Prince’s Trust. In October, 2011 25 DMGT head office employees cycled the 45 miles from London to Windsor Castle on the Trust’s Palace to Palace bike ride, raising nearly £6,000 for the cause. Talent and self-reliance Metro launched the Government-endorsed Creative Pioneers initiative in March as a joint venture with the Institute of Practitioners in Advertising (IPA). The scheme aims to find digital talent and creative entrepreneurs. A panel of experts placed the best entrants in three categories to work as paid interns and apprentices at participating businesses. For London 2012, Landmark provided financial support for Olympic cyclist Jess Varnish and GB swimmer Jazz Carlin. Now in its second year, the Scottish Daily Mail Drama Award helped three winning post-graduate productions appear at this years Edinburgh Fringe Drama Festival, two of which then made it to the London stage. Financial Mail on Sunday has been working with East Sutton Park open prison. It has taken on two recruits for work experience. It also supported the ‘Dress for Success’ initiative, which has helped people adjust to life out of prison. PRIORITIES FOR 2013 Over the next financial year the CR Committee will focus on strengthening its capabilities as a centre of excellence. It is already putting in place a more formal process for capturing CR data and activities. This will enhance its ability to register and share best practice across the Group. Annual Report 201248 The Viscount Rothermere Chairman in This secTion chairman’s overview Board of Directors Principal Risks and Uncertainties external Risks to the Business Forward Looking statements Responsibility statements corporate Governance committees 48 50 52 54 56 57 58 60 In this section of the report we set out how governance works at DMGT. It is embedded into the way we organise our Group, with each of our businesses having responsibility for the areas in which they operate, brought together through our codes of conduct and standards of ethical behaviour. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 49 inTRoDUcTion The Board remains committed to ensuring that we are aligned to best practice as it is appropriate to our strategy and Group, as well as ensuring that we continue to operate in the right way for our businesses, recognising the expertise that our Board members deliver and the importance of having a longer-term view. Looking ahead, we will continue to maintain our high standard of corporate governance as it is a key factor in our continued success. We ensure that the use of time in our Board and committee meetings, at both the Group level and in our businesses is balanced between discussion of strategy, financial and operational performance, oversight of risk management and internal controls, ensuring the safeguarding of our assets and keeping our Board and executive succession plans refreshed. key acTiViTy oF The BoaRD During 2012, strategy has been central to Board discussion. Each year, one Board meeting is dedicated entirely to the discussion of Group strategy and clarifying the framework for its strategic decisions. It is an opportunity for Directors to concentrate on strategy exclusively. The session is held in the locality of one of our businesses and between sessions Directors can visit specific companies, meet management and get greater insight into how they operate. Outside of this dedicated strategy session, the Board considers strategic matters in addition to operational reviews at each Board meeting. comPosiTion oF The BoaRD Prompted by the Board we have focused on ensuring that the skills in the boardroom represents the profile of our businesses. Given that now over 50% of our profits are generated in the US and that we increasingly provide digital solutions, this has been reflected in recent Board appointments. During the year we appointed Silicon Valley based Heidi Roizen, who has unrivalled experience in the technology arena and who will give the Board insight and experience of an area that is key to the Group’s long-term success. Detailed biographies of each Director are included in the Report on pages 50 and 51. comPLiance The UK Corporate Governance Code (‘Code’) applies a ‘comply or explain’ approach to the principles set out in the Code. The Board adopts a long-term approach to governance, which underlies how the Group operates and takes account of the Group’s heritage. Explanations in respect of areas where the Company does not fully comply with Code provisions are in the table on page 58. LonG-TeRm oVeRView By focusing on strategy, succession planning, risk monitoring and evaluating the performance of Directors, the Board’s work supports the long-term performance of the Group. The Board will continue to maintain its high standard of corporate governance as it is integral to the long-term success of the Group. Annual Report 201250 The Viscount Rothermere †‡x Chairman appointed to the Board: 1995 skills and experience: Lord Rothermere has been Chairman of DMGT and a Non-Executive Director of Euromoney Institutional Investor PLC since 1998. He worked at the International Herald Tribune in Paris and the Mirror Group before moving to Northcliffe Newspapers Group in 1995. In 1997 he became Managing Director of the Evening Standard. m w h morgan x § Chief Executive appointed to the Board: 2008 skills and experience: Martin was appointed Chief Executive of DMGT in October 2008. He sits on a number of DMGT subsidiary company boards, including Euromoney Institutional Investor and is the Chairman of RMS. Prior to joining DMGT, Martin held various senior positions at Reed International both in the UK and the US. He joined DMGT in 1989 and became CEO of dmg::information in 2000. He joined City of London Investment Trust as a Non- Executive Director in March 2012. s w Daintith x § Finance Director appointed to the Board: 2011 skills and experience: Stephen was appointed Finance Director of DMGT, to the Board and the Audit Committee of Euromoney Institutional Investor PLC in March 2011. Prior to that, Stephen was COO and CFO of Dow Jones and previously CFO at News International. Before these roles he held several senior positions at British American Tobacco, including CEO of their Switzerland and Bangladesh businesses and CFO at their Pakistan and South Africa operations. Stephen trained and qualified as a chartered accountant at the London offices of Price Waterhouse (now PwC). J G hemingway *†‡x Non-Executive Director appointed to the Board: 1978 skills and experience: John has recently surrendered the practising certificate as a solicitor for which he qualified in 1953. After national service in the RAF, John then joined Freshfields in the City of London where he was a partner from 1960 to 1974. For more than the last forty years John has specialised in advising a limited number of families on the structuring and management of their family resources. This remains his principal activity. D m m Dutton x § Executive Director appointed to the Board: 1997 skills and experience: David joined the Group in 1970. He is Chairman of dmg::information and serves on the boards of RMS, Evenbase, Hobsons and Landmark Information Group. He also serves as the Non-Executive Chairman of Zoopla Ltd., Artirix Ltd., and Ecctis Ltd. David founded Pizzaland in 1970. He was a founder and Managing Director of Trevian Holdings Plc, a property development company. P m Dacre Executive Director appointed to the Board: 1998 skills and experience: Paul Dacre joined the Group as US Bureau Chief in 1979. Appointed Editor of the Evening Standard in 1990, he has been Editor of the Daily Mail since 1992 and Editor-in-Chief of Associated Newspapers since 1998, years which saw the launches of Metro and MailOnline. F P Balsemão † Independent Non-Executive Director (Portuguese) appointed to the Board: 2002 skills and experience: Francisco serves as the President at Impresa Group and Chairman of IMPRESA, SGPS. He was formerly Prime Minister of Portugal and in 2005 elected member of the State Council. He serves as Chairman of the European Publishers Council and sits on the board for the International Advisory Board of Santander International Group. T s Gillespie Non-Executive Director (Canadian) appointed to the Board: 2004 skills and experience: Tom has advised DMGT on legal matters in Canada over many years. He serves as the President of Tyringham Investments Limited, a Canadian investment and holding corporation and as Chairman of Tyringham Investments Limited. He served as Senior Partner of Canadian law firm, Ogilvy Renault, and now runs his own business. He serves as Chairman of Imperial Tobacco Canada Limited. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 51 D J Verey, cBe *§ Independent Non-Executive Director appointed to the Board: 2004 skills and experience: David is Chairman of the Audit Committee. David is an Investment Adviser and Corporate Finance Adviser. He is currently Senior Advisor at Lazard, lead Non-Executive Director of the Department of Culture, Media and Sport, Non-Executive Director of Sofina SA, a Member of the Supervisory Board of Bank Gutmann and Chairman of The Art Fund. He was at Lazard for 30 years and served as Chairman and Chief Executive for the last 10. He then moved to Cazenove Group plc as Deputy Chairman and from there to Blackstone Group UK as Chairman. k J Beatty Executive Director appointed to the Board: 2004 skills and experience: Kevin is Chief Executive of A&N Media. He was Managing Director of the Scottish Daily Record and Sunday Mail Ltd. Kevin has been Managing Director of The Mail on Sunday, the Evening Standard and London Metro; COO of Associated New Media; and Managing Director of Northcliffe Newspapers. He is a board member of the Newspaper Publishers Association and a Non-Executive Director of PA Group. n w Berry * † ‡ Independent Non-Executive Director appointed to the Board: 2007 skills and experience: Nicholas is owner of Mintel International, Intersport Switzerland Psc and Chairman of Stancroft Trust. He has wide ownership experience in business-to-business media and in emerging markets. D h nelson, Fca * † ‡ x Non-Executive Director appointed to the Board: 2009 skills and experience: David is Senior Partner at Dixon Wilson, Chartered Accountants, and a Non-Executive Director of a number of family companies. He is an advisor to UK-based families and their businesses, advising on financial and tax matters in the UK and overseas. He is a trustee of a number of substantial UK Trusts. D Trempont * Independent Non-Executive Director (American) appointed to the Board: 2011 skills and experience: Based in California, Dominique has been an executive and board member in large multinational high tech companies and start ups. He is currently on the boards of three US public companies, focusing on disruptive technologies, emerging markets and Asia. He is also on the board of on24, the emerging leader in webcasting and virtual shows, and Trion Worlds, the leading publisher and developer of premium multi-user games. Dominique was also on the board of 3Com, a global networking solution company. h Roizen § Independent Non-Executive Director (American) appointed to the Board: 2012 skills and experience: Based in Silicon Valley, Heidi has experience including digital media, entrepreneurial growth, and business development in both public and private Companies in the US. She teaches Entrepreneurship at Stanford University. Heidi serves on the boards of TiVo Inc and numerous venture-backed technology companies. She is a Venture Partner with global investment firm DFJ and was Vice President of Worldwide Developer Relations for Apple Computer, as well as being CEO and co-founder of pioneering consumer software company T Maker. c chapman § General Counsel & Company Secretary appointed to the Board: 2012 skills and experience: Claire was appointed as General Counsel and Company Secretary on 20th September and as Secretary from 1st October, 2012. Claire is responsible for DMGT’s legal and regulatory, M&A programmes, contracts, corporate projects, effective governance and Board management. She was formerly a solicitor at Freshfields Bruckhaus Derringer before joining Reuters Group PLC. Claire was General Counsel and Group Company Secretary at Inchcape plc. n Jennings Nicholas Jennings stood down as Secretary to the Board on 1st October, 2012. * member of the audit committee † member of the nominations committee ‡ member of the Remuneration committee x member of the investment and Finance committee § member of the Risk committee Annual Report 201252 acTiViTies The principal activities of the Group are set out on pages 6 and 7 of this Annual Report and Accounts. The analysis of revenue and operating profit for the years ended 30th September, 2012 and 2nd October, 2011 are included as Note 3 to the Consolidated Income Statement. BUsiness ReView The information that fulfils the Companies Act requirements of the business review is included in the Strategic Report on pages 10 to 43. This includes a review of the development of the business of the Group during the year, of its position at the end of the year and of likely future developments in its business. Details of the principal risks and uncertainties facing the Group are set out below. martin morgan Chairman, Risk Committee Risk Potential impact mitigation 1) changes in our key markets The information provided to our customers and the ways in which our businesses deliver this information are subject to constant change. This can result in structural market changes that have the potential to redefine or eliminate current markets served by our businesses. Technological innovations such as tablets and other mobile devices, cloud computing and the proliferation of social media impact all of our businesses. Our products and services, and their means of delivery, are also affected by competitor activity and changing customer behaviour. 2) exposure to a downturn in the global economy A significant although decreasing proportion of the Group’s revenue (especially in the UK newspaper divisions) is derived from advertising which is impacted by fluctuations in the wider economy. A similar, although reduced, effect has been seen in Group businesses that rely on non- advertising revenues, especially in the financial and property markets. The impact is both positive and negative. Failure to identify and respond to changes in the key markets in which the Group operates increases the risk of being left behind by both competitors and our customers with a resultant direct impact on Group results. The transition from traditional publishing and print advertising to online and mobile has affected a number of businesses including Euromoney and Associated Newspapers. Conversely, new technologies present opportunities for the Group. An example of this is the success of the mobile and tablet apps by MailOnline and Metro. Both have proved successful in driving traffic and engagement. MailOnline has five times more UK app users than any other newspaper and Metro’s iPad app was named Newspaper App of the Year at the 2012 Newspaper Awards. Advertising revenues have been heavily affected by the downturn in the global economy. A continued recession, or a further downturn in the economy or market sectors served by the Group, gives rise to a risk of not achieving forecast results. The Group’s strategy of diversification reduces the impact of technological and market changes to some degree. However, a number of recent global trends have impacted several of our businesses. The DMGT Leadership Team constantly monitor the markets in which DMGT businesses operate, the competitive landscape and technological developments. The autonomous culture of the Group encourages an entrepreneurial approach to the development of organic growth opportunities and new products. Experience has demonstrated that the long-term strategy of diversifying the Group’s portfolio into business information and subscription revenue streams, along with investment in strong brands, makes the Group’s results both more strategically and commercially robust. We continue to manage costs around the Group to minimise our cost base. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 53 Risk Potential impact mitigation 3) acquisition and disposal risk As well as launching and building new businesses, an integral part of the Group’s strategy has, and will continue to be, the acquisition (and successful integration) of businesses that expand expertise whilst supporting existing products. The strategy also results in the disposal of businesses that no longer fit the Group’s investment criteria. Failure to identify acquisition targets could result in an opportunity cost to the business. Equally, an unsuccessful integration of acquired subsidiaries, or an acquired business that fails to generate the expected returns, could result in the underperformance of the Group or impairment losses. This could also divert management time from other operational matters. Our ability to achieve optimal value from disposals, as well as the failure to realise other anticipated benefits of a disposal could also impact financial results. 4) Pension scheme shortfalls Our defined benefit pension schemes are now closed to new entrants, although existing members still employed by the Group can continue to accrue benefits on a cash basis. Deficits identified by actuarial valuations completed in 2011 are being addressed by means of a funding arrangement agreed with the trustees which will reduce the deficits over a period of 13 years to 2023. Reported earnings may be adversely affected by changes in our pension costs and funding requirements due to lower than expected investment returns or changes made to the risk profile of our investment portfolio. 5) successfully managing change projects At any given time, a number of active capital and IT projects are underway around the Group. The two most significant change projects continue to be RMS’s new software solution project, RMS (one), and A&N Media’s new print site at Thurrock. A successful project delivers improvements in product offerings, efficiency gains and cost savings. There is however, a risk of increased costs or lost revenues as a result of delays, unforeseen problems, loss of access to systems and data or production and delivery issues. The majority of acquisitions are in related markets and are smaller businesses with a high potential for growth. This reduces the risk from any one acquisition. Acquisitions are approved by the Investment & Finance Committee, and managed by divisional and local management with oversight from the centre. Detailed due diligence is performed by internal teams and external advisors on all potential acquisitions. The retention of key employees in the acquired business is often required as part of the purchase. Board level monitoring is performed post-acquisition. Disposals, including the decision to divest, are overseen by the Board and the Group Finance Director. Measures to mitigate the risks that impact the company’s balance sheet are under continuous review. Recent examples include: – benefits in the schemes are now accrued on a cash basis which reduces the risk of an increase to pension liabilities arising from improving longevity; – the Group provided the principal scheme with a £150 million guaranteed loan note to reduce the need for additional cash contributions; and – the Group has transferred a portfolio of properties to the schemes, valued at £24 million, reducing the net cash required to be transferred to the schemes during the year. In addition, a Joint Working Party assesses and monitors de-risking options available to the schemes. Every active capital project around the Group is subject to a rigorous planning process involving all key stakeholders. Significant capital projects are approved by the Investment and Finance Committee. Ongoing project management is in place to ensure that plans are delivered to timetable and specification. All key projects are monitored by the local board to ensure that risks and opportunities are managed throughout the process. The Group’s most significant projects are monitored by the Risk Committee. Annual Report 201254 Risk Potential impact mitigation 6) Data integrity, availability and security The quality and availability of the information products that DMGT businesses provide to their clients are key to their success. This is true for many businesses in the Group, most notable within dmg::information and Euromoney. Information security has always been a key focus across DMGT. However, changing technology, mobile working, cloud-based systems, the consumerisation of IT and the growing use of social media create opportunities but also threats to information security and the protection of our data, and that of our customers. The threat of cyber- attack from organised crime increases this risk further. Any challenge to the integrity of information within a DMGT product could damage the reputation of that business, potentially resulting in lost revenues remediation costs. A similar impact would be felt if a product was unavailable for a time. An information security incident or cyber- attack resulting in the loss, theft, corruption or unavailability of sensitive information held by the Group could lead to operational and regulatory challenges, and could impact on financial results. Information security breaches could have a reputational impact on the Group. A major incident particularly in a key location could affect operation of the business at that location and impacts their ability to produce or deliver its products, which could reduce the demand for them or increase costs. Any disaster which significantly affects the wider environment or the infrastructure in an area in which the Group operates could adversely impact Group results. Significant disruptions to, or reductions in, international travel for any reason could lead to events and training courses being postponed or cancelled and could have an impact on the Group’s performance. 7) impact of a major disaster or outbreak of disease There is a risk of disruption of Group operations as a result of a major disaster, outbreak of disease or other external threat. The Group’s operations are geographically diversified which limits the impact of any given incident. The largest locations are Northcliffe House and Harmsworth Quays in London, Euromoney’s offices in London and New York, and RMS’s headquarters in California. Northcliffe House is the Group’s headquarters as well as housing A&NM and some businesses within dmg::events. Harmsworth Quays is A&N Media’s main printing centre and a contingency location for Northcliffe House. The success of the events and training businesses within dmg::events and Euromoney relies heavily on the confidence in, and ability of, delegates and speakers to travel internationally. Every DMGT business understands that quality of data is key to the reputation and ongoing success of the Group. Quality controls including rigorous checks, review and restricted access to amend and publish exist in every business with information products. Availability is managed through detailed and tested business continuity plans. Information security risks are managed locally by the individual businesses, with support from divisional management and DMGT Risk and Assurance. The Risk Committee monitors and oversees information security, data protection and cyber risks and controls around the Group. Businesses are expected to comply with the published information security policy and minimum baseline standards. Business continuity plans, which are tested regularly, are in place across all businesses. Contingency planning is in place in the events businesses and virtual events alternatives are being developed. Where appropriate, cancellation insurance is taken out. Recently the Group’s business continuity planning helped its offices in North East America to recover quickly and effectively from the significant disruption caused by Superstorm Sandy. 8) Reliance on key management and staff retention DMGT is reliant on the talented and successful management and staff across all of its businesses. Many businesses and products are dependent upon specialist, technical expertise. The inability to recruit and retain talented people could impact the Group’s ability to maintain its performance and deliver growth. When key staff leave or retire, there is a risk that knowledge or competitive advantage is lost. The DMGT Human Resources Director works with divisional and executive management across the Group on a formal approach to talent management and succession planning. This includes payment of competitive rewards, employee performance and turnover monitoring and a variety of approaches to staff communication. Succession planning and long-term incentive plans are in place for senior management. Daily Mail and General Trust Plc strategic Report Directors’ Report Governance Financial statements 55 Risk Potential impact mitigation 9) commercial relationships, including volatility of newsprint prices The Group is reliant on a number of commercial relationships with key customers, suppliers and third parties. Examples include large advertising agencies and major retailers in A&N Media, key venues and agents in dmg::events and Euromoney, and data providers in dmg::information and RMS. Additionally, newsprint continues to represent a significant proportion of our costs. Newsprint prices are subject to volatility arising from variations in supply and demand. 10) compliance with laws and regulations Group businesses are subject to legislation and regulation in the jurisdictions in which they operate. The key laws and regulations that impact the Group cover areas such as bribery and corruption, competition, data protection, privacy (including e-privacy), health and safety and employment law. Additionally, specific regulations from the Press Complaints Commission and the Audit Bureau of Circulation apply to the newspaper divisions. The Group generates a significant amount of its revenue from publishing, be it newspapers, magazines, trade journals or information and data published online. As a result, there is an inherent risk of error which, in some instances, may give rise to legal claims (e.g. for libel). On 29th November Lord Justice Leveson released his report from the inquiry into culture, practices and ethics of the press. 11) Treasury operations The Group Treasury function is responsible for executing treasury policy which seeks to manage the Group’s funding, liquidity and treasury derivatives risks. More specifically, these include currency exchange rate fluctuations, interest rate risks, counterparty risk and liquidity and debt levels. These risks are described in more detail in Note 33 to the financial statements. 12) Unforeseen tax liabilities The Group’s operations are global and therefore earnings are subject to taxation at differing rates across a number of jurisdictions. Whilst endeavouring to manage the Group’s tax affairs in an efficient manner, there will always be a certain level of uncertainty when provisioning for tax liabilities due to an ever more complex international tax environment. The loss of, or damage to, any key commercial relationship could have a material impact on the Group’s ability to produce and deliver its products. Significant time and resources are dedicated to managing and developing these relationships to ensure they continue to operate satisfactorily. An increase in newsprint prices would impact the cost base of A&N Media. The Group’s newsprint requirements are managed by a dedicated newsprint buying team and monitored by the board of Harmsworth Printing. Where possible, long-term arrangements are agreed with suppliers to limit the potential for volatility. A breach of legislation or regulations could have a significant impact on the Group both in terms of additional costs, management time and reputational damage. Equally, the management time and cost of defending legal cases can be significant. Increasing regulation of the newspaper industry could limit our editorial output and have a corresponding commercial impact on the business. Compliance with laws and regulations is taken seriously throughout the Group. The DMGT Code of Conduct (and supporting policies) sets out appropriate standards of business behaviour and highlights the key legal and regulatory issues affecting Group businesses. Divisional and local management are responsible for compliance with applicable local laws and regulations, with oversight from the Risk Committee. All of our publications have controls in place, including legal review, to approve content that may carry a libel/legal risk. Journalists receive regular training on the PCC Code, Data Protection and the Bribery Act. Controls are also in place surrounding compliance with the Audit Bureau of Circulation’s regulations and other regulatory bodies to which we adhere. If the treasury policy does not adequately mitigate the financial risks summarised above, or is not correctly executed, it could result in unforeseen derivative losses or higher than expected finance costs. The Investment & Finance Committee is responsible for reviewing and approving Group Treasury policies which are executed by the Group Treasury function, overseen by the Deputy Finance Director. The Group Treasury function undertakes high value transactions, hence, there is an inherent risk of payment fraud or error. Segregation of duties and authorisation limits are in place for all payments made. The Treasury function is subject to an annual internal audit. Changing tax laws could increase tax liabilities and have an adverse impact on financial results. Due to the diverse and global nature of the Group, internal or external factors could give rise to unplanned tax liabilities. The team of in-house specialists, in conjunction with divisional management and external experts, review all tax arrangements within the Group and keep abreast of changing legislation. Annual Report 2012 56 FoRwaRD LookinG sTaTemenTs This annual report contains certain forward- looking statements with respect to the principal risks and uncertainties facing the Group. By their nature, these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. No assurances can be given that the forward-looking statements are reasonable as they can be affected by a wide range of variables. The forward-looking statements reflect the knowledge and information available at the date of preparation of this annual report, and will not be updated during the year. Nothing in this annual report should be construed as a profit forecast. ResULTs anD DiViDenDs The profit after taxation of the Group amounted to £280 million. After charging minority interests of £23 million, the Group profit for the year amounted to £257 million. An interim dividend of 5.6 pence per share was paid on the Ordinary and ‘A’ Ordinary Non-Voting Shares and the Directors recommend that a final dividend of 12.4 pence per share be paid on 8th February, 2013 making 18.0 pence per share for the year (2011 17.0 pence). DiRecToRs Biographical details of the Directors of the Company at 30th September, 2012 are set out on pages 50 and 51. Sir Charles Dunstone retired from the Board on 8th February, 2012 and Heidi Roizen was appointed to the Board on 26th September, 2012. All other Directors remained unchanged during the year. Mr Tom Gillespie will not stand for re-election at the 2013 AGM. The number of shares of the Company and of securities of other Group companies, in which the Directors or their families had an interest at the year end, are stated in the Remuneration Report on page 66. In accordance with the UK Corporate Governance Code, each Director offers himself for re-election at the AGM on 6th February, 2013. chanGe oF comPany secReTaRy On 1st October, 2012 Claire Chapman was appointed Company Secretary in succession to Mr Nicholas Jennings, Secretary since October, 1999. TanGiBLe FixeD asseTs anD inVesTmenTs The Company’s principal subsidiaries are set out on page 175. Changes in the Group’s tangible fixed assets and investments during the year are set out in Notes 22 to 25. There was no material difference between the book value and market value of the Group’s land and buildings. PosT BaLance sheeT eVenTs Following the year end the Group disposed of its central European online recruitment business and its Hungarian joint venture online motors businesses. Additionally on 22 November, the Company announced it had exchanged contracts to dispose of the Northcliffe Media business to a new venture, Local World. Details are provided in Note 44. Following a review of the Group’s capital management programme, the Board has decided to utilise part of its authority to make or market purchases of its ‘A’ Ordinary Non-Voting Shares. The Company anticipates spending up to approximately £100.0 million over the coming year. shaRe caPiTaL Details of allotments of share capital during the year, which arose solely from the exercise of options, are given in Note 37. At the Annual General Meeting on 8th February, 2012, the Company was granted the authority to purchase up to 10% of its own shares. During the year, the Company transferred 7,018,953 shares out of Treasury, representing 1.88% of called up ‘A’ Ordinary Non-Voting Shares, in order to satisfy incentive schemes. The Company holds 10,188,174 shares in Treasury, with a nominal value of £1.3 million. The maximum number of shares held in Treasury during the year was 10,228,174 which had a nominal value of £1.3 million. The Company also purchased 7,478,953 ‘A’ Ordinary Non-Voting Shares for holding in Treasury, having a nominal value of £934,869 in order to match obligations under various incentive plans. The consideration paid for these shares was £30.1 million. Shares purchased during the year represented 2% of the called up ‘A’ Ordinary Non-Voting Share capital at 30th September, 2012. The Company has two classes of share capital. Its total share capital comprises 5% of Ordinary Shares and 95% of ‘A’ Ordinary Non-Voting Shares. Full details of the Company’s share capital are given in Note 37. emPLoyees Under the Group’s general policy of decentralised management, it is the responsibility of the management in each subsidiary to encourage the involvement and participation of employees in their company. The methods used vary company by company, but the linking to performance targets of a significant portion of remuneration is one widely used means. The Group gives full and fair consideration to suitable applications from disabled persons for employment. If existing employees become disabled they will continue to be employed, wherever practicable, in the same job or, if this is not practicable, every effort will be made to find suitable alternative employment and to provide appropriate training. maTeRiaL conTRacTs Group companies undertake business with a range of customers and suppliers. There is no dependence on any particular contractual arrangement, other than those disclosed in Note 40 to the Accounts as regards ink and printing, where arrangements are in place until 2018 and 2022 respectively to obtain competitive prices and to secure supplies. As regards the Group’s principal commodity, newsprint, arrangements are made annually with a range of suppliers to ensure the security of supply at the best available prices, having regard to the need for the necessary quality. Particularly in the light of its strategy to create a diversified international portfolio of media businesses, the Group is not dependent on any suppliers of other commodities, nor for its revenue on any particular customer. Distribution arrangements are in place to ensure the delivery of newspapers to retail outlets. PoLicy on PaymenT oF sUPPLieRs The Group’s policy on supplier payments varies across its subsidiaries. These companies have no formal code or standard which deals specifically with the payment of suppliers. However, their policy is to ensure that the terms of payment, as specified by, and agreed with the supplier at the outset, are not exceeded. The Company had no trade creditors at the year-end date. See page 183. The Group’s average payment period, calculated on the basis of year-end trade creditors, is 74 days (2011 70 days), although this is dependent on the year-end date and cannot therefore be regarded as meaningful. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 57 DonaTions Charitable donations made by the Group in the year amounted to £1,608,200 (2011 £1,392,000). This excludes the cost of publicity, often provided free of charge or various charities by the Group’s titles, and funds raised by them, further details on which are given in the Corporate Responsibility Report on pages 44 to 47 of this annual report. No political donations were made by the Group. sUBsTanTiaL shaRehoLDinGs On 30th November, 2012 the following were interested in more than 3% of the issued Ordinary Shares: Rothermere Continuation Limited 59.9% Codan Trust Company Ltd and Codan Trustees (BVI) Ltd (trustees of the Esmond Harmsworth 1998 Family Settlement) 29.3% The Board regards holdings in the Company’s securities of greater than 15% as being significant. There are no significant holdings in the Company’s ‘A’ Ordinary Non-Voting Shares, other than those shown in the Remuneration Report on page 80. DiRecToRs’ ResPonsiBiLiTies sTaTemenT The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, 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. In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position 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 Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 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 statements may differ from legislation in other jurisdictions. ResPonsiBiLiTy sTaTemenT We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the Business Review, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. aUDiToRs Each of the persons who is a Director at the date of approval of this Annual Report confirms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. The Company’s auditors, Deloitte LLP, have indicated their willingness to continue in office and, in accordance with section 489 of the Companies Act 2006, a resolution proposing their reappointment will be put to the AGM. annUaL GeneRaL meeTinG The AGM of the Company will be held on 6th February, 2013 at 9.00am at the Kensington Roof Gardens, 99 Kensington High Street, London W8. Details of all resolutions, including those to be put as special business, are set out in the enclosed circular to shareholders. coRPoRaTe GoVeRnance The following pages 58 to 80 on Corporate Governance including the Remuneration Report also form part of this Directors’ Report. By Order of the Board c chapman Company Secretary 30th November, 2012 Annual Report 201258 management structure d it u A C o m m it n tio a r e n u m e e t it m m o e C R C t e e Investm & Fina mitt n c e Com e n t e Group Board e N C o o i m m it t e e m n a t io n s R o e s p C r p o m o orate nsibility mittee R is k C o m m itte e In addition, the Chairman was not independent on appointment (Code provision A3.1). A formal review of each Director’s training requirements was not undertaken, however training requirements were addressed informally, by Director. Directors are encouraged to keep up to date and are provided with regular communications and regulatory updates to enable them to do so. The Company’s auditors, Deloitte LLP, has received the Company’s statement of compliance with the Code as required by the Listing Rules. comPLiance The Company is committed to high standards of corporate governance. The paragraphs below and in the Remuneration Report on pages 66 to 80 describe how the Board has applied the principles set out in the UK Corporate Governance Code (‘the Code’). The Code, issued by the Financial Reporting Council in June, 2010 is part of the Listing Rules and applied to the Company throughout the year and an updated version of the Code was released in September, 2012 for subsequent reporting periods, which the Company will take into account for the forthcoming year. The Company has substantially complied with the provisions of the Code throughout the year, except where the Board has determined that any provision is inappropriate to the particular circumstances of the Company. The areas in which the Company has not applied the Code during the year are explained below in summary and noted within the Report, as appropriate, and primarily arise from the composition of the Board. Uk corporate Governance code compliance Provision A4.1 Composition of the Board Area Details of non-compliance and mitigating circumstances A4.2 Non-executive Directors B1.1 Composition of the Board B2.1 Composition of the Nominations Committee B6.2 Board Evaluation C3.1 D1.5 D2.1 Composition of the Audit Committee Service contracts and compensation Composition of the Remuneration Committee The Board has not identified a senior independent non-executive Director since it believes that to identify such an individual is potentially divisive to a unitary body, as this Board is, and disruptive to the role of the Chairman. The non-executive Directors did not meet as a group without the Chairman since his performance was assessed by the Remuneration Committee (without the Chairman being present). Less than half of the Board are independent non-executive Directors. The Board believes that its current composition is appropriate taking account of the heritage of the Group, and that a good balance is achieved from its non-executive Directors in terms of skill and independence. However, the Board keeps this under review. Heidi Roizen joined the Board on 26th September, 2012 and is independent. Independent non-executive Directors do not comprise a majority of the Committee’s members since Mr Balsemão is the only independent non-executive Director appointed. Nevertheless, the Board believes that the Committee operates well. The Board has determined to continue to conduct its evaluation internally by means of a questionnaire, rather than through contracting external consultants every three years. The process is refreshed regularly and has proved valuable in driving the Board’s agenda. The Committee included two independent non-executive Directors rather than three during 2012. The Board believes that the Committee operated independently and benefits from the skill and experience of its then current composition. From November, 2012 there will be three independent non-executive Directors on the Committee as a result of Dominique Trempont’s appointment to the Committee. The service contracts of Messrs Morgan and Dacre exceeded the one-year recommended in the Code during the year. However, both have now reduced to one year as explained in the Remuneration Report on page 76. The Committee comprises one independent non-executive Director, rather than two as set out in the Code, as explained on page 70 of the Remuneration Report. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 59 Board meeting attendance Number of meetings eligible to attend Number of meetings attended executive Directors The Viscount Rothermere M W H Morgan S W Daintith D M M Dutton P M Dacre P M Fallon K J Beatty 6 6 6 6 6 6 6 non-executive Directors (non-independent) J G Hemingway T S Gillespie D H Nelson 6 6 6 non-executive Directors (independent) F P Balsemão D J Verey N W Berry D Trempont H Roizen C W Dunstone 6 6 6 6 1 2 6 6 6 6 6 2 6 6 6 6 6 6 6 6 1 2 The BoaRD The Company is headed by a Board which comprised during the reporting period seven executive directors, including the Chairman and Chef Executive and seven non- executive Directors, with Heidi Roizen joining at the end of the period on 26th September, 2012 (as noted on page 49). Biographical details of each of the Directors are set out on page 50 and 51. BoaRD meeTinGs The Board normally meets five times a year and at such other times as are necessary. It discusses and approves the Group’s strategy. In addition, the Board receives reports and recommendations from time to time on any matter, which it considers significant to the Group. Most meetings include a presentation on one of the Group’s divisions or on specific topics. During the year, these included presentations on the development of RMS’s new software platform, RMS (one), dmg::events, Metro, dmg::information, on communications and a talent review. The Board met six times during the 2011/12 financial year, meetings were attended by all Directors, except that Mr Fallon was unable to attend four of them because of illness. Individual attendance by Directors is set out to the right. maTTeRs ReseRVeD FoR The BoaRD The Board’s specific responsibilities are set out in a schedule of matters reserved to the Board which is published on the Company’s website at www.dmgt.com. These are summarised below: • Board and Committee appointments; • the approval of financial statements and all information sent to shareholders; • the setting of dividends; • the setting of fees payable to Directors; • approval of major acquisitions and disposals and capital expenditure; and • review of Group pension schemes. Other matters addressed by the Board are: • approval of the Group’s strategy; • approval of the Group’s annual budget; and • ensuring maintenance of a sound system of internal controls and risk management. chaiRman anD chieF execUTiVe The division of responsibilities between the Executive Chairman and the Chief Executive is understood and works well. The Chairman’s role is to lead the Board and oversee the Company’s operations and strategy including at a specific annual strategy meeting and is updated on progress at each meeting by the Chief Executive. The Chief Executive’s role is to manage the Company, develop strategy and ensure its successful implementation. The Board believes that five non-executive Directors may be considered to be independent under the Code, namely Messrs Balsemão, Verey, Berry and Trempont and Ms Roizen. Each of Mr Balsemão and Mr Verey have been on the Board for 10 and 9 years respectively and the Board has reviewed the independence of each, recognising that longevity of service is one of a number of factors to take into account. The Board is satisfied that each has continued to demonstrate independence in terms of character and judgement. Messrs Hemingway and Gillespie are not regarded by the Board as independent under the Code because they have advised the Company over many years; nor is Mr Nelson because he is an advisor to the Chairman. Nevertheless, the Board believes that these non-executive Directors make an important contribution to its deliberations and have invaluable experience of the Company, its business and its staff. inFoRmaTion anD PRoFessionaL DeVeLoPmenT Procedures have been established to ensure that the Board receives timely and appropriate information both for its meetings and regularly between meetings. All Directors are offered such training as is considered necessary, both on appointment and at any subsequent time. Heidi Roizen was appointed in late September. She has been provided with induction on appointment, including meetings with senior management across the Group and in respect of the Group’s business operations and with the General Counsel and Company Secretary in respect of governance matters. There is an agreed procedure for Directors to take independent professional advice at the Company’s expense, if necessary. Annual Report 201260 nominations committee attendance Number of meetings eligible to attend Number of meetings attended The Viscount Rothermere J G Hemingway F P Balsemão 4 4 4 3 4 4 investment and Finance committee attendance Number of meetings eligible to attend Number of meetings attended The Viscount Rothermere M W H Morgan S W Daintith D M M Dutton J G Hemingway D Nelson 11 11 11 11 11 11 11 11 11 11 10 11 eLecTion anD Re-eLecTion The Company’s Articles of Association require that a Director appointed by the Board must stand for election at the next AGM Notwithstanding the Company’s Articles of Association that all Directors are subject to re-election at least every three years, the Board has adopted the provision in the Code that all Directors should seek annual re-election. The Company’s Articles were last amended by a special resolution of Ordinary shareholders in February 2010 in accordance with the Companies Act 2006. The terms and conditions of appointment of the non-executive Directors are available for inspection at the Registered Office of the Company during usual business hours. BoaRD eVaLUaTion The Board has undertaken its annual evaluation of its own performance and that of its individual Directors. It reviewed its performance by reference to the schedule of matters reserved for it. The evaluation process took the form of a questionnaire sent to each Director, seeking his views on the Board’s mandate, membership, motivation, methods, monitoring and measurement. The Chairman reported the consensus view on performance to the Board at its meeting in September, enabling it to conclude that it had been effective in the year under review. No material changes to procedures were considered necessary although the Board remains concerned to ensure that it maintains a high standard of governance in all of its proceedings. VaLUe cReaTion anD sTRaTeGy The basis on which the Company generates value over the longer term and the strategy for delivering its objectives are set out in the Chief Executive’s Review on pages 10 to 19. comPany secReTaRy The Company Secretary, Ms Chapman who succeeded Mr Jennings on 1st October, 2012 is responsible for advising the Board through the Chairman on all governance issues. All Directors have access to the advice and services of the Company Secretary. Ms Chapman is additionally the Company’s General Counsel. conFLicTs oF inTeResT The Company’s Articles of Association permit the Board to authorise Director’s conflicts of interest. The Company has adapted the GC100 guidelines, and its approach is for conflicts to be renewed annually and at such other times as may be appropriate. BoaRD commiTTees The Board has established Nominations, Remuneration, Audit, Risk, Investment and Finance and Corporate Responsibility Committees with mandates to deal with specific aspects of its business. The remits of these committees are published on the Company’s website at www.dmgt.com. Details of the membership of these committees are given on pages 50 and 51 and pages 60, 62-64 and 70. Each committee reports to the Board at every regular meeting. In October, 2011, the Board carried out a review of the performance of its committees and concluded that each had complied with its respective terms of reference and had been effective in the year. inVesTmenT anD Finance commiTTee Operating decisions are delegated to the Investment and Finance Committee which determines matters relating to the Group’s financial affairs in accordance with specific terms of reference. The Investment and Finance Committee works alongside the DMGT Leadership Team with the objective of improving investment decision making and Group strategy development. The Committee comprises the Viscount Rothermere (its Chairman) and Messrs Morgan, Daintith, Dutton, Hemingway and Nelson. During the reporting period the Deputy Finance Director, Mr Perry, has acted as Secretary to the Committee but Ms Chapman replaced Mr Perry as Secretary from autumn 2012. Mr Perry will continue to attend as an invitee. The Director of Strategy Development, Ms FitzGerald, attends meetings at the invitation of the Committee. It held 11 meetings during the year which were attended by all of its members, except by Mr Hemingway in March 2012. nominaTions commiTTee The Nominations Committee comprises three Directors: the Viscount Rothermere (its Chairman), Mr Hemingway and Mr Balsemão. During the reporting period, Mr Perry was Secretary to the Committee but Ms Chapman succeeded Mr Perry as secretary from autumn 2012. Mr Nelson and Mr Berry joined the Committee on 21st November, 2012. The Chief Executive, the HR Director and since her appointment in May, Jane Allen, the Group Reward Director, attend most meetings at the invitation of the Committee. The Committee met four times during the year and all meetings were attended by all serving members, with the exception of the one meeting, when Lord Rothermere communicated his views to the Committee but did not attend. