Daily Mail and General Trust plc
Annual Report 2019

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Links Dynamic links within the text are indicated when the user rolls over hyperlinks and the mouse cursor changes to a pointed hand. Satisfying the need to know Annual Report 2019 Daily Mail and General Trust plc Overview Financial Highlights Statutory Results† Adjusted Measures Revenue Operating profit/(loss) Revenue Operating margin* £1,337m 2018: £1,341m £67m 2018: £168m £1,411m 2018: £1,426m 10% 2018: 10% Profit/(loss) before tax Profit for the year Profit before tax* Earnings per share* £134m 2018: £707m £91m 2018: £688m £145m 2018: £182m 38.6p 2018: 42.2p Earnings per share Dividend per share Cash operating income* Net cash§:EBITDA 30.7p 2018: 194.7p 23.9p 2018: 23.3p £162m 2018: £155m 1.2x 2018: 0.8x £ million Statutory profit before tax Discontinued operations Exceptional operating costs Intangible impairment and amortisation Profit on sale of assets Pension finance (credit) Other adjustments Adjusted profit before tax FY 2019 FY 2018 Explanation 134 (33) 36 69 (67) (7) 13 145 707 (15) 25 95 (658) (2) 30 182 i ii iii iv v vi For explanations i to vi and more detailed tables please refer to pages 28 and 30. † * § Statutory revenue, operating profit and profit before tax figures are for continuing operations only (excluding Energy Information). The FY 2018 statutory results have been reclassified accordingly. Before exceptional items, other gains and losses, impairment of goodwill and intangible assets, amortisation of intangible assets arising on business combinations, pension finance credits and fair value adjustments; see Consolidated Income Statement on page 90 and the reconciliation in Note 13 to the Accounts. See Note 16 for details of net cash. The actual net cash:EBITDA ratio as at 30 September 2019 was 0.4 but £117 million of net cash has been made available to the pension schemes and £282 million of gross proceeds from the disposal of Genscape, the Energy Information business, were received in November 2019. The 2019 net cash:EBITDA ratio of 1.2 is stated after adjusting net cash to exclude the £117 million and include the £282 million. The 2018 ratio includes £237 million of short-term deposits that matured in December 2018. S t r a t e g i c R e p o r t G o v e r n a n c e F i n a n c i a l S t a t e m e n t s S h a r e h o l d e r I n f o r m a t i o n Go online to www.dmgt.com to find out more Daily Mail and General Trust plc Annual Report 2019 DMGT is an international business built on entrepreneurialism and innovation. DMGT manages a portfolio of companies that provide businesses and consumers with compelling information, analysis, insight, events, news and entertainment. The Group takes a long-term approach to investment and has market-leading positions in consumer media, insurance risk, property information, education technology and events & exhibitions. In total, DMGT generates revenues of around £1.4 billion. 02 Chairman’s Statement Maintaining a strong portfolio of businesses 10 CEO Review Delivering against clear strategic priorities 06 Our Business Model 16 Operating Business Reviews Strategic Report Chairman’s Statement DMGT at a Glance Our Business Model Market Overview CEO Review Key Performance Indicators Operating Business Reviews Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media JVs, Associates and dmg ventures Financial Review Our People and Our Stakeholders Principal Risks 02 05 06 08 10 14 16 17 17 18 19 19 20 21 22 31 34 Governance Board of Directors and Company Secretary 40 42 Chairman’s Statement on Governance 43 Corporate Governance 55 Remuneration Report 78 Statutory Information 81 Annual General Meeting 2020: Resolutions Financial Statements Independent Auditor’s Report Financial Statements Shareholder Information 83 90 197 1 Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report Maintaining a strong portfolio of businesses Chairman’s Statement The Viscount Rothermere Chairman DMGT has significant financial flexibility and continues to benefit from the resilience of its diversified portfolio. During the past year, DMGT took further important strides to improve the focus of the portfolio, and I am enthused by the potential of the next phase of DMGT’s development.” I am pleased to report that the transformation of DMGT continues to enhance the performance of our businesses and demonstrate our ability to create sustainable value for our shareholders. During the past year, DMGT took further important strides to improve the focus of the portfolio, and I am enthused by the potential of the next phase of the Group’s development. Above all, DMGT prides itself on its long-term approach to investment which is underpinned by our ownership structure. We back entrepreneurial businesses with patient capital. We look for opportunities in markets that are undergoing rapid change, recognising that there is a balance between reward and risk. We seek to nurture young companies as they grow and develop them into strong cash generators of the future. 2 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Group revenue +2% underlying growth Minutes spent on MailOnline daily Sale of Genscape 139 million US$364 million There are few better examples of the merits of this approach than Euromoney Institutional Investor PLC (Euromoney). It was 50 years ago last April that Patrick Sergeant, then the City editor of the Daily Mail, told my father about his idea for a new monthly magazine to cover the nascent Eurobond markets. When Associated Newspapers agreed to back Euromoney with a £6,000 investment, it was impossible to envisage the extent to which financial markets would grow, nor the myriad of opportunities that would arise as Sergeant and his successors built the substantial business that exists today. DMGT is proud of its role in Euromoney’s success, which remained a subsidiary of the Group until 2016 when DMGT’s stake was reduced from c.67% to c.49%. Euromoney also provided DMGT with its first experience of investing in business-to-business markets, which has become such an important part of the Group in recent years. It was therefore an important milestone when, during the year, the Board decided to distribute DMGT’s holding of Euromoney shares to our shareholders, along with £200 million in cash (April 2019 Distributions). I was delighted at the exceptionally high level of support we received from shareholders for this complicated transaction. Business highlights DMGT delivered a good performance for the year ended 30 September 2019, with financial results in line with market expectations. Revenues grew by 2% on an underlying basis while adjusted earnings per share of 38.6 pence reflected disposals. Cash operating income, which we regard as an important indicator of our performance, increased by 4% to £162 million even though the portfolio now has fewer businesses. On a statutory basis, revenues were £1,337 million and earnings per share were 30.7 pence. The Board is pleased to recommend an increase in the final dividend per share for FY 2019, giving a total dividend for the year of 23.9 pence per share, an increase of 3%, continuing DMGT’s long-standing commitment to delivering sustainable annual real dividend growth. We were particularly pleased by the performance of our Consumer Media business, which reported adjusted operating profits of £67 million on revenues of £672 million. The strength of the Mail and Metro brands, and our long-term investment in high-quality journalism, has allowed us to continue to take market share in the declining UK newspaper market. MailOnline, one of the world’s most popular online news sources, had an excellent year with underlying revenue growth of 13% and nearly 140 million minutes spent on the site each day. The growth in MailOnline’s advertising revenues more than offset the expected decline from print advertising. Our B2B portfolio delivered revenue growth of 2% on an underlying basis, with our educational technology business, Hobsons, a notable highlight. We held a successful Investor Briefing event to explain the opportunities for RMS, our Insurance Risk business, and the progress made by the new management team. Following our stated strategy, we have continued to focus the portfolio. Having distributed our Euromoney shares in April, we sold our stake in Real Capital Analytics, a US Property Information business, for US$89 million in May. On-geo, a German Property Information business, was sold in June. In August, we announced the US$364 million sale of Genscape, our Energy Information company. Most recently, we sold BuildFax, the US Property Information business, in October. As a result of these transactions, we had nearly £250 million net cash on our balance sheet at year end, providing us with the financial flexibility to take advantage of the opportunities we see, as with the recent acquisition of the ‘i’, the UK national newspaper and website. While we will remain patient and financially disciplined, prioritising organic investments ahead of external acquisitions, we are well placed to take advantage of any downturn in asset valuations. I am excited by the gathering momentum within DMGT’s businesses. 3 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Maintaining a strong portfolio of businesses Chairman’s Statement Governance The Board remains committed to the high governance standards our shareholders expect. We are fortunate to have Directors with experience of an extensive range of businesses and international markets, which supports rigorous and high-quality debate of DMGT’s strategic opportunities. I would like to thank our Non-Executive Directors for their contribution over the past year, with a special mention for Kevin Parry, who chaired the independent committee that assessed the fairness of the April 2019 Distributions. Read more in Governance report, pages 40 to 54 People and culture The continued success of DMGT will rely on our ability to attract the talent of the future at all levels of our business. This year, for example, the executive team at Landmark was strengthened and I am pleased by the progress that they are already making. We continue to invest in talent, nurturing the next generation of entrepreneurs and managers and developing the individuals who create the products and distribute the content that our customers value. On behalf of the Board, I would like to thank all our employees for their continued hard work, dedication and significant contribution to the Group, as well as their wider communities. Read more in Our People and Our Stakeholders, pages 31 to 33 Remuneration We are conscious that remuneration remains an issue of importance both for our shareholders and for the wider community of stakeholders that we serve. DMGT continues to set remuneration and incentives to ensure focus on performance in line with our strategic priorities. The details of our approach are set out in the Remuneration Report. Read more in Remuneration Report, pages 55 to 77 Outlook The three strategic priorities established by our CEO Paul Zwillenberg – improving operational execution, increasing portfolio focus and maintaining financial flexibility – are serving shareholders well. DMGT’s more tightly concentrated portfolio is delivering an improved quality of earnings from businesses with leadership in their markets; and, together with the strength of our balance sheet, this has created the foundation for future growth. I am increasingly encouraged by the momentum I see across our Group, and confident in our ability to deliver long-term returns to shareholders. We look forward to making further progress in the year ahead. The Viscount Rothermere Chairman Adjusted revenue by business FY 2019 (%) Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media 17 16 6 8 5 48 Dividend per share The Board’s policy is to grow the dividend in real terms and, in the medium term, to aim to distribute around one-third of the Group’s adjusted earnings. 25 20 15 10 5 0 7.3p 1999 Dividend Inflation 23.9p 10.9p 2019 4 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Who we are DMGT at a Glance DMGT’s portfolio of companies operates across B2B and consumer markets and has become more focused, positioning the Group for long-term growth and value creation. Our sectors B2B Insurance Risk RMS produces risk models and software applications, and provides analytical data services used by the global risk and insurance industry to quantify and manage catastrophe risk. Read more, page 17 Property Information Our Property Information companies provide technology, data and workflow solutions to clients involved in commercial and residential property markets as well as risk and valuation services to the Commercial Mortgage-Backed Securities (CMBS) market. The disposal of BuildFax occurred in October 2019. Read more, page 17 EdTech Hobsons is the leading provider of student success solutions in the US through its Naviance, Intersect and Starfish platforms. Read more, page 18 Events and Exhibitions dmg events is an international B2B exhibitions and conference organiser, focusing on the energy, construction, interiors, hotel, hospitality and leisure sectors, operating across several geographies. Read more, page 19 Energy Information Genscape provides data, workflow tools and predictive analytics. The disposal of Genscape was announced in August 2019 and completed in November. Read more, page 19 Consumer Consumer Media dmg media is a modern news media company with two of the UK’s most-read paid-for newspapers and one of the world’s most popular free newspapers. It includes MailOnline, whose readers spend 139 million minutes on the site and apps each day. In November 2019, the ‘i’, the UK national newspaper and website, was added to the portfolio. Read more, page 20 JVs, Associates and dmg ventures dmg ventures invests in disruptive consumer propositions that need to scale and which can leverage DMGT’s assets to do so. These include Yopa, the UK hybrid estate agent, and Cazoo, which aims to change the way people buy used cars in the UK. The Group also invests in B2B businesses, including Praedicat in the Insurance Risk sector. Read more, page 21 Go online to www.dmgt.com for more information about our businesses 5 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report How we create value Our Business Model Satisfying the need to know Which we monetise through five revenue models DMGT creates first-choice products, combining data, technology and consumer know-how to connect people with intelligent insight and engaging content. Proprietary data Innovative technology Compelling content Consumer know-how 6 Subscription Our B2B operating companies have a strong subscription revenue component with high renewal rates demonstrating the strength of our client relationships. Circulation Circulation revenues are generated from sales of the Daily Mail and The Mail on Sunday newspapers, which continue to hold market-leading positions and gain market share in a declining market. Advertising Our Consumer Media business generates advertising revenue both in print and digital formats. Growth in our digital advertising revenues continues to help offset structural declines in print advertising. Enhanced user engagement drives advertiser interest in increasingly sophisticated advertising formats. Events attendance and sponsorship Exhibitor fees, sponsorship revenues and delegate fees are earned from the growing portfolio of B2B shows run by dmg events. Transactions Our Property Information revenues are influenced by UK residential and commercial property transaction volumes. Read more in Financial Review, pages 22 to 30 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Supported by our values Enabling us to create value for our stakeholders Entrepreneurialism As a home for entrepreneurs, working at the cutting edge of technology, DMGT fosters constant innovation, growth and talent development across our international businesses. For our shareholders We have a track record of investing for the long term to deliver value creation across a diversified portfolio of entrepreneurial operating companies. Our strategy aims to achieve sustainable long-term earnings and dividend growth. Purpose Long-term perspective and businesses with a clear sense of purpose for their customers and society. Total shareholder return FY 2009 – FY 2019 11% CAGR For our employees We nurture entrepreneurial talent and encourage our people to make their own mark on DMGT, a diverse international portfolio with over 120 years of heritage. Excellence Commitment to quality, craftsmanship and delivering excellence. We seek the best talent, leadership and expertise. Employees worldwide 5,950 For our customers Our deep understanding of customer needs enables us to innovate constantly and create content, products and solutions that provide our operating companies with a competitive edge and make us even more relevant to our customers. Organic investment as a percentage of revenues FY 2019 9% For our communities DMGT operating companies have developed strategic partnerships with a number of charitable organisations, with a focus on making a difference in the communities where our people work and live. Amount donated to charity FY 2019 £1.2 million 7 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Adapting to continuous change Market Overview DMGT comprises a portfolio of businesses working across diverse markets. While each sector has its own individual characteristics, some common features exist: • Content and information-driven • Fast-paced and evolving to adopt new technology and business models • Technology-enabled with high degrees of innovation • Enduring and resilient Increased volatility Political uncertainty Cyber security Context to DMGT • As a provider of proprietary, hard-to- Context to DMGT • Political policy decisions have direct and often unexpected impacts on the geographies and sectors in which DMGT operates and will continue to shape where and how DMGT pursues commercial and strategic opportunities. Market trend • There is still long-term geopolitical uncertainty for UK companies’ operations abroad. • Changing political landscapes throughout the world add to the climate of political uncertainty, notably in the Middle East. Our approach • DMGT closely follows political changes and implications for the geographies and sectors in which it participates. In many instances, the uncertainty of changing political and regulatory norms presents commercial opportunities, as we help our customers anticipate implications for their business. • We continually review our operations against changes to global sanctions and diplomatic relations. obtain information, DMGT benefits from growing uncertainty in the world as its customers rely more heavily on data and analysis to inform critical decisions. Market trend • Global economic uncertainty, political tensions and supply and demand disruptions continue to influence our customers and their markets. The uncertainty while we await the outcome of the UK general election (December 2019) and the conditions of Brexit continues to unsettle the UK economy. • Extreme weather events, commodity price fluctuations and continued exchange-rate swings have directly impacted the economic and social environments for both investment and business operations. Our approach • Our diversified portfolio provides balance in an increasingly volatile world: as one sector may be facing headwinds, another may benefit. • DMGT is providing its customers with fundamental content, data, analytics and insights. This enables them to move away from decisions based on instinct and embrace data as a means to navigate volatility. • DMGT’s businesses are not dependent on trade between the UK and the remaining EU members, other than the sourcing of newsprint for the Consumer Media business. Notwithstanding a period of political and macroeconomic uncertainty, the future is viewed with confidence. 8 Context to DMGT • As a provider of business-critical data, analytic tools for global industries and news media, DMGT is exposed to cyber security risks across its operations. Market trend • Cyber security threat is a permanent business risk in the digital age. Governments and regulatory bodies are increasingly alert to the threat posed to individuals and society by security breaches. • As customer confidence is easily eroded, enforcing the highest possible cyber security standards is critical for maintaining customer and market trust. Our approach • DMGT continues to strengthen its information security controls. The Group Chief Information Security Officer leads a continuous review of the cyber security landscape in order to roll out revised information security standards, compliance road maps and perform regular cyber security audits. • The Executive Committee ensures senior-level engagement across the Group and appropriate investment in risk reduction. • Incident reports, responses and best practices are shared across the Group to help ensure appropriate mitigation of any threat. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Our businesses are constantly looking to the future to identify and manage current and future trends. The most significant of these are identified here as well as DMGT’s approach to the trends. Read more on the trends affecting the Group in Principal Risks, pages 34 to 39 Continuous innovation Artificial intelligence A competitive talent pool Context to DMGT • Technological change and customer adoption rates of new technologies in our key sectors are accelerating, changing and erasing traditional business models. Market trend • The speed of technology evolution is increasing the capital intensity of IT investment and product development, reducing business investment horizons. Our approach • As an entrepreneurial Group focused on digital growth, DMGT stays ahead by continually fostering innovation and embracing new ideas. This is reflected by DMGT’s expectation of investing at least 5% of revenue in organic initiatives each year. • DMGT has a family heritage which encourages long-term thinking and the application of patient capital. Consequently, the Group can invest for the future, seeding, incubating and nurturing innovative opportunities. • Throughout DMGT’s history, innovation and diversification have been essential elements of how we do business and have given us a wealth of experience to draw on in order to adapt to market changes. • DMGT’s investment approach enables us to remain close to customers through our portfolio of businesses. This provides greater insight into exactly what our customers value, engage with and, ultimately, want to buy. Context to DMGT • There is an increasing prevalence of systems and devices that are designed to act intelligently. There is also continued growth in the amount of data being generated, stored and made available for analysis. With the benefit of artificial intelligence, a smart system can quickly process and use data to inform and change its future behaviour. These developments create opportunities for DMGT and its businesses. Market trend • Artificial intelligence, including machine learning, enables businesses to perform analysis on immense quantities of data and derive insights that were previously impossible to see. Our approach • DMGT’s businesses help their customers to identify which information provides strategic value, access data from different sources and explore how algorithms can be used to improve processes and understanding. This area is evolving quickly and DMGT’s businesses are embracing the opportunity to develop new products to increase efficiency. Context to DMGT • Across the global workforce, top talent is drawn to companies that offer a compelling employee value proposition. This includes purpose beyond profit, competitive remuneration and ongoing learning and development opportunities. Market trend • Demand for top talent is always fierce, particularly in the critical areas of big data analytics, artificial intelligence and data science, where demand in many labour markets outstrips supply. Our approach • In competing for key employees, especially critical technology talent, DMGT is committed to enhancing its employee proposition. • The central technology function coordinates Group-wide communication and mobility for technological talent. • DMGT supports training and development in order to enhance employees’ capabilities and transfer skills throughout the businesses. We also provide initiatives such as our talent development programmes to encourage rising talent within DMGT. • Statistical analytics are integral to many of the products and services that we continue to develop across our businesses. • Our Board of Directors meets emerging leaders at the operating companies as part of the schedule of Board meetings. • We have a central technology function with expertise in artificial intelligence, which is leveraged by the operating companies. 9 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Delivering against clear strategic priorities CEO Review Overview I am pleased to report that DMGT delivered a robust performance in FY 2019. This has been a direct result of continued successful execution against our three key strategic priorities of improving operational execution, increasing portfolio focus and maintaining financial flexibility. This year’s performance marks an important milestone in the Group’s transformation. Over the last three years, we have moved from 10 sectors to five, from 40 operating companies to eight, and from net debt to EBITDA of 1.8 times to pro forma net cash of nearly £250 million. We have made substantial returns to shareholders in the process, with distributions of over £3.80 per share. We have also embedded a culture of improving operational execution across our portfolio of businesses, helping them to become more effective and more efficient with a disciplined approach to return on investment (ROI). As a result, our portfolio is streamlined and we are focused on those assets which we believe have the most potential to generate cash flow and capital value, whilst ensuring we have significant financial flexibility. We are now transitioning to the next phase of the Group’s transformation, focused on delivering profitable growth, improved cash generation and sustainable long-term value creation. Business highlights Our performance over the last year included a strong performance from Consumer Media and, consistent with our expectations, a mixed performance across our B2B businesses. Our portfolio now comprises businesses with leading market positions in attractive segments and which are increasingly well placed to realise their potential over the medium to long term. In April 2019, we returned almost £900 million in capital to our shareholders, in the form of shares in Euromoney Institutional Investor PLC (Euromoney) and a £200 million cash special dividend, which equated to approximately 38% of our market capitalisation at the time. To recap, we had previously sold down DMGT’s holding in Euromoney from 67% to 49% in December 2016. We then realised a fundamental milestone for DMGT this year 10 Key strategic priorities Delivering on our potential Improving operational execution Increasing portfolio focus Maintaining financial flexibility by redistributing our remaining stake in Euromoney to our shareholders. This was the biggest return of capital in DMGT’s history and 95% of those shareholders who voted at the Class Meeting voted in favour of the distributions. On a symbolic level, it was a defining moment for the Group. Not only has it made the Group more focused, it was also a statement of confidence by our Board in the future of DMGT. The distribution of our holding in Euromoney was another compelling example of DMGT’s successful long-term approach of supporting our portfolio companies to secure significant value creation for our shareholders. This was also demonstrated by the sale of our stake in ZPG Plc (ZPG) in 2018 and of Genscape, On-geo, BuildFax and Real Capital Analytics in 2019. The disposal of Genscape, our Energy Information business, completed in November 2019, having been agreed in August. The Genscape management team had made significant progress with restructuring the business and improving operational execution over the past two years, resulting in a US$364 million valuation. As well as returning significant capital to DMGT’s shareholders during the year, we have retained the financial flexibility to invest in our businesses and be acquisitive. We continue to maintain a highly disciplined approach to capital allocation. At an operating level, the Group delivered a solid performance. Our Consumer Media businesses outperformed their respective markets and grew revenues by an underlying 2%. This is an excellent performance in an industry that continues to face structural headwinds. Across our B2B businesses, we saw modest growth with strong revenue growth in EdTech offset by our Property Information business, which continued to face challenging conditions in the UK. In addition, in Insurance Risk, a good rate of contract renewals was partially offset by industry consolidation and historic RMS(one) delivery issues. The good progress that we are making against the three strategic priorities is reflected in our financial results in general and in cash operating income (Cash OI) in particular. Cash OI focuses our management teams on the underlying cash generation of their businesses. By successfully implementing a performance management culture across the portfolio, we have seen an especially impressive improvement during FY 2019 in the Cash OI margins at Hobsons, the EdTech business, and Genscape ahead of its disposal. At RMS, the new leadership team hosted an Investor Briefing event in London in July. They discussed the strength of RMS’s catastrophe risk modelling business and set out their plans to enter the large and high-growth Insurance Risk Analytics market, where their new software platform, Risk Intelligence, which was launched in May, will be an important enabler in the delivery of new products and services. RMS has already made good progress on its new architecture as well as in product development, including the launch of SiteIQ Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Paul Zwillenberg CEO We have the flexibility to invest behind our businesses, both organically and through acquisitions, to support DMGT’s long-term growth and value creation. in June 2019. Given the attractive market dynamics and strength of the business’s customer proposition, we are confident that RMS is well placed to create significant long-term value for shareholders. RMS is expected to continue to deliver modest revenue growth over the next two to three years before gradually accelerating as the new products and services gain traction. Profitability is expected to improve as the ongoing investment programme peaks and revenue growth accelerates. The Consumer Media business’s revenue growth is a result of our continued commitment to invest in high-quality journalism, which is reflected in MailOnline’s direct traffic and the Mail newspapers’ significant, and increasing, market share. MailOnline delivered an excellent performance as it continued to execute its strategy of prioritising direct traffic. In FY 2019, the solidly profitable MailOnline site returned to double-digit revenue growth and there was strong organic growth from DailyMailTV, in which we continue to invest, and Metro. The financial performance for FY 2019 across our Consumer Media and B2B businesses is a good demonstration of our deliberate strategy to maintain a well-balanced and diversified portfolio of businesses across different sectors and economic cycles. We will continue to focus on improving the performance across the portfolio, investing prudently where opportunities exist, to drive long-term returns for our shareholders. Financial performance Group revenues grew 2% on an underlying basis with growth from both the Consumer Media business and, although market conditions were challenging in some sectors, the B2B portfolio. Operating profit increased by an underlying 6%, reflecting growth from Consumer Media, Insurance Risk and Energy Information and reduced Corporate costs. Cash operating income increased 10% on an underlying basis as the growth from Consumer Media, EdTech and Energy Information and reduced Corporate costs more than offset the increased organic investment in the B2B businesses. Adjusted profit before tax was £145 million, a 21% decrease on the prior year due to disposals, but an underlying increase of 19%. Similarly, disposals resulted in adjusted earnings per share decreasing by 8%. Statutory profit before tax was £134 million, a £573 million decrease largely due to the prior year including a gain on disposal of DMGT’s stake in ZPG. Statutory profit for the year decreased by £597 million to £91 million and statutory earnings per share were 30.7 pence. As well as illustrating the challenging conditions in many sectors and DMGT’s commitment to investing through the cycle, these figures reflect the impact of disposals. DMGT has maintained a strong balance sheet with a pro forma net cash position whilst also returning significant capital to shareholders and making additional funds available to the pension schemes during the year. Tim Collier, Group Chief Financial Officer, describes DMGT’s financial performance in further detail in the Financial Review (pages 22 to 30). An update on the progression of DMGT’s Key Performance Indicators (KPIs), used as a measure of our performance at a Group level, can be found on pages 14 and 15 of the Strategic Report. Strategy update I am pleased by the progress we have made against our strategic priorities since I first communicated them to the market three years ago. Since I was appointed CEO, we have streamlined the portfolio significantly, focused on those assets which have the most potential and built capabilities within the businesses which will position them well for the long term. The focus on operational execution has been successfully integrated and a performance management culture embedded. DMGT is on its way to becoming a higher-performance business, but there is a lot more to do. Going forward, we will continue to focus on the three strategic priorities which have served DMGT well in its transformation to date. The same priorities will underpin the next phase of the Group’s transformation which will be focused on delivering profitable growth, improved cash generation and sustainable long-term value creation. 11 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Delivering against clear strategic priorities CEO Review Increasing portfolio focus We have made further progress in increasing the focus of our portfolio over the past year. Further to the distribution of our Euromoney stake to shareholders, we sold Genscape, On-geo, BuildFax and our c.40% stake in Real Capital Analytics. Although DMGT is in five sectors today, compared to 10 three years ago, the Group remains diversified by sector, geography and revenue stream. Our portfolio is well positioned for the future, with a number of businesses in markets with long-term growth characteristics that are well placed to benefit from digitisation, including Insurance Risk and EdTech. As a portfolio manager, DMGT owns businesses at different stages of their life cycles. We are highly focused on achieving the full potential of our portfolio and we evaluate each business against our aspirations for their future. That may be to generate predictable cash flows to invest back into the business or to support the payment of the dividend; to be a future generator of growth and profitability; or to generate capital value. Equally, should a business be worth substantially more to somebody else than it is to us, we will continue to look to monetise that value. In that context, I frame my thinking on the roles of our businesses into the following three groups: 3. 1. Predictable performers. These are among our largest businesses, are typically more mature and predictable, and form the economic bedrock of the Group. They are strong brands which play an important role in their individual markets and include Daily Mail, The Mail on Sunday, Metro, Landmark and Trepp. If an attractive opportunity arises where we can take advantage of our scale and where it will create value for our shareholders, we will invest in this space. 2. Growing and delivering. These are businesses that are well positioned in attractive markets with long runways for future growth. Over the longer term, they are expected to deliver the majority of our revenue and profit growth. This group includes RMS, MailOnline, dmg events and Hobsons. Future growth for this group is expected to be driven both organically and through bolt-on acquisitions. Businesses for the future. This is a unique strength of DMGT; our ability to take a long-term approach to create the ‘Growing and delivering’ businesses of the future. These are essentially start-up businesses where technological changes create opportunities for us. This group includes DailyMailTV, Yopa and Cazoo. dmg ventures, our venture and early-stage investment division, is actively exploring additional growth opportunities and will play an important role in expanding our investments in this area. Improving operational execution The second area of strategic focus is improving operational execution and I am pleased with the progress that has been made in this regard. Importantly, the performance management culture has been embraced by the management teams of the individual businesses and improving operational execution is increasingly becoming business as usual for our people. Throughout FY 2019, we continued to undertake a number of initiatives which reflected our operational focus and I have included some examples below. Clear portfolio roles We have established clear roles for each business within the portfolio and the expectations for each business reflect their role. Predictable performers Growing and delivering Businesses for the future Predictable profit and cash generation to meet DMGT’s obligations, fund investment and incubate ‘Businesses for the future’ Revenue growth and margin improvement driving value creation Option value for the future, tomorrow’s ‘Growing and delivering’ businesses • Innovate and extend core; seed ‘Businesses for the future’. • Optimise efficient operations. • Leverage scale. • Scale breakthrough products. • Harness operational gearing to drive margin. • Exploit niche opportunities. • Establish scalable processes and infrastructure. • Prioritise customer retention; • Innovate and act on rapid grow market share. market feedback. 12 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Delivering sustainable returns over the long term DMGT’s businesses have market-leading positions in growing sectors that are digitising. The strategy is built around a long-term vision, applying the expertise learnt from our consumer businesses to our B2B businesses, and is comprised of three priorities: increasing portfolio focus, improving operational execution and maintaining financial flexibility. We expect this position and strategy to drive sustainable revenue, profit, cash and EPS growth over the long term. P erfor m ortfolio roles ar p Cle Increasing ortfolio focus p Market-leading positions Growing, digitising sectors a n c e m a n a g e m e n t c u l t u r e operatio I m p r n o a l v i e n x g e c u t i o n Satisfying the need to know Revenue, profit and cash growth Sustained EPS and dividend growth Strong balance sheet Maintaini n g financial flex i b i Enabling balanced and flexib l e c a p i i y l t a tio n c a l a ll o t In Product, MailOnline tested its paywall outside of its main geographical markets and Hobsons enhanced its user experience, features and functions. In Commercial, meanwhile, RMS implemented a new broker structure. In Operations, dmg events implemented an efficiency review, while Genscape successfully delivered its cost-efficiency programme. In People, we were delighted with the appointment of a new CEO and Executive Chairman at Landmark Information Group. In Technology, we have harmonised dmg events’ back office systems. At Hobsons, we have increased the focus on shared services and common architecture. Although good progress has been made, we are not complacent and there is still more work to be done. We are fully committed to ensuring that a high-performance culture pervades everything that we do through a clear ROI mindset and a focus on cash OI, and this will remain a key focus. Maintaining financial flexibility Following the payment of a £200 million special dividend in April and an additional £117 million being made available to the pension schemes, the balance sheet still remains very strong. Pro forma net cash was £247 million at the period end, including the gross proceeds from the November 2019 disposal of Genscape; see page 25 for more details. As a result, we have maintained our financial flexibility to ensure we are well placed to take advantage of attractive opportunities, at the right price, as they arise. The acquisition of the ‘i’, the UK national newspaper and website, in November 2019, is a good example; a strategically and financially compelling acquisition of a content-led business. Our capital allocation framework remains the same. Organic investment will continue to be the priority and was equivalent to 9% of revenues in FY 2019. We will remain highly disciplined in our approach to M&A and continue to prioritise bolt-on acquisitions in our chosen sectors as we target those segments which are growing and are set to benefit from digitisation. The dividend remains the primary mechanism for delivering returns to shareholders and we are committed to real dividend growth. We remain confident that our capital allocation framework, underpinned by a strong balance sheet, will drive shareholder value creation. Outlook The financial performance in FY 2020 will reflect the significant portfolio changes over the past year. Group revenues are expected to be broadly stable on an underlying basis. The cash operating income margin is expected to exceed the operating profit margin, which is expected to be around 10%. DMGT will continue to invest to drive long-term value creation. Paul Zwillenberg CEO 13 Strategic ReportGovernanceFinancial StatementsShareholder Information Strategic Report Measuring our performance Key Performance Indicators The Board seeks to deliver sustained long-term growth and value creation for DMGT’s shareholders. Due to DMGT holding a changing portfolio of different companies, many Key Performance Indicators (KPIs) that are targeted by individual businesses are not appropriate at a consolidated Group level. Examples include customer numbers, revenue per customer, employee productivity and employee engagement. The KPIs shown below, however, are considered to be good indicators of the Group’s overall progress against its strategic priorities. Key strategic priorities Improving operational execution Increasing portfolio focus Maintaining financial flexibility Description Relevance Performance Narrative Strategic priority Underlying revenue growth^ Underlying revenue growth compares revenues on a like-for-like basis and is an important indicator of the health and trajectory of the individual businesses and the Group as a whole. 2019 2018 0% 2017 +1% 2016 0% 2015 +1% +2% Underlying revenue growth +2% 2018: 0% The underlying revenue performance reflects a strong Consumer Media performance and continued B2B growth. Group adjusted* profit before tax DMGT actively manages its portfolio and allocates capital to increase adjusted profit before tax over the long term. Adjusted* earnings per share Management seeks sustained long-term growth in adjusted earnings per share to maximise overall returns for DMGT’s shareholders. 2019 £145m 2018 2017 2016 2015 2019 2018 2017 2016 2015 £182m £226m £260m £281m 38.6p 42.2p 55.6p 56.0p 59.7p Group adjusted profit before tax £145m 2018: £182m Group adjusted profit before tax decreased by £37 million, reflecting the disposal of B2B businesses and associates. Group adjusted profit before tax grew 19% on an underlying basis. Adjusted earnings per share 38.6p 2018: 42.2p Adjusted earnings per share decreased by 8%, reflecting the reduction in adjusted profit before tax and an increase in the effective tax rate, partially offset by a reduction in the number of shares in issue that occurred in April 2019. 