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 61 The Committee reviews the structure, size and composition of the Board and makes recommendations to the Board on any changes. During the year it nominated Heidi Roizen to the Board as a new independent non-executive Director. It determined from its search of international candidates centred in the US with a strong technology background, that Ms Roizen’s experience made her the preferred candidate. Heidi Roizen is based in Silicon Valley, California. Her appointment has added to the technology and international experience represented on the Board, widening further the range of insights and perspectives brought to its deliberations. External advice was taken, but advertising was not required in this instance. The Committee considered the benefits of diversity, including gender, during this search as recommended by the Code. Whilst supportive of the Davies recommendation, which is a focused aspiration, the Committee’s view is that the diversity discussion is broader than gender. It is about ensuring that there is an appropriate range and balance of skills, experience and background on the Board. Achieving this balance is a key determinant of any new Board appointment we make. The Committee continued to review succession planning for both executive and non-executive Directors. ReLaTions wiTh shaRehoLDeRs The Company maintains a regular programme of contact with its institutional shareholders. In the past year, this has included meetings in London, Scotland, and the USA. Non-executive Directors are kept informed of the views of institutional shareholders by the regular distribution of analysts’ reports and feedback is provided from institutional meetings. All shareholders are welcome to attend the AGM, of which 21 clear days’ notice is given, where they have the opportunity to speak to Directors. In the interests of transparency and to assist private shareholders, the Company posts all announcements and general presentations given to analysts and institutions on its corporate website. Shareholders and others interested in the Group are encouraged to use the site and to email questions which they might have to investor.relations@dmgt. com. Questions to particular Directors should be addressed through the Company Secretary. inTeRnaL conTRoLs anD manaGemenT oF Risk The Board has overall responsibility for the Group’s system of internal controls. This system is designed to provide reasonable assurance over the safeguarding of assets and shareholders’ investment and the reliability of financial information. Any such system can, however, provide only reasonable, and not absolute, assurance of these matters. The Group operates on a divisional basis with each of the businesses described on pages 22 to 37 of the Annual Report having autonomy as regards its operation and establishment of control systems. Overseeing the divisional structure is a central management team responsible to the Board. Certain functions are undertaken centrally, notably newsprint buying, insurance, treasury, tax, pensions, and risk and assurance (including internal audit). The Directors confirm that they have reviewed the effectiveness of the Group’s system of internal controls for the period up to the date of the approval of the Accounts. The Board has not identified any significant failings or weaknesses during this reporting period. The Directors have excluded joint ventures and associates, principally Zoopla, from their assessment of internal controls over financial reporting because the Group does not have the ability to dictate or modify controls at these entities. Controls over the recording of amounts in the Group’s consolidated financial statements relating to the investments has been assessed. In reviewing the effectiveness of the system of internal controls, the Board has considered material controls (including those undertaken through its committees), including financial, operational and compliance controls and risk management systems as follows: 1) operations of the audit committee The Audit Committee, on behalf of the Board, has responsibility for the review of internal financial controls. It fulfils this by: • by receiving regular reports summarising the results of internal audit reviews and management controls assurance work from the Head of Risk & Assurance. These include management’s response to any recommendations and the progress of any required actions; • being made aware of the results of the Key Internal Controls certifications and reviews performed by Risk and Assurance; Annual Report 201262 Risk committee attendance Number of meetings eligible to attend Number of meetings attended M W H Morgan S W Daintith D M M Dutton D J Verey M J Page H Kass 4 4 4 4 4 1 4 4 4 4 4 1 The Head of Risk and Assurance meets regularly with the Audit Committee chairman and, at each Audit Committee meeting, reports on the internal audit activity across the Group, including progress against completion of the annual plan, a summary of the findings of assurance reviews undertaken both by internal audit and by divisional teams and the results of follow-up reviews. 3) Confirmation of key internal controls Each year operating businesses within the Group are required to confirm the operation of key internal financial controls to the Group Accounting department which, in turn, reports to the Finance Director. Risk and Assurance review these submissions and follow up on exceptions as appropriate. 4) Risk committee The Risk Committee oversees the quality and formality of risk management processes across the Group. The remit and operation of the Risk Committee is described in more detail below. 5) Review of relevant and timely financial information Divisional and executive Boards regularly review relevant and timely financial information that is produced from the management information systems operated across the Group. This is supported by a framework of rolling 12-month forecasts as well as annual budgets that are approved at a divisional level by the Investment & Finance Committee. 6) operations of the investment and Finance committee The evaluation of the benefits and risks of investment opportunities and financing proposals is undertaken by the Investment and Finance Committee. Above certain defined levels, however, the Board approves programmes relating to acquisition and divestment proposals and capital expenditure. 7) Senior Accounting Officer sign-off The HMRC Senior Accounting Officer (SAO) rules require the SAO of qualifying companies (for DMGT this is the Group Finance Director) to certify that the Company (and its subsidiaries) have established and maintained appropriate arrangements to ensure that tax liabilities are calculated accurately in all material respects. As a result, Group Tax implemented a controls questionnaire and performed a series of controls reviews of UK businesses. • reviewing a summary of letters to management prepared by the Group’s external auditors following their audit procedures; and • considering significant financial reporting issues and approving any changes to Group accounting policies, which are set centrally. 2) Risk and assurance Risk and Assurance carries out internal audit activities for the Audit Committee across the Group. It has a direct reporting line to the Audit Committee and operates under its internal audit charter which covers: its purpose and objective; its authority and scope; independence issues; standards of professional practice; performance monitoring; planning; and reporting. An annual plan is developed each year which considers every part of the Group’s operations. Input is received from divisional and executive management, the Audit Committee, external auditors, and with reference to past reviews and key risks. The Audit Committee approves the internal audit plan for the forthcoming year in September. Any necessary changes to the plan during the year are agreed with the Chairman of the Audit Committee. Risk and Assurance schedule, plan and complete internal audit reviews in accordance with the annual plan across the year; working closely with local and divisional management to determine a detailed scope for each review. Audit findings are categorised according to their significance and the overall control environment is rated for each review. Audit findings are cleared at the completion of the fieldwork and a formal report is issued which includes agreed actions and the timescale for remediation of control weaknesses identified. Regular follow-up of audit points is completed by Risk and Assurance to ensure that management actions are completed within the timeframes agreed. The department also coordinates with a number of the divisions who undertake internal controls assurance reviews within their respective business. In addition to the schedule of reviews set out in the annual plan, an annual bribery and fraud risk assessment is completed by each key business in the Group detailing bribery and fraud risks and mitigating controls. Risk and Assurance follow up with divisional management to ensure that these controls are satisfactorily implemented. All divisions are adequate and are required to notify Risk and Assurance of any bribery or fraud issues identified. This allows action to be taken where it is felt that control weaknesses may exist. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 63 audit committee attendance Number of meetings eligible to attend Number of meetings attended D J Verey J G Hemingway N W Berry D H Nelson 4 4 4 4 4 4 4 4 maintain direct links with each of the main divisions through attendance at divisional board meetings as Directors of these boards. The Committee reports to the Board after each of its meetings to assist the Board in its determination of the overall effectiveness of the system of internal control and risk management. aUDiT commiTTee The Audit Committee, on behalf of the Board, has responsibility for the review of financial risk management and of internal financial controls, as these directly relate to the quality of financial reporting. In addition, the Committee is mandated to: • review all public financial statements of the Company and of the Group, including the half year and annual financial statements, before such statements are submitted to the Board; • consider any appointment of external auditors to Group companies, to review audit fees and to consider any questions of resignation or dismissal of external auditors; • monitor and review the resources and effectiveness of internal audit (including approval of the appointment and removal of the Head of Risk and Assurance); • agree the internal audit programme for the forthcoming year; and • to consider a summary of Group internal audit reports and such individual reports as the Committee sees fit and corresponding management responses to any recommendations, and to monitor the progress of any required actions. The Committee monitors the financial reporting process and the Group’s statutory annual audit. It also considers significant financial reporting issues, approves any changes to Group accounting policies and reviews a summary of recommendation letters to management prepared by the Group’s external auditors following their audit procedures. Risk commiTTee The oversight and management of significant risks around the Group is undertaken by the Risk Committee and it accords with the FRC Guidance and the Turnbull Guidance on internal controls, as updated, appended to the Code. The Committee comprises Messrs Morgan (its Chairman), Daintith, Dutton, Verey and Page, Deputy Finance Director of A&N Media. Mr Kass, the legal director of A&N Media, retired in December, 2011. Ms Roizen and Ms Chapman, the General Counsel and Company Secretary, joined the Risk Committee from November, 2012. Mr Verey provides a non-executive perspective to the review of risk management processes within the Group, as well as providing a direct link to the Audit Committee. The Committee met four times during the year and all meetings were attended by all serving members. Individual attendance by members is set out on page 62. The Head of Risk and Assurance, Mr Ashby is Secretary to the Committee. The Group adopts a prudent risk strategy, weighing opportunities for potential gain against threats to overall business objectives and profitability. Senior management addresses the opportunities and uncertainties relating to the business activities of the Group. The risk management process consists of the identification, evaluation and control of risks, which could threaten the achievement of the Group’s strategic, operational and financial objectives, as well as the active management of opportunities. The processes described below were in place throughout the year. The Committee oversees the quality and formality of risk management processes across the Group. The Committee considers the Group risk register (a consolidation of divisional and central function risk registers with Group-wide risks overlaid) annually. In addition, the Committee reviews specific risks and monitors developments in relevant legislation and regulation to consider the impact these might have on the Group including on its system of internal controls. This year the Committee has focused on cyber-attack; the EU Privacy and Electronic Communications Regulations; risks from the use of social media; Bribery Act compliance; health and safety; fraud (as part of the annual fraud risk assessment); and business continuity planning. The Committee also followed up on the recommendations from the Editorial Process Review completed in 2011. Members of the Risk Committee Annual Report 201264 The Committee comprises four non- executive Directors: Messrs Verey (its Chairman), Hemingway, Berry and Nelson. The Code recommends that an audit committee should comprise at least three members, all of whom should be independent non-executive Directors. Only Messrs Verey and Berry are considered to be independent under the Code. Nevertheless, the Board believes that the Committee operated independently during the period. Mr Trempont joined the Committee with effect from 21st November, 2012 and is independent. Members’ qualifications are set out in their biographies on pages 50 and 51. The Board is satisfied that Mr Nelson, senior partner of a firm of chartered accountants and Mr Verey, the Committee Chairman, have recent and relevant financial experience. Ms Chapman succeeded Mr Jennings as Secretary to the Committee from its November, 2012 meeting. The Audit Committee met four times during the year and all meetings were attended by all serving members. Individual attendance by members is set out on page 63. The Finance Director attended all meetings and the Chief Executive two meetings, each by invitation. The Committee has implemented the procedures set out in the updated Guidance on Audit Committees, published by the Financial Reporting Council in December, 2010, and updated September, 2012 which are within its control. It reviews the Group’s policy on whistleblowing. As noted, the Committee has primary responsibility for making a recommendation to the Board on the appointment, reappointment and removal of the external auditors, together with approval of their remuneration. As part of its role in ensuring the effectiveness of the audit process, the Committee also undertakes an annual assessment of the qualifications, expertise and resources of the external auditors. The appointment of Deloitte LLP as the Group’s external auditors (incumbents since the last audit tender in 2001) is kept under annual review, and, if satisfactory, the Committee will recommend the reappointment of the audit firm. The appointment of Deloitte followed a formal tender process undertaken in 2001 and, rather than adopting a policy on tendering frequency, the annual review of the effectiveness of the external audit is supplemented by a periodic comprehensive reassessment by the Committee. The last such reassessment was performed in 2008/09, as with many suppliers, when having received assurances on the continued quality of the audit, the Committee determined to recommend the reappointment of the incumbent firm. As the appointment of the auditors is for one year only, being subject to annual approval at the Company’s AGM, there is no year-on-year contractual commitment to the current audit firm and, as such, the Committee may undertake an audit tender at any time at its discretion. Procedures exist to monitor the independence of the external auditors and include a policy on employment of former audit principals. In performing its review, the Committee evaluated the adequacy of the audit firm’s key processes and controls in certain key areas including, but not limited to: • arrangements for ensuring independence and objectivity, including the rotation of key audit partners; • appropriateness of the planned audit scope and its execution; • the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements; and • the quality of their reporting. During the year, the Committee received reports from management on litigation matters, investor relations messages, correspondence with institutional shareholders, analyst and media reaction to the Group’s 2011 preliminary announcement and half year and Annual Report, changes in the FTSE composition, going concern and on developments in international financial reporting standards. The Committee also reviewed the annual internal audit plan, summaries of reports received and reviewed the effectiveness and resources of the Group’s internal audit function. In September, it carried out an annual review of its terms of reference and of its effectiveness and concluded that it did not need to recommend to the Board any substantive changes to its remit or operations. In September, the Board conducted its own review of the Committee’s performance and confirmed that the Committee had fulfilled its obligations and been effective in the year under review. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 65 Euromoney Institutional Investor plc is subject to the requirements of the Code in its own right. As disclosed in its latest annual report, it has in place its own system of internal control and risk management processes which forms part of the Group’s overall framework of control. The joint ventures and associates of the Group are not included in the Group’s system of internal control described above. On 18 April 2012, FTSE announced that DMGT’s ‘A’ Ordinary Non-Voting Shares would no longer be eligible for inclusion in the UK Index Series. The Board of DMGT has considered at length, with the assistance of its advisors, the options available to it and the suitability of such options to meet the needs of its stakeholders to make the ‘A’ Ordinary Non-Voting Shares eligible for inclusion in the UK Index Series but no solution has to date been found. The FSA’s recently issued consultation paper on ‘Enhancing the effectiveness of the Listing Regime and feedback on CP12/2’ makes it more difficult to envisage how the Company can regain its premium listing. It is unlikely, therefore, that the ‘A’ Ordinary Non-Voting Shares will become eligible for inclusion in the index in the foreseeable future. However, DMGT’s ‘A’ Ordinary Non-Voting Shares will continue to be standard listed and traded on the London Stock Exchange and to be a member of other important indices such as MSCI, STOXX, S&P and the FTSE Global Equity Index Series and DMGT will continue to maintain the highest standard of governance and disclosure. PoLicy on non-aUDiT Fees During 2011 the Committee reviewed its policy on the provision of non-audit services in light of the Ethical Standard, issued by the Auditing Practices Board in December, 2010. The Audit Committee considers services under the three headings, set out in the Ethical Standard. The Committee determined that the policy continued to apply during the reporting period. services where threats to Deloitte’s independence are considered low The first category comprises pre-approved services where threats to Deloitte’s independence are considered low, typically where the engagement is routine in nature and the fee immaterial in the context of the total annual Group audit fee. In addition such pre-approved services include those which are audit related, as defined by the APB Ethical Standard. Services which may fall in this category include the review of the Half Yearly Report, reporting on regulatory returns and accountancy advice. services where there could be a perceived threat to independence The second category is services where there could be a perceived threat to independence for which approval is required before they are undertaken. Non-audit services in these areas are considered by the Committee on an individual basis and are put out to tender where the amounts in question are significant. Non-audit services in this category would include those with a contingent fee arrangement. In these areas, the choice of firm is determined on the basis of professional expertise and competitiveness. services where there is a real threat to independence The third category is services where there is a real threat to independence and from which the external auditors are therefore excluded. These services are specifically prohibited by the APB Ethical Standard and comprise: • internal audit and IT services where the external auditor would place significant reliance as part of its audit work; • valuation and tax services and litigation support where the respective valuation, calculations or estimation of the likely outcome would have a material effect on the financial statements; • any services where the auditor would undertake the role of management or take on the role of advocate; and • contingent fee arrangements where the outcome is dependent on a future or contemporary audit judgement relating to a material matter in the financial statements or on a new or uncertain tax law interpretation. In addition to considering the non-audit fees to be incurred, the Committee also considers both the nature of the services to be performed and the safeguards required to maintain independence. Non-audit fees payable to Deloitte LLP in the year amounted to £0.8 million, compared to £0.8 million in the previous year (note 5). D J Verey Audit Committee Chairman On behalf of the Board c chapman Secretary 30th November, 2012 Annual Report 201266 The Viscount Rothermere Chairman, Remuneration Committee key activities The following changes were implemented: • an increase in the LTIP performance measurement period from three to five years; • simpler set of LTIP performance measures linked to the achievement of strategic objectives; • a reduction in annual LTIP award from 187.5% of salary to 100% of salary; • a portion of bonus depends on achievement or progress towards key strategic objectives. For 2012 this was 20% of bonus; and • actual bonus outcomes for 2012 were just above target, reflecting good corporate performance. in This secTion overview and key activities Remuneration at a glance Performance and outcomes in 2012 The Remuneration committee Remuneration components Previous LTiP plans Previous option plans Graphs Deferred bonus scheme Pensions service contracts Directors’ interests in shares 66 68 69 70 71 72 73 74 76 77 78 79 Over the last year or so widespread concern has been expressed on the topic of executive compensation generally and particularly in relation to schemes which reward short-term thinking. Much of this concern is valid. It is more important than ever that the Remuneration Policy is fully aligned with the interests of long-term shareholders who want to see sustainable growth, businesses that respond to technological change and a policy of investing for the medium to long term and not for short-term returns at the expense of creation of long-term value. As the Company’s largest shareholder, my interests are fully aligned with other shareholders. Given this, it’s disappointing that the Company has received some criticism for the composition of its Remuneration Committee. The Committee is confident that its make-up ensures that it carries out all aspects of its role with proper and appropriate regard to long-term shareholders’ interests and that this alignment is, in fact, stronger as a direct consequence of its membership. Following a detailed review of reward policy in 2011, the Committee decided to further strengthen the alignment between the interests of the executives and shareholders, whilst ensuring that executive compensation is fair and easily understood. Our objective was to combine the necessary attention to short-term performance by the addition of key business objectives into the annual bonus plan, with a stronger focus on the fundamentals that drive long-term growth, by lengthening the performance period to five years and creating a set of objectives against which to measure progress towards our strategic goals. My remuneration continues to follow the approach adopted in 2009, as set out in the key elements of remuneration table on page 70. The Committee continued its practice of setting stretching annual bonus performance targets, thus ensuring pay is firmly linked to performance. When determining the annual pay review for Executive Directors, the Committee was mindful of pay elsewhere in the Group and shareholder feedback. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 67 contents of the Report This report has been prepared in accordance with the relevant requirements of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations) and of the Listing Rules of the Financial Services Authority. As required by the Regulations, a resolution to approve the report will be proposed at the Company’s AGM. This report on Directors’ remuneration includes the following: • a description of DMGT’s policy on executive remuneration for 2013 and subsequent years; • details of each Director’s remuneration earned in 2012 and awards under long- term incentive plans; • graphs illustrating DMGT’s total shareholder return (TSR) performance; • information regarding the constitution and duties of the Remuneration Committee (the Committee) and its activities during 2012; • a summary of the terms of executive Directors’ contracts and non-executive Directors’ appointments; • Directors’ interests in DMGT shares; and • audited disclosures of Remuneration. Other activities of the Committee in 2012 included: • agreeing pay increases for the Executive Directors for the coming year with effect from 1st October, 2012 of 3%, except for Paul Dacre who has a contractual increase of the higher of RPI or 5%; sUBsiDiaRy PLans The Committee also spends considerable time reviewing the incentive plans of our main subsidiaries. Developing the right incentives is a key part of ensuring that we have the right entrepreneurial culture and growth strategies in our various businesses. • agreeing an annual bonus payment for the year. The Board considers the performance of the Group in 2012 to be good and annual bonus payments for 2012 were slightly above target level; • agreeing the vesting of the December, 2009 LTIP award at 52.5% of maximum. The award vests in December 2012 based on results over the three-year period: 1st October, 2009 to 30th September, 2012; • noting the latest forecast outcomes for the previous LTIP awards, the December, 2010 award is currently estimated to be 20% and the 2006 and 2007 awards are estimated to be below threshold. A summary of previous awards and their estimated vesting can be found on page 75; and • introducing a new provision, so that the Committee may decide to reduce or eliminate bonus awards, or require repayment of a bonus already received in the event of material misstatement of information or misconduct of the participant. This year we have tried to improve the clarity and transparency of the report. Specifically, we have introduced a section which covers key outcomes for the year at a glance. In addition we have commented on the link between reward and the performance of the business in 2012. sUPPoRT FoR The RemUneRaTion commiTTee Given the increasing importance of the role of remuneration and the Group’s desire to operate a variety of plans focused on the performance and needs of the individual businesses. We have recently appointed a new Group Reward Director Jane Allen who will provide additional internal resource to support the Committee and the wider management team. The Group Reward Director will also be Secretary to the Committee with effect from 21st November, 2012. The Committee receives regular updates on corporate governance as well as pay increase budgets and incentive plan payouts in our local markets. consULTaTion wiTh shaRehoLDeRs As in previous years, the Committee takes account of the views of shareholders and the largest shareholders were invited to meet with David Nelson in December 2011 to discuss the proposed changes. The Remuneration Report received a majority vote in favour as did the new LTIP at the AGM. We sincerely hope to receive your continued support at the AGM on 6th February, 2013, for our approach that combines the necessary attention to short-term performance with a focus on the fundamentals that drive long-term value. All of our work is aimed at ensuring the sustainability and long-term success of the Group. The Viscount Rothermere Chairman Annual Report 201268 RemUneRaTion aT a GLance Business performance • EPS – 49.4p (up 7%) • Profit before tax* – £255 million (up 10%) • Dividend – 18p (up 6%) • Share price increased in the year from £3.57 on 3rd October, 2011 to £4.82 on 30th September, 2012 an increase of 35% and had increased by a further 8% by the date of this report. 2012 Remuneration outcomes for the executive Directors Fees and salary 2012 Increase with effect 1st October, 2012 Cash bonus/profit share1 Benefits in kind Car allowance Pension/cash allowance Gain on LTIP/share option awards that become exercisable in the year The Viscount Rothermere £000 751 (3%) 228 3 34 267 – M W H Morgan £000 S W Daintith £000 D M M Dutton £000 P M Dacre £000 P M Fallon £000 K J Beatty £000 902 (3%) 451 3 18 323 – 640 (3%) 320 3 14 192 – 328 (3%) 91 1 – – – 1,7502 (5%) – 26 10 – – 222 (0%) 5,6363 2 – – 28 666 (3%) 200 5 16 246 – Total 1,283 1,697 1,169 420 1,786 5,888 1,133 1 75% of the Viscount Rothermere’s bonus is deferred into shares for three years. For Messrs Morgan and Daintith the bonus up to 50% of salary will be paid in cash, for Mr Beatty the bonus up to 30% will be paid in cash. The remaining amount for Messrs Morgan, Daintith and Beatty will be deferred into shares for two years. 2 Mr Dacre’s services have been retained in his current role. The Committee decided in 2010 that Mr Dacre would be paid an additional £500,000 for each full year that he continues working until he is 65. Mr Dacre does not participate in any bonus or other LTIP. 3 The level of Mr Fallon’s bonus/profit share was determined by the Euromoney Remuneration Committee, details of which are set out in Euromoney’s annual report. what are the key elements of remuneration for the executive Directors? The remuneration policy for the Executive Directors over the 2013 financial year will remain the same as that which applied for the 2012 financial year. Fixed Base salary Pension The Viscount Rothermere, Messrs Morgan, Daintith and Beatty receive a cash allowance in lieu of pension. Variable remuneration short term – annual bonus The Viscount Rothermere: on target bonus is 100%, maximum is 200% of salary, normally 75% of any bonuses deferred into shares for 3 years. Messrs Morgan and Daintith: on target bonus is 50%, maximum is 100% of salary with any amount above target deferred into shares for two years. Mr Beatty: on target bonus is 30%, maximum is 60% of salary with any amount above target deferred into shares for two years. Long-term incentive – 5 years The Viscount Rothermere: no awards from 1st October, 2009. Messrs Morgan, Daintith and Beatty: standard award of shares equivalent to 100% of salary. Vesting is after 5 years, conditional upon achievement of performance conditions. Messrs Dutton and Dacre: do not participate in a long-term incentive plan. Clawback provision is included in the 2012 LTIP rules. Benefits in kind ie car, fuel allowance, private medical Mr Dutton: bonus is discretionary. No deferral applies. Mr Dacre: does not participate in a bonus scheme. Clawback of bonus in the event of material misstatement of information or misconduct. Recommended shareholding 1.5 times base salary achieved over suitable period Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 69 LTiP awards vesting in 2011 The LTIP awards made in 2007 did not meet the performance criteria in the period up to 31st December, 2011. Therefore the LTIP award did not vest. There was no LTIP award in December, 2008. LTiP awards vesting in 2012 The 2006 LTIP award, the extended performance period of which ends on 31st December, 2012, is unlikely to meet the threshold for vesting. See page 74 for further details. The LTIP awarded in December, 2009 which will vest in December, 2012 for which the performance period ended on 30th September, 2012 will vest as follows: Weighting % that vests Actual outcome Actual % that vests EBITA (2011/12) 25% below threshold above threshold 0% 10% 25% Cumulative free cash Net debt: EBITDA (average) Performance against the Strategic Plan Total 25% maximum 25% 25% above target 17.5% 52.5% The 2009 awards will not be realisable until December, 2015. The value of the award uses a closing share price of £4.82 on 30th September, 2012. The final value will not be known until the award vests in December, 2015. LTIP shares Total value of LTIP awards £000 Martin Morgan 2012 Kevin Beatty 2012 69,053 51,042 332,835 246,022 In addition to the core awards in the table above, matching shares will be awarded, to the extent to which the core award vested, on 14th December, 2012, 2013, 2014 and 2015, so long as none of the shares from the core award are sold and the executive is still employed in the Group. PeRFoRmance anD oUTcomes in 2012 2012 annual bonus outcomes The table below sets out the performance criteria and the level of achievement against each measure. Performance measures for 2012 B2B Adjusted pre-tax profits Actual Outcome % achieved above target 132% Consumer adjusted pre-tax profits above target Overall DMGT adjusted pre-tax profits above target 110% 123% strategic objectives For Messrs Morgan, Daintith and Beatty, 20% of the bonus is measured against achievement of strategic targets. For 2012, examples of the progress during the year against these targets are set out below: • divestment of Northcliffe Media; • ensuring that we have the right skills and talent to deliver against our strategic priorities; and • increasing focus on technology and digital transformation supported by a cross- divisional council of Chief Technology Officers. outcomes The Committee agreed a bonus award of 121.3% for the Viscount Rothermere, 62.6% of salary for Mr Morgan and 68.6% of salary for Mr Daintith. The Committee also agreed a bonus award for Mr Beatty of 45.4% of salary. The award for Mr Dutton was £90,750. Bonus deferral In accordance with revised deferral levels, 75% of the Viscount Rothermere’s bonus will be deferred into shares for three years. For Messrs Morgan, Daintith and Beatty, any amounts above on target bonus are deferred into shares for two years. There is no deferral applied to the bonus for Mr Dutton. Annual Report 201270 Remuneration committee attendance Number of meetings eligible to attend Number of meetings attended The Viscount Rothermere N W Berry D H Nelson 5 5 5 5 5 5 The RemUneRaTion commiTTee: RoLe anD acTiViTies The Remuneration Committee responsibilities include Group remuneration policy and for setting the remuneration, benefits and terms and conditions of employment of the Company’s executive Directors and other senior executives. The Committee’s terms of reference are available on the Company’s website. The members of the Committee are the Viscount Rothermere, its Chairman, Messrs Berry and Nelson. The UK Corporate Governance Code (‘the Code’) recommends that a remuneration committee should be composed entirely of independent non-executive Directors. The Board considers it appropriate that the Viscount Rothermere, as the Company’s largest shareholder, is a member of the Committee. He always leaves meetings in advance of any discussion of his own remuneration. While Mr Nelson is not considered to be independent under the Code, the Board does consider him to act independently as regards remuneration issues. The Committee also reviews the Chief Executive’s recommendations for the remuneration packages of other senior executives, except those in Euromoney, and oversees the bonus arrangements which are reviewed by the Euromoney Remuneration Committee and long-term incentive arrangements. These are designed individually to reflect the targets and objectives of each division. The Committee met five times during the year all of which were regular meetings. The meetings were attended by all serving members, except that the Viscount Rothermere did not attend part of one meeting, when matters affecting his own remuneration were discussed. Individual attendance by members is set out below. During the year, the Board approved that the Secretary to the Committee would now be the Group Reward Director. The Committee seeks the recommendations of the Chief Executive, with regards to the remuneration of the other executive Directors and of other senior executives. He usually attends meetings of the Committee by invitation. It also seeks input from the Finance Director regarding financial performance and other issues, from the HR Director, Group Reward Director and from the Company Secretary. No executive is present when his own remuneration is being discussed. During 2012, the Committee was advised by MM&K, a specialist remuneration advisor, who were appointed by the Committee. MM&K also provided the Company with advice on share schemes, provided market data of remuneration levels for other companies, particularly in the media field and advice on best practice. Phil Wills Associates were separately appointed by management and provided remuneration advice to the Committee. Neither advisers provided services to any other part of the Group. Freshfields, which are the Company’s legal advisor, also provided advice to the Committee. In September 2012, the Committee conducted a formal review of its effectiveness and concluded that it had fulfilled its remit and been effective in the year. DmGT’s execUTiVe DiRecToR RemUneRaTion PoLicy The Committee seeks to structure remuneration packages on an individual basis appropriate to the level of responsibility that is generally designed to motivate and retain the individual. The Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of commercial demands, changing market practice and shareholder expectations. Ordinary shareholders are provided with the opportunity to endorse the Company’s remuneration policy on a regular basis through the annual vote on the Remuneration Report. A significant proportion of each executive Director’s remuneration is performance related. Risk and reward During the year the Committee reviewed and confirmed that the plans in operation throughout the Group did not incentivise excessive risk and in particular that the remuneration incentives the Company are compatible with its risk policies and systems. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 71 Remuneration components The Committee makes reference, where appropriate, to pay and employment conditions elsewhere in the Group, especially when determining annual salary increases, and to external evidence of remuneration levels in other companies, particularly in the media field. It also makes reference to advice sought from external advisors. Basic Fees anD saLaRy Basic salaries are set by the Committee and reviewed annually. BonUses Executive Directors are eligible for an annual bonus dependent on the achievement of targets which take account of corporate performance as well as key strategic objectives. These targets are reviewed annually and new objectives are set by the Committee for each Director at the start of the financial year. Details of the target and maximum bonus levels for each of the executives can be found on page 70. Details of the bonus awards for 2012 can be found on page 71 of this report. LTiP The 2012 plan was approved by shareholders at the 2012 AGM and has a standard award of 100% of salary, for those Executive Directors who participate in the plan, although the plan rules approved by shareholders provides for maximum awards in exceptional circumstances of up to 300% of salary. 2012 schedule of LTiP awards Performance conditions The Committee recognises the difficulty of setting formula-driven financial goals at a Group level over an extended five-year period, as well as to the challenges of the overall economic environment in general and the print businesses in particular. The following criteria apply to the LTIP awards made in March, 2012, which will be assessed by the Committee at the end of 2016, who will then decide on the extent to which the LTIP awards will vest: • growing the B2B businesses; • continue to grow and invest in strong brands of digital consumer media – particularly MailOnline; • growing sustainable earnings and dividends; and • increasing the Company’s exposure to growth economies and to international opportunities. The performance criteria reflect the priority of increasing shareholder value by driving long-term sustainable profit growth, whilst continuing with our investment in a digital business. The performance conditions for awards to be made in December, 2012 follow the same principles for the awards that were made in March, 2012. Awards that have been made under the 2012 LTIP scheme are shown below. ‘A’ Ordinary Non-Voting Shares in award Held at 2 Oct 11 Awarded during year Vested during year Lapsed during year M W H Morgan S W Daintith K J Beatty Total – – – – – – – 206,350 146,453 152,494 505,297 – – – – – – – – – – – – – – Held at 30 Sep 12 206,350 Award price £ Date of award End of performance period 4.370 13 Feb 12 2 Oct 16 146,453 4.370 13 Feb 12 2 Oct 16 152,494 4.370 13 Feb 12 2 Oct 16 505,297 Annual Report 201272 sUmmaRy oF LTiP awaRDs anD VesTinG FRom 2006 To 2012 The table on the right summarises the awards that have been made each year and the actual level of vesting of the award or the estimated level for future vesting. Full details of previous plans can be found in the Remuneration Report in the 2011 Annual Report and Accounts. oUTsTanDinG awaRDs FoR The yeaR 2006 To 2007 LTiP awaRDs All participating Directors elected to delay the realisation of their 2006 awards for a further two years until 31st December, 2012 and of their 2007 awards until 31st December, 2013. Having received agreements to commit shares, the Trustee made the awards set out in the table on the right. summary of LTiP awards and vesting from 2006 to 2012 Year of Award Normal date of vesting Actual date of vesting Standard award as % of salary Percentage of award realised (estimatede) Award price Performance conditions Jul 06 Dec 10 Dec 12 187.5% 7.880 0% Relative performance of TSR against comparator group. Jul 07 Dec 11 Dec 13 187.5% 7.170 0% Relative performance of TSR against Mar 08 Mar 11 Mar 11 187.5% Mar 08 Mar 11 Mar 11 30% 4.265 4.265 Dec 09 Sep 12 Sep 12 187.5% 4.039 comparator group. 0% Core award: EPS growth. 100% Transition award: no additional conditions. 52.5% EBITDA; Cumulative free cash; Net debt: EBITDA average and Performance against strategic plan. Dec 10 Sep 13 Sep 13 187.5% 5.585 20%e EBITDA; Cumulative Free Cash; Net debt: EBITDA investment grade rating and performance against strategic plan. Feb 12 Oct 16 100% 4.370 100%e Extent to which strategic goals are met. 2006–2007 schedule of LTiP awards ‘A’ Ordinary Non-Voting Shares in award The Viscount Rothermere Subtotal M W H Morgan Subtotal D M M Dutton Subtotal Total Held at 2 Oct 11 36,250 43,926 80,176 17,766 17,500 35,266 16,142 18,807 34,949 150,391 Awarded during year Vested during year Lapsed during year Held at 30 Sep12 Award price £ Percentage of award realised (estimatede) End of extended performance period Date of award – – – – – – – – – – – – – – – – – – – 36,250 7.88 0%e 28 Jul 06 31 Dec 12 – – – – – – – 43,926 7.17 0%e 4 Jul 07 31 Dec 13 80,176 17,766 7.88 0%e 28 Aug 06 31 Dec 12 17,500 7.17 0%e 26 Feb 07 31 Dec 13 35,266 16,142 7.88 0%e 26 Sep 06 31 Dec 12 18,807 7.17 0%e 20 Jun 07 31 Dec 13 34,949 – 150,391 PeRFoRmance conDiTions The Company’s TSR ranking for the 2006 and 2007 awards are shown in the table below. The company’s Relative TsR Performance to date Year of award 2006 2007 Extended performance period 1 Jan 2006 to 31 Dec 2012 1 Jan 2007 to 31 Dec 2013 Position at 30th September 2012 Ninth Seventh Vesting if position maintained 0% 0% Graphs Graphs of the Company’s performance against each of its comparators for each of these periods are set out on page 75. These graphs have been plotted using the relative rankings of each comparator at the end of each month. As such, they are approximations to the actual rankings under the rules, which are calculated using a two-month average for the starting point and for each subsequent month. This can give different results between the table above and the graphs. The graphs on page 74 compare the Company’s total shareholder return with that of the FTSE 100 index over a period of five years, as required by the Regulations. As a constituent of the FTSE 100 from 1999 to 2006 and during 2007 and as a constituent of the media index throughout the period, the Directors regard both indices as the most appropriate indices for purposes of comparison of the Group’s performance. Additional graphs on that page illustrate performance over a 26-year period for which data is available. The graphs on pages 74 and 75 are unaudited. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 73 oUTsTanDinG awaRDs FRom 2008 To 2011 The table below shows unvested awards that were made under the 2008 LTIP scheme. 