14 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Description Relevance Performance Narrative Strategic priority Group adjusted* cash operating income This metric adds back depreciation and amortisation and deducts capital expenditure from Group adjusted operating profit. It reflects the cash generation of the Group’s businesses. 2019 2018 2017 2016 2015 £162m £155m £199m £254m £278m Group adjusted cash operating income £162m 2018: £155m Group adjusted cash operating income increased by £7 million as the increased investment in the B2B businesses was more than offset by improved operational execution. Net cash§/ (debt): EBITDA ratio Management aims to maintain a strong balance sheet and retain DMGT’s investment- grade status and consequently targets the net (debt):EBITDA ratio to be no more than (2.0) throughout the year. 2019 2018 2017 2016 2015 (1.4)x (1.8)x (1.8)x Dividend per share The Board’s policy is to maintain dividend growth in real terms and, in the medium term, to distribute about one-third of the Group’s adjusted earnings. 25 20 15 10 5 0 7.3p 1999 Dividend Inflation Organic investment¥ as a percentage of revenues Investing back into the businesses to support product innovation and effective use of technology is key to delivering DMGT’s sustained long-term growth. The Board expects at least 5% of revenues to be used for organic investment. 2019 2018 2017 2016 2015 1.2x Net cash/(debt):EBITDA 0.8x 1.2x 2018: 0.8x DMGT continues to maintain significant financial flexibility and remains in a net cash position. During the year, the Group distributed a £200 million special dividend to shareholders and made a further £117 million available to the pension schemes. 23.9p Dividend per share 10.9p 2019 23.9p 2018: 23.3p We have proposed a full-year dividend of 23.9 pence, up by 3% from last year, continuing our strong track record of dividend growth and delivering a 6% cumulative annual growth rate over the past 20 years. 8% 9% 9% 9% 7% Organic investment as a % of revenues 9% 2018: 8% DMGT continued to reinvest in the businesses during the year, notably in the B2B portfolio. ^ § * ¥ Underlying revenue growth is on a like-for-like basis, adjusted for constant exchange rates, the exclusion of disposals and business closures, the inclusion of the year-on-year organic growth from acquisitions and for the consistent timing of revenue recognition. For events, the comparisons are between events held in the year and the same events held the previous time. The September 2019 Gastech event revenue is compared to two-thirds of the September 2018 event’s revenue, having changed from an 18-month to an annual cycle. For Consumer Media, underlying revenues exclude low-margin newsprint resale activities. See pages 29 and 30. See Note 16 for details of net cash. The actual net cash:EBITDA ratio as at 30 September 2019 was 0.4 but £117 million of net cash has been made available to the pension schemes and £282 million of gross proceeds from the disposal of Genscape, the Energy Information business, were received in November 2019. The 2019 net cash:EBITDA ratio of 1.2 is stated after adjusting net cash to exclude the £117 million and include the £282 million. Before exceptional items, other gains and losses, impairment of goodwill and intangible assets, amortisation of intangible assets arising on business combinations, pension finance charges or credits and fair value adjustments; see Consolidated Income Statement on page 90 and the reconciliation in Note 13 to the Accounts. Organic investment is expenditure that is incurred with the objective of delivering long-term growth. It includes expenditure on product development, whether capitalised or expensed directly, and the adjusted operating losses of early-stage businesses. 15 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Operating Business Reviews B2B Summary Our B2B companies operated in five sectors during the year, namely Insurance Risk, Property Information, EdTech, Energy Information, and Events and Exhibitions. Following the disposal of the Energy Information business, Genscape, which completed in November 2019, the B2B companies now operate across four sectors. Total B2B Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* 2019 £m 738 126 117 17% 16% 2018 £m 773 131 128 17% 17% * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. Movement % (4)% (4)% (9)% Underlying^ % +2% (4)% (8)% Performance Revenues from B2B totalled £738 million, up 2% on an underlying basis. The performance reflects growth from EdTech, Insurance Risk and Events and Exhibitions partially offset by a decrease in Property Information, which continued to experience challenging market conditions in the UK, and Energy Information. Revenues decreased by 4% in absolute terms due to disposals within the Property Information and Energy Information sectors in FY 2018. B2B cash operating income decreased by an underlying 4% to £126 million, reflecting increased investment in product development, notably to take advantage of the attractive growth opportunities available to RMS, the Insurance Risk business. The overall B2B cash operating income margin remained at 17%, with improvements from Property Information, EdTech and Energy Information offset by lower margins in Insurance Risk and Events and Exhibitions. B2B adjusted operating profits were £117 million, down an underlying 8%, due to growth from Insurance Risk and Energy Information being more than offset by reductions from the other sectors. The performance reflected a larger proportion of technology costs being expensed, not capitalised, and the overall B2B operating margin decreased to 16%. Outlook The B2B financial performance will be affected by the disposal of Genscape and the On-geo and BuildFax Property Information businesses during 2019. FY 2019 revenues, based on the current portfolio of businesses, were £638 million. In FY 2020, the B2B portfolio’s revenues are expected to grow on an underlying basis. There will be significant organic investment, reflecting the opportunities to create value over time, but which will likely impact the cash operating income and operating margin in the short term. Read more on the risks affecting our B2B businesses in Principal Risks, pages 34 to 39 Adjusted revenue (%) Insurance Risk Property Information EdTech Events and Exhibitions Energy Information 33 30 11 16 10 Adjusted operating profit (%) Insurance Risk Property Information EdTech Events and Exhibitions Energy Information 35 35 4 19 7 16 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Insurance Risk 2019 £m 244 41 40 2018 £m Move- ment % Under- lying^ % 229 +6% +1% 50 (18)% (24)% 35 +17% +6% 17% 22% 17% 15% Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. The Insurance Risk business, RMS, is focused on technological innovation, which continues to underpin its market- leading position in the catastrophe risk modelling market. During FY 2019, RMS increased its investment in software, data, data analytics and applications, and launched Risk Intelligence. This new software platform will be an important enabler in the delivery of RMS’s new products and services, particularly for the large and high-growth Insurance Risk Analytics market that the business is expanding into. Business model RMS’s solutions help insurers, reinsurers, brokers, financial markets and public agencies evaluate and manage catastrophe risks throughout the world. RMS leads the catastrophe risk modelling industry that it helped to pioneer, delivering models, data, analytical services and software to its customers, mainly through multi-year subscriptions. RMS also offers a variety of managed and hosted services. Insurers, reinsurers, brokers and other financial institutions trust RMS’s solutions to improve their understanding and manage the risks of natural and human-made catastrophes, including hurricanes, earthquakes, floods, wildfires, cyber attacks and terrorism. Performance highlights Insurance Risk revenues grew by 1% on an underlying basis as the benefit of favourable contract renewals during the year more than offset the impact of industry consolidation and historic RMS(one) delivery issues. Reported revenues grew 6% to £244 million including the benefit of the stronger US dollar. The cash operating income margin decreased to 17% from 22% in the prior year as the business increased its investment to drive future growth. RMS continued to expense development costs as they were incurred. The adjusted operating profit margin of 17% benefitted, however, from the absence of RMS(one) amortisation, which was £15 million in the prior year, following the impairment of the asset in September 2018. The substantial amount of product development that occurred in FY 2019 reflects the strengthening of the executive team over the past two years and the significant increase in the management team’s collective experience in enterprise software. In May 2019, RMS held its annual client conference and announced the launch of Risk Intelligence, an open and flexible platform to enable better risk management. Risk Intelligence is a modern, cloud-based, unified risk management platform. It enables higher performance risk model execution at a lower cost, as well as rich data analytics, and supersedes the RMS(one) platform which was retired during the year. RMS also released two new analytics applications that are available on the Risk Intelligence platform. SiteIQ synthesises risk data across millions of global locations, at the level of a single location or a portfolio of locations, and allows underwriters to gain an immediate better understanding of property risk. ExposureIQ is aimed at exposure management. The applications are expected to facilitate RMS’s entry into the large and high-growth Insurance Risk Analytics market as it expands beyond the natural catastrophe modelling market it serves today. Similarly, RMS Location Intelligence was launched for the Property Data market in June 2019, making trillions of data points accessible to customers. The business also continues to invest in model development, reflecting an ongoing commitment to build upon RMS’s market- leading position. The US Inland Flood high-definition (HD) model and US Wildfire HD model were both released on Risk Intelligence during the year. Priorities in the year ahead RMS continues to take a disciplined approach to investing in the long-term growth opportunities that have been identified. Given the strength of the business’s customer proposition, the Board of DMGT remains confident that, with the new management team in place, RMS is well placed to create good long-term value for shareholders. RMS is expected to continue to deliver modest revenue growth over the next two years before a gradual acceleration as the new products and services gain traction. We are encouraged by the level of customer engagement and in response to the feedback will be accelerating elements of the product roadmap to align best with customers’ priorities. The FY 2020 operating margin will reflect this investment and continue at a similar level to the H2 2019 run rate. Beyond FY 2020, profitability is expected to improve following the peak in investment and as revenue growth accelerates. Property Information 2019 £m 222 44 41 2018 £m Move- ment % Under- lying^ % 272 (18)% (1)% 48 (8)% (4)% 58 (29)% (25)% 20% 18% 19% 21% Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. The Property Information portfolio operates in the UK, US and Ireland. The businesses delivered a resilient performance, although market conditions in the UK were challenging, and both Trepp and Landmark Information Group continue to play an important role as strong cash generators for DMGT. Business model In the UK and Ireland, Landmark Information Group derives revenues from providing services that use technology, data and workflow to streamline and help reduce the risk associated with commercial and residential property transactions. In the US, Trepp provides risk, valuation and data solutions for the commercial mortgage- backed securities market as well as tools, analytics and models for commercial real estate investors and lenders. Revenues are generated from volume-related transactions as well as subscriptions. 17 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Operating Business Reviews B2B Priorities in the year ahead In the coming year, there will be continued product development and investment in technology to enhance Trepp and Landmark Information Group’s market- leading positions and drive future revenue growth. Notably, there will be investment in launching TreppCLO early in the new year and in further enhancing the product, which will affect margins in the short term. In the UK, the challenging market conditions are expected to continue due to ongoing political uncertainty. EdTech Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* 2019 £m 80 8 4 2018 £m Move- ment % Under- lying^ % 68 +17% +12% 2 N/A1 N/A1 7 (41)% (34)% 3% 10% 6% 11% * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; 1 see pages 29 and 30 for details. Cash operating income increased by £6 million and by an underlying £7 million. The EdTech business, Hobsons, is a leading provider of college and career readiness and student success solutions to the North American market. The business delivered strong underlying revenue growth and an improving cash operating income margin during the year. Business model Hobsons offers college, career and life readiness tools to middle and high schools; student match and fit solutions for college admissions offices; and a student success platform for colleges and universities to help guide students from enrolment through to degree completion. Hobsons’ revenues are mainly derived from subscription contracts with schools and colleges, with the balance from training and consulting services. Performance highlights EdTech revenues continued to grow, increasing 12% on an underlying basis. There was continued growth from each of Hobsons’ three product lines: Naviance, the K-12 college and career readiness solution; Intersect, the higher education match and fit business; and Starfish, the higher education student retention and success platform. Reported revenues grew 17% including the benefit of the stronger US dollar relative to sterling. The improved operational execution delivered high cash conversion from revenue growth and a transformation in cash operating income and margin, which improved from 3% to 10%. Good progress was made during the year with the modernisation of the core EdTech product platforms and addition of new client-facing features and functionality, which will help to drive revenue growth. In FY 2019, a larger proportion of expenditure on technology was expensed directly to the income statement rather than capitalised, contributing to a decrease in the adjusted operating margin from 11% to 6%. Intersect launched its improved search and match feature set, expanding the criteria students can use to find their ‘best fit’ institution. The enhanced search features are available to over 13 million students, including over 40% of US high school students, as over 13,000 schools subscribe to the Naviance platform. Additional enhancements were also made to the Naviance and Starfish product suites during the year. Over 1,100 US colleges and universities are now using Hobsons’ higher education products, Intersect and Starfish. Priorities in the year ahead In the coming year, there will be further investment to modernise the core EdTech product platforms and add new client-facing features and functionality. The business is well positioned to deliver continued growth and improving cash generation, supported by a continued focus on operational execution. Performance highlights The focus within the portfolio was further increased in 2019 with the disposal of On-geo, the German business, in June and BuildFax, the early-stage US business, in October. The disposals followed those of EDR and SiteCompli in April 2018 and Xceligent’s cessation of trading in December 2017. Trepp is now DMGT’s sole US business in Property Information. Trepp is a leading provider of data, analytics and technology solutions to the global securities and investment management industries. In Europe, the Landmark Information Group includes Landmark and SearchFlow. Property Information revenues decreased by 1% on an underlying basis. Revenue growth in the US was more than offset by the European business, which continued to face challenging conditions in the UK residential market. The 18% reported decrease in revenues reflected the reduced number of businesses in the portfolio, slightly offset by the stronger US dollar. There was significant product development in the period across all businesses. Notably, Trepp introduced new analytics for lending institutions in the commercial real estate market and made considerable progress with the development of TreppCLO, which will provide data analytics to the collateralised loan obligations (CLO) market. There was an underlying decrease in cash operating income and adjusted operating profit as a result of the increased cost base of the remaining businesses and increased investment. Margins, however, benefitted from changes to the portfolio mix. Landmark Information Group has expanded into conveyancing panel management services following the acquisition of its Optimus business in July 2019. Optimus’s technology integrates with conveyancers and introducers, such as mortgage brokers, to ensure a faster and more transparent residential property transaction process. The acquisition enables Landmark to work more closely with introducers while continuing to serve existing complementary markets such as legal conveyancing, estate agency and mortgage lending. 18 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Events and Exhibitions 2019 £m 119 22 22 2018 £m Move- ment % Under- lying^ % 118 +1% +4% 28 (21)% (14)% 28 (19)% (12)% 19% 24% 19% 24% Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. The Events and Exhibitions business, dmg events, is an organiser of B2B exhibitions and conferences with industry-leading events in the energy, construction, interiors, hotel, hospitality and leisure sectors. dmg events continues to seek new opportunities for customers in emerging markets, with six new events launched in FY 2019. dmg events hosts over 50 events per year, attracting over 300,000 visitors and exhibitors from more than 100 different countries. Business model dmg events has strong market and brand positions, emerging market experience and an entrepreneurial culture. This creates opportunities for growth through geo- cloning existing events into new locations and by creating spin-off sections to become stand-alone events. The key branded events are Big 5, ADIPEC, Gastech, INDEX and The Hotel Show, which all provide opportunities to develop the spin-off and geo-clone strategy. dmg events derives its revenues from exhibitor, sponsorship and delegate fees, with over half of the revenues generated from the top three events. Performance highlights Events and Exhibitions revenues grew by 4% on an underlying basis due to Gastech, one of the three largest events in the portfolio, successfully transitioning to an annual format having previously been held every 18 months. Gastech grew absolute revenues and delivered particularly strong underlying growth. ADIPEC and Big 5 Dubai, the two other largest events, occurred in November 2018 and collectively delivered underlying growth, although market conditions in the Middle East have deteriorated since then. ADIPEC, the Abu Dhabi-based energy event, benefitted from additional conference content on artificial intelligence and technology. dmg events’ reported revenues increased by 1% to £119 million, including the benefit of the stronger US dollar relative to sterling. The business continued to geo-clone existing shows by launching into new locations, including a Big 5 Nigeria construction exhibition and an INDEX Saudi interior design event. Other new events were successfully launched in Thailand and South Africa. The cash operating income margin and operating profit margin were 19% respectively, a reduction compared to the prior year. This reflected the impact of reduced revenues from most Middle East events as well as investment to support the future growth of major events and new launches. As a result, operating profit decreased by an underlying 12%. Priorities in the year ahead dmg events will remain focused on developing its key large-scale market-leading events. Market conditions in the Middle East remain challenging, exacerbated by political tension in the region. Big 5 Dubai and ADIPEC occurred in November 2019 and, collectively, revenues were stable. The business will continue to launch new events, including in Africa and the US. We also remain committed to the Middle East events, illustrating DMGT’s appetite to invest to support longer-term revenue growth. Energy Information 2019 £m 2018 £m Move- ment % Under- lying^ % 74 12 8 86 (14)% (2)% 4 +208% +112% N/A1 N/A1 – 16% 11% 4% 0% Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; 1 see pages 29 and 30 for details. Adjusted operating profit increased by £8 million and by an underlying £6 million. DMGT no longer operates an Energy Information division, following the disposal of Genscape for US$364 million in November 2019. Genscape delivers innovative solutions to improve market transparency and efficiency across several asset classes including oil, power, natural gas, liquid natural gas and maritime. The business’s focus on improving operational execution, following the elimination of peripheral products and streamlining of support functions in the prior year, delivered a significant improvement in cash generation. Business model Genscape provides its customers with fundamental data, intelligence and real-time alerts, workflow tools, and predictive analytics to manage volatility, make complex decisions and increase the efficiency of their supply chains. Genscape operates the world’s largest private network of in-field monitors in the sector and aims to improve market transparency and efficiency. Revenues are mainly subscription based through annual and multi-year client contracts. Performance highlights Energy Information revenues decreased 2% on an underlying basis to £74 million, with continued growth from the oil and gas sectors more than offset by challenging market conditions in the power sector and the rationalisation of product lines. Revenues decreased by 14% in absolute terms following the merger of Genscape’s solar business into AlsoEnergy in September 2018. Significant progress was made during the year with the consolidation of the development team across the company, the removal of management layers and the streamlining of decision-making processes. The management team’s focus on delivering efficiencies resulted in a transformation in cash generation, with the cash operating income margin increasing from 4% to 16% and cash operating income more than doubling on an underlying basis to £12 million. Similarly, the adjusted operating margin increased from 0% to 11%. The significant progress made with improving operational execution during the year resulted in a pleasing valuation for the business at disposal. Priorities in the year ahead Genscape ceased being a DMGT business in November 2019. 19 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Operating Business Reviews Consumer Media 2019 £m 672 2018 £m 654 Move- ment % Under- lying^ % +3% +2% 78 67 77 64 +2% +12% +4% +18% 12% 12% 10% 10% Revenue Cash operating income* Operating profit* Cash operating income margin* Operating margin* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. The Consumer Media business, dmg media, is focused on delivering high-quality, popular journalism to a large global audience. dmg media has prospered in an increasingly digital-oriented consumer media market. The combined strength of the Mail and Metro brands continues to create innovative and exciting opportunities for advertisers through a sophisticated and targeted multi-channel approach. Business model dmg media’s portfolio of news media businesses includes two of the UK’s most read paid-for newspapers, the Daily Mail and The Mail on Sunday; Metro, its free newspaper, which is the UK’s highest circulation weekday newspaper; and MailOnline, whose audience spends 139 million minutes engaged with its content each day. The Mail brand reaches over 25 million UK adults every month across its print and digital platforms and has achieved scale in other geographic markets, including the US and Australia. Combined, the Mail and Metro brands reach c.61% of the UK’s adult population each month. dmg media’s revenues are generated mainly from advertising and circulation revenues. While the newspaper businesses continue to generate strong profits and cash flow, the digital businesses are expected to be the driver of dmg media’s future growth. Performance highlights The Consumer Media business’s revenues grew an underlying 2% to £672 million, benefitting from relatively favourable conditions in the advertising market. The 13% underlying growth from MailOnline and 61% from DailyMailTV more than offset a 3% decrease in circulation revenues and a 1% decline in print advertising revenues. Revenues grew 3% in absolute terms, benefitting from the inclusion of DailyMailTV, which became a wholly-owned business in October 2018. 20 Cash operating income and adjusted operating profit grew by an underlying 12% and 18% to £78 million and £67 million respectively. The growth reflected the continued focus on improving operational execution and the flow-through of revenue growth to profits. The cash operating income margin was 12% and the operating margin 10%, in line with the prior year. Mail businesses Revenues from the combined newspaper, website and TV businesses (the Daily Mail, The Mail on Sunday, MailOnline and DailyMailTV) grew by an underlying 1% to £559 million, including £140 million from MailOnline. The Mail brands remain strong, which is reflected in the large and growing UK retail market shares held by the Daily Mail and The Mail on Sunday, averaging 25.5% and 22.8% for the year respectively. Circulation revenues decreased by 3% to £284 million with the continued decline in volumes being only partly offset by the benefit of the 5 pence cover price increase in September 2018 of the weekday editions to 70 pence. An 8% decline in print advertising revenue to £108 million was more than offset by MailOnline’s growth. FY 2019 was a relatively benign year for print advertising despite the continued long-term structural and competitive challenges facing the UK national newspaper advertising market. MailOnline continues to focus on attracting traffic directly to its homepages on desktop or mobile or its apps. Indirect traffic, primarily via social media and search platforms, decreased year-on-year and resulted in total average daily global unique browsers during the year decreasing by 3% to 12.6 million. Total minutes spent on the site decreased by 4% to a daily average of 139 million. The direct audience accounted for 79% of minutes spent, compared to 77% in the prior year, reflecting continued high levels of engagement with the direct audience. MailOnline is one of our ‘Growing and delivering’ businesses and its growth strategy is far-reaching, including providing new advertising formats and working with our key commercial partners, Snapchat, Google and Facebook. DailyMailTV, the US business, grew revenues by an underlying 61% to £13 million. The show is currently in its third season and attracts an average of 1.1 million viewers a day. Metro Following the integration of the advertising operations of the Metro and Mail in April 2018, Metro delivered a strong performance. Revenues grew by 11% to £79 million, a good achievement in the context of a declining print advertising market. Revenues also benefitted from the addition of two regional franchises in January 2018, one in July 2018 and a further one in January 2019. Metro is read by an average of 2.4 million people each day and has the largest Monday to Friday share by volume of the UK newspaper advertising market, excluding supplements. The ‘i’ The ‘i’, the UK national newspaper and website, was acquired for £50 million in November 2019. The business has an established reputation for quality journalism with a loyal and engaged readership. In 2018, the ‘i’ generated £11 million in cash operating income and operating profit from £34 million revenue. The acquisition is both strategically and financially compelling and there is scope for potential synergies in the future, notably from dmg media’s existing infrastructure and in advertising sales. It is anticipated that the acquisition will be reviewed by the UK Competition and Markets Authority. Priorities in the year ahead dmg media will continue to harness the value of the Mail brands for both readers and advertisers and invest in the quality of its popular journalism to drive and engage its global audiences. The cost base of the newspaper businesses will continue to be well managed with a measured approach that ensures the quality of the content is not compromised, consistent with DMGT’s strategy of supporting the longevity of the newspapers’ strong cash generation. Outlook Digital advertising revenues are expected to grow, helping to offset anticipated underlying print advertising declines. The advertising market continues to lack visibility and conditions are likely to remain volatile. Circulation volumes are expected to decline. The cash operating income margin and operating margin will reflect a mix of the expected underlying revenue reduction, the benefit of continued cost efficiencies within the newspapers, MailOnline’s growing profitability and the inclusion of the ‘i’. Read more on the risks affecting our Consumer Media businesses in Principal Risks, pages 34 to 39 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 The year ahead The financial performance in FY 2020 will be affected by the absence of Euromoney and, much less significantly, RCA. Yopa is expected to have the most significant impact on future financial performance. DMGT’s stake has increased to c.45% from c.26% for most of FY 2019 and the business continues to invest in disrupting the estate agency market. Yopa and DMGT’s other joint ventures and associates are primarily investment-stage businesses and DMGT does not control them, unlike subsidiaries. The current expectation is that they will generate cumulative net losses in excess of £10 million in FY 2020. Operating Business Reviews Joint ventures, Associates and dmg ventures 2019 £m 2018 £m Move- ment % Under- lying^ % 23 – 56 (59)% 23 (100)% N/A N/A (10) (5) +96% -3% 13 74 (83)% -3% Euromoney Institutional Investor PLC ZPG Plc Other joint ventures and associates Total share of adjusted operating profit* * Adjusted results rather than statutory; see pages 28 and 30 for details. ^ Underlying growth rates give a like-for-like comparison; see pages 29 and 30 for details. As well as a diverse portfolio of operating companies, DMGT holds minority stakes in early-stage businesses. Current notable associates include: • c.45% stake in Yopa, a UK hybrid estate agent; • c.27% stake in Praedicat, which is dedicated to improving the underwriting and management of casualty risk; and • c.24% stake in Excalibur, which operates the online discount businesses Wowcher and LivingSocial UK. DMGT’s most significant investment is its c.19% stake in Cazoo, which aims to change the way people buy used cars in the UK. Until recently DMGT also held stakes in two UK-listed companies that it founded. In April 2019, DMGT distributed £662 million of shares in Euromoney Institutional Investor PLC (Euromoney), all of its c.49% stake, to DMGT’s shareholders; see page 25 for more information. This followed the sale of DMGT’s c.30% stake in ZPG Plc (ZPG) for £642 million in July 2018. In May 2019, the focus of the portfolio was further increased by the disposal of DMGT’s c.40% stake in Real Capital Analytics (RCA), the US-based Property Information business, for US$89 million. In FY 2019, the Group’s share of operating profits from its joint ventures and associates was £13 million, an 83% decrease compared to FY 2018. Following its disposal, no profits were generated from ZPG, compared to £23 million in the prior year. Similarly, since DMGT only owned a stake in Euromoney for the first six months of the year, the share of profits from Euromoney was £23 million compared to £56 million in FY 2018. The net share of operating losses from other joint ventures and associates was £10 million, notably from Yopa, which became an associate in August 2018. The year-on-year performance benefitted from the absence of DailyMailTV, another early-stage business which is now part of dmg media. On an underlying basis, excluding ZPG, Euromoney, DailyMailTV and RCA and including Yopa’s organic year-on-year performance, the share of net losses was in line with the prior year. Investments and dmg ventures As well as joint ventures and associates, DMGT invests in and develops early-stage businesses in which the Group holds smaller stakes. As the percentage holdings are too small for the companies to be associates, the Group does not recognise a share of profits or losses from these investments. dmg ventures is responsible for DMGT’s minority and early-stage investments, including some associates. It focuses on investing in companies with disruptive consumer propositions which need to scale and can leverage the Group’s assets to do so. In some cases, equity stakes are acquired by providing advertising in DMGT’s Consumer Media products, reflecting the extensive reach of the Mail and Metro brands. Cazoo is currently in the process of launching its service to market and has the potential to develop into a major business. Kortext, the leading supplier to UK universities of digital textbook solutions, is another notable investment. 21 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Focused on driving long-term shareholder value Financial Review DMGT has a strong balance sheet and the foundations in place to deliver long-term growth. Tim Collier Group Chief Financial Officer DMGT’s clear portfolio roles, strong balance sheet and clear and disciplined approach to value creation, position the Group well to invest in opportunities and to deliver sustained growth over the long term. The Financial Review details DMGT’s performance during a year when DMGT completed the first stage of its transformation and made a substantial return of capital to shareholders. The statutory results reflect the exclusion of discontinued operations, namely Genscape, the Energy Information business, from revenue, operating profit and profit before tax. They include gains on disposals and exceptional items. Profit for the year was £91 million, a £597 million decrease on the prior year. This reduction was primarily due to the inclusion of a substantial gain on the disposal of ZPG Plc (ZPG) in the prior year. Similarly, statutory earnings per share decreased by 84%. DMGT’s balance sheet remains strong, with pro forma net cash of £247 million, including gross proceeds from the November 2019 disposal of Genscape. During the year, as well as maintaining financial flexibility, DMGT also paid a £200 million special dividend and made £117 million available to the Group’s defined benefit pension schemes, which are in an improved pro forma net surplus position on an accounting basis. 22 The recommended final dividend of 16.6 pence per share gives a total for the year of 23.9 pence, up 3% on the prior year. This continues DMGT’s track record of delivering annual real dividend per share growth and reflects the Board’s confidence in the Group’s ability to deliver long-term earnings growth. The Board and management team use adjusted results and measures, rather than statutory results, as the primary basis for providing insight into the financial performance of the Group and the way it is managed. Similarly, adjusted results are used in setting management remuneration. Adjusted results exclude certain items which, if included, could distort the understanding of comparative performance of the business during the year. Consequently, the rest of this Financial Review focuses on adjusted measures. The explanations for the adjustments and the reconciliations to statutory results are shown on pages 28 and 30. When assessing revenue and profit growth, the Board and management focus on underlying growth rates as the most meaningful like-for-like comparison between the current year and the prior year. A more detailed explanation and the calculations are shown on pages 29 and 30. Financial highlights: statutory results Revenue £1,337m 2018: £1,341m Operating profit £67m 2018: £168m Profit before tax £134m 2018: £707m Profit for the year £91m 2018: £688m Earnings per share 30.7p 2018: 194.7p Dividend per share 23.9p 2018: 23.3p Go online to www.dmgt.com to read more about our Financial highlights Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Performance highlights The Group’s overall financial performance in the year was consistent with our expectations. It reflected the impact of disposals, a good year for Consumer Media and a mixed B2B performance with challenging market conditions faced by some of our businesses, notably UK Property Information. Nevertheless, the Group’s results demonstrate the benefit of our diversified portfolio and the strength of our market-leading businesses. Group revenue grew 2% on an underlying basis. Subscription revenue grew by an underlying 4%, with growth across the EdTech and Property Information sectors. Events revenue grew by an underlying 4% and digital advertising by 11%. Transaction revenues decreased by 1% on an underlying basis, reflecting lower transaction volumes in the UK property market. Although print advertising and circulation revenues continued to decrease, the reductions were at slower rates than the previous year. Adjusted operating profit grew 6% on an underlying basis. The performance reflected underlying growth in profits from Consumer Media, Insurance Risk and Energy Information as well as reduced Corporate costs. Group adjusted operating margin was 10%, in line with the prior year. Adjusted profit before tax was £145 million, a 21% decrease on the prior year, reflecting the benefit of reduced finance costs being more than offset by a reduction in the share of operating profits from associates. On an underlying basis, adjusted profit before tax grew 19%. The portfolio focus was increased further during the year, as explained in the CEO Review, including the distribution of the Group’s c.49% stake in Euromoney Institutional Investor PLC (Euromoney) to DMGT’s shareholders. The Group ended the year with pro forma net cash§ of £247 million and a net cash:EBITDA ratio of 1.2, maintaining DMGT’s significant financial flexibility. Revenue performance Group revenues in the financial year grew 2% on an underlying basis. Adjusted revenues decreased 1% in absolute terms to £1,411 million as the benefit of the stronger US dollar relative to sterling was more than offset by the impact of disposals. The average exchange rate during the year was £1:$1.28 compared with £1:$1.35 in the prior year. Revenues from B2B businesses grew 2% on an underlying basis, to £738 million, with growth from EdTech, Insurance Risk and Events and Exhibitions partially offset by Property Information, which experienced weakness in the UK, and Energy Information. B2B revenues decreased by 4% on an absolute basis, following the exit of certain Property Information and Energy Information businesses, primarily in 2018. Revenues from the Consumer Media business, dmg media, grew 2% on an underlying basis to £672 million. The strong growth from MailOnline and DailyMailTV more than offset the decrease in circulation revenues and decline in print advertising. The charts on page 24 demonstrate the diverse profile of DMGT’s revenues. Read more on each operating business’s revenue performance, pages 17 to 20 Operating profit performance Adjusted operating profit of £144 million grew 6% on an underlying basis and was in line with the prior year on a reported basis. The adjusted operating profit of the Group’s B2B operations decreased by an underlying 8% to £117 million, with growth from Insurance Risk and Energy Information being more than offset by reductions elsewhere. The performance was affected by increased investment, notably in Insurance Risk, and a larger proportion of technology costs being expensed, not capitalised. The adjusted operating profit from Consumer Media grew by an underlying 18% to £67 million as the profit growth from MailOnline, reduced losses from DailyMailTV and reduction in the Mail Newspapers’ cost base more than offset the adverse effect of decreasing circulation and print advertising revenues. As expected, Corporate costs decreased by an underlying 17% to £40 million, reflecting the Group’s more focused portfolio. Financial highlights: adjusted measures* Underlying^ revenue growth +2% 2018: 0% Underlying^ cash operating income growth +10% 2018: (20)% Underlying^ operating profit growth +6% 2018: (17)% Operating margin 10% 2018: 10% Underlying^ PBT growth +19% 2018: (14)% EPS growth (8)% 2018: (23)%µ Net cash§ £247m 2018: £233m Net cash§:EBITDA 1.2x 2018: 0.8x Footnotes are defined on the inside front cover with the exception of those below. ^ Underlying growth rates are on a like-for-like basis, see pages 29 and 30. Underlying revenues, cash operating income and operating profits are adjusted for constant exchange rates, the exclusion of disposals and business closures, the inclusion of the year-on-year organic growth from acquisitions and for the consistent timing of revenue recognition. For events, the comparisons are between events held in the year and the same events held the previous time. The September 2019 Gastech event’s revenue, cash operating income and profit are compared to two-thirds of the September 2018 event’s, having changed from an 18-month to an annual cycle. For Consumer Media, underlying revenues exclude low-margin newsprint resale activities. The underlying change in the share of operating profits from joint ventures and associates excludes ZPG, Euromoney, DailyMailTV and Real Capital Analytics, which have ceased to be associates, but includes the year-on-year organic growth from Yopa, which became an associate in August 2018. The underlying net finance costs exclude the share of finance costs from ZPG and Euromoney and the underlying FY 2018 costs have also been adjusted to include an assumed £10 million additional benefit from £642 million proceeds on the disposal of ZPG. µ 2018 growth rates based on FY 2018 results but pro forma FY 2017 results, treating Euromoney as a c.49% associate for the whole year, consistent with the ownership profile during FY 2018. 23 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Focused on driving long-term shareholder value Financial Review Adjusted revenue profile By business (%) By type (%) By destination (%) Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media 17 16 6 8 5 48 Subscriptions Circulation Events Digital advertising Print advertising Transactions and other 31 20 8 10 13 18 UK North America Rest of the World 53 30 17 Cash operating income Cash operating income is a performance metric used by DMGT to assess the cash generation of its businesses. It is calculated by adding back depreciation and amortisation expenses, which are non-cash items, to adjusted operating profit and then deducting capital expenditure. In the financial year, cash operating income for the Group as a whole was £162 million, Business performance a £7 million increase compared to the prior year, due to the £13 million reduction in depreciation and amortisation being more than offset by a £20 million reduction in capital expenditure. Cash operating income grew by 10% on an underlying basis as the growth from Consumer Media and reduced Corporate costs more than offset the increased investment in the B2B businesses. Joint ventures and associates The Group’s share of the operating profits* of its joint ventures and associates was £13 million, an 83% reduction on the prior year. The reduction resulted from the disposal of DMGT’s stake in ZPG in 2018 and the distribution to shareholders in April 2019 of the Group’s c.49% stake in Euromoney. Further information on our JVs and associates’ performance can be found on page 21 of this report. Revenues Cash operating income* Operating profit* FY 2019 FY 2018 Growth FY 2019 FY 2018 Growth FY 2019 FY 2018 Growth Insurance Risk Property Information EdTech Events and Exhibitions Energy Information B2B Consumer Media Corporate costs DMGT £m 244 222 80 119 74 738 672 £m Reported Underlying^ +1% 229 (1)% 272 +6% (18)% 68 118 86 773 654 +17% +1% (14)% (4)% +3% +12% +4% (2)% +2% +2% 1,411 1,426 (1)% +2% £m 41 44 8 22 12 126 78 (43) 162 1. EdTech cash operating income increased by £6 million and by an underlying £7 million. 