2008–2011 schedule of LTiP awards ‘A’ Ordinary Non-Voting Shares in Core awards Held at 2 Oct 11 Awarded during year Vested during year Lapsed during year Held at 30 Sep 12 M W H Morgan Subtotal K J Beatty Subtotal Total shares awarded Recruitment award 131,530 97,974 229,504 97,224 72,403 169,627 399,131 – – – – – – – – – – – – – – – – – – – – – 131,530 97,974 229,504 97,224 72,403 169,627 399,131 Award price £ 4.039 5.585 4.039 5.585 Percentage of award realised (estimatede) Date of award End of performance period 52.5% 20%e 52.5% 20%e 14 Dec 09 30 Sep 12 20 Dec 10 29 Sep 13 14 Dec 09 30 Sep 12 20 Dec 10 29 Sep 13 ‘A’ Ordinary Non-Voting Shares in Transition awards S W Daintith Held at 2 Oct 11 17,421 Awarded during year Vested during year Lapsed during year Held at 30 Sep 12 – – – 17,421 Award price £ 5.74 Percentage of award realised Date of award End of performance period 100% 1 Jan 11 1 Jan 14 1997 executive share option scheme Options were granted under this Scheme prior to 2006. Options granted do not normally vest until three years after the award and unless both performance conditions have been met. The first condition is that, in respect of four out of six consecutive monthly calculation dates (which start in the 30th month following the date of grant of a particular option), the total shareholder return (TSR) of the Company must exceed that of the FTSE 100 index. Secondly, there must be real growth in earnings per share (‘eps’) over a period of three consecutive financial years. option awards 2001–2004 Unvested awards that were made under the 1997 share option scheme are shown below. outstanding options There were 4,929,968 outstanding options under all the schemes at the end of the year. This represents 1.29% of the Company’s total issued share capital (excluding treasury shares). The mid-market price of the ‘A’ Ordinary Non- Voting Shares was £4.82 at 30th September, 2012 and £3.631 at 2nd October, 2011. It ranged from £3.479 to £5.015 during the year. awards of options made in the years 2001–2004 ‘A’ Ordinary Non-Voting Shares in the Company Held at 2 Oct 11 Awarded during year Exercised during year The Viscount Rothermere Subtotal M W H Morgan Subtotal D M M Dutton Subtotal P M Dacre Subtotal K J Beatty Subtotal Total 30,000 50,000 40,000 60,000 180,000 10,000 20,000 20,000 20,000 70,000 25,000 35,000 40,000 100,000 60,000 100,000 50,000 80,000 290,000 15,000 20,000 20,000 30,000 85,000 725,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Expired/ lapsed during year (30,000) – – – (30,000) (10,000) – – – (10,000) – – – – (60,000) – – – (60,000) (15,000) – – – Held at 30 Sep 12 – 50,000 40,000 60,000 150,000 – 20,000 20,000 20,000 60,000 25,000 35,000 40,000 100,000 – 100,000 50,000 80,000 230,000 – 20,000 20,000 30,000 (15,000) 70,000 (115,000) 610,000 Exercise price £ Likely vesting Normal date from which exercisable Expiry date 6.45 5.73 6.08 7.24 6.45 5.73 6.08 7.24 5.73 6.08 7.24 6.45 5.73 6.08 7.24 6.45 5.73 6.08 7.24 not vested 14 Dec 04 14 Dec 11 unlikely unlikely unlikely 16 Dec 05 16 Dec 12 8 Dec 06 6 Dec 07 8 Dec 13 6 Dec 14 not vested 14 Dec 04 14 Dec 11 unlikely unlikely unlikely unlikely unlikely unlikely 16 Dec 05 16 Dec 12 8 Dec 06 6 Dec 07 8 Dec 13 6 Dec 14 16 Dec 05 16 Dec 12 8 Dec 06 6 Dec 07 8 Dec 13 6 Dec 14 not vested 14 Dec 04 14 Dec 11 unlikely unlikely unlikely 16 Dec 05 16 Dec 12 8 Dec 06 6 Dec 07 8 Dec 13 6 Dec 14 not vested 14 Dec 04 14 Dec 11 unlikely unlikely unlikely 16 Dec 05 16 Dec 12 8 Dec 06 6 Dec 07 8 Dec 13 6 Dec 14 Annual Report 2012 74 Total shareholder Return: DMGT vs FTSE and Media Sector 100 2007–2012 -14% 150% 120% 90% 60% 30% 0% Key Se p 07 Se p 08 Se p 09 Se p 10 Se p 11 Se p 12 DMGT ‘A’ TSR FTSE 100 TSR Media Sector TSR Total shareholder Return: DMGT vs FTSE and Media Sector 100 1986–2012 +91% 4000% 3000% 2000% 1000% 0% Se p 86 Se p 87 Se p 88 Se p 89 Se p 90 Se p 91 Se p 92 Se p 93 Se p 94 Se p 95 Se p 96 Se p 97 Se p 98 Se p 99 Se p 00 Se p 01 Se p 02 Se p 03 Se p 04 Se p 05 Se p 06 Se p 07 Se p 08 Se p 09 Se p 10 Se p 11 Se p 12 Key DMGT ‘A’ TSR FTSE 100 TSR Media Sector TSR Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 75 Total shareholder Return: DMGT vs Media Comparators 2006–2012 9th position D e c 05 M ar 06 Ju n 06 Se p 06 D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 Se p 08 D e c 08 M ar 09 Ju n 09 Se p 09 D e c 09 240% 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% D e c 05 M ar 06 Ju n 06 Se p 06 D e c 06 M ar 07 240% 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% D e c 05 M ar 06 Ju n 06 Se p 06 D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 Se p 08 D e c 08 M ar 09 Ju n 09 Se p 09 D e c 09 M ar 10 Ju n 10 Se p 10 D e c 10 M ar 11 Ju n 11 Se p 11 D e c 11 160% 140% 120% 100% 80% 60% 40% 20% 0% 160% 140% 120% 100% 80% 60% 40% 20% 0% 240% 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 160% 140% 120% 100% 80% 60% 40% 20% 0% D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 Se p 08 D e c 08 M ar 09 Ju n 09 Se p 09 D e c 09 M ar 10 Ju n 10 Se p 10 D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 Se p 08 D e c 08 M ar 09 Ju n 09 Se p 09 D e c 09 M ar 10 Ju n 10 Se p 10 D e c 10 M ar 11 Ju n 11 Se p 11 D e c 11 M ar 12 Ju n 12 Se p 12 240% 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Key D e c 05 M ar 06 Ju n 06 Se p 06 D e c 06 M ar 07 Se p 08 Ju n 10 M ar 10 M ar 09 Ju n 09 Se p 09 D e c 08 D e c 09 Pearson Pearson Reed Elsevier Reed Elsevier News Corporation News Corporation Informa plc Informa plc Thomson Corporation Thomson Corporation McGraw-Hill Companies Inc McGraw-Hill Companies Inc United Business Media United Business Media New York Times Co /ex-Reuters New York Times Co/ex-Reuters DMGT ‘A’ DMGT ‘A’ Washington Post Co Washington Post Co Trinity Mirror Trinity Mirror Johnston Press/ex-EMAP Johnston Press/ex-EMAP Independent News & Media Independent News & Media D e c 11 A u g 12 Se p 11 Ju n 11 Ju n 12 M ar 12 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 M ar 10 Ju n 10 Se p 10 D e c 10 M ar 11 M ar 12 Ju n 12 A u g 12 160% 140% 120% 100% 80% 60% 40% 20% 0% Key D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 M ar 10 M ar 09 Ju n 10 Ju n 09 Se p 09 D e c 09 D e c 08 Reuters Group plc Reed Elsevier News Corporation Informa plc Reuters Group plc Thomson Reuters (ex Corporation) Reed Elsevier McGraw-Hill Companies Inc News Corporation United Business Media Informa plc New York Times Co/ex-EMAP Thomson Reuters (ex Corporation) DMGT ‘A’ McGraw-Hill Companies Inc Washington Post Co United Business Media Trinity Mirror New York Times Co/ex-EMAP Johnston Press DMGT ‘A’ Independent News & Media Washington Post Co Trinity Mirror D e c 10 D e c 11 Se p 11 Ju n 11 Ju n 12 M ar 11 M ar 12 Johnston Press Independent News & Media Se p 12 D e c 06 M ar 07 Ju n 07 Se p 07 D e c 07 M ar 08 Ju n 08 Se p 08 Se p 10 D e c 10 M ar 11 D e c 08 M ar 09 Ju n 09 Se p 09 D e c 09 Pearson Reed Elsevier News Corporation Informa plc Thomson Corporation McGraw-Hill Companies Inc United Business Media New York Times Co /ex-Reuters DMGT ‘A’ Washington Post Co Trinity Mirror Johnston Press/ex-EMAP Independent News & Media Ju n 10 M ar 10 Se p 10 D e c 10 M ar 11 Ju n 11 Se p 11 D e c 11 M ar 12 Ju n 12 A u g 12 Ju n 07 Se p 07 M ar 08 D e c 07 Ju n 08 Se p 08 Pearson Reed Elsevier News Corporation Informa plc Thomson Corporation McGraw-Hill Companies Inc United Business Media New York Times Co/ex-Reuters DMGT ‘A’ Washington Post Co Trinity Mirror Johnston Press/ex-EMAP Independent News & Media D e c 11 D e c 10 Se p 11 Ju n 11 M ar 12 M ar 11 Ju n 12 Se p 10 A u g 12 7th position Ju n 11 Se p 11 D e c 11 M ar 12 Ju n 12 Se p 12 D e c 09 M ar 10 Ju n 10 Se p 10 Reuters Group plc Reed Elsevier News Corporation Informa plc Thomson Reuters (ex Corporation) McGraw-Hill Companies Inc United Business Media New York Times Co/ex-EMAP DMGT ‘A’ Washington Post Co Trinity Mirror Johnston Press Independent News & Media D e c 10 M ar 11 Se p 08 D e c 08 M ar 09 Ju n 09 Se p 09 Reuters Group plc Reed Elsevier News Corporation Informa plc Thomson Reuters (ex Corporation) McGraw-Hill Companies Inc United Business Media New York Times Co/ex-EMAP DMGT ‘A’ Washington Post Co Trinity Mirror Johnston Press Independent News & Media D e c 11 Se p 12 Se p 11 Ju n 12 Ju n 11 M ar 12 Total shareholder Return: DMGT vs Media Comparators 2007–2012 Annual Report 201276 Expiry date 7 Dec 16 6 Dec 17 5 Dec 18 7 Dec 16 6 Dec 17 5 Dec 18 Deferred Bonus scheme Under the deferred bonus plan, an element of executive Directors’ bonuses are deferred into ‘nil’ cost options. The awards shown below were granted as part of this plan. The ‘nil’-cost options granted during the year were derived from the Directors’ bonus in the prior year. After the date of approval of this Report, the ‘nil’-cost options earned in the current year will be granted. Deferred Bonus scheme ‘A’ Ordinary Non- Voting Shares in the Company The Viscount Rothermere Subtotal M W H Morgan Subtotal S W Daintith K J Beatty Subtotal Total options held Held at 2 Oct 11 Awarded during year Exercised during year Lapsed during year Held at 30 Sep 12 Exercise price £ Date of grant Normal date from which exercisable 105,306 187,581 – 292,887 130,140 77,272 – 207,412 – 96,196 34,970 – 131,166 631,465 – – 110,464 110,464 – – 44,215 44,215 24,201 – – 17,069 17,069 195,949 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 105,306 187,581 110,464 403,351 130,140 77,272 44,215 251,627 24,201 96,196 34,970 17,069 148,235 827,414 7 Dec 09 6 Dec 10 5 Dec 11 7 Dec 09 6 Dec 10 5 Dec 11 5 Dec 11 7 Dec 09 6 Dec 10 5 Dec 11 – – – – – – – – – – – – – – 7 Dec 12 6 Dec 13 5 Dec 14 7 Dec 12 6 Dec 13 5 Dec 14 5 Dec 14 7 Dec 12 6 Dec 13 5 Dec 14 5 Dec 18 7 Dec 16 6 Dec 17 5 Dec 18 Pensions entitlements and cash allowances The Group operates a two-tier defined benefit pension scheme for senior employees. It is the Company’s policy that annual bonuses, payments under the Executive Bonus Scheme and benefits in kind are not pensionable. Prior to 6th April, 2006 the Committee reviewed in detail the impact of the pension’s tax regime operating from that date. It developed a new policy, designed to be neutral in terms of cost compared to existing expenditure on pensions. This new policy incorporated the removal of the pensionable earnings cap for pension accruing after 6th April, 2006. Individual Executive Directors were affected very differently by these changes and for some it was not tax-efficient to accrue further pension for service from 6th April, 2006. However, it was for individual Directors to decide when to opt out of the scheme, in which case a cash allowance is paid. Annual cash allowances of 37% of salary are paid to each of the Viscount Rothermere, Mr Morgan and Mr Beatty, in lieu of continued membership of the DMGT Senior Executives’ Pension Fund. Mr Dacre was paid a similar allowance until December, 2009. Mr Daintith is paid an allowance of 30% of basic salary in lieu of membership of a Company pension scheme. The Company does not make any pension contributions on behalf of Mr Dutton. No Executive Directors are now accruing further pension in the DMGT Senior Executives’ Pension Fund. The normal retirement age under the Fund for this group is 60. Accrued entitlements under the DMGT Senior Executives’ Pension Fund are shown in the table opposite. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 77 accrued entitlements under the DmGT senior executives’ Pension Fund Accrued pension entitlement at 2 Oct 11 £000 Age at 30 Sep 12 Years Inflationary increase £000 Real increase in accrued pension £000 Accrued entitlement at 30 Sep 12 Transfer value as at 2 Oct 11 £000 Member’s contributions Transfer value of real increase in accrued pension net of member’s contributions £000 Other changes to transfer value £000 Transfer value as at 30 Sep 12 £000 44 62 63 54 70 78 605 93 3 4 30 4 – – – – 73 82 635 97 905 2,038 14,879 1,880 – – – – – – – – 72 (10) (70) 134 977 2,028 14,809 2,014 Director The Viscount Rothermere M W H Morgan3 P M Dacre4 K J Beatty 1 For each Director, the accrued entitlement at 30th September, 2012 represents the annual pension that is expected to be payable on eventual retirement, based on the salary of each Director at this date and pensionable service accrued to 5th April, 2006 or subsequent date of opting out of the Fund. A spouse’s/ dependant’s pension equal to two-thirds of the Director’s pension is incorporated and the Director can elect to receive the pension from age 50, subject to a discount if retirement takes place before 60. The pension, when in payment, will receive annual increases in line with inflation, which may be limited when inflation exceeds 3% per annum. 2 All transfer values have been calculated on the basis of actuarial advice in accordance with UK legislation. The transfer values of the accrued entitlement represent the value of assets that the pension scheme would need to transfer to another pension provider on transferring the scheme’s liability in respect of the Directors’ pension benefits. 3 Mr Morgan began to take his pension benefits in March, 2010. Mr Morgan’s pension benefit in the above table relates to a pension in the DMGT Senior Executives’ Pension Fund for pensionable service between 8th May, 1989 and 31st August, 2000, when he transferred to the US. In addition, Mr Morgan has the following pension arrangements: • a US-deferred compensation plan, which is held in a Rabbi Trust. This provides a defined contribution cash benefit, with a defined benefit pension underpin in respect of the period 1st September, 2000 to 30th September, 2008. • an employer-financed retirement benefits scheme (EFRBS) in respect of service from 1st October, 2008 operated on behalf of the Company under an offshore trust located in Jersey. With effect from 1st April, 2012 contributions to the EFRBS ceased and the pension allowance is now paid entirely in cash. 4 Mr Dacre began to take his pension benefits in November 2008. Accrued benefits under the Harmsworth Pension Scheme Accrued pension entitlement at 2 Oct 11 £000 Age at 30 Sep 12 Years Inflationary increase £000 Real increase in accrued pension £000 Accrued entitlement at 30 Sep 12 Transfer value as at 2 Oct 11 £000 Member’s contributions Transfer value of real increase in accrued pension net of member’s contributions £000 Other changes to transfer value £000 Transfer value as at 30 Sep 12 £000 66 11 1 – 12 202 – – 6 208 Director P M Fallon1 1 Mr Fallon died on 14th October, 2012 and the widow’s pension is now payable to his spouse. execUTiVe DiRecToRs’ seRVice conTRacTs Mr Dacre had a rolling contract which reduced to one year on 14th November, 2011 and reduced further on 14th November, 2012 to the residual term until his sixty-fifth birthday on 14th November, 2013. Details of these service contracts are set out in the table below. Leaver provisions In the event of earlier termination of their contracts, each Director is entitled to compensation equal to his basic salary, benefits, pension entitlement and, as appropriate, bonus or profit share for their notice period. The contracts of Mr Morgan and Mr Daintith are subject to mitigation and, in the event of service contracts Date of contract Notice period to/from the Company Company with whom contracted The Viscount Rothermere 17 Oct 94 1 month M W H Morgan S W Daintith D M M Dutton P M Dacre K J Beatty 1 Oct 08 1 Jan 11 27 Nov 02 1 year 1 year 1 year 13 July 98 11½ months DMGT DMGT DMGT DMGT DMGT 19 May 02 1 year Associated the Director obtaining alternative employment during the notice period, do not provide for further payment after such event. This mitigation does not apply to their pension benefit. Share options and LTIPs would be treated as for any member of the scheme, depending on the reason for termination of the contract. Policy on external appointments The Company allows its Executive Directors to take a very limited number of outside directorships. Individuals retain the payments received from such services since these appointments are not expected to impinge on their principal employment. Mr Morgan was appointed to the Board of the City of London Investment Trust on 1st March, 2012 and receives a fee of £25,00 p.a. (£14,583 for the reporting period). Annual Report 201278 non-execUTiVe DiRecToRs Policy on non-executive Directors’ remuneration The Board’s policy on non-executive Directors’ remuneration is to pay fees which reflect their responsibilities, are competitive with other companies and which align Directors’ interests with those of shareholders. The Board as a whole considers and approves the fees of the non-executive Directors with the exception of the Chairman whose fees are approved by the Committee. The fees for the Chairman and non-executive Directors are paid at the annual rates shown in the table below: Board Member Audit Committee Chairman Audit Committee Member Remuneration Committee Member Risk Committee Member Investment and Finance Committee Member Fees 1 Oct 11 35,000 1 25,000 10,000 12,000 8,000 25,000 1 An increase in the base fee from £30,000 to £35,000 per annum was made from 1st October, 2011 the first such increase for five years. During the year, the Directors reviewed the travel allowances to reflect the greater level of international travel required. Directors received travel allowance in 2012 of £4,000 paid in respect of attendance at Board meetings involving more than 10 hours’ travel. With effect from 1st October, 2012 the Committee agreed a travel allowance of £4,000 will be paid for travel involving between 5 and 10 hours and £10,000 for Board meetings involving more than 10 hours’ travel. In addition the following fees were increased effective 1st October, 2012. Mr Nelson’s fee for his work in relation to the Remuneration Committee increased to £25,000; the fee for members of the Audit Committee increased to £14,000 and for the Audit Committee Chairman to £30,000. non-executive Directors’ terms of appointment Non-executive Directors are appointed for specified terms and under the Company’s Articles of Association are subject to re-election by Ordinary shareholders at the Annual General Meeting following appointment, and thereafter at least every three years. The Board has adopted the provision in the Code that they be subject to annual re-election. Each appointment can be terminated before the end of the one year period, with no notice or fees due. The dates of the appointment or subsequent re-appointment of the non-executive Directors are set out in the next column. J G Hemingway F P Balsemão N W Berry T S Gillespie D H Nelson D J Verey D Trempont H Roizen Date of appointment/ re-appointment 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 Feb 2012 8 Feb 2012 26 Sept 2012 appointments and re-election All Directors will be standing for re-election at the forthcoming AGM except for Tom Gillespie who will retire from the Board with effect from the AGM. other related party transactions No Director of the Company has, or had, a disclosable interest in any contract of significance existing during or at the end of the year. aUDiTeD inFoRmaTion The following information in this report has been audited. Directors’ aggregate remuneration The total amounts of the remuneration and other benefits of the Directors of the Company for the years ended 30th September, 2012 and 2nd October, 2011 are shown in the table below. Aggregate emoluments Gains on exercise of share options Amounts receivable* under long-term incentive schemes Sums paid to third** parties for Directors’ services 2012 £000 2011 £000 13,453 13,243 28 – 567 1,825 169 146 13,622 15,781 * The amounts receivable under long-term incentive schemes were in respect of realisations of awards made in 2004, 2008 and 2009 and reflect performance over those periods to 2011. ** Relates to fees paid to Messrs Hemingway and Nelson. Daily Mail and General Trust Plcstrategic Report Directors’ Report Governance Financial statements 79 Total in 2012 £000 1,283 1,535 1,169 420 1,786 5,860 1,133 74 39 35 68 57 95 51 13 – 4 13,622 Total in 2011 £000 1,171 1,082 732 394 1,725 5,382 976 69 34 30 63 52 77 43 30 1,529 – – – 13,389 2012 pension contributions £000 2011 pension contributions £000 – 161 – 315 – – – – – – – – – – – – _ – – 161 – – – – – – – – – – – – – _ – – – 315 Directors’ emoluments The emoluments of the Directors from 1st October, 2011 to 30th September, 2012 are shown in the table below. Directors’ interests in shares The Company encourages Directors to own shares in the Company and executive Directors have a target of a minimum shareholding of 1.5 times their salary, to be built up over a suitable period. The design of the incentive plans encourages executive Directors to achieve this goal which aligns their interests with those of shareholders. The shares held and valued at 30th September, 2012 as a multiple of salary were: Value of shares1 held at 30th September, 2012 £m Salary multiple at 30th September, 2012 421.5 560.0 22.8 4.7 – 1.3 0.2 0.3 25.0 5.2 – 3.9 0.1 0.4 The Viscount Rothermere P M Fallon M W H Morgan S W Daintith D M M Dutton P M Dacre K J Beatty 1 Does not include shares which have been awarded subject to deferral or satisfaction of conditions other than performance conditions e.g. nil-cost options. 2 In the case of Mr Fallon, who was an executive Director of Euromoney, shares in Euromoney are included. Directors’ emoluments The Viscount Rothermere M W H Morgan S W Daintith D M M Dutton P M Dacre P M Fallon K J Beatty J G Hemingway F P Balsemão T S Gillespie D J Verey N W Berry D H Nelson D Trempont C W Dunstone J P Williams H Roizen Fees and salary1 £000 Cash Bonus/ Profit share2 £0001 Benefits in kind3 £000 Car allowance Pension/cash allowances £000 751 902 640 328 1,750 222 666 74 39 35 68 57 95 35 13 – – 228 451 320 91 – 5,636 200 – – – – – – – _ – – 3 3 3 1 26 2 5 – – – – – – – _ – – 43 58 34 18 14 – 10 – 16 – – – – – – – – – – 92 – 267 161 192 – – – 246 – – – – – – 164 _ – 4 886 941 2012 total emoluments 2011 total emoluments 5,675 5,869 6,926 6,521 1 Figures for the Viscount Rothermere and Messrs Morgan and Fallon include fees as Directors of Euromoney. Mr Daintith’s remuneration for the prior year was for the nine months from 1st January, 2011 when he joined the Company. For non-executive Directors they also include Committee fees, where applicable. 2 75% of the Viscount Rothermere’s bonus is deferred into shares for three years. For Messrs Morgan & Daintith the bonus up to 50% of salary will be paid in cash, for Mr Beatty the bonus up to 30% will be paid in cash, the remaining amount will be deferred into shares for two years. 3 Benefits in kind include the taxable value of company cars, fuel allowances and company contributions to medical insurance plans in 2011. In 2012, taxable value of company cars is shown separately. 4 Mr Trempont received a travel allowance of £16,000. Annual Report 201280 Directors’ interests in DmGT The number of shares of the Company and of securities of other Group companies in which current Directors or their families had an interest at the dates shown are stated in the table below. (i) The figures in the table below include ‘A’ shares committed by executives under the LTIP, details of which are set out on page 72. (ii) For the Viscount Rothermere, Mr Morgan and Mr Dutton 80,176, 35,266 and 34,949 respectively of the ‘A’ shares were subject to restrictions. (iii) The Company has been notified that, under sections 793 and 824 of the Companies Act 2006, each of the Viscount Rothermere, Mr Hemingway and Mr Gillespie was deemed to have been interested as shareholders in 11,903,132 Ordinary shares at 30th September, 2012. (iv) At 30th September, 2012 and at 2nd October, 2011, the Viscount Rothermere was beneficially interested in 756,700 Ordinary shares of Rothermere Continuation Limited, the Company’s ultimate holding company. (v) The Viscount Rothermere was beneficially interested in 68 ordinary shares in Associated Newspapers North America Inc. at 30th September, 2012 and at 2nd October, 2011, representing 3% of that company’s share capital. Directors’ interests in DmGT Holdings of 12.5 pence Ordinary and ‘A’ Ordinary Non-Voting Shares in Daily Mail and General Trust plc Beneficial At 30th September, 2012 At 2nd October, 2011 Note Ordinary ‘A’ Ordinary Non-Voting Ordinary ‘A’ Ordinary Non-Voting The Viscount Rothermere 11,903,132 75,134,502 11,903,132 75,134,502 M W H Morgan S W Daintith J G Hemingway D M M Dutton P M Dacre P M Fallon F P Balsemão T S Gillespie D J Verey K J Beatty N W Berry D H Nelson D Trempont H Roizen 764 – – – – 4,000 – – 6,500 – – – – – 978,104 2,711 200,000 269,681 37,861 42,234 – 7,500 15,000 54,581 – – – – 764 – – – – 4,000 – – 6,500 – – – – – 927,731 2,346 200,000 269,305 138,068 41,860 – 7,500 15,000 54,205 – – – – Non-beneficial The Viscount Rothermere J G Hemingway D H Nelson 11,914,396 76,742,174 11,914,396 76,790,517 756,700 4,000 – 5,540,000 5,550,000 212,611 639,208 4,000 – 5,540,000 5,540,000 212,611 760,700 11,302,611 643,208 11,302,611 Directors’ interests in euromoney Directors’ beneficial shareholdings in Euromoney were as follows: The Viscount Rothermere M W H Morgan P M Fallon At 30th September 2012 24,248 7,532 630,383 662,163 At 2nd October 2011 23,899 7,532 625,250 656,681 In addition, Mr Fallon held options to subscribe for new shares in Euromoney issued under Euromoney’s Save as You Earn Scheme 2009 as follows: At 30th September 2012 – At 2nd October 2011 5,133 At £1.87 between 1st February, and 1st August, 2012 The mid-market price of Euromoney’s shares was £7.70 at 30th September, 2012 and £6.15 at 2nd October, 2011. It ranged from £5.90 to £8.28 during the year. The gain made by Mr Fallon on the exercise of 5,133 share options in the year was £28,194 The figures in the table on page 82 include ‘A’ shares purchased by participants in the DMGT 2010 Share Incentive Plan. For Messrs Morgan, Daintith, Dutton and Beatty, purchases of shares were made between 30th September, 2012 and 30th November, 2012. These purchases increased the beneficial holdings of these Directors by 52 shares and for Mr Fallon 26 shares. All other shareholdings were unchanged at the date of this report. Disclosable transactions by the Group under IAS 24, Related Party Disclosures, are set out in Note 42. There have been no other disclosable transactions by the Company and its subsidiaries with Directors of Group companies and with substantial shareholders since the publication of the last annual report. On behalf of the Board Total Directors’ interests 12,675,096 88,044,659 12,557,604 88,093,128 Less: duplications – (5,752,611) (4,000) (5,752,611) 12,675,096 82,292,048 12,553,604 82,340,517 The Viscount Rothermere Chairman 30th November, 2012 Daily Mail and General Trust Plc Strategic Report Directors’ Report Governance Financial Statements 81 81 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DAILY MAIL AND GENERAL TRUST PLC We have audited the Group financial statements of Daily Mail and General Trust plc for the year ended 30th September, 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, and the related Notes 1 to 44. 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, the Directors are responsible for the preparation of the Group 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 Group 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 annual report to identify material inconsistencies with the audited financial statements. 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 Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 30th September, 2012 and of its profit 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. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • 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, contained within the Financial and Treasury review, 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; • certain elements of the report to shareholders by the Board on Directors’ remuneration. Other matter We have reported separately on the parent Company financial statements of Daily Mail and General Trust plc for the year ended 30th September, 2012 and on the information in the Directors’ Remuneration Report that is described as having been audited. Simon Letts (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 4th December, 2012 Annual Report 201282 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 Restated (Note 2) £m 1,746.8 1,748.5 273.7 264.4 (73.1) (41.9) Note 3 3 3 FOR THE 52 wEEkS ENDING 30TH SEPTEMBER, 2012 CONTINUING OPERATIONS Revenue Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment Amortisation and impairment of goodwill and acquired intangible assets arising on business combinations 3, 20, 21 (53.6) (52.4) Operating profit before share of results of joint ventures and associates Share of results of joint ventures and associates Total operating profit Other gains and losses Profit before net finance costs and tax Investment revenue Finance costs Net finance costs Profit before tax Tax Profit after tax from continuing operations DISCONTINUED OPERATIONS Profit/(loss) from discontinued operations PROFIT FOR THE PERIOD Attributable to: Owners of the Company Non-controlling interests* Profit for the period Earnings/(loss) per share From continuing operations Basic Diluted From discontinued operations Basic Diluted From continuing and discontinued operations Basic Diluted Adjusted earnings per share Basic Diluted *All attributable to continuing operations 3, 4 3, 7 8 9 10 11 18 38 39 14 147.0 (1.8) 145.2 114.4 259.6 10.8 (64.1) (53.3) 206.3 18.8 225.1 170.1 (2.7) 167.4 13.1 180.5 17.1 (71.7) (54.6) 125.9 3.7 129.6 54.8 279.9 (5.2) 124.4 257.2 22.7 279.9 108.5 15.9 124.4 52.9p 51.4p 14.3p 13.9p 67.2p 65.1p 49.4p 47.9p 29.7p 29.3p (1.4)p (1.3)p 28.3p 27.7p 46.1p 45.3p Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 83 83 52 weeks ending 30th September, 2012 £m 279.9 – – Note 38 38 38, 39 31.3 38, 39 38, 39 17, 38 38, 39 34, 38, 39 3.1 3.6 (0.9) (26.4) (61.8) 52 weeks ending 2nd October, 2011 Restated (Note 2) £m 124.4 4.6 (8.5) (17.1) (1.2) 6.8 (21.6) 10.4 (89.6) (51.1) (116.2) 38, 39 5.6 15.8 (45.5) (100.4) 234.4 24.0 211.8 22.6 234.4 4.9 19.1 24.0 FOR THE 52 wEEkS ENDING 30TH SEPTEMBER, 2012 Profit for the period Fair value movements on available-for-sale investments Revaluation reserves recycled to Consolidated Income Statement on disposals Gains/(losses) on hedges of net investments in foreign operations Cash flow hedges: Gains/(losses) arising during the period Transfer of loss on cash flow hedges from translation reserve to Consolidated Income Statement Translation reserves recycled to Consolidated Income Statement on disposals Foreign exchange differences on translation of foreign operations Actuarial loss on defined benefit pension schemes Other comprehensive expense before tax Tax relating to components of other comprehensive expense Other comprehensive expense for the period Total comprehensive income for the period Attributable to: Owners of the Company Non-controlling interests Annual Report 201284 FOR THE 52 wEEkS ENDING 30TH SEPTEMBER, 2012 Called up share capital £m Share premium account £m Capital redemption reserve £m Revaluation reserve £m Shares held in treasury £m Translation reserve £m Retained earnings Restated (Note 2) £m Total Restated (Note 2) £m Non- controlling interests £m Total equity Restated (Note 2) £m At 3rd October, 2010 49.1 12.5 1.1 7.0 (45.0) (16.3) 84.4 92.8 Profit for the period restated (Note 2) Other comprehensive income for the period Total comprehensive income for the period Issue of share capital Dividends Own shares acquired in the period Own shares released on vesting of share options Fair value adjustment to contingent consideration Adjustment to equity following increased stake in controlled entity Adjustment to equity following decreased stake in controlled entity Credit to equity for share-based payments Settlement of exercised share options of subsidiaries Initial recording of put options granted to non- controlling interests in subsidiaries Non-controlling interest recognised on acquisition Deferred tax on other items recognised in equity At 2nd October, 2011 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Issue of share capital Dividends Own shares acquired in the period Own shares released on vesting of share options Transfer to retained earnings on disposal of revalued properties Other transactions with non-controlling interests Adjustment to equity following increased stake in controlled entity Adjustment to equity following decreased stake in controlled entity Credit to equity for share-based payments Settlement of exercised share options of subsidiaries Corporation tax on share-based payments Deferred tax on other items recognised in equity – – – – – – – – – – – – – – – – – – 0.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – (3.9) (3.9) – – – – 0.2 – – – – – – – – – – – – (11.7) 10.4 – – – – – – – – – 108.5 108.5 57.4 15.9 150.2 124.4 (26.2) (26.2) – – – – – – – – – – – – (73.5) (103.6) 3.2 (100.4) 35.0 – (62.4) – – – (5.5) 4.9 0.2 (62.4) (11.7) 10.4 0.2 (5.5) 19.1 1.9 (7.8) – – – 4.3 24.0 2.1 (70.2) (11.7) 10.4 0.2 (1.2) 0.5 0.5 (0.5) – 16.9 16.9 (12.7) (12.7) 2.7 – (7.1) (7.1) (3.2) 19.6 (12.7) (10.3) – 1.4 50.5 – 1.4 27.9 6.0 0.4 6.0 1.8 80.3 108.2 49.1 12.7 1.1 3.3 (46.3) (42.5) – – – – – – – – – – – – – – – – – – 0.8 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (3.3) – – – – – – – – – – – – – (30.1) 32.6 – – – – – – – – – 257.2 257.2 22.7 279.9 9.9 9.9 (55.3) (45.4) (0.1) (45.5) 201.9 211.8 22.6 234.4 – – – – – – – – – – – – – 0.8 1.5 2.3 (66.2) (66.2) (9.6) (75.8) – – 3.3 – (30.1) 32.6 – – – – – (30.1) 32.6 – 0.9 0.9 (13.5) (13.5) (0.6) (14.1) 0.1 0.1 (0.1) – 12.5 12.5 (15.6) (15.6) 0.4 – 0.4 – 0.7 – 0.2 13.2 (15.6) 0.6 (0.6) (0.6) (43.8) (32.6) 173.4 160.7 95.3 256.0 At 30th September, 2012 49.1 13.5 1.1 Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 85 85 At 30th September, 2012 £m Note At 2nd October, 2011 Restated (Note 2) £m At 3rd October, 2010 Restated (Note 2) £m 20 21 22 23 24 24 25 27 33 36 26 27 30 33 28 19 29 30 31 32 33 35 19 29 31 32 33 34 35 36 704.6 281.4 238.1 6.8 137.3 11.5 1.5 14.6 24.6 747.0 288.2 305.4 21.6 16.3 13.0 4.2 30.7 8.6 735.8 377.9 366.2 11.6 20.4 12.7 23.2 17.2 8.7 204.7 200.6 158.9 1,625.1 1,635.6 1,732.6 28.3 328.7 3.6 8.9 104.7 71.7 545.9 23.1 347.4 9.1 1.1 174.3 – 27.5 359.0 0.9 2.3 65.7 – 555.0 455.4 2,171.0 2,190.6 2,188.0 (655.1) (654.2) (632.1) (20.8) (4.5) (49.9) (14.1) (34.2) (33.6) (53.2) (1.1) (29.3) (5.9) (49.7) – (69.4) (1.1) (14.3) (6.6) (37.7) – (812.2) (793.4) (761.2) (8.1) (4.1) (678.1) (34.9) (324.4) (29.3) (23.9) (11.9) (10.7) (832.0) (60.9) (336.2) (13.5) (23.8) (1.5) – (870.6) (79.8) (271.4) (27.6) (25.7) (1,102.8) (1,289.0) (1,276.6) (1,915.0) (2,082.4) (2,037.8) 256.0 108.2 150.2 AS AT 30TH SEPTEMBER, 2012 ASSETS Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment property Investments in joint ventures Investments in associates Available-for-sale investments Trade and other receivables Derivative financial assets Deferred tax assets Current assets Inventories Trade and other receivables Current tax receivable Derivative financial assets Cash and cash equivalents Total assets of businesses held-for-sale Total assets LIABILITIES Current liabilities Trade and other payables Current tax payable Acquisition put option commitments Borrowings Derivative financial liabilities Provisions Total liabilities of businesses held-for-sale Non-current liabilities Trade and other payables Acquisition put option commitments Borrowings Derivative financial liabilities Retirement benefit obligations Provisions Deferred tax liabilities Total liabilities Net assets Annual Report 201286 At 30th September, 2012 £m Note At 2nd October, 2011 Restated (Note 2) £m At 3rd October, 2010 Restated (Note 2) £m 37 38 38 38 38 38 38 39 49.1 13.5 62.6 1.1 – (43.8) (32.6) 173.4 160.7 95.3 256.0 49.1 12.7 61.8 1.1 3.3 (46.3) (42.5) 50.5 27.9 80.3 108.2 49.1 12.5 61.6 1.1 7.0 (45.0) (16.3) 84.4 92.8 57.4 150.2 AS AT 30TH SEPTEMBER, 2012 SHAREHOLDERS’ EQUITY Called-up share capital Share premium account Share capital Capital redemption reserve Revaluation reserve Shares held in treasury Translation reserve Retained earnings Equity attributable to owners of the company Non-controlling interests The financial statements of DMGT plc (Company number 184594) on pages 82 to 175 were approved by the Directors and authorised for issue on 4th December, 2012. They were signed on their behalf by: Rothermere M.W.H. Morgan Directors Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 87 87 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 Restated (Note 2) £m 147.0 15.3 13.2 (1.3) 83.4 7.2 19.4 20.4 34.5 339.1 (7.6) (9.6) 39.3 (9.9) (63.8) 287.5 (37.8) 4.3 254.0 1.5 4.3 0.8 (60.2) (37.8) (0.2) 33.1 2.0 (48.8) (7.3) (11.5) 57.6 54.4 170.1 (8.4) 19.7 (1.9) 62.7 8.6 24.4 18.4 42.5 336.1 2.0 (18.0) 52.7 4.1 (11.0) 365.9 (48.6) 1.9 319.2 2.0 15.6 2.9 (33.0) (23.2) (0.1) 3.2 23.0 (81.3) (25.3) (10.1) 94.8 0.1 Note 3 18 41 34 4, 22, 23 4, 22, 23 4, 20, 21 4, 21 4, 20, 21 24 21 25 16 24 17 FOR THE 52 wEEkS ENDING 30TH SEPTEMBER, 2012 Operating profit before share of results of joint ventures and associates – continuing operations Operating profit before share of results of joint ventures and associates – discontinued operations Adjustments for: Share-based payments Pension charge less than cash contributions Depreciation Impairment of property, plant and equipment and investment property Impairment of goodwill and impairment charge of intangible assets arising on business combinations Amortisation of intangible assets not arising on business combinations Amortisation of intangible assets arising on business combinations Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in trade and other receivables Increase in trade and other payables (Decrease)/increase in provisions Additional payment into pension schemes Cash generated by operations Taxation paid Taxation received Net cash from operating activities Investing activities Interest received Dividends received from joint ventures and associates Dividends received from available-for-sale investments Purchase of property, plant and equipment Expenditure on internally generated intangible fixed assets Purchase of available-for-sale investments Proceeds on disposal of property, plant and equipment Proceeds on disposal of available-for-sale investments Purchase of subsidiaries Treasury derivative activities Investment in joint ventures and associates Proceeds on disposal of businesses Proceeds on disposal of joint ventures and associates Net cash used in investing activities (12.1) (31.4) Annual Report 201288 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m (14.8) (66.2) (9.6) 0.8 1.5 1.8 (30.1) 16.1 (64.0) (6.1) (110.0) (0.7) – (23.4) (2.7) (62.4) (7.8) 0.2 1.9 – (11.7) (2.0) (68.5) – – (4.0) (20.3) (3.1) (304.7) (180.4) (62.8) 171.7 (1.6) 107.3 107.4 64.3 – 171.7 Notes 16 12, 38 39 37, 38 39 38 10 15 15 15 15 15 28 15 28 FOR THE 52 wEEkS ENDING 30TH SEPTEMBER, 2012 Financing activities Purchase of additional interest in controlled entities Equity dividends paid Dividends paid to non-controlling interests Issue of share capital Issue of shares by Group companies to non-controlling interests Receipt from non-controlling interests Purchase of own shares Net receipt/(payment) on exercise/settlement of subsidiary share options Interest paid Premium on redemption of bonds Bonds redeemed Loan notes repaid Repayments of obligations under hire purchase agreements Decrease in bank borrowings Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Exchange loss on cash and cash equivalents Net cash and cash equivalents at end of period Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 89 89 1) BASIS OF PREPARATION DMGT is a company incorporated in the United Kingdom. The address of the registered office is given on page 187. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under IFRS. These financial statements have been prepared for the 52 weeks ending 30th September, 2012 (2011 52 weeks ending 2nd October, 2011). The Group and its national and local media divisions prepare financial statements for a 52- or 53-week financial period ending on a Sunday near to the end of September. The Group’s remaining divisions prepare financial statements for a financial year to 30th September and do not prepare additional financial statements corresponding to the Group’s financial year for consolidation purposes as it would be impracticable to do so. The Group considers whether there have been any significant transactions or events between the end of the financial year of the other divisions and the end of the Group’s financial year and makes any material adjustments as appropriate. For the current period, the Group’s national and local media divisions’ financial period end coincided with that of the Group’s remaining divisions and consequently no adjustments were necessary. The significant accounting policies used in preparing this information are set out in Note 2. These financial statements have been prepared in accordance with the accounting policies set out in the 2011 Annual Report and Accounts, with the exception of a restatement of results, described below and as amended by the new accounting standards described below. The Group financial statements incorporate the financial statements of the Company and all of its subsidiaries together with the Group’s share of all of its interests in joint ventures and associates. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Financial and Treasury Review on pages 38 to 43, the Strategic Report on pages 10 to 37 and the Directos’ report on pages 52 to 57. The Group’s funding arrangements, together with details of undrawn bank facilities, are disclosed in notes 32 and 33. As highlighted in notes 32 and 33 to the financial statements, the company has long-term financing in the form of bonds and meets its day-to- day working capital requirements through bank facilities which expire in April 2016. The current economic conditions create uncertainty particularly over the future performance of those parts of the business that derive a significant proportion of revenue from advertising. The Board’s forecasts and projections, after taking account of reasonably possible changes in trading performance, show that the Group is expected to operate within the terms of its current facilities. After making enquiries, the Directors have a reasonable expectation that the Group will have access to adequate resources to continue in existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. 2) SIGNIFICANT ACCOUNTING POLICIES Restatement of results The adjusted and reported results of the Group have been restated to reflect a refinement of Hobsons’ approach to revenue recognition. Hobsons’ business model has evolved such that the provision of its Enrolment Management Technology (EMT) software services (currently around 47% of its annual revenues of approximately £64 million) is now predominantly provided in conjunction with a hosting service. To better reflect the underlying nature of the revenue contracts, software services provided in conjunction with a hosting service will now be recognised over the contract service period, rather than at the contract date of sale of the software licence. The recognition of revenue from existing hosting services will continue to be recognised over the contract service period. This change of accounting treatment has been reflected in the Group’s Consolidated Financial Statements retrospectively and the impact on the Consolidated Income Statement and Consolidated Statement of Financial Position is as follows: Impact on Consolidated Income Statement Reduction in revenue Reduction in operating profit Reduction in profit after tax Reduction in earnings per share from continuing operations Basic Diluted Adjusted Impact on Consolidated Statement of Financial Position Reduction in accrued income assets Increase in prepaid commission assets Increase in deferred tax asset 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October 2010 £m (0.8) (0.8) (0.5) p (0.1) (0.1) (0.1) £m (26.5) 1.3 10.2 (5.2) (5.0) (3.1) p (0.8) (0.8) (0.8) £m (27.3) 1.3 9.7 (2.5) (2.4) (1.5) p (0.4) (0.4) (0.4) £m (21.7) 1.1 7.6 Annual Report 201290 2) SIGNIFICANT ACCOUNTING POLICIES – CONTINUED The reported results of the Group’s share of results of joint ventures and associates have also been restated to reflect the Group’s share of results from the joint venture DMG Radio Investments Ltd as discontinued, following its disposal in August 2012. In addition the Group’s local media operations have been reclassified as discontinued operations following the transfer of the net assets of this business to assets held-for -sale. Further details are included in note 18. Impact of new accounting standards Standards not affecting the reported results or the financial position: The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in the financial statements but may impact the accounting for future transactions and arrangements: • IAS 24 (2009) related party disclosures The revised Standard has a new, clearer definition of a related party, with inconsistencies under the previous definition having been removed. This interpretation does not affect the reported results nor the financial position. • Amendments to IFRIC 14 prepayments of a minimum funding requirement The amendments now enable recognition of an asset in the form of a prepaid minimum funding contribution. • Annual improvements – IFRS 7: Encourages qualitative disclosures in the context of the quantitative disclosures required to help users to form an overall picture of the nature and extent of risks arising from financial instruments. This improvement does not affect the Group’s reported results, financial position nor any of the Group’s disclosures at the year end. – IAS 1: Clarifies that an entity may present the analysis of other comprehensive income by item in the statement of changes in equity or in the notes to the financial statements. The Group currently reflects this analysis in the notes to the financial statements. At the date of authorisation of the consolidated financial information the following Standards and Interpretations, which have not been applied in the consolidated financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU). Other than IAS 19 (Revised) Employee Benefits, their adoption is not expected to have a significant impact on the amounts reported in the financial statements but may impact the accounting for future transactions and arrangements. IAS 19 (Revised) Employee Benefits, will impact the measurement of various components in the defined benefit pension obligation and associated disclosures, but not the Group’s total obligation. It is likely that following the replacement of expected returns on plan assets with a net finance cost in the Consolidated Income Statement, the profit for the period will be reduced and accordingly other comprehensive income increased. • Amendments to IAS 1 Presentation of Items of Other Comprehensive Income • IFRS 13 Fair Value Measurement • IFRS 12 Disclosures of Interests in other entities • IFRS 11 joint Arrangements • IFRS 10 Consolidated Financial Statements • IAS 28 (Revised) Investments in Associates and Joint Ventures • IAS 27 (Revised) Separate Financial Statements • Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets • IFRS 9 Financial Instruments • Improvements to IFRSs 2011 • Amendments to IFRS 7 and IAS 32 – Offsetting financial assets and financial liabilities Business combinations The acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in the Consolidated Income Statement as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted through the Consolidated Income Statement. All other changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of contingent consideration classified as equity are not recognised. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the date of the acquisition that, if known, would have affected the amounts recognised as of that date. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is a maximum of one year. Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 91 91 Business combinations achieved in stages Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the date the Group attains control and the resulting gain or loss is recognised in the Consolidated Income Statement. Amounts arising from interests in the acquiree prior to the acquisition date that were recognised in other comprehensive income are reclassified to the Consolidated Income Statement where such treatment would be appropriate if the interest were disposed of. Purchases and sales of shares in a controlled entity Where the Group’s interest in a controlled entity increases, the non-controlling interests’ share of net assets, excluding any allocation of goodwill, is transferred to retained earnings. Any difference between the cost of the additional interest and the existing carrying value of the non-controlling interests’ share of net assets is recorded in retained earnings. Where the Group’s interest in a controlled entity decreases, but the Group retains control, the share of net assets disposed, excluding any allocation of goodwill, is transferred to the non-controlling interest. Any difference between the proceeds of the disposal and the existing carrying value of the net assets or liabilities transferred to the non-controlling interests is recorded in retained earnings. Disposal of controlling interests where non-controlling interest retained Where the Group disposes of a controlling interest but retains a non-controlling interest in the business, the Group accounts for the disposal of a subsidiary and the subsequent acquisition of a joint venture, associate or available-for-sale asset at fair value on initial recognition. On disposal of a subsidiary all amounts deferred in equity are recycled to the Consolidated Income Statement. Business combinations occurring prior to 4th October, 2009 The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognised at their fair values at the acquisition date, other than non-current assets and liabilities of disposal groups which are recognised at fair value less costs to sell. Where an adjustment to fair values relating to previously held interests (including interests which were equity accounted under IAS 28, Investments in associates) is required on achieving control, this is accounted for as an adjustment directly in equity. Goodwill arising on acquisitions is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Where control is achieved in more than one exchange transaction, goodwill is calculated separately for each transaction based on the cost of each transaction and the appropriate share of the acquiree’s net assets based on net fair values at the time of each transaction. The interest of non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Purchase and sale of shares in a controlled entity occurring prior to 4th October, 2009 Where the Group’s interest in a controlled entity increases, no adjustments are recorded to the fair values of the assets already held on the Consolidated Statement of Financial Position. The Group calculates the goodwill arising as the difference between the cost of the additional interest acquired and the increase in the Group’s interest in the fair value of the subsidiary’s net assets at the date of the exchange transaction. Any difference between the cost of the additional interest, goodwill arising and the existing carrying value of the non-controlling interest’s share of net assets is adjusted directly in equity. Where the Group’s interest in a controlled entity decreases, which does not result in a change of control, the Group increases the non- controlling interest’s share of net assets by the book value of the share of net assets disposed. Any profit or loss on disposal of the share of net assets to the non-controlling interest is calculated by reference to the consideration received, the book value of the share of net assets disposed and a proportion of any relevant goodwill in the Consolidated Statement of Financial Position relating to the subsidiary. Accounting for subsidiaries A subsidiary is an entity controlled by the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Income Statement from the effective date control is obtained or up to the date control is relinquished, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and for acquisitions post 3rd October, 2010 following adoption of IAS 27 (revised 2008), the non-controlling interest’s share of changes in equity since the date of the combination. Prior to the adoption of IAS 27 (revised 2008) losses attributable to non-controlling interests in excess of the non-controlling interest’s share in equity were allocated against the interests of the Group except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover such losses. When the subsidiary subsequently reports profits, the non-controlling interest does not participate until the Group has recovered all of the losses of the non-controlling interest it previously reported. Interests in joint ventures and associates A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Annual Report 201292 2) SIGNIFICANT ACCOUNTING POLICIES – CONTINUED An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The post-tax results of joint ventures and associates are incorporated in the Group’s results using the equity method of accounting. Under the equity method, investments in joint ventures and associates are carried in the Consolidated Statement of Financial Position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the joint venture and associate, less any impairment in the value of investment. Losses of joint ventures and associates in excess of the of the Group’s interest in that joint venture or associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture or associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment. Foreign currencies For the purpose of presenting consolidated financial statements, the assets and liabilities of entities with a functional currency other than Sterling are translated to Sterling using exchange rates prevailing on the period end date. Income and expense items and cash flows are translated at the average exchange rates for the period and exchange differences arising are recognised directly in equity. On disposal of a foreign operation, the cumulative amount recognised in equity relating to that operation is recognised in the Consolidated Income Statement as part of the gain or loss on sale. The Group records foreign exchange differences arising on retranslation of foreign operations within the translation reserve in equity. In preparing the financial statements of the individual entities, 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 period end date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the period end 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 Consolidated Income Statement for the period. Goodwill, intangible assets and fair value adjustments arising on the acquisition of foreign operations after transition to IFRS are treated as part of the assets and liabilities of the foreign operation and are translated at the closing rate. Goodwill which arose pre-transition to IFRS is not translated. In respect of all foreign operations, any cumulative exchange differences that have arisen before 4th October, 2004, the date of transition to IFRS, were reset to £nil and will be excluded from the determination of any subsequent profit or loss on disposal. Goodwill and intangible assets Goodwill and intangible assets acquired arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Negative goodwill arising on an acquisition is recognised directly in the Consolidated Income Statement. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rates on the period end date. Goodwill arising before the date of transition to IFRS, on 4th October, 2004, has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the Consolidated Income Statement on disposal. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Impairment of goodwill The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired. Intangible assets are tested separately from goodwill only where impairment indicators exist. The Group has no intangible assets with indefinite lives. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units (CGUs). If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit, pro-rated on the basis of the carrying amount of each asset in the unit, but subject to not reducing any asset below its recoverable amount. An impairment loss recognised for goodwill is not reversed in a subsequent period. When testing for impairment, the recoverable amounts for all of the Group’s CGUs are measured at the higher of value in use and fair value less costs to sell. Value in use is calculated 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 CGU operates. Risk adjusted discount rates used by the Group in its impairment tests range from 8.5% to 23% post tax (11.3% to 30.7% pre-tax) (2011 8.5 % to 10.0 % post tax 9.2 % to 10.7 % pre tax, 2010 8.5 % to 11.5 % post tax, 9.3 % to 12.3 % pre-tax), the choice of rates depending on the market and maturity of the CGU. The Group’s estimate of the weighted average cost of capital has not changed significantly from the Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 93 93 previous year. The projections consist of Board approved budgets for the following year, three year plans and growth rates beyond this period. The long-term growth rates range between -3.0% and +3.0% (2011 -3.0 % and +3.0 %, 2010 0.0 % and +3.0 %) and vary with management’s view of the CGU’s market position, maturity of the relevant market and do not exceed the long-term average growth rate for the market in which it operates. Any impairment is recognised immediately in the Consolidated Income Statement and is not subsequently reversed. Research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s development activity, including software for internal use, is recognised only if the asset can be separately identified, it is probable the asset will generate future economic benefits, the development cost can be measured reliably, the project is technically feasible and the project will be completed with a view to sell or use the asset. Additionally, guidance in Standing Interpretations Committee (SIC) 32 has been applied in accounting for internally developed website development costs. Internally-generated intangible assets are amortised on a straight-line basis over their estimated useful lives, when the asset is available for use, and are reported net of impairment losses. Where no internally-generated intangible asset can be recognised, development expenditure is charged to the Consolidated Income Statement in the period in which it incurred. Licences Radio licences are stated at cost less accumulated amortisation. Amortisation is charged to the Consolidated Income Statement on a straight- line basis over the estimated useful lives from the commencement of service of the network, estimated by management to be 20 years. Computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised over their estimated useful lives, being three to five years. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that are expected to generate economic benefits exceeding costs and directly attributable overheads are capitalised as intangibles. Computer software which is integral to a related item of hardware equipment is accounted for as property, plant and equipment. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. At each period end date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Other intangible assets Other intangible assets with finite lives are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the Consolidated Income Statement on a reducing balance or straight-line basis over the estimated useful lives of the intangible assets from the date they become available for use. The estimated useful lives are as follows: Publishing rights, titles and exhibitions Radio licences Brands Market and customer related databases Customer relationships Computer software licences 5 – 30 years 20 years 3 – 20 years 3 – 20 years 3 – 20 years 2 – 5 years Impairment of intangible assets At each period end date, reviews are carried out of the carrying amounts of tangible and intangible assets and goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount, which is the higher of value in use and fair value less costs to sell, of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, value in use estimates are made based on the cash flows of the cash generating unit to which the asset belongs. If the recoverable amount of an asset or cash generating unit is estimated to be less than its net carrying amount, the net carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised immediately in the Consolidated Income Statement. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognised in prior periods, for an asset other than goodwill, may no longer exist or may have decreased. If any such indication exists, the Group estimates the recoverable amount of that asset. In assessing whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased, the Group considers, as a minimum, the following indications: (a) Whether the asset’s market value has increased significantly during the period; (b) Whether any significant changes with a favourable effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which the asset is dedicated; and (c) Whether market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset’s value in use and increase the asset’s recoverable amount materially. Annual Report 201294 2) SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Property, plant and equipment Land and buildings held for use are stated in the Consolidated Statement of Financial Position at their cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Assets in the course of construction are carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Consolidated Income Statement. Depreciation is charged so as to write off the cost of assets, other than property, plant and equipment under construction using the straight-line method, over their estimated useful lives as follows: Freehold buildings and long leasehold properties Short leasehold premises Plant and equipment Depreciation is not provided on freehold land 50 years the term of the lease 3 – 25 years Investment property The Group transfers property from property, plant and equipment to investment property when owner occupation ends. Investment properties are stated in the Consolidated Statement of Financial Position at their cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Depreciation is charged so as to write off the cost of these assets, using the straight-line method, over their estimated useful lives as follows: Freehold buildings and long leasehold properties Depreciation is not provided on freehold land 50 years Inventory Inventory is stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. The Group uses the Average Cost (AVCO) method in the national and local media divisions and the First In First Out (FIFO) method in the remaining divisions. Pre-publication costs Pre-publication costs represent direct costs incurred in the development of titles prior to their publication. These costs are recognised as work in progress on the Consolidated Statement of Financial Position to the extent that future economic benefit is virtually certain and can be measured reliably. Marketing costs Marketing and promotional costs are charged to the Consolidated Income Statement in the period in which they are incurred. Cash and cash equivalents Cash and cash equivalents shown in the Consolidated Statement of Financial Position includes cash, short-term deposits and other short-term highly liquid investments with an original maturity of three months or less. For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are as defined above, net of bank overdrafts. Revenue Group revenue comprises revenue of the Company and its subsidiary undertakings. Revenue is stated at the fair value of consideration, net of value added tax, trade discounts and commission where applicable and is recognised using methods appropriate for the Group’s businesses. Where revenue contracts have multiple elements (such as software licences, data subscriptions, hostings and support), the Company considers all aspects of the transaction to determine whether these elements can be separately identified. Where transaction elements can be separately identified and revenue can be allocated between them on a fair and reliable basis, revenue for each element is accounted for according to the relevant policy below. Where transaction elements cannot be separately identified, revenue is recognised over the contract period. The principal revenue recognition policies, as applied by the Group’s major businesses, are as follows: • Subscriptions revenue, including revenue from information services, is recognised over the period of the subscription or contract. • Publishing and circulation revenue is recognised on issue of publication or report. • Advertising revenue is recognised on issue of publication, over the period of the online campaign or on the date of broadcast. • Contract print revenue is recognised on completion of the print contract. • Exhibitions, training and events revenues are recognised over the period of the event. • Software licence revenue is recognised on delivery of the software licence or over the period of the licence if support is unable to be separately identified from hosting and revenue allocated on a fair and reliable basis. • Support revenue associated with software licences and subscriptions is recognised over the term of the support contract. • Long-term contract revenue is recognised under the percentage of completion method according to the percentage of work completed at the period end date. Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 95 95 Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets The Group discloses as operating profit, profit before exceptional operating costs, impairment of goodwill and intangible assets, amortisation of acquired intangible assets arising on business combinations, share of results from associates and joint ventures, other gains and losses, investment income and finance costs, but after amortisation of internally generated and acquired computer software. The Directors believe that this measure is useful to readers as it shows the results of the Group’s operations before contribution from joint ventures and associates and because it excludes one-off gains and losses on disposal of businesses, properties and similar items of a non-recurring nature. Other gains and losses Other gains and losses comprise profit or loss on sale of trading investments, profit or loss on sale of property, plant and equipment, impairment of available-for-sale assets, profit or loss on sale of businesses and profit or loss on sale of joint ventures and associates. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments as determined at the inception of the lease. The corresponding liability to the lessor is included in the Consolidated Statement of Financial Position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the Consolidated Income Statement. Rentals payable under operating leases are charged to the Consolidated Income Statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Dividends Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Dividends are recognised as a distribution in the period in which they are approved by the shareholders. Interim dividends are recorded in the period in which they are paid. Borrowing costs Unless capitalised under IAS 23 all borrowing costs are recognised in the Consolidated Income Statement in the period in which they are incurred. Finance charges, including premiums paid on settlement or redemption and direct issue costs and discounts related to borrowings, are accounted for on an accruals basis and charged to the Consolidated Income Statement using the effective interest method. Retirement benefits As permitted by IFRS 1, First-time adoption of International Financial Reporting Standards, the Group elected to recognise all cumulative actuarial gains and losses in the pension schemes operated by the Group at 4th October, 2004 the date of transition to IFRS. Pension scheme assets are measured at market value at the period end date. Scheme liabilities are measured using the projected unit credit method and discounted at a rate reflecting current yields on high quality corporate bonds having regard to the duration of the liability profiles of the schemes. For defined benefit retirement plans, the difference between the fair value of the plan assets and the present value of the plan liabilities is recognised as an asset or liability on the Statement of Consolidated Financial Position. Actuarial gains and losses arising in the year are taken to the Consolidated Statement of Comprehensive Income. For this purpose, actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. For defined benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out triennially. In accordance with the advice of independent qualified actuaries in assessing whether to recognise a surplus, the Group has regard to the principles set out in IFRIC 14. Other movements in the net surplus or deficit are recognised in the Consolidated Income Statement, including the current service cost, any past service cost and the effect of any curtailment or settlements. The interest cost less the expected return on assets is also charged to the Consolidated Income Statement within net finance costs. Since the assets and liabilities of the Group’s defined benefit plans cannot be allocated to individual entities on a fair and reasonable basis, the scheme’s assets and liabilities are not attributed to reporting segments and the pension charge in each segment in the segmental analysis represents the contributions payable for the period. The Group’s contributions to defined contribution pension plans are charged to the Consolidated Income Statement as they fall due. Taxation Income tax expense represents the sum of the current tax payable and deferred tax for the year. The current tax payable or recoverable is based on the taxable profit for the year. Taxable profit differs from profit as reported in the Consolidated Income Statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible. The Group’s liability for current tax is calculated using the UK and foreign tax rates that have been enacted or substantively enacted by the period end date. Current tax assets and liabilities are offset and stated net in the Consolidated Statement of Financial Position when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they either relate to income taxes levied by the same taxation authority or on the same taxable entity or on different taxable entities which intend to settle the current tax assets and liabilities on a net basis. Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition other than in a business combination of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Annual Report 201296 2) SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Deferred tax liabilities are recognised for taxable temporary differences arising in investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Goodwill arising on business combinations also includes amounts corresponding to deferred tax liabilities recognised in respect of acquired intangible assets. A deferred tax liability is recognised to the extent that the fair value of the assets for accounting purposes exceeds the value of those assets for tax purposes and will form part of the associated goodwill on acquisition. The carrying amount of deferred tax assets is reviewed at each period end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the period end date, and is not discounted. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis. Tax is charged or credited to the Consolidated Income Statement, except when it relates to items charged or credited directly to equity, in which case the tax is also recognised directly in equity. Financial instruments Financial assets and financial liabilities are recognised on the Statement of Consolidated Financial Position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to settle on a net basis, or realise the asset and liability simultaneously and where the Group intends to net settle. Financial assets TRADE RECEIvABLES Trade receivables 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 timeframe established by the market concerned, and are measured at fair value, including transaction costs. Investments are classified as either fair value through profit or loss or available-for-sale. Where securities are held-for-trading purposes, gains 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. The fair value of listed securities is determined based on quoted market prices, and of unlisted securities on management’s estimate of fair value determined by discounting future cash flows to net present value using market interest rates prevailing at the period end. Financial liabilities and equity instruments TRADE PAYABLES Trade payables are not interest bearing and are stated at their nominal value. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below: 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 Group’s bonds are subject to fair value hedge accounting as explained below 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 Group are recorded at the proceeds received, net of transaction costs. Provisions Provisions are recognised when the Group has a present obligation, legal or constructive, as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the period end date, and are discounted to present value where the effect is material. Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 97 97 Share-based payments The Group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using a binomial pricing model which is calibrated using a Black-Scholes framework. The expected life used in the models has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations. A liability equal to the portion of the goods or services received is recognised at the current fair value determined at each period end date for cash-settled share-based payments. The Group has applied the requirements of IFRS 2, Share-based Payments to all equity instruments granted after 7th September, 2002 but not fully vested at 4th October, 2004 the date of transition to IFRS. Critical accounting judgements and key sources of estimation uncertainty In addition to the judgement taken by management in selecting and applying the accounting policies set out above, management has made the following judgements concerning the amounts recognised in the consolidated financial statements: Forecasting The Group prepares medium-term forecasts based on Board approved budgets and three year outlooks. These are used to support judgements made in the preparation of the Group’s financial statements including the recognition of deferred tax assets in different jurisdictions, the Group’s going concern assessment and for the purposes of impairment reviews. Longer-term forecasts use long-term growth rates applicable to the relevant businesses. Impairment of goodwill and intangible assets Determining whether goodwill and intangible assets are impaired or whether a reversal of an impairment of intangible assets should be recorded requires an estimation of the value in use of the relevant cash generating units. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash generating unit and compare the net present value of these cash flows using a suitable discount rate to determine if any impairment has occurred. A key area of judgement is deciding the long-term growth rate of the applicable businesses and the discount rate applied to those cash flows (note 20). The carrying amount of goodwill and intangible assets at the period end date was £986.0 million (2011 £1,035.2 million, 2010 £1,113.7 million) after a net impairment charge of £19.4 million (2011 charge of £24.4 million, 2010 reversal of £19.9 million) was recognised during the year (Notes 20 and 21). Acquisitions and intangible assets The Group’s accounting policy on the acquisition of subsidiaries is to allocate purchase consideration to the fair value of identifiable assets, liabilities and contingent liabilities acquired with any excess consideration representing goodwill. Determining the fair value of assets, liabilities and contingent liabilities acquired requires significant estimates and assumptions, including assumptions with respect to cash flows and unprovided liabilities and commitments, including in respect to tax, are often used. The Group recognises intangible assets acquired as part of a business combination at fair values at the date of the acquisition. The determination of these fair values is based upon management’s judgement and includes assumptions on the timing and amount of future cash flows generated by the assets and the selection of an appropriate discount rate. Additionally, management must estimate the expected useful economic lives of intangible assets and charge amortisation on these assets accordingly. Contingent consideration payable Estimates are required in respect of the amount of contingent consideration payable on acquisitions, which is determined according to formulae agreed at the time of the business combination, and normally related to the future earnings of the acquired business. The Directors review the amount of contingent consideration likely to become payable at each period end date, the major assumption being the level of future profits of the acquired business. The Group has outstanding contingent consideration payable amounting to £24.2 million (2011 £11.8 million, 2010 £17.8 million). Contingent consideration payable is discounted to its fair value in accordance with applicable International Financial Reporting Standards. For acquisitions completed prior to 4th October, 2009, the difference between the fair value of these liabilities and the actual amounts payable is charged to the Consolidated Income Statement as notional finance costs with remeasurement of the liability being recorded against goodwill. For acquisitions completed in the current period, movements in the fair value of these liabilities are recorded in the Consolidated Income Statement in Financing. Contingent consideration receivable Estimates are required in respect of the amount of contingent consideration receivable on disposals, which is determined according to formulae agreed at the time of the disposal and is normally related to the future earnings of the disposed business. The Directors review the amount of contingent consideration likely to be receivable at each period end date, the major assumption being the level of future profits of the disposed business. The Group has outstanding contingent consideration receivable amounting to £1.2 million (2011 £1.6 million, 2010 £4.9 million). Contingent consideration receivable is discounted to its fair value in accordance with applicable International Financial Reporting Standards. For disposals completed prior to 4th October, 2009, the difference between the fair value of these liabilities and the actual amounts payable is charged to the Consolidated Income Statement as notional finance costs with remeasurement of the liability being recorded against goodwill. For acquisitions completed in the current period, movements in the fair value of these liabilities are recorded in the Consolidated Income Statement in Financing. Annual Report 201298 2) SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Adjusted profit The Group presents adjusted earnings by making adjustments for costs and profits which management believe to be exceptional in nature by virtue of their size or incidence or have a distortive effect on current year earnings. Such items would include costs associated with business combinations, one-off gains and losses on disposal of businesses, properties and similar items of a non-recurring nature together with reorganisation costs and similar charges, tax and by adding back impairment of goodwill and amortisation and impairment of intangible assets arising on business combinations. See Note 13 for a reconciliation of profit before tax to adjusted profit. Share-based payments The Group makes share-based payments to certain employees. These payments are measured at their estimated fair value at the date of grant, calculated using an appropriate option pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of the number of shares that will eventually vest. The key assumptions used in calculating the fair value of the options are the discount rate, the Group’s share price volatility, dividend yield, risk free rate of return, and expected option lives. Management regularly perform a true-up of the estimate of the number of shares that are expected to vest; this is dependent on the anticipated number of leavers. See Note 41 for further detail. Taxation Being a multinational Group with tax affairs in many geographic locations inherently leads to a highly complex tax structure which makes the degree of estimation and judgement more challenging. The resolution of issues is not always within the control of the Group and is often dependent on the efficiency of legal processes. Such issues can take several years to resolve. The Group accounts for unresolved issues based on its best estimate of the final outcome, however, the inherent uncertainty regarding these items means that the eventual resolution could differ significantly from the accounting estimates and, therefore, impact the Group’s results and future cash flows. As described above, the Group makes estimates regarding the recoverability of deferred tax assets relating to losses based on forecasts of future taxable profits which are, by their nature, uncertain. Retirement benefit obligations The cost of defined benefit pension plans is determined using actuarial valuations prepared by the Group’s actuaries. This involves making certain assumptions concerning discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. The assumptions and the resulting estimates are reviewed annually and, when appropriate, changes are made which affect the actuarial valuations and, hence, the amount of retirement benefit expense recognised in the Consolidated Income Statement and the amounts of actuarial gains and losses recognised in the Consolidated Statement of Changes in Equity. The carrying amount of the retirement benefit obligation at 30th September, 2012 was a deficit of £324.4 million (2011 £336.2 million, 2010 £271.4 million). Further details are given in Note 34. 3) SEGMENT ANALYSIS The Group’s business activities are split into seven operating divisions: RMS, business information, events, Euromoney, national media, local media and radio. These divisions are the basis on which information is reported to the Group Board. The segment result is the measure used for the purposes of resource allocation and assessment and represents profit earned by each segment, including share of results from joint ventures and associates but before exceptional operating costs, amortisation and impairment charges, other gains and losses, net finance costs and taxation. Details of the types of products and services from which each segment derives its revenues are included within the Strategic Report on pages 22 to 37. The accounting policies applied in preparing the management information for each of the reportable segments are the same as the Group’s accounting policies described in Note 2. Inter-segment sales are charged at prevailing market prices other than the sale of newsprint and related services from the national media to the local media division which is at cost to the Group plus a margin where relevant. The amount of newsprint sold between segments during the period amounted to £20.7 million (2011 £23.6 million). Daily Mail and General Trust PlcStrategic Report Directors’ Report Governance Financial Statements 99 99 Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets £m Less operating profit/(loss) of joint ventures and associates £m External revenue £m Inter-segment revenue £m Total revenue £m Segment result £m Note 0.3 – – 0.1 33.4 0.1 – 33.9 163.5 253.2 88.8 394.2 880.9 212.8 – 55.9 47.1 21.2 112.5 81.3 26.0 9.5 1,993.4 353.5 (0.2) (0.8) 0.1 0.6 3.8 – 9.5 13.0 163.2 253.2 88.8 394.1 847.5 212.7 – 1,959.5 (212.7) 1,746.8 18 20, 21 21 7 8 9 10 11 18 56.1 47.9 21.1 111.9 77.5 26.0 – 340.5 (40.8) (26.0) 273.7 (73.1) (19.4) (34.2) 147.0 (1.8) 145.2 114.4 259.6 10.8 (64.1) 206.3 18.8 54.8 279.9 3) SEGMENT ANALYSIS 52 weeks ending 30th September, 2012 RMS Business information Events Euromoney National media Local media Radio Corporate costs Discontinued operations Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment Impairment of goodwill and intangible assets Amortisation of acquired intangible assets arising on business combinations Operating profit before share of results of joint ventures and associates Share of result of joint ventures and associates Total operating profit Other gains and losses Profit before net finance costs and tax Investment revenue Finance costs Profit before tax Tax Profit from discontinued operations Profit for the period Operating profit before exceptional operating costs and amortisation and impairment of goodwill and intangible assets within the national media division comprised £106.8 million from newspapers, £6.4 million from digital and unallocated divisional central costs of £35.7 million. Included within corporate costs is a credit of £1.3 million which adjusts the pensions charge recorded in each operating segment from a cash rate to the net service cost in accordance with IAS 19, Employee benefits. Annual Report 2012 100 3) SEGMENT ANALYSIS – CONTINUED An analysis of the amortisation and impairment of goodwill and intangible assets, depreciation and impairment of investment property, property, plant and equipment, exceptional operating costs, investment income and finance costs by segment is as follows: Amortisation of intangible assets not arising on business combinations (Note 21) £m Amortisation of intangible assets arising on business combinations (Note 21) £m Impairment of goodwill and intangible assets (Note 20, 21) £m Exceptional operating costs, impairment of investment property and impairment of property, plant and equipment £m Exceptional depreciation of property, plant and equipment (Note 22) £m Depreciation of property, plant and equipment (Note 22, 23) £m Investment revenue (Note 9) £m Finance costs (Note 10) £m (1.2) (8.2) – (0.3) (10.7) – – (8.8) (5.5) (15.7) (4.2) (0.3) – (16.0) – – (3.4) – (20.4) (34.5) (19.4) – – – (20.4) (34.5) (19.4) – 0.3 – (20.4) (34.2) (19.4) – (0.7) (0.9) (1.6) (22.5) (9.9) (35.6) (8.9) (44.5) 10.4 (34.1) – – – (0.1) (38.4) (0.5) (39.0) – (39.0) – (39.0) (5.2) (5.9) (0.5) (3.3) (22.0) (1.8) (38.7) (5.7) (44.4) 11.1 (33.3) – 0.1 1.2 0.2 0.1 – 1.6 9.2 10.8 – 10.8 – (0.1) – 1.0 – – 0.9 (65.0) (64.1) – (64.1) 52 weeks ending 30th September, 2012 RMS Business information Events Euromoney National media Local media Corporate costs Relating to discontinued operations Group total The Group’s exceptional operating costs represent closure and reorganisation costs in the national and local media segments amounting to £25.6 million and an impairment charge of £6.5 million on the closure of a print site. In Euromoney, restructuring costs amount to £1.6 million following the reorganisation of certain group functions and recently acquired businesses. Included in corporate costs is a charge of £8.2 million relating to consultancy services and an impairment charge of £0.7 million relating to investment property. The Group’s tax charge includes a related credit of £19.4 million in relation to these items. Daily Mail and General Trust PlcStrategic Report 101 Directors’ Report Governance Financial Statements 101 3) SEGMENT ANALYSIS – CONTINUED 52 weeks ending 2nd October, 2011 Note RMS Business information Events Euromoney National media Local media Radio Corporate costs Discontinued operations External revenue Restated (Note 2) £m 158.7 232.3 132.1 363.1 862.3 236.1 – Inter-segment revenue £m Total revenue Restated (Note 2) £m Less operating profit/(loss) of joint ventures and associates £m Segment result Restated (Note 2) £m 1.2 0.3 – – 38.8 0.2 – 159.9 232.6 132.1 363.1 901.1 236.3 – 47.5 42.0 38.8 93.4 73.4 16.9 6.7 – 0.1 – 0.5 (2.4) – 6.7 4.9 1,984.6 40.5 2,025.1 318.7 18 (236.1) 1,748.5 Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment Impairment of goodwill and intangible assets Amortisation of acquired intangible assets arising on business combinations Operating profit before share of results of joint ventures and associates Share of result of joint ventures and associates Total operating profit Other gains and losses Profit before net finance costs and tax Investment revenue Finance costs Profit before tax Tax Profit from discontinued operations Profit for the period 20, 21 21 7 8 9 10 11 18 Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets Restated (Note 2) £m 47.5 41.9 38.8 92.9 75.8 16.9 – 313.8 (32.5) (16.9) 264.4 (41.9) (10.7) (41.7) 170.1 (2.7) 167.4 13.1 180.5 17.1 (71.7) 125.9 3.7 (5.2) 124.4 Operating profit before exceptional operating costs and amortisation and impairment of goodwill and intangible assets within the national media division comprised £103.7 million from newspapers, a loss of £0.9 million from digital and unallocated divisional central costs of £27.0 million. Included within corporate costs is a credit of £1.9 million which adjusts the pensions charge recorded in each operating segment from a cash rate to the net service cost in accordance with IAS 19, Employee benefits. Annual Report 2012102 3) SEGMENT ANALYSIS – CONTINUED An analysis of the amortisation and impairment of goodwill and intangible assets, depreciation and impairment of investment property, property, plant and equipment, exceptional operating costs, investment income and finance costs by segment is as follows: Amortisation of intangible assets not arising on business combinations (Note 21) £m Amortisation of intangible assets arising on business combinations (Note 21) £m Impairment of goodwill and intangible assets (Note 20, 21) £m (1.9) (7.0) – (0.3) (9.2) – (18.4) – (18.4) – (18.4) – (7.5) (11.7) (13.1) (9.4) (0.8) (42.5) – (42.5) 0.8 (41.7) – – – (0.1) (10.6) (13.7) (24.4) – (24.4) 13.7 (10.7) Exceptional operating costs, impairment of investment property and impairment of property, plant and equipment £m – (1.3) 0.9 (3.2) (16.9) (10.4) (30.9) (6.7) (37.6) 10.5 (27.1) Exceptional depreciation of property, plant and equipment (Note 22) £m Depreciation of property, plant and equipment (Note 22, 23) £m Investment revenue (Note 9) £m Finance costs (Note 10) £m – – – – (14.8) (0.3) (15.1) – (15.1) 0.3 (14.8) (5.3) (6.8) (0.7) (2.7) (23.9) (3.5) (42.9) (4.7) (47.6) 3.5 (44.1) 0.2 – 1.3 0.3 0.2 – 2.0 15.1 17.1 – 17.1 – (0.2) – (2.9) (2.2) – (5.3) (66.4) (71.7) – (71.7) 52 weeks ending 2nd October, 2011 RMS Business information Events Euromoney National media Local media Corporate costs Relating to discontinued operations Group total The Group’s exceptional operating costs represent closure and reorganisation costs in the national and local media segments amounting to £24.9 million. In Euromoney, restructuring costs amount to £2.6 million following the closure and reorganisation of underperforming businesses, £1.0 million relates to the acquisition of Ned Davis Research Group offset by an exceptional credit of £0.4 million following resolution of a US legal dispute. Included in corporate costs is an impairment charge of £6.7 million relating to investment property. The Group’s tax charge includes a related credit of £12.2 million in relation to these items. The Group’s revenue comprises sales excluding value added tax, less discounts and commission where applicable and is analysed as follows: Sale of goods Rendering of services 52 weeks ending 30th September, 2012 Discontinued operations (Note 18) £m – (212.7) (212.7) 52 weeks ending 30th September, 2012 Inter-segment £m – (33.9) (33.9) 52 weeks ending 30th September, 2012 Continuing operations £m 786.0 960.8 1,746.8 52 weeks ending 2nd October, 2011 Total Restated (Note 2) £m 52 weeks ending 2nd October, 2011 Discontinued operations (Note 18) £m 576.7 1,448.4 2,025.1 – (236.1) (236.1) 52 weeks ending 2nd October, 2011 Inter-segment £m – (40.5) (40.5) 52 weeks ending 30th September, 2012 Total £m 786.0 1,207.4 1,993.4 52 weeks ending 2nd October, 2011 Continuing operations Restated (Note 2) £m 576.7 1,171.8 1,748.5 The Group includes circulation and subscriptions revenue within sales of goods, the remainder of the Group’s revenue, excluding investment revenue is included within rendering of services. Investment revenue is shown in Note 9. By geographic area The majority of the Group’s operations are located in the United Kingdom, the rest of Europe, North America and Australia. The geographic analysis below is based on the location of companies in these regions. Export sales and related profits are included in the areas from which those sales are made. Revenue in each geographic market in which customers are located is not disclosed as there is no material difference between the two. Daily Mail and General Trust PlcStrategic Report 103 Directors’ Report Governance Financial Statements 103 3) SEGMENT ANALYSIS – CONTINUED Revenue is analysed by geographic area as follows: UK Rest of Europe North America Australia Rest of the World 52 weeks ending 30th September, 2012 Discontinued operations (Note 18) £m 52 weeks ending 30th September, 2012 Continuing operations £m 52 weeks ending 2nd October, 2011 Total Restated (Note 2) £m 52 weeks ending 2nd October, 2011 Discontinued operations (Note 18) £m 52 weeks ending 30th September, 2012 Total £m 52 weeks ending 2nd October, 2011 Continuing operations Restated (Note 2) £m 1,234.9 (212.7) 1,022.2 1,288.6 (236.1) 1,052.5 68.2 556.4 13.5 86.5 – – – – 68.2 556.4 13.5 86.5 42.6 550.1 11.9 91.4 – – – – 42.6 550.1 11.9 91.4 1,959.5 (212.7) 1,746.8 1,984.6 (236.1) 1,748.5 The closing net book value of goodwill, intangible assets, plant and equipment and investment property is analysed by geographic area as follows: UK Rest of Europe North America Australia Rest of the World UK Rest of Europe North America Australia Rest of the World Closing net book value of goodwill (Note 20) 2012 £m Closing net book value of goodwill (Note 20) 2011 £m Closing net book value of goodwill (Note 20) 2010 £m Closing net book value of intangible assets (Note 21) 2012 £m Closing net book value of intangible assets (Note 21) 2011 £m Closing net book value of intangible assets (Note 21) 2010 £m 212.2 32.8 439.8 1.5 18.3 704.6 259.0 10.5 457.2 1.5 18.8 747.0 275.2 7.1 433.4 1.5 18.6 735.8 57.8 26.7 191.2 0.7 5.0 76.3 4.7 199.8 0.8 6.6 96.6 4.8 267.1 0.8 8.6 281.4 288.2 377.9 Closing net book value of property, plant and equipment (Note 22) 2012 £m Closing net book value of property, plant and equipment (Note 22) 2011 £m Closing net book value of property, plant and equipment (Note 22) 2010 £m Closing net book value of investment property (Note 23) 2012 £m Closing net book value of investment property (Note 23) 2011 £m Closing net book value of investment property (Note 23) 2010 £m 207.1 258.3 311.8 6.8 21.6 11.6 1.1 27.7 0.3 1.9 14.8 30.1 0.2 2.0 17.3 31.2 0.3 5.6 – – – – – – – – – – – – 238.1 305.4 366.2 6.8 21.6 11.6 Annual Report 2012 104 3) SEGMENT ANALYSIS – CONTINUED The additions to non-current assets are analysed as follows: RMS Business information Events Euromoney National media Local media Radio The additions to non-current assets are analysed as follows: RMS Business information Events Euromoney National media Local media Radio Centrally held Goodwill 52 weeks ending 30th September, 2012 (Note 20) £m Goodwill 52 weeks ending 2nd October, 2011 (Note 20) £m Goodwill 52 weeks ending 3rd October, 2010 (Note 20) £m Intangible assets 52 weeks ending 30th September, 2012 (Note 21) £m Intangible assets 52 weeks ending 2nd October, 2011 (Note 21) £m Intangible assets 52 weeks ending 3rd October, 2010 (Note 21) £m – 17.2 – 5.8 24.3 0.1 – 47.4 – 6.6 – 34.8 – – – – 2.1 0.2 4.3 5.4 – – 41.4 12.0 17.6 22.5 – 2.1 32.9 0.5 – 75.7 5.2 11.3 0.3 38.2 9.4 – – 64.4 0.5 8.2 0.4 3.7 12.2 – 0.1 25.1 Property, plant and equipment 52 weeks ending 30th September, 2012 (Note 22) £m Property, plant and equipment 52 weeks ending 2nd October, 2011 (Note 22) £m 3.5 6.9 0.6 1.7 45.1 0.1 – 1.4 59.3 9.7 7.4 0.6 3.5 10.7 1.4 – 1.1 34.4 Property, plant and equipment 52 weeks ending 3rd October, 2010 (Note 22) £m 11.7 7.2 0.5 3.2 8.1 3.2 0.7 1.5 36.1 Investment property 52 weeks ending 30th September, 2012 (Note 23) £m Investment property 52 weeks ending 2nd October, 2011 (Note 23) £m Investment property 52 weeks ending 3rd October, 2010 (Note 23) £m – – – – – – – – – – – – – – – – – – – – – 2.2 2.2 31.2 31.2 18.9 18.9 Daily Mail and General Trust PlcStrategic Report 105 Directors’ Report Governance Financial Statements 105 4) OPERATING PROFIT ANALYSIS Operating profit before the share of results of joint ventures and associates is further analysed as follows: Revenue Decrease in stocks of finished goods and work in progress Raw materials and consumables Inventories recognised as an expense in the period Staff costs Impairment of goodwill and impairment charge of intangible assets Amortisation of intangible assets Amortisation of internally generated and acquired computer software Promotion and marketing costs Venue and delegate costs Editorial and production costs Distribution and transportation costs Royalties and similar charges Depreciation of property, plant and equipment Impairment of property, plant and equipment and investment property Rental of property Other property costs Rental of plant and equipment Foreign exchange translation differences Other expenses Operating profit/(loss) 52 weeks ending 30th September, 2012 Discontinued operations (Note 18) £m 52 weeks ending 30th September, 2012 Continuing operations £m 52 weeks ending 2nd October, 2011 Total Restated (Note 2) £m 52 weeks ending 2nd October, 2011 Discontinued operations (Note 18) £m 52 weeks ending 30th September, 2012 Total £m Note 52 weeks ending 2nd October, 2011 Continuing operations Restated (Note 2) £m 1,959.6 212.7 1,746.9 1,984.6 236.1 1,748.5 (6.0) – (6.0) (3.7) – (3.7) (207.7) (213.7) (681.6) (19.4) (34.5) (20.4) (96.4) (60.1) (165.6) (63.9) (62.3) (83.4) (60.8) (60.8) (83.0) – (0.3) – (5.4) – (8.3) (13.6) – (11.1) (146.9) (152.9) (598.6) (19.4) (34.2) (20.4) (91.0) (60.1) (157.3) (50.3) (62.3) (72.3) (236.2) (239.9) (716.9) (24.4) (42.5) (18.4) (105.6) (78.3) (149.4) (70.5) (54.2) (62.7) (74.9) (74.9) (91.2) (13.7) (0.8) – (6.2) – (8.6) (20.9) – (3.8) (161.3) (165.0) (625.7) (10.7) (41.7) (18.4) (99.4) (78.3) (140.8) (49.6) (54.2) (58.9) 6 20, 21 21 21 22, 23 22, 23 (7.2) – (7.2) (8.6) – (8.6) (24.2) (42.1) (17.2) 0.9 (206.2) 162.3 (2.5) (4.5) (3.1) – (4.8) 15.3 (21.7) (37.6) (14.1) 0.9 (201.4) 147.0 (22.4) (41.5) (12.5) 1.4 (176.5) 161.7 (1.8) (6.5) (3.8) – (12.3) (8.4) (20.6) (35.0) (8.7) 1.4 (164.2) 170.1 Annual Report 2012106 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 0.4 2.0 2.4 0.3 0.2 – 0.1 0.2 0.8 3.2 0.5 1.9 2.4 0.3 0.1 0.2 0.1 0.1 0.8 3.2 5) AUDITOR’S REMUNERATION The total remuneration of the Group’s auditor, Deloitte, and its associates is analysed as follows: Fees payable to the Company's auditor for the audit of the Company's annual accounts Fees payable to the Company's auditor and their associates for the audit of the Company's subsidiaries pursuant to legislation Audit services provided to all Group companies Other services pursuant to legislation Services relating to taxation Services relating to corporate finance transactions Information technology services Other non-audit services Total remuneration Fees payable to the Company’s auditor and its associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. 6) EMPLOYEES The average number of persons employed by the Group including Directors is analysed as follows: RMS Business information Events Euromoney National media Local media Group operations Total staff costs comprised: Wages and salaries Share-based payment Social security costs Pension costs 52 weeks ending 30th September, 2012 Number 52 weeks ending 2nd October, 2011 Number 1,064 1,675 410 2,263 4,235 2,395 88 3,594 1,733 401 2,199 4,378 2,787 65 12,130 15,157 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 590.2 618.3 13.2 57.9 20.3 19.4 51.3 27.9 681.6 716.9 Note 41 34, (i) (i) Pension costs are stated before curtailment gains and expected return on pension scheme assets less interest on pension scheme liabilities. Daily Mail and General Trust PlcStrategic Report 107 Directors’ Report Governance Financial Statements 107 52 weeks ending 30th September, 2012 £m Note 52 weeks ending 2nd October, 2011 Restated (Note 2) £m 3.2 0.3 3.5 (1.9) (0.5) (1.2) (0.3) (0.1) – – (1.3) (1.8) 0.1 (0.6) – – (1.3) (2.3) 0.5 (1.8) – – – (0.3) – 3.0 (3.2) (0.4) (2.7) (2.3) 0.2 3.0 (3.2) (0.4) 24, (i) 24, (ii) 24, (i) 24, (ii) 7) SHARE OF RESULTS OF JOINT vENTURES AND ASSOCIATES Share of profits from operations of joint ventures Share of profits from operations of associates Operating profits from joint ventures and associates Share of exceptional operating costs of joint ventures Share of exceptional operating costs of associates Share of amortisation of intangibles of joint ventures Share of amortisation of intangibles of associates Share of associates interest payable Adjustment to the carrying value of joint venture on acquisition Impairment of carrying value of joint ventures Impairment of carrying value of associates Share of results of joint ventures and associates Share of results from operations of joint ventures Share of results from operations of associates Adjustment to the carrying value of joint venture on acquisition Impairment of carrying value of joint ventures Impairment of carrying value of associates Share of results of joint ventures and associates (1.8) (2.7) (i) In the prior year represents a £0.2 million write down in the carrying value of the Group’s investment in Mail Today Newspapers Pvt. Limited in the national media segment and a £3.0 million write down in value of the Sanborn Map Company in the business information segment. (ii) Represents a write down in the carrying value of the Group’s investment in Social Metrix in the national media segment. In the prior year represents a write down in the carrying value of the Group’s investment in Posvanete AD in the local media segment. Annual Report 2012 108 Note (i) 25 17, (ii) 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m (0.6) (0.3) 2.0 113.3 – 114.4 8.6 (0.2) 0.6 4.0 0.1 13.1 8) OTHER GAINS AND LOSSES (Loss)/profit on disposal of available-for-sale investments Impairment of available-for-sale assets Profit on disposal of property, plant and equipment Profit on disposal of businesses Profit on disposal of joint ventures and associates (i) Represents the loss on disposal of the Group’s investment in Herald Ventures. In the prior year represents the profit on disposal of the Group’s interest in CoStar, Inc. (ii) Largely represented by the £78.2 million profit on sale of The Digital Property Group in the National media segment and £34.6 million profit on sale of Evanta in the Business information segment. In the prior year the profit on disposal of businesses mainly comprises the profit on disposal of various exhibition businesses in the events segment and various assets in the local media segment. There is a tax charge of £11.8 million (2011 £3.1 million) in relation to these items. 9) INvESTMENT REvENUE Expected return on defined benefit pension scheme assets less interest on defined benefit pension scheme liabilities Dividend income Interest receivable from short-term deposits 10) FINANCE COSTS Interest, arrangement and commitment fees payable on bonds, bank loans and loan notes Premium on bond redemption Change in fair value of derivative hedge of bond Change in fair value of hedged portion of bond Profit on derivatives, or portions thereof, not designated for hedge accounting Finance charge on discounting of contingent consideration Fair value movement of contingent consideration Change in fair value of acquisition put options 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 34 8.5 12.3 0.8 1.5 10.8 2.9 1.9 17.1 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m (59.5) (70.8) (6.1) 2.2 (2.2) (0.4) (0.3) 0.2 2.0 – 0.1 (0.1) 1.7 (0.4) (1.7) (0.5) (64.1) (71.7) Note (i) 35 35 33 The finance charge on the discounting of contingent consideration arises from the requirement under IFRS 3 (2008), Business Combinations, to record contingent consideration at fair value using a discounted cash flow approach. (i) During the year the Group bought back £110.0 million of its 7.5% bonds due 2013 incurring a premium of £6.1 million. Daily Mail and General Trust Plc Strategic Report 109 Directors’ Report Governance Financial Statements 109 52 weeks ending 30th September, 2012 £m Note 52 weeks ending 2nd October, 2011 Restated (Note 2) £m (4.3) 43.0 38.7 (31.9) (12.4) (5.6) (24.0) 39.1 15.1 9.5 9.3 18.8 (2.4) 0.4 (2.0) (19.3) (0.9) (22.2) 20.1 7.0 27.1 4.9 (1.2) 3.7 36 18 11) TAX The credit on the profit for the year consists of: Uk tax Corporation tax at 25.0% (2011 27.0%) Adjustments in respect of prior periods Overseas tax Corporation tax Adjustments in respect of prior periods Total current tax Deferred tax Origination and reversals of temporary differences Adjustments in respect of prior periods Total deferred tax Discontinued operations Being a multinational Group with tax affairs in many geographic locations inherently leads to a highly complex tax structure. The tax charge is reviewed and measured on a Group total basis only. A current tax credit of £0.6 million (2011 £nil) and a deferred tax credit of £5.0 million (2011 £17.7 million) was recognised directly in equity (Note 38 and 39). The tax charge for the year is lower than the standard rate of corporation tax in the UK of 25.0% (2011 27.0%) representing the weighted average annual corporate tax rate for the full financial year. The differences are explained below: Profit on ordinary activities before tax – continuing operations Profit/(loss) before tax – discontinued operations Total profit before tax Tax on profit on ordinary activities at the standard rate Effect of: Amortisation and Impairment of goodwill and intangible assets Other expenses not deductible for tax purposes Additional items deductible for tax purposes Recognition of previously unrecognised deferred tax assets Effect of overseas tax rates Effect of associates tax Tax losses unrelieved Write off/disposal of subsidiaries Effect of change in tax rate Adjustment in respect of prior years Other Total tax credit on the profit for the year 52 weeks ending 30th September, 2012 £m 206.3 64.1 270.4 (67.6) 52 weeks ending 2nd October, 2011 Restated (Note 2) £m 125.9 (6.4) 119.5 (32.3) (6.3) (6.3) 23.5 0.4 (14.6) 1.4 (15.2) 31.3 (6.3) 69.7 (0.5) 9.5 (3.0) (8.2) 22.8 18.6 8.1 (0.5) (9.0) 1.6 (2.8) 6.5 3.1 4.9 The net prior year credit of £69.7 million (2011 £6.5 million), arose largely from the agreement of certain prior year issues with tax authorities and a reassessment of the level of tax provisions required. Annual Report 2012 110 11) TAX – CONTINUED Adjusted tax on profits before amortisation and impairment of intangible assets, restructuring costs and non-recurring items (adjusted tax charge) amounted to a charge of £39.0 million (2011 £33.7 million) and the resulting rate is 15.2% (2011 14.4%). The differences between the tax credit and the adjusted tax charge are shown in the reconciliation below: Total tax credit on the profit for the year Deferred tax on intangible assets and goodwill Agreement of open issues with tax authorities Tax on other exceptional items Adjusted tax charge on the profit for the year 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 9.5 (2.8) (41.6) (4.1) (39.0) 4.9 (0.9) 1.0 (38.7) (33.7) In calculating the adjusted tax rate, the Group excludes the potential future deferred tax effects of intangible assets and goodwill (other than internally generated and acquired computer software) as it prefers to give the users of its accounts a view of the tax charge based on the current status of such items. Tax on other exceptional items includes a charge of £1.9 million (2011 £29.6 million) relating to the recognition of further tax losses and other temporary differences which are treated as exceptional due to their material impact on the Group’s adjusted tax charge. 12) DIvIDENDS PAID Amounts recognisable as distributions to equity holders in the period Ordinary shares – final dividend for the year ended 2nd October, 2011 ‘A’ Ordinary Non-Voting Shares – final dividend for the year ended 2nd October, 2011 Ordinary shares – final dividend for the year ended 3rd October, 2010 ‘A’ Ordinary Non-Voting shares – final dividend for the year ended 3rd October, 2010 Ordinary shares – interim dividend for the year ended 30th September, 2012 ‘A’ Ordinary Non-Voting shares – interim dividend for the year ended 30th September, 2012 Ordinary shares – interim dividend for the year ended 2nd October, 2011 ‘A’ Ordinary Non-Voting shares – interim dividend for the year ended 2nd October, 2011 52 weeks ending 30th September, 2012 Pence per share 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 Pence per share 52 weeks ending 2nd October, 2011 £m 11.7 11.7 – – 5.6 5.6 – – 17.3 2.5 42.3 – – 44.8 1.1 20.3 – – 21.4 66.2 – – 11.0 11.0 – – 5.3 5.3 16.3 – – 2.0 40.1 42.1 – – 1.1 19.2 20.3 62.4 The Board has declared a final dividend of 12.4 p per Ordinary/‘A’ Ordinary Non-Voting Share (2011 11.7p) which will absorb an estimated £47.5 million (£44.8 million) of shareholders’ funds for which no liability has been recognised in these financial statements. It will be paid on 10th February, 2013 to shareholders on the register at the close of business on 30th November, 2012. Daily Mail and General Trust Plc Strategic Report 111 Directors’ Report Governance Financial Statements 111 52 weeks ending 30th September, 2012 £m Note 52 weeks ending 2nd October, 2011 Restated (note 2) £m 206.3 21.1 43.0 34.2 0.3 1.5 125.9 (6.4) – 41.7 0.8 0.3 3.2 3.4 19.4 73.1 24.4 41.9 10.4 10.8 1.9 0.5 – 1.3 0.3 0.6 (2.0) (113.3) 0.3 – 0.1 (2.0) (0.2) – – 0.2 0.4 – (8.6) (0.6) (4.0) 0.2 (0.1) (1.7) 0.5 1.7 18 18 3 18 7 18 3 3 18 7 7 18 8 8 8 8 8 18 10 10 13) ADJUSTED PROFIT Profit before tax – continuing operations Profit/(loss) before tax – discontinued operations Profit on disposal of discontinued operations Add back: Amortisation of intangible assets arising on business combinations – continuing operations Amortisation of intangible assets arising on business combinations – discontinued operations Amortisation of intangible assets in joint ventures and associates arising on business combinations – continuing operations Amortisation of intangible assets in joint ventures and associates arising on business combinations – discontinued operations Impairment of goodwill and intangible assets arising on business combinations Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment – continuing operations Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment – discontinued operations Share of exceptional operating costs of joint ventures Share of exceptional operating costs of associates Impairment of carrying value of joint venture net of fair value adjustment on acquisition Impairment of carrying value of associate – continued operations Impairment of carrying value of associate – discontinued operations Other gains and losses: Loss/(profit) on disposal of available-for-sale investments Profit on disposal of property, plant and equipment Profit on disposal of businesses Impairment of available-for-sale assets Profit on disposal of joint ventures and associates Loss/(profit) on disposal of businesses within discontinued operations Finance costs: Change in fair value of acquisition put options Fair value movement on contingent consideration Tax: Share of tax in joint ventures and associates – discontinued operations 18 (1.6) 1.3 Profit from discontinued operations: Profit on disposal of discontinued operations Adjusted profit before tax and non-controlling interests Total tax credit on the profit for the period Adjust for: Deferred tax on intangible assets and goodwill Agreed open issues with tax authorities Tax on other exceptional items Non-controlling interests Adjusted profit after taxation and non-controlling interests 18 11 11 11 11 (43.0) 255.4 9.5 (2.8) (41.6) (4.1) (27.3) 189.1 – 232.1 4.9 (0.9) 1.0 (38.7) (21.8) 176.6 The adjusted non-controlling interests share of profits for the period of £27.3 million (2011 £21.8 million) is stated after eliminating a credit of £4.6 million (2011 £6.0 million), being the non-controlling interests share of adjusting items. Annual Report 2012112 14) EARNINGS PER SHARE Basic earnings per share of 67.2 p (2011 28.3 p) and diluted earnings per share of 65.1 p (2011 27.7 p) are calculated, in accordance with IAS 33, Earnings per share, on Group profit for the financial period of £202.4 million (2011 £113.7 million) as adjusted for the effect of dilutive ordinary shares of £0.6 million (2011 £1.0 million) and earnings from discontinued operations of £54.8 million (2011 loss £5.2 million) and on the weighted average number of ordinary shares in issue during the year, as set out below. As in previous years, adjusted earnings per share have also been disclosed since the Directors consider that this alternative measure gives a more comparable indication of the Group’s underlying trading performance. Adjusted earnings per share of 49.4 p (2011 46.1 p) are calculated on profit for continuing and discontinued operations before exceptional operating costs, impairment of goodwill and intangible assets, amortisation of intangible assets arising on business combinations, other gains and losses and exceptional financing costs after taxation and non-controlling interests associated with those profits, of £189.1 million (2011 £176.6 million), as set out in Note 13 above, and on the basic weighted average number of ordinary shares in issue during the year. Basic and diluted earnings per share Earnings from continuing operations Effect of dilutive ordinary shares Earnings from discontinued operations Earnings per share from continuing operations Effect of dilutive ordinary shares Earnings per share from discontinued operations Basic earnings per share from continuing and discontinued operations 52 weeks ending 30th September, 2012 Diluted earnings £m 52 weeks ending 2nd October, 2011 Diluted earnings Restated (Note 2) £m 52 weeks ending 30th September, 2012 Basic earnings £m 52 weeks ending 2nd October, 2011 Basic earnings Restated (Note 2) £m 202.4 113.7 202.4 113.7 (0.6) 54.8 (1.0) (5.2) 256.6 107.5 – 54.8 257.2 – (5.2) 108.5 52 weeks ending 30th September, 2012 Diluted pence per share 51.4 (0.2) 13.9 65.1 52 weeks ending 2nd October, 2011 Diluted pence per share Restated (Note 2) 29.3 (0.3) (1.3) 27.7 52 weeks ending 30th September, 2012 Basic pence per share 52.9 – 14.3 67.2 52 weeks ending 2nd October, 2011 Basic pence per share Restated (Note 2) 29.7 – (1.4) 28.3 Daily Mail and General Trust PlcStrategic Report 113 Directors’ Report Governance Financial Statements 113 14) EARNINGS PER SHARE – CONTINUED Adjusted earnings per share Profit before tax – continuing operations Effect of dilutive ordinary shares Profit/(loss) before tax – discontinued operations Profit on disposal of discontinued operations Add back: Amortisation of intangible assets arising on business combinations – continuing operations Amortisation of intangible assets arising business combinations – discontinued operations Amortisation of intangible assets in joint ventures and associates arising on business combinations – continuing operations Amortisation of intangible assets in joint ventures and associates arising on business combinations – discontinued operations Impairment of goodwill and intangible assets arising on business combinations – continuing operations Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment – continuing operations Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment – discontinued operations Share of exceptional operating costs of joint ventures Share of exceptional operating costs of associates Impairment of carrying value of joint venture net of fair value adjustment on acquisition Impairment of carrying value of associate – continued operations Impairment of carrying value of associate – discontinued operations Other gains and losses: Loss/(profit) on disposal of available-for-sale investments Profit on disposal of property, plant and equipment Profit on disposal of businesses Impairment of available-for-sale assets Profit on disposal of businesses within discontinued operations Finance costs: Change in fair value of acquisition put options Fair value movement on contingent consideration Tax: Share of tax in joint ventures and associates – discontinued operations Profit from discontinued operations: Profit on disposal of discontinued operations Adjusted profit before tax and non-controlling interests Total tax credit on the profit for the period Adjust for: Deferred tax on intangible assets and goodwill Agreed open issues with tax authorities Tax on other exceptional items Non-controlling interests Adjusted profit after taxation and non-controlling interests 52 weeks ending 30th September, 2012 Diluted pence per share 52 weeks ending 2nd October, 2011 Diluted pence per share Restated (Note 2) 52 weeks ending 30th September, 2012 Basic pence per share 52 weeks ending 2nd October, 2011 Basic pence per share Restated (Note 2) 52.4 (0.2) 5.4 10.9 8.7 0.1 0.4 0.8 4.9 32.5 (0.3) (1.7) – 10.8 0.2 0.1 0.9 6.3 53.9 – 5.5 11.2 8.9 0.1 0.4 0.8 5.1 32.9 – (1.7) – 10.9 0.2 0.1 0.9 6.4 18.6 10.8 19.1 10.9 2.6 0.5 0.1 – 0.3 0.1 0.2 (0.5) (28.8) 0.1 – (0.5) (0.1) (0.4) (10.9) 64.7 2.4 (0.7) (10.6) (1.0) (6.9) 47.9 2.8 – – 0.1 0.1 – (2.2) (0.2) (1.0) 0.1 (0.4) 0.1 0.4 0.3 – 59.7 1.3 (0.2) 0.3 (10.1) (5.7) 45.3 2.7 0.5 0.1 – 0.3 0.1 0.2 (0.5) (29.6) 0.1 – (0.5) (0.1) (0.4) (11.2) 66.7 2.5 (0.7) (10.9) (1.1) (7.1) 49.4 2.8 – – 0.1 0.1 – (2.2) (0.2) (1.0) 0.1 (0.4) 0.1 0.4 0.3 – 60.7 1.3 (0.2) 0.3 (10.2) (5.8) 46.1 Annual Report 2012114 14) EARNINGS PER SHARE – CONTINUED The weighted average number of ordinary shares in issue during the period for the purpose of these calculations is as follows: Number of ordinary shares in issue Shares held in Treasury Basic earnings per share denominator Effect of dilutive share options Dilutive earnings per share denominator 15) ANALYSIS OF NET DEBT Cash and cash equivalents Bank overdrafts Net cash and cash equivalents Debt due within one year Bonds Other financial liabilities Loan notes Debt due after one year Bonds Net debt before effect of derivatives Effect of derivatives on debt Net debt 52 weeks ending 30th September, 2012 Number m 52 weeks ending 2nd October, 2011 Number m 392.7 (9.9) 382.8 10.9 393.7 392.6 (9.8) 382.8 5.0 387.8 Note 28 32 32 32 32 (i) At 2nd October, 2011 £m 174.3 (2.6) 171.7 – (23.4) (3.3) (832.0) (687.0) (32.6) (719.6) Fair value hedging adjustments £m Foreign exchange movements £m Other non-cash movements £m At 30th September, 2012 £m Cash flow £m (65.3) 2.5 (62.8) (50.1) 23.4 0.7 160.0 71.2 (7.8) 63.4 – – – 1.0 – – (3.1) (2.1) 2.1 – (1.7) 0.1 (1.6) – – – (1.6) 46.0 44.4 – – – 1.8 – – (3.0) (1.2) – (1.2) 107.3 – 107.3 (47.3) – (2.6) (678.1) (620.7) 7.7 (613.0) (i) The effect of derivatives on bank debt is the net currency gain or loss on derivatives entered into with the intention of economically converting the currency of drawn debt to an alternative currency. Other non-cash movements in respect of bonds comprises the unwinding of premium of £1.4 million (2011 £1.6 million) offset by the amortisation of issue costs of £0.2 million (2011 £0.5 million). The net cash outflow of £62.8 million (2011 £107.4 million) includes a cash outflow of £40.5 million (2011 £16.5 million) in respect of operating exceptional items. Daily Mail and General Trust PlcStrategic Report 115 Directors’ Report Governance Financial Statements 115 Provisional fair value adjustments £m Provisional fair value £m Book value £m – 0.1 0.1 3.1 6.1 (5.0) – 4.4 24.3 22.9 – – – – (6.3) 40.9 Non-cash £m 16.1 – 16.1 Cash paid in current period £m – 29.2 29.2 24.3 23.0 0.1 3.1 6.1 (5.0) (6.3) 45.3 Total £m 16.1 29.2 45.3 16) SUMMARY OF THE EFFECTS OF ACQUISITIONS In April, 2012 the Group acquired Jobrapido, provider of one of the world’s largest job search engines. Provisional fair value of net assets acquired with Jobrapido: Goodwill Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax Net assets acquired Cost of acquisition: Contingent consideration Cash Total consideration at fair value Jobrapido contributed £14.0 million to the Group’s revenue, £2.0 million to the Group’s operating profit and £2.0 million to the Group’s profit before tax for the period between the date of acquisition and 30th September, 2012. If the above acquisition had been completed on the first day of the financial year, Jobrapido would have contributed £26.2 million to the Group’s revenue for the year and £4.6 million to the Group’s profit before tax for the year. Annual Report 2012116 16) SUMMARY OF THE EFFECTS OF ACQUISITIONS – CONTINUED A summary of notable acquisitions completed during the period were as follows: Name of acquisition Segment % voting rights acquired Date of acquisition Business description BUILDERadius Business information 57.80% November, 2011 Intelliworks Business information 100.00% December, 2011 Global Grain Euromoney 50.00% February, 2012 PrepMe Business information 100.00% February, 2012 Jobrapido Springrock National media 100.00% Business information 100.00% April, 2012 April, 2012 Navitas Business information 100.00% August, 2012 Provisional fair value of net assets acquired with all acquisitions: Provider of building safety and code enforcement software and services Provider of marketing, recruiting, enrolment & CRM solutions for higher education colleges Provider of International grain conferences Provider of adaptive learning services Job search engine Provider of North American natural gas and crude oil production forecasts Provider of renewable fuels consultancy services Consideration paid £m Intangible fixed assets acquired £m 5.7 3.2 Goodwill arising £m 6.9 8.5 3.7 7.2 5.2 2.5 45.3 4.7 1.3 1.8 23.0 2.9 4.4 1.4 24.3 1.8 1.5 1.5 – Goodwill Intangible assets Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax Net assets acquired Note 20, (i) 21 36 Provisional fair value adjustments £m Provisional fair value £m Book value £m – – 4.5 6.6 (12.5) 1.1 (0.3) 46.3 37.9 – – – (9.8) 74.4 46.3 37.9 4.5 6.6 (12.5) (8.7) 74.1 Daily Mail and General Trust PlcStrategic Report 117 Directors’ Report Governance Financial Statements 117 16) SUMMARY OF THE EFFECTS OF ACQUISITIONS – CONTINUED Cost of acquisitions: Contingent consideration Reclassification of investment in associate Cash Total consideration at fair value Note 35, (ii) Non-cash £m 20.7 5.7 – 26.4 Cash paid in current period £m – – 47.7 47.7 Total £m 20.7 5.7 47.7 74.1 (i) The amount of goodwill which is deductible for the purposes of calculating the Group’s tax charge amounts to £nil. (ii) The contingent consideration is based on future business valuations and profit multiples and has been estimated on an acquisition by acquisition basis using available data forecasts. The range of undiscounted outcomes for contingent consideration relating to acquisitions in the year is £nil to £42.9 million. Certain contingent consideration arrangements are not capped since they are based on future business performance (Note 35). Directly attributable costs in relation to the above acquisitions amounted to £0.1 million. The contingent consideration has been discounted back to current values in accordance with IFRS 3, Business Combinations. In each case, the Group has used acquisition accounting to account for the purchase. If all acquisitions had been completed on the first day of the financial period, Group revenues for the period would have been £1,761.1 million and Group profit attributable to equity holders of the parent would have been £258.8 million. This information takes into account the amortisation of acquired intangible assets together with related income tax effects but excludes any pre-acquisition finance costs and should not be viewed as indicative of the results of operations that would have occurred if the acquisitions had actually been completed on the first day of the financial period. Total losses attributable to equity holders of the parent since the date of acquisition for companies acquired during the period amounted to £1.0 million. Goodwill arising on the acquisitions is principally attributable to the anticipated profitability relating to the distribution of the Group’s products in new and existing markets and anticipated operating synergies from the business combinations. Purchase of additional shares in controlled entities Cash consideration excluding acquisition expenses 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 14.8 2.7 During the period, the Group acquired additional shares in controlled entities amounting to £14.8 million (2011 £2.7 million). In addition, the Group opted to receive a scrip dividend from Euromoney Institutional Investor PLC (Euromoney) amounting to £16.0 million (2011 £14.2 million) thereby acquiring a further 0.6 % (2011 0.5 %) of the issued ordinary share capital of Euromoney. Under the Group’s accounting policy for the acquisition of shares in controlled entities, no adjustment has been recorded to the fair value of assets and liabilities already held on the Consolidated Statement of Financial Position. The difference between the cost of the additional shares and the carrying value of the non-controlling interests share of net assets is adjusted in retained earnings. The adjustment to retained earnings in the period was a charge of £13.5 million (2011 £4.3 million). Reconciliation to purchase of subsidiaries as shown in the Consolidated Cash Flow Statement: Cash consideration excluding acquisition expenses Cash paid to settle contingent consideration in respect of acquisitions Cash and cash equivalents acquired with subsidiaries Purchase of subsidiaries 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 47.7 7.7 (6.6) 48.8 74.1 12.0 (4.8) 81.3 Note 16 35 16 Cash paid in respect of contingent consideration relating to prior year acquisitions includes £3.3 million within Business information, £0.7 million within Euromoney and £3.7 million within national media. The businesses acquired during the year absorbed £0.5 million of the Group’s net operating cash flows, £nil attributable to investing and £nil attributable to financing activities. Annual Report 2012118 17) SUMMARY OF THE EFFECTS OF DISPOSALS On October 14th, 2011 the Group announced that it had agreed to merge the online property business of its Digital Property Group (‘DPG’), which includes FindaProperty.com and Primelocation.com, with those of Zoopla Limited (Zoopla) operator of Zoopla.co.uk. Zoopla is a privately owned company which has venture capital interests as its largest shareholders. Following the transaction, the Group retained a 52.25% interest in the newly merged entity; however since the Group has joint management control the investment in Zoopla has been equity accounted as a joint venture. The net assets disposed were as follows: Goodwill Intangible assets Trade and other receivables Cash at bank and in hand Trade and other payables Deferred tax Net assets disposed Profit on sale of businesses Satisfied by: Fair value of 52.25% holding in Zoopla Directly attributable costs £m 39.6 1.6 4.1 0.1 (1.9) 0.4 43.9 78.2 122.1 125.4 (3.3) 122.1 During the period DPG absorbed £1.0 million of the Group’s net operating cash flows, paid £nil in respect of investing activities and paid £nil in respect of financing activities. In addition in September, 2012 the Group disposed of Evanta Ventures, Inc. a business within the events segment. The net assets disposed were as follows: Goodwill Intangible assets Property, plant and equipment Inventories Trade and other receivables Trade and other payables Deferred tax Net assets disposed Profit on sale of businesses Satisfied by: Cash received Recycled cumulative translation differences Directly attributable costs £m 7.2 10.1 0.2 1.3 2.7 (7.2) 0.2 14.5 34.6 49.1 59.5 0.9 (11.3) 49.1 During the period Evanta generated £3.5 million of the Group’s net operating cash flows, paid £nil in respect of investing activities and paid £nil in respect of financing activities. Daily Mail and General Trust PlcStrategic Report 119 Directors’ Report Governance Financial Statements 119 17) SUMMARY OF THE EFFECTS OF DISPOSALS – CONTINUED A summary of notable disposals is as follows: Name of disposal Teletext Zambeasy.co.uk Chew Valley Motors.co.uk Digital Property Group Evanta The impact of all disposals of businesses on net assets was: Segment National Media National Media Regional Media National Media National Media Date of disposal December, 2011 January, 2012 January, 2012 March, 2012 May, 2012 Events September, 2012 Goodwill Intangible assets Property, plant and equipment Inventories Trade and other receivables Cash at bank and in hand Trade and other payables Corporation tax Deferred tax Net assets disposed Profit on disposal of businesses Satisfied by: Cash received Fair value of 52.25% holding in Zoopla Amounts receivable Provision against amounts receivable Recycled cumulative translation differences Directly attributable costs Fair value of consideration £m 2.0 0.5 0.3 0.9 125.4 57.0 £m 47.9 12.4 0.3 1.2 10.1 0.6 (13.4) 0.1 1.7 60.9 113.3 174.2 63.2 125.4 6.0 (4.0) 0.9 (17.3) 174.2 Note 20 21 22 36 8 38 Annual Report 2012120 17) SUMMARY OF THE EFFECTS OF DISPOSALS – CONTINUED Reconciliation to disposal of businesses as shown in the Consolidated Cash Flow Statement: Cash consideration net of disposal costs Cash received in the current year relating to businesses sold in the prior year Cash and cash equivalents disposed with subsidiaries Proceeds on disposal of businesses 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 45.9 12.3 (0.6) 57.6 98.2 (3.4) 94.8 Note 17 17 The Group’s tax charge includes a charge of £11.8 million (2011 £3.1 million) in relation to these disposals. In addition, the Group’s interest in Euromoney was diluted during the period by 0.1 % (2011 0.3 %). Under the Group’s accounting policy for the disposal of shares in controlled entities, no adjustment has been recorded to the fair value of assets and liabilities already held on the Condensed Consolidated Statement of Financial Position. The difference between the Group’s share of net assets before and after this dilution is adjusted in retained earnings. The adjustment to retained earnings in the period was a credit of £0.1 million (2011 £0.5 million). All of the businesses disposed of during the year absorbed £2.6 million of the Group’s net operating cash flows, had £nil attributable to investing and £nil attributable to financing activities. 18) DISCONTINUED OPERATIONS In August 2012 the Group disposed of its 50.0 % joint venture investment in dmg Radio Investments Pty Ltd for proceeds amounting to A$86.2 million (£56.1 million). This business is one of the Group’s operating segments and represented the only operation in the radio segment. In November 2012 the Group announced it had reached agreement to sell its local media segment to Local World, a newly formed media group that will combine the Group’s local media titles with those of the Northcliffe News and Media Limited. The Group will receive consideration of £52.5 million and a 38.7% share in Local World. The Group’s Consolidated Income Statement includes the following results from discontinued operations: Revenue Expenses Depreciation Operating profit before exceptional operating costs and amortisation and impairment of goodwill and intangible assets Exceptional operating costs Impairment of goodwill and intangible assets Amortisation of intangible assets Operating profit/(loss) before share of results of joint ventures and associates Share of profits from operations of joint ventures Share of amortisation of intangibles of joint ventures Share of joint ventures' interest payable Share of joint ventures' tax Impairment of carrying value of associate Total operating profit/(loss) Other gains and losses Profit/(loss) before tax Tax (charge)/credit Profit/(loss) after tax attributable to discontinued operations Profit on disposal of discontinued operations Profit/(loss) attributable to discontinued operations Tax charged with the profit on disposal of discontinued operations amounted to £nil (2011 £nil). Note 3 3 3 3 13 11 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 212.7 (175.6) (11.1) 26.0 (10.4) – (0.3) 15.3 9.5 (3.2) (1.7) 1.6 (0.3) 21.2 (0.1) 21.1 (9.3) 11.8 43.0 54.8 236.1 (215.7) (3.5) 16.9 (10.8) (13.7) (0.8) (8.4) 6.7 (3.4) (1.7) (1.3) – (8.1) 1.7 (6.4) 1.2 (5.2) – (5.2) Cash flows associated with discontinued operations comprises operating cash flows of £27.8 million (2011 £20.4 million), investing cash flows of £nil (2011 £0.7 million) and financing cash flows of £nil (2011 £nil). Daily Mail and General Trust PlcStrategic Report 121 Directors’ Report Governance Financial Statements 121 19) TOTAL ASSETS AND LIABILITIES OF BUSINESSES HELD-FOR-SALE In November 2012 the Group announced it had reached agreement to sell its local media segment to Local World, a newly formed media group that will combine the Group’s local media titles with those of Illiffe News and Media Limited. DMGT will receive consideration of £52.5 million and a 38.7% share in Local World. The transaction is expected to complete in early 2013. In addition, several of the Group’s Central European businesses were sold following the year end. Accordingly the assets and liabilities of these businesses have been disclosed separately on the face of the Consolidated Statement of Financial Position. The main classes of assets and liabilities comprising the operations classified as held-for-sale are set out in the table below. These assets and liabilities are recorded at their fair values with all losses taken to the Consolidated Income Statement. Goodwill Intangible assets Deferred tax Property, plant and equipment Interests in joint ventures Interests associates Inventories Trade and other receivables Cash at bank and in hand Total assets associated with businesses held-for-sale Trade and other payables Provisions Total liabilities associated with businesses held-for-sale Net assets of the disposal group 52 weeks ending 30th September, 2012 £m Note 20 21 36 22 24 24 26 27 28 29 35 12.2 3.8 6.4 17.7 1.1 0.4 0.6 26.9 2.6 71.7 31.4 2.2 33.6 38.1 Annual Report 2012122 Note Goodwill £m 35 16 16 35 17 19 1,059.5 41.4 0.8 (105.3) 3.5 999.9 46.3 1.1 0.6 (121.7) (142.4) (14.3) 769.5 Note Goodwill £m 3 3 17 19 323.7 18.3 (86.4) (2.7) 252.9 16.4 (73.8) (130.2) (0.4) 64.9 735.8 747.0 704.6 20) GOODwILL Cost At 3rd October, 2010 Additions Adjustment to previous year estimate of contingent consideration Disposals Exchange adjustment At 2nd October, 2011 Additions Additions in relation to purchase of additional interests in controlled entities Adjustment to previous year estimate of contingent consideration Disposals Classified as held-for-sale Exchange adjustment At 30th September, 2012 Accumulated impairment losses At 3rd October, 2010 Impairment Disposals Exchange adjustment At 2nd October, 2011 Impairment Disposals Classified as held-for-sale Exchange adjustment At 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 Goodwill impairment losses recognised in the year were £16.4 million (2011 £18.3 million). The Group’s policy on impairment of goodwill is set out in Note 2. Further disclosures in accordance with paragraph 134 of IAS 36, Impairment of assets, are provided where the Group holds an individual goodwill item relating to a CGU that is significant, which the Group considers to be 15.0 % of the total net book value, in comparison with the Group’s total carrying value of goodwill. The only significant items of goodwill included in the net book value above relate to BCA, a business within Metal Bulletin in the Euromoney segment and Genscape Inc., in the business information segment. Daily Mail and General Trust PlcStrategic Report 123 Directors’ Report Governance Financial Statements 123 20) GOODwILL – CONTINUED Genscape has a carrying value of £72.6 million (2011 £72.9 million, 2010 £73.1 million) together with intangible assets with a carrying value of £25.6 million (2011 £24.3 million, 2010 £25.9 million). The carrying value of Genscape has been determined using a value in use calculation in line with IAS 36. The methodology applied to the value in use calculations reflects past experience and external sources of information including; (i) Forecasts by the business based on cash flows derived from budgets for 2012. The Directors believe these to be reasonably achievable. (ii) Subsequent cash flows for one additional year increased in line with growth expectations of the business. (iii) A discount rate of 10.0%, and (iv) Long-term nominal growth rates of 3.0%. Using the above methodology the recoverable amount exceeded the total carrying value by £22.9 million. For this business the Directors performed a sensitivity analysis on the total carrying value of the CGU. For the recoverable amount to be equal to the carrying value then the discount rate would need to be increased by 1.6 % or the long-term growth rate would need to be reduced by 2.3%. BCA has a carrying value of £143.2 million (2011 £148.4 million, 2010 £146.7 million) together with intangible assets with a carrying value of £62.8 million (2011 £71.8 million, 2010 £78.0 million). The carrying value of BCA has been determined using a value in use calculation in line with IAS 36. The methodology applied to the value in use calculations reflects past experience and external sources of information including; (i) Forecasts by the business based on cash flows derived from budgets for 2012. The Directors believe these to be reasonably achievable. (ii) Subsequent cash flows for one additional year increased in line with growth expectations of the business. (iii) A discount rate of 8.5%, and (iv) Long-term nominal growth rates of 3.0%. Using the above methodology the recoverable amount exceeded the total carrying value by £176.2 million. For this business the Directors performed a sensitivity analysis on the total carrying value of the CGU. For the recoverable amount to be equal to the carrying value then the discount rate would need to be increased by 10.2% or the long-term growth rate would need to be reduced by 12.7%. The carrying values of the Group’s significant items of goodwill in relation to material business combinations, which the Group considers to be those which have a purchase consideration in excess of £100.0 million, are further analysed as follows: Cost At 3rd October, 2010 Exchange adjustment At 2nd October, 2011 Exchange adjustment At 30th September, 2012 Accumulated impairment losses At 3rd October, 2010, 2nd October, 2011 and 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 Metal Bulletin plc £m 202.6 1.7 204.3 (5.2) 199.1 Metal Bulletin plc £m 2.8 199.8 201.5 196.3 Annual Report 2012124 20) GOODwILL – CONTINUED The impairment charge is analysed by major CGU as follows: CGU Segment Goodwill impairment Intangible asset impairment £m 2012 Discount rate £m 2011 Discount rate % Lewtan Technologies Inc Business Information 16.0 – 23.0% 10.0% Associated Mediabase National Media – 3.0 N/A N/A Reason for impairment charge % Performing below expectations due to poor market conditions Computer software and related IT assets no longer in use Other Total 0.4 16.4 – 3.0 – Recoverable amounts have been determined using value in use calculations for all of the above CGUs. 21) OTHER INTANGIBLE ASSETS Cost At 3rd October, 2010 Analysis reclassifications Additions Internally generated Disposals Exchange adjustment At 2nd October, 2011 Additions Internally generated Disposals Classified as held-for-sale Exchange adjustment At 30th September, 2012 Accumulated amortisation At 3rd October, 2010 Charge for the year Impairment Disposals Exchange adjustment At 2nd October, 2011 Charge for the year Impairment Disposals Classified as held-for-sale Exchange adjustment At 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 Publishing rights and titles £m Customer related databases £m Computer software (note i) £m Brands £m Note Other £m Total £m 425.3 276.4 139.2 – 7.3 – – 0.7 433.3 – – – (137.6) (5.5) 290.2 294.5 13.5 3.1 – (0.1) 311.0 12.6 – – (137.2) (2.5) 183.9 130.8 122.3 106.3 (8.5) 0.5 – (114.5) (0.5) 153.4 3.6 – (64.9) (0.3) (3.1) 88.7 121.7 16.2 – (27.2) 0.4 109.4 7.5 – (54.8) (0.3) (1.6) 60.2 154.7 44.0 28.5 (0.5) 29.1 – (0.2) 2.2 169.8 22.6 – (17.7) (37.6) (3.5) 133.6 90.0 10.4 2.4 (0.2) 0.1 102.4 11.9 – (16.2) (34.3) (1.2) 62.6 49.2 67.4 71.0 88.6 13.2 4.3 23.2 (5.1) 0.7 124.9 7.4 37.8 (10.6) – (2.8) 156.7 46.9 19.8 0.6 (4.9) 0.5 72.0 22.5 3.0 (9.7) – (1.3) 86.5 41.7 52.9 70.2 16 (i) 17 19 3 3 3 17 19 12.0 (4.2) – – (4.5) – 3.3 4.3 – – (0.5) (0.2) 6.9 10.5 1.0 – (2.6) (0.1) 1.7 0.4 – (0.1) (0.4) (0.1) 1.5 1.5 1.6 5.4 941.5 – 41.2 23.2 (124.3) 3.1 884.7 37.9 37.8 (93.2) (176.0) (15.1) 676.1 563.6 60.9 6.1 (34.9) 0.8 596.5 54.9 3.0 (80.8) (172.2) (6.7) 394.7 377.9 288.2 281.4 Daily Mail and General Trust PlcStrategic Report 125 Directors’ Report Governance Financial Statements 125 21) OTHER INTANGIBLE ASSETS – CONTINUED (i) Computer software includes internally generated intangible assets, not forming part of a business combination, as follows: Note £m Cost At 3rd October, 2010 Additions Disposals Analysis reclassifications Exchange adjustment At 2nd October, 2011 Additions Disposals Exchange adjustment At 30th September, 2012 Accumulated amortisation At 3rd October, 2010 Analysis reclassifications Charge for the year Impairment Disposals Exchange adjustment At 2nd October, 2011 Charge for the year Impairment Disposals Exchange adjustment At 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 86.4 23.2 (5.1) (0.6) 0.8 104.7 37.8 (5.5) (2.3) 134.7 42.5 (0.1) 18.4 0.6 (4.8) 0.4 57.0 20.4 3.0 (4.6) (1.4) 74.4 43.9 47.7 60.3 The following table analyses intangible assets in the course of construction included in the internally generated intangibles above, on which no amortisation has been charged in the period. Cost At 3rd October, 2010 Additions Exchange adjustment At 2nd October, 2011 Additions Exchange adjustment At 30th September, 2012 £m – 5.0 0.2 5.2 17.5 (0.7) 22.0 Annual Report 2012126 21) OTHER INTANGIBLE ASSETS – CONTINUED The methodologies applied to the Group’s cash-generating units (CGUs) when testing for impairment and details of the above impairment charge, are set out in Note 2. The carrying values of the Group’s larger intangible assets are further analysed as follows: At 30th September, 2012 Carrying value £m 52.9 23.4 20.9 19.6 15.1 10.3 9.8 – 7.4 – At 2nd October, 2011 Carrying value £m 59.4 25.6 22.8 21.9 20.7 10.0 12.2 11.4 8.9 – Segment Euromoney Euromoney Euromoney Business information National media Business Information Euromoney Events Business information Events At 3rd October, 2010 Carrying value £m At 30th September, 2012 Remaining amortisation period Years At 2nd October, 2011 Remaining amortisation period Years At 3rd October, 2010 Remaining amortisation period Years 63.9 – 24.5 23.1 21.4 10.0 13.9 12.3 13.9 86.6 23.8 10.8 23.8 13.5 4.7 1.0 9.4 – 5.0 – 24.8 11.8 24.8 14.5 4.9 1.0 10.4 9.8 6.0 – 25.8 – 25.8 15.5 3.8 1.0 11.4 10.8 7.0 17.0 Total £m 851.8 1.6 32.8 (71.1) (25.6) (31.2) – (1.2) 757.1 59.3 (134.6) (89.2) (1.1) (2.2) – (5.7) 583.6 Freehold properties £m Note Long leasehold properties £m Short leasehold properties £m Plant and equipment £m 112.5 – 0.7 (2.3) – (31.2) (0.5) (0.5) 78.7 16.8 (9.7) (9.6) – (2.2) 6.3 – 80.3 70.7 0.5 – – (2.3) – (0.1) – 68.8 – (0.2) (0.2) – – (35.0) (0.3) 33.1 59.0 – 4.3 (2.9) (0.4) – (0.4) 0.3 59.9 1.1 (25.1) – – – (1.0) 34.9 609.6 1.1 27.8 (65.9) (22.9) – 1.0 (1.0) 549.7 41.4 (99.6) (79.4) (1.1) – 28.7 (4.4) 435.3 23 19 17 23 BCA mastheads Ned Davis Research Group customer relationships Metal Bulletin mastheads Genscape intellectual property Associated Mediabase software Hobsons BCA customer relationships Evanta brand Quest customer relationships New York International Gift Fair brand 22) PROPERTY, PLANT AND EQUIPMENT Cost At 3rd October, 2010 Owned by subsidiaries acquired Additions Disposals Owned by subsidiaries disposed Transfers to investment property Reclassifications Exchange adjustment At 2nd October, 2011 Additions Disposals Classified as held-for-sale Owned by subsidiaries disposed Transfers to investment property Reclassifications Exchange adjustment At 30th September, 2012 Daily Mail and General Trust PlcStrategic Report 127 Directors’ Report Governance Financial Statements 127 22) PROPERTY, PLANT AND EQUIPMENT – CONTINUED Accumulated depreciation and impairment At 3rd October, 2010 Charge for the year Accelerated charge Impairment Disposals Owned by subsidiaries disposed Transfers to investment property Reclassifications Exchange adjustment At 2nd October, 2011 Charge for the year Accelerated charge Impairment Classified as held-for-sale Disposals Owned by subsidiaries disposed Transfers to investment property Reclassifications Exchange adjustment At 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 Freehold properties £m Note Long leasehold properties £m Short leasehold properties £m Plant and equipment £m Total £m 3 (i) (ii) 23 3 (i) (ii) 19 17 23 25.5 2.5 – 5.4 (1.0) – (19.4) (0.1) (0.1) 12.8 2.4 – – (5.4) (2.1) – (1.3) 12.2 (0.1) 18.5 87.0 65.9 61.8 33.7 1.2 – – – (0.6) – – – 34.3 0.7 – – – (0.2) – – (20.6) – 14.2 37.0 34.5 18.9 38.9 3.8 – – (2.9) (0.4) – – 0.1 39.5 3.6 – – – (24.9) – – – (0.3) 17.9 20.1 20.4 17.0 387.5 485.6 39.7 15.1 1.9 (64.7) (14.3) – 0.1 (0.2) 47.2 15.1 7.3 (68.6) (15.3) (19.4) – (0.2) 365.1 451.7 36.2 39.0 6.5 (66.1) (89.8) (0.8) – 8.4 (3.6) 294.9 222.1 184.6 140.4 42.9 39.0 6.5 (71.5) (117.0) (0.8) (1.3) – (4.0) 345.5 366.2 305.4 238.1 (i) Mainly represents a reduction in the useful economic life of print assets in the national media segment following the Group’s decision to relocate its Surrey Quays South London print facility to a new site in Thurrock, Essex, together with the closure of the Derby and Stoke printing facilities. The change in estimate of the useful economic life will also result in accelerated depreciation estimated to be £12.4 million in the period to 29th September, 2013. (ii) Included within exceptional operating costs in the current year is an impairment charge of £6.5 million in relation to property, plant and equipment. This relates to press equipment in the national media segment. Included within exceptional operating costs in the prior year is an impairment charge of £7.3 million. £1.9 million relates to computer equipment in the national media segment and £5.4 million relates to properties held by the head office segment following an annual review of the Group’s property portfolio. In July 2012 the Group announced the conditional sale of a part leasehold part freehold interest in its 14.57 acre Harmsworth Quays printing works site at Canada Water in South East London to British Land. All conditions are expected to be met well in advance of the proposed completion date in late 2013 when British Land will take possession of the site following the relocation of DMGT’s printing operations from Harmsworth Quays to Thurrock. No asset has been recognised for the excess of proceeds over carrying value on sale of this asset as this represents a contingent asset. Annual Report 2012128 Total £m 3.0 (0.1) (0.4) 2.5 (0.2) 37.1 39.4 22) PROPERTY, PLANT AND EQUIPMENT – CONTINUED The following table analyses assets in the course of construction included in property, plant and equipment above: Assets in the course of construction Cost and net book value At 3rd October, 2010 Owned by subsidiaries disposed Disposals At 2nd October, 2011 Projects completed Additions At 30th September, 2012 Freehold properties £m Note Long leasehold properties £m Short leasehold properties £m Plant and equipment £m – – – – – 15.1 15.1 0.2 (0.1) – 0.1 – – 0.1 1.2 – – 1.2 – – 1.2 1.6 – (0.4) 1.2 (0.2) 22.0 23.0 (i) (i) Additions during the year relate mainly to the construction of the Group’s new printing operation in Thurrock, Essex. 