2. Energy Information operating profit increased by £8 million and by an underlying £6 million. Cash operating income £ million Adjusted Group operating profit Add: Depreciation of tangible fixed assets Add: Amortisation of intangible fixed assets (e.g. products and software) Less: Purchase of tangible fixed assets Less: Expenditure on intangible fixed assets (e.g. products and software) DMGT Cash operating income £m Reported Underlying^ (24)% 50 (4)% 48 N/A1 (14)% +112% (18)% (8)% N/A1 (21)% +208% 2 28 4 131 77 (53) 155 (4)% +2% (20)% +4% (4)% +12% (20)% +10% £m 40 41 4 22 8 117 67 (40) 144 £m Reported Underlying^ +6% 35 (25)% 58 +17% (29)% 7 28 – 128 64 (47) 145 (41)% (19)% N/A2 (9)% +4% (16)% 0% (34)% (12)% N/A2 (8)% +18% (17)% +6% Source Tables on page 28 Note 3 Note 3 Cash flow Cash flow FY 2019 FY 2018 144 25 22 (16) (14) 162 145 27 33 (30) (20) 155 Amounts in the tables are stated rounded to the nearest million pounds, consequently totals may not equal the sum of the component integers. 24 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Financing costs As expected, adjusted net finance costs were £12 million, a 67% reduction on the prior year. This reflected lower average levels of net debt, the maturing of £219 million of bond debt in December 2018 and a reduced share of associates’ interest payable. The pension finance credit, which is excluded from adjusted results, was £7 million compared to £2 million in the prior year. Results before taxation Adjusted profit before tax was £145 million, underlying growth of 19%, reflecting the reduction in net finance costs, though £37 million less than the prior year in absolute terms due to the disposal of ZPG and distribution of Euromoney shares. Taxation The adjusted tax charge for the year, after adjusting for the effect of exceptional items, was £29 million, see note 11, compared to £33 million in the prior year. The adjusted tax rate was 20.3%, an increase on 18.2% in the prior year, due to the geographical mix of profits. The statutory tax charge for the year was £20 million. In addition, the statutory tax credit on discontinued operations was £10 million and the share of associates’ tax charges amounted to £6 million. Go online to www.dmgt.com to read our tax policy Profit after tax Adjusted Group profit after tax and minority interests was £115 million, a decrease of 23%. Earnings per share Adjusted basic earnings per share were 38.6 pence, down 8%. In April 2019, 127.3 million shares were returned to DMGT and cancelled in conjunction with the distribution of Euromoney shares and a £200 million special dividend to DMGT’s shareholders. Consequently, the weighted average number of shares in issue during the year was 296.4 million, a significant reduction from 354.1 million in the previous year. The total number of shares in issue at the end of the year, excluding shares held in Treasury and the Employee Benefit Trust, was 228.1 million. Net cash and cash flow Pro forma net cash§ at the end of the year was £247 million, a £14 million increase compared to the £233 million net cash position at the start of the year. Pro forma net cash is stated after adjusting to: i) exclude £117 million of cash that has been made available to the Group’s pension schemes but which currently remains as cash on DMGT’s balance sheet; and ii) include £282 million of gross proceeds received in November 2019 from the disposal of the Energy Information business, Genscape, which was agreed in August 2019. The pro forma net cash:EBITDA ratio was 1.2 at the year end. The Group’s cash operating income of £162 million is stated after £30 million of capital expenditure, a significant reduction on £50 million in the prior year which reflects a larger proportion of technology costs being expensed directly. The Group remains committed to investing for the long term and organic investment was equivalent to 9% of revenues in the year. April 2019 Distributions: Euromoney shares and £200 million special dividend On 3 March 2019, DMGT announced its intention to return all of DMGT’s shares in Euromoney (Euromoney Distribution) together with a £200 million cash special dividend (Cash Distribution) to holders of DMGT’s A Ordinary Non-Voting Shares (A Shares). This followed a review by the DMGT Board that concluded that the Group’s capital and cash resources were in excess of its requirements and that a significant distribution to shareholders was appropriate. The Board also believed that the value of DMGT was not fully optimised since investors had an indirect holding in Euromoney, a separately listed company, via their holding in DMGT, resulting in a discount being applied to the market price of the A Shares. Following an approval process, the Euromoney Distribution occurred on 1 April 2019 and the Cash Distribution on 15 April 2019. The distributions totalled £862 million and were fully aligned with DMGT’s strategic priorities of increasing portfolio focus and maintaining financial flexibility. Since Rothermere Continuation Limited and Rothermere Investments Limited exist primarily to hold the Rothermere family’s interests in DMGT, they did not participate in the Euromoney Distribution and limited their receipt of the Cash Distribution. Similarly, since they own all of DMGT’s voting Ordinary Shares, these shares did not participate in the distributions. The number of A Shares held by each shareholder were reduced in respect of the distributions received. The terms were set so that participants in the Euromoney Distribution benefitted from receiving Euromoney shares at a 14.5% discount, based on the 30-day volume weighted average market value of the Euromoney shares and A Shares when the proposal was announced. As the terms of the proposal were different for ‘Rothermere Affiliated Shareholders’ and all other holders of A Shares, the ‘Fully Participating Shareholders’, an Independent Committee of independent Non-Executive Directors was established. The Independent Committee assessed the proposal and concluded that it was in the best interests of Fully Participating Shareholders. A Class Meeting of Fully Participating Shareholders was held on 26 March 2019 and participation was high, with 87% of all Fully Participating Shareholders voting; 95% of the votes cast were in favour of the proposal. As a result of the Distributions, the number of A Shares in issue was reduced by 127.3 million which will help to improve key financial metrics including DMGT’s dividend coverage ratio and earnings per share. In light of the Board’s wider stakeholder obligations and the return of capital to shareholders, DMGT also made £117 million available to the Group’s defined benefit pension schemes. DMGT is working with the Trustees of the pension schemes to finalise these arrangements. Go online to www.dmgt.com/ investors/shareholders 25 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Focused on driving long-term shareholder value Financial Review Viability Statement In accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company. The Board used a three year review period which is consistent with the Group's business planning cycle and with the performance measurement period of the Group's long-term incentive plans. The Board’s assessment of the Company’s future prospects and viability determined the Group’s overall risk capacity by considering banking and bond covenants, other financial commitments and borrowing capacity to determine the maximum loss from risk events that the Group could endure whilst remaining viable. The assessment has also been made with reference to the Group’s current position and prospects, the Group strategy, the Board’s risk appetite and principal risks, which the Directors review at least annually. The key factors affecting the Group’s future prospects and viability are: • DMGT manages a portfolio of operating companies with diversity across sector, revenue stream and geography. See page 24 for the Group’s revenue profile; • financial flexibility through a strong balance sheet with continued good cash flow generation and a net debt to EBITDA ratio comfortably below our preferred upper limit; • the Group’s ability to restructure quickly through the portfolio management of operating company subsidiaries; and • the long-term view of the Company afforded by the family shareholding. Group forecast revenue, operating profit, EBITDA and cash flows were subject to robust downside stress testing over the assessment period, which involved modelling the impact of a combination of hypothetical and severe adverse scenarios. This was focused on the impact of a number of the Group’s severe but plausible principal risks crystallising, including: • the impact of successive key product investment failures across the Group; • the impact of a significantly accelerated decline in circulation volumes and print advertising and lower growth in digital advertising affecting profits from the Consumer Media businesses; • the impact of a significant decline in UK housing transaction volumes affecting profits from the European Property Information business; • the impact of a severe cyberattack resulting in the loss of high volumes of personal data, considering both the reputational impact, recovery costs and regulatory fines; and • the impact of macroeconomic factors including large foreign exchange fluctuations, significant increases in interest rates and corporation tax increases. The Group has also considered the specific uncertainties of Brexit on its future viability by modelling scenarios which include the impact of a reduction in the number of housing transactions on its European Property Information business and increases in the cost and reductions in the availability of newsprint on its Consumer Media business. Mitigations considered as part of the stress testing included a number of cost reduction programmes and disposals of operating company subsidiaries. In addition, the Board has also considered a reverse stress test scenario to establish the level of stress which would cause the Group's viability to be put into doubt. This scenario testing indicates that the Group's viability would be threatened by an unexpected cash outflow of £330 million in each year of its three year review period or a reduction in pre-tax profits of £170 million in each year of its three year review period. The Directors consider that unexpected outflows of this magnitude are unlikely to occur. Based on the analysis described above, the Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities as they fall due over the next three years. Other operating cash net outflows totalled £5 million including the expected increase in trade debtors for dmg media, following the cessation of a trade finance arrangement. Group operating cash flow was £157 million and the conversion rate of operating profits to operating cash flow was 109%, compared to the 80% in the prior year. Pro forma net proceeds from disposals, including expenditure on acquisitions and investments, were £288 million. These included the gross proceeds from Genscape described above and US$89 million from the disposal of DMGT’s c.40% stake in Real Capital Analytics. Dividend payments totalled £275 million, including a £200 million special dividend, and pro forma pension funding totalled £130 million, including £117 million made available to the defined benefit pension schemes in respect of the distribution of Euromoney shares and the special dividend. Other cash outflows included interest payments of £22 million and taxation of £10 million. The stronger US dollar at year end, relative to the prior year end, resulted in a favourable cash revaluation of £6 million. The Group’s cash, cash equivalents and short-term deposits, net of overdrafts, totalled £289 million at year end. On a pro forma basis, excluding £117 million made available for the pension schemes and including £282 million of cash gross proceeds from the disposal of Genscape, the Group's pro forma cash, cash equivalents and short-term deposits totalled £454 million. At year end, bond debt was £203 million, with £1 million maturing in April 2021 and £202 million maturing in June 2027. There was also £5 million of net debt in respect of loan notes, collateral and derivatives. The Group’s committed bank facilities were £381 million, which were completely unutilised. In April 2019, Standard & Poor’s revised its corporate credit rating for DMGT from BB+ to BB, following the distribution of Euromoney shares and £200 million cash to shareholders. In February 2019, Fitch reaffirmed DMGT’s BBB- investment grade rating. The Group’s preferred upper limit for gearing remains a net debt to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of 2.0, below the requirements of the Group’s bank covenants. 26 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Capital allocation framework DMGT prioritises organic investment opportunities and takes a long-term approach, investing through the cycle. DMGT is also committed to its policy of delivering dividend per share growth in excess of inflation with the dividend remaining the primary mechanism for returning capital to shareholders. The Group adopts a balanced and flexible approach to uses of capital across the two remaining categories: acquisitions and shareholder returns. DMGT is committed to its disciplined approach to acquisitions and will prioritise bolt-on targets to complement its existing portfolio of businesses. The Group also aims to prioritise the allocation of capital towards growth opportunities, particularly those that can benefit from technological or market disruption. Maintaining financial flexibility remains a strategic priority, enabling DMGT to be acquisitive in the future, as opportunities arise. Pensions The Group’s defined benefit pension schemes provide retirement benefits for UK staff, largely in dmg media. These schemes are closed to new entrants. The net surplus on the schemes increased from £244 million at the start of the year to pro forma £332 million at 30 September 2019, calculated in accordance with IAS 19 (Revised). The pro forma surplus includes £117 million that has been made available to the pension schemes but which currently remains as cash on DMGT’s balance sheet, as well as the statutory net surplus of £215 million. During the year, the increase in the value of the assets, including the £117 million described above, exceeded the increase in the value of the defined benefit obligation. Excluding the £117 million referred to above, funding payments into the main schemes were £13 million in the year. The existing 2016 funding plan includes payments of £16 million p.a. from FY 2020 to FY 2027, as well as requiring, in certain circumstances, that a contribution of up to 20% of any share buy-backs shall be contributed to the schemes. Contributions will be discontinued should the schemes’ actuary agree the schemes are no longer in deficit, calculated on an actuarial basis. An actuarial valuation of the pension schemes as at 31 March 2019 is in the process of being completed and is expected to conclude that the schemes remain in deficit on an actuarial basis. Potential revisions to the existing funding plan are currently being discussed with the Trustees. The next actuarial valuation is scheduled for 31 March 2022. Dividends In April 2019, DMGT paid a £200 million special dividend to shareholders. The recommended final dividend is 16.6 pence which, if approved, would make the total dividend for the year, excluding the special dividend, 23.9 pence, an increase of 3% over the prior year. The recommended FY 2019 full-year dividend is equivalent to 62% of adjusted earnings per share and continues DMGT’s track record of increasing the dividend in excess of inflation. The Board’s decision to recommend increasing the dividend, in real terms, despite the decline in adjusted earnings per share during the year reflects the Group’s dividend policy and the Board’s confidence in the Group’s ability to deliver future long-term earnings growth. The dividend policy is to grow the dividend per share in real terms and, in the medium term, to distribute around one-third of the Group’s adjusted earnings. This policy reflects the combined objectives of delivering a reliable and predictable dividend growth trajectory while also being sufficiently prudent to retain the flexibility to make significant investments in the long-term future growth of the business. Exceptional items, impairments and amortisation As explained in more detail below, certain items, including exceptional costs, impairments and some amortisation are excluded from adjusted results. Following a significant reduction in exceptional operating costs in FY 2018, costs remain at low levels compared to previous years. The exceptional cash costs in the year were £9 million, compared to £3 million in the prior year, reflecting the continued absence of exceptional severance and consultancy costs. Total exceptional operating costs, including those of discontinued operations, joint ventures and associates, were £36 million (2018 £25 million). The charge for amortisation of intangible assets arising on business combinations, including the share from joint ventures and associates, was £20 million (2018 £32 million). Total impairment charges in the year were £49 million, primarily in respect of the Euromoney distribution and disposal of On-geo, the German Property Information business, compared to £63 million in the prior year. The Group recorded other net gains on disposal of businesses and investments of £67 million, including discontinued operations, compared to a net gain of £658 million in the prior year. Adoption of IFRS 16 IFRS 16, the new lease accounting standard, will apply to DMGT from 1 October 2019. Prior periods will not be restated and adoption of IFRS 16 will result in the Group recognising additional lease liabilities of c.£93 million and right-to-use assets of c.£92 million on the balance sheet as at 1 October 2019. The adoption of IFRS 16 is expected to impact FY 2020 results, reducing rental costs by c.£25 million, increasing depreciation charges by c.£23 million and increasing finance costs by c.£2 million. There will be no impact on total cash flow. Outlook The financial performance in FY 2020 will reflect the changes to the Group over the past year. The revenues of the current portfolio of businesses would have been £1,344 million in FY 2019, including the 2018 revenues of the ‘i’, and are expected to be broadly stable on an underlying basis in FY 2020. In the coming year, we will continue to invest. The Group cash operating income margin is expected to exceed the operating profit margin, which is expected to be around 10%. In FY 2020, we expect the net share of operating losses from JVs and associates to exceed £10 million and net finance charges to be in the £10 million to £15 million range. The effective tax rate is expected to reflect changes to the share of losses from associates, notably where a tax credit is not recognised, and is expected to be around 22%. Our strategy, combined with a balanced and flexible approach to capital allocation, positions us to deliver on the Group’s long-term revenue, profit and cash flow potential. 27 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Focused on driving long-term shareholder value Financial Review Reconciliation of statutory operating profit to adjusted operating profit: FY 2019 £ million Statutory operating profit Discontinued operations Exceptional operating costs Intangible impairment and amortisation Exclude JVs and Associates Adjusted operating profit Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs JVs and Associates Group Explanation 40 – – – 40 15 – – 26 41 3 – – 2 4 21 – – 1 22 – (26) 31 3 8 65 – 2 – 67 (50) – 10 – (40) (28) – (7) 36 1 67 (26) 36 69 (1) 144 i ii iii Reconciliation of statutory operating profit to adjusted operating profit: FY 2018 £ million Statutory operating profit Exceptional operating costs Intangible impairment and amortisation Exclude JVs and Associates Adjusted operating profit Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs JVs and Associates Group Explanation (24) – 58 35 48 2 9 58 5 – 3 7 27 – 1 28 – (4) 4 – 46 18 – 64 118 5 21 144 (52) 5 – (47) 168 25 95 (144) 145 ii iii Reconciliation of statutory profit before tax to adjusted profit before tax £ million Statutory profit/(loss) before tax Discontinued operations Exceptional operating costs Intangible impairment and amortisation Profit on sale of assets Pension finance credit Other adjustments Adjusted profit before tax FY 2019 FY 2018 Explanation 134 (33) 36 69 (67) (7) 13 145 707 (15) 25 95 (658) (2) 30 182 i ii iii iv v vi Reconciliation of adjusted operating profit to cash operating income £ million Insurance Risk Property Information EdTech Events and Exhibitions Energy Information B2B Consumer Media Corporate costs DMGT FY 2019 FY 2018 Adjusted operating profit Depreciation and amortisation¹ Purchase of fixed assets¹ Cash operating income Adjusted operating profit Depreciation and amortisation¹ Purchase of fixed assets¹ Cash operating income 40 41 4 22 8 117 67 (40) 144 5 9 8 – 7 29 17 1 47 (5) (6) (4) (1) (3) (20) (6) (4) (30) 41 44 8 22 12 126 78 (43) 162 35 58 7 28 – 128 64 (47) 145 20 7 6 – 7 40 20 – 60 (5) (17) (11) – (3) (36) (8) (6) (50) 50 48 2 28 4 131 77 (53) 155 1. Amortisation of intangible assets and expenditure on purchasing intangible assets refers to products and software, not assets acquired as part of business combinations. Amounts in the tables are stated rounded to the nearest million pounds, consequently totals may not equal the sum of the component integers. 28 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Underlying performance FY 2019 £ million Reported M&A Other Underlying Reported M&A FY 2018 Exchange rates Other Underlying Underlying growth Revenue Insurance Risk Property Information EdTech Events and Exhibitions Energy Information B2B Consumer Media DMGT Cash operating income Insurance Risk Property Information EdTech Events and Exhibitions Energy Information B2B Consumer Media Corporate costs DMGT 244 222 80 119 74 738 672 1,411 41 44 8 22 12 126 78 (43) 162 – (20) – – – (21) – (21) – (1) – – – (1) – – (1) – – – – – – (32) (32) – – – – – – – – – 2. EdTech cash operating income increased by £6 million and by an underlying £7 million. Adjusted operating profit and profit before tax Insurance Risk Property Information EdTech Events and Exhibitions Energy Information B2B Consumer Media Corporate costs DMGT adjusted operating profit Income from JVs and associates Net finance costs DMGT adjusted profit before tax 40 41 4 22 8 117 67 (40) 144 13 (12) 145 – (2) – – – (2) – – (2) (22) – (24) – – – – – – – – – – – – 244 202 80 119 73 718 640 229 272 68 118 86 773 654 1,358 1,426 41 43 8 22 12 125 78 (43) 160 40 39 4 22 8 114 67 (40) 142 (9) (12) 120 50 48 2 28 4 131 77 (53) 155 35 58 7 28 – 128 64 (47) 145 74 (37) 182 – (73) – – (14) (88) 8 (79) – (4) – – 2 (2) (7) – (9) – (6) – – 2 (5) (7) – (12) (84) 14 (82) 12 5 4 5 4 29 2 31 4 1 – 1 – 6 – (1) 6 3 1 – 1 – 6 – (1) 6 – – 6 – – (1) (8) – (9) (35) (44) – – (1) (4) – (5) – – (5) – – (1) (4) – (5) – – (5) – – (5) 241 204 71 114 75 705 629 1,334 54 45 1 25 5 130 69 (53) 146 38 53 7 25 2 124 57 (48) 134 (10) (23) 101 3. Energy Information operating profit increased by £8 million and by an underlying £6 million. Amounts in the tables are stated rounded to the nearest million pounds, consequently totals may not equal the sum of the component integers. +1% (1)% +12% +4% (2)% +2% +2% +2% (24)% (4)% N/A2 (14)% +112% (4)% +12% (20)% +10% +6% (25)% (34)% (12)% N/A3 (8)% +18% (17)% +6% (3)% (46)% +19% 29 Strategic ReportGovernanceFinancial StatementsShareholder InformationSimilarly, adjustments are made to exclude disposals from both years completely. When businesses are acquired, the prior year comparatives are adjusted to include the acquisition. The timing of events within Events and Exhibitions can also be a distortion. To give a fair like-for-like comparison when calculating underlying growth, the FY 2018 comparative is amended to include the performance from the previously held events for each FY 2019 show. In FY 2019, on a reported basis, DMGT’s revenues decreased 1%, cash operating income increased 4%, adjusted operating profit was in line with the prior year and adjusted profit before tax decreased by 21%. The growth rates were adversely affected by disposals and the distribution of Euromoney shares but benefitted from the stronger US dollar. After adjusting for these factors as well as others, such as acquisitions and the timing of events, there was underlying growth of 2% in revenues, 10% in cash operating income, 6% in adjusted operating profit and 19% in adjusted profit before tax, as shown in the tables on page 29. Tim Collier Group Chief Financial Officer Strategic Report Focused on driving long-term shareholder value Financial Review Adjusted results The Board and management team use adjusted results and measures, rather than statutory results, to give greater insight to the financial performance of the Group and the way it is managed. The tables on page 28 show the full list of adjustments between statutory operating profit and adjusted operating profit by business, as well as between statutory profit before tax and adjusted profit before tax at Group level for both FY 2019 and FY 2018. Note 13 on page 125 shows the full list of adjustments between statutory and adjusted results. The explanation for each type of adjustment is as follows: i. ii. Discontinued operations: the adjusted results include the pre-disposal results of discontinued operations, namely Genscape, the Energy Information business, whereas statutory results only include continuing operations. Exceptional operating costs: businesses occasionally incur exceptional costs, including severance and consultancy fees, in respect of a reorganisation that is incremental to normal operations. These are excluded from adjusted results. iii. Intangible impairment and amortisation: when acquiring businesses, the premium paid relative to the net assets on the balance sheet of the acquired business is classified as either goodwill or as an intangible asset arising on a business combination and is recognised on DMGT’s balance sheet. This differs to organically developed businesses where assets such as employee talent and customer relationships are not recognised on the balance sheet. Impairment and amortisation of intangible assets and goodwill arising on acquisitions are excluded from adjusted results as they relate to historical M&A activity and future expectations rather than the trading performance of the business during the year. Software, including products, is also recognised as an intangible asset on the balance sheet. Occasionally the carrying value of software is considered to be greater than the value in use or the fair value less costs to sell, as was the case for the Insurance Risk RMS(one) asset in FY 2018, and it is appropriate to impair it. The impairment charge is excluded from adjusted results since it is unrelated to the ongoing cost of doing business. The ongoing amortisation 30 of software is, however, similar to the depreciation of tangible assets and is an everyday cost of doing business, so is included in both statutory and adjusted results. iv. Profit on sale of assets: the Group makes gains or losses when disposing of businesses, for example on the disposal of EDR, the US Property Information business, in FY 2018. These items are excluded from adjusted results as they reflect the value created since the business was formed or acquired rather than the operating performance of the business during the year. Similarly, the gains or losses made by joint ventures or associates when disposing of businesses are excluded from adjusted results. v. Pension finance credit: the finance credit on defined benefit schemes is a formulaic calculation that does not necessarily reflect the underlying economics associated with the relevant pension assets and liabilities. It is effectively a notional credit and is excluded from adjusted results. vi. Other adjustments: other items that are excluded from adjusted results include changes in the fair value of certain financial instruments and changes to future acquisition payments. They are considered to be unrelated to the ongoing cost of doing business. The share of joint ventures’ and associates’ tax charges is included in statutory profit before tax but, since it is a tax charge, is excluded from adjusted profit before tax. The share of joint ventures’ and associates’ interest charges is reclassified to financing costs in the adjusted results. Underlying growth When assessing the performance of the different businesses, the Board considers the adjusted results. The year-on-year change in adjusted results may not, however, be a fair like-for-like comparison as there are a number of factors which can influence growth rates but which do not reflect underlying performance. When calculating underlying growth, adjustments are made to give a like-for-like comparison. For example, the adjusted results in FY 2019 benefitted from the stronger US dollar relative to sterling. To calculate underlying growth, the prior year comparatives are restated using the FY 2019 exchange rates. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Entrepreneurialism, Purpose and Excellence Our People and Our Stakeholders Our values DMGT encourages curiosity and innovation amongst its people, and is built around a set of values common across our portfolio of operating companies. These are: Entrepreneurialism Purpose Excellence Entrepreneurialism Since brothers Alfred and Harold Harmsworth invented popular journalism in 1896 with the launch of the Daily Mail, entrepreneurs have been a driving force for DMGT’s businesses. DMGT is dedicated to backing great ideas and the people who make them a reality. DMGT seeks out entrepreneurs renowned in their industries for growing businesses and provides them with the backing and resources of an international public company. DMGT’s culture of nurturing and developing talented entrepreneurial people remains a distinctive strength of the Group. Purpose Alongside our commitment to entrepreneurialism, DMGT’s businesses and our people operate with a clear sense of purpose, beyond profit. DMGT is able to invest for long-term sustainable growth and quality and in businesses that share our ethos, whether that’s providing insights that make it possible to ‘insure the uninsurable’, driving towards ever-greater transparency across property markets, enriching connections between businesses and communities with industry- leading exhibitions or holding authority to account through high-quality journalism. DMGT is a responsible business, dedicated to its people and communities. Through a range of local partnerships within the communities our operating companies serve, and Group-wide programmes such as our Corporate Responsibility (CR) Champions network, DMGT supports and encourages purpose within our community. We believe that supporting our operating companies’ local communities is particularly important as it allows our employees to choose a cause close to their heart. This is actioned by the CR Champions network which has volunteers from across the operating companies. Go online to www.dmgt.com to read more about our corporate responsibility programme Excellence DMGT is committed to excellence, demonstrated through its dedication to creating the highest quality content, proprietary data and products. Our aim is to be at the forefront of cutting-edge technology and within new, exciting, high-potential growth sectors. As a driver in technological innovation, DMGT is defining the jobs of the future through its work in data science, artificial intelligence, machine learning and predictive analytics found across businesses including Insurance Risk and EdTech. DMGT holds a wealth of top leadership talent and sector expertise at Group level and across its operating companies. Our people are supported by a range of tailored local learning and development programmes. Our people DMGT’s people play a key role in helping the Group deliver against its strategic priorities, particularly improving operational execution. We believe that talented, motivated people are the key to our success and are committed to providing a working environment that allows people to reach their full potential. Talent and development We have continued to invest in our people and develop high-potential leaders at early stages in their careers. Our leadership programmes are designed to equip talented people with stretching experiences to accelerate their development and realise their potential. Our ambition is to enable people to be the best they can be to deliver today and build for tomorrow. Our people have the chance to develop at DMGT doing meaningful and interesting work that will stretch them, taking advantage of all the opportunities that our diverse group of businesses can offer. Keeping our people informed One of the challenges of a geographically diverse organisation is ensuring that we can effectively communicate with all of our people. We continue to enhance employee collaboration by adopting platforms such as instant messaging, developing a Group-wide microsite to share policies and information, refining our internal newsletters, circulating a daily email news bulletin and holding regular ‘town hall’ meetings. Responsible business DMGT is a responsible business that adheres to strong ethical standards with a clear, robust Code of Conduct. In a climate where employees, customers and other stakeholders are increasingly interested in the way companies do business, the things we do to encourage responsible business practice and respond to the needs of our different stakeholders contribute to the credibility and value of DMGT. These include: • strong governance and leadership which promote responsible business attitudes and actions across the Group; • clear and robust Code of Conduct and supporting Group policies; • ensuring DMGT employees understand key legal and reputational issues; • operating effective risk management and internal controls; and • business-level participation in CR and community support. Whistleblowing Employees who have concerns regarding criminal activity, gross misconduct and/or a breach of the DMGT Code of Conduct or supporting policies have a duty to report such activity. DMGT operates a confidential Speak Up facility to aid any such reports. The Speak Up facility is actively promoted to employees and managed externally by a specialist third party. All incidents are tracked to ensure appropriate follow-up. The Audit & Risk Committee is provided with a summary of any incidents. Code of Conduct and Group policies Our Code of Conduct sets the standards for our corporate and individual conduct. The Code of Conduct includes standards for equal opportunities, anti-bribery, conflicts of interest, share dealing and fair competition, among other topics. The Code of Conduct contains clear guidance regarding equality, diversity and inclusion. Many of the topics in the Code are supported by detailed policies and procedures for our employees. In addition, policies regarding equal opportunities, entertainment and gifts, information security, data privacy and health and safety apply to DMGT employees. These policies, as well as our Code of Conduct, safeguard the welfare of our employees. All DMGT policies are available for employees to access on the Group-wide microsite. Where appropriate, certain policies are housed on the DMGT website. DMGT’s equal opportunities statement can be found on the DMGT website and applies to both employees and DMGT supervisory bodies. We have a rolling review programme to update DMGT policies and deliver continuous training to reinforce compliance. 31 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Entrepreneurialism, Purpose and Excellence Our People and Our Stakeholders Human rights DMGT believes that our exposure to the associated risks in the context of human rights frameworks is minimal. DMGT does not have a specific human rights policy but has a number of policies that cover areas such as health and safety, modern slavery, bribery and corruption. In addition, new suppliers are evaluated with a questionnaire to ensure they are ethical and lawful. Gender breakdown of our employees The table below sets out the gender breakdown of our employees. Our aim is to promote equality and diversity in accordance with our Group Code of Conduct and Diversity Policy. Board Directors Operating company CEOs, and direct reports to the Group CEO* All employees* Male Female At 30 September 2019 10 83% 2 17% 6 55% 5 45% 3,600 61% 2,346 39% * Excluding Executive Board Directors. Diversity and inclusion Our Equal Opportunities Policy is designed to comply with the Equality Act 2010 and the Equality and Human Rights Commission Employment Statutory Code of Practice, and to promote best practice. Managers must set an appropriate standard of behaviour, lead by example and ensure that those they manage adhere to this policy. This policy applies to all aspects of the employee relationship. All decisions must be based on merit. This includes but is not limited to: job adverts; • recruitment and selection; • • training and development; • opportunities for promotion; • conditions of service; • pay and benefits; and • conduct at work. We have a suite of policies designed to promote the health and well-being of our employees, including a range of fitness and mindfulness programmes. We partner with a number of external programmes and take part in volunteering activities to support diversity in media; one of our new programmes connects women from BAME backgrounds in the media industry with experienced female mentors. 32 We run a number of training programmes on equality, diversity and inclusion, as well as provide tools and resources for hiring managers to assist them in ensuring an objective hiring process that attracts the best talent regardless of background. We are introducing marketing tools that target a diverse range of job applicants. Our Career Boards ensure job opportunities are open to internal candidates, with training and mentoring offered to support promotions and internal mobility. For our UK-based businesses, we also provide an inclusive apprenticeship programme for new talent and existing employees as development opportunities range up to MBA level. We believe this is a highly effective and sustainable way to support the progression of more people in our business. DMGT has invested in a new Human Resources Information System that enables us to monitor the levels of diversity in our business, and also promote an inclusive culture. Diversity data including gender, ethnicity, race and disability is tracked across job levels and assessed against a number of key areas, including recruitment processes, attrition and promotions. We regularly ask employees for their feedback on diversity and inclusion, supported with regular internal communications on a range of activities that promote a collaborative and inclusive culture. Gender pay reporting Two of DMGT’s UK-based operating companies with over 250 employees reported on their Gender Pay Gap for the second time in 2019. Both Landmark and dmg media published their data in April 2019 on their respective websites. DMGT as an employer believes in ‘Equal pay for equal work’, is committed to equal pay and conducts ongoing reviews to ensure we have the best possible processes in place. Go online to www.landmark.co.uk/ www.dmgmedia.co.uk Flexible working DMGT supports its employees to maintain a work-life balance. Policies and guidance to enable this are in place across the Group. Our stakeholders Payments practices reporting Similarly, in April 2019 DMGT’s UK-based operating companies Landmark and dmg media published their payment practices data. DMGT is committed to ensuring that all of its suppliers are paid within the agreed terms. Go online to www.gov.uk/check-when- businesses-pay-invoices Our communities As a diverse, international business, DMGT focuses its community efforts on a combination of Group-level partnerships that allow it to make the most of its scale and size, and support for local community initiatives and relief efforts, through its CR Champions network. Total charitable donations during the year were £1.2 million. Funds donated include CR initiatives carried out at our operating companies. Go online to www.dmgt.com/ corporate-responsibility Environmental impact At DMGT we evaluate and manage our environmental impact by measuring and reporting on our greenhouse gas (GHG) emissions. As a minimum, our operating companies comply with current regulation of the country that they operate in and are prepared for future legislation. However, we expect our operating companies to further mitigate against the negative impacts from their activities wherever possible. DMGT’s most significant environmental impact comes from the printing plants in our Consumer Media businesses. We have made a concerted effort to ensure our printing has circular systems wherever possible. At Harmsworth Printing, 100% of our waste paper, cardboard and packaging is recycled. Our printed production waste from the presses has been reduced to only 4% on average. This is due to our use of flexographic printing, which enables lower production waste and less energy use. We have been systematically reducing our specialist waste streams, through improvements in the recycling process. Our waste from this stream has been reduced by 15% in FY 2019. At Harmsworth Printing, we have a 100-tonne rainwater harvesting tank which meets approximately 80% of our water demand, reducing our reliance on mains water. We endeavour to ensure that the paper we buy is sourced from PEFC and FSC certified forests. We ensure our paper matches the industry standard ratio for Combined Waste Paper and Certified Virgin Fibre Content, ensuring that raw material use is at the lowest possible, whilst producing high- quality newspapers. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Carbon footprint DMGT is committed to comprehensive and transparent reporting of our environmental performance. CO2 emissions data has been collected from each of our operating companies. This data is collated and independently reviewed by environmental consultancy ICF International (ICF), who calculate our carbon footprint, in accordance with the GHG Protocol Corporate Accounting and Reporting Standards. We strive to reduce our impact on the environment wherever possible and DMGT has succeeded in this is by reducing our GHG emissions. Our FY 2019 emissions were 23,800 tonnes CO2e, a decrease from 27,000 tonnes CO2e in FY 2018. The Group’s carbon footprint for FY 2019 can be seen in the table below. At DMGT we have actively reduced our energy consumption across our offices and printing facilities through implementing operational efficiency enhancements and building modifications as recommended by ICF. Go online to www.dmgt.com/ corporate-responsibility to read our Environment Policy Carbon footprint The table below shows our carbon footprint since FY 2017. For the purposes of comparability, the FY 2017 and FY 2018 figures have been restated to be consistent with the businesses in the portfolio during FY 2019. Year 2019 2018 2017 Scope 1: Combustion of fuel and operation of facilities Scope 2: Electricity, heat, steam and cooling purchased for own use Scope 3: Business travel and outsourced delivery Tonnes of CO2e 1,500 1,400 1,200 11,000 12,300 14,800 11,400 13,300 14,300 tCO2e/£million revenue Total scope 1, 2 & 3 emissions/revenue 16.9 19.3 20.8 Non-Financial Information Statement We aim to comply with the non-financial reporting requirements contained in Sections 414CA and 414CB of the Companies Act 2006. The table below, and the information it refers to, is intended to help stakeholders understand our position on key non-financial matters. Reporting requirement Environmental matters Policies and standards which govern our approach • Carbon footprint • Environment Policy Risk management and additional information • Our People and Our Stakeholders, pages 31 to 33 Our people Human rights Social matters • Code of Conduct • Equal Opportunities Policy • Health and Safety Policy • Whistleblowing Policy • Modern Slavery Statement • Privacy Policy • Information Security Policy • Responsible Business Anti-bribery and anti-corruption Policy embedding, due diligence and outcomes • Anti-Bribery and Corruption Policy • Code of Conduct • Tax Policy Description of principal risks and impact of business activity Description of the business model • Directors’ Report, pages 40 to 82 • Our People and Our Stakeholders, pages 31 to 33 • Audit & Risk Committee Report, pages 48 to 53 • Directors’ Report, pages 40 to 82 • Responsible Business • Our People and Our Stakeholders, pages 31 to 33 • Directors’ Report, pages 40 to 82 • Financial Review, pages 22 to 30 • Principal Risks, pages 34 to 39 • Financial Review, pages 22 to 30 • Directors’ Report, pages 40 to 82 • Responsible Business, pages 31 to 33 • Audit & Risk Committee Report, pages 48 to 53 • Principal Risks, pages 34 to 39 • DMGT at a Glance, page 5 • Our Business Model, pages 6 and 7 33 Strategic ReportGovernanceFinancial StatementsShareholder InformationThe Board formally evaluated the system of risk management and internal control in conjunction with the Audit & Risk Committee during the year. This evaluation focused on material controls relating to principal risks and entity-level controls, as well as additional controls and processes required to support the Company’s Viability Statement (see page 26). The evaluation also considered any control weaknesses identified by Internal or External Audit, or as a result of incidents of fraud. Controls over the recording of amounts in the Group’s consolidated financial statements relating to investments have also been assessed and considered as appropriate. Monitoring and oversight The Group operates a ‘three lines of defence’ model. The benefits of this approach are shown in the table on page 35. The Board delegates day-to-day responsibility for internal controls to operational management with oversight by the Executive Committee and the Audit & Risk Committee. During the year it was noted that there were no detected breakdowns in material controls that protect against the Group’s principal risks. Strategic Report Actively monitoring and managing our risks Principal Risks Board oversight of risk management and internal controls The Board delegates day-to-day oversight of management’s operations of internal controls and risk management to the Audit & Risk Committee. The Board considers that the Audit & Risk Committee possesses the requisite skills and experience to meet its obligations and provide the relevant assurance to the Board. Operating and investment decisions are delegated to the Investment & Finance Committee. Further details of the activities of these Committees are on pages 43 to 54. The Board has overall responsibility for establishing, monitoring and maintaining an effective system of risk management and internal controls. This system provides reasonable rather than absolute assurance that the Group’s business objectives will be achieved within the risk tolerance levels defined by the Board. It is the responsibility of the Group’s operating companies to ensure that they have established an appropriate level of risk and internal control systems, but which are overseen by the Executive Committee. Certain functions are undertaken centrally, including: Group Accounting; Investor Relations; Strategy; Risk; Internal Audit; Corporate Tax; Treasury; and Insurance. The Board has established an ongoing process for identifying, evaluating and managing the principal risks faced by the Group. This process has been updated during the year and up to the date of approval of the financial statements. Monitoring is an ongoing process and principal risks are reviewed at operating company Board meetings, the Executive Committee and at half year and year end by the Audit & Risk Committee. Risk management function Care has been taken to avoid the threat of self-review across our ‘three lines of defence’ model (see page 35). The Risk function, led by the Company Secretary, provides an increased focus on priority risk areas. It is responsible for maintaining the Group risk management process, facilitating change for selected risks, evolving our approach to operational compliance, and working with other Group functions. The Risk function engages specialist external expertise to maintain best practice approaches. To ensure an open discussion of emerging risks, the Chairman of the Audit & Risk Committee met separately with the Company Secretary during the year, independent of operational management. Internal Audit The Internal Audit function undertakes an agreed programme of independent assurance reviews. The function sources external expertise as required. Internal Audit seeks to comply with relevant professional standards, notably those issued by the Institute of Internal Auditors. The Internal Audit Charter (the Charter) sets out the purpose and objectives of Internal Audit. The Charter takes a systematic and disciplined approach to both the evaluation of and improvements in control and governance processes. It strengthens the function’s independence and objectivity by means of the function’s reporting lines and access to all records, personnel, property and operations of the Group. To ensure his independence from management, the Group Assurance Director reports directly to the Chairman of the Audit & Risk Committee. The Charter confirms the high-level responsibilities of operational management (first line of defence) and ensures that the Internal Audit function undertakes its third line of defence duties, avoiding any first or second line duties. The Charter is reviewed annually and updated as required to take account of changing practices and standards. The Audit & Risk Committee is satisfied that the provisions of the Charter have been achieved in the year. 34 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Three lines of defence table First line of defence Second line of defence Third line of defence Internal Audit provides independent and objective assurance on the robustness of the risk management framework and the effectiveness of internal controls. Benefits • Independent assurance on the system of risk management and internal controls. • Assessment of the appropriateness and effectiveness of internal controls. • Internal Audit provides assurance to the Audit & Risk Committee. Each operating company is responsible for the identification and assessment of risks, understanding the Group’s risk strategy and operating appropriate controls. Benefits • Ownership and responsibility remains close to the operating companies and their performance. • Promotes a strong culture of adhering to limits and managing risk exposures in accordance with each business’s risk appetite and the regulatory environment. • Promotes a healthy risk culture and long-term approach to risk management. Key features of the risk management and internal controls system The main features of the system of risk management and internal controls in relation to the financial reporting process are described below: 1. Confirmation of key internal controls and the fraud and bribery assessment Each operating company confirms the operation of key internal controls to Internal Audit annually. The purpose of the assessment is to confirm the operation of a framework of internal controls, including anti-fraud controls, which are expected to be in place in each business unit. These internal controls are intended to provide standards against which the control environments of DMGT’s business units can be monitored. An annual fraud and bribery risk assessment is completed simultaneously, detailing risks and mitigating controls. In each case, the Internal Audit team reviews and follows up on these submissions, as appropriate. The Executive Committee and Company Secretary, supported as appropriate by other functional areas, particularly information technology, legal, tax and finance, reviews the completeness and accuracy of risk assessments, reporting and adequacy of mitigation plans. Benefits • Understand aggregated risk positions. • Objective oversight and challenge to the business areas and internal control and risk management framework used in the first line. • Provide ongoing training and support on Group-wide risks to the operating companies. 2. Review of relevant and timely financial information Each of the operating companies and DMGT executive management regularly review relevant and timely financial information. This is produced from a financial information system operated across the Group. It is supported by a framework of forecasts as well as annual budgets that are approved by the Executive Committee and confirmed by the Investment & Finance Committee. 3. Senior Accounting Officer sign-off The Group Chief Financial Officer is the Senior Accounting Officer and is required, by HMRC, 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. 35 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Actively monitoring and managing our risks Principal Risks The Directors confirm that they have completed a robust assessment of the Group’s principal risks and a thorough review of risk management processes. The Group’s risks are categorised as either strategic or operational. Strategic risks are linked to the Group’s strategic priorities and impact the whole Group. Operational risks are those arising from the execution of the business functions and typically impact on one or more of the principal businesses. Further details of the Group’s risk management process, the governance structure surrounding risk and the Audit & Risk Committee can be found in the Governance Report on pages 40 to 82. Strategic risks Description and impact Market disruption Market disruption creates opportunities as well as risks. Disruption enables us to move into new markets and geographies and encourages us to innovate to grow the business. Failure to anticipate and respond to market disruption may affect demand for our products and services and our ability to drive long-term growth. Examples Mitigation Trend Market disrupters include changes to customer behaviours and demands, new technologies, the emergence of competitors or structural changes to markets. Examples from the operating companies include: • Consumer Media: decline in print advertising revenue. • Consumer Media: changes in algorithms and strategies of tech giants materially impacting traffic and digital advertising revenue across properties, demanding constant oversight and agility. • Insurance Risk: structural decline in client markets and consolidation in insurance industry. Changing consumer expectations of insurers’ utilisation of technology. • EdTech: declining foreign student enrolment pressuring higher education budgets. Success of new product launches and internal investments A lack of innovation or failure to successfully evolve our products and services may compromise their appeal. Some may fail to achieve customer acceptance and yield expected benefits. This could result in lower than expected revenue and/or impairment losses. Uncertainty also results from geographic expansion into new and emerging markets. The Group is continually investing in our products and services, developing new offerings and enriching existing products and services. Examples include: • Consumer Media: increased monetisation of online user base. • Insurance Risk: launch of Risk Intelligence platform to take advantage of the growing benefits of new technology. • Property Information: Trepp’s launch and development of Collateralized Loan Obligation analytics service. • Events and Exhibitions: innovation within and expansion of events and launches across new locations. Portfolio management Increasing portfolio focus is key to the Group’s strategy. This could be compromised by portfolio changes not delivering expected benefits, failure to deliver acquisition or operating targets, and/or delay or delinquency in divesting from non-core businesses at the right time. • Growth opportunities and potential synergies lost through failure to identify or succeed with acquisition and investment targets. • Lost acquisitions may allow competitors to gain footholds in key markets. • Underperforming acquisitions and investments may lead to reduced return on capital and/or impairment losses, as well as diversion of management time and bandwidth. • Optimal value may not be achieved from divestments. Economic and geopolitical uncertainty Group performance could be adversely impacted by factors beyond our control such as the economic conditions in key markets and sectors and political uncertainty. • Continued uncertainty surrounding the conditions of Brexit directly impacts the UK macroeconomic climate (Consumer Media) and UK property transaction volumes (Property Information). • Fluctuations in the global energy and commodity markets could impact revenue for associated trade shows (Events and Exhibitions). • Political and economic uncertainty, particularly in the Middle East, could negatively impact the exhibitors and attendees of events and exhibitions. • Sustained global low interest rate environment will continue to impact margins for global investors, including in insurance (Insurance Risk) and property (Property Information). 36 • The Group’s presence in different market segments reduces the overall Group impact of any single market disruption. • Organic investment initiatives across the Group to innovate our products and services and to remain competitive in the markets we serve. Organic investment was 9% of total revenues in FY 2019. • The Executive Committee, supported by the Portfolio Solutions function and operating companies’ management teams, monitor markets, the competitive landscape and technological developments; regular dialogue and in-person meetings ensure proactive, coordinated responses. • Analysis of the performance management dashboard and detailed financial management information for each operating company to highlight and react to early indicators of market disruption. • DMGT executive membership of operating company boards. • The culture of the Group encourages an entrepreneurial approach to identifying growth opportunities and new products. • Central capital allocation ensures focused investment in quality business cases. • A new innovation or business line is ring-fenced where required, to ensure it receives autonomous execution, dedicated talent, budget and undiluted management focus. • Direct engagement from DMGT functional leads and DMGT Board Directors contribute relevant expertise and guidance. • Central Portfolio Solutions function partners with each operating company to support achievement of key milestones, KPIs and financial plans. • Significant investments are approved by the Investment & Finance Committee and/or the Board. • The Executive Committee continues to evaluate the Group’s portfolio in order to optimise resource allocation according to portfolio roles, business opportunities and • Investments and divestments are approved by the Investment & Finance Committee risk-adjusted execution. and, where warranted, the Board. • Extensive due diligence conducted pre-acquisition and comprehensive integration plans implemented post-acquisition by dedicated integration managers. • Proactive, detailed divestment roadmaps, including sell-side narrative, seller due diligence and talent incentives/retention. • The Executive and Investment & Finance Committees supported by the Portfolio Solutions function monitor post-acquisition performance. • DMGT executive membership of operating company boards and the boards of associates and investments (e.g. Yopa, Cazoo). • The Group’s diverse and balanced portfolio of businesses and products reduces the overall impact of any single trend. • Quarterly Emerging Risk papers provided to the Audit & Risk Committee ensure both DMGT and operating company management consider and remain vigilant regarding The significance of this risk has increased given the imminent UK general election (December 2019). emerging risks and their potential impact. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Examples Mitigation Trend Risk increased Risk did not change Risk decreased • The Group’s presence in different market segments reduces the overall Group impact of any single market disruption. • Organic investment initiatives across the Group to innovate our products and services and to remain competitive in the markets we serve. Organic investment was 9% of total revenues in FY 2019. • The Executive Committee, supported by the Portfolio Solutions function and operating companies’ management teams, monitor markets, the competitive landscape and technological developments; regular dialogue and in-person meetings ensure proactive, coordinated responses. • Analysis of the performance management dashboard and detailed financial management information for each operating company to highlight and react to early indicators of market disruption. • DMGT executive membership of operating company boards. • The culture of the Group encourages an entrepreneurial approach to identifying growth opportunities and new products. • Central capital allocation ensures focused investment in quality business cases. • A new innovation or business line is ring-fenced where required, to ensure it receives autonomous execution, dedicated talent, budget and undiluted management focus. • Direct engagement from DMGT functional leads and DMGT Board Directors contribute relevant expertise and guidance. • Central Portfolio Solutions function partners with each operating company to support achievement of key milestones, KPIs and financial plans. • Significant investments are approved by the Investment & Finance Committee and/or the Board. • The Executive Committee continues to evaluate the Group’s portfolio in order to optimise resource allocation according to portfolio roles, business opportunities and risk-adjusted execution. • Investments and divestments are approved by the Investment & Finance Committee and, where warranted, the Board. • Extensive due diligence conducted pre-acquisition and comprehensive integration plans implemented post-acquisition by dedicated integration managers. • Proactive, detailed divestment roadmaps, including sell-side narrative, seller due diligence and talent incentives/retention. • The Executive and Investment & Finance Committees supported by the Portfolio Solutions function monitor post-acquisition performance. • DMGT executive membership of operating company boards and the boards of associates and investments (e.g. Yopa, Cazoo). • The Group’s diverse and balanced portfolio of businesses and products reduces the overall impact of any single trend. • Quarterly Emerging Risk papers provided to the Audit & Risk Committee ensure both DMGT and operating company management consider and remain vigilant regarding emerging risks and their potential impact. The significance of this risk has increased given the imminent UK general election (December 2019). 37 Strategic risks Description and impact Market disruption Market disruption creates opportunities as well as risks. Disruption enables us to move into new markets and geographies and encourages us to innovate to grow the business. Failure to anticipate and respond to market disruption may affect demand for our products and services and our ability to drive long-term growth. Market disrupters include changes to customer behaviours and demands, new technologies, the emergence of competitors or structural changes to markets. Examples from the operating companies include: • Consumer Media: decline in print advertising revenue. • Consumer Media: changes in algorithms and strategies of tech giants materially impacting traffic and digital advertising revenue across properties, demanding constant oversight and agility. • Insurance Risk: structural decline in client markets and consolidation in insurance industry. Changing consumer expectations of insurers’ utilisation • EdTech: declining foreign student enrolment pressuring higher of technology. education budgets. Success of new product launches and internal investments A lack of innovation or failure to successfully evolve our products The Group is continually investing in our products and services, developing new offerings and enriching existing products and services. Examples include: and services may compromise their appeal. Some may fail to achieve customer acceptance and yield expected benefits. This could result in lower than expected revenue and/or impairment losses. emerging markets. Uncertainty also results from geographic expansion into new and • Consumer Media: increased monetisation of online user base. • Insurance Risk: launch of Risk Intelligence platform to take advantage of the growing benefits of new technology. • Property Information: Trepp’s launch and development of Collateralized Loan Obligation analytics service. • Events and Exhibitions: innovation within and expansion of events and launches across new locations. Portfolio management Increasing portfolio focus is key to the Group’s strategy. This could be compromised by portfolio changes not delivering expected benefits, failure to deliver acquisition or operating targets, and/or delay or delinquency in divesting from non-core businesses at the right time. • Growth opportunities and potential synergies lost through failure to identify or succeed with acquisition and investment targets. • Lost acquisitions may allow competitors to gain footholds in key markets. • Underperforming acquisitions and investments may lead to reduced return on capital and/or impairment losses, as well as diversion of management time and bandwidth. • Optimal value may not be achieved from divestments. Economic and geopolitical uncertainty Group performance could be adversely impacted by factors beyond our control such as the economic conditions in key markets and sectors and political uncertainty. • Continued uncertainty surrounding the conditions of Brexit directly impacts the UK macroeconomic climate (Consumer Media) and UK property transaction volumes (Property Information). • Fluctuations in the global energy and commodity markets could impact revenue for associated trade shows (Events and Exhibitions). • Political and economic uncertainty, particularly in the Middle East, could negatively impact the exhibitors and attendees of events and exhibitions. • Sustained global low interest rate environment will continue to impact margins for global investors, including in insurance (Insurance Risk) and property (Property Information). Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic Report Actively monitoring and managing our risks Principal Risks Strategic risks continued Description and impact Talent Our ability to identify, attract, retain and develop the right people for senior and business-critical roles could impact the Group’s performance. Examples Mitigation Trend • Entrepreneurship and leadership skills are a priority for the Group and key to the continued success of many of our operating companies. • Technology and software development skills remain crucial to many of our businesses where there is significant investment in software platforms and technology infrastructure to support next-generation product development. • The strategy to build out our data analytics capabilities places focus on developing and attracting specialists in emerging technologies. These skills are in high demand, which makes attracting and retaining people with these skills more competitive. • Enterprise sales and operational execution expertise with market and product knowledge continue to be a strategic imperative. • Local HR specialists focused on recruitment, critical skills planning, identifying and developing internal talent combined with central oversight of reward. • Central Technology function with specialised expertise in artificial intelligence, machine learning, data architecture and management, platform development and scaling. • Central Technology function oversight of technology hire. • Central Portfolio Solutions function partners with operating companies’ management, advising on critical skills to improve operational and commercial performance, including pricing and packaging strategies, go-to-market and sales execution and business case development and planning. • Executive management is involved in the recruitment of all operating company leadership roles and their ongoing development. • Payment of competitive rewards for key senior roles, developed using industry benchmarks and external specialist input. The decreased size of the portfolio may have a detrimental impact on the internal mobility of talent. This combined with the record low levels of unemployment in the UK will result in an additional challenge to attracting the right calibre of talent. While the above is not deemed enough to alter the trend of this risk, extra provisions will be assessed in order to help manage this trend. Operational risks Description and impact Examples Mitigation Trend Information security breach or cyberattack An information security breach, including a failure to prevent or detect a malicious cyberattack, could cause reputational damage and financial loss. The investigation and management of an incident would result in remediation costs and the diversion of management time. A breach of data protection legislation could result in financial penalties for the affected business and potentially the Group. The risk is relevant to all businesses in the Group due to the nature of products and services across the portfolio. Examples which could impact the Group include: • Loss or unauthorised access to personal information and sensitive client data. • Unavailability or disruption of online products and services. • Integrity of online products, services and data compromised. • Disruption to critical systems that support business operations. • Theft of intellectual property. Reliance on key third parties Certain third parties are critical to the operations of our businesses. A failure of one of our critical third parties may cause disruption to business operations, impact our ability to deliver products and services and result in financial loss. The reputation of our businesses may be damaged by poor performance or a regulatory breach by critical third parties, particularly outsourced service providers. Key third parties include: • Data centre and cloud service providers. • Search engine traffic partners. • IT development support. • Data providers for core product. • Newsprint, flexographic plate and ink suppliers. • Newspaper distributors and wholesalers. • Event venues. Compliance with laws and regulations The Group operates across multiple jurisdictions and sectors. Increasing regulation increases the risk that the Group is not compliant with all applicable laws and regulations across all of the jurisdictions in which it operates, which could result in financial penalties and reputational damage. Increasing regulation also results in increasing costs of compliance. Particular areas of focus for DMGT businesses are: • Data protection, including the EU General Data Protection Regulation (GDPR) and the proposed ePrivacy Regulation. • Competition and anti-trust legislation. • EU Market Abuse Regulation. • Libel legislation. • Tax compliance. • Trade sanctions. • Entering regulated markets or sectors. Pension scheme deficit Defined benefit pension schemes, although now closed to new entrants, remain ultimately funded by DMGT, with Pension Fund Trustees (Trustees) controlling the investment allocation. There is a risk that the funding of the deficit could be greater than expected. Future pension costs and funding requirements could be increased by: • Adverse changes in investment performance. • Valuation assumptions and methodology. • Inflation and interest rate risks. • The Technology Council provides oversight of information security initiatives Group-wide. • The Group Chief Information Security Officer is responsible for reviewing and recommending actionable roadmaps to improve information security procedures and protections at each operating company. • Group Information Security Policy and detailed information security standards with regular reviews reported to the Technology Council. Periodic reviews of the standards themselves are performed to ensure they keep pace with best practice. • Information security is reviewed as part of every internal audit of an operating company. • Cyber insurance policies in place. • Dedicated budget for information security investments. • The Group’s diverse and balanced portfolio of businesses and products reduces the overall impact of the failure of an individual third party. • Operational and financial due diligence is undertaken for key suppliers on an ongoing basis. and outputs. • Close management of key supplier relationships including contracts, service levels • Robust business continuity arrangements for the disruption to key third parties. • Event cancellation and business interruption insurance policies. • Changes in laws and regulations are monitored and potential impacts discussed with the relevant persons, Board, or Committee, or escalated as appropriate. • Developments in the legal and regulatory landscape are reviewed by the • Implementation and monitoring of Group-wide policies to address new legislation Audit & Risk Committee. and regulation where applicable. • Group-wide working groups for key compliance areas, such as the GDPR. • Monitoring and management of tax risks is performed by the DMGT Tax Sub-Committee. • The agreed funding plan gives certainty over the financial commitment. • Monitoring and management of pension risks is performed by the DMGT Pension Sub-Committee. • Company-appointed Trustees. While risk transference is mitigated by the way in which DMGT manages its IT architecture, the profile and prevalence of this type of risk has increased. 38 Strategic ReportGovernanceFinancial StatementsShareholder InformationStrategic risks continued Description and impact Talent Our ability to identify, attract, retain and develop the right people for senior and business-critical roles could impact the Group’s performance. • Entrepreneurship and leadership skills are a priority for the Group and key to the continued success of many of our operating companies. • Technology and software development skills remain crucial to many of our businesses where there is significant investment in software platforms and technology infrastructure to support next-generation product development. • The strategy to build out our data analytics capabilities places focus on developing and attracting specialists in emerging technologies. These skills are in high demand, which makes attracting and retaining people with these skills more competitive. • Enterprise sales and operational execution expertise with market and product knowledge continue to be a strategic imperative. Operational risks Description and impact Information security breach or cyberattack An information security breach, including a failure to prevent or detect a malicious cyberattack, could cause reputational damage and financial loss. The investigation and management of an incident would result in remediation costs and the diversion of management time. A breach of data protection legislation could result in financial penalties for the affected business and potentially the Group. Examples the Group include: client data. The risk is relevant to all businesses in the Group due to the nature of products and services across the portfolio. Examples which could impact • Loss or unauthorised access to personal information and sensitive • Unavailability or disruption of online products and services. • Integrity of online products, services and data compromised. • Disruption to critical systems that support business operations. • Theft of intellectual property. Reliance on key third parties Key third parties include: Certain third parties are critical to the operations of our businesses. A failure of one of our critical third parties may cause disruption to business operations, impact our ability to deliver products and services and result in financial loss. The reputation of our businesses may be damaged by poor performance or a regulatory breach by critical third parties, particularly outsourced service providers. • Data centre and cloud service providers. • Search engine traffic partners. • IT development support. • Data providers for core product. • Newsprint, flexographic plate and ink suppliers. • Newspaper distributors and wholesalers. • Event venues. Compliance with laws and regulations Particular areas of focus for DMGT businesses are: • Data protection, including the EU General Data Protection Regulation (GDPR) The Group operates across multiple jurisdictions and sectors. Increasing regulation increases the risk that the Group is not compliant with all applicable laws and regulations across all of the jurisdictions in which it operates, which could result in financial penalties and reputational damage. Increasing regulation also results in increasing costs of compliance. and the proposed ePrivacy Regulation. • Competition and anti-trust legislation. • EU Market Abuse Regulation. • Libel legislation. • Tax compliance. • Trade sanctions. • Entering regulated markets or sectors. Pension scheme deficit Future pension costs and funding requirements could be increased by: Defined benefit pension schemes, although now closed to new entrants, remain ultimately funded by DMGT, with Pension Fund Trustees (Trustees) controlling the investment allocation. • Adverse changes in investment performance. • Valuation assumptions and methodology. • Inflation and interest rate risks. There is a risk that the funding of the deficit could be greater than expected. Daily Mail and General Trust plc Annual Report 2019 Examples Mitigation Trend • Local HR specialists focused on recruitment, critical skills planning, identifying and developing internal talent combined with central oversight of reward. • Central Technology function with specialised expertise in artificial intelligence, machine learning, data architecture and management, platform development and scaling. • Central Technology function oversight of technology hire. • Central Portfolio Solutions function partners with operating companies’ management, advising on critical skills to improve operational and commercial performance, including pricing and packaging strategies, go-to-market and sales execution and business case development and planning. • Executive management is involved in the recruitment of all operating company leadership roles and their ongoing development. • Payment of competitive rewards for key senior roles, developed using industry benchmarks and external specialist input. The decreased size of the portfolio may have a detrimental impact on the internal mobility of talent. This combined with the record low levels of unemployment in the UK will result in an additional challenge to attracting the right calibre of talent. While the above is not deemed enough to alter the trend of this risk, extra provisions will be assessed in order to help manage this trend. Mitigation Trend While risk transference is mitigated by the way in which DMGT manages its IT architecture, the profile and prevalence of this type of risk has increased. • The Technology Council provides oversight of information security initiatives Group-wide. • The Group Chief Information Security Officer is responsible for reviewing and recommending actionable roadmaps to improve information security procedures and protections at each operating company. • Group Information Security Policy and detailed information security standards with regular reviews reported to the Technology Council. Periodic reviews of the standards themselves are performed to ensure they keep pace with best practice. • Information security is reviewed as part of every internal audit of an operating company. • Cyber insurance policies in place. • Dedicated budget for information security investments. • The Group’s diverse and balanced portfolio of businesses and products reduces the overall impact of the failure of an individual third party. • Operational and financial due diligence is undertaken for key suppliers on an ongoing basis. • Close management of key supplier relationships including contracts, service levels and outputs. • Robust business continuity arrangements for the disruption to key third parties. • Event cancellation and business interruption insurance policies. • Changes in laws and regulations are monitored and potential impacts discussed with the relevant persons, Board, or Committee, or escalated as appropriate. • Developments in the legal and regulatory landscape are reviewed by the Audit & Risk Committee. • Implementation and monitoring of Group-wide policies to address new legislation and regulation where applicable. • Group-wide working groups for key compliance areas, such as the GDPR. • Monitoring and management of tax risks is performed by the DMGT Tax Sub-Committee. • The agreed funding plan gives certainty over the financial commitment. • Monitoring and management of pension risks is performed by the DMGT Pension Sub-Committee. • Company-appointed Trustees. The Strategic Report was approved by the Board on 4 December 2019 and signed on its behalf by the Group Chief Financial Officer. By order of the Board Tim Collier Group Chief Financial Officer 39 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Board of Directors and Company Secretary 1. 4. 7. 2. 5. 8. 3. 6. 9. 10. 11. 12. Key to Board and Committees Audit & Risk Committee Remuneration & Nominations Committee Investment & Finance Committee 40 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 1. The Viscount Rothermere Chairman Appointed to the Board: 1995 Appointed Chairman: 1998 Skills and experience: Lord Rothermere brings significant experience of media and newspapers. He worked at the International Herald Tribune in Paris and the Mirror Group before moving to Northcliffe Newspapers in 1995. In 1997 he became Managing Director of the Evening Standard. Other appointments: Independent Television News Limited (until November 2018), Cazoo (from December 2018). 2. P A Zwillenberg CEO Appointed to the Board and CEO: 2016 Skills and experience: Paul Zwillenberg has over 30 years’ experience across the media industry. He has a broad knowledge of the Group, having set up the digital division of dmg media (formerly Associated Newspapers digital) in 1996. Prior to joining DMGT, Paul was the Global Leader of Media Sector and Senior Partner and Managing Director at The Boston Consulting Group. Before that he founded an early interactive media company and launched a European technology services firm. No other appointments. 3. T G Collier Group Chief Financial Officer Appointed to the Board and Group Chief Financial Officer: 2017 Skills and experience: Prior to joining DMGT, Tim Collier was Chief Financial Officer of Thomson Reuters Financial and Risk Business where he was responsible for driving financial and risk performance, optimising resources and enhancing growth through organic and strategic investments. Tim’s experience has spanned media and business information industries and functions including banking, corporate finance, treasury, insurance, internal audit, accounting and M&A. Other appointments: Euromoney Institutional Investor PLC Board and its Nominations and Audit Committees (until April 2019). 4. K J Beatty Executive Director Appointed to the Board: 2004 Skills and experience: Kevin Beatty brings many years of media industry experience and is Chief Executive of dmg media. Before joining the Group he was Managing Director of the Scottish Daily Record and Sunday Mail. 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. Other appointments: Euromoney Institutional Investor PLC Board and its Remuneration and Nominations Committees (until April 2019), Excalibur Board, which operates the Wowcher and Living Social daily deals businesses, PA Media Group Board and its Remuneration Committee (until March 2019), Board member of the NMA and Chairman of the RFC, the body that funds IPSO (Independent Press Standards Organisation). 5. Lady Keswick Independent Non-Executive Director Appointed to the Board: 2013 Skills and experience: Lady Keswick’s extensive career is based in public policy and international affairs, particularly in Asia. She is the former Director of the Centre of Policy Studies and was, until 2017, its Deputy Chairman. She was the Special Policy Adviser to the Rt. Hon. Kenneth Clarke QC MP, working at the Departments for Health, Education and Science, the Home Office and HM Treasury. She previously worked in advertising and journalism. In 2013, Lady Keswick was elected Chancellor of the University of Buckingham. No other appointments. 6. A H Lane Non-Executive Director Appointed to the Board: 2013 Skills and experience: Andrew Lane brings a range of experience of dealing in complex legal and regulatory matters. He is a partner at Forsters LLP and specialises in private client law. Other appointments: Trustee of the Pension Fund of the Royal Agricultural Society of England. 7. F L Morin Non-Executive Director (Canadian) Appointed to the Board: 2017 Skills and experience: François Morin brings a broad range of experience and skills to the Board arising from his role as Partner at the Canadian law firm Borden Ladner Gervais. He is a qualified lawyer admitted to the Québec Bar. In particular, he brings an international perspective relevant to the Group’s global operations and experience of regulatory matters across a range of areas. François also has a strong record of community involvement including as director on a number of charitable boards. No other appointments. 8. D H Nelson Non-Executive Director Appointed to the Board: 2009 Skills and experience: David Nelson provides the Board and its Committees with relevant financial expertise, gained through a career in accounting. He is a Partner at Dixon Wilson, Chartered Accountants. He is an adviser 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. Other appointments: Mind Gym plc (Non-Executive Director); Dulwich Preparatory Schools Trust (a registered charity – Chairman), and The Rye, Winchelsea & District Memorial Hospital Limited. 9. K A H Parry OBE Independent Non-Executive Director Appointed to the Board: 2014 Skills and experience: Kevin Parry is a chartered accountant who brings a broad range of experience and skills to the Board. He serves on a number of listed company boards and has previously been a Non-Executive Director of Schroders plc, Knight Frank LLP and the Homes and Communities Agency. He has extensive experience chairing companies as well as audit, risk and nominations committees. He was CFO of Schroders plc, CEO of Management Consulting Group PLC and the managing partner of KPMG’s information, communications and entertainment practice in London. Other appointments: The Royal London Mutual Insurance Society Limited (chairman), Intermediate Capital Group plc (until November 2019), and Nationwide Building Society. 10. JP Rangaswami Independent Non-Executive Director Appointed to the Board: 2017 Skills and experience: JP Rangaswami brings extensive knowledge and experience in the fields of data and computer science. He was the Chief Data Officer and Group Head of Innovation at Deutsche Bank until September 2018. He is a director and trustee of the Web Science Trust and adjunct professor in Electronics and Computer Science at the University of Southampton. Other appointments: Allfunds Bank S.A. 11. J H Roizen Independent Non-Executive Director (American) Appointed to the Board: 2012 Skills and experience: Heidi Roizen provides the Board with experience in digital media, entrepreneurial growth and business development in both public and private companies in the US. She teaches entrepreneurship at Stanford University. Heidi was Vice President of Worldwide Developer Relations for Apple Computers, as well as being CEO and co-founder of pioneering consumer software company T Maker. She is a Partner at Threshold Ventures, a venture capital firm in California. Other appointments: Threshold Ventures. 