23) INvESTMENT PROPERTY Cost At 3rd October, 2010 Transfers from property, plant and equipment Disposals At 2nd October, 2011 Transfers from property, plant and equipment Disposals At 30th September, 2012 Accumulated depreciation and impairment At 3rd October, 2010 Transfers from property, plant and equipment Charge for the year Disposals Impairment At 2nd October, 2011 Transfers from property, plant and equipment Disposals Charge for the year Impairment At 30th September, 2012 Net book value – 2010 Net book value – 2011 Net book value – 2012 Freehold properties £m Note 22 22 18.9 31.2 (0.3) 49.8 2.2 (24.8) 27.2 Freehold properties £m Note 22 3 22 3 3 7.3 19.4 0.4 (0.2) 1.3 28.2 1.3 (11.3) 1.5 0.7 20.4 11.6 21.6 6.8 During the year a number of the Group’s freehold properties ceased to be owner occupied and became subject to letting activity. In accordance with the Group’s accounting policy these properties have been transferred out of property, plant and equipment and into investment property at net book value. The fair value of the Group’s investment properties as at 30th September, 2012 was £7.6 million (2011 £25.0 million). This was arrived at by reference to market evidence for similar properties and was carried out by an officer of the Group’s property department. Property rental income earned by the Group from its investment properties amounted to £0.8 million (2011 £0.5 million). Direct operating expenses arising on the investment properties in the period amounted to £0.4 million (2011 £0.1 million). The leases have an expiry date of between one and five years. Daily Mail and General Trust PlcStrategic Report 129 Directors’ Report Governance Financial Statements 129 Cost of shares £m Note Share of post- acquisition retained reserves £m 32.6 6.4 5.9 – – – (0.2) – 0.6 45.3 4.0 125.4 (25.4) (0.1) – – 1.5 150.7 7 (i) 19 (12.2) – – 3.0 (2.0) (14.9) (3.0) (0.1) 0.2 (29.0) – – 13.9 (1.0) 6.3 (3.9) 0.3 Total £m 20.4 6.4 5.9 3.0 (2.0) (14.9) (3.2) (0.1) 0.8 16.3 4.0 125.4 (11.5) (1.1) 6.3 (3.9) 1.8 (13.4) 137.3 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES Joint ventures At 3rd October, 2010 Additions – cash Additions – non cash Adjustment to carrying value on acquisition Share of retained reserves Dividends received Provision against carrying value Transfer to investment in subsidiaries Exchange adjustment At 2nd October, 2011 Additions – cash Additions – non cash Disposals Classified as held-for-sale Share of retained reserves Dividends received Exchange adjustment At 30th September, 2012 (i) In August 2012 the Group disposed of its 50.0% joint venture investment in dmg Radio Investments Pty Ltd for proceeds amounting to A$86.2 million (£56.1 million). Annual Report 2012130 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES – CONTINUED Summary aggregated financial information for the Group’s joint ventures, extracted on a 100% basis from the joint ventures’ own financial information as at 30th September, 2012 is set out below: Business information National media Business information National media Business information National media Radio 52 weeks ending 30th September, 2012 Revenue £m 52 weeks ending 30th September, 2012 Operating profit/(loss) £m 52 weeks ending 30th September, 2012 Total expenses £m 52 weeks ending 30th September, 2012 Profit/(loss) for the period £m 12.5 61.3 73.8 (0.2) 11.3 11.1 (12.7) (54.9) (67.6) (0.2) 6.4 6.2 At 30th September, 2012 Non-current assets £m At 30th September, 2012 Current assets £m At 30th September, 2012 Current liabilities £m At 30th September, 2012 Non-current liabilities £m At 30th September, 2012 Net assets £m 8.5 71.3 79.8 5.8 18.6 24.4 (2.0) (8.2) (10.2) (0.2) – (0.2) 12.1 81.7 93.8 52 weeks ending 2nd October, 2011 Revenue £m 52 weeks ending 2nd October, 2011 Operating profit/(loss) £m 52 weeks ending 2nd October, 2011 Total expenses £m 52 weeks ending 2nd October, 2011 Profit/(loss) for the period £m 2.6 7.3 74.8 84.7 0.4 (8.9) 0.8 (7.7) (2.1) (16.3) (76.6) (95.0) 0.5 (9.0) (1.8) (10.3) Daily Mail and General Trust PlcStrategic Report 131 Directors’ Report Governance Financial Statements 131 As at 2nd October, 2011 Non-current assets £m 1.5 0.6 89.3 91.4 As at 2nd October, 2011 Current assets £m 2.7 5.4 21.3 29.4 As at 2nd October, 2011 Current liabilities £m As at 2nd October, 2011 Non-current liabilities £m As at 2nd October, 2011 Net assets/ (liabilities) £m (0.3) (4.8) (75.3) (80.4) (0.8) (6.5) (12.5) (19.8) 3.1 (5.3) 22.8 20.6 52 weeks ending 3rd October, 2010 Revenue £m 52 weeks ending 3rd October, 2010 Operating profit/(loss) £m 52 weeks ending 3rd October, 2010 Total expenses £m 52 weeks ending 3rd October, 2010 Profit/(loss) for the period £m 1.1 4.9 54.3 60.3 As at 3rd October, 2010 Current assets £m 1.0 4.5 23.4 28.9 0.3 (7.2) 2.6 (4.3) (0.8) (13.0) (58.0) (71.8) 0.3 (8.1) (3.7) (11.5) As at 3rd October, 2010 Current liabilities £m As at 3rd October, 2010 Non-current liabilities £m As at 3rd October, 2010 Net assets/ (liabilities) £m (0.3) (4.7) (15.6) (20.6) (1.4) (7.1) (55.5) (64.0) (0.7) (7.1) 48.4 40.6 As at 3rd October, 2010 Non-current assets £m – 0.2 96.1 96.3 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES – CONTINUED Business information National media Radio Business information National media Radio Business information National media Radio At 30th September, 2012 the Group’s joint ventures had capital commitments amounting to £1.0 million (2011 £0.1 million, 2010 £0.9 million). There were no material contingent liabilities (2011 none, 2010 none). Net liabilities amounting to £1.0 million within the national media segment are held-for-sale. Information on principal joint ventures from the latest available accounts: Unlisted Zoopla Property Group Limited (incorporated and operating in the UK) Mail Today Newspapers Pvt. Limited (incorporated and operating in India) Principal activity Year ended Description of holding Group interest % Online property portal 30th September, 2012 Publisher of classified publications 30th September, 2012 Ordinary 52.25% Ordinary 26.00% The Sanborn Map Company, Inc (incorporated and operating in the US) Photogrammetric mapping and GIS data conversion 30th September, 2012 Preferred Stock 49.00% TreppPort (incorporated and operating in the US) Data analysis for CRE-related exposure 30th September, 2012 Ordinary 50.00% The Group has joint management control of the Zoopla Property Group Limited and therefore the investment has been treated as a joint venture. Annual Report 2012132 Total £m 12.7 0.9 0.1 (0.7) (0.3) 0.3 13.0 7.5 (0.6) (0.4) (1.6) (5.6) (0.4) (0.4) 11.5 Cost of shares £m Note Share of post acquisition retained reserves £m 32.2 0.9 – (0.4) 0.1 32.8 7.5 – – (1.6) (5.7) (0.5) (1.0) 31.5 (19.5) – 0.1 (0.7) 0.1 0.2 (19.8) – (0.6) (0.4) – 0.1 0.1 0.6 (20.0) 7, 18 19 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES – CONTINUED Associates At 3rd October, 2010 Additions – cash Share of retained reserves Dividends received Provision against carrying value Exchange adjustment At 2nd October, 2011 Additions – cash Share of retained reserves Dividends received Provision against carrying value Disposals Classified as held-for-sale Exchange adjustment At 30th September, 2012 The unrecognised share of losses of the Group’s associates principally comprises £10.4 million (2011 £5.8 million) in relation to ITN and £13.4 million (2011 £6.3 million) in relation to Evening Standard of which £nil (2011 £1.3 million ) arose in the year. Summary aggregated financial information for the Group’s associates, extracted on a 100% basis from the associates’ own financial information is set out below: RMS Business information Euromoney National media 52 weeks ending 30th September, 2012 Revenue £m 52 weeks ending 30th September, 2012 Operating profit/(loss) £m 52 weeks ending 30th September, 2012 Profit/(loss) for the period £m 1.2 1.5 2.4 176.9 182.0 (0.8) (3.0) 1.1 4.5 1.8 (0.7) (2.9) 0.9 2.8 0.1 Daily Mail and General Trust PlcStrategic Report 133 Directors’ Report Governance Financial Statements 133 52 weeks ending 2nd October, 2011 Revenue £m 52 weeks ending 2nd October, 2011 Operating profit/(loss) £m 52 weeks ending 2nd October, 2011 Profit/(loss) for the period £m 1.1 8.4 1.9 103.5 114.9 0.1 (1.0) 0.8 (5.6) (5.7) – (1.0) 0.6 (2.8) (3.2) 52 weeks ending 3rd October, 2010 Revenue £m 52 weeks ending 3rd October, 2010 Operating profit/(loss) £m 52 weeks ending 3rd October, 2010 Profit/(loss) for the period £m 0.9 6.4 2.0 69.7 3.7 82.7 (17.2) (3.7) 0.8 (15.2) 0.2 (35.1) (0.2) (3.7) 0.6 (21.9) 0.2 (25.0) 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES – CONTINUED RMS Business information Euromoney National media RMS Business information Euromoney National media Local media Summary aggregated financial information for the Group’s associates, extracted on a 100% basis from the associates’ own financial accounts is set out below: At 30th September, 2012 RMS Business information Euromoney National media At 2nd October, 2011 RMS Business information Euromoney National media Non-current assets £m Current assets £m Total assets £m Current liabilities £m Non-current liabilities £m Total liabilities £m Net assets/ (liabilities) £m 2.6 10.0 – 0.4 13.0 5.6 0.5 0.8 1.1 8.0 8.2 10.5 0.8 1.5 21.0 (0.3) (7.5) (0.3) (0.3) (8.4) – (3.5) – – (3.5) (0.3) (11.0) (0.3) (0.3) (11.9) 7.9 (0.5) 0.5 1.2 9.1 Non-current assets £m Current assets £m Total assets £m Current liabilities £m Non-current liabilities £m Total liabilities £m Net assets/ (liabilities) £m 0.1 1.8 – 15.5 17.4 3.9 6.4 0.6 42.4 53.3 4.0 8.2 0.6 57.9 70.7 (0.1) (8.1) (0.2) (42.9) (51.3) – (7.4) – (91.4) (98.8) (0.1) (15.5) (0.2) (134.3) (150.1) 3.9 (7.3) 0.4 (76.4) (79.4) Annual Report 2012134 24) INvESTMENTS IN JOINT vENTURES AND ASSOCIATES – CONTINUED At 3rd October, 2010 RMS Business information Euromoney National media Local media Non-current assets £m Current assets £m Total assets £m Current liabilities £m Non-current liabilities £m Total liabilities £m Net assets/ (liabilities) £m 0.1 1.1 – 16.1 1.0 18.3 3.6 4.1 0.6 43.7 0.7 52.7 3.7 5.2 0.6 59.8 1.7 71.0 (0.1) (5.3) (0.1) (39.4) (0.2) (45.1) – – – (0.1) (5.3) (0.1) (96.6) (136.0) – (0.2) (96.6) (141.7) 3.6 (0.1) 0.5 (76.2) 1.5 (70.7) At 30th September, 2012 the Group’s associates had capital commitments amounting to £nil (2011 £3.8 million, 2010 £3.0 million). There were no material contingent liabilities (2011 none, 2010 none). Information on principal associates from the latest available accounts: Unlisted Independent Television News Limited (incorporated and operating in the UK) Real Capital Analytics, Inc. (incorporated and operating in the US) Praedicat (incorporated and operating in the US) Principal activity Year ended Description of holding Group interest % Independent TV news provider 31st December, 2011 Provider of real estate information 30th September, 2012 Provision of catastrophe risk analytics 30th September, 2012 Ordinary 20.0% Preferred stock Preferred stock 30.0% 29.6% Joint ventures and associates have been accounted for under the equity method using unaudited financial information to 30th September, 2012. 25) NON-CURRENT ASSETS – AvAILABLE-FOR-SALE INvESTMENTS At 3rd October, 2010 Additions Disposals Impairment charge Fair value movement in the year Exchange adjustment At 2nd October, 2011 Additions Disposals Impairment charge At 30th September, 2012 Note 8 38 8 Listed £m 18.0 – (22.1) – 4.5 (0.4) – – – – – Unlisted £m 5.2 0.1 (1.2) (0.2) 0.1 0.2 4.2 0.2 (2.6) (0.3) 1.5 Total £m 23.2 0.1 (23.3) (0.2) 4.6 (0.2) 4.2 0.2 (2.6) (0.3) 1.5 The investments above represent listed equity securities and unlisted securities, which are recorded as non-current assets unless they are expected to be sold within one year, in which case they are recorded as current assets. The investments in listed securities have no fixed maturity or coupon rate and the fair value of these investments is based on quoted market prices. Since there is no active market upon which they are traded, other unlisted equity securities are recorded at cost less provision for impairment, as their fair values cannot be reliably measured. Daily Mail and General Trust PlcStrategic Report 135 Directors’ Report Governance Financial Statements 135 At 30th September, 2012 £m As at 2nd October, 2011 £m As at At 3rd October, 2010 £m – – – 1.5 1.5 – – – 4.2 4.2 17.7 0.3 18.0 5.2 5.2 25) NON-CURRENT ASSETS – AvAILABLE-FOR-SALE INvESTMENTS – CONTINUED Available-for-sale investments are analysed as follows: Listed CoStar, Inc. Other Unlisted Other Information on principal available-for-sale investments, taken from the latest published accounts is as follows: The Press Association Limited (incorporated and operating in the UK) Spot Runner, Inc. (incorporated and operating in the US) Currency analysis of available-for-sale investments: Sterling US dollar Australian dollar Canadian dollar Euro Other Interest analysis of available-for-sale investments: Non-interest bearing 26) INvENTORIES Raw materials and consumables Work in progress Classified as held-for-sale Class of holding Group interest % Ordinary Common stock 15.6% 5.3% At 30th September, 2012 £m As at 2nd October, 2011 £m As at At 3rd October, 2010 £m 0.3 0.9 – – 0.2 0.1 1.5 1.4 2.5 0.1 – 0.2 – 4.2 1.5 21.0 0.2 0.3 – 0.2 23.2 At 30th September, 2012 £m As at 2nd October, 2011 £m As at At 3rd October, 2010 £m 1.5 4.2 23.2 At 30th September, 2012 £m As at 2nd October, 2011 £m As at At 3rd October, 2010 £m Note 10.9 18.0 29.0 (0.6) 28.3 11.7 11.4 23.1 – 23.1 19 13.9 13.6 27.5 – 27.5 Annual Report 2012136 At 30th September, 2012 £m Note At 2nd October, 2011 Restated (note 2) £m At 3rd October, 2010 Restated (note 2) £m 255.7 (24.5) 231.2 109.9 14.5 355.6 (26.9) 328.7 – 6.0 8.6 14.6 343.3 254.9 (27.6) 227.3 103.8 16.3 347.4 – 262.7 (29.1) 233.6 96.9 28.5 359.0 – 347.4 359.0 – 4.7 26.0 30.7 0.5 3.4 13.3 17.2 378.1 376.2 At 30th September, 2012 £m (27.6) (8.2) 7.0 3.7 0.2 0.4 At 2nd October, 2011 £m (29.1) (7.4) 5.1 3.6 0.4 (0.2) At 3rd October, 2010 £m (33.1) (8.6) 6.2 4.2 2.0 0.2 (24.5) (27.6) (29.1) 27) TRADE AND OTHER RECEIvABLES Current assets Trade receivables Allowance for doubtful debts Prepayments and accrued income Other debtors Classified as held for sale 19 Non-current assets Trade receivables Prepayments and accrued income Other debtors Movement in the allowance for doubtful debts: At start of period Impairment losses recognised Amounts written off as uncollectible Amounts recovered during the year Owned by subsidiaries disposed Exchange adjustment At end of period In determining the allowance for doubtful debts the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the period end date. Daily Mail and General Trust PlcStrategic Report 137 Directors’ Report Governance Financial Statements 137 At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 0.5 0.5 0.7 18.2 19.9 0.4 2.1 1.0 22.0 25.5 1.7 2.0 2.1 20.7 26.5 27) TRADE AND OTHER RECEIvABLES – CONTINUED Ageing of impaired trade receivables: 31 – 60 days 61 – 90 days 91 – 120 days 121+ days Total Included in the Group’s trade receivables are debtors with a carrying value of £80.0 million (2011 £77.2 million, 2010 £59.8 million) which are past due as at 30th September, 2012 for which no allowance has been made. The Group is not aware of any deterioration in the credit quality of these customers and considers that the amounts are still recoverable. Ageing of past due but not impaired receivables: 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue 91+ days overdue Total The carrying amount of trade and other receivables approximates their fair value. 28) CASH AND CASH EQUIvALENTS Cash and cash equivalents Unsecured bank overdrafts Cash and cash equivalents in the cash flow statement Cash and cash equivalents Classified as held-for-sale Analysis of cash and cash equivalents by currency: Sterling US dollar Australian dollar Canadian dollar Euro Other Analysis of cash and cash equivalents by interest type: Floating rate The fair values of cash and cash equivalents equate to their book values. At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 36.9 19.6 9.8 13.7 80.0 36.0 18.8 7.8 14.6 77.2 29.4 11.7 9.0 9.7 59.8 Note 32 15 19 At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 107.3 – 107.3 107.3 (2.6) 104.7 47.5 23.1 0.6 0.9 15.2 17.4 104.7 174.3 (2.6) 171.7 174.3 – 174.3 65.7 (1.4) 64.3 65.7 – 65.7 152.7 41.1 6.8 – 1.2 5.4 8.2 174.3 9.3 – 1.6 0.3 13.4 65.7 104.7 174.3 65.7 Annual Report 2012138 At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m Note 54.4 28.3 29.9 45.7 257.2 271.0 (31.4) 655.1 8.1 663.2 66.4 33.9 32.6 31.2 234.9 255.2 70.1 34.2 29.0 46.0 212.4 240.4 – – 654.2 632.1 11.9 666.1 1.5 633.6 19 At 30th September, 2012 £m 20.8 (3.6) 17.2 At 30th September, 2012 £m 4.5 4.1 8.6 At 2nd October, 2011 Restated (note 2) £m 53.2 (9.1) 44.1 At 2nd October, 2011 £m 1.1 10.7 11.8 At 3rd October, 2010 Restated (note 2) £m 69.4 (0.9) 68.5 At 3rd October, 2010 £m 1.1 – 1.1 29) TRADE AND OTHER PAYABLES Current liabilities Trade payables Interest payable Other taxation and social security Other creditors Accruals Deferred income Classified as held-for-sale Non-current liabilities Other creditors The carrying amount of trade and other payables approximates their fair value. 30) CURRENT TAX Corporation tax payable Corporation tax receivable 31) ACQUISITION PUT OPTION COMMITMENTS Current Non-current Daily Mail and General Trust PlcStrategic Report 139 Directors’ Report Governance Financial Statements 139 32) BORROwINGS The Group’s borrowings are unsecured and are analysed as follows: Other borrowings £m Overdrafts £m Bank loans £m Bonds £m Loan notes £m Hire purchase £m At 30th September, 2012 Within one year Over five years At 2nd October, 2011 Within one year Between two and five years Over five years At 3rd October, 2010 Within one year Between one and two years Between two and five years Over five years – – – – – – 23.4 2.6 – – 23.4 – – 2.6 – – – – – – – – – – – – – 1.4 0.5 – – – – 1.4 – 2.2 – 2.2 2.7 The Group’s borrowings are analysed by currency and interest rate type as follows: 47.3 2.6 678.1 725.4 – 2.6 – 3.3 – – 3.3 158.3 673.7 832.0 – – 159.9 693.3 853.2 853.2 Total £m 49.9 678.1 728.0 29.3 158.3 673.7 861.3 – – – – – – – 7.3 5.1 14.3 – – – – 7.3 8.3 6.9 – 15.2 20.3 8.3 169.0 693.3 870.6 884.9 At 30th September, 2012 Fixed rate interest Floating rate interest At 2nd October, 2011 Fixed rate interest Floating rate interest At 3rd October, 2010 Fixed rate interest Floating rate interest Sterling £m US dollar £m Australian dollar £m Euro £m Other £m Total £m 725.4 2.6 728.0 832.0 28.4 860.4 873.5 7.3 880.8 – – – – 0.1 0.1 – 3.1 3.1 – – – – 0.8 0.8 – 0.5 0.5 – – – – – – – – – – – – – – – – 0.5 0.5 725.4 2.6 728.0 832.0 29.3 861.3 873.5 11.4 884.9 Annual Report 2012140 32) BORROwINGS – CONTINUED The Group’s borrowings, analysed by currency and interest rate type, adjusting the principal borrowed and interest rate type by the notional amount of interest rate swaps and by the notional amount of currency derivatives, are as follows: At 30th September, 2012 Analysed as: Fixed rate interest Floating rate interest At 2nd October, 2011 Analysed as: Fixed rate interest Floating rate interest At 3rd October, 2010 Analysed as: Fixed rate interest Floating rate interest Sterling £m US dollar £m Australian dollar £m Euro £m Other £m Total £m 458.1 (181.3) 276.8 178.7 266.9 445.6 556.2 (195.2) 361.0 256.5 234.5 491.0 – – – 8.5 0.8 9.3 562.4 (121.8) 440.6 338.4 143.8 482.2 12.3 0.5 12.8 – 5.6 5.6 – – – – – – – – – – – – 636.8 91.2 728.0 821.2 40.1 861.3 – 0.5 0.5 913.1 23.0 936.1 Committed Borrowing Facilities The Group’s bank loans bear interest charged at LIBOR plus a margin based on the Group’s ratio of net debt to EBITDA. Additionally each facility contains a covenant based on a minimum interest cover ratio. EBITDA for these purposes is defined as the aggregate of the Group’s consolidated operating profit before share of results of joint ventures and associates before deducting depreciation, amortisation and impairment of goodwill, intangible and tangible assets, before exceptional items and before interest and finance charges. These covenants were met at the relevant test dates during the period. During the period the Group cancelled certain of its committed borrowing facilities amounting to £90.0 million which were surplus to the Group’s requirements. The Group’s facilities and their maturity dates are as follows: Expiring in one year or less Expiring in more than one year but not more than two years Expiring in more than two years but not more than three years Expiring in more than three years but not more than four years Expiring in more than four years but not more than five years Total bank facilities At 30th September, 2012 £m – – – 300.7 – 300.7 At 2nd October, 2011 £m – 90.0 – – 300.0 390.0 At 3rd October, 2010 £m 180.0 – 240.0 – – 420.0 The following undrawn committed borrowing facilities were available to the Group in respect of which all conditions precedent had been met: Expiring in one year or less Expiring in more than one year but not more than two years Expiring in more than two years but not more than three years Expiring in more than three years but not more than four years Expiring in more than four years but not more than five years Total undrawn committed bank facilities At 30th September, 2012 £m – – – 298.3 – 298.3 At 2nd October, 2011 £m – 36.4 – – 291.1 327.5 At 3rd October, 2010 £m 153.6 – 201.6 – – 355.2 Daily Mail and General Trust PlcStrategic Report 141 Directors’ Report Governance Financial Statements 141 32) BORROwINGS – CONTINUED The Group has issued standby letters of credit in favour of the Trustees of the Group’s defined benefit pension fund amounting to £nil (2011 £53.6 million, 2010 £54.5 million) together with other guarantees of £2.4 million (2011 £9.3 million, 2010 £8.1 million). Bonds The nominal, carrying and fair values of the Group’s bonds and the coupons payable are as follows: Maturity Coupon % 2013 2018 2021 2027 7.50 5.75 10.00 6.375 At 30th September, 2012 Fair value £m At 2nd October, 2011 Fair value £m At 3rd October, 2010 Fair value £m 47.4 344.2 195.3 193.2 780.1 162.3 307.6 188.0 177.5 166.0 337.1 197.1 180.2 835.4 880.4 At 30th September, 2012 Carrying value £m 47.3 307.4 171.4 199.3 725.4 At 2nd October, 2011 Carrying value £m 158.3 304.1 171.1 198.5 832.0 At 3rd October, 2010 Carrying value £m At 30th September, 2012 Nominal value £m 159.9 324.4 170.9 198.0 853.2 46.4 324.7 156.4 200.0 727.5 At 2nd October, 2011 Nominal value £m 156.5 324.7 156.4 200.0 837.6 At 3rd October, 2010 Nominal value £m 156.5 349.7 156.4 200.0 862.6 The Group’s bonds have been adjusted from their nominal values to take account of the premia, direct issue costs, discounts and movements in hedged risks. 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 £3.5 million (2011 £3.8 million, 2010 £4.5 million), the unamortised premia £9.2 million (2011 £10.5 million, 2010 £13.6 million). The fair value of the Group’s bonds have been calculated on the basis of quoted market rates. Further details of the Group’s borrowing arrangements are set out in the Financial and Treasury Report on page 42. Loan notes The Group has issued loan notes which attract interest at rates of approximately LIBID to LIBID minus 1%. The loan notes are repayable at the option of the loan note holders with a six-month notice period and are treated as current liabilities. 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT The Group is exposed to credit, interest rate and currency risks arising in the normal course of business. Derivative financial instruments are used to manage exposures to fluctuations in foreign currency exchange rates and interest rates but are not employed for speculative purposes. Full details of the Group’s treasury policies are set out in the Financial and Treasury Review on pages 42 and 43. Capital risk management The Group manages its capital, defined as equity shareholders’ funds and net borrowings, to ensure that entities in the Group are able to continue as going concerns for the foreseeable future. Debt management The Group borrows on an unsecured basis and arranges its debt to ensure an appropriate maturity profile. The Group’s principal sources of funding are the long-term sterling bond market and committed bank facilities. The Group is mindful of its credit rating, currently BB and ensures it has sufficient committed bank facilities in order to meet short-term business requirements, after taking into account the Group’s holding of cash and cash equivalents together with any distribution restrictions which exist. The Group aims to maximise the term and flexibility of indebtedness and retain headroom in the form of undrawn committed bank facilities of approximately £100.0 million. Additionally, the Group arranges its currency borrowings in order that they are in proportion to the ratio of earnings in that particular currency to total Group earnings. The Directors consider that the Group’s bond issuances together with its bank facilities will be sufficient to cover the likely medium-term cash requirements of the Group. Associates, joint ventures and other investments in general arrange and maintain their own financing and funding requirements. In all cases such financing is non-recourse to the Company. The Group’s interim internal target of Net Debt to EBITDA cover is 2.0 to 2.5 times whilst the limit imposed by its bank covenants is no greater than 3.75 times. On a bank covenant basis the ratio uses the average exchange rate in the calculation of net debt. The resultant Net Debt to EBITDA ratio is 1.65 times (2011 1.96 times, 2010 2.33 times). Using a closing rate basis for the valuation of net debt, the ratio was 1.62 times. Cash and liquidity risk management The Group monitors cash balances and ensures that sufficient resources are available to meet entities operational requirements. Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to credit risk. Market risk management The Group’s primary market risks are interest rate fluctuations and exchange rate movements. Annual Report 2012142 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Interest rate risk management The limit imposed by the Group’s bank covenants is at least 3 times EBITDA to net interest. The actual ratio for the year was 6.54 times (2011 6.36 times, 2010 4.91 times). The Group’s interest rate exposure management policy is aimed at reducing the exposure of the consolidated businesses to changes in interest rates. Group policy is to have 70% to 80% of interest exposures fixed with the balance floating. This is achieved by issuing fixed rate sterling bond debt and entering into derivative contracts that economically swap fixed rate interest into floating rate. Derivatives are used to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist. The derivatives in place to meet Group policy are as follows: (i) Fixed to floating interest rate swaps hedging a portion of the Group’s bonds. Changes in the fair value of the swaps are recognised in the income statement and at the same time the carrying value of the hedged bonds is adjusted for movements in the hedged risk to the extent effective and those adjustments are also recognised in the income statement. These interest rate swaps amount to £108.9 million (2011 £75.0 million, 2010 £75.0 million) with the Group paying floating rates of between 0.63% and 1.86% (2011 1.24% and 1.61%, 2010 1.24% and 3.60%). (ii) Fixed to floating interest rate swaps which are not designated as hedging instruments; Changes in the fair value of the swaps are recognised in the income statement. These interest rate swaps amount to US$67.0 million (2011 US$nil, 2010 US$nil) with the Group receiving floating US dollar interest at rates of between 0.38% and 0.47%. (iii) Cross currency fixed to fixed interest rate swaps. These amount to £158.4 million/US$288.0 million (2011 £192.3 million/US$355.0 million, 2010 £227.6 million/US$ 435.0 million) resulting in the Group paying fixed US dollar interest at rates of between 4.40% and 6.07% (2011 4.40% and 6.07 %, 2010 4.40% and 6.07%), £nil/AUS$nil (2011 £8.5 million/AUS$20.0 million, 2010 £8.5 million/AUS$20.0 million) with the Group paying fixed Australian dollar interest at nil% (2011 6.22%, 2010 6.15% and 6.22%). (iv) The Group also had a number of outstanding interest rate caps. These amounted to US$100.0 million notional (2011 US$100.0 million, 2010 US$100.0 million) at a rate of 6.00% (2011 6.00%, 2010 6.00%). The fair values of interest rate swaps, interest rate caps and forward foreign exchange contracts represent the replacement costs calculated using market rates of interest and exchange at 30th September, 2012. The fair value of long-term borrowings has been calculated by discounting expected future cash flows at market rates. Foreign exchange rate risk management Translation exposures arise on the earnings and net assets of business operations in entities with functional currencies other than that of the parent company. The net asset exposures are economically hedged, to a significant extent, by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars. The Group also designates currency swaps and forward contracts as net investment hedges, hedging the Group’s overseas investments. Credit risk management The Group’s principal credit risk relates to its trade and other receivables and non-performance by counterparties to financial instrument contracts. Trade and other receivables The Group’s customer base is diversified geographically and by division with customers generally of a good financial standing. Before accepting any new customers, the Group assesses the potential customers’ credit quality and sets credit limits by customer. The average credit period is 43 days (2011 42 days, 2010 44 days). The Group considers the credit risk of trade receivables to be low, although the Group remains vigilant in the current economic climate. The Group reserves the right to charge interest on overdue receivables, although the Group does not hold collateral over any trade receivable balances. The Group makes an allowance for bad and doubtful debts specific to individual debts. This provision is reviewed regularly in conjunction with a detailed analysis of historic payment profiles and past default experience. The Group’s receivables are stated net of allowances for doubtful debts and allowances for impairment are made where appropriate. Institutional counterparty risk The Group seeks to limit interest rate and foreign exchange risks, described above, by the use of financial instruments. As a result, credit risk arises from the potential non-performance by the counterparties to those financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. The Group also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Group policy is to have no more than £20.0 million deposited (or at risk) with any ‘AA’ counterparty, £10.0 million for ‘A’ rated counterparties. Credit risk is controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and investment banks with strong long-term credit ratings, and of the amounts outstanding with each of them. The Group has no significant concentration of risk with exposure spread over a large number of counterparties and customers. The credit risk on short-term deposits and derivative financial instruments is considered low since the counterparties are banks with high credit ratings. Group policy is to have no more than £20.0 million deposited (or at risk) with any “AA” counterparty, £10.0 million for “A” rated counterparties. The Group has no significant concentration of risk with exposure spread over a large number of counterparties and customers. Daily Mail and General Trust PlcStrategic Report 143 Directors’ Report Governance Financial Statements 143 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Derivative financial instruments and hedge accounting Derivative financial instruments are measured at fair value at the date the derivatives are entered into and are subsequently re-measured to fair value at each reporting date. The fair value is determined by using market data and the use of established estimation techniques such as discounted cash flow and option valuation models. The Group designates certain derivatives as: (i) Hedges of the change of fair value of recognised assets and liabilities (‘fair value hedges’); or (ii) Hedges of highly probable forecast transactions (‘cash flow hedges’); or (iii) Hedges of net investment in foreign operations (‘net investment hedges’) To qualify for hedge accounting, each individual hedging relationship must be expected to be effective, be designated and documented at its inception and throughout the life of the hedge relationship. Fair value hedges The Group’s policy is to use interest rate swaps to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk with changes in fair value of the hedging instrument recognised in the income statement for the period together with the changes in the fair value of the hedged item due to the hedged risk, to the extent the hedge is effective. When the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting, hedge accounting is discontinued. Gains and losses on the borrowings and related derivatives designated as fair value hedges included in the Consolidated Income Statement for the year ended 30th September, 2012 were: Sterling interest rate swaps Sterling debt Total At 3rd October, 2010 £m Fair value movement gain/(loss) £m At 2nd October, 2011 £m Fair value movement gain/(loss) £m At 30th September, 2012 £m 8.2 (8.2) – 0.1 (0.1) – 8.3 (8.3) – 2.2 (2.2) – 10.5 (10.5) – Cash flow hedges The Group’s policy is to use certain derivative financial instruments in order to hedge the foreign exchange risk arising from certain firm commitments or forecast highly probable transactions in currencies other than the functional currency of the relevant Group entity. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in the Consolidated Income Statement. If a hedged firm commitment or forecast transaction results in the recognition of a non-financial asset or liability, then, at the time that the asset or liability is recognised, the associated gains and losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the Consolidated Income Statement in the same period in which the hedged item affects the Consolidated Income Statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, revoked, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss previously recognised in equity is included in the Consolidated Income Statement for the period. All cash flow hedges were effective throughout the year ended 30th September, 2012. All amounts deferred in equity at the year end are expected to impact the Consolidated Income Statement in the next 18 months when the related cash flows are expected to occur. Net investment hedges The Group seeks to manage the foreign currency exposure arising on retranslation of the reporting entity’s share of net assets of foreign operations at each reporting date by designating certain derivative financial instruments and foreign currency borrowings as net investment hedging instruments. Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity in the translation reserve. Gains and losses arising from changes in the fair value of the hedging instruments are recognised in equity to the extent that the hedging relationship is effective. Any ineffectiveness is recognised immediately in the Consolidated Income Statement for the period. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Gains and losses accumulated in the translation reserve are included in the Consolidated Income Statement on disposal of the foreign operation. All net investment hedges were effective throughout the year ended 30th September, 2012. Annual Report 2012 144 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Derivatives not qualifying for hedge accounting Derivatives not qualifying for hedge accounting represent forward contracts which provide a gain or loss equivalent to income tax payable or receivable on foreign exchange gains or losses incurred when intra group balances are translated to the closing rate at the year end. These contracts (‘Tax Equalisation Swaps’) are marked to market with the movement in fair value taken to income. Tax Equalisation Swaps are not capable of being designated as hedging instruments under IAS 39. The Group’s derivative financial instruments, other than acquisition option commitments, and their maturity profiles are summarised as follows: Derivative financial assets: At 30th September, 2012 Within one year Between one and two years Over five years At 2nd October, 2011 Within one year Between one and two years Over five years At 3rd October, 2010 Within one year Between one and two years Between two and five years More than five years Fair value hedges £m Cash flow hedges £m Net investment hedges £m Derivatives not qualifying for hedge accounting £m Derivative financial assets £m 0.8 – 22.9 22.9 23.7 – 1.9 6.5 8.4 8.4 – – 2.8 5.4 8.2 8.2 2.7 0.3 – 0.3 3.0 1.1 0.2 – 0.2 1.3 1.8 0.4 – – 0.4 2.2 5.4 – 1.4 1.4 6.8 – – – – – 0.3 – – – – 0.3 – – – – – – – – – – 0.2 – 0.1 – 0.1 0.3 8.9 0.3 24.3 24.6 33.5 1.1 2.1 6.5 8.6 9.7 2.3 0.4 2.9 5.4 8.7 11.0 Daily Mail and General Trust PlcStrategic Report 145 Directors’ Report Governance Financial Statements 145 Net investment hedges £m Derivatives not qualifying for hedge accounting £m Derivative financial assets £m Cash flow hedges £m (0.3) (21.7) (22.0) (4.7) (0.7) – (0.7) (5.4) (6.4) (3.7) – – (3.7) (10.1) (13.8) (13.2) (27.0) (0.8) (22.8) (37.4) (60.2) (61.0) (0.1) – (30.4) (45.7) (76.1) (76.2) – – – (0.4) – – – (0.4) (0.1) – – – – (0.1) (14.1) (34.9) (49.0) (5.9) (23.5) (37.4) (60.9) (66.8) (6.6) (3.7) (30.4) (45.7) (79.8) (86.4) 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Derivative financial liabilities: At 30th September, 2012 Within one year Over five years At 2nd October 2011 Within one year Between one and two years Over five years At 3rd October 2010 Within one year Between one and two years Between two and five years Over five years In managing the Group’s interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations. However, changes in foreign exchange rates and interest rates may have an impact on the Group’s results. At 30th September, 2012, it is estimated that an increase of 1.0% in interest rates would have increased the Group’s finance costs by £1.2 million (2011 £1.1 million, 2010 £1.0 million). There would have been no effect on amounts recognised directly in equity. This sensitivity has been calculated by applying the interest rate change to the Group’s variable rate borrowings, net of any interest rate swaps, at the year end date. At 30th September, 2012, it is estimated that a decrease of 1.0% in interest rates would have decreased the Group’s finance costs by £1.1 million (2011 £1.3 million, 2010 £1.0 million). There would have been no effect on amounts recognised directly in equity. This sensitivity has been calculated by applying the interest rate change to the Group’s variable rate borrowings, net of any interest rate swaps, as at the year end date. At 30th September, 2012, it is estimated that a 10.0% strengthening of sterling against the US dollar would have reduced the net loss taken to equity by £49.1 million (2011 £55.6 million, 2010 £51.1 million) and increased the net loss taken to income by £nil (2011 £nil, 2010 £nil). A 10.0% weakening of sterling against the US dollar would have increased the net loss taken to equity by £53.6 million (2011 £64.0 million, 2010 £62.4 million) and decreased the net loss taken to income by £nil (2011 £nil, 2010 £nil). This sensitivity has been calculated by applying the foreign exchange change to the Group’s financial instruments which are affected by changes in foreign exchange rates. At 30th September, 2012, it is estimated that an increase of 1.0% in the rate used to discount the expected gross value of payments would lead to a decrease in the fair value of acquisition put option commitments of £nil (2011 £0.2 million, 2010 £nil). At 30th September, 2012, it is estimated that a decrease of 1.0% in the rate used to discount the expected gross value of payments would lead to an increase in the fair value of acquisition put option commitments of £nil (2011 £0.2 million, 2010 £nil). Annual Report 2012146 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED The carrying amounts and gains and losses on financial instruments are as follows: At 30th September, 2012 Carrying amount £m 52 weeks ending 30th September, 2012 Gain/(loss) to income £m 52 weeks ending 30th September, 2012 Gain/(loss) to equity £m At 2nd October, 2011 Carrying amount £m 52 weeks ending 2nd October, 2011 Gain/(loss) to income £m 52 weeks ending 2nd October, 2011 Gain/(loss) to equity £m At 3rd October, 2010 Carrying amount £m 52 weeks ending 3rd October, 2010 Gain/(loss) to income £m 52 weeks ending 3rd October, 2010 Gain/(loss) to equity £m Available-for-sale investments 1.5 0.5 (0.1) 4.2 4.4 23.2 Trade receivables Other debtors Cash and deposits Loans and receivables Interest rate swaps Fixed to fixed cross currency swaps Forward foreign currency contracts Derivative assets in effective hedging relationships Interest rate caps Derivative assets not designated as hedging instruments Trade payables Bank overdrafts Bonds Bank loans Loan notes Amounts payable under hire purchase contracts Liabilities at amortised cost Fixed to fixed cross currency swaps Forward foreign currency contracts Derivative liabilities in effective hedging relationships Acquisition put option commitments Interest rate swaps Forward foreign currency contracts Interest rate caps Derivative liabilities not designated as hedging instruments Total for financial instruments 231.2 23.1 107.3 361.6 23.7 1.4 8.4 33.5 – – (54.4) – (725.4) – (2.6) – 3.1 – 1.5 4.6 4.5 – (0.2) 4.3 – – – 0.1 (61.7) (5.9) – – (3.1) – (1.7) (4.8) – – 19.8 19.8 – – 8.4 0.1 – – – – 227.3 42.3 174.3 443.9 8.4 – 1.3 9.7 – – (66.4) (2.6) (832.0) – (3.3) – 2.7 1.5 – 1.9 3.4 2.3 – 0.2 2.5 – – – – (63.4) (5.3) (0.1) (1.7) 0.6 1.8 – 0.8 2.6 5.9 – – 5.9 234.1 41.8 65.7 341.6 8.2 – 2.5 10.7 0.3 0.3 (0.3) (0.3) (70.1) (1.4) (853.2) (2.7) (7.3) (20.3) – (0.2) (66.8) (6.1) (0.2) (1.6) 1.1 – – 1.1 – – 2.0 2.0 – – (3.6) – – – – – (782.4) (67.5) 8.5 (904.3) (70.5) (3.6) (955.0) (74.9) (27.0) (0.3) (27.3) (8.6) (21.7) – – (30.3) (2.3) (0.2) (2.5) 2.0 (0.3) – – 1.7 12.8 5.4 18.2 (60.3) (6.1) (66.4) (2.6) 1.5 (1.1) (6.0) (7.5) (13.5) (76.2) (10.1) (86.3) 0.3 (11.8) (0.5) – – – – (0.4) – 0.3 (12.2) – – – (0.5) – – – – – (1.1) – (0.1) – (1.2) (3.8) – (3.8) (1.3) – (0.1) – (1.4) 2.9 2.4 – 2.1 4.5 – – 5.2 5.2 – – (2.8) (1.4) – 0.3 – – (3.9) (2.6) (1.2) (3.8) – – – – – (443.4) (58.9) 41.9 (525.1) (63.5) (9.6) (666.7) (71.3) 4.9 Daily Mail and General Trust PlcStrategic Report 147 Directors’ Report Governance Financial Statements 147 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m 34.4 – 3.9 3.6 (18.3) 4.6 (2.7) 6.8 41.9 (9.6) (2.9) 2.9 0.6 4.3 4.9 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m (58.9) (63.5) (71.3) (3.1) 0.3 (0.8) (1.5) (0.3) 0.2 (64.1) (1.5) 0.2 (2.9) (1.9) (0.4) (1.7) (71.7) (1.8) – (0.6) (0.8) (0.7) (2.2) (77.4) Due in less than one year £m Due between one and five years £m Due in more than 5 years £m – – – – – – – – – Due in less than one year £m Due between one and five years £m Due in more than 5 years £m – – – – – – – – – Note 38 38 38 Note 27 8 9 9 10 10 10 Total £m – – – Total £m – – – Due in less than one year £m Due between one and five years £m Due in more than 5 years £m (6.3) 1.2 (5.1) (12.9) 2.4 (10.5) (5.1) 0.4 (4.7) Total £m (24.3) 4.0 (20.3) 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Reconciliation of net gain or loss taken to equity: Change in fair value of hedging derivatives Fair value movement in available-for-sale assets Translation of financial instruments of overseas operations Transfer of gain on cash flow hedges from fair value reserves to Consolidated Income Statement Total loss on financial instruments to equity Reconciliation of net gain or loss taken through income to net finance costs: Total loss on financial instruments to income Add back: Impairment of trade receivables Impairment of available-for-sale assets Divided income Interest receivable from short-term deposits Finance charge on discounting of contingent consideration Fair value movement of contingent consideration Net finance costs Reconciliation of amounts due under hire purchase agreements: At 30th September, 2012 Future minimum lease payments Future finance charges Present value of minimum lease payments At 2nd October, 2011 Future minimum lease payments Future finance charges Present value of minimum lease payments At 3rd October, 2010 Future minimum lease payments Future finance charges Present value of minimum lease payments The hire purchase agreements in the prior periods related to certain of the Group’s colour print assets. Annual Report 2012148 Bank loans and overdrafts £m Loan notes £m TOTAL £m – – – – – – – (2.6) – – – – – (317.9) (59.7) (155.5) (646.0) (430.4) (1,291.6) (2.6) (1,609.5) (2.6) (3.3) – – – – – – (2.6) (1.9) – (2.3) – – – (2.3) (4.2) (511.6) (351.5) (163.9) (694.2) (101.6) (340.0) – – – – – – (1,651.2) (3.3) (2,162.8) (7.4) – – – – – – (267.0) (122.3) (507.2) (598.1) (265.6) (358.4) (1,851.6) (7.4) (2,118.6) Currency swaps £m Forward contracts £m 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED The remaining undiscounted contractual liabilities and their maturities are as follows: At 30th September, 2012 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years At 2nd October, 2011 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years Between fifteen and twenty years At 3rd October, 2010 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years Between 15 and 20 years Trade payables £m Hire purchase £m (54.4) – – – – – (54.4) (66.4) – – – – – – (66.4) (70.1) – – – – – – (70.1) – – – – – – – – – – – – – – – (6.3) (6.3) (6.6) (5.1) – – (18.0) (24.3) Interest rate swaps £m – – – – (68.5) (68.5) (68.5) – – – – – – – – – – – – – – – – (106.0) (4.8) (14.3) (23.9) (101.7) (144.7) (250.7) (13.4) (126.0) (22.7) (37.8) (37.8) (130.8) (355.1) (368.5) (15.5) (15.5) (190.5) (37.3) (37.3) (136.4) (417.0) (432.5) Bonds £m (95.2) (47.1) (141.2) (622.1) (260.2) (59.7) (7.8) – – – (7.8) (1,070.6) (67.5) (1,165.8) (367.5) (16.2) – – – – (58.4) (209.3) (141.2) (656.4) (63.8) (209.2) (16.2) (1,279.9) (383.7) (1,338.3) (105.6) (40.3) – – – – (60.2) (60.2) (307.8) (555.7) (228.3) (222.0) (40.3) (1,374.0) (145.9) (1,434.2) Daily Mail and General Trust PlcStrategic Report 149 Directors’ Report Governance Financial Statements 149 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Reconciliation of undiscounted liabilities to amounts on the Statement of Consolidated Financial Position: At 30th September, 2012 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years Analysed as follows: Trade payables Loan notes Bonds Interest rate swaps Fixed to fixed cross currency swaps Forward foreign currency contracts Undiscounted value of financial liabilities £m Interest £m Unamortised issue costs £m Discount/ Premium on issue £m Mark to market adjustments £m Effect of discounting £m Undiscounted value of financial asset £m TOTAL £m (317.9) (59.7) (155.5) (646.0) (430.4) (1,291.6) (1,609.5) (54.4) (2.6) (1,165.8) (68.5) (250.7) (67.5) 48.8 47.1 141.2 141.0 94.3 423.6 472.4 – – 438.2 34.2 – – (1,609.5) 472.4 0.4 0.4 1.3 1.1 0.3 3.1 3.5 – – 3.5 – – – 3.5 1.6 1.7 6.1 (0.6) 0.4 7.6 9.2 – – 9.2 – – – 9.2 (10.5) – – – – – (10.5) – – (10.5) – – – (10.5) (0.3) 0.4 1.5 2.5 8.7 13.1 12.8 – – – 12.6 0.4 (0.2) 12.8 151.8 (126.1) 12.1 12.8 21.4 92.6 138.9 290.7 – – – – 223.3 67.4 290.7 2.0 7.4 (480.6) (234.1) (705.3) (831.4) (54.4) (2.6) (725.4) (21.7) (27.0) (0.3) (831.4) Annual Report 2012150 Total £m (84.8) (177.8) 7.5 (479.5) 0.7 (237.2) (886.3) (971.1) (66.4) (2.6) (3.3) (832.0) (60.3) (6.5) (971.1) (97.5) (6.8) (186.6) (348.5) (156.5) (245.5) (943.9) (1,041.4) (70.1) (1.4) (7.3) (2.7) (20.3) (853.2) (76.2) (10.2) (1,041.4) 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED Undiscounted value of financial liabilities £m Interest £m Unamortised issue costs £m Discount/ Premium on issue £m Mark to market adjustments £m Effect of discounting £m Undiscounted value of financial asset £m At 2nd October, 2011 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years Between 15 and 20 years Analysed as follows: Trade payables Cash flow Loan notes Bonds Fixed to fixed cross currency swaps Forward foreign currency contracts At 3rd October, 2010 Within one year Between one and two years Between two and five years Between five and 10 years Between 10 and 15 years Between 15 and 20 years Analysed as follows: Trade payables Bank overdrafts Loan notes Bank loans Hire purchase Bonds Fixed to fixed cross currency swaps Forward foreign currency contracts (511.6) (351.5) (163.9) (694.2) (101.6) (340.0) (1,651.2) (2,162.8) (66.4) (2.6) (3.3) 58.4 52.8 141.2 175.3 63.8 9.2 442.3 500.7 – – – (1,338.3) 500.7 (368.5) (383.7) – – (2,162.8) 500.7 (267.0) (122.3) (507.2) (598.1) (265.6) (358.4) (1,851.6) (2,118.6) (70.1) (1.4) (7.4) (2.8) (24.3) (1,434.2) (432.5) (145.9) 61.6 61.1 152.9 206.4 71.9 22.0 514.3 575.9 – – 0.1 0.1 4.0 571.7 – – (2,118.6) 575.9 0.5 0.4 1.3 1.3 0.2 0.1 3.3 3.8 – – – 3.8 – – 3.8 0.5 0.5 1.3 1.8 0.3 0.1 4.0 4.5 – – – – – 4.5 – – 4.5 1.6 1.7 6.3 0.4 0.5 0.1 9.0 (8.8) – – – – – – 10.6 (8.8) – – – 10.6 – – 10.6 1.6 1.8 6.3 4.1 (0.4) 0.2 12.0 13.6 – – – – – 13.6 – – 13.6 – – – (8.8) – – (8.8) (8.8) – – – – – – (8.8) – – – – – (8.8) – – (8.8) 3.2 0.2 4.2 7.0 7.0 (17.5) 0.9 4.1 – – – – 3.6 0.5 4.1 3.1 3.2 3.2 10.1 10.1 (17.8) 8.8 11.9 – – – – – – 12.4 (0.5) 11.9 371.9 118.6 18.4 30.7 30.8 110.9 309.4 681.3 – – – – 304.6 376.7 681.3 111.5 48.9 156.9 27.2 27.2 108.4 368.6 480.1 – – – – – – 343.9 136.2 480.1 Daily Mail and General Trust PlcStrategic Report 151 Directors’ Report Governance Financial Statements 151 33) FINANCIAL INSTRUMENTS AND RISk MANAGEMENT – CONTINUED valuation techniques and assumptions applied for the purpose of measuring fair value The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable ; Level 1 fair value measurements are those derived from quoted process (unadjusted) in active markets for identical assets or liabilities ; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices) ; and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). At 30th September, 2012 Financial assets Available-for-sale financial assets Derivative instruments in designated hedge accounting relationships Financial liabilities Fair value through profit and loss Acquisition put options Derivative instruments not designated in hedge accounting relationships Derivative instruments in designated hedge accounting relationships At 2nd October, 2011 Financial assets Available-for-sale financial assets Derivative instruments in designated hedge accounting relationships Financial liabilities Fair value through profit and loss Acquisition put options Derivative instruments in designated hedge accounting relationships There were no transfers between categories in the period. Reconciliation of level 3 fair value measurement of financial liabilities: At 2nd October, 2011 Change in fair value of acquisition put option commitments in income Settlements Exchange adjustment At 30th September, 2012 Note Level 1 £m Level 2 £m Level 3 £m 25 33 31 33 33 0.7 – 0.7 – – – – – 33.5 33.5 – (21.7) (27.3) (49.0) 0.8 – 0.8 (8.6) – – (8.6) Level 1 £m Level 2 £m Level 3 £m 2.0 – 2.0 – – – – 9.7 9.7 – (66.8) (66.8) 2.2 – 2.2 (11.8) – (11.8) Note 10 31 Total £m 1.5 33.5 35.0 (8.6) (21.7) (27.3) (57.6) Total £m 4.2 9.7 13.9 (11.8) (66.8) (78.6) £m (11.8) 2.0 0.8 0.4 (8.6) The key input into the significant level 3 financial liabilities is the future profitability of the businesses to which the acquisition put options relate. The range of possible outcomes for the fair value of these options is £nil to £37.5 million (2011 £nil to £39.2 million). Annual Report 2012152 34) RETIREMENT BENEFITS The Group operates a number of pension schemes under which contributions are paid by the employer and employees. The total net pension costs of the Group for the year ended 30th September 2012 were £11.7 million (2011 £16.5 million, 2010 £27.7 million). The schemes include funded defined benefit pension arrangements, providing service-related benefits, in addition to a number of defined contribution pension arrangements. The defined benefit schemes in the UK, together with some defined contribution plans, are administered by trustees or trustee companies. In compliance with recent legislation the Group is making arrangements for relevant employees to be automatically enrolled into the defined contribution pension plans. The first staging date for the Group for automatic enrolment is expected to be July 2013. For reporting years beginning on or after 1st January, 2013, a revision to the International Accounting Standard 19 – Employee Benefits (IAS19 R) will become effective. IAS19 R will first apply to the Group for the year ending 28th September, 2014. Had IAS19 R been applied at the year ended 30th September, 2012, Finance Costs reported in the Consolidated Income Statement would have increased by £23.5 million (2011 £25.1 million, 2010 £22.5 million) with a corresponding decrease in the actuarial loss reported within Cumulative actuarial (loss)/gain in the Consolidated Statement of Comprehensive Income (SOCI). Defined Benefit Schemes (a) Background The Company operates two main defined benefit schemes, the Harmsworth Pension Scheme (HPS) and the Senior Executive Pension Scheme (SEPF), both of which are now closed to new entrants. Existing members still in employment can continue to accrue benefits in the scheme on a cash basis, with members using this cash account to purchase an annuity at retirement. Full actuarial valuations of the defined benefit schemes are carried out triennially by the Scheme Actuary. The latest valuations of the main schemes were completed as at 31st March, 2010. As a result of these valuations, the Company agreed to make annual contributions of 10.0% or 15.0% of members’ basic pay (depending on membership section) for HPS and 27.0% of pensionable pay for SEPF. In addition, the Company has agreed Recovery Plans involving a series of annual funding payments amounting to £265.9 million over a period to end on 5th October, 2023. In accordance with these agreements, a payment of £36.7 million was made on 5th October, 2011 and a payment of £24.0 million was made on 28th September, 2012. A further payment of £11.6 million was made post year end on 5th October, 2012. The Company considers that these contribution rates are sufficient to eliminate the deficit over the agreed period. Both the ongoing contributions and Recovery Plan will be reviewed at the next triennial funding valuation of the main schemes due to be completed with an effective date 31st March, 2013. The Company also has a defined benefit obligation relating to the DMGT AVC Plan (the Plan) which is closed to further member contributions. The most recent actuarial funding valuation of the Plan, carried out with an effective date of 31st March, 2011, showed a funding deficit of £5.6 million. The trustees and the Company have agreed that this funding shortfall will be removed through the expected investment returns, with no further contributions required from the Company. (b) Limited Partnership investment vehicle The Company has enabled the trustee of the HPS to acquire a beneficial interest in a Limited Partnership investment vehicle (LP). The LP has been designed to facilitate payment of part of the deficit funding payments described above to the scheme over the next 15 years. In addition, the LP is required to make a final payment to the scheme of £150.0 million or the funding deficit within the scheme on an ongoing actuarial valuation basis at the end of the 15-year period if this is less. For funding purposes, the interest held by the trustee in the LP will be treated as an asset of the scheme and reduce the actuarial deficit within the scheme. However, under IAS19 the LP is not included as an asset of the scheme and therefore is not included in the disclosures below. In exchange for its interest in the LP, the trustee has allowed the standby letters of credit previously provided by the Company to be cancelled. The figures in this note are based on calculations using membership data as at 30th September 2012 along with asset valuations and cash flow information from the schemes for the year to 30th September, 2012. Daily Mail and General Trust PlcStrategic Report 153 Directors’ Report Governance Financial Statements 153 34) RETIREMENT BENEFITS – CONTINUED A reconciliation of the net pension obligation reported in the Consolidated Statement of Financial Position is shown in the following table: Present value of defined benefit obligation Assets at fair value Deficit reported in the Consolidated Statement of Financial Position At 30th September, 2012 Schemes in deficit £m At 2nd October, 2011 Schemes in deficit £m At 3rd October, 2010 Schemes in deficit £m (2,089.0) (1,921.1) (1,878.2) 1,764.6 1,584.9 1,606.8 (324.4) (336.2) (271.4) The International Financial Reporting Interpretations Committee, in its document IFRIC 14, has interpreted the extent to which a company can recognise a pension surplus on its Statement of Financial Position. Having taken account of the rules of the schemes, the fact that the schemes remain open to new accrual, and the current and anticipated levels of service cost and cash contributions, the Company considers that recognition of surpluses in the schemes on its Statement of Financial Position is in accordance with the interpretations of IFRIC 14. In 2012, 2011 and 2010 all schemes were in deficit. The deficit for the year, set out above, excludes a related deferred tax asset of £74.6 million (2011 £83.6 million, 2010 £73.3 million). A reconciliation of the present value of the defined benefit obligation is shown in the following table: Defined benefit obligation at start of year Service cost Service cost in respect of salary sacrifice Interest cost Settlement/curtailment Member contributions Benefit payments Actuarial (gain)/loss as a result of: – changes in assumptions – membership experience Defined benefit obligation at the end of year A reconciliation of the fair value of assets is shown in the following table: Fair value of assets at start of year Expected return on assets Company contributions Member contributions Benefit payments Actuarial movement Fair value of assets at end of year Note 9 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m (1,921.1) (1,878.2) (1,901.8) (12.0) (4.9) (97.7) – (0.5) 85.0 (17.2) (5.5) (91.7) – (0.2) 87.1 32.5 (47.9) (23.8) (6.4) (101.4) 9.5 (1.2) 89.4 (104.0) 161.5 38, 39 38, 39 (116.7) (21.1) (2,089.0) (1,921.1) (1,878.2) At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 1,584.9 1,606.8 1,471.4 Note 9 106.2 104.1 82.0 0.5 (85.0) 76.0 35.2 0.2 (87.1) (74.3) 38, 39 99.2 35.0 1.2 (89.4) 89.4 1,764.6 1,584.9 1,606.8 Annual Report 2012154 34) RETIREMENT BENEFITS – CONTINUED The fair value of the assets held by the pension schemes and the long-term expected rate of return on each class of assets are shown in the following table: At 30th September, 2012 Value at 30th September, 2012 (£ million) % of assets held Long-term rate of return expected at 30th September, 2012 (%) At 2nd October, 2011 Value at 2nd October, 2011 (£ million) % of assets held Long-term rate of return expected at 2nd October, 2011 (%) At 3rd October, 2010 Value at 3rd October, 2010 (£ million) % of assets held Long-term rate of return expected at 3rd October, 2010 (%) Equities Bonds Property Other assets Total 981.7 55.63 7.60 849.2 53.60 8.30 883.6 55.00 7.90 581.6 32.96 3.40 562.3 35.50 4.30 519.7 32.30 4.40 172.6 9.78 6.00 157.3 9.90 6.80 156.1 9.70 7.00 28.7 1.63 3.40 1,764.6 100.00 6.00 16.1 1.00 4.30 1,584.9 100.00 6.70 47.4 3.00 4.40 1,606.8 100.00 6.60 Equities include hedge funds and infrastructure funds that have the same long-term expected rate of return. The value of employer-related assets held on behalf of the schemes at 30th September, 2012 was £18.2 million (1.03% of assets), (2011 £0.1 million – 0.00% of assets, 2010 £0.1 million – 0.00% of assets). The assumption for the expected overall rate of return on assets is a weighted average of the expected returns for each asset class based on the proportion of assets held in each class at the beginning of the year. The expected return on bonds has been selected having regard to gross redemption yields at the start of the year. The expected returns on equities and property are based on a combination of estimated risk premiums over Government bond yields, the gross redemption yields on bonds, and consensus economic forecasts for future returns. The actual return on plan assets was £182.2 million (2011 £29.7 million, 2010 £188.6 million) representing the expected return plus the associated actuarial gain or loss during the year. The main financial assumptions are shown in the following table: Price inflation Salary increases Pension increases Discount rate for scheme liabilities Expected overall rate of return on assets 52 weeks ending 30th September, 2012 % 52 weeks ending 2nd October, 2011 % 52 weeks ending 3rd October, 2010 % 2.40 2.40 2.40 4.40 6.00 3.00 2.90 2.90 5.20 6.70 3.10 2.90 2.90 5.00 6.60 The discount rate for scheme liabilities reflects yields at the period end date on high quality corporate bonds. All assumptions were selected after taking actuarial advice. Mortality assumptions take account of scheme experience, and also allow for further improvements in life expectancy based on ‘long cohort’ projections but with a minimum rate of improvement in future mortality rates of 1.5% per annum. Allowance is made for the extent to which employees have chosen to commute part of their pension for cash at retirement. Daily Mail and General Trust PlcStrategic Report 155 Directors’ Report Governance Financial Statements 155 34) RETIREMENT BENEFITS – CONTINUED The table below illustrates examples of the assumed average life expectancies from age 60 for the principal schemes: For a current 60-year old male member of the scheme For a current 60-year old female member of the scheme For a current 50-year old male member of the scheme For a current 50-year old female member of the scheme 52 weeks ending 30th September, 2012 Future life expectancy from age 60 (years) 52 weeks ending 2nd October, 2011 Future life expectancy from age 60 (years) 52 weeks ending 3rd October, 2010 Future life expectancy from age 60 (years) 27.2 29.0 28.7 30.5 27.0 28.8 28.6 30.3 25.8 27.7 26.9 28.3 The amounts charged to the Consolidated Income Statement based on the above assumptions are shown in the following table: Service cost Service cost in respect of salary sacrifice Charge to operating profit Interest cost Expected return on assets Credit to net Finance costs Total net charge to the Consolidated Income Statement 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m Note (12.0) (4.9) (16.9) (97.7) 106.2 8.5 (8.4) (17.2) (5.5) (22.7) (91.8) 104.1 12.3 (10.4) 9 Pension costs and the size of any pension surplus or deficit are sensitive to the assumptions adopted. The table below indicates the effect from changes in the principal assumptions used above: Mortality Change in pension obligation at 30th September, 2012 from a one year change in life expectancy Change in pension cost from a one year change Inflation rate Change in pension obligation at 30th September, 2012 from a 0.1% per annum change Change in pension cost from a 0.1% per annum change Discount Rate Change in pension obligation at 30th September, 2012 from a 0.1% per annum change Change in pension cost from a 0.1% per annum change 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m 77.2 71.0 57.6 3.7 4.1 3.9 30.4 0.1 27.7 0.2 25.5 0.6 33.8 0.1 31.0 0.1 31.9 0.7 +/- +/- +/- +/- +/- +/- Annual Report 2012156 34) RETIREMENT BENEFITS – CONTINUED Amounts recognised in the Consolidated Statement of Comprehensive Income (SOCI) are shown in the following table: Actuarial (loss)/gain recognised in SOCI Cumulative actuarial loss recognised in SOCI at beginning of period Cumulative actuarial loss recognised in SOCI at end of period A history of experience gains and losses is shown in the following table: Present value of defined benefit obligation Fair value of scheme assets Impact of asset ceiling in AVC Plan (from 2006) Combined deficit in schemes Experience adjustments on defined benefit obligation Experience adjustments on fair value of scheme assets 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m (61.8) (220.8) (282.6) (89.6) (131.2) (220.8) 146.9 (278.1) (131.2) At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m As at 4th October, 2009 £m As at 28th September, 2008 £m (2,089.0) (1,921.1) (1,878.2) (1,901.8) (1,621.0) 1,764.6 1,584.9 1,606.8 1,471.4 1,582.7 – (324.4) (137.7) 76.0 – – (336.2) (271.4) (15.4) (74.3) 57.5 89.4 – (430.4) (256.6) (167.9) (2.9) (41.2) 233.2 (351.0) The Group expects to contribute approximately £25.8 million to the schemes during the 2013 financial year including the deficit funding payments described above. UK defined contribution plans The Group has introduced a number of PensionSaver group personal pension plans that have replaced the trust-based defined contribution pension plans previously offered to employees. These plans create a consistent pensions savings vehicle across all Group divisions. The aggregate value of the group personal pension plans and the remaining trust-based defined contribution pension plans was £50.3 million (2011 £39.8 million, 2010 £39.1 million) at the year end. The pension cost attributable to these plans during the year amounted to £1.9 million (2011 £3.4 million, 2010 £2.6 million). Overseas pension plans Overseas subsidiaries of certain Group divisions operate defined contribution retirement benefit plans, primarily in North America and Australia. The pension cost attributable to these plans during the year amounts to £1.4 million (2011 £2.7 million, 2010 £2.2 million). Pension arrangements for executives The Group operates a contributory defined benefit scheme for senior executives (including some executive Directors), details of which are included in the above disclosures. However, no executive Directors accrued further pension during the year. Stakeholder pension DMGT provides access to a stakeholder pension plan for relevant employees who are not eligible for the other pension schemes operated by the Group. These arrangements will be superseded when automatic enrolment begins in 2013. Daily Mail and General Trust PlcStrategic Report 157 Directors’ Report Governance Financial Statements 157 35) PROvISIONS Current liabilities At 3rd October, 2010 Additions Charged during year Utilised during year Transfer from non-current liabilities Contingent consideration paid Notional interest on contingent consideration Adjustment to goodwill/contingent consideration Fair value adjustment to contingent consideration Exchange adjustment At 2nd October, 2011 Additions Charged during year Utilised during year Reclassification between categories Transfer from non-current liabilities Contingent consideration paid Notional interest on contingent consideration Adjustment to goodwill/contingent consideration Classified as held-for-sale Exchange adjustment At 30th September, 2012 Contract discount £m Coupon discount £m Onerous leases £m Note Reorgan- isation costs £m Contingent consideration £m Legal £m Other (Note (ii)) £m 11.6 – 3.7 (2.4) – – – – – – 12.9 – 8.8 (9.3) – – – – – (0.2) – 12.2 1.9 – 1.4 (1.5) – – – – – – 1.8 – 8.3 (8.4) – – – – – – 0.1 1.8 4.2 – 0.1 (3.8) 0.8 – – – – – 1.3 – 0.2 (0.4) – 0.3 – – – – (0.1) 1.3 7.3 – 12.7 (4.4) – – – – – – 15.6 – 9.5 (14.2) (1.4) – – – – (1.4) 0.1 8.2 3.3 1.1 – – 10.3 (8.4) 0.3 (0.1) 1.8 (0.1) 8.2 0.2 – – – 0.2 (7.7) 0.1 (0.3) – – 0.7 5.0 – 0.4 – – – – – – – 5.4 – 5.4 (7.6) – – – – – (0.3) (0.1) 2.8 16 16 10 20, (i) 19 Total £m 37.7 1.1 19.8 4.4 – 1.5 (1.4) (13.5) – – – – – – 4.5 – 5.6 (4.9) 1.4 1.2 – – – (0.3) (0.3) 7.2 11.1 (8.4) 0.3 (0.1) 1.8 (0.1) 49.7 0.2 37.8 (44.8) – 1.7 (7.7) 0.1 (0.3) (2.2) (0.3) 34.2 Annual Report 2012158 Total £m 27.6 2.1 1.4 (3.8) (11.1) (3.6) 0.1 0.9 (0.1) 13.5 20.5 (2.6) (0.1) (1.8) 0.2 (0.3) (0.2) 0.1 29.3 35) PROvISIONS – CONTINUED Non-current liabilities At 3rd October, 2010 Additions Charged during year Utilised during year Transfer to current liabilities Contingent consideration paid Notional interest on contingent consideration Adjustment to goodwill/contingent consideration Fair value adjustment to contingent consideration At 2nd October, 2011 Additions Charged during year Utilised during year Transfer to current liabilities Notional interest on contingent consideration Adjustment to goodwill/contingent consideration Fair value adjustment to contingent consideration Exchange adjustment At 30th September, 2012 Onerous leases £m Note Reorgan- isation costs £m Contingent consideration £m Other (Note (ii)) £m 3.6 – 0.3 (0.2) (0.8) – – – – 2.9 – 0.2 (0.1) (0.3) – – – 0.1 2.8 7.5 – – (3.6) – – – – – 3.9 – (3.9) – – – – – – – 14.5 2.1 – – (10.3) (3.6) 0.1 0.9 (0.1) 3.6 20.5 – – (0.3) 0.2 (0.3) (0.2) – 23.5 2.0 – 1.1 – – – – – – 3.1 – 1.1 – (1.2) – – – – 3.0 16 10 20, (i) 10 (i) The adjustment to goodwill/contingent consideration relates to prior period acquisitions only. (ii) Other current provisions principally of dilapidation provisions of £0.7 million (2011 £0.4 million, 2010 £0.3 million) and provisions for national insurance of £1.4 million (2011 £0.4 million, 2010 £0.7 million). Other non-current provisions principally of dilapidation provisions of £1.7 million (2011 £1.6 million, 2010 £1.6 million) and provisions for national insurance of £1.1 million (2011 £1.1 million, 2010 £nil). The uncertainties surrounding and the nature of the Group’s contingent consideration provisions are disclosed in critical accounting judgements and key sources of estimation uncertainty (note 2). The maturity profile of the Group’s contingent consideration provision is as follows: Expiring in one year or less Expiring between one and two years Expiring between two and five years At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 0.7 0.8 22.7 24.2 8.2 0.4 3.2 11.8 3.3 11.9 2.6 17.8 The contingent consideration is based on future business valuations and profit multiples and has been estimated on an acquisition by acquisition basis using available data forecasts. The range of undiscounted outcomes for contingent consideration is £4.1 million to £59.1 million. Certain contingent consideration arrangements are not capped since they are based on future business performance. Daily Mail and General Trust PlcStrategic Report 159 Directors’ Report Governance Financial Statements 159 36) DEFERRED TAXATION Disclosed within non-current liabilities Disclosed within non-current assets At 3rd October, 2010 (Credit)/charge to income (Credit)/charge to income due to change in tax rate Credit to equity Charge to equity due to change in tax rate Owned by subsidiaries acquired Owned by subsidiaries sold Exchange adjustment At 2nd October, 2011 Disclosed within non-current liabilities Disclosed within non-current assets (Credit)/charge to income Charge/(credit) to income due to change in tax rate Credit to equity Charge to equity due to change in tax rate Owned by subsidiaries acquired Owned by subsidiaries sold Classified as held-for-sale Exchange adjustment At 30th September, 2012 Disclosed within non-current liabilities Disclosed within non-current assets At 30th September, 2012 Accelerated capital allowances £m Note Goodwill and intangible assets £m Share- based payments £m Deferred interest £m Trading losses and tax credits £m Pension scheme deficit £m – 22.9 22.9 (11.5) (1.7) – – – (2.1) – 7.6 – 7.6 (29.8) (0.8) – – – 1.3 3.1 0.1 (18.5) 0.5 (19.0) (18.5) 25.4 39.3 64.7 2.5 (0.5) – – 0.8 1.9 0.6 70.0 27.8 42.2 4.9 (3.0) – – 8.6 (1.0) (0.2) (1.3) 78.0 30.4 47.6 78.0 – (8.9) (8.9) (7.1) 0.1 (0.2) – – – – (16.1) (3.5) (12.6) (0.5) – (1.2) – – – – – (17.8) (4.1) (13.7) (17.8) – (25.7) (25.7) (13.0) 1.9 – – – – – (36.8) – (36.8) (74.9) 3.0 – – – – – 1.5 – (89.9) (89.9) – 2.3 – – – – (1.0) (88.6) (0.8) (87.8) 72.1 1.5 – – – 0.2 1.5 0.5 (107.2) (12.8) – (107.2) (107.2) – (12.8) (12.8) 11 11 38, 39 38, 39 16 17 19 Other £m 0.3 (23.3) (23.0) (5.8) 0.2 Total £m 25.7 (158.9) (133.2) (28.2) 1.1 – (73.3) (73.3) 6.7 (1.2) (22.4) (1.6) (24.2) 6.6 – – – – – – 0.9 6.6 0.8 (0.2) 0.5 (83.6) (29.3) (176.8) – 0.3 23.8 (83.6) (29.6) (200.6) 7.9 (1.7) (14.1) 8.5 – – 2.0 – (81.0) (0.6) (80.4) (81.0) 6.0 0.2 1.8 – 0.1 1.2 – (1.5) (21.5) (2.3) (19.2) (21.5) (14.3) (0.8) (13.5) 8.5 8.7 1.7 6.4 (0.7) (180.8) 23.9 (204.7) (180.8) The deferred tax assets disclosed in the Consolidated Statement of Financial Position in respect of deferred interest, tax losses and tax credits are analysed as follows: UK North America Australia At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 39.6 75.0 5.4 56.2 62.4 6.8 56.8 55.1 3.7 120.0 125.4 115.6 These losses have been recognised on the basis that the Directors are of the opinion based on recent and forecast trading, that sufficient suitable taxable profits will be generated in the relevant territories in future accounting periods, such that it is considered probable that these assets will be recovered. Of these assets none have an expiry date. Included in the credit to income of £15.1 million (2011 £27.2 million, 2010 £31.2 million) is a charge of £9.3 million (2011 credit £1.2 million, 2010 credit £0.5 million) relating to discontinued operations. Included in Other deferred tax are deferred tax assets of £1.7 million (2011 £3.2 million, 2010 £3.4 million) in respect of capital losses and deferred tax liabilities of £1.7 million (2010 £3.2 million, 2010 £6.6 million) in respect of revaluations and rolled over gains and £0.4 million (2011 asset £5.3 million, 2010 asset £3.6 million) in respect of financial instruments. The £1.9 million charge to equity (2011 credit of £1.7 million, 2010 £nil) relates entirely to financial instruments. Annual Report 2012 160 36) DEFERRED TAXATION – CONTINUED There is an unrecognised deferred tax asset of £79.1 million (2011 £72.9 million, 2010 £89.2 million) which relates to revenue losses where there is insufficient certainty that these losses will be utilised in the foreseeable future. Of these assets none have an expiry date. There is an additional unprovided deferred tax asset relating to capital losses carried forward of £62.4 million (2011 £63.1 million, 2010 £42.2 million). No deferred tax liability is recognised on temporary differences of £117.2 million (2011 £79.8 million, 2010 £68.2 million) relating to the unremitted earnings of overseas subsidiaries as the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. The temporary differences at 30th September, 2012 represent only the unremitted earnings of those overseas subsidiaries where remittance to the UK of those earnings may still result in a tax liability, principally as a result of a dividend withholding taxes levied by the overseas tax jurisdictions in which these subsidiaries operate. 37) CALLED UP SHARE CAPITAL Ordinary shares of 12.5 pence each ‘A’ Ordinary Non-Voting Shares of 12.5 pence each Ordinary shares ‘A’ Ordinary Non-Voting shares Allotted, issued and fully paid At 30th September, 2012 £m Allotted, issued and fully paid At 2nd October, 2011 £m Allotted, issued and fully paid At 3rd October, 2010 £m 2.5 46.6 49.1 2.5 46.6 49.1 2.5 46.6 49.1 Allotted, issued and fully paid At 30th September, 2012 Number of shares Allotted, issued and fully paid As at 2nd October, 2011 Number of shares Allotted, issued and fully paid As at 3rd October, 2010 Number of shares 19,886,472 19,886,472 19,886,472 373,073,648 372,774,648 372,696,648 392,960,120 392,661,120 392,583,120 The two classes of shares are equal in all respects, except that the ‘A’ Ordinary Non-Voting shares do not have voting rights and hence their holders are not entitled to vote at general meetings of the Company. During the year the Company disposed of 7,018,953 ‘A’ Ordinary Non-Voting shares, in order to satisfy incentive schemes. This represented 1.88% of the called up ‘A’ Ordinary Non-Voting share capital at 30th September, 2012. The Company also purchased 7,478,953 ‘A’ Ordinary Non-Voting shares having a nominal value of £934,869 to match obligations under incentive plans. The consideration paid for these shares was £30.1 million. Shares repurchased during the period represented 2.0% of the called up ‘A’ Ordinary Non-Voting share capital at 30th September, 2012. At 30th September, 2012 options were outstanding under the terms of the Company’s 1997 and 2006 Executive Share Option Schemes, together with nil cost options, over a total of 4,929,968 (2011 5,399,633, 2010 5,557,567) ‘A’ Ordinary Non-Voting shares. Daily Mail and General Trust PlcStrategic Report 161 Directors’ Report Governance Financial Statements 161 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m Note 12.7 0.8 13.5 12.5 0.2 12.7 1.1 1.1 3.3 (3.3) – – – – 7.0 – 4.6 0.2 (8.5) 3.3 43, (i) 25 38) RESERvES Share premium account At beginning of period Issue of shares At end of period Capital redemption reserve At beginning and end of period Revaluation reserve At beginning of period Transfer to retained earnings Fair value movement in available-for-sale assets Fair value adjustment to contingent consideration Transfer to Consolidated Income Statement on sale of Sanborn At end of period The revaluation reserve arose on the revaluation of the group’s available-for-sale investments. It includes £nil (2011 £3.3 million, 2010 £3.7 million) in relation to historic property valuations originally recorded under UK GAAP. These properties are no longer held at fair value but the historic revaluation amount will remain in the revaluation reserve until the properties are sold. (i) During the year the Group transferred several of its investment properties to its pension scheme in an arm’s length transaction resulting in a transfer of associated revaluation reserves of £3.3 million to retained earnings. Shares held in treasury At beginning of period Purchase of own shares Own shares released on vesting of share options At end of period 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m (46.3) (30.1) 32.6 (43.8) (45.0) (11.7) 10.4 (46.3) The Group’s investment in its own shares is classified within shareholders’ funds as shares held in treasury. At 30th September, 2012, this investment comprised the cost of 10,188,174 ‘A’ Ordinary Non-Voting shares (2011 9,728,174 shares, 2010 9,577,814 shares). The market value of these shares at 30th September, 2012 was £49.1 million (2011 £35.3 million, 2010 £50.3 million). Translation reserve At beginning of period Foreign exchange differences on translation of foreign operations Translation reserves recycled to Consolidated Income Statement on disposals Transfer of loss on cash flow hedges from translation reserve to Consolidated Income Statement Change in fair value of cash flow hedges Gain/(loss) on hedges of net investments in foreign operations At end of period Note 17 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m (42.5) (22.6) (0.9) 2.1 1.9 29.4 (32.6) (16.3) 7.3 (21.6) 4.1 (0.8) (15.2) (42.5) The translation reserve arises on the translation into Sterling of the net assets of the Group’s foreign operations, offset by changes in fair value of financial instruments used to hedge this exposure. Annual Report 2012 162 52 weeks ending 30th September, 2012 £m Note 52 weeks ending 2nd October, 2011 Restated (note 2) £m 50.5 257.2 (66.2) (60.7) 12.5 (15.6) – 3.3 (13.5) 0.1 0.4 5.4 – 173.4 84.4 108.5 (62.4) (89.3) 16.9 (12.7) (7.1) – (5.5) 0.5 – 15.8 1.4 50.5 12 34 41 (i) 36 36 38) RESERvES – CONTINUED Retained earnings At beginning of period Net profit for the period Dividends paid Actuarial loss on defined benefit pension schemes Credit to equity for share-based payments Settlement of exercised share options of subsidiaries Initial recording of put options granted to non-controlling interests in subsidiaries Transfer from revaluation reserves following disposal of properties previously revalued Adjustment to equity following increased stake in controlled entity Adjustment to equity following decreased stake in controlled entity Corporation tax on share based payments Deferred tax on actuarial movement Deferred tax on other items recognised directly in equity At end of period At end of period – Total Reserves 111.6 (21.2) (i) £nil (2011 £7.1 million, 2010 £nil) representing the fair value of written put options granted to non-controlling interests in the year has been recorded as a reduction in equity on initial recognition, as the arrangement represents a transaction with equity holders. Changes in fair value after initial recognition are recorded in the Consolidated Income Statement. 39) NON-CONTROLLING INTERESTS At beginning of period Share of profit for the period Dividends paid Shares issued Non-controlling interests arising from business combinations Gain/(loss) on hedges of net investments in foreign operations Transfer of loss on cash flow hedges to Consolidated Income Statement Change in fair value of cash flow hedges Foreign exchange differences on translation of foreign operations Actuarial loss on defined benefit pension schemes Credit to equity for share-based payments Deferred tax on actuarial movement Deferred tax on other items recognised directly in equity Current tax on items recognised in equity Adjustment to non-controlling interest following decreased stake in controlled entity Adjustment to non-controlling interest following increased stake in controlled entity Other transactions with non-controlling interests Initial recording of put options granted to non-controlling interests in subsidiaries At end of period 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m Note 16 34 41 36 36 80.3 22.7 (9.6) 1.5 – 1.9 1.5 1.2 (3.8) (1.1) 0.7 0.2 (0.6) 0.2 (0.1) (0.6) 0.9 – 95.3 57.4 15.9 (7.8) 1.9 6.0 (1.9) 2.7 (0.4) 3.1 (0.3) 2.7 – 0.4 (0.5) 4.3 – (3.2) 80.3 Daily Mail and General Trust PlcStrategic Report 163 Directors’ Report Governance Financial Statements 163 40) COMMITMENTS AND CONTINGENT LIABILITIES Commitments Property, plant and equipment Contracted but not provided in the financial statements At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 0.7 17.4 – At 30th September, 2012 the Group had outstanding capital commitments relating to the construction of a new printing operation in Thurrock, Essex. At 30th September, 2012 the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year Between one and two years Between two and five years After five years At 30th September, 2012 Properties £m At 2nd October, 2011 Properties £m At 3rd October, 2010 Properties £m At 30th September, 2012 Plant and equipment £m At 2nd October, 2011 Plant and equipment £m At 3rd October, 2010 Plant and equipment £m 20.1 16.9 33.8 26.7 97.5 28.2 24.8 59.7 74.9 187.6 25.6 22.3 55.7 71.5 175.1 5.9 5.1 3.4 – 14.4 7.3 5.8 7.1 – 20.2 3.7 2.4 2.7 – 8.8 The Group’s most significant leasing arrangements relate to rented properties. The Group negotiates lease contracts according to the Group’s needs with a view to balancing stability and security of tenure and lease terms with the risk of entering into excessively long or onerous arrangements. Of the Group’s rented properties, the most significant commitment relates to the head office premises at 2 Derry Street, London W8 5TT. This lease expires on 25th December, 2022. Commitments in relation to properties as at 30th September, 2012 have been restated to exclude future payments under non-cancellable agreements made to secure venues for future events and exhibitions which are separately disclosed below. Within one year Between one and two years Between two and five years After five years At 30th September, 2012 £m At 2nd October, 2011 £m At 3rd October, 2010 £m 12.6 1.3 0.8 – 14.7 10.3 2.4 0.2 – 12.9 9.7 2.6 1.7 0.1 14.1 The Group entered into arrangements with its ink suppliers to obtain ink for the period to September 2018 at competitive prices and to secure supply. At the year end, the commitment to purchase ink over this period was £76.8 million (2011 £91.2 million, 2010 £109.6 million). The Group has entered into agreements with certain printers for periods up to 2022 at competitive prices and to secure supply. At the year end, the commitment to purchase printing capacity over this period was £68.6 million (2011 £100.5 million, 2010 £130.8 million). Contingent liabilities As set out in note 34 the Group has issued standby letters of credit in favour of the Trustees of the Group’s defined benefit pension fund amounting to £nil (2011 £53.6 million, 2010 £54.5 million) together with other guarantees of £2.4 million (2011 £9.3 million, 2010 £8.1 million). The Group is exposed to libel claims in the ordinary course of business and vigorously defends against claims received. The Group makes provision for the estimated costs to defend such claims when incurred and provides for any settlement costs when such an outcome is judged probable. Four writs claiming damages for libel were issued in Malaysia against the company and three of its employees in respect of an article published in one of the company’s magazines, International Commercial Litigation, in November 1995. The writs were served on Euromoney Institutional Investor PLC (Euromoney) on 22nd October, 1996. Two of these writs have been discontinued. The total outstanding amount claimed on the two remaining writs is Malaysian Ringgits 82.3 million (£16.6 million) (2011 Malaysian Ringgits 82.0 million (£16.5 million)). No provision has been made for these claims in these financial statements as the Directors do not believe Euromoney has any material liability in respect of these writs. Annual Report 2012164 41) SHARE-BASED PAYMENTS The Group offers a number of share-based remuneration schemes to Directors and certain employees. The principal schemes comprise share options under the DMGT, Euromoney and within DMG Information, Risk Management Solutions (RMS), Genscape and Trepp Executive Share Option Schemes (ESOS), the Euromoney Capital Appreciation Plan and the Company’s LTIP. Share options are exercisable after three years, subject in some cases to the satisfaction of performance conditions, and up to 10 years from the date of grant at a price equivalent to the market value of the respective shares at the date of grant at a price equivalent to the market value of the respective shares at the date of grant. Details of the performance conditions relating to the DMGT schemes are explained in the Remuneration Report on pages 71 and 76. For equity-settled share-based payment transactions, IFRS 2 applies to grants of shares, share options or other equity instruments made after 7th November, 2002 that had not vested by 1st January, 2005. The charge to the Consolidated Income Statement is as follows: Division DMGT RMS Euromoney Others – principally Business information Scheme Executive Share Option Scheme Executive Bonuses Long-Term Incentive Plan Capital Appreciation Plan 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 52 weeks ending 3rd October, 2010 £m 0.3 0.5 1.9 6.6 2.3 1.6 – 0.9 1.2 7.3 8.1 1.9 0.6 1.9 1.5 6.9 2.0 2.8 13.2 19.4 15.7 The fair value of share options for each of these schemes was determined using a Black-Scholes model. Full details of inputs to the models, particular to each scheme, are set out below. With respect to all schemes, the share price volatility has been estimated, based upon relevant historic data in respect of the DMGT ‘A’ Ordinary share prices. Expected volatility has been estimated, based upon relevant historic data in respect of the DMGT ‘A’ Ordinary share price. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability. The Group did not re-price any of its outstanding options during the year. Further details of the Group’s schemes are set out below: DMGT 1997 Executive Share Option Scheme Details of the terms and conditions relating to this scheme are set out in the Remuneration Report on page 73. Outstanding at 2nd October, 2011 Forfeited during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ 6.43 6.42 6.44 – – 52 weeks ending 2nd October, 2011 Number of share options 1,815,807 (78,062) 1,737,745 – – 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 6.43 6.38 6.43 – – 52 weeks ending 3rd October, 2010 Number of share options 2,172,807 (357,000) 1,815,807 – – 52 weeks ending 3rd October, 2010 Weighted average exercise price £ 6.43 6.43 6.43 – – 52 weeks ending 30th September, 2012 Number of share options 1,737,745 (336,265) 1,401,480 – – No share options were granted or exercised during the year. The options outstanding at 30 September, 2012 had a weighted average remaining contractual life of 1.3 years (2011 2.3 years, 2010 3.3 years). Daily Mail and General Trust PlcStrategic Report 165 Directors’ Report Governance Financial Statements 165 41) SHARE-BASED PAYMENTS – CONTINUED Options under the DMGT 1997 Executive Share Option Scheme Continued The inputs into the Black-Scholes model for options, granted since 7th November 2002, are as follows: Date of Grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Change in fair value of cash flow hedges Volatility (%) Fair value per option (£) 16th December, 2002 2nd January, 2003 8th December, 2003 6th December, 2004 5.73 5.73 5.82 5.82 6.08 6.08 7.24 7.24 378,530 32,000 434,242 556,708 10.00 6.50 5.73 5.00 1.61 20.00 1.35 10.00 6.50 5.82 5.00 1.58 20.00 1.37 10.00 6.50 6.08 4.80 1.65 20.00 1.43 10.00 6.50 7.24 4.50 1.52 20.00 1.70 DMGT 2006 Executive Share Option Scheme Details of the terms and conditions relating to this scheme are set out in the Remuneration Report on page 72. Outstanding at 2nd October, 2011 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ 4.73 3.96 5.91 2.96 52 weeks ending 30th September, 2012 Number of share options 2,394,074 370,000 (164,000) (299,000) 266,000 (48,000) (221,703) – – (174,183) 2,301,074 1,183,647 1,100,647 4.59 5.15 5.97 2,394,074 1,100,647 838,579 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 52 weeks ending 3rd October, 2010 Number of share options 52 weeks ending 3rd October, 2010 Weighted average exercise price £ 52 weeks ending 2nd October, 2011 Number of share options 2,571,960 4.74 2,931,954 5.39 3.56 5.62 5.05 491,427 (30,000) (333,500) (487,921) 4.73 2,571,960 5.97 6.47 838,579 551,000 5.43 4.04 2.50 6.80 6.88 4.74 6.47 6.83 Options were forfeited by leavers during the period. The options outstanding at 30th September, 2012 had a weighted average remaining contractual life of 6.5 years (2011 6.8 years, 2010 7.4 years). The aggregate of the estimated fair values of the options granted during the year is £0.3 million (2011 £0.3 million, 2010 £0.6 million). The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (£) 31st March, 2006 5th July, 2006 27th November, 2006 17th December, 2007 6.98 6.98 6.11 6.11 6.88 6.88 5.05 5.05 27th May, 2008 4.02 4.02 24th November, 2008 2.50 2.50 246,376 52,000 249,500 275,771 35,000 205,000 10.00 10.00 10.00 10.00 10.00 10.00 7.00 6.98 4.50 1.72 20.00 1.53 7.00 6.11 4.80 2.01 20.00 1.44 7.00 6.88 4.30 1.90 20.00 1.51 7.00 5.05 4.30 2.84 20.00 1.18 7.00 4.02 4.30 3.66 20.00 0.92 7.00 2.50 3.00 5.89 40.00 0.56 Annual Report 2012166 41) SHARE-BASED PAYMENTS – CONTINUED Date of grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (£) 26th January, 2009 14th December, 2009 6th December, 2010 5th December, 2011 2.53 2.53 4.04 4.04 5.39 5.39 3.98 3.98 27th June 2012 3.91 3.91 120,000 481,427 266,000 270,000 100,000 10.00 10.00 10.00 10.00 10.00 7.00 2.53 3.00 5.81 40.00 0.56 7.00 4.04 3.00 3.64 40.00 1.13 7.00 5.39 2.00 2.97 30.00 1.22 7.00 3.98 1.50 4.27 30.00 0.71 7.00 3.91 1.00 4.43 30.00 0.70 Nil-Cost Options under the DMGT Executive Bonus Scheme Since December 2009, half of the Executive Bonus paid to the executive Directors has been deferred into shares in the form of nil-cost options which cannot be exercised for at least three years. These options are to the value of the equity portion of the bonus and are fully expensed in the year in which they are earned. A portion of the bonus earned by Directors under the Scheme in the current year will also be deferred into shares in the form of nil-cost options. The cash portion of the bonus is included in the remuneration table on page 79 of the Remuneration Report. The total bonus is calculated in accordance with the scheme rules, as set out on page 76 of the Remuneration Report. Outstanding at 2nd October, 2011 Granted during the year Exercised during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ – – – – – – 52 weeks ending 2nd October, 2011 Number of share options 429,625 678,013 (156,193) 951,445 – – 52 weeks ending 2nd October, 2011 Weighted average exercise price £ – – – – – – 52 weeks ending 3rd October, 2010 Number of share options – 429,625 – 429,625 – – 52 weeks ending 3rd October, 2010 Weighted average exercise price £ – – – – – – 52 weeks ending 30th September, 2012 Number of share options 951,445 275,949 – 1,227,394 – – No share options expired or were forfeited during the year. 827,414 of these outstanding options are grants to Directors, as shown in the Remuneration Report. A further 400,000 options are outstanding to a former senior executive, other than a Director, including a grant of 80,000 options during the year which will vest in February 2013. DMGT Long-Term Incentive Plan Details of the terms and conditions relating to this scheme are set out in the Remuneration Report on pages 71 to 73. Outstanding at 2nd October, 2011 Granted during the year Exercised during the year Expired during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 No share awards were forfeited during the year. 52 weeks ending 30th September, 2012 Weighted average exercise price £ 52 weeks ending 2nd October, 2011 Number of share options 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 5.14 4.37 1,637,225 595,695 52 weeks ending 30th September, 2012 Number of share options 1,555,853 643,614 – – (356,890) (73,202) 2,126,265 7.06 4.84 (320,177) 1,555,853 – – – – – – 52 weeks ending 3rd October, 2010 Weighted average exercise price £ 5.76 4.04 6.52 4.70 4.92 – – 52 weeks ending 3rd October, 2010 Number of share options 1,200,516 1,031,709 (131,493) (463,507) 1,637,225 – – 4.92 5.59 5.17 4.81 5.14 – – Daily Mail and General Trust PlcStrategic Report 167 Directors’ Report Governance Financial Statements 167 41) SHARE-BASED PAYMENTS – CONTINUED The awards outstanding at 30th September, 2012 had a weighted average remaining contractual life of 2.2 years (2011 2.3 years, 2010 2.6 years). The aggregate of the estimated fair values of the awards made during the year is £2.8 million (2011 £3.3 million, 2010 £4.2 million). Options under the DMGT Long-Term Incentive Scheme The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (£) Date of grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (£) Date of grant Market value of shares at date of grant (£) Option price (£) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (£) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (£) 1st January, 2006 1st January, 2007 19th December, 2009 19th December, 2009 19th December, 2009 7.88 7.88 7.17 7.17 4.04 4.04 4.04 4.04 4.04 4.04 77,137 89,101 244,853 122,427 122,425 5.00 – Nil 4.50 1.52 20.00 5.99 5.00 – Nil 4.30 1.82 20.00 5.45 2.80 – Nil 3.00 3.64 40.00 4.04 3.00 – Nil 3.00 3.64 40.00 4.04 4.00 – Nil 3.00 3.64 40.00 4.04 19th December, 2009 19th December, 2009 20th December, 2010 20th December, 2010 20th December, 2010 4.04 4.04 4.04 4.04 5.59 5.59 5.59 5.59 5.59 5.59 119,159 119,159 192,758 96,379 93,944 5.00 – Nil 3.00 3.64 40.00 4.04 6.00 – Nil 3.00 3.64 40.00 4.04 2.78 – Nil 3.00 2.86 30.00 5.59 3.00 – Nil 3.00 2.86 30.00 5.59 4.00 – Nil 3.00 2.86 30.00 5.59 20th December, 2010 20th December, 2010 1st January, 2011 5.59 5.59 5.59 5.59 5.74 5.74 13th February, 2012 4.37 4.37 93,944 93,944 17,421 643,614 5.00 – Nil 3.00 2.86 30.00 5.59 6.01 – Nil 2.00 2.86 30.00 5.59 3.00 – Nil 1.50 2.97 30.00 5.74 5.00 – Nil 1.00 3.89 30.00 4.37 Annual Report 2012168 41) SHARE-BASED PAYMENTS – CONTINUED RMS options plan RMS options were granted at market value. The options become exercisable after a four-year vesting period and lapse 10 years and five years from grant date under the 2001 and 2005 option plan respectively. Previously, the stock issued under the plan was subject to a nine-month holding period, which has been subsequently removed during 2007. The stock issued under the plan is subject to put or call options where DMGT has the right to settle in DMGT ‘A’ Ordinary Shares or cash. The options plan classification changed from a cash-settled plan in June 2005 to an equity-settled plan following this change of settlement feature of stock issued under the plan. After 30th September, 2011 options under the 2001 and 2005 plan will no longer be awarded. During fiscal year 2011 RMS introduced the Executive Incentive Plan (EIP) and the Long-Term Incentive Plan (LTIP). Under the EIP options and Restricted Stock Units (RSU) were awarded to Senior Management. Under the LTIP RSUs were awarded to key employees. The options and RSUs were granted at market value under both plans. The options vest based on the conditions of time and company performance at three and five years from date of grant. The options lapse after seven years from grant date. The RSUs under both plans vest annually over three years. RSU expense is determined by the fair market value of RMS stock at the date of grant. The expense is amortised using an accelerated method. Under this method the RSUs are equally allocated to each of the three annual vesting components and the related expense is amortised over 12, 24, and 36 months respectively. Outstanding at 2nd October, 2011 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price US$ 45.67 52.27 46.59 44.17 36.39 46.59 45.86 44.71 52 weeks ending 2nd October, 2011 Number of share options 3,878,417 1,569,073 (244,079) (633,121) – 4,570,290 2,265,976 1,763,341 52 weeks ending 2nd October, 2011 Weighted average exercise price US$ 43.52 46.89 46.66 36.89 – 45.67 44.71 40.78 52 weeks ending 3rd October, 2010 Number of share options 3,003,397 1,156,877 (81,521) (200,336) – 3,878,417 1,763,341 1,015,951 52 weeks ending 3rd October, 2010 Weighted average exercise price US$ 42.12 45.25 45.87 29.63 43.52 40.78 35.64 52 weeks ending 30th September, 2012 Number of share options 4,570,290 132,682 (420,694) (1,383,549) (8,167) 2,890,562 1,134,841 2,265,976 The weighted average share price at the date of exercise for share options exercised during the year was US$52.27 (2011 US$46.89, 2010 US$45.25). The options outstanding at 30th September, 2012 had a weighted average exercise price of US$45.86 (2011 US$45.67, 2010 US$43.52) and a weighted average remaining contractual life of 3.27 years (2011 4.06 years, 2010 5.05 years). The aggregate of the estimated fair values of the options granted during the year is US$18.2 million (2011 US$15.3 million, 2010 US$11.6 million). The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (US$) Option price (US$) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (US$) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (US$) During 2003 During 2004 During 2005 During 2007 During 2008 5.56 5.56 2,075 1.67 6-9 5.56 4.00 2.00 35.00 21.38 9.13 9.13 5,939 2.67 6-9 9.13 4.00 2.00 35.00 17.91 16.61 16.61 8,938 3.67 6-9 16.61 4.00 2.00 35.00 12.53 36.39 36.39 2,500 3.80 6-9 36.39 4.67 2.00 35.00 10.29 45.43 45.43 264,728 3.80 6-9 45.43 4.10 2.00 29.00 10.69 Daily Mail and General Trust PlcStrategic Report 169 Directors’ Report Governance Financial Statements 169 41) SHARE-BASED PAYMENTS – CONTINUED Date of grant Market value of shares at date of grant (US$) Option price (US$) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (US$) Risk-free rate (%) Expected dividend yield (%) Volatility (%) Fair value per option (US$) During 2009 During 2010 During 2011 During 2012 47.81 47.81 45.25 45.25 46.89 46.89 52.27 52.27 504,839 645,257 1,324,004 132,282 3.80 6-9 47.81 2.20 2.50 29.32 9.59 3.80 6-9 45.25 1.78 2.63 36.58 10.93 4.30 6-9 46.89 2.27 3.05 33.00 10.08 4.75 6-9 52.27 1.25 3.05 35.15 10.08 Expected volatility was determined by calculating the historical volatility of comparable companies. Euromoney Capital Appreciation Plan 2010 (CAP 2010) The CAP 2010 executive share option scheme was approved by shareholders on 21st January, 2010. Each CAP 2010 award comprises two equal elements – an option to subscribe for ordinary shares of 0.25p each in the company at an exercise price of 0.25p per ordinary share, and a right to receive a cash payment. The awards will vest in two equal tranches. The first tranche of awards will become exercisable on satisfaction of the primary performance condition, but no earlier than February 2013 and lapse to the extent unexercised by 30th September, 2020. The second tranche of awards becomes exercisable in the February following a subsequent financial year in which adjusted pre-tax profits of the Euromoney Group again equal or exceed £100.0 million (increased to £105.0 million following the acquisition of NDR), but no earlier than February, 2014. The second tranche only vests on satisfaction of the primary performance condition and an additional performance condition. The number of options received under the share award of the CAP 2010 is reduced by the number of options vesting with participants from the 2010 Company Share Option Plan (see below). The primary performance condition was achieved in the 2011 financial year, two years earlier than expected, when adjusted pre-tax profits were £101.3 million. However, the internal rules of the plan prevent the awards vesting more than one year early so although the primary condition has been achieved the award pool will be allocated between the holders of outstanding awards by reference to their contribution to the growth in profits of the Group from the 2009 base year to the profits achieved in the 2012 financial year and these awards are expected to become exercisable in February, 2013. The CAP 2010 options were valued using a fair value model that adjusted the share price at the date of grant for the net present value of expected future dividend streams up to the date of expected exercise. The expected term of the option used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Outstanding at 2nd October, 2011 Granted during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ 52 weeks ending 2nd October, 2011 Number of share options 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 52 weeks ending 3rd October, 2010 Number of share options 52 weeks ending 30th September, 2012 Number of share options 2,719,801 0.0025 2,719,801 0.0025 – – – – – 2,719,801 2,719,801 0.0025 2,719,801 0.0025 2,719,801 – – – – – – – – – – 52 weeks ending 3rd October, 2010 Weighted average exercise price £ – 0.0025 0.0025 – – The weighted average share price at the date of exercise for share options exercised during the year was £nil (2011 £nil, 2010 £nil). The options outstanding at 30 September, 2012 had a weighted average exercise price of £0.0025 (2011 £0.0025, 2010 £0.0025) and a weighted average remaining contractual life of 8.0 years (2011 9.0 years, 2010 10.0 years). The aggregate of the estimated fair values of the options granted during the year is £nil (2011 £nil, 2010 £11.6 million). Annual Report 2012170 30th March, 2010 30th March, 2010 501.00 0.25 501.00 0.25 969,305 1,750,496 10.00 10.00 4.00 0.25 2.28 7.00 4.37 5.00 0.25 2.75 7.00 4.20 41) SHARE-BASED PAYMENTS – CONTINUED The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (p) Option price (p) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (p) Risk-free rate (%) Expected dividend yield (%) Fair value per option (p) Company Share Option Plan (CSOP 2010) In parallel with the CAP 2010, the shareholders approved the CSOP 2010 UK and Canada at the AGM on 21st January, 2010. The CSOP 2010 UK was approved by HM Revenue and Customs on 21st June, 2010 and granted on 28th June, 2010. The CSOP 2010 UK option enables each participant to purchase up to 4,972 shares in the company at a price of £6.03 per share, the market value at the date of grant. The options will vest and become exercisable at the same time as the corresponding share award under the CAP 2010 providing the CSOP option is in the money at that time and does not vest before 28th June, 2013. The CSOP 2010 Canada, granted on 30th March, 2010, enables each participant to purchase up to 19,960 shares in the company at a price of £5.01 per share, the market value at the date of grant. No option may vest after the date falling three months after the preliminary announcement of the results for the financial year ended 30th September, 2019 and the option shall lapse to the extent unvested at the time. The CSOP has the same performance criteria as that of the CAP 2010 as set out above. The number of CSOP 2010 awards that vest proportionally reduce the number of shares that vest under the CAP 2010, the CSOP effectively a delivery mechanism for part of the CAP 2010 award. The CSOP 2010 option exercise price of £6.03 (UK) and £5.01 (Canada) will be satisfied by a funding award mechanism and results in the same net gain on the CSOP options (calculated as the market price of the company’s shares at the date of exercise less the exercise price multiplied by the number of options exercised) delivered in the equivalent number of shares to participants as if the award had been delivered using £0.0025 CAP options. Outstanding at 2nd October, 2011 Granted during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ 52 weeks ending 2nd October, 2011 Number of share options 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 52 weeks ending 3rd October, 2010 Number of share options 52 weeks ending 30th September, 2012 Number of share options 781,191 5.7200 781,191 5.7200 – – – – – 781,191 5.7200 781,191 5.7200 – – – – – – – – 781,191 781,191 – – 52 weeks ending 3rd October, 2010 Weighted average exercise price £ – 5.7200 5.7200 – – The weighted average share price at the date of exercise for share options exercised during the year was £nil (2011 £nil, 2010 £nil). The options outstanding at 30th September, 2012 had a weighted average exercise price of £5.72 (2011 £5.72, 2010 £5.72) and a weighted average remaining contractual life of 7.38 years (2011 8.38 years, 2010 9.38 years). The aggregate of the estimated fair values of the options granted during the year is £nil (2010 £nil, 2010 £3.4 million). Daily Mail and General Trust PlcStrategic Report 171 Directors’ Report Governance Financial Statements 171 28th June, 2010 30th March, 2010 603.34 603.34 501.00 501.00 541,671 239,520 9.38 3.00 10.00 3.00 603.34 501.00 2.28 7.00 2.28 7.00 437.00 437.00 41) SHARE-BASED PAYMENTS – CONTINUED The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (p) Option price (p) * Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (p) Risk-free rate (%) Expected dividend yield (%) Fair value per option (p) The number of CSOP 2010 awards that vest proportionally reduce the number of shares that vest under the CAP 2010, the CSOP effectively a delivery mechanism for part of the CAP 2010 award. The CSOP 2010 options have an exercise price of £6.03 (1), which will be satisfied by a funding award mechanism which results in the same net gain (2) on these options delivered in the equivalent number of shares to participants as if the same award had been delivered using £0.0025 CAP options. The amount of the funding award will depend on the company’s share price at the date of exercise. Because of the above and the other direct links between the CSOP 2010 and the CAP 2010, including the identical performance criteria, IFRS 2 ‘Share-based payments’ combines the two plans and treats them as one plan (vesting in two tranches). As such the long-term incentive expense recognised in the year for the CSOP 2010 and CAP 2010 options (including the charge in relation to the cash element) was £8.1 million (2011 £15.9 million). 