12. D Trempont Independent Non-Executive Director (American) Appointed to the Board: 2011 Skills and experience: Dominique Trempont brings experience as a Chief Executive Officer, Chairman and Independent Board Director in large multinational high-tech companies and start-ups. He has extensive knowledge of software and digital data/content businesses, artificial intelligence, machine learning, cyber security, online B2C and B2B markets. He is currently on the board of companies focusing on disruptive innovation and emerging markets. Other appointments: Airspan, ON24, (Real Networks until 31 October 2019). F L Sallas Company Secretary Appointed as Company Secretary: 2017 Skills and experience: Fran Sallas is Secretary to the Board, Audit & Risk Committee, Remuneration & Nominations Committee and the Investment & Finance Committee. Fran is a Fellow of the Institute of Chartered Secretaries and Administrators. 41 Strategic ReportGovernanceFinancial StatementsShareholder Information Governance Governance Chairman’s Statement on Governance I am pleased to present the Corporate Governance Report for FY 2019. Strong governance is essential to the way DMGT operates; it is promoted by the Board and cascades throughout the Group. It is a key factor in our ability to achieve growth in a profitable, responsible and sustainable manner and in how we maximise shareholder value over the long term. DMGT’s approach to governance is distinctive; because our corporate procedures are strengthened by the significant benefits we derive from the family shareholding and the long-term view that this engenders. Our approach to governance Our governance framework sets out clear parameters for decision-making. This is achieved through delegated authorities which ensure decisions are made by the appropriate body and that there is clear accountability to the DMGT Board. Governance practice continues to evolve. DMGT applies the 2016 UK Corporate Governance Code (the Code). The 2018 UK Corporate Governance Code will apply to DMGT from FY 2020. Where possible we have begun to disclose our position in relation to the 2018 Code in this Annual Report. We voluntarily apply the new provisions where appropriate and explain when we are not in compliance. April 2019 Distributions Following a review, the Board concluded that the Group’s capital and cash resources were in excess of its requirements and that a significant distribution was appropriate. It was decided to distribute the entirety of DMGT’s shareholding in Euromoney Institutional Investor plc (Euromoney) and a further £200 million in cash. The April 2019 Distributions were in support of the Group’s stated strategy of increasing portfolio focus. The Board established an Independent Committee to assess the fairness of the distributions. This was expertly led by Kevin Parry, Independent Non-Executive Director and, based on a thorough analysis of the proposed Distributions by a panel of external advisers, recommended that shareholders should vote in favour and the Distributions were subsequently approved. I would like to thank Kevin Parry and the other members of the Independent Committee, JP Rangaswami and Dominique Trempont, for their stewardship of this important part of DMGT’s history. Read more about the April 2019 Distributions on page 25 Areas of focus The Board continues to work closely with the executive team, offering support and robust challenge in a spirit of openness and transparency. Areas of particular focus for the Board include our approach to our portfolio of businesses and their continued growth, as well as divestments, rigorous financial management, balanced capital allocation and managing a strong balance sheet. Additionally, the Board has focused on our people agenda and leadership capabilities. Read more in CEO Review, pages 10 to 13 Read more in Financial Review, pages 22 to 30 Read more in Our People and Our Stakeholders, pages 31 to 33 The Viscount Rothermere Chairman The Viscount Rothermere Chairman In this section Chairman’s Statement on Governance Corporate Governance Executive Committee Report Investment & Finance Committee Report Audit & Risk Committee Report Remuneration & Nominations Committee Report Remuneration Report Statutory Information Annual General Meeting 2020: Resolutions 42 43 47 47 48 54 55 78 81 Strong governance is essential to the way DMGT operates.” 42 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Governance Corporate Governance Committee structure The Board and Committee structure is set out below: DMGT DMGT Board Collectively responsible for the long-term success of the Company. Audit & Risk Committee The Audit & Risk Committee has responsibility for: • the Company’s financial reporting; • narrative reporting; • the Internal and External Audit processes; and • the signing off of external disclosures. The Committee also oversees: • the Group’s system of internal controls and risk management; • the Group’s risk register, risk appetite and tolerance, including as part of the Viability Statement; and • developments in relevant legislation and regulation. Time is allocated at each meeting for both Audit and Risk matters, to ensure that all items are adequately addressed. Remuneration & Nominations Committee The Remuneration & Nominations Committee ensures that remuneration arrangements support the strategic aims of the business and enables the recruitment, motivation and retention of senior executives in a manner that is aligned to shareholder interests, while also complying with the requirements of regulation. It also reviews the structure and composition of the Board and its Committees, in particular the skills, knowledge and experience of Directors. Time is allocated at each meeting for both Remuneration and Nominations matters, to ensure that all items are adequately addressed. Investment & Finance Committee The Investment & Finance Committee evaluates investment opportunities and financing proposals and monitors returns on investments made. Executive Committee The Executive Committee meets regularly to discuss all aspects of the Group’s performance and strategy, particularly performance management, capital allocation, risk management and senior talent considerations. Family shareholding Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL was its holding of DMGT Ordinary Shares. RCL is controlled by a discretionary trust (Trust) which is held for the benefit of Lord Rothermere and his immediate family. As explained on page 78, the Board anticipates that as of 5 December 2019, Rothermere Investments Limited (RIL) will become the holder of the DMGT Ordinary Shares, however there will be no change in the Trust’s ultimate control of DMGT. Both RCL and the Trust are administered in Jersey, in the Channel Islands. The directors of RCL, of which there are seven, included two directors of DMGT during the reporting period: Lord Rothermere and François Morin. RCL has controlled the Company for many years. RCL maintains that the Company should be managed in accordance with high standards of corporate governance for the benefit of all shareholders; this has been the case throughout the period of RCL’s control. RCL has again indicated to the Company that its intentions for the Company’s governance are long term in nature and that it will discuss with the Board of the Company any material change in its intentions. In particular, RCL has confirmed its intention that the Company will: • continue to observe the Listing Principles in their current form; • continue to maintain a securities dealing code for certain of its employees; • continue to voluntarily observe the UK Code on a ‘comply or explain’ basis. RCL have indicated that this will continue to be the case under the 2018 UK Corporate Governance Code; and • have an appropriate number of Independent Non-Executive Directors on its Board. It is also intended by RCL that the Company’s Independent Directors would take decisions on behalf of the Company in relation to any proposed transaction between the Company and RCL, or between the Company and an associate of RCL, where any such proposed transaction would have been a related party transaction under Chapter 11 of the Listing Rules. UK Corporate Governance Code The Code forms an important part of how we operate. It allows a ‘comply or explain’ approach to achieving best governance practice. We have chosen to explain our governance practices if these do not fully meet the provisions of the Code. This allows us to recognise our requirements under the Code and the benefits of our shareholding structure. Our explanations, where we deviate from the Code, are set out in the relevant sections of this Corporate Governance Report. DMGT will report on the 2018 UK Corporate Governance Code from FY 2020. The Code is available at ww.frc.co.uk. Information required under DTR 7.2.6 is provided on page 78 and forms part of this Report. Key features of the risk management and internal control systems can be found on pages 34 and 35. Leadership The Board has a duty to promote the long-term success of the Company for its shareholders. This includes: the review and monitoring of strategic objectives; approval of major acquisitions, disposals 43 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance and capital expenditure; financial performance; reviewing the effectiveness of the Group’s systems of internal controls; governance; risk management; and training and development. Persons discharging managerial responsibility As part of the Company’s continuing obligation to ensure compliance with the Listing Rules and related regulations, we have identified that Directors and other senior executives who have regular access to inside information and the power to make managerial decisions affecting the future development and business prospects of the Company are those on the Board, Executive Committee and regular attendees at the Investment & Finance Committee. How the Board operates There is a schedule of matters reserved to the Board. This details key matters in respect of the Company’s management that the Board does not delegate. This can be seen at www.dmgt.com/about-us/board-and- governance. If any Director had any concerns about the way the Board was operating, these would be recorded in the minutes. No such concerns were raised during the reporting period. Day-to-day management of the Company is the responsibility of the Executive Committee and of the executive management of the operating companies. Delegation of authority The Board has delegated certain activities to Board Committees, under formal terms of reference, details of which are set out on pages 43 to 54. Go online to www.dmgt.com/ about-us/board-and-governance for full Terms of Reference Division of Chairman and CEO responsibilities In accordance with provision A.2.1 of the Code, the roles of Chairman and CEO are separate. The Chairman is responsible for leading the Board and overseeing operations and strategy. The CEO is responsible for the execution of the strategy and the day-to-day management of the Group and is supported by the Executive Committee. Non-Executive Directors The Non-Executive Directors, as members of the Board and its Committees, are responsible for ensuring the Company has effective systems of internal controls and risk management, and additionally, for monitoring financial performance. 44 All Committee Chairmen report to the Board on Committee activity at each Board meeting. Senior Independent Director The Chairman has an interest in the shares of the Company through the Trust and the Board feels that there is no need for a Senior Independent Director to represent shareholders additionally. Accordingly the Board has not appointed a Senior Independent Director as recommended under Code provision A.4.1. Directors consider that they can represent themselves freely to the Chairman. However, when a situation arises that would best be handled by an individual Independent Non-Executive Director, the most appropriate person is appointed by the Board (with or without the Chairman being present, as appropriate), as was the case during the year for the April 2019 Distributions with the formation of the Independent Committee led by Kevin Parry. Chairman evaluation The Remuneration & Nominations Committee (without the Chairman being present) annually assesses the Chairman’s performance. Independence The Board has determined that Lady Keswick, Kevin Parry, JP Rangaswami, Heidi Roizen and Dominique Trempont are independent within the meaning of provision B.1.1. of the Code. Andrew Lane, François Morin and David Nelson are not considered to be independent within the meaning of the Code. Andrew Lane and David Nelson are each advisers to the Chairman. François Morin is a Director of RCL. 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 employees. They are independent of the Executive Directors, and are aligned with shareholders’ interests. Less than half of the Board are Independent Non-Executive Directors, which is not in line with provision B.1.2. of the Code. The Board believes, however, that its current composition is appropriate taking into account the heritage of the Group, the interests of our operating companies as represented on the Board, and that a good balance is achieved from the Board’s Non-Executive Directors in terms of skill and independence. The Board keeps this under review. The Chairman, Lord Rothermere, having been appointed in 1998 is not considered to be independent under the Code. For Companies Act 2006 disclosure purposes, Lord Rothermere is treated as holder of all the Ordinary Shares of the Company. In addition, Lord Rothermere and his immediate family have the largest economic interest in DMGT through their holding of A Ordinary Non-Voting shares. The Board therefore considers that Lord Rothermere’s interests are fully aligned with those of other shareholders. Effectiveness The Board reviewed its effectiveness within the context of the provisions of Section B of the Code. In addition to its review of independence and the Board evaluation process, discussed separately, the Board discharged its Code duties as follows: • appointments: the Remuneration & Nominations Committee is responsible for referring potential appointments to the Board for approval and is assisted by the CEO. Further details are in the Remuneration & Nominations Committee Report on page 54; • time: the time commitment of each Non-Executive Director is set out in his/her Letter of Engagement. Each Letter of Engagement is renewed annually following consideration by the Remuneration & Nominations Committee and a shareholder vote at the Annual General Meeting (AGM); • multiple commitments: the Remuneration & Nominations Committee recognises that Board members may be directors of other companies and that this additional experience is likely to enhance discussions at the Board. Details of any additional directorships are on pages 40 and 41. Executive Directors are generally permitted to hold non-executive directorships as long as they do not lead to conflicts of interest or time; • development and information: on joining, Directors receive a comprehensive, tailored induction programme, which includes time with the Company Secretary, the Executive Directors and a range of senior managers across the Group. During the year, as part of a rolling training programme, the Board has received updates on key areas of finance and governance as well as detailed presentations by operating companies; and • re-election: in line with principle B.7 of the Code, all Directors are eligible to stand for re-election annually and will do so at the 2020 AGM. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Relations with shareholders There is a unity of interests between the family and other shareholders. Any concerns raised by shareholders in relation to the Company and its affairs are communicated to the Board through regular briefings. Shareholders have access to the Company Secretary and Company’s Registrars to discuss queries or raise issues they may face. Senior executives hold regular Investor Relations (IR) meetings with institutional investors; IR roadshows follow the half and full-year results. The Chairman also meets DMGT’s largest shareholders. Institutional feedback is provided to the Board through a broker report distributed prior to meetings and investor feedback is circulated to Directors following results and trading updates. In addition: • An Investor Briefing was held on 2 July 2019 and focused entirely on RMS, the Insurance Risk business. The event included presentations from the RMS management team and a Q&A session. During the April 2019 Distributions, a number of large shareholders expressed a keen interest in RMS’s prospects and potential to create value. The event gave investors an update on RMS’s progress and the opportunity to meet RMS’s management. • Following the April 2019 Distributions, DMGT engaged an external adviser to review interactions with investors. This included feedback on the April 2019 Distributions, interaction with management, DMGT’s IR team, shareholder messaging and corporate governance. The findings were satisfactory and no significant concerns were raised. Board activities and stakeholder engagement DMGT understands the importance of considering a company’s responsibilities to a broad stakeholder group. When making decisions, the Board considers the impact on its employees, customers, suppliers, the communities in which we operate, its shareholders and its suppliers, in line with section 172 of the Companies Act 2006. As described throughout the Annual Report, during FY 2019 the Board met with employees to hear their views, including attending an emerging leaders event with representatives from the operating companies. It has heard from shareholders both through regular updates and also during the April 2019 Distributions. The Board considers the importance of key suppliers when making commercial decisions, in particular their practices and approach to items such as data privacy. The Board also heard more about DMGT’s Corporate Responsibility programme when it attended a ceremony to present the Hobsons winner of the DMGT Community Champions Awards, when visiting the business in September 2019. Go online to www.dmgt.com/careers to find out more Website The Company’s website, www.dmgt.com, provides the latest news, historical financial information, details about forthcoming events for shareholders and analysts, and other information relevant to shareholders regarding the Group. Board composition and diversity The Board has continued to review its composition during FY 2019 to ensure that it has the right combination of members to contribute effectively to the development of strategy and how DMGT operates. DMGT considers diversity in its broadest sense when reviewing how the Board operates and its composition. The split of the Group’s profits between our US and other businesses, the global nature of our operations and the range of activities undertaken across the Group has been reflected over recent years in our Board appointments. Maintaining this broad range of appropriate skills, including international and specific sector experience, will continue to be a factor in our Board succession planning. The Board is aware of and takes into account the diversity of its senior management. This is considered as part of the senior management appointment process. Further details on our approach are included in the Remuneration & Nominations Committee Report on page 54. Diversity Read more about DMGT’s approach to diversity in Our People and Our Stakeholders, pages 31 to 33 Read more about the scheme and winners on DMGT.com Fair, balanced and understandable One of the key governance requirements of a group’s annual report is for it to be fair, balanced and understandable. The coordination and review of Group-wide input into the Annual Report is a specific project, with defined time frames, which runs alongside the formal audit process undertaken by the External Auditor. The Audit & Risk Board evaluation In FY 2019, the Board undertook a review of its own performance and those of its Committees, which built on the results of the FY 2018 review. The review was conducted through an internal process facilitated by the Company Secretary. An online questionnaire was used, focusing on the Board’s remit and key issues faced. The review focused on a series of specific questions covering key areas reserved to the Board. In particular, the Board considered how it was discharging its strategic remit and review of key issues facing the Group and its businesses. Completed questionnaires were submitted and reviewed by the Chairman. A summary of findings was presented to the Board in a manner that did not identify individual specific responses, ensuring that the follow-up discussion with the entire Board was open. The responses showed that the Board welcomed the process and that overall, the Board was happy with the progress during the year and that the Board and its Committees continue to function well. There was a continuous monitoring programme to ensure that items addressed in the FY 2018 evaluation were also addressed during the year. Actions arising from the FY 2019 evaluation included ensuring that time on the Board agenda was allocated to the continued review of Board composition in relation to B2B experience; cyber security; and oversight of operating companies through regular strategy updates. The Board believes that an internal evaluation process facilitated by the Company Secretary is appropriate. The Board will keep this under review. 45 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance Committee’s and the Board’s confirmations of satisfaction with the process and the statements being made is underpinned by: • comprehensive guidance being provided to the operating companies in respect of each of the requirements for, and each of their contributions to, the Annual Report; • a verification process in respect of the factual content of the submissions made; • comprehensive sign-off process by owners of all statements made; and • comprehensive reviews undertaken at different levels of the Group with the aim of ensuring consistency and overall balance. As a result of this process, the Audit & Risk Committee and the Board are satisfied with the overall fairness, balance and understandability of the Annual Report. DMGT Board – membership Member Chairman The Viscount Rothermere CEO P A Zwillenberg Group Chief Financial Officer T G Collier Executive Directors K J Beatty Non-Executive Directors Lady Keswick A H Lane F L Morin D H Nelson K A H Parry JP Rangaswami J H Roizen D Trempont Member for the full period Meetings held Meetings attended Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 9 9 9 9 9 9 9 9 9 9 9 9 8 9 9 9 8 9 9 9 9 9 9 9 Additional meetings were held during FY 2019 to consider items relating to the April 2019 Distributions and disposal of Genscape. The Board’s focus in FY 2019 Board members have visited, and received presentations and functional area updates from, DMGT’s operating companies on a rolling basis. During the year, as part of the Directors’ ongoing development and follow-up from the FY 2018 Board evaluation process, these updates were a combination of presentations to the whole Board and smaller groups as deemed appropriate, as detailed below. Portfolio management and strategy People Governance • A strategic review of the portfolio. • Future size and shape of the Group. • Non-Executive Directors Andrew Lane and Dominique Trempont attended RMS Exceedance in Miami in May 2019. • Presentations by the operating companies. • A visit by Non-Executive Directors to Hobsons and Landmark Information Group. • The September Board meeting incorporated a site visit to Hobsons, including product demonstrations. Read more in CEO Review, pages 10 to 13 Risk management • With the support of the Audit & Risk Committee, review of the Group’s principal risks, other key risk areas and performance against risk appetite. • Approval of the Group’s Viability Statement and risk appetite for FY 2020. Read more in Principal Risks, pages 34 to 39 46 • Discussions regarding senior • Regular updates throughout the year appointments and succession planning. • Updates on talent management and diversity. • Presentation to Non-Executive Directors on succession and senior executives. • Non-Executive Directors were given the opportunity to meet with emerging leaders across the Group. Finance and capital • Assessment and monitoring on a regular basis, performance against agreed financial targets, budget and returns on investment. • Approval of authority limits and process for investments. • Assessment and monitoring of approach to pensions and tax policy. • Assessment and monitoring of the April 2019 Distributions. Read more in Financial Review, pages 22 to 30 including on Market Abuse Regulation, 2018 UK Corporate Governance Code, payments practices reporting, gender pay gap reporting, modern slavery and human trafficking, General Data Protection Regulation as well as reports from the Committee Chairmen. • Approval and changes to updated Terms of Reference and matters reserved to the Board. • Review of the quality of the External Audit. • Review of ‘DMGT Essentials’, the Group internal governance guide for operating companies. Technology • Review of tech debt, mission-critical outsourcing, cyber security and business continuity. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Key activities • Reviewing all acquisitions, disposals and capital expenditure within its remit, including presentations made by operating companies to request support in line with strategic objectives. • Reviewing performance against budget and plan including reviewing debt position, tracking performance against the original investment case and assumptions for acquisitions and investments. • Oversight of the Company’s pension scheme planning, including discussions with the various scheme Trustees and their advisers and the latest triennial valuations. • Reviewing the Company’s dividend planning activities. • Reviewing and approving the Company’s tax strategy. • Reviewing the Committee’s effectiveness. • Reviewing options for the proposed distribution of Euromoney shares and cash special dividend to shareholders. Board Committees Executive Committee The Executive Committee is responsible for the day-to-day operation of the Group in line with the overall strategic aims set by the Board. Membership Member Member for the full period The Viscount Rothermere (Chairman) P A Zwillenberg T G Collier K J Beatty R Chandhok Yes Yes Yes Yes Yes The Executive Committee meets regularly. It has a broad remit covering strategy and its execution, and operational performance oversight. Key activities • Business reviews with all operating companies at least twice yearly. • Performance management review and analysis. • Talent acquisition and management. • Review of key investment and divestment opportunities and capital allocation decisions. • Review of operating company and Group risk registers. • Budget approval and tracking against budget. Governance The Executive Committee is designed to represent key businesses and functions. It ensures that there is appropriate support for, and challenge to, the operating companies. Investment & Finance Committee The Investment & Finance Committee evaluates the benefits and risks of investment opportunities and financing proposals up to a value threshold. The Investment & Finance Committee provides regular updates to the Board including monitoring returns on investments made and progress against agreed targets. Membership There were six meetings held in the year. Member The Viscount Rothermere (Chairman) P A Zwillenberg T G Collier A H Lane D H Nelson K A H Parry* * Independent. Member for the full period Yes Yes Yes Yes Yes Yes Governance • The Investment & Finance Committee reviewed its membership and approved that Lord Rothermere continue as its Chairman. • The Investment & Finance Committee reviewed its Terms of Reference and those of the Pensions and Tax Sub-Committees and these were updated to reflect changes during the year. • The Investment & Finance Committee confirmed that it and its Sub-Committees had complied with their Terms of Reference and had been effective throughout the year. 47 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance Audit & Risk Committee: Chairman’s Introduction In the context of our changing Group, we have focused our audit work on judgmental areas of accounting and auditing, and our risk work on high-impact possible events. There is a comprehensive process to review significant business risks to the Group including financial risk, operational risk and compliance risk that could affect or impact the achievement of the Group’s strategy and business objectives. Dear Shareholders I am pleased to present the Audit & Risk Committee Report. We operate as a combined Audit & Risk Committee. The Audit & Risk Committee reviewed financial information connected with acquisitions and disposals to ensure appropriate accounting, including information included in the circular issued for the April 2019 Distributions. During the year we maintained our focus on threats to our cyber security and closely monitored the Group’s compliance with the General Data Protection Regulation (GDPR). We continue to monitor the potential impact of Brexit on DMGT. The Committee considered the risks associated with Brexit and concluded that our preparations were such that there would be no material impact on the Group’s businesses. The Group has maintained its attention on operational effectiveness during the year. The Committee focuses on ensuring our risk management procedures and internal and external audits address changing requirements. The following pages set out the Audit & Risk Committee’s Report for the financial year. The report is structured in four parts: • How the Audit & Risk Committee operates: membership, key responsibilities, governance, effectiveness and operating practices; • Review of the year: key activities and the significant financial reporting and auditing issues and other financial matters; • Oversight: risk and controls, and internal audit; and • External Auditor: auditor independence; and audit quality and materiality. Kevin Parry Audit & Risk Committee Chairman Membership Member K A H Parry (Chairman)* A H Lane D H Nelson D Trempont* * Independent. Member for full period Meetings held Meetings attended Yes Yes Yes Yes 7 7 7 7 7 7 7 7 48 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 The Audit & Risk Committee meets at least six times a year. In FY 2019 the Audit & Risk Committee met seven times due to the April 2019 Distributions. Andrew Lane and David Nelson did not take part in discussions relating to the Audit & Risk Committee’s duties in connection with the April 2019 Distributions. All members of the Audit & Risk Committee are Non-Executive Directors and two are Independent Non-Executive Directors. The Committee as a whole has competence relevant to the sectors in which DMGT operates, providing an effective level of challenge to management. Kevin Parry is a former senior audit partner, a former chief financial officer and has extensive experience as an audit committee chairman. David Nelson is a partner of an accounting practice. Dominique Trempont is a former chief financial officer and has extensive experience as an audit committee chairman and member. Consequently Kevin Parry, David Nelson and Dominique Trempont are designated under provision C.3.1 of the Code as the financial experts with competence in accounting and auditing. Key responsibilities The Audit & Risk Committee’s Terms of Reference are on our website at www.dmgt. com/about-us/board-and-governance. Governance The integrity of the Group’s financial results and internal control systems are important to the Directors and the shareholders. Consequently, the Audit & Risk Committee encourages and seeks to safeguard high standards of integrity and conduct in financial reporting and internal control. The Committee tests and challenges the results and controls in conjunction with management and the Internal and External Auditors. The Committee has fulfilled its responsibilities during the year and confirms the Group is in compliance with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. The Committee is permitted to obtain its own external advice at the Company’s expense. No such advice was sought during the year. Andrew Lane and David Nelson are advisers to RCL and not Independent Directors. This is a deviation from Code Provision C.3.1. The Board considers that their membership adds to the deliberations of the Audit & Risk Committee and the Committee Chairman confirmed there was no conflict of interest during the year, except in respect of the April 2019 Distributions. Effectiveness The Audit & Risk Committee reviews its Terms of Reference and effectiveness annually. The review confirmed that the Committee is effective at meeting its objectives, under principle B.6 of the Code and the needs of the Group. The Committee embraced continued emphasis being placed on cyber risks and restructurings of businesses and management. Operating practices During the year the Audit & Risk Committee meetings were scheduled to take place prior to Board meetings to maximise the efficiency of interactions. Reports are made to each Board meeting on the activities of the Committee, focusing on matters of particular relevance to the Board in the conduct of its work. The Committee has been supported in its activities during the year by the Group Chief Financial Officer, Company Secretary, Group Assurance Director, Group Chief Technology Officer, Group Chief Information Security Officer, Group Financial Controller and the Director of Group Finance, as well as the External Auditor. These individuals generally sponsor Committee papers, which are typically distributed one week prior to meetings. The Committee works with all contributors to discuss judgmental issues at an early and relevant opportunity. The Group Chief Financial Officer, Director of Group Finance, Group Financial Controller, Group Assurance Director, Company Secretary and the External Auditor are invited to each meeting but are recused when appropriate. The CEO is invited to the Half Year and Full Year meetings. The Chief Technology Officer, Chief Information Security Officer and UK and US Data Privacy Counsel are also invited to attend when appropriate. This approach results in informed decisions based on quality papers and discussion which provides for a thorough understanding of facts and circumstances. The Committee met regularly and separately with the External Auditor, Group Assurance Director (who is responsible for Internal Audit and Risk Assurance), the Group Chief Financial Officer and Company Secretary, without other executive management being present. Review of the year Key activities Key activities undertaken by the Audit & Risk Committee during the year included: Audit • Review of financial information relating to the April 2019 Distributions. • Agreeing the scope of Internal and External Audit work. • Challenging management’s accounting judgments. • Reviewing and discussing Internal Audit reports to maintain their contribution to improving the control environment. • Reviewing the basis of alternative performance measures. • Reviewing the effectiveness of the External Audit. Risk • Reviewing the 2018 Corporate Governance Code and DMGT’s proposed compliance. • Reviewing the Group’s risk management processes and the Group risk register. • Robust challenge to the assumptions supporting the Group’s Viability Statement (see page 26). • A rolling programme of focused risk topics, including information security and cyber resilience. • Review of compliance with GDPR post-launch. • Reviewing payment practices. • Compliance with legislation relating to anti-bribery and corruption, trade sanctions, health and safety, and modern slavery. • Business continuity and incident management. • Reviewing the Group’s whistleblowing arrangements with findings reported to the Board. 49 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance Financial reporting and auditing matters The Audit & Risk Committee considered and discussed the significant matters relating to financial reporting and auditing, as set out in the table below. The matter and its significance Focus of work Comments and conclusion A materiality threshold of £5 million has been set for exceptional items unless there was continuation of an activity previously disclosed as exceptional. During the year the Group adopted two new accounting standards, IFRS 15, Revenue from Customers and IFRS 9, Financial Instruments. The new revenue recognition standard introduced additional guidance surrounding performance obligations within sales contracts and the timing of revenue recognition. In addition, IFRS 15 also introduced changes to the recognition of incremental costs incurred when obtaining a contract with a customer, known as contract acquisition costs. IFRS 9 contains three principal classification categories for financial assets: Measured at Amortised Cost; Fair Value through Other Comprehensive Income; and Fair Value through Profit and Loss. The main effect resulting from this reclassification relates to the Group’s equity investments which are now classified as Fair Value through Other Comprehensive Income. As a result, all fair value movements are now recorded in Other Comprehensive Income. IFRS 9 also introduced an expected credit loss model which requires an impairment provision to be made on initial recognition of a receivable. Finally, the Group has adopted the new general hedge accounting model in IFRS 9, which aligns hedge accounting with the Group’s risk management strategy. Based on our enquiries with management and the External Auditor we have concluded that all our accounting policies have been properly applied. We continued to adjust operating profit for the amortisation of acquired intangible assets, as they relate to historical M&A activity rather than current trading. Additional adjustments have been made to exclude the impact of exceptional costs, impairments and other fair value adjustments. These adjustments assist understanding the outcome for the reporting period. We confirmed the prominence of GAAP numbers and reviewed the reconciliation of APMs to GAAP. We determined that the published information was of a high quality and helps shareholders understand progress. Sources of data are disclosed. Financial reporting The content of the Annual and Half-year Reports and trading updates should be appropriate, complying with laws and regulation. We specifically reviewed: • all accounting policies for continued appropriateness, consistency of application and the impact of new accounting standards; • all sections of the Annual Report having particular regard for the Audit & Risk Committee’s responsibilities for the financial statements; • reports from Financial Management, Legal, Risk and Internal Audit which confirmed compliance with regulations; and • the financial risks and papers to support the going concern basis of accounting. The Annual Report includes a number of non-GAAP measures. See Notes 13, 15 and 16 on pages 125, 127 and 128. In addition to the disclosure of operating profit, before and after specified adjustments, other non-GAAP measures, known as alternative performance measures (APMs), are disclosed in the Annual Report, e.g. underlying revenue growth, cash operating income and net cash to EBITDA ratio. We commissioned Internal Audit to review our APMs to ensure, whenever possible, that they were either sourced from third parties or otherwise robustly compiled. We ensured that equal prominence was given to statutory measures and that explanations and reconciliations accompanied all alternative measures including pro forma figures quoted throughout the accounts. Read more on page 45 regarding Fair, balanced and understandable 50 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 The matter and its significance Focus of work Comments and conclusion Accounting judgments The Group has capitalised software development costs, other intangible assets and goodwill associated with acquisitions. Goodwill and intangible assets represent 32% (2018 20%) and 9% (2018 8%) respectively of net assets. In addition the Company holds shares in Group undertakings with a carrying value of £3,238 million. These carrying values need to be justified by reference to future economic benefits to the Group (see Notes 21 and 22). The Group carries deferred tax assets in respect of brought- forward losses and deferred interest that represent 8% (2018 3%) of net assets (see Note 37). Capitalised computer software costs amounted to £14 million in the year compared to £20 million in 2018. We have ensured that capitalised costs were separately identifiable and met the requirements of the relevant accounting standards. As part of our review of the carrying values of our intangible assets, we have considered whether there has been any event which triggered an impairment and have reviewed reports prepared by executive management to determine whether an impairment event has taken place. In addition, to justify the carrying values of shares in Group undertakings, goodwill and intangible assets, we have reviewed value in use calculations, based on the Board-approved three-year forecasts, focusing on long-term growth rates and discount rates. We have received input directly from both operational and financial management. At the year end the Group held deferred tax assets of £58 million (2018 £57 million) in respect of brought forward losses and deferred interest. The Group actively manages its portfolio of investments and consequently is active in making acquisitions and disposals. Transactions that contain unusual terms and/or innovative structures would require the accounting treatment to be carefully considered. During the year, £73 million was incurred on acquisitions and £70 million was realised on disposals. (see Notes 8, 17 and 18). We carefully consider judgmental accounting and the carrying value of intangible assets and goodwill. We reviewed the valuation of the fair value of the Company’s equity investments. Internal Audit reviews all significant acquisitions within 12 months of the relevant acquisition. As there was an additional impairment charge recognised in reserves in the second half of the year relating to Euromoney, we have specifically assessed the rationale and the timing of the recognition of the impairment charge to ensure this was recorded in the correct period having regard to the principles of IFRIC 17. We were satisfied that costs that had been capitalised were appropriately held on the balance sheet. Our reviews included sensitivities to changes in assumptions which allowed us to understand the materiality of conclusions in the context of our financial reporting. We focused on our EdTech segment and concluded no impairment was necessary following trading improvement which resulted in headroom of £35 million associated with this business. In addition, we concluded that no impairment was necessary to the Company’s shares in Group undertakings. We noted that these conclusions are sensitive to future outcomes. Some combined downside sensitivities could trigger impairments if they occur in the future. Appropriate disclosures are included in the financial statements. In addition we are satisfied that judgmental matters have been explained and appropriate disclosures made. During the year, a dispute with HMRC regarding the timing of the tax deductibility of a number of intra group deferred interest payments was settled. As a result £81 million of deferred interest in respect of which no deferred tax asset had been recognised was converted to £69 million of usable tax losses and £10 million of capital allowances and a corresponding increase of £13 million in the Group’s recognised deferred tax asset. Also during the year, the Group paid £39 million of UK deferred interest, to enable a deduction to be taken against current year UK profits, with a resultant net reduction in the Group’s recognised deferred tax asset of £6 million. The Investment & Finance Committee oversees all acquisition and disposal activity. There are three common Audit & Risk Committee members. We were satisfied with the judgments made in the year. We performed a robust review of the treatment of acquisitions and disposals during the year and were satisfied with the treatments and calculations. We considered the appropriateness of the accounting treatment of Euromoney, the disposal of Real Capital Analytics, On-geo, and SiteCompli, the reduced stake in TreppPort and the acquisitions of DailyMailTV and Optimus. We noted that in accordance with IFRS 9, the fair value of the Group’s stake in Euromoney at the half year was £674 million based on the closing share price at 31 March 2019. This resulted in a first-half impairment charge of £24 million. Following a fall in the share price on 2 April 2019, the date of the Euromoney Distribution, we noted that an additional impairment of £12 million was necessary, which was recognised in reserves following the principles of IFRIC 17. 51 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance The matter and its significance Focus of work Comments and conclusion Accounting judgments continued The Group has many operating lease agreements with differing terms which will be impacted by IFRS 16, the new accounting standard on leases. The Committee has received regular updates from management outlining the impact of this new accounting standard, including the judgments and key assumptions used in the estimation of the impact. We reviewed the claim brought by the US Environmental Protection Agency (Note 19) including the timeline of events leading to the provision and the calculation of the potential maximum amount which may be payable. Accounting estimates The Group records provisions for lawsuits and claims when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The amounts accrued for legal contingencies often result from complex judgments about future events and uncertainties that rely heavily on estimates and assumptions. IFRS 16, the new leasing standard, is effective for the FY 2020. The Group has decided to adopt IFRS 16 using the modified retrospective transition approach meaning the comparative period will not be restated and the cumulative effect of initially applying the standard will be recognised as an adjustment to the opening balance of retained earnings. Due to the volume of lease agreements across the Group and the subjectivity inherent in calculating the rate implicit in a lease, we commenced a project in 2016 to collect and analyse the Group’s lease agreements and to evaluate the impact of this standard. The Committee has reviewed the results of this project with management and is satisfied that the assumptions used are appropriate. We are satisfied that outflow is now probable and the Group has made a provision in line with the potential maximum amount payable. The basis for the calculation of the provision using a two-year average price for Renewable Identification Numbers was reviewed and considered reasonable taking account of the liquidity and volatility in the market price of Renewable Identification Numbers. Other financial matters In addition to the significant matters addressed above, the Audit & Risk Committee maintains a rolling agenda of items for its review, including: capital strategy; financial and treasury management; feedback from analysts and investors; reconciliations of reported financial results with management accounts; tax management; and litigation. Nothing of significance arose in respect of those reviews during the year. There was no interaction with the FRC Corporate Reporting team during the year and no disagreement over accounting or reporting outcomes with management or the External Auditor during the reporting period. Oversight The Audit & Risk Committee has oversight responsibility for risks and controls and direct responsibility for the operation of the Internal Audit function; this is described in detail in the Risk section. Read more about our approach to Internal Audit, pages 34 and 35. External Auditor PricewaterhouseCoopers (PwC) is DMGT’s External Auditor. The lead audit partner is Neil Grimes, who has led the audit since the beginning of the relationship. The FY 2019 audit will be his last for DMGT. The Audit & Risk Chairman and David Nelson met with potential replacement PwC partners prior to the selection of Philip Stokes as the successor to Neil Grimes as the Group’s lead audit partner. Its first audit of DMGT was in respect of the year ended 30 September 2015, following a competitive tender process. The Audit & Risk Committee has responsibility for making recommendations to the Board on the reappointment of the External Auditor, for determining its fee and for ensuring its independence of the Group and management. The External Auditor stands for reappointment at the Annual General Meeting. There are no concerns over the quality of the service or opinion. Therefore, the Audit & Risk Committee recommended to the Board that it recommends to the shareholders that PwC be re-elected with a view to serving a second five-year term in office. Auditor independence The Audit & Risk Committee considered the safeguards in place to protect the External Auditor’s independence. In particular, the Committee has ensured that the Company’s policy on the External Auditor’s independence is consistent with the Ethical Standard set out by the FRC in the UK. PwC reviewed its own independence in line with this criterion and its own ethical guideline standards. PwC confirmed to the Committee that following this review it was satisfied that it had acted in accordance with relevant regulatory and professional requirements and that its objectivity is not compromised. To ensure no conflicts of independence arising from auditors being responsible for non-audit work, the Audit & Risk Committee reviewed and approved the policy on non-audit services. The review included consideration of the process to manage the engagement of PwC, regulatory changes and good practice. 52 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 During the year, the Audit & Risk Committee reviewed the quality of the FY 2018 audit, taking account of PwC’s internal assessment, management’s assessment and the Committee’s assessment. The Committee was satisfied with the robustness of the opinion and with the audit service. In particular, the Audit & Risk Committee was pleased with an overall improvement in service scores. Based on the information currently available, which draws on the enquiries outlined above and informal soundings of management, the Audit & Risk Committee anticipates it will conclude there has been a robust, high-quality audit for the year ended 30 September 2019, both in respect of PwC’s opinion and service. The Committee has consequently recommended that PricewaterhouseCoopers LLP be reappointed as Auditor at the 2020 AGM. The Audit & Risk Committee Report was approved by the Board on 4 December 2019 and signed on its behalf by the Audit & Risk Committee Chairman. By order of the Board Kevin Parry Audit & Risk Committee Chairman The audit fee payable to PwC amounts to £2.7 million (2018 £3 million). The Audit & Risk Committee is satisfied that the fee is commensurate with the quality of audit provided by PwC. In addition to the Group’s policy, PwC has confirmed that any non-audit work commissioned by the Group is reviewed for compliance with its internal policy on the provision of non-audit services. The cap on non-audit service fees is set at 70% of the average audit fees for the preceding three years. The total non-audit fees paid to PwC amounted to £0.8 million (2018 £0.5 million) which translates to a non-audit fee to audit fee percentage of 29% (2018 17%). The Committee is satisfied that PwC was selected based on individuals’ particular expertise, knowledge and experience and that the work did not impair PwC’s independence as External Auditor (see Note 5 to the Accounts). All non-audit work undertaken by PwC was approved by the Committee. The Committee, having taken account of PwC’s confirmations, is satisfied that PwC is independent of DMGT and its subsidiaries. Audit quality and materiality The Audit & Risk Committee places great importance on ensuring that there are high standards of quality and effectiveness in the external audit process. In addition, the Committee reviewed PwC’s scope and approved the external audit plan to ensure that it is consistent with the scope of the External Audit engagement. The Committee discussed significant and elevated risk areas that are most likely to give rise to a material financial reporting error or those that are perceived to be of a higher risk and requiring audit emphasis (including those set out in PwC’s report on pages 83 to 89). The Committee considered the audit scope and materiality threshold. This included the Group-wide risks and local statutory reporting, enhanced by desktop reviews for smaller, low-risk entities. 83% (2018 84%) of the revenue and 78% (2018 70%) of adjusted profit was fully audited; the balance of revenue and profit was covered by desktop reviews. We have discussed the accuracy of financial reporting (known as materiality) with PwC, both as regards to accounting errors that will be brought to the Audit & Risk Committee’s attention, and as regards to amounts that would need to be adjusted so that the financial statements give a true and fair view. Errors can arise for many reasons, ranging from deliberate errors (fraud), to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £7.25 million (2018 £7.2 million). This equates to approximately 5% (2018 4%) of adjusted profit before tax, as reported in the income statement. This is within the range that audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected errors become material, we agreed that audit testing would be performed to a lower materiality threshold of £5.4 million (2018 £5.4 million). PwC has drawn the Committee’s attention to all identified uncorrected misstatements greater than £0.5 million. The aggregate net difference between the reported adjusted profit before tax and the Auditor’s judgment of net adjusted profit before tax was £3.4 million, which was significantly less than audit materiality. The gross differences were attributable to various individual components of the income statement. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External Auditor. PwC has outlined to the Audit & Risk Committee the professional development programme applicable to the partners and employees engaged on our audit, has reviewed key judgments taken during the course of the audit, and confirmed the audit complies with its internal independent review procedures. We have reviewed the professional skills, knowledge and scepticism of key members of the audit team including the Group team and partners responsible for the divisional audits. We have reviewed PwC’s latest available transparency report. The 2018 audit of DMGT was not subject to re-review by the FRC or PwC’s internal audit process. 53 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Corporate Governance Remuneration & Nominations Committee The Remuneration & Nominations Committee meetings are held together. Remuneration items are taken separately to the Nominations items. The Remuneration element of the Committee is described within the Remuneration Report on pages 55 to 77. The Nominations element of the Committee is described below. It keeps under regular review the structure and composition of the Board and its Committees, particularly the skills, knowledge and experience of the Directors to ensure that these remain aligned with the Group’s developing requirements and strategic agenda. Membership The Remuneration & Nominations Committee has been supported in its activities during the year by the CEO, the Group Chief Financial Officer and the Head of Reward and Benefits. Membership and meetings are shown below. Member Member for full period Meetings held Meetings attended 7 7 7 7 7 7 7 7 • In line with Code Provision A.4.2, the Non-Executive Directors met with the Chairman without the Executive Directors present. • The Chairman of the Committee is Lord Rothermere and the majority of its members are not considered to be independent under the Code. Although this does not meet Code Provision B.2.1, as the holder of all the Ordinary Shares and the largest holder of A Shares of the Company through the Trust, the Board considers that Lord Rothermere’s interests are fully aligned with those of other shareholders. Additionally, the Committee is confident that its membership ensures that it carries out all aspects of its role with proper and appropriate regard to long-term shareholder interests. The Viscount Rothermere (Chairman) D H Nelson J H Roizen* D Trempont* Yes Yes Yes Yes * Independent. Governance • The combined Remuneration & Nominations Committee reviewed its Terms of Reference during the year. • The Committee confirmed that it had complied with its Terms of Reference throughout the year. • The Committee paid particular attention to extending the term of any Non-Executive Director who has served a term in excess of six years. • The Committee reviewed the independence of Non-Executive Directors and agreed to recommend that Lady Keswick, Kevin Parry, JP Rangaswami, Heidi Roizen and Dominique Trempont continued to be considered independent in accordance with Code Provision B.1.1. Andrew Lane, David Nelson and François Morin were not considered independent due to their connection to Rothermere Continuation Limited. • The process for appointing Directors depends on which role is being filled. External recruiters and other methods have been used to identify potential candidates. 54 Key activities of the Nominations element of the Remuneration & Nominations Committee • Reviewing arrangements for Share Plans in light of the April 2019 Distributions. • Reviewing the Letter of Engagement with each Non-Executive Director to ensure the provisions remain in line with best practice, following shareholder approval at the AGM. • Re-engaging the service of Non- Executive Directors for a further period of a minimum of one year. • Reviewing time commitments required by Non-Executive Directors and confirming that it was satisfied that the Directors had met or exceeded the time commitment required. • In line with principle B.7 of the Code, recommending that all Directors stand for re-election at the AGM. • Discussing Board and Committee composition and longevity of service, and Board independence. • Reviewing the Committee’s effectiveness and governance activities against best practice. Looking ahead, the Committee’s key activities for the forthcoming year are: • reviewing the composition of the Board to ensure that the right skills and experience to support the Group’s strategy are represented; • reviewing Committee membership to ensure that there is a diverse balance of skills and experience reflected; • continuing to review succession planning for the Executive Directors; and • reviewing the Committee’s effectiveness. This Governance Report was approved by the Board on 4 December 2019 and signed on its behalf by the Chairman. The Viscount Rothermere Chairman Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Governance Remuneration Report The Viscount Rothermere Chairman Chairman’s statement on remuneration Remuneration at a glance Directors’ Remuneration Policy Annual Report on Remuneration Implementation of Remuneration Policy in FY 2020 55 58 59 67 77 Chairman’s statement on remuneration As Chairman of the Remuneration & Nominations Committee (Committee), I am pleased to present the Directors’ Remuneration Report. Policy Review This year the Committee, and specifically the Non-executive Directors (NEDs) on the Committee, have reviewed all aspects of the Directors’ Remuneration Policy (Policy), in view of the requirement to submit a new Policy for shareholder approval at the February 2020 Annual General Meeting (AGM). The review concluded that although most of the existing Policy continues to be appropriate for current business circumstances, changes to the annual bonus and long-term incentive plan (LTIP) arrangements are appropriate to better align with the next phase of DMGT’s development and to deliver long-term value to shareholders: 1. to optimise revenue and income and thus capital value through the organic growth of the DMGT portfolio of businesses (financial objectives); and 2. to effectively manage the DMGT Group’s portfolio, balance sheet and financial gearing, as well as making key strategic decisions including acquisitions and disposals (management objectives). The following changes are proposed for FY 2020 onwards, subject to shareholder approval: Annual Bonus The target bonus for the Executive Chairman, CEO and Group Chief Financial Officer will be aligned at 100% of base salary. The Chief Executive of dmg media’s target bonus is unchanged at 30% of base salary. The proposed changes to our incentive arrangements are designed to promote the execution of the next phase of DMGT’s development, and to continue to deliver long-term value to shareholders.” Remuneration Policy In accordance with the S439A Companies Act 2006 shareholders are provided with the opportunity to endorse the Company’s Remuneration Policy through a binding vote. The new policy will be put forward for shareholder vote at the next Annual General Meeting (AGM) on 5 February 2020. The maximum annual bonus opportunity continues to be set at two times target. The above target portion of the annual bonus will continue to be deferred into shares to be held for two years for the CEO, Group Chief Financial Officer and Chief Executive of dmg media. Long-Term Incentives The 2017 Executive Incentive Plan (EIP) for Executive Directors (EDs) will be replaced by a new long-term incentive plan (2020 LTIP) split into two parts to meet the financial and management objectives previously defined: (i) Performance LTIP Performance will be measured against Group financial targets over a three year period. The target award for the Performance LTIP will be 100% of base salary for the Executive Chairman, CEO and Group Chief Financial Officer and 60% of base salary for the Chief Executive of dmg media. Maximum awards will be set at two times target for the Performance LTIP. All awards will be paid in shares at the end of the performance period, except for the Executive Chairman’s which will be paid in cash (see page 57 for further details). (ii) Conditional share award An annual conditional share award (CSA) will be based on the NED members of the Committee’s assessment of the management objectives outlined above. It is recognised that the impact of strategic decisions cannot always be measured over the course of a single year and this will be taken into account by the NEDs as well as actual and forecast payments for the EDs’ annual bonus and Performance LTIP, when determining the annual CSA. In the normal course of business, an annual CSA of up to 200% of base salary may be made at the Committee’s discretion. The quantum of CSA will be determined at the end of the first year, as noted above. There will then be a holding period, of up to four years, at the Committee’s discretion, before the CSA can vest. The first CSAs will be made in respect of FY 2020. 55 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Key Strategic Priorities Improving operational execution Increasing portfolio focus Maintaining financial flexibility LTIP opportunity The changes, as described above, mean that the maximum LTIP award, in normal business circumstances, will reduce from 500% of base salary to 400% of base salary, with a maximum of 200% for the Performance LTIP and a maximum of 200% for the CSA. In truly exceptional circumstances, however, the Committee retains the flexibility to increase the award of the annual CSA to 300% of base salary, in line with the rules of the EIP, under which all 2020 LTIP awards will be made. Pay review for FY 2020 The Committee regularly reviews all aspects of the competitive position of remuneration for the EDs by undertaking periodic market benchmarking. This year, the Committee (without me present), decided to award base salary increases of 2% to each of the EDs from the start of FY 2020. This is in line with the typical base salary increase awarded to employees across DMGT this year. Executive Directors’ bonus payments for FY 2019 In FY 2019, as disclosed in last year’s Directors’ Remuneration Report, we used two metrics in the annual bonus; revenue and cash operating income, weighted evenly. Cash operating income, which is operating profit plus depreciation and amortisation less capital expenditure, is a metric that captures both profit and the underlying cash generation of the Group. The same two metrics will continue to be used in the annual bonus plan for FY 2020. The FY 2019 plan included an adjustment, to ensure that participants did not benefit from, and were not penalised by, short-term currency fluctuations beyond management’s control. This will also continue in FY 2020. The purpose of the annual bonus plan is to focus the participants on delivering short-term financial expectations. In a year where we have continued to rebalance and reposition the DMGT portfolio, performance against our revenue and cash operating income targets for the year has been good and the annual bonus payments at 80% of maximum for the year reflects this. The bonus paid to Kevin Beatty, Chief Executive of dmg media, at 92% of maximum, reflects the strong performance of the Consumer Media business in a challenging environment. For the CEO, Group Chief Financial Officer and Chief Executive of dmg media, the part of annual bonus payable above the target level will be deferred into DMGT shares for a period of two years, in line with the stated Policy. Details of the EDs bonuses for FY 2019 are shown in tables 2.1 to 2.2 on page 69. 2018 Long-term incentive award The Long-Term Executive Incentive Plan (EIP) was approved by shareholders in February 2017. The performance period for the 2018 award is from the beginning of FY 2019 to the end of FY 2021. The EIP is intended to provide a direct link between pay and performance of the Group, with the opportunity for exceptional levels of reward linked to truly exceptional business performance. To achieve this, the 2018 EIP award is based on DMGT’s cumulative profits over the period FY 2019 to FY 2021 inclusive, together with a charge for the use of capital. Participants are not rewarded under the EIP unless a minimum performance threshold is reached and the payment for each participant is subject to a cap of five times target. The outcome of the 2018 EIP award will be delivered in shares, vesting at the end of FY 2021. No further awards will be made under the current profit-share design through the EIP. April 2019 Distributions In respect of the April 2019 Distributions, an independent committee of the Board (Independent Committee) approved the principle that participants in DMGT share plans should neither be advantaged nor disadvantaged, as compared to participating shareholders. April 2019 Distributions – discretionary payment The Board, at the recommendation of the Independent Committee, however determined that EDs and certain other senior executives should not trade in DMGT shares in advance of the April 2019 Distributions. Solely for this reason, these individuals were therefore placed at a disadvantage compared to participating shareholders as they were unable to sell shares before an income tax liability arose. The Committee therefore decided to make a discretionary payment to cover the costs for all affected. Details of the payments to three of the EDs are shown in table 1 on page 68. Since these payments are made outside of the approved Policy, agreement will be sought from shareholders at the February 2020 AGM. 56 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Operating company incentive plans Our incentive plans across our operating companies are designed to reward sustainable revenue and profitable growth. We focus on ensuring that performance measures and targets are consistent with business objectives and circumstances, the Group’s long-term strategy and the creation of shareholder value. For each operating company, we also consider its sector, geography and portfolio role within the Group. Directors’ Remuneration Policy As noted above, the new Directors’ Remuneration Policy will be submitted for approval by shareholders at the February 2020 AGM and will apply for three years from FY 2020 to FY 2022. The Viscount Rothermere Chairman Remuneration of the Executive Chairman The Committee is committed to a Policy where a significant part of ED remuneration is paid in shares in order to: • align the interests of the executive with that of shareholders over the long term; and • provide a retention element to the remuneration package. The Committee, without Lord Rothermere present, have concluded that as the beneficiary of the largest shareholder of DMGT (RCL) these reasons are not applicable to the Executive Chairman. Under the new Policy, Lord Rothermere will therefore continue to participate in the same annual bonus and LTIP as the other EDs, and in both parts of the LTIP he will be aligned in terms of DMGT share price movement over the period and benefitting from dividend equivalent payments made. All incentive awards to Lord Rothermere will, however, be paid in cash only. The new Policy aligns the percentage of both the annual bonus and LTIP of the Executive Chairman with that of the CEO and the Group Chief Financial Officer. Long-term incentive awards vesting in FY 2019 2016 LTIP The first LTIP award under the EIP over the period FY 2017 to FY 2019 is based on the EDs receiving a percentage of the growth in profit above a defined threshold (eligible profit) over the three year performance period. The Committee, without me present, reviewed the calculated result of 29% of Target and are of the view that it does not truly reflect actual performance during the period and, in particular, does not take account of the ZPG Plc sale and April 2019 Distributions (disposal of Euromoney). The Committee recognised the significant value that management has created for shareholders from these two transactions and therefore used its discretion to agree a final vesting outcome of 100% of target for the 2016 LTIP award. Further details are shown in table 5.2 on page 72. 2014 LTIP The vesting of the LTIP award made in December 2014 was measured against the following priorities: • grow the B2B businesses; • continue to grow and invest in strong brands of digital consumer media, particularly MailOnline; • grow sustainable earnings and • dividends; and increase DMGT’s exposure to growth economies and to international opportunities. We have continued to make progress against these priorities. Over the last five years B2B revenues, excluding Euromoney, achieved an average annual increase of 4% on an underlying basis; MailOnline revenues have grown from £62 million in FY 2014 to £140 million in FY 2019; profitability has improved and dividends per share continued to grow in real terms; and international revenues remained stable at 47% of total revenues. Given this performance, the Committee has determined that the 2014 LTIP award should vest in full in December 2019. For more information see table 5.1 on page 71. 57 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report FY 2019 Remuneration outcomes for the Executive Directors The table below summarises the remuneration for the Executive Directors in FY 2019: Salary 2019 Bonus (including deferred amounts) As a % of salary Taxable benefits Pension benefits LTIP awards vesting in year including dividend equivalents Other awards realised in year including dividend equivalents April 2019 Distributions discretionary payment Total remuneration FY 2019 Total remuneration FY 2018 The Viscount Rothermere £000 P A Zwillenberg £000 858 1,229 143% 56 317 858 350 – 3,669 2,430 769 857 111% 38 231 858 926 57 3,736 1,867 T G Collier £000 513 571 111% 31 128 448 1,126 476 3,293 1,229 K J Beatty £000 763 420 55% 24 282 1,335 12 957 3,792 1,868 Total £000 2,902 3,077 149 958 3,499 2,414 1,490 14,489 7,394 Key elements of remuneration for the Executive Directors in FY 2020 The key elements of remuneration applicable for the Executive Directors in FY 2020 are shown below: The Viscount Rothermere Salary £875,200 P A Zwillenberg £784,400 T G Collier £522,750 K J Beatty £777,750 Annual bonus opportunity 100% of salary on target. 200% of salary maximum. 100% of salary on target. 200% of salary maximum. 100% of salary on target. 200% of salary maximum. 30% of salary on target. 60% of salary maximum. Annual bonus deferral Performance LTIP None applies. On-target value of 100% of salary vesting after three years based on Group financial performance paid in cash. On-target value of 100% of salary vesting after three years based on Group financial performance paid in shares. On-target value of 100% of salary vesting after three years based on Group financial performance paid in shares. On-target value of 60% of salary vesting after three years based on Group financial performance paid in shares. Any amount above target deferred into nil cost options for two years. Any amount above target deferred into nil cost options for two years. Any amount above target deferred into nil cost options for two years. Conditional Shares Maximum of 200% of salary based on management of Group and business strategic priorities for the year paid in cash at the end of the period. Maximum of 200% of salary based on management of Group and business strategic priorities for the year paid in shares at the end of the period. Maximum of 200% of salary based on management of Group and business strategic priorities for the year paid in shares at the end of the period. Maximum of 200% of salary based on management of Group and business strategic priorities for the year paid in shares at the end of the period. Pension Allowance of 37% of salary Benefits Car allowance and driver. Family medical insurance, Life assurance. Allowance of 30% of salary Allowance of 25% of salary Car allowance and driver. Family medical insurance, Life Assurance, Tax assistance. Car allowance. Family medical insurance, Life Assurance, Tax assistance. Allowance of 37% of salary Car allowance and driver. Family medical insurance, Life assurance. 58 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Directors’ Remuneration Policy This part of the report sets out the Company’s proposed policy for the proposed remuneration of Directors (Policy) for FY 2020 to FY 2022 which will be put forward for approval by shareholders at the AGM on 5 February 2020. The current and proposed Policy can be found on the Company website. At the AGM in February 2017 the current Policy was approved by shareholders, the Policy received 19,890,364 (100%) votes for, with no votes against and no abstentions. The Committee has reviewed all aspects of the Directors’ Remuneration Policy (Policy), in view of the requirement to submit a new Policy for shareholder approval at the February 2020 AGM. The proposed changes to annual bonus and LTIP arrangements are set out in the Chairman’s statement on remuneration and described in the Policy set out on pages 59 to 62 below. This Policy is intended to apply for a three-year period from the date of the 2020 AGM. Policy overview The Committee aims to structure remuneration packages which attract, motivate and retain Directors, drive the right behaviours and pay at competitive market rates. The Committee considers that a successful Policy needs to be sufficiently flexible to take account of commercial demands, changing market practice and shareholder expectations. Our approach is to align base salary with reference to market levels of pay and to ensure that a significant part of Executive Director pay is variable and linked to the success of the Group. The Committee regularly reviews remuneration structures to ensure they are aligned to business strategy. The Policy incorporates a degree of flexibility to allow the Committee to manage remuneration over its three year life. Policy applied to Executive Directors Operation Opportunity Performance metrics Purpose and link to strategy Base salary To recruit, retain and reflect responsibilities of the Executive Directors and be competitive with peer companies. The base salary for each Executive Director is reviewed annually for the following year taking into account contractual agreements, general economic and market conditions and the level of increases made across the Group as a whole. Given the location of the Company’s principal operations, a particular focus is put on US and UK market conditions. Benchmarking based on media, B2B, technology and other relevant companies is performed periodically and the Committee’s intention is to apply judgment in evaluating market data. Pension To recruit, retain and reflect responsibilities of the Executive Directors and be competitive with peer companies. Executive Directors may participate in a defined contribution pension scheme or may receive a cash allowance in lieu of pension contribution. Any contributions paid to the Company pension scheme will be offset from the cash allowance. Not performance related. Not performance related. Annual base salary increases, where made, are normally in line with average UK and US-based employees, subject to particular circumstances, such as changes in roles, responsibilities or organisation, or as the Committee determines otherwise based on factors listed under ‘Operation’. The base salary for each Executive Director is set at a level the Committee considers appropriate taking account of the individual’s skills, experience and performance, and the external environment. Base salaries for FY 2020 are set out on page 58. For Executive Directors who previously participated in the defined benefit scheme, the pension allowance has been set at a higher level (up to 37% of base salary). 30% of base salary or less for new recruits. 59 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Purpose and link to strategy Operation Opportunity Performance metrics Benefits typically include cash allowances such as car and pension allowances and non-cash benefits such as medical insurance and life assurance. Where appropriate, the Committee may also offer allowances for relocation or other benefits where it concludes that it is in the interest of the Company to do so, having regard to the particular circumstances of the executive and to market practice. Allowances do not form part of pensionable earnings. Executive Directors are also eligible to participate in the DMGT SharePurchase+ plan, an all-employee HMRC approved share incentive plan, on the same basis as other employees. The annual bonus is based on in-year performance against financial objectives. The performance targets and measures are determined annually by the Committee and may change from year to year: • up to 100% of total bonus opportunity is based on financial performance at corporate and business unit level; and • a proportion of total bonus opportunity may be based on performance against strategic non-financial objectives. The bonus weightings applied for each of the Executive Directors may vary from time to time and may include financial measures and targets relating to the Group as well as their specific business. The weightings that apply to the bonus may vary if the Committee determines that it is appropriate in order to achieve the strategic aims of the business. Performance is measured separately for each item as shown in table 2.2 on page 69. Annual bonus payments do not form part of pensionable earnings. Annual bonus plans are discretionary and the Committee reserves the right to make adjustments to payments up or down if it believes that exceptional circumstances warrant doing so. Annual bonuses are subject to malus prior to payment, and to clawback for two years after payment, in circumstances including a material misstatement in results, an error in calculating/ assessing satisfaction of any condition, the participant causing material reputational damage to any member of the Group or serious misconduct by the participant causing loss to any member of the Group. Benefits may vary by role and individual circumstances. The cost of benefits changes periodically and may be determined by outside providers. Benefits, including the DMGT SharePurchase+ plan are not performance related. Target and Maximum annual bonus opportunity are as follows: • for the Executive Chairman, CEO and Group Chief Financial Officer, 100%/200% of salary; and • for Chief Executive of dmg media, 30%/60% of salary. The maximum level for new recruits will not exceed 200% of salary. The achievement of stretch targets results in maximum payout. On-target bonus is set at 50% of maximum. There is normally no payout for performance below threshold. Payout between threshold and target is calculated on a straight-line basis. The performance range sets a balance between upside opportunity and downside risk and is normally based on targets in accordance with the annual budget. Bonuses are subject to the achievement of financial measures set by the Committee. These measures may be varied from year to year. The measures for determining the annual bonus in FY 2019 were revenue and cash operating income and this will continue to be the case for FY 2020. The performance required for a maximum payout is set at a stretch performance level that is above the level of the Company’s forecasts. If performance is in line with forecast, then typically an on-target level of the annual bonus will be paid. The weightings that were applied to the FY 2019 bonus targets are as reported in table 2.2 on page 69. The Board considers the specific targets and relative weightings for each measure to be commercially sensitive and they will not be disclosed. Performance against targets in the year that bonus awards are made will be disclosed along with the relevant weightings in the Annual Report following the payment. Benefits To recruit, retain and reflect responsibilities of the Executive Directors and be competitive with peer companies. Annual bonus To focus Executive Directors on the delivery of financial performance and strategic objectives which create value for the Company and shareholders. 60 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Purpose and link to strategy Operation Opportunity Performance metrics All Executive Directors (with the exception of Lord Rothermere) are required to defer any above-target annual bonus into nil cost options for two years. No further performance conditions are imposed except for continued employment during the two year period. The Committee may set different performance measures, in terms of type of measure and the weighting given to each measure, for awards granted on different dates, provided the Committee considers that such measures are aligned with the Company’s financial and strategic goals and with the interests of its shareholders. Performance conditions may also be set on an individual basis to reflect a particular individual’s role. The performance measures are designed to reflect progress towards the achievement of key strategic goals which may vary from year to year. In order to incentivise and allow the potential to appropriately reward Executive Directors for truly exceptional performance, the maximum annual value of shares which can vest under both parts of the LTIP is capped at 500% of salary at the time the award is made. Performance below threshold results in zero payout. The maximum opportunity for the Performance LTIP will be set at 200% of base salary. In the normal course of business an annual CSA of up to 200% of base salary may be made at Committee discretion. In truly exceptional circumstances however, the Committee retain the flexibility to increase the annual quantum of the CSA to 300% of base salary in line with the maximum under the rules of the EIP. Bonus deferral To provide an element of retention and align Executive Directors’ interests with those of shareholders. Long-term incentives To focus Executive Directors on the delivery of financial and strategic priorities creating sustainable long-term value for the Company and shareholders, thereby aligning Executive Directors’ interests with the interests of the Company and shareholders. Amounts above target of some Executive Directors’ annual bonus is deferred for a period of two years into nil-cost options. Annual bonus deferral requirements are reported in detail in table 3 on page 69. Following the exercise of an option, a cash payment with a value equivalent to the sum of all of the dividends declared for the award between the grant date and the date of delivery of the shares will be made. Clawback of vested and unvested awards is possible in the event of material misstatement of information or misconduct. The Company adopted the EIP, following shareholder approval at the February 2017 AGM. The EIP will continue to be used to grant long-term incentive awards to Executive Directors but the previous profit share design for the LTIP has now been discontinued. The new long-term incentive plan (2020 LTIP) is split into two parts: i. Performance LTIP Awards will be made annually with performance being measured against Group financial targets over a three year period. ii. Conditional Share Award An annual conditional share award (CSA) based on the Executive Directors management of the DMGT portfolio, financial balance sheet and gearing, as well as acquisitions, disposals and other strategic decisions taken during the year. The holding period of the CSA, of up to four years, will be set annually at the discretion of the Committee. In exceptional cases (e.g. recruitment) awards may be made without performance conditions if the Committee considers this appropriate. Awards will typically be paid out in shares, calculated by reference to the share price as at the date of grant, in order to ensure further alignment of the Executive Directors’ interests with those of shareholders. The Committee may determine that awards will alternatively be settled in cash if it considers this appropriate. Awards may be granted on terms that the value of any dividends paid to shareholders on their shares in the period between the date of grant and the date of vesting (or exercise) is paid to the individual following the end of that period. 61 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Purpose and link to strategy Operation Opportunity Performance metrics Long-term incentives continued Shareholding requirement To align the interests of Executive Directors and shareholders. The Committee has discretion, within the rules of the EIP and the 2012 LTIP, to make adjustments taking into account exceptional factors that distort underlying business performance, such as (for example) material M&A activity. All awards are subject to malus prior to vesting, and to clawback for three years after vesting, in circumstances including a material misstatement in results, an error in calculating/ assessing satisfaction of any condition, the participant causing material reputational damage to any member of the Group or serious misconduct by the participant causing loss to any member of the Group. Awards under the 2012 LTIP are subject to clawback (whether vested or unvested) in the event of material misstatement of information or misconduct. All awards are subject to the rules of the relevant plan (as may be amended from time to time in accordance with the rules) and any other terms and conditions applicable to the awards as the Committee may determine. Executive Directors are encouraged to build up a substantial shareholding in the Company. Shares which have been awarded subject to satisfaction of performance measures are not included in the calculation of the value of the Executive Director’s shareholding. Hedging by Executive Directors of any shares held in the Company is prohibited. Differences in remuneration policy for all employees The Committee sets the applicable performance targets prior to, or at the time the awards are made, in accordance with its strategic planning. The Board considers the specific performance targets for each measure and the relative performance measure weightings to be commercially sensitive. Performance against non-confidential targets and the relative weightings will be disclosed at the time the awards vest. Not performance related. The Committee recommends a minimum shareholding of 500% of base salary for the Chairman and the CEO, and 150% for all other Executive Directors. There is no time frame over which the guidelines should be met. Base salary increases elsewhere in the Group are set at a business level, taking into account economic factors, business sector, location and circumstances, competitive market rates, roles, skills, experience and individual performance. The change in wages and salaries for the Company as a whole is reported in chart 2 on page 74. Employees in the UK are auto-enrolled into a Company defined contribution pension scheme. There are a number of defined contribution schemes in operation across the Group, all of which offer levels of employer matching contributions to employee contributions. Employees in the US participate in 401(k) retirement plans. Cash and non-cash benefits for employees reflect the local labour market in which they are based. The majority of employees participate in some form of cash-based annual bonus or commission plan. The annual bonus plan for the Executive Directors forms the basis of the annual bonus plan for other head office executives. Plans across the Group are designed and tailored for each business, with the purpose of incentivising the achievement of their annual targets. Most annual bonus plans around the Group do not include a requirement for bonus deferral. The LTIP for the Executive Directors forms the basis of annual awards for other selected head office executives. LTIPs for executives in other businesses across the Group are considered and approved by the Committee. Plans are designed to be appropriate to the stage of development of the business and to incentivise the achievement of the mid- to long-term strategic aims of the business in which they operate. There is no shareholding requirement for employees below Executive Director level. Base Salary Pension Benefits Annual bonus Long-term incentives Shareholding requirement 62 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Pay scenario charts Chart 1: Illustrations of application of Executive Directors’ remuneration policy The elements of remuneration have been categorised into three components: (i) Fixed; (ii) Annual variable; and (iii) Multiple reporting period variable, which are set out in the future policy chart below: £000s 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 £000s 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 6,506 54% 27% 6% 13% 3,881 45% 23% 10% 23% 1,255 30% 70% 5,764 54% 27% 5% 14% 3,411 46% 23% 8% 23% 1,058 26% 74% Minimum On-target Maximum Minimum On-target Maximum The Viscount Rothermere P A Zwillenberg 4,045 62% 12% 8% 19% 2,567 48% 9% 12% 30% 1,090 29% 71% 3,821 55% 27% 4% 14% 2,253 46% 23% 7% 23% 684 24% 76% Minimum On-target Maximum Minimum On-target Maximum K J Beatty T G Collier Fixed (Salary) Fixed (Benefits) Annual variable (Bonus incl deferral) Multiple reporting variable (LTIP) Notes Numbers may not add up due to roundings. Potential reward opportunities illustrated above are based on this Policy, applied to the latest-known base salaries and incentive opportunities. Minimum in the graphs above is fixed remuneration only (salary, pension and benefits). On-target assumes an on-target LTIP award (performance LTIP and CSA) and target bonus have been awarded as stated in the Policy table. Maximum assumes a maximum LTIP award (performance LTIP and CSA) and the maximum bonus have been awarded as stated in the Policy table. Share awards valued at share price at date of award. No allowance is made for potential share price changes. Future share price changes form a key part of the remuneration linkage to performance and alignment of long-term shareholder returns. 63 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Executive Directors’ service contracts The Executive Directors are employed under service contracts, the principal terms of which are summarised below. Executive Director Position Effective date of contract Employer Notice period (by either party) Compensation on termination by employer without notice or cause The Viscount Rothermere Executive Chairman 17 October 1994 Daily Mail and General Holdings Limited 3 months P A Zwillenberg CEO 1 June 2016 Daily Mail and General Holdings Limited 12 months T G Collier Group Chief Financial Officer 2 May 2017 Daily Mail and General Trust plc 12 months K J Beatty Chief Executive of dmg media 19 May 2002 Associated Newspapers Limited 12 months Base salary, benefits, pension entitlement and, as appropriate, a prorated bonus payment for the notice period. Base salary, pension allowance, car allowance and cash equivalent value of other benefits for the notice period. Compensation is subject to mitigation if the Director obtains an alternative remunerated position. Base salary, pension allowance, car allowance and cash equivalent value of other benefits for the notice period. Compensation is subject to mitigation if the Director obtains an alternative remunerated position. Base salary, benefits, pension entitlement and, as appropriate, a prorated bonus payment for the notice period. 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. Tim Collier and Kevin Beatty stepped down as Directors of Euromoney in March 2019. Lord Rothermere stepped down as a Director of ITN in November 2018. Lord Rothermere was appointed a Director of Cazoo Ltd in December 2018. Legacy arrangements For the avoidance of doubt, in approving this Policy, authority is given to the Company to honour any commitments entered into with current or former Directors prior to the approval and implementation of this Policy (such as payment of pensions or the vesting/exercise of past share awards), provided that such commitments complied with any Policy in effect at the time they were given. Approach to recruitment remuneration When appointing or recruiting a new Executive Director from outside the Company, the Committee will aim to set remuneration at a level which is consistent with the Remuneration Policy in place for other Executive Directors and in particular the Executive Director who previously filled the relevant role, although it is recognised that, in order to secure the best candidate for a role, the Company may need to pay a new Executive Director more than it pays its existing Executive Directors. Pre-existing contractual agreements for internal candidates may be maintained on promotion to an Executive Director role. 64 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 The Committee may make use of any of the below components in the (recruitment) remuneration package. Component Approach Base salary Base salary will be determined by reference to the individual’s role and responsibilities, location of employment, and the salary paid to the previous incumbent. Maximum annual grant level Not applicable. Pension Benefits Annual bonus Long-term incentives Replacement awards The appointed Executive Director will be eligible to participate in the Group’s defined contribution pension plan and/or receive a cash pension allowance. 30% of base salary for new recruits. New appointments will be eligible to receive benefits in line with the Policy for current Executive Directors and potentially benefits relating to relocation such as (but not limited to) cost of living, housing and tax equalisation support. Not applicable. The appointed Executive Director will be eligible to participate in the Company’s annual bonus plan in accordance with the Policy for current Executive Directors and may be required to defer some or all of any bonus granted in accordance with the Policy. The appointed Executive Director will be eligible to participate in the LTIP in accordance with the Policy for current Executive Directors, save that the Committee may provide that an initial award under EIP (within the salary multiple limits on page 61) is subject to a requirement of continued service over a specified period, rather than the usual performance conditions. If in joining DMGT a new Executive Director would forfeit any existing award under variable remuneration arrangements with a previous employer, the Committee will consider on a case-by-case basis what replacement awards (if any) are reasonably necessary to facilitate that individual’s recruitment, taking into account all relevant factors such as performance achieved or likely to be achieved, the proportion of the performance period remaining and the form of the award due to be forfeited. 200% of base salary. 500% of base salary at the time the award is made. Not applicable. Exit payment policy The Company normally sets the notice period of Executive Directors as 12 months, but may decide to vary this in circumstances it deems appropriate. On termination, the Company will normally make a payment in lieu of notice (PILON) which is equal to the aggregate of: the base salary at the date of termination for the applicable notice period; the pension allowance over the relevant period; the cost to the Company of providing all other benefits (excluding pension allowance) or a sum equal to the amount of benefits as specified in the Company’s most recent Annual Report; and an annual bonus payment calculated in accordance with the service contract of the Executive Director. The treatment of awards under the Company’s long-term incentive plans on termination will be in accordance with the rules of the plan and, where appropriate, at the discretion of the Committee. Under the rules of the Plan, participants will be considered ‘good leavers’ if their participation ceases due to death, retirement, long-term sickness, disability and any other reason, at the discretion of the Committee (such discretion being applied fairly and reasonably). The Company may pay the PILON either as a lump sum or in equal monthly instalments from the date on which the employment terminates until the end of the relevant period. If alternative employment (paid above a pre-agreed rate) is commenced, for each month that instalments of the PILON remain payable, the amounts, in aggregate (excluding the pension payment), may be reduced by half of one month’s base salary in excess of the pre-agreed rate. 65 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report In the event that a participant’s employment is terminated, treatment of outstanding awards under the Group’s incentive plans will be determined based on the relevant plan rules, which are summarised below: Incentive plan Treatment of awards DMGT SharePurchase+ Under HMRC regulations, all leavers have to exit DMGT SharePurchase+ and either sell or transfer their shares. If identified as a ‘good leaver’, under the rules of DMGT SharePurchase+, no tax or National Insurance contributions are paid. Annual bonus Deferred bonus plan Long-term incentive plans If identified as a ‘good leaver’ for the purposes of the bonus, the Committee may determine that the leaver’s contribution was significant against targets, in which case, it may decide to make a payment which is equivalent of up to a full year’s bonus. If identified as a ‘good leaver’ under the deferred bonus plan rules (including those identified at the discretion of the Committee), outstanding awards shall vest in full on the normal vesting date or on such earlier date as the Committee may determine. If identified as a ‘good leaver’ under the rules (including those identified at the discretion of the Committee), outstanding awards will vest, either on the normal vesting date or on such earlier date as the Committee may determine, to the extent determined by the Committee taking into account the performance conditions, the proportion of the performance period which has elapsed at the date of termination and any other factors it considers appropriate. If, in the judgment of the Committee, greater progress towards achievement of targets has been made as a result of the performance of the leaver, it may, at its absolute discretion, decide to vest up to 100% of the outstanding award. The Committee may make payments it considers reasonable in settlement of potential legal claims, e.g. unfair dismissal or where agreed under a settlement agreement. This may include an entitlement to compensation in respect of their statutory rights under employment protection legislation and such reasonable reimbursement of fees for legal and/or tax advice in connection with such agreements and/or costs of outplacement services. Where an Executive Director is a ‘good leaver’, the Committee reserves the discretion to approve any or all of the following additional benefits: • continuation of private medical insurance or life assurance for a period of time following termination; • use of business premises for a period after termination; • retention of IT equipment by the Executive Director; and/or • use of a company car and/or driver for a period after termination. Consideration of pay and employment conditions elsewhere across the Group The Committee considers pay and employment conditions elsewhere in the Group when making decisions on remuneration matters affecting the Executive Directors. The Committee receives a report annually on the salary increase budget for each business. The Committee makes reference, where appropriate, to pay and employment conditions elsewhere in the Group (whilst remaining aware of the variety of geographies and sectors in which it operates) when determining annual base salary increases and to external benchmarks of remuneration levels in other companies. The Committee makes reference to data provided by and advice sought from internal and external advisers when making decisions on remuneration matters affecting the Directors. It does not specifically consult with employees over the effectiveness and appropriateness of the Remuneration Policy and framework. Consideration of shareholder views The Committee receives annual updates on the views and best practices of shareholders and their representative bodies and, notwithstanding the Company shareholder structure, takes these into account. The Committee seeks the views of shareholders on matters of remuneration where appropriate. This report covers the reporting period to 30 September 2019 and has been prepared in accordance with the relevant requirements of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 and of the Listing Rules of the Financial Conduct Authority. 66 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Annual Report on Remuneration The report has been audited in accordance with CA 2006. Remuneration & Nominations Committee role and activities The Committee’s responsibilities with respect to remuneration include: • Group remuneration policy; and • Setting the remuneration and terms and conditions of employment of the Company’s Executive Directors and other senior executives in line with the Committee’s Terms of Reference. The Committee’s Terms of Reference are available on the Company’s website. The Committee is chaired by Lord Rothermere with Committee members David Nelson, Heidi Roizen and Dominique Trempont. The Code recommends that a remuneration committee should be composed entirely of independent non-executive directors. The Board, however, considers that, as the beneficiary of the Company’s largest shareholder, Lord Rothermere’s interests are fully aligned with those of other shareholders. The Committee is confident that its make-up ensures that it carries out all aspects of its role with proper and appropriate regard to shareholders’ long-term interests and that this alignment is, in fact, stronger as a direct consequence of its membership. The Non-Executive Directors meet regularly and independently outside of the formal meetings. The Committee spends a large portion of its time reviewing the remuneration and incentive plans of the different businesses which are diverse both in geography and sector. There are a variety of incentive plans requiring significant consideration and oversight, which are designed to reflect the business type and stage of development, the market and locations it operates in and aims to incentivise the delivery of the business’ strategic plan. The Committee’s objective is to combine the necessary attention to short-term financial performance, through annual bonus plans, with a stronger focus on the fundamentals that drive long-term growth, through LTIPs. Committee performance and effectiveness In September 2019, the Committee conducted a formal review of its effectiveness and concluded that it had fulfilled its remit and had been effective during the year. Remuneration & Nominations Committee agenda items (selected) Date Agenda items October 2018 November 2018 December 2018 March 2019 May 2019 July 2019 September 2019 • Vesting of FY 2013 DMGT LTIP awards. • Vesting of FY 2015 DMGT LTIP award for Paul Dacre. • Performance targets for the FY 2019 operating company LTIP awards. • Vesting of operating company LTIPs. • FY 2018 outcome of executive bonus schemes. • Recruitment of operating company senior employees and associated compensation packages. • Funding of employee benefits trust for share awards. • RMS compensation for FY 2018 and FY 2019. • Approval of FY 2019 DMGT share awards. • Euromoney distributions and DMGT share plans. • New LTIP for RMS. • Transaction bonus arrangements for Genscape and Buildfax. • Performance targets for FY 2019 DMGT EIP awards. • New remuneration policy for FY 2020 onwards – initial discussions. • Summary of half-year bonus positions. • Operating company LTIPs. • New remuneration policy for FY 2020 onwards – continued discussions. • Review of Board composition. • NEDs met with Willis Towers Watson to discuss executive remuneration advice. • Salary review for FY 2020. • Annual bonus structure and targets for FY 2020. • Termination of Genscape LTIP due to sale of business. • Review of Remuneration and Nominations Committee effectiveness and terms of reference. 67 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Risk and reward During the year, the Committee reviewed and confirmed that the plans in operation throughout the Group did not incentivise taking excessive risk and, in particular, that the annual bonus and LTIPs in the Company are aligned with DMGT’s risk policies and systems. Advice to the Remuneration & Nominations Committee The Committee received independent advice on executive remuneration from Willis Towers Watson; on RMS remuneration from FW Cook; legal input on the implications of the 2019 April Distributions from Slaughter and May in addition to advice from members of the senior management team during the year. Table 1: Single figure of remuneration paid to Executive Directors for FY 2019 (Audited) The table below sets out the single total figure of remuneration and breakdown for each Executive Director in FY 2019 and FY 2018. Details of the calculation of the annual bonus figure for FY 2019 can be found in the section variable pay awards vesting in FY 2019, on page 69. Details of the calculation of LTIP Awards that are vesting this year can be found in tables 5.1 and 5.2 on pages 71 and 72 respectively. Details of nil-cost options that were realised during the year can be found in table 4 on page 70. The Viscount Rothermere P A Zwillenberg T G Collier K J Beatty Total Financial year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Salary and fees £000 8581 837 769 750 5131 500 7631 744 2,902 2,831 Taxable benefits2 £000 Pension benefits £000 56 54 38 36 31 33 24 24 149 147 317 310 231 225 128 125 282 275 958 935 Total fixed £000 1,231 1,201 1,038 1,011 672 658 1,069 1,043 4,009 3,913 Annual bonus3 £000 Total annual remuneration £000 1,229 1,229 857 856 571 571 420 303 3,077 2,959 2,460 2,430 1,895 1,867 1,243 1,229 1,489 1,346 7,086 6,872 LTIP and dividend equivalents £000 8584 – 8586 – 4488 – 1,33510 52212 3,499 522 Other Awards £000 3505 – 9267 – 1,1269 – 1211 – April 2019 Distribution payments13 Total remuneration £000 3,669 2,430 3,736 1,867 3,293 1,229 3,792 1,868 £000 – – 57 – 476 – 957 – 2,414 – 1,490 – 14,489 7,394 Notes 1. Salary shown for Lord Rothermere includes fees of £3,787 as Director of ITN for the period October 2018 to 8 November 2018. Salary shown for Tim Collier and Kevin Beatty includes fees of £25,189 as Directors of Euromoney for the period 1 October 2018 to 2 April 2019. Taxable benefits comprise car allowances which are £34,000 p.a. for Lord Rothermere; £18,000 p.a. for Paul Zwillenberg; £16,000 p.a. for Tim Collier; and £16,000 p.a. for Kevin Beatty. Lord Rothermere, Paul Zwillenberg and Kevin Beatty also received benefits in respect of home-to-work travel. Amounts, including tax paid by the Company, are £17,037; £8,745; and £6,321 respectively. Lord Rothermere and Paul Zwillenberg received UK medical benefits with a cost to the Company of £5,073 p.a. and Kevin Beatty received UK medical benefits with a cost to the Company of £2,352 p.a.. Tim Collier received US medical benefits with a cost to the Company of £14,765 p.a. (converted at a rate of £1:$1.28). Paul Zwillenberg received £6,174 in relation to tax compliance requirements paid for by the Company. The bonuses shown include amounts that will be deferred into shares but do not have any further performance conditions attached other than continued service during the deferral period. Deferrals apply to bonuses above target in FY 2019. Details of the calculation of the bonus and deferral are shown in tables 2.1 and 2.2 on page 69. The figure shown for Lord Rothermere is the vesting value of the 2016 award under the EIP which will be realised in December 2019, details of which can be found in table 5.2 on page 72. The figure shown for Lord Rothermere is the value of the cash dividend equivalent received in respect of his 2011 and 2012 nil cost option awards which were exercised in December 2018 and June 2019 respectively details of which can be found in table 4 on page 70. 2. 3. 4. 5. 6. The figure shown for Paul Zwillenberg is the vesting value of the 2016 award under the EIP which will be realised in December 2019, details of which can be found in table 5.2 on page 72. 7. The figure shown for Paul Zwillenberg is the value of his recruitment award (adjusted to reflect the April 2019 Distributions) of 114,809 shares which vested and was realised in accordance with the terms of his award in June 2019 at a share price of £7.42 and a cash dividend equivalent payment of £74,507. 8. The figure shown for Tim Collier is the vesting value of the pro-rated 2016 award under the EIP which will be realised in December 2019, details of which can be found in table 5.2 on page 72. 9. The figure shown for Tim Collier is the value of the first tranche of his recruitment award of 188,284 shares which vested and was realised in accordance with the terms of his award in December 2018 at a share price of £5.69 and a cash dividend equivalent payment of £54,619. 10. The figure shown for Kevin Beatty is the vesting value of the 2014 award made under the 2012 Long-Term Executive Incentive Plan which will be realised in December 2019, details of which can be found in table 5.1 on page 71 and the vesting value of the 2016 award under the EIP which will be realised in December 2019, details of which can be found in table 5.2 on page 72. 11. The figure shown for Kevin Beatty is the value of the cash dividend equivalent received in respect of his 2015 nil cost option award which was exercised in September 2019, details of which can be found in table 4 on page 70. 12. The figure shown for Kevin Beatty in 2018 has been adjusted from the estimated payments stated in the 2018 report to reflect the actual amount realised in December 2018. Details can be found in table 5.1 on page 71. 13. The discretionary payments related to the April 2019 Distributions have been made to compensate the Directors for the additional tax payable as a result of the decision by the Board that the EDs and certain other senior executives should not trade in DMGT shares in advance of the distributions. Since these payments are made outside of the approved Policy, agreement will be sought from shareholders at the February 2020 AGM. 68 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Variable pay awards vesting in FY 2019 Table 2.1: Annual bonus weightings, opportunity and outcomes (Audited) The details of the weightings and opportunity relating to the annual bonus paid to Executive Directors for the year ended 30 September 2019 and included in the single figure in table 1 on page 68 are shown below. The performance measures for FY 2019 are a combination of revenue and cash operating income, both equally weighted. The resulting bonus amounts are shown in the table below: The Viscount Rothermere P A Zwillenberg T G Collier K J Beatty1 Notes 1. See 2.2 below Weightings Opportunity as a % of salary Cash operating income 50% 50% 50% 50% Revenue 50% 50% 50% 50% Threshold Target Maximum 0% 0% 0% 0% 90% 70% 70% 30% 180% 140% 140% 60% Actual outcome as a % of salary 143% 111% 111% 55% Actual outcome £000 1,229 857 571 420 Table 2.2: DMGT annual bonus targets (Audited) The financial measures are split into two categories and weighted evenly (shown in table 2.1). Kevin Beatty’s bonus is weighted 70% against targets specific to dmg media and 30% against DMGT targets. The Board considers the performance targets for the measures to be commercially sensitive, as it would disclose information of value to competitors, and they will not be disclosed. The final targets were adjusted to reflect the final US$/£ average exchange rate over the year. The following tables illustrate performance against DMGT and dmg media bonus targets and the corresponding outcome: DMGT bonus targets (All) Revenue Cash operating income dmg media bonus targets (Kevin Beatty only) Revenue Cash operating income Below 0% Threshold 0% Target 100% Maximum 200% Outcome as a % of target 118% 200% Below 0% Threshold 0% Target 100% Maximum 200% Outcome as a % of target 188% 200% Table 3: Deferred annual bonus (Audited) The Committee agreed the following deferral requirements would apply to the above target amount of the FY 2019 annual bonus with no further performance conditions except for continued employment over the two year deferral period: P A Zwillenberg T G Collier K J Beatty Deferral requirement Amounts above target bonus deferred for two years Amounts above target bonus deferred for two years Amounts above target bonus deferred for two years Type of deferral Nil cost options Nil cost options Nil cost options Amount deferred FY 2019 £000 Amount deferred as a % of FY 2019 bonus 318 212 191 37% 37% 46% 69 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Awards made under share schemes The Company funds the purchase of shares by an Employee Benefits Trust in order to ensure that its obligations under its share schemes are adequately funded and this also ensures that there is no impact on share dilution. Share awards made to Lord Rothermere are settled using Treasury Shares. Table 4: Nil cost options (Audited) The table below sets out the details of all outstanding awards of nil cost options as part of the deferred bonus plan. Following the exercise of an award, a cash payment with a value equivalent to the sum of all of the dividends declared for the award between the grant date and the date of delivery of the shares is made. No further performance conditions are imposed except for the employees continued employment. The December 2019 award was based on the average price of the first three days of trading after the announcement of the financial results for FY 2018 of £6.29. Outstanding awards that were made before the April 2019 Distributions will be adjusted at exercise by 4.7825%. A deferral applies to Paul Zwillenberg, Tim Collier and Kevin Beatty’s bonuses for FY 2019, details of the deferral are shown in table 3 on page 69. Award date Award type Relating to Exercisable from Expiry date Status of awards Award price Outstanding awards P A Zwillenberg T G Collier K J Beatty Total outstanding Dec 2011 Nil cost options 2011 Bonus Dec 2014 Dec 2018 Vested £3.98 – – – – Dec 2012 Nil cost options 2012 Bonus Dec 2015 Dec 2019 Vested £5.27 – – – – Exercised during year The Viscount Rothermere K J Beatty Total exercised during year Shaded columns show options that have vested. 110,4642 – 110,464 135,8341,2 – 135,834 Dec 2015 Nil cost options 2015 Bonus Dec 2017 Jan 2018 Nil cost options 2017 Bonus Jan 2020 Dec 20184 Nil cost options 2018 Bonus Dec 2020 Dec 2022 Outstanding £7.06 Jan 2025 Outstanding £5.63 Dec 2025 Outstanding £6.29 – – – – – 13,4161,3 13,416 – – 14,404 14,404 – – – 52,6854 35,1244 12,7294 Total 52,685 35,124 27,133 100,538 114,942 – – – Total 246,298 13,416 259,714 Notes 1. Reflects the adjustment for the April 2019 Distributions made at exercise to the number of options originally awarded. 2. Lord Rothermere received cash dividend equivalent payments of £157,411 in respect of his 2011 bonus award and £192,768 in respect of his 2012 bonus award which were exercised during the year. The awards were exercised at a share price of £6.21 and £7.70 respectively with a value at exercise of £685,650 and £1,045,952 respectively. 3. Kevin Beatty received cash dividend equivalent payments of £11,549 in relation to the exercise of his 2015 bonus award exercised during the year. The award was exercised at a share price of £8.26 with a value at exercise of £110,816. 4. The value of the awards made in December 2018 was £331,388 for Paul Zwillenberg, £220,926 for Tim Collier and £80,062 for Kevin Beatty. 70 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Table 5.1: Awards made under the 2012 Long-Term Executive Incentive Plan (LTIP) (Audited) Outstanding share based awards subject to performance conditions under the LTIP are summarised in the table below. The Board considers the performance targets for the measures to be commercially sensitive, as it would disclose information of value to competitors, and they will not be disclosed. Following the realisation of an award, a cash payment with a value equivalent to the sum of all of the dividends declared for the award between the grant date and the date of delivery of the shares is made. Outstanding awards that were made before the April 2019 Distributions will be adjusted at vesting by 4.7825%. The 2014 LTIP award made to Kevin Beatty vested in full during the year based on an evaluation by the Committee of the performance against the performance measures, further details can be found on page 57. No further awards are being made under the LTIP. Award name Award date Performance period ends Standard award as a % of salary Award price Price at vesting Performance measures 2013 LTIP award1 Dec 2013 Sep 2018 100% £9.16 £7.48 2014 LTIP award Dec 2014 Sep 2019 100% £8.29 £7.95 2015 LTIP award Dec 2015 Sep 2020 100% £7.06 N/A • Grow B2B business. • Continue to invest in strong brands of digital consumer media, particularly MailOnline. • Grow sustainable earnings and dividends. • Increase the Company’s exposure to growth economies and to international opportunities. Status of award Maximum percentage of face value that could vest Vesting level as a percentage of maximum Vested 100% 100% Vested 100% 100% Outstanding 100% N/A Outstanding awards K J Beatty Value (including cash dividend equivalent) Realised during year K J Beatty Value (including cash dividend equivalent) Shaded columns show options that have vested. – – 92,1421 £819,6941 105,382 N/A 77,226 £521,9392 – N/A – N/A Total 197,524 £819,694 Total 77,226 £521,939 Notes 1. 2. The value of the 2014 LTIP award for Kevin Beatty (adjusted for the April 2019 Distributions) at vesting was £732,529 calculated using the average share price for the fourth quarter of FY 2019 which was £7.95. A cash dividend equivalent payment of £87,165 will be paid at realisation with a total value of £819,694. The value of the 2013 LTIP award for Kevin Beatty on realisation at a share price of £5.69 in December 2018 was £439,384. A cash dividend equivalent payment of £82,555 was also paid with a total value of £521,939. 71 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Table 5.2: Awards made under the 2017 Executive Incentive Plan (EIP) (Audited) Outstanding share based awards subject to performance conditions under the EIP are summarised in the table below. The Board considers the performance targets for the measures to be commercially sensitive as it would disclose information of value to competitors, and they will not be disclosed. Following the realisation of an award, a cash payment with a value equivalent to the sum of all of the dividends declared for the award between the beginning of the performance period and the date of delivery of the shares is made. Outstanding awards that were made before the April 2019 Distributions will be adjusted at vesting by 4.7825%. The 2018 EIP awards were made in June 2019 based on the average price of the first three days of trading after the announcement of the financial results for FY 2018 of £6.29. The 2016 LTIP award vested at 100% of target during the year, further details can be found on page 57. Award date Performance period ends Performance period starts Award price Status of award Vesting level as a percentage of maximum Basis on which award is made Maximum payable Percentage receivable if maximum performance achieved 2016 EIP Jun 2017 Sep 2019 Oct 2016 £7.88/£7.171 Vested 20%2 2017 EIP Jun 2018 Sep 2020 Oct 2017 £5.63 Outstanding N/A 2018 EIP Jun 2019 Sep 2021 Oct 2018 £6.29 Outstanding N/A Percentage share of growth in eligible profit over the performance period, converted at the end of the performance period to shares based on the average share price for the first three days following the release of the financial results of the preceding financial year in which the awards were made. There is a cap on the maximum amounts payable which is five times target at the time the award was made with the number of shares being calculated by reference to the award price above. If the performance level is on target or above, Lord Rothermere and Paul Zwillenberg would receive 1.25% and Tim Collier and Kevin Beatty 0.75% of eligible profits. No amounts are payable if there are no eligible profits. If the performance level is on target or above, Lord Rothermere and Paul Zwillenberg would receive 2.5% and Tim Collier and Kevin Beatty 1.25% of eligible profits. No amounts are payable if there are no eligible profits. If the performance level is on target or above, Lord Rothermere and Paul Zwillenberg would receive 2.6% and Tim Collier and Kevin Beatty 1.5% of eligible profits. No amounts are payable if there are no eligible profits. Performance measures Outcomes are linked to stretching profit targets over a minimum threshold, subject to fair adjustment for any change in capital usage. 2016 EIP 2017 EIP 2018 EIP The Viscount Rothermere P A Zwillenberg T G Collier K J Beatty Vesting shares 99,728 99,728 52,970 59,837 Value at vesting including cash dividend equivalents £858,1293 £858,1293 £448,0573 £514,8793 Maximum shares that could vest 666,271 666,271 399,763 399,763 Shares vesting at target 133,254 133,254 79,953 79,953 Maximum shares that could vest 613,831 611,287 366,653 363,672 Shares vesting at target 122,7663 122,2573 73,3303 72,7343 Notes 1. The 2016 awards made to Tim Collier were based on the closing share price on his employment start date in May 2017 of £7.17. His award outcome has been pro-rated to reflect his start date. The Committee determined to exercise discretion to allow the 2016 EIP awards to vest at 100% of target, recognising the significant value that management has created for shareholders as a 2. result of the ZPG Plc sale and the April 2019 Distributions (disposal of Euromoney) during the performance period. The value created by these transactions was not reflected by the formulaic outcome from the performance conditions. The value of the 2016 LTIP award at vesting (adjusted for the April 2019 Distributions) calculated using the average share price for the fourth quarter of FY 2019 which was £7.95, was £792,838 for Lord Rothermere and Paul Zwillenberg, £421,112 for Tim Collier and £475,704 for Kevin Beatty. A cash dividend equivalent payment will be paid at realisation of £65,291 for Lord Rothermere and Paul Zwillenberg, £26,945 for Tim Collier and £39,175 for Kevin Beatty. The value of the 2018 at target EIP awards at issue was £772,200 for Lord Rothermere, £769,000 for Paul Zwillenberg, £461,250 for Tim Collier and £457,500 for Kevin Beatty. 3. 4. 72 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Payments to past Directors (Audited) Martin Morgan vested share awards The Committee was satisfied that the performance conditions had been met for the 2014 award made to Martin Morgan in December 2014 under the DMGT 2012 Long-Term Incentive Plan. The award of 124,626 shares (after adjustment for the April 2019 Distributions) will vest at 100% and be realised in December 2019. Martin Morgan received a total amount of £706,273 in December 2018 in relation to the realisation of the 2013 award made under the DMGT 2012 Long-Term Incentive Plan. The award of 104,500 shares was realised at a share price of £5.69 with a value of £594,562 and a dividend equivalent payment of £111,711. Paul Dacre vested share awards The Committee was satisfied that the performance conditions had been met in full for the 2016 award made to Paul Dacre in February 2017 under the DMGT 2017 Executive Incentive Plan. The award of 134,780 shares (after adjustment for the April 2019 Distributions) will vest and be realised in December 2019. Paul Dacre received a total amount of £917,693 in December 2018 in relation to the realisation of the 2015 award made under the DMGT 2012 Long-Term Incentive Plan. The award of 143,569 shares was realised at a share price of £5.73 with a value of £821,933 and a dividend equivalent payment of £95,761. Payments for loss of office (Audited) There were no payments for loss of office to any Directors during the year. Table 6: Executive Directors’ accrued entitlements under DMGT Senior Executives’ Pension Fund (Audited) The defined benefit scheme is closed for future accrual. It is the Company’s policy that annual bonuses and benefits in kind are not pensionable. No Executive Directors are now accruing further pension in the DMGT Senior Executives’ Pension Fund. The normal retirement age under the Fund for the Executive DIrectors is 60. The Viscount Rothermere 82 3 December 2027 – Cash allowance: 100% Defined benefit: accrued annual benefit as at 30 September 2019 based on normal retirement age £000 Defined benefit: normal retirement age Defined benefit: additional value of benefits if early retirement taken Weighting of pension benefit value as shown in single figure table Notes 1. The key elements of remuneration for the Executive Directors table on page 58 shows the cash allowances paid to each director as percentage of salary in lieu of pension. Table 7: Single figure of remuneration paid to Non-Executive Directors (Audited) The table below sets out the single total figure of remuneration for each Non-Executive Director (NED) in FY 2019 and FY 2018. There were no changes to NED fees during FY 2019. Travel allowances of £4,000 are paid for each Board meeting that requires a single (one way) flight of between five and 10 hours and £10,000 for each Board meeting that requires a single (one way) flight of more than 10 hours. Additional fees are paid for membership and chairmanship of sub-committees and subsidiary boards. Lady Keswick A H Lane F L Morin D H Nelson K A H Parry JP Rangaswami J H Roizen D Trempont Total 2018 Travel allowance £000 4 4 16 8 4 – 14 34 84 Fees £000 50 89 50 149 105 42 211 250 946 Total £000 54 93 66 157 109 42 255 284 1,030 2019 Travel allowance £000 4 8 16 4 4 4 10 44 94 Fees £000 50 1141 50 1741 2051 601 224 223 1,100 Notes 1. Additional fees of £25,000 to Andrew Lane, David Nelson and JP Rangaswami, and £100,000 to Kevin Parry were paid for their work in relation to the April 2019 Distributions. Total £000 54 122 66 178 209 64 234 267 1,194 73 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Chart 2: Percentage change in remuneration of the CEO The chart below sets out the remuneration delivered to the CEO compared to total employee remuneration. Chief Executive remuneration1 £000 Total employee remuneration £000 Average remuneration2 £000 2019 2018 2019 2018 2019 2018 £1,867 Notes 1. 2. The change in average employee remuneration is partly due to movement in the US$ exchange rate. Remuneration includes salaries, wages and incentives, but excludes LTIP awards made in the year and pension benefits. Chart 3: Comparison of overall performance of DMGT vs comparators % increase/decrease £3,736 +100.1% £455,249 £446,965 £75.26 £71.32 +1.9% +5.5% DMGT Media UK FTSE 100 (all rebased to 100) £ 400 350 300 250 200 150 100 50 0 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 The chart compares the Company’s TSR with the Media Sector Total Return Index and the FTSE 100 Index over the past 10 financial years, assuming an initial investment of £100. The Company is a constituent of the Media Sector Total Return Index and, accordingly, this is considered to be the most appropriate comparison to demonstrate the Company’s relative performance. Source: Thomson Reuters Datastream 74 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Table 8: Chief Executive remuneration outcomes FY 2010 to FY 2019 Financial year ending CEO Total remuneration (single figure) Annual variable pay1 (% maximum) LTIP achieved (% maximum) Share price at vesting FY 2010 £000 FY 2011 £000 FY 2012 £000 FY 2013 £000 FY 2014 £000 FY 2015 £000 FY 20162 £000 FY 2017 £000 FY 2018 £000 FY 2019 £000 Martin Morgan 2,961 98% 1,722 40% 25% 25%/100% £4.14 £5.72/£3.68 2,809 63% 52.5% £4.82 2,949 88% 37.5% £7.62 2,021 54% 40% £8.31 1,944 58% – – 3,342 63% 100% £6.95 Paul Zwillenberg 1,450 42.5% 1,867 81% – – – – 3,736 80% 20% £7.95 Notes 1. Maximum bonus opportunity was 100% of salary from FY 2010 to FY 2017 when it increased to 140%. 2. The single figure shown for FY 2016 combines the period of Martin Morgan’s service to 31 May 2016 and his successor Paul Zwillenberg from 1 June 2016. Chart 4: Relative importance of spend on pay in the financial year The chart sets out the relative importance of spend on pay in the financial year. £ millions 1,000 900 800 700 600 500 400 300 200 100 0 +1,055.6% 936 +0.9% 533 528 -20.3% 182 145 81 FY 2019 FY 2018 FY 2019 FY 2018 FY 2019 FY 2018 Total employment pay Dividend Adjusted profit before tax 75 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Remuneration Report Table 9: Statement of Directors’ shareholding and share interests (Audited) The number of shares of the Company in which the Executive and Non-Executive Directors or their families had a beneficial or non-beneficial interest during FY 2019 and details of Long-Term Incentive (LTI) interests as at 30 September 2019 are set out in the table below. The shareholding guideline for Executive Directors is 500% of salary for Lord Rothermere and Paul Zwillenberg and 150% of salary for Tim Collier and Kevin Beatty. The value as a percentage of salary has been calculated using the 28 September 2019 share price of £7.02. LTI interests not subject to performance conditions1 Vested LTI interests not subject to performance conditions1 Unvested Value (as a percentage of salary)2 Guideline met – – – – – – – 52,685 171,805 27,133 – 251,623 64,766% 116% 384% 234% N/A Yes No Yes Yes N/A LTI interests subject to performance conditions3 1,379,830 1,377,286 819,386 1,020,796 N/A Total outstanding interests4 1,379,830 1,429,971 991,191 1,047,929 N/A 4,597,298 4,848,921 Beneficial As at 30 September 2019 The Viscount Rothermere P A Zwillenberg T G Collier K J Beatty K A H Parry Non-beneficial The Viscount Rothermere D H Nelson Ordinary 19,890,3645 – – – – A Ordinary Non-Voting 59,268,078 74,283 108,539 226,850 12,565 19,890,364 59,690,315 – – 4,687,424 204,221 4,891,645 Total Directors’ interests Less duplications 19,890,364 – 64,581,960 (204,221) 19,890,364 64,377,739 Notes 1. The LTI interests not subject to performance conditions (vested and unvested) are the nil cost options awarded as the bonus deferral; full details can be found in table 4 on page 70. The LTI interests not subject to performance conditions (unvested) includes the unvested tranche of the recruitment award made to Tim Collier of 136,681 shares. These were awarded under the DMGT 2017 Long-Term Incentive Plan as Conditional Share Awards. The value as a multiple of salary includes LTI interests not subject to performance conditions. The LTI interests subject to performance conditions are detailed in tables 5.1 to 5.2 on pages 71 and 72 and include those shares which have vested but are not yet realised as well as those that are outstanding. Total outstanding interests are the sum of the LTI interests subject to performance conditions and unvested LTI interests not subject to performance conditions. The Company has been notified that under Sections 793 and 824 of the Companies Act 2006, Lord Rothermere was deemed to have been interested as a shareholder in 19,890,364 Ordinary Shares at 30 September 2019. 2. 3. 4. 5. None of the other directors held any shares in the Company, either beneficial or non-beneficial. At 30 September 2019, Lord Rothermere was beneficially interested in 756,700 Ordinary Shares of Rothermere Continuation Limited, the Company’s ultimate holding company. For Paul Zwillenberg and Kevin Beatty, purchases of shares were made between 30 September 2019 and 30 November 2019 through the share purchase+ plan. These purchases increased the beneficial holdings of these Executive Directors by 35 shares for Paul Zwillenberg and 29 shares for Kevin Beatty. There were no other changes in Directors share interests between these dates. Voting at general meeting At the February 2019 AGM, the advisory vote on the Remuneration Report received 19,890,364 (100%) votes for, with no votes against and no abstentions. The Committee consults with major shareholders prior to any major changes to remuneration policy and practice. Non-Executive Directors’ appointment The Non-Executive Directors are appointed for specified terms under the Company’s Articles of Association and are subject to annual re-election at the AGM. Each appointment can be terminated before the end of the one-year period with no notice or fees due. The dates of each Non-Executive Director’s original appointment and latest reappointment are set out below: Non-Executive Director Appointment commencement date Latest reappointment date Lady Keswick A H Lane F L Morin D H Nelson K A H Parry JP Rangaswami J H Roizen D Trempont 23 September 2013 6 February 2013 8 February 2017 1 July 2009 22 May 2014 7 February 2018 26 September 2012 9 February 2011 6 February 2019 6 February 2019 6 February 2019 6 February 2019 6 February 2019 6 February 2019 6 February 2019 6 February 2019 Directors’ service contracts/letters of appointment are available for inspection at DMGT’s registered office. 76 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Implementation of Remuneration Policy in FY 2020 Executive Directors’ base salary Executive Directors’ pension Executive Directors’ benefits in kind Executive Directors’ annual bonus Executive Directors’ Bonus deferral Executive Directors’ long-term incentive Executive Directors’ service contracts External appointments Salary increases for each of the Executive Directors of 2.0% for FY 2020 were approved in line with increases across the Group. Revised annual salaries including Directors’ fees from 1 October 2019 are £875,200 for Lord Rothermere, £784,400 for Paul Zwillenberg, £522,750 for Tim Collier and £777,750 for Kevin Beatty. No change to prior year. Pension allowances are reported in table 6 on page 73. No change to nature of benefits since prior year. Awards in FY 2020 will be measured against two financial metrics: Group level revenue and cash operating income. In addition to Group level performance, Kevin Beatty will be measured on the performance of dmg media against the same financial metrics (weighting 30% Group, 70% divisional). The Board considers the specific targets and relative weightings for each measure to be commercially sensitive and they will not be disclosed. Amounts above target of bonus for Paul Zwillenberg, Tim Collier and Kevin Beatty will be deferred into nil-cost options for two years. No deferral will apply for Lord Rothermere. The new long-term incentive plan (2020 LTIP) is split into two parts: i. Performance LTIP In order to incentivise the Executive Directors to continue to focus on increasing income and capital value through the organic growth of the DMGT portfolio of business, performance will be measured against Group financial targets over the three year period. ii. Conditional Share Award An annual conditional share award (CSA) vesting over a period of up to five years based on the EDs management of the DMGT portfolio, financial balance sheet and gearing, as well as acquisitions, disposals and other strategic decisions taken during the year. The Board considers the specific targets and relative weightings for each measure to be commercially sensitive and they will not be disclosed. No changes to service contracts are planned for FY 2020. The Company allows EDs to take a very limited number of outside directorships. Individuals retain the payments from such services since these appointments are not expected to impinge on their principal employment. Executive Directors’ shareholding guidelines The guideline is 500% of base salary for Lord Rothermere and Paul Zwillenberg and 150% of base salary for all other Executive Directors. Directors’ interests are reported in detail in table 9 on page 76. Recruitment award Exit payments None. None. Implementation of Policy for Non-Executive Directors FY 2020 Non-Executive Directors’ fees No change to prior year. 77 Strategic ReportGovernanceFinancial StatementsShareholder InformationGovernance Governance Statutory Information Directors’ Report Other statutory information Required information can be found in the Strategic Report on pages 1 to 39, which is incorporated into this report by reference. Information on employees, community and social issues is given in the Our People and Our Stakeholders section on pages 31 to 33. In accordance with the Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the information to be included in the Annual Report, where applicable, under LR 9.8.4, is set out in the Governance section, with the exception of details of transactions with controlling shareholders (if any) which are set out in Note 44. Forward-looking statements This Annual Report contains certain forward-looking statements with respect to 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 those 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. Tangible fixed assets and investments The Company’s subsidiaries are set out on page 179. Changes to the Group’s tangible fixed assets and investments during the year are set out in Notes 23 to 25. There was no material difference in value between the book value and the market value of the Group’s land and buildings. Directors The names of the Directors, plus brief biographical details are given on pages 40 and 41. All Directors held office throughout the year. In accordance with the UK Corporate Governance Code, all existing Directors will stand for re-election at the Annual General Meeting (AGM) on 5 February 2020. Principal activities A description of the principal activities of the Group and likely future developments and important events occurring since the end of the year are given in the Strategic Report on pages 1 to 39. Results and dividends The profit for the year of the Group and the profit for the year attributable to owners of the Company amounted to £91 million. The Board recommends a final dividend of 16.6 pence per share. If approved at the 2020 AGM, the final dividend will be paid on 7 February 2020 to shareholders at the close of business on 13 December 2019. Together with the interim dividend of 7.3 pence per share paid on 28 June 2019, this makes a total dividend for the year of 23.9 pence per share (2018 23.3 pence). Directors’ interests 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 76. Employee Benefit Trust The Executive Directors of the Company, together with other employees of the Group, are potential beneficiaries of the Employee Benefit Trust (EBT) and, as such, are deemed to be interested in any A Shares held by the EBT. At 30 September 2019, the EBT’s shareholding totalled 2,157,613 A Shares. The EBT has waived its right to dividends on the shares held. Between 30 September 2019 and 4 December 2019 the EBT transferred nil A Shares to satisfy the exercise of awards under employee share plans. 78 Significant shareholdings Until 4 December 2019, Rothermere Continuation Limited (RCL) held 100% of the issued Ordinary Shares. The Company anticipates that as of 5 December 2019, pursuant to a consolidation of the Company’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL and its directors are related parties of the Company as explained in Note 44 on page 175. RIL will be the Company’s holding company and hold 100% of the issued Ordinary Shares. This will not result in any change to the underlying control of the Company, and the Company’s ultimate controlling shareholder will be as stated in the Corporate Governance Report on page 40. RIL proposes to rename itself RCL before the end of the calendar year. The Board regards holdings in the Company’s securities of greater than 15% to be significant. There are no significant holdings in the Company’s securities other than those shown in the Remuneration Report on page 76. Share capital The Company has two classes of shares. Its total share capital is comprised of 8% Ordinary Shares and 92% A Shares. Full details of the Company’s share capital are given in Note 38. Holders of Ordinary and A Shares are entitled to receive the Company’s Annual Report. Holders of Ordinary Shares are entitled to attend and speak at general meetings and to appoint proxies and exercise voting rights. During the year, the Company transferred 1.5 million shares out of Treasury and the EBT, representing 0.7% of called-up A Shares, in order to satisfy incentive schemes. The Company held 6,723,734 shares in Treasury and the DMGT EBT with a nominal value of £0.8 million at 30 September 2019. The maximum number of shares held in Treasury and by the DMGT EBT during the year was 7,793,528, which had a nominal value of £1 million. The Company also purchased 0.4 million shares for holding in Treasury having a nominal value of £0.1 million in order to match obligations under various incentive plans. The consideration paid for these shares was £2.5 million. Shares purchased during the year represented 0.2% of the called-up A Share capital as at 30 September 2019. On 4 December 2019 the Company held 4,566,121 Treasury Shares. Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Details of allotments of share capital which arose solely from the exercise of options are given at Note 39. April 2019 Distributions In April 2019 there was a reduction of 127.3 million A shares. These were cancelled as part of the April 2019 Distributions, read more on page 25. Authority to purchase shares At the Company’s AGM on 6 February 2019, the Company was authorised to make market purchases of 21,491,333 A Shares representing approximately 10% of the total number of A Shares in issue at the time. During the period from 29 November 2018 to 30 September 2019, the Company purchased nil shares into Treasury, at a total cost of £nil (see Note 39). External Auditor and disclosure of information to the External Auditor So far as the Directors are aware, there is no relevant audit information of which the Company’s External Auditor is unaware. The Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s External Auditor is aware of that information. The Company’s External Auditor, PwC, has indicated its willingness to serve and, in accordance with Section 489 of the Companies Act 2006, a resolution proposing the reappointment of PwC will be put to the AGM on 5 February 2020. Directors’ indemnity A qualifying third-party indemnity (QTPI), as permitted by the Company’s Articles of Association and Sections 232 and 234 of the Companies Act 2006, has been granted by the Company to each of the Directors of the Company. Under the provisions of the QTPI, the Company undertakes to indemnify each Director against liability to third parties (excluding criminal and regulatory penalties) and to pay Directors’ defence costs as incurred, provided that they are reimbursed to the Company if the Director is found guilty or, in an action brought by the Company, judgment is given against the Director. Going concern A full description of the Group’s business activities, financial position, cash flows, liquidity position, committed facilities and borrowing position, together with the factors likely to affect its future development and performance, is set out in the Strategic Report, particularly the Financial Review on pages 22 to 30 and in the Notes to the Accounts on page 96. The Group has significant financial resources and the Directors, having reviewed the Group’s operating budgets, investment plans and financing arrangements, have assessed the future funding requirements of the Group and compared this to the level of committed facilities and cash resources. Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing the Annual Report. Viability Statement A Viability Statement in respect of the Company can be found on page 26. Directors’ responsibilities The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and the parent Company Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether IFRS as adopted by the European Union and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent Company Financial Statements respectively; and • prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping 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 the Group and enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the International Accounting Standards Regulation. They are also responsible for safeguarding the assets of the Company and the Group 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 Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. Each of the Directors confirms that, to the best of his/her knowledge: • the Group Financial Statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and • the Strategic Report contained on pages 1 to 39 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. Relationship agreements Daily Mail and General Trust plc entered into a Relationship Deed with Euromoney Institutional Investor PLC (Euromoney) on 8 December 2016, in accordance with the Listing Rules and has acted in accordance with the terms of the Deed since execution. The Euromoney Relationship Deed ceased as a result of the April 2019 Distributions. 79 Strategic ReportGovernanceFinancial StatementsShareholder InformationAnnual General Meeting The AGM will be held at 9.00 am on Wednesday 5 February 2020 at Northcliffe House, 2 Derry Street, London W8 5TT. The resolutions to be put to the meeting are set out on pages 81 and 82. A notice of meeting will be issued to the holders of Ordinary Shares and their nominees only. Only Ordinary Shareholders will be entitled to attend. A resolution to reappoint the Group’s External Auditor PricewaterhouseCoopers LLP, will be proposed at the 2020 AGM. By order of the Board F Sallas Company Secretary Governance Governance Statutory Information Conflicts of interest The Articles of Association permit the Board to authorise a conflict of interest in respect of any matter which would otherwise involve a Director breaching their duty, under the Companies Act 2006, to avoid conflicts of interest. When authorising a conflict of interest the Board must do so without the conflicting Director counting as part of the quorum. In the event that the Board considers it appropriate, the conflicted Director may be permitted to participate in the debate, but will neither be permitted to vote nor count in the quorum when the decision is being agreed. The Directors are aware that it is their responsibility to inform the Board of any potential conflicts as soon as possible. Procedures are in place to facilitate disclosure. The Board reviews its position on conflicts of interest annually and at such other times as are appropriate. Change of control The Company is not party to any significant agreements that would take effect, alter or terminate upon a change of control of the Company following a takeover bid. However, certain of the Group’s third-party funding arrangements would terminate upon a change of control of the Company. The Company does not have agreements with any Director or employee providing compensation for loss of office or employment that occurs because of a takeover bid, except for provisions in the rules of the Company’s share schemes which may result in options or awards granted to employees vesting on a takeover. Transactions with Directors No transaction, arrangement or agreement required to be disclosed in terms of the Companies Act 2006 and IAS 24, Related Parties, was outstanding at 30 September 2019, nor was entered into during the year for any Director and/or connected person except as detailed in Note 44 (2018 none). Political donations No political donations were made during the year. Principal risks The principal risks and how they are being managed or mitigated are shown on pages 34 to 39. The Directors have reviewed the Group’s principal risks including those that would threaten the Group’s business model, future performance, solvency or liquidity. Events after the balance sheet date Details are provided in Note 45. 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 41 as regards to ink and printing, where arrangements are in place until FY 2020 and FY 2022 respectively in order to obtain competitive prices and to secure supplies. Six month contracts with different start dates are agreed with a range of newsprint suppliers, to ensure the security of supply at the best available prices, having regard to the need for the necessary quality. Distribution arrangements are in place to ensure the delivery of newspapers to retail outlets. Since the Group is a diversified international portfolio of businesses, DMGT is not dependent on any supplier of other commodities for its revenue or any particular customer. Employees Details in respect of employees are in the Our People and Our Stakeholders section on pages 31 to 33. Articles of Association The appointment and replacement of Directors is governed by the Company’s Articles of Association. Any changes to the Articles of Association must be approved by the shareholders in accordance with the legislation in force at the time. The Directors have authority to issue and allot A Shares pursuant to Article 9 of the Articles of Association and shareholder authority is requested at each AGM. The Directors have authority to make market purchases of A Shares. This authority is also renewed annually at the AGM. 80 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Governance Annual General Meeting 2020: Resolutions The Company’s Annual General Meeting (AGM) will be held at 9.00 am on Wednesday 5 February 2020. Only the holders of Ordinary Shares are entitled to attend and vote. For information, below are the resolutions that will be put to the Ordinary shareholders at the AGM. The results will be posted on the Company’s website following the meeting in the usual way. Report and Accounts 1. To receive the Directors’ Report, the Accounts and the Auditor’s Report for the financial year ended 30 September 2019. Remuneration Report 2. To receive and approve the Directors’ Remuneration Report (other than the part containing the Directors’ Remuneration Policy) as set out on pages 55 to 77 of the Annual Report and Accounts for the financial year ended 30 September 2019, in accordance with Section 439 of the Companies Act 2006 (the Act). Remuneration Policy 3. To receive and approve the Directors’ Remuneration Policy (contained in the Directors’ Remuneration Report) as set out on pages 55 to 77 of the Annual Report and Accounts for the financial year ended 30 September 2019, in accordance with Section 439A of the Act. 4. To approve the payments to Directors outside of the Remuneration Policy, details of which are set out in the Remuneration Report in table 1 on page 68. Dividend 5. To declare the final dividend recommended by the Directors of 16.6 pence per Ordinary Share or A Ordinary Non-Voting Share (A Share) for the year ended 30 September 2019 to all holders of Ordinary Shares and/or A Shares on the register at the close of business on 13 December 2019. Directors 6. To re-elect Viscount Rothermere as a Director. 7. To re-elect Mr Beatty as a Director. 8. To re-elect Mr Collier as a Director. 9. To re-elect Lady Keswick as a Director. 10. To re-elect Mr Lane as a Director. 11. To re-elect Mr Morin as a Director. (d) the authority conferred by this Resolution shall expire on the date of the AGM next held after the passing of this Resolution or on 5 May 2021 whichever is the earlier (except in relation to the purchase of shares the contract for which was concluded before such date and which would or might be executed wholly or partly after such date). This authority revokes and replaces all unexercised authorities previously granted to the Directors to allot A Shares but without prejudice to any allotment of A Shares or grant of rights already made, offered or agreed to be made pursuant to such authority. 21. That the Directors be generally and unconditionally authorised pursuant to Section 551 of the Act to: (a) allot A Shares in the Company, and to grant rights to subscribe for or to convert any security into A Shares in the Company up to an aggregate nominal amount of £1,343,208 for a period expiring (unless previously renewed, varied or revoked by the Company in a general meeting) at the next AGM of the Company after the date on which this Resolution is passed or on 5 May 2021, whichever is the earlier; and (b) make an offer or agreement which would or might require A Shares to be allotted, or rights to subscribe for or to convert any security into A Shares to be granted, after expiry of this authority and the Directors may allot A Shares and grant rights in pursuance of that offer or agreement as if this authority had not expired. This authority revokes and replaces all unexercised authorities previously granted to the Directors to allot A Shares but without prejudice to any allotment of A Shares or grant of rights already made, offered or agreed to be made pursuant to such authority. 12. To re-elect Mr Nelson as a Director. 13. To re-elect Mr Parry as a Director. 14. To re-elect Mr Rangaswami as a Director. 15. To re-elect Ms Roizen as a Director. 16. To re-elect Mr Trempont as a Director. 17. To re-elect Mr Zwillenberg as a Director. Auditor 18. To reappoint PricewaterhouseCoopers LLP as the Company’s External Auditor until the end of the next general meeting at which accounts are laid before the Company. 19. To authorise the Directors to determine the Company’s External Auditor’s remuneration. 20. That the Company be and is hereby generally and unconditionally authorised for the purposes of s701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act) of A Shares on the London Stock Exchange provided that: (a) the maximum aggregate number of A Shares which may be purchased is 21,491,333; (b) the minimum price (excluding expenses) which may be paid for each A Share of 12.5 pence each in its share capital is not less than 12.5 pence per share; (c) the maximum price (excluding expenses) which may be paid for each A Share of 12.5 pence each in its share capital does not exceed the higher of: (i) 5% above the average of the middle market quotation taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the date of purchase; and (ii) the higher of the price of the last independent trade and the highest current independent bid as stipulated by Regulatory Technical Standards adopted by the European Commission under Article 5(6) of the Market Abuse Regulation (EU) No 596/2014; and 81 Strategic ReportGovernanceFinancial StatementsShareholder Information Governance Governance Annual General Meeting 2020: Resolutions Notice 24. That a general meeting other than an Annual General Meeting may be called on not less than 14 clear days’ notice. By order of the Board F Sallas Company Secretary Daily Mail and General Trust plc Northcliffe House, 2 Derry Street, London W8 5TT 4 December 2019 22. If Resolution 21 is passed, that the Directors be generally empowered pursuant to Section 570 and Section 573 of the Act to allot A Shares or grant rights to subscribe for or to convert any security into A Shares, for cash, or sell A Shares held by the Company as Treasury Shares for cash, pursuant to the authority conferred by Resolution 21, as if s561(1) of the Act did not apply to the allotment. This power: 23. If Resolution 21 is passed, that the Directors be generally and unconditionally empowered, in addition to any authority granted under Resolution 22, pursuant to s570 and s573 of the Act to allot equity securities for cash pursuant to the authority conferred by Resolution 21, and/or to sell A Shares held by the Company as Treasury Shares for cash, as if s561(1) of the Act did not apply to the allotment or sale. This power: (a) expires (unless previously renewed, (a) expires (unless previously renewed, varied or revoked by the Company in a general meeting) at the next AGM of the Company after the date on which this Resolution is passed or on 5 May 2021, whichever is the earlier, but the Company may make an offer or agreement which would or might require such securities to be allotted after expiry of this power and the Directors may allot such securities in pursuance of that offer or agreement as if this power had not expired; and (b) shall be limited to the allotment of such A Shares, the grant of rights to subscribe for or to convert any security into A Shares or the sale of A Shares held by the Company as Treasury Shares for cash, up to an aggregate nominal amount of £1,343,208. varied or revoked by the Company in a general meeting) at the next AGM of the Company after the date on which this Resolution is passed or on 5 May 2021, whichever is the earlier, but the Company may make an offer or agreement which would or might require such securities to be allotted after expiry of this power and the Directors may allot such securities in pursuance of that offer or agreement as if this power had not expired; (b) shall be limited to the allotment of equity securities and/or the sale of A Shares held by the Company as Treasury Shares for cash, up to an aggregate nominal amount of £1,343,208; and (c) shall be used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Board determines to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice. 82 Strategic ReportGovernanceFinancial StatementsShareholder Information Governance Annual General Meeting 2020: Resolutions Financial Statements Independent auditor’s report to the members of Daily Mail and General Trust plc Daily Mail and General Trust plc Annual Report 2019 Report on the audit of the financial statements Opinion In our opinion: • Daily Mail and General Trust plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 September 2019 and of the Group’s profit and cash flows for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Company Statements of Financial Position as at 30 September 2019; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Changes in Equity, and the Consolidated Cash Flow Statement for the year then ended; and the Notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company. Other than those disclosed in Note 5 to the financial statements, we have provided no non-audit services to the Group or the Company in the period from 1 October 2018 to 30 September 2019. Our audit approach Overview Materiality • Overall Group materiality: £7.25 million (2018: £7.20 million), based on 5% of adjusted profit before tax and non- controlling interests as identified in Note 13 of the Annual Report (‘adjusted profit before tax and non-controlling interests’). • Overall Company materiality: £33 million (2018: £38 million), based on 1% of total assets. Audit scope • Of the Group’s six operating divisions, we obtained full scope audits for Consumer Media and Insurance Risk. • For Events and Exhibitions, Property Information, EdTech and Energy Information, we scoped our audit at a business level, and identified six businesses over which we performed a full scope audit and two businesses over which we performed specified audit procedures on certain balances or transactions. • A full scope audit was also performed for the Group’s material associate, Euromoney Institutional Investor PLC, which was disposed on 2 April 2019. • Taken together, the components where we performed audit work accounted for 83% of Group revenue and 78% of absolute adjusted profit before taxation and non-controlling interests. Key audit matters • Impairment of intangible assets and goodwill (Group). • Accounting for acquisitions and disposals (Group). • Presentation of adjusted profit (Group). • Accounting for deferred taxation and uncertain tax positions (Group). • Carrying value of shares in Group undertakings (Company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. Capability of the audit in detecting irregularities, including fraud Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to data protection, including the EU General Data Protection Regulation (GDPR) and the proposed ePrivacy Regulation, competition and anti-trust legislation, EU Market Abuse Regulation, libel legislation, and tax legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements, including but not limited to, the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting estimates. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors included: • review of the financial statement disclosures to underlying supporting documentation; • enquiry with senior management and internal counsel and confirmations with external counsel; • review of material component auditors’ work; • review of internal audit reports in so far as they related to the financial statements; 83 Strategic ReportGovernanceFinancial StatementsShareholder InformationFinancial Statements Financial Statements Independent auditor’s report to the members of Daily Mail and General Trust plc • review of the Directors’ Litigation report and bribery, fraud, whistleblowing and internal controls review report; and • testing journal entries, in particular those with unusual financial statement line item combinations. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Impairment of intangible assets and goodwill (Group) Refer to the Audit & Risk Committee report on pages 48 to 53 and to Notes 21 and 22 in the Group financial statements. The Group had £251.2 million of goodwill and a further £69.9 million of intangible assets on the balance sheet at 30 September 2019. No impairment charges have been recorded against intangible assets and goodwill for businesses which remain in the statement of financial position at 30 September 2019. The carrying values of the remaining goodwill and intangible assets are based on subjective judgements about the future performance of the underlying cash generating units (‘CGUs’) with key assumptions including future cash flows, long-term growth rates and discount rates. There is a risk that if these cash flows do not meet the Directors’ expectations, some of these assets may be impaired. Our work focussed principally on the carrying value of the CGU most at risk of impairment, being the EdTech CGU. How our audit addressed the key audit matter As part of our audit of the Directors’ impairment assessments (for both goodwill and intangible assets) we evaluated future cash flow forecasts and the process by which they were drawn up. This included comparing them to the latest Board approved budgets and two-year plans, and testing the mathematical accuracy of the assessments. For the impairment assessment of goodwill and intangible assets allocated to the EdTech CGU, we tested all key assumptions, including: • revenue and profit assumptions included within the future forecasts, by considering the historical accuracy of forecasts against actual performance, retention rates and new contracts; • the long-term growth rates in the forecasts by comparing them to historical results, market data, and economic and industry forecasts using our valuation expertise; • the discount rate by comparing the cost of capital for the Group with comparable organisations, and assessing the specific risk premium applied to the business using our valuation expertise; and • the Directors’ potential bias by performing our own sensitivity analysis on key assumptions, particularly those driving underlying cash flows. We assessed the appropriateness of the related disclosures in Note 21, including the sensitivities provided in respect of Hobsons and considered them to be reasonable. For those assets where the Directors determined that no impairment was required and that no additional sensitivity disclosures were necessary, we found that these judgements were supported by reasonable assumptions that would require significant downside changes before any material impairment was necessary. 84 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Key audit matter How our audit addressed the key audit matter Accounting for acquisitions and disposals (Group) Refer to the Audit & Risk Committee report on pages 48 to 53 and to Notes 8, 17, 18, 19, and 20 in the Group financial statements. The Group has made a number of acquisitions and disposals during the year. The focus of our work has been in relation to the following disposals where the judgements are more significant: • disposal of the Group’s remaining stake in Euromoney through dividend in specie and cash distribution; • disposal of the On-Geo GmbH business; • disposal of the Group’s 49.9% stake in SiteCompli; and • disposal of the Group’s c. 40% stake in Real Capital Analytics, Inc. For the Group’s disposal of its remaining 49.9% stake in Euromoney, we: • validated the appropriateness of the accounting treatment of the dividend in specie distribution; • verified the fair value of the distribution to underlying support including the share price at distribution date for the dividend in specie and vouched the cash paid; • tested the impairment charge required by comparing the investment value to the fair value of the shares on the date of distribution; and • validated disposal costs to underlying support. With regards to the calculation of the profit on disposals of On-Geo GmbH, SiteCompli, and Real Capital Analytics, Inc., we: • obtained and recalculated the Directors’ calculation of the profit on disposal; • verified the fair value of consideration received to underlying support including cash transactions and sale agreements; and • validated disposal costs to underlying support. Based on the procedures performed, we concluded that the accounting for acquisitions and disposals was accurate. Presentation of adjusted profit (Group) Refer to the Audit & Risk Committee report on pages 48 to 53 and to Notes 2, 13, 19 and 41 in the Group financial statements. The Group presents adjusted profit before taxation and non-controlling interests to enable users of the financial statements to gain a better understanding of the underlying results. In arriving at adjusted profit a number of items are considered to have a distortive effect on current year earnings by management and as a result are excluded from underlying earnings. We have understood the rationale for classifying items as adjustments to profit before taxation and considered whether this was reasonable and consistent, in that it includes items that both increase and decrease the adjusted profit measure, the adjustments were consistent year on year, and were in accordance with the Group’s accounting policy. We have also audited the reconciliation of adjusted profit to statutory profit in Note 13, and agreed all material adjustments to underlying accounting records and our audit work performed over other balances. The classification of items as an adjustment to profit is an area of judgement and the appropriateness and consistency of the presentation of adjusted measures of performance continues to attract scrutiny from the financial reporting regulators. We consider the Group’s disclosures setting out the reasons for its use of alternative performance measures and the reconciliations of these measures to the statutory amounts to be in line with regulatory guidance in this area. During the current year, the Group recorded a provision for 69.2 million Renewable Identification Numbers (RINs), valued at £32.5 million, in relation to the Environmental Protection Agency (‘EPA’) litigation, which has been classified as an adjustment to profit before tax. This provision requires estimation of the future outcome and valuation of the RINs. Specifically, with regards to the Environmental Protection Agency (‘EPA’) litigation provision expense, we: • enquired with internal and external counsel and obtained a legal confirmation from external counsel; • obtained and reviewed the Final Determination issued by the EPA and the Directors’ settlement offer letter; • recalculated the value of the Renewable Identification Numbers (RINs) using pricing data independently obtained from external data sources; • considered the tax implications of the provision against applicable tax regulations; and • concluded that the after tax provision recorded is appropriate and that the Group financial statements appropriately disclosed the range of possible outcomes given the estimation uncertainty. Based on the procedures performed, we concluded that the accounting for the EPA provision was reasonable. Given the magnitude and nature of the EPA litigation, we considered the exclusion of this item from adjusted profit before tax and non-controlling interests to be in line with the Group’s accounting policy. 85 Strategic ReportGovernanceFinancial StatementsShareholder InformationFinancial Statements Financial Statements Independent auditor’s report to the members of Daily Mail and General Trust plc Key audit matter How our audit addressed the key audit matter Accounting for deferred taxation and uncertain tax positions (Group) Refer to the Audit Committee report on pages 48 to 53 and to Notes 11 and 37 in the Group financial statements. The Group’s recognition of deferred tax assets in respect of trading and non-trading tax losses in the Group is an area of focus due to the quantum of the losses and the requirement to make estimates of future taxable profits in determining the valuation of deferred tax assets. The recognition and measurement of these items in the financial statements involves estimation, and we focussed on the Directors’ forecasts of future profits against which to utilise accumulated losses, and the technical interpretation of taxation law in respect to transactions giving rise to deferred tax assets and uncertain tax positions. Carrying value of shares in Group undertakings (Company) Refer to Notes 2 and 8 to the Company financial statements. Shares in Group undertakings of £3,237.6 million are accounted for at cost less impairment in the Company balance sheet at 30 September 2019. Shares in Group undertakings are tested for impairment if impairment indicators exist. If such indicators exist, the recoverable amounts of the shares in Group undertakings are estimated in order to determine the extent of the impairment loss, if any. The key assumptions included in those estimates include cash flow projections, nominal long-term (decline)/growth rates and discount rates of the CGUs. During the year, impairments of £15.1 million were recognised to the Company’s investments. We involved our tax specialists in our testing of the appropriateness of the estimates taken in relation to deferred taxation and in respect of uncertain tax positions recognised in the Group financial statements. In assessing the likelihood of the Group being able to generate sufficient future taxable profits against which to offset accumulated losses, we considered: • key inputs to the calculation including revenue and profit assumptions, in line with our work over the carrying value of goodwill and intangible assets; and • the Directors’ ability to accurately forecast future profits. In understanding and evaluating the Directors’ technical interpretation of tax law in respect of specific transactions that gave rise to deferred tax assets and uncertain tax positions we considered: • third party tax advice received by the Group; • the status of recent and current tax authority audits and enquiries; • the outturn of previous claims; • judgemental positions taken in tax returns and current year estimates; and • developments in the tax environment, including the continuing impact of US tax reform. We consider the valuation of the deferred tax assets and amounts recorded for uncertain tax positions to be supportable based on our evaluation of the technical interpretations outlined above. Management identified an impairment indicator as the carrying value of investments in subsidiaries exceeds the market capitalisation of the Group. For each discounted cash flow prepared for the relevant undertakings, we tested all key assumptions, including: • cash flow projections by considering the historical accuracy of forecasts against actual performance; • the nominal long-term (decline)/growth rates by comparing them to historical results and industry forecasts; and • the discount rates applied in the models by comparing the cost of capital for the Group with comparable organisations and assessing the specific risk premium applied to each business using our valuation expertise. Where applicable, we have performed an independent sensitivity analysis to understand the impact of reasonable changes in management’s assumptions on the available headroom. We also considered the implied multiples of the individual CGUs and the business as a whole in comparison to available external market data. As a result of our work, we considered the £15.1 million impairment charge to be appropriate and that the remaining carrying values of the shares in undertakings held by the Company are supportable in the context of the Company financial statements taken as a whole. 86 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group consists of a head office and six operating divisions: Insurance Risk; Consumer Media; Property Information; EdTech; Energy Information; and Events and Exhibitions. As each of these prepares a sub-consolidation, we considered each of these to be separate divisions. We scoped our audit of Consumer Media and Insurance Risk at the divisional level. For Property Information, EdTech, Energy Information, and Events and Exhibitions, we scoped our audit at the business level, with divisional consolidation adjustments audited at the Group level. We identified Consumer Media as requiring an audit of their complete financial information due to its significance to the Group. In order to obtain sufficient and appropriate audit evidence over the Group as a whole we also instructed our Information Risk component team to complete an audit of the division’s complete financial information. Within Property Information; EdTech; and Events and Exhibitions, we identified six businesses, for which we instructed our component team to complete an audit of their complete financial information, either due to their relative size or risk. These businesses are located in the United States, the United Kingdom and the United Arab Emirates. A full scope audit was also performed by our component team for Euromoney Institutional Investor PLC, which was disposed on 2 April 2019. Within Energy Information, we performed an audit of specific financial statements line items of a business in the United States. Further, for one Property Information business in the United States, we conducted specified procedures over higher risk financial statement line items. Taken together, the components where we performed audit work accounted for 83% of Group revenue and 78% of absolute adjusted profit before taxation and non-controlling interests. At the group level, we also carried out analytical and other procedures on the reporting components not covered by the procedures described above. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those locations to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole. We issued formal, written instructions to component auditors setting out the work to be performed by each of them and maintained regular communication throughout the audit cycle. These interactions included attending component clearance meetings and holding regular conference calls, as well as reviewing and assessing matters reported. The group engagement team also reviewed selected audit working papers for material components. This, together with audit procedures performed at the Group level (including procedures over impairment of goodwill and intangibles, material head office entities, tax, pensions and consolidation