1. Exercise price of Canadian CSOP is £5.01. 2. Net gain on the CSOP options is the market price of the company’s shares at the date of exercise less the exercise price (£6.031) multiplied by the number of options exercised. * Exercise price excludes the effect of the funding award. Cash-settled options Euromoney has liabilities in respect of three share option schemes that are classified by IFRS 2 ‘Share-based payments’ as cash-settled. These consist of the cash element of the CAP 2010 scheme, options held by employees over new equity shares in Internet Securities Inc., a subsidiary of the Group, and, from 2011, options held by employees over equity shares in Structured Retail Products Limited (previously Arete Consulting Limited), a subsidiary of the Group. The total carrying value at 30th September, 2012 included in the Statement of Financial Position is a liability of £14.6 million (2011 £10.3 million). Of these schemes, options with an intrinsic value of £3,000 (2011 £7,000) had vested but are not yet exercised. The Euromoney Capital Appreciation Plan 2004 (CAP 2004) The CAP 2004 executive share option scheme was approved by shareholders on 1st February, 2005. Each of the CAP awards comprises an option to subscribe for ordinary shares of 0.25p each in the company for an exercise price of 0.25p per ordinary share. The awards become exercisable on satisfaction of certain performance conditions and lapse to the extent unexercised on 30th September, 2014. The initial performance condition was achieved in the financial year 2007 and the option pool (a maximum of 7.5 million shares) was allocated between the holders of outstanding awards. One third of the awards vested immediately. The primary performance target was achieved again in 2008 and, after applying the additional performance condition, 2,241,269 options from the second tranche of options vested in February 2009. The primary performance target was also achieved in 2009 and 1,527,152 options (including a true-up adjustment of 5,654) for the third (final) tranche of options in 2009 vested in February 2010. The additional performance condition was applied again to profits for the 2010 financial year for those individual participants where the additional performance conditions for the second and final tranches had not been met 303,321 and 244,152 options vested in February, 2011 and February, 2012 respectively. For individual participants’ businesses where the additional performance conditions for the second and final tranche have not been met, the vesting is deferred until the profits are at least 75% of that achieved in 2007 but no later than by reference to the year ending 30th September, 2012. The Directors estimate 54,599 of options will vest in February 2013 following satisfaction of the additional performance test. Annual Report 2012 172 41) SHARE-BASED PAYMENTS – CONTINUED The CAP options were valued using a fair value model that adjusted the share price at the date of the grant for the net present value of expected future dividend streams up to the date of the expected exercise. Outstanding at 2nd October, 2011 Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 30th September, 2012 Exercisable at 30th September, 2012 Exercisable at 2nd October, 2011 52 weeks ending 30th September, 2012 Weighted average exercise price £ 0.0025 0.0025 0.0025 7.3300 0.0025 0.0025 0.0025 0.0025 52 weeks ending 30th September, 2012 Number of share options 351,828 – – (245,469) (36,245) 70,114 70,114 351,828 52 weeks ending 2nd October, 2011 Weighted average exercise price £ 52 weeks ending 3rd October, 2010 Number of share options 0.0025 1,754,937 0.0025 0.0025 308,975 (815) 52 weeks ending 2nd October, 2011 Number of share options 335,606 334,997 – (313,765) 7.2700 (1,727,491) 52 weeks ending 3rd October, 2010 Weighted average exercise price £ 0.0025 0.0025 0.0025 4.7300 (5,010) 351,828 351,828 335,606 0.0025 0.0025 0.0025 335,606 335,606 0.0025 1,754,937 0.0025 0.0025 0.0025 – – The weighted average share price at the date of exercise for share options exercised during the year was £7.33 (2011 £7.27, 2010 £4.73). The options outstanding at 30th September, 2012 had a weighted average exercise price of £0.0025 (2011 £0.0025, 2010 £0.0025) and a weighted average remaining contractual life of 2.0 years (2011 3.0 years, 2010 4.0 years). The aggregate of the estimated fair values of the options granted during the year is £0.2 million (2011 £1.0 million, 2010 £0.9 million). The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (p) Option price (p) Number of share options outstanding Term of option (years) Assumed period of exercise after vesting (years) Exercise price (p) Risk-free rate (%) Dividend growth (%) Fair value per option (p) Tranche 1 20th June, 2005 401.00 0.25 421 10.00 3.28 0.25 5.00 8.44 Tranche 3 20th June, 2005 401.00 0.25 69,693 10.00 5.53 0.25 5.00 8.44 328.00 282.00 42) ULTIMATE HOLDING COMPANY The Company’s ultimate holding company and immediate parent company is Rothermere Continuation Limited, a company incorporated in Bermuda. 43) RELATED PARTY TRANSACTIONS Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The transactions between the Group and its joint ventures and associates are disclosed below. The following transactions and arrangements are those which are considered to have had a material effect on the financial performance and position of the Group for the period. Ultimate 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. Transactions with Directors There were no material transactions with Directors of the Company during the year, except for those relating to remuneration and shareholdings, disclosed in the Remuneration Report. For the purposes of IAS 24, Related Party Disclosures, Executives below the level of the Company’s Board are not regarded as related parties. Daily Mail and General Trust PlcStrategic Report 173 Directors’ Report Governance Financial Statements 173 43) RELATED PARTY TRANSACTIONS – CONTINUED The remuneration of the Directors at the year end, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24. Further information about the individual Directors’ remuneration is provided in the audited part of the Directors’ Remuneration Report on pages 78 to 80. Short-term employee benefits Other long-term benefits Share-based payments Post employment benefits 52 weeks ending 30th September, 2012 £m 52 weeks ending 2nd October, 2011 £m 6.7 6.9 1.6 0.2 6.9 6.5 2.0 0.3 15.4 15.7 There were no termination charges in 2012 or 2011. Transactions with joint ventures and associates Associated Newspapers Limited has a 33.3% (2011 33.3%, 2010 33.3%) shareholding in Fortune Green Limited. During the period the Group received revenue for newsprint, computer and office services of £0.6 million (2011 £0.5 million, 2010 £0.5 million). The amount due from Fortune Green Limited at 30th September, 2012 was £0.2 million (2011 £0.2 million, 2010 £0.1 million). Associated Newspapers Limited has a 12.5% (2011 12.5%, 2010 12.5%) share in the Newspapers Licensing Agency (NLA) from which royalty revenue of £3.8 million was received (2011 £3.1 million, 2010 £2.9 million), and £0.4 million due at the year end (2011 £0.4 million, 2010 £nil). Commissions paid on this revenue total £0.7 million (2011 £0.6 million, 2010 £0.6 million). The amount due to the NLA at 30th September, 2012 was £0.1 million (2011 £nil, 2010 £0.1 million). Interest bearing loans of £0.4 million are due to Associated Newspapers from NLA at 30th September, 2012 (2011 £0.4 million, 2010 £nil). Daily Mail and General Holdings Limited has a 15.6% (2011 15.6%, 2010 15.6%) shareholding in The Press Association. During the period the Group received dividends of £0.1 million, services amounting to £3.8 million (2011 £3.7 million, 2010 £3.5 million) and the net amount due from the Press Association as at 30th September, 2012 was £0.2 million (2011 £0.1 million, 2010 £0.2 million). The Group has a 24.9% (2011 24.9%, 2010 24.9%) shareholding in the Evening Standard. During the year, the Group has received revenue of £18.1 million (2011 £28.0 million, 2010 £25.6 million) and incurred charges of £10.0 million (2011 £9.4 million, 2010 £9.3 million). The net amount due to the Group at 30th September, 2012 was £2.0 million (2011 £8.1 million, 2010 £2.3 million). During the period the Group received a dividend of £0.4 million (2011 £0.3 million, 2010 £0.3 million) from Hasznaltauto kft a joint venture. During the period, Landmark Information Group Limited (Landmark) charged management fees of £0.3 million (2011 £0.3 million, 2010 £0.3 million) to Point X Limited, a joint venture and recharged costs of £0.1 million (2011 £0.1 million, 2010 £0.1 million). Point X Limited received royalty income from Landmark of £0.1 million (2011 £0.1 million, 2010 £0.1 million) and the amount from Landmark at 30th September, 2012 was £0.1 million (2011 owed to Landmark £0.3 million, 2010 owed to Landmark £5,200). During the period, Trepp and Rockport made no cash contributions (2011 £0.6 million and £0.1 million, 2010 £nil and £nil respectively) to TreppPort LLC a joint venture. During the period, DMG Information made investments of £2.5 million in Real Capital Analytics, Inc. an associate and £2.4 million in Xcelligent, Inc. an associate. Associated Newspapers Limited has a 100% shareholding (50.0% to January 2012) in Globrix Limited (Globrix) and a 50.0% shareholding in Artirix Limited (Artirix). During the period, the Group recharged £nil staff costs to Globrix (2011 £0.2 million, 2010 £nil) and Globrix recharged the Group £0.5 million (2011 £0.6 million, 2010 £nil) for website development costs. The Group provided services totalling £0.1 million to Artirix, with £nil remaining due at 30th September, 2012. At 30th September, 2012 Globrix owed £nil to Artirix (2011 £1.1 million, 2010 £nil) and £1.3 million to various Group companies (2011 £0.2 million, 2010 £31,000), and £nil was due from Artirix (2011 £nil, 2010 £18,000) to Globrix. During the period, Artirix received revenues of £0.5 million from Globrix (2011 £0.6 million, 2010 £nil). At 30th September, 2012 Artirix owed £1.3 million to various A&N Media companies (2011 £1.9 million, 2010 £nil) and £nil to Globrix (2011 £nil, 2010 £18,000). Artirix provided staff and other services to Teletext Holdings Limited (an associate company) totalling £0.2 million, with £0.1 million remaining due from Teletext Holdings Limited at 30th September, 2012. Associated Newspapers Limited had a 50.0% interest in Teletext Holdings Limited (Teletext). The Group provided services (under the Transitional Services Agreement) amounting to £0.3 million (2011 £nil, 2010 £nil) for the period, and £0.1 million (2011 £nil, 2010 £nil) due from Teletext Holdings at 30th September, 2012. VAT of £0.5 million (2011 £nil, 2010 £nil) was paid by Associated Newspapers Limited on behalf of Teletext and £nil was due from Teletext at 30th September, 2012 (2011 £nil, 2010 £nil). Artirix provided staff and other services to Teletext totalling £0.2 million (2011 £nil, 2010 £nil), with £0.1 million (2011 £nil, 2010 £nil) remaining due from Teletext at 30th September, 2012. Proceeds on the sale of Teletext Ltd to Teletext Holdings Ltd of £6.0 million is due to Associated Newspapers as at 30th September, 2012 (2011 £nil, 2010 £nil). Annual Report 2012174 43) RELATED PARTY TRANSACTIONS – CONTINUED From June, 2012 Associated Newspapers Limited has a 52.25% shareholding in Zoopla Limited. During the year, listing services amounting to £1.0 million were provided by Zoopla to A&N Media as part of a revenue share agreement, with £0.2 million remaining due to Zoopla at 30th September, 2012. Net services (under the Transitional Services Agreement) provided by A&N Media totalled £0.2 million for the period, £5.4 million of other transactional payments were made by A&N Media on behalf of Zoopla, with a balance of £0.9 million being due from Zoopla at 30th September, 2012. Associated Newspapers Limited has a 26.0% interest in Mail Today (Dubai). During the year, additional share capital of £2.3 million (2011 £2.8 million, 2010 £nil) was invested in Mail Today, by AN Mauritius Limited. Associated Newspapers Limited has a 30.0% interest in Social Metrix SA (Argentina). During the year, £0.4 million (2011 £0.9 million, 2010 £nil) additional share capital was invested by A&N International Media Limited. Associated Newspapers Limited has a 50.0% shareholding in Northprint Manchester Limited. The net amount due to Associated Newspapers Limited for £5.8 million (2011 £5.8 million, 2010 £nil) has been fully provided. Associated Newspapers Limited has a 25.0% shareholding in Extra Newspapers Limited to which it provided £0.3 million of funding during the period. This amount is due to Associated Newspapers Limited at 30th September, 2012, with repayments commencing June 2014. During the period, the Group received a dividend of £3.5 million (2011 £14.6 million, 2010 £1.3 million) from dmg Radio Investments Pty Limited, a joint venture. The Group received a dividend of £0.3 million (2011 £0.7 million, 2010 £0.2 million) from Capital Net, an associate. Other related party disclosures At 30th September, 2012 the Group owed £1.5 million (2011 £1.2 million, 2010 £3.3 million) to the pension schemes which it operates. This amount comprised employees’ and employer’s contributions in respect of September 2012 payrolls which were paid to the pension schemes by 9th October, 2012. The Group recharges its principal pension schemes with costs of investment management fees. The total amount recharged during the year was £0.2 million (2011 £1.7 million, 2010 £0.7 million). In September 2012 the Group transferred several of its properties to its pension scheme in an arm’s length transaction. These properties had a carrying value of £20.5 million and were transferred at an open market valuation of £24.0 million. In July 2012, the Group entered into a new contingent asset partnership whereby a £150.0 million loan note, guaranteed by the Group, has been used to commit £10.8 million of interest funding per annum to the Harmsworth Pension Scheme. Interest payable to DMG Pension Partnership Limited Liability Partnership totalled £2.8 million for the current period. As a result of this new partnership, letters of credit totalling £45.2 million were released by the trustees of Harmsworth Pension Scheme. 44) POST BALANCE SHEET EvENTS Following the year end the Group disposed of its central European online recruitment businesses for a cash consideration of €25.4 million and its Hungarian joint venture online motors business for cash consideration of €8.4 million. Additionally, in November 2012 the Group announced it had reached agreement to sell its local media segment to Local World, a newly formed media group that will combine the Group’s local media titles with those of Iliffe News and Media Limited. The Group will receive consideration of £52.5 million and a 38.7% share in Local World. In addition, following a review of the Group’s capital management programme, the Board has decided to utilise part of its authority to make on market purchases of its ‘A’ Ordinary Non-Voting Shares. The Company anticipates spending up to approximately £100.0 million over the coming year. Daily Mail and General Trust PlcStrategic Report 175 Directors’ Report Governance Financial Statements 175 Principal Subsidiary Central activities Daily Mail and General Holdings Limited* RMS Risk Management Solutions, Inc (98.0%) (Incorporated and operating in the USA) dmg information DMG Information, Inc (Incorporated in the USA) Trepp, LLC (Incorporated and operating in the USA) Lewtan Technologies, Inc (Incorporated and operating in the USA) Environmental Data Resources, Inc (Incorporated and operating in the USA) Landmark Information Group Limited Genscape, Inc. (98.1%) (Incorporated and operating in the USA) Hobsons Australia Pty Ltd (Incorporated and operating in Australia) Hobsons, Inc (Incorporated and operating in the USA) dmg events dmg events (UK) Limited dmg events (Abu Dhabi) Ltd (Incorporated and operating in Abu Dhabi) Ad:Tech Expositions LLC (Incorporated and operating in the USA) DMG World Media Dubai (2006) Limited (Incorporated in Jersey; managed and operating in Dubai) Euromoney Euromoney Institutional Investor PLC (68.1%) BCA Research, Inc (68.1%) (Incorporated and operating in Canada) Information Management Network, Inc (68.1%) (Incorporated and operating in the USA) Institutional Investor, Inc (68.1%) (Incorporated and operating in the USA) Internet Securities, Inc (68.0%) (Incorporated and operating in the USA) Metal Bulletin Limited (68.1%) A&N Media Associated Newspapers Limited Lapcom Kft (Managed, incorporated and operating in Hungary) Northcliffe Media Limited Activity Holding company Provider of risk management information on natural and other related perils Holding company Provider of commercial mortgage-backed securities and real estate information Provider of asset-backed securities information Provider of geographic based real estate information services Provider of property and mapping information Provider of real time power supply and other energy information Careers and education information publishing and services Careers and education information publishing and services Trade publishing and exhibition management Organisers of trade exhibitions and events Organisers of trade exhibitions and events Organisers of trade exhibitions and events Publishing, training and events Information Services Conferences Publishing Information Services Publishing and event management Publication of the Daily Mail, The Mail on Sunday and Metro Publication of newspapers in Gyor and Szeged, Hungary Holding company of local media group The company has taken advantage of the exemption under Section 410(2) of the Companies Act 2006 by providing information only in relation to subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affected the financial statements. (i) Unless stated otherwise the whole of the Ordinary share capital of subsidiary undertakings is held directly by Daily Mail and General Trust plc (where marked *) or indirectly by one of the Company’s subsidiaries. (ii) All subsidiaries, except where indicated, operate principally within the United Kingdom. (iii) All principal subsidiaries have been included in the Group accounts. Annual Report 2012176 CONSOLIDATED INCOME STATEMENT Revenue Operating profit before exceptional operating costs and amortisation and impairment of goodwill and acquired intangible assets Exceptional operating costs, impairment of internally generated and acquired computer software, investment property and property, plant and equipment and amortisation and impairment of goodwill and acquired intangible assets arising on business combinations Operating profit/(loss) before share of results from joint ventures and associates Share of results of joint ventures and associates Total operating profit/(loss) Other gains and losses Profit/(loss) before net finance costs and tax Net finance costs Profit/(loss) before tax Tax Profit/(loss) for the year after tax Discontinued operations Equity interests of minority shareholders Profit/(loss) for the year Adjusted profit before tax and non-controlling interests Basic loss/earnings per share Adjusted earnings per share (before amortisation and impairment of intangible assets and exceptional items) 2008 Restated (Note 2) £m 2009 Restated (Note 2) £m 2010 Restated (Note 2) £m 2011 Restated (Note 2) £m 2012 £m 1,932.6 1,772.9 1,703.4 1,748.5 1,746.8 215.9 234.0 271.8 264.4 273.7 (189.2) (316.0) (57.2) (94.3) (126.7) 26.7 2.8 29.5 25.8 55.3 (99.3) (44.0) 78.5 34.5 (20.0) (16.8) (2.3) 248.4 (0.6)p 46.2p (82.0) (9.7) (91.7) (26.7) (118.4) (106.8) (225.2) 64.5 (160.7) (146.6) 2.0 (305.3) 185.6 (80.6)p 33.9p 214.6 (5.2) 209.4 0.4 209.8 (76.0) 133.8 41.1 174.9 42.6 (19.2) 198.3 227.7 51.8p 46.0p 170.1 (2.7) 167.4 13.1 180.5 (54.6) 125.9 3.7 129.6 (5.2) (15.9) 108.5 232.1 28.3p 46.1p 147.0 (1.8) 145.2 114.4 259.6 (53.3) 206.3 18.8 225.1 54.8 (22.7) 257.2 255.4 67.2p 49.4p Earnings before interest, taxation, depreciation and amortisation (EBITDA) Adjusted profit after taxation and non-controlling interests 376.8 174.5 335.5 128.3 371.3 176.3 355.1 176.6 378.3 189.1 Daily Mail and General Trust PlcStrategic Report 177 Directors’ Report Governance Financial Statements 177 CONSOLIDATED CASH FLOw STATEMENT Net cash inflow from operating activities Investing activities Financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange (loss)/gain on cash and cash equivalents 2008 £m 354.9 (144.4) (235.4) (24.9) 64.0 5.2 2009 £m 283.8 (140.0) (147.3) (3.5) 44.3 6.1 2010 £m 334.4 2.1 (319.8) 16.7 46.9 0.7 2011 £m 318.6 (33.5) (177.7) 107.4 2012 £m 261.4 (17.8) (306.4) (62.8) 64.3 – 171.7 (1.6) Cash and cash equivalents at end of year 44.3 46.9 64.3 171.7 107.3 Net (decrease)/increase in cash and cash equivalents Cash outflow/(inflow) from change in debt and hire purchase finance Change in net debt from cash flows Loan notes issued and loans arising from acquisitions Other non-cash items Decrease/(increase) in net debt in the year Net debt at beginning of year Net debt at end of year CONSOLIDATED STATEMENT OF FINANCIAL POSITION Goodwill and intangible assets Tangible assets Fixed asset investments Other non current assets Fixed assets Net current liabilities Long-term liabilities Net assets Shareholders' equity Called-up share capital Share premium account Revaluation reserve Other reserves Minority interests Retained earnings Total equity Shareholder information Dividend per share * Price of 'A' Ordinary Non-Voting shares: Lowest Highest * Represents the dividends declared by the Directors in respect of the above years. (24.9) (20.6) (45.5) – (18.7) (64.2) (3.5) 23.5 20.0 – (54.0) (34.0) 16.7 174.2 190.9 (1.0) (3.3) 186.6 107.4 1.9 109.3 – 33.1 142.4 (62.8) 126.2 63.4 – 43.2 106.6 (950.4) (1,014.6) (1,048.6) (1,014.6) (1,048.6) (862.0) (862.0) (719.6) (719.6) (613.0) 2008 Restated (Note 2) £m 2009 Restated (Note 2) £m 2010 Restated (Note 2) £m 2011 Restated (Note 2) £m 1,503.5 1,195.1 1,113.7 1,035.2 501.9 37.7 29.4 440.4 46.2 159.8 377.8 56.3 174.1 327.0 33.5 239.9 2012 £m 986.0 244.9 150.3 243.9 2,072.5 1,841.5 1,721.9 1,635.6 1,625.1 (349.4) (352.1) (315.7) (238.4) (266.3) (1,191.2) (1,599.8) (1,269.0) (1,289.0) (1,102.8) 531.9 (110.4) 137.2 108.2 256.0 49.1 12.4 39.5 (70.2) 38.7 462.4 531.9 49.1 12.4 4.1 (35.9) 46.8 (186.9) (110.4) 49.1 12.5 7.0 (60.2) 57.4 71.4 137.2 49.1 12.7 3.3 (87.7) 80.3 50.5 108.2 49.1 13.5 – (75.3) 95.3 173.4 256.0 2008 14.70p 2009 14.70p 2010 16.00p 2011 17.00p 2012 18.00p £2.59 £6.77 £2.11 £4.61 £3.90 £5.33 £3.47 £5.95 £3.48 £4.97 Annual Report 2012178 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DAILY MAIL AND GENERAL TRUST PLC We have audited the parent Company financial statements of Daily Mail and General Trust plc for the year ended 30th September, 2012 which comprise the Balance Sheet, and the related Notes 1 to 16. 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, the directors are responsible for the preparation of the parent Company 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 parent Company 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. 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 parent Company’s affairs as at 30th September, 2012 and of its profit for the year then ended; • 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 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 Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent Company 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 and the part 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. Other matter We have reported separately on the Group financial statements of Daily Mail and General Trust plc for the year ended 30th September, 2012. Simon Letts (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 4th December, 2012 Daily Mail and General Trust PlcStrategic Report 179 Directors’ Report Governance Financial Statements 179 As at 30th September, 2012 £m At 2nd October, 2011 £m Note 4 5 6 7 11 0.5 0.5 2,024.6 2,016.5 90.1 25.3 3.1 37.9 120.1 2.8 8 (597.1) (661.1) (478.6) (500.3) 1,546.5 1,516.7 9 10 (750.8) (892.3) (0.5) (0.5) 795.2 623.9 49.1 13.4 (43.8) 1.1 775.4 49.1 12.7 (46.3) 1.1 607.3 795.2 623.9 12 12 13 14 AS AT 30TH SEPTEMBER, 2012 FIXED ASSETS Tangible fixed assets Investments in group undertakings CURRENT ASSETS Debtors – amounts falling due within one year Cash and cash equivalents Deferred tax assets CREDITORS Amounts falling due within one year Net current liabilities Total assets less current liabilities CREDITORS Amounts falling due after more than one year Provisions for liabilities NET ASSETS CAPITAL AND RESERvES Called-up share capital Share premium account Shares held in treasury Capital redemption reserve Profit and loss account EQUITY SHAREHOLDERS’ FUNDS The accounts on pages 179 to 186 were approved by the Directors and authorised for issue on 4th December, 2012. They were signed on their behalf by: Rothermere M.w.H. Morgan Directors Annual Report 2012180 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 2006 and UK Generally Accepted Accounting Principles (UK GAAP). The following paragraphs describe the main accounting policies under UK GAAP, which have been applied consistently in both the current and prior year. Profit for the financial year As permitted by section 408 of the Companies Act 2006, a separate profit and loss account for the Company has not been included in these accounts. The Company’s profit after tax for the year, calculated on a UK GAAP basis, was £236.3 million (2011 loss £108.8 million). Impact of amendments to accounting standards In the current year certain minor amendments to UK financial reporting standards were issued by the UK Accounting Standards Board. The adoption of these amendments has not had any impact on the Company’s accounting policies. 2) SIGNIFICANT ACCOUNTING POLICIES Intangible fixed assets Intangible assets principally comprise purchased trademarks and are capitalised and amortised through the profit and loss account over the lower of their useful economic lives and a period of 20 years. The Company tests 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 the intangible 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. Tangible fixed assets Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line basis over its expected useful life. Some 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 either the current or prior period on the basis that any change would not be material. Foreign exchange Transactions in currencies other than the entity’s reporting 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 are classified as either held for trading or available-for-sale and are measured at either fair value or at cost less provision for impairment where fair value cannot be reliably determined. Where investments are classified as held for trading, gains 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 investment 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. 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. 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. Deferred tax is not discounted. Daily Mail and General Trust PlcStrategic Report 181 Directors’ Report Governance Financial Statements 181 Financial instruments disclosures 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. 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 of the carrying value 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 Group 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’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The Company uses various derivative financial instruments to manage its exposure to these risks. The use of financial derivatives is governed by the Group’s closed line integral policies, which are set out on pages 42 and 43 of 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. Financial instruments – disclosures The Company has taken advantage of the exemption provided in FRS 29, Financial Instruments: Disclosures which states that disclosure in respect of financial instruments is not required in parent company financial statements where such disclosures are included in publicly available consolidated financial statements. 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 Annual Report. 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 41 of the Group’s Annual Report. Retirement benefits The Company contributes to defined benefit and defined contribution pension schemes on behalf of its employees. These are managed on a Group basis and so the Company is unable to identify its share of the underlying assets and liabilities in the defined benefit scheme in which it participates on a consistent and reasonable basis. The scheme is operated on an aggregate basis with no segregation of the assets to individual participating employers and, therefore, the same contribution rate is charged to all participating employers; the contribution rate charged to each employer being affected by the experience of the scheme as a whole. The scheme is therefore accounted for as a defined contribution scheme by the Company. This means that the pension charge reported in these financial statements is the same as the cash contributions due in the period. Details of the financial position and key valuation assumptions of these schemes can be found in note 34 of the Group’s Annual Report. Annual Report 2012182 2012 Number 18 2011 Number 10 2012 £m 8.0 2.1 1.5 0.2 11.8 2011 £m 4.7 1.7 1.0 0.3 7.7 3) EMPLOYEES Average number of persons employed by the Company including Directors: Total staff costs comprised: Wages and salaries Share-based payments Social security costs Pension costs The remuneration of the Directors of Company during the year are disclosed in the Remuneration Report on pages 66 to 80 of the Group Annual Report and Accounts. 4) TANGIBLE FIXED ASSETS Cost At 2nd October, 2011 and at 30th September, 2012 Accumulated depreciation At 2nd October, 2011 and at 30th September, 2012 Net book value – 2011 Net book value – 2012 Fixtures, fittings and artwork £m 0.7 0.2 0.5 0.5 Daily Mail and General Trust PlcStrategic Report 183 Directors’ Report Governance Financial Statements 183 Cost £m Provision £m Net book value £m 2,119.1 (102.6) 2,016.5 1.1 – – 7.0 1.1 7.0 2,120.2 (95.6) 2,024.6 2012 £m 44.6 1.2 – 20.4 23.9 90.1 2011 £m 7.9 – 0.2 20.6 9.2 37.9 2012 £m 25.3 2011 £m 120.1 2012 £m 6.4 1.2 28.5 534.6 4.8 – 21.6 597.1 2011 £m 1.9 1.5 34.1 594.5 4.2 24.5 0.4 661.1 5) INvESTMENTS IN GROUP UNDERTAkINGS (AS LISTED ON PAGE 175) At 2nd October, 2011 Additions Write back of provision At 30th September, 2013 6) DEBTORS Amounts falling due within one year Amounts owed by Group undertakings Prepayments and accrued income Other debtors Corporation tax Derivative financial assets The Company’s corporation tax debtor represents amounts due from subsidiaries for Group relief. 7) CASH AND CASH EQUIvALENTS Cash and cash equivalents 8) CREDITORS – DUE wITHIN ONE YEAR Bank overdrafts Loan notes Interest payable Amounts owing to Group undertakings Accruals and deferred income Other borrowings Derivative financial liabilities Loan notes attract interest at approximately LIBOR minus 0.5% and were issued as part of the consideration for various acquisitions. The loan notes are repayable at the option of the loan note holder. Amounts owing to subsidiary undertakings are repayable on demand and bear interest of UK bank base rate plus 0.5%. Annual Report 2012184 2012 £m 47.3 307.4 171.4 199.2 25.5 750.8 2012 £m 46.4 324.7 156.4 200.0 727.5 2011 £m 158.3 304.1 171.1 198.5 60.3 892.3 2011 £m 156.5 349.7 156.4 200.0 862.6 9) CREDITORS – DUE AFTER MORE THAN ONE YEAR 7.50% Bonds 2013 5.75% Bonds 2018 10.00% Bonds 2021 6.375% Bonds 2027 Derivative financial liabilities The nominal values of the bonds are as follows: 7.50% Bonds 2013 5.75% Bonds 2018 10.00% Bonds 2021 6.375% Bonds 2027 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 £3.5 million (2011 £3.8 million), the unamortised premia £9.2 million (2011 £10.5 million). Details of the fair value of the Company’s bonds are set out in note 32 of the Group’s Annual Report and Accounts. The bonds are subject to fair value hedging using derivatives as set out in note 33 of the Group’s Annual Report and Accounts. Consequently, their carrying value is also adjusted to take into account the affects of this hedging activity. The book value of the Company’s other borrowings equates to fair value. The interest rate charged on the Company’s borrowings during the year ranged as follows: Sterling US dollar The maturity profile of the Company’s borrowings is as follows: 2012 Within one year Over five years 2011 Within one year Between two and five years Over five years 2012 High 2.66% 2.10% 2012 Low 1.54% 1.23% 2011 High 2.17% 1.78% 2011 Low 1.38% 1.05% Overdrafts £m Other borrowings £m Bonds £m Loan notes £m Total £m 6.4 – – 6.4 – – – – 47.3 1.2 54.9 678.1 678.1 725.4 – – 1.2 678.1 678.1 733.0 1.9 23.4 – 1.5 26.8 – – – – – – 1.9 23.4 160.0 672.0 832.0 832.0 – – – 1.5 160.0 672.0 832.0 858.8 Daily Mail and General Trust PlcStrategic Report 185 Directors’ Report Governance Financial Statements 185 2012 £m 0.5 0.5 – 0.5 2012 £m 3.1 2012 £m 2.8 0.5 (0.2) 3.1 2011 £m 0.5 0.6 (0.1) 0.5 2011 £m 2.8 2011 £m 1.9 0.5 0.4 2.8 10) PROvISIONS FOR LIABILITIES Other provisions Movements on other provisions were as follows: At 2nd October, 2011 Utilised during year At 30th September, 2012 11) DEFERRED TAXATION Other timing differences Movements on the deferred taxation asset were as follows: At 2nd October, 2011 LTIP credit to reserves Net credit to profit and loss account At 30th September, 2012 In the opinion of the Directors it is more likely than not that the Company will be able to recover the deferred tax asset against suitable future taxable profits generated by its subsidiary undertakings. 12) RESERvES Share premium account At 2nd October, 2011 Issued on shares At 30th September, 2012 Shares held in treasury At 2nd October, 2011 Additions Own shares released on vesting of share options At 30th September, 2012 2012 £m 12.7 0.7 13.4 2012 £m (46.3) (30.1) 32.6 (43.8) 2011 £m 12.5 0.2 12.7 2011 £m (45.0) (11.7) 10.4 (46.3) The Group’s investment in its own shares is classified within shareholders’ funds as shares held in treasury. At 30th September, 2012, this investment comprised the cost of 10,188 174 ‘A’ Ordinary Non-Voting shares (2011 9,728,174 shares). The market value of these shares at 30th September, 2012 was £49.1 million (2011 £35.3 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 37 of the Group’s Annual Report and Accounts. Annual Report 2012186 £m 1.1 £m 607.3 235.5 (66.2) (1.2) 775.4 574.8 746.1 13) CAPITAL REDEMPTION RESERvE At 2nd October, 2011 and at 30th September 2012 14) PROFIT AND LOSS ACCOUNT At 2nd October, 2011 Net profit for the year Dividends paid Other movements on share option schemes At 30th September, 2012 Total reserves – 2011 Total reserves – 2012 The Company estimates that £583.6 million of the Company’s profit and loss account reserve is not distributable (2011 £607.3 million). 15) CONTINGENT LIABILITIES At 30th September, 2012 the Company had guaranteed a subsidiary’s outstanding derivatives which have a mark to market asset valuation of £7.2 million (2011 liability £3.9 million) and letters of credit with a principal value of £2.4 million (2011 £9.3 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 £nil (2011 £53.6 million). 16) 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. Daily Mail and General Trust PlcStrategic Report 187 Directors’ Report Governance Financial Statements 187 COMPANY SECRETARY AND REGISTERED OFFICE C. Chapman Northcliffe House 2 Derry Street London W8 5TT England Registered Number: 184594 wEBSITE The Group has an internet website which gives information on the Company and its operating businesses and provides details of significant Group announcements. THE ADDRESS IS: www.dmgt.com FINANCIAL CALENDAR 2013 (PROvISIONAL) 10th January 6th February 6th February 8th February 31st March 31st March 23rd May 5th June 7th June 5th July 25th July 29th September 30th September 21st November 27th November 29th November Annual Report and Corporate Brochure published Interim Management Statement Annual General Meeting Payment of final dividend Payment of interest on loan notes Half year end Half Yearly Financial Report released Interim ex-dividend date Interim record date Payment of interim dividend Interim Management Statement Year End Payment of interest on loan notes Preliminary announcement of annual results Ex-dividend date Record date CAPITAL GAINS TAX The market value of both the Ordinary and ‘A’ Ordinary Non-Voting Shares in the Company on 31st March, 1982 (adjusted for the 1994 bonus issue of ‘A’ Ordinary Non-Voting Shares and for the four–for–one share split in 2000) was 9.75 pence. REGISTRARS All enquiries regarding shareholdings, dividends, lost share certificates, loan notes in the Company and in Daily Mail and General Investments plc, or changes of address should be directed to Equiniti, the Company’s Registrars, at the address set out on page 190. ELECTRONIC COMMUNICATIONS Equiniti operate Shareview, a free online service which enables shareholders with internet access to check their shareholdings and other related information and to register to receive notification by email of the release of the Annual Report. It also offers practical help on matters such as transferring shares or updating your own details. Shareholders may register for the service at www.shareview.co.uk. This report is available electronically on the Company’s website which contains a link to Shareview to enable shareholders to register for electronic mailings. Notification by email has been given of the availability of this Annual Report on the Company’s website to those shareholders who have registered. LOw COST SHARE DEALING SERvICE Equiniti provide a simple low cost dealing service for Ordinary and ‘A’ Ordinary Non-Voting Shares details of which are available at www. shareview.co.uk/dealing or by calling 08456 037 037. Details of this and other low cost dealing services can be found on the Company’s website at www.dmgt.com/investors. LOAN NOTES Loan notes issued by the Company are repayable in whole or in part at the option of loan note holders every six months. Loan note holders requiring repayment should complete the redemption section on the back of their loan note and send it to reach the Registrars by 28th February or 31st August for repayments on 31st March or 30th September respectively. Annual Report 2012188 SHARE PRICE INFORMATION The current price of the Company’s Ordinary and ‘A’ Ordinary Non-Voting Shares can be found on the homepage of the Company’s website at www.dmgt.com. A graph, illustrating the historical performance of the ‘A’ shares, is shown on page 21. EUROBOND PAYING AGENT The principal paying agent for the Company’s 7.5% Bonds due 2013, 10% Bonds due 2021 and the 6.375% Bonds due 2027 is Deutsche Bank AG London, Winchester House, 1 Great Winchester St, London EC2N 2DB. The principal paying agent for the Company’s 5.75% Bonds due 2018 is HSBC Bank plc, Corporate Trust and Loan Agency, 8 Canada Square, London E14 5HQ. Enquiries should be directed to John Donegan, Group Financial Controller, who can be contacted on 020 3615 2917, and whose email address is john.donegan@dmgt.com. CREST Shareholders have the choice either of holding their shares in electronic form in an account on the CREST system or in the physical form of share certificates. INvESTOR RELATIONS Investor relations are the responsibility of Adam Webster. The investor relations’ email address is investor.relations@dmgt.com. SHAREGIFT In the UK, DMGT supports ShareGift, which is administered by the Orr Mackintosh Foundation (registered charity number 1052686) and which operates a charity share donation scheme for shareholders wishing to give small holdings of shares to benefit charitable causes. It may be especially useful for those who wish to dispose of a small parcel of shares which would cost more to sell than they are worth. There are no capital gains tax implications (i.e. no gain or loss) on gifts of shares to charity and it is also possible to obtain income tax relief. If you would like to use ShareGift or receive more information about the scheme, they can be contacted by visiting their website at www.sharegift.org or by writing to ShareGift, 17 Carlton House Terrace, London, SW1Y 5AH. SHAREHOLDINGS AT 30 SEPTEMBER, 2012 Ordinary Shares Range of holdings 1–1,000 1,001–5,000 5,001–10,000 10,001–20,000 20,001–50,000 50,001–100,000 100,001–500,000 500,001 & over Number of shareholders % 457 126 10 10 6 5 5 3 622 73.48 20.26 1.61 1.61 0.96 0.80 0.80 0.48 100.00 ‘A’ Ordinary Non-voting Shares Range of holdings 1–1,000 1,001–5,000 5,001–10,000 10,001–20,000 20,001–50,000 50,001–100,000 100,001–500,000 500,001 & over Number of shareholders % 888 535 239 151 106 37 95 84 2,135 41.59 25.08 11.19 7.07 4.96 1.73 4.45 3.93 100.00 Shares 161,756 282,239 72,369 139,743 182,460 379,060 930,682 17,738,163 19,886,472 Shares 334,787 1,394,495 1,744,528 2,112,189 3,269,747 2,531,241 22,528,489 339,158,172 373,073,648 % 0.81 1.42 0.36 0.70 0.92 1.91 4.68 89.20 100.00 % 0.09 0.37 0.47 0.57 0.88 0.68 6.04 90.90 100.00 Daily Mail and General Trust PlcStrategic Report 189 Directors’ Report Governance Financial Statements 189 RECONCILIATION OF REPORTED RESULTS TO UNDERLYING PERFORMANCE Underlying Analysis – Adjusted profit before tax* % Underlying £m 2012 M&A £m Other £m Reported £m Underlying £m M&A £m Exchange £m Other £m Reported £m 2011 B2B RMS dmg::information dmg::events Euromoney Consumer Associated Newspapers Northcliffe Media Head office costs Operating profit Joint ventures and associates Net finance charges Adjusted profit before tax* +7% +19% +21% +2% +8% +3% +54% +12% (26%) +7% +11% 56 49 21 103 229 76 26 102 (41) 289 8 (66) 232 – – – (8) (8) (2) – (2) – (10) (5) – (15) – 1 – (1) – – – – – – – (9) (9) 56 48 21 112 237 78 26 104 (41) 300 13 (57) 255 52 42 17 101 212 74 17 91 (33) 270 5 (66) 208 4 (1) (16) – (14) (2) – (2) – (16) – – (16) 1 1 – 1 3 – – – – 3 – – 3 – – (6) 7 1 – – – – 1 – (12) (11) 47 42 39 93 221 76 17 93 (33) 281 5 (54) 232 Note: M&A includes the disposals of Sanborn, RMSI, GLM, Teletext Retail, Teletext Holidays and various regional newspapers; the acquisition of Ned Davis Research, Jobrapido, Intelliworks and various other bolt-on acquisitions, and the disposal of The Digital Property Group to form Zoopla Property Group. Figures, including totals, are rounded to the nearest million pounds whilst percentages are calculated on actual numbers to one decimal place. Underlying Analysis – Revenues % Underlying £m 2012 M&A £m Other £m Reported £m Underlying £m M&A £m Exchange £m Other £m Reported £m 2011 B2B RMS dmg::information dmg::events Euromoney Consumer Associated Newspapers Northcliffe Media Total +6% +11% +13% +2% +7% +2% (6%) 0% +3% 163 256 85 374 879 834 207 1,041 1,920 – 1 – (20) (19) (14) (5) (19) (38) – 2 (4) – (2) – – – (2) 163 253 89 394 899 848 213 1,060 1,960 154 230 75 366 825 820 220 1,040 1,865 (8) (5) (45) – (58) (25) (16) (41) (99) 3 3 1 3 10 (4) – (4) 6 – – (13) – (13) (14) – (14) (27) 159 232 132 363 886 862 236 1,098 1,985 Note: M&A includes the disposals of Sanborn, RMSI, GLM, Teletext Retail, Teletext Holidays & various regional newspapers; the acquisition of Ned Davis Research, Jobrapido, Intelliworks and various other bolt-on acquisitions, and the disposal of The Digital Property Group to form Zoopla Property Group. Figures, including totals, are rounded to the nearest million pounds whilst percentages are calculated on actual numbers to one decimal place. Annual Report 2012190 RECONCILIATION OF REPORTED RESULTS TO UNDERLYING PERFORMANCE – CONTINUED Underlying analysis – operating margin* 2012 2011 Adjusted results including discontinued operations £m Discontinued operations £m Adjusted results excluding discontinued operations £m Adjusted results including discontinued operations £m Discontinued operations £m Adjusted results excluding discontinued operations £m 1,747 213 1,960 274 26 300 15% – 213 213 – 26 26 12% 1,747 – 1,747 274 – 274 16% 1,749 236 1,985 264 17 281 14% – 236 236 – 17 17 7% 1,749 – 1,749 264 – 264 15% Revenues Continuing operations Discontinued operations Total Revenue Operating Profit Continuing operations Discontinued operations Total Operating Profit Operating margin % ADvISERS STOCkBROkERS Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4QJ Telephone: 020 7888 8888 AUDITOR Deloitte LLP 2 New Street Square London EC4A 3BZ Telephone: 020 7936 3000 REGISTRARS Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA www.shareview.co.uk Telephone: 0871 384 2302 International Callers: +44 121 415 7047 Textel/Minicom: 0871 384 2255 Lines are open Monday to Friday 8.30am to 5.30pm; excluding UK Bank Holidays. Calls to our 0871 numbers are charged at 8p a minute from a BT landline. Other telephony providers may vary. Daily Mail and General Trust PlcStrategic Report 191 Directors’ Report Governance Financial Statements 191 Annual Report 2012192 Daily Mail and General Trust PlcAnnual Report 2012 DMGT HQ Northcliffe House 2 Derry Street London W8 5TT Great Britain T+44 (0)20 7938 6000 F+44 (0)20 7938 4626 enquiries@dmgt.com www.dmgt.com Designed and produced by Salterbaxter. Printed on Hello Fat Matt 2012 EMPOWERING PEOPLE THROUGH INFORMATION

Continue reading text version or see original annual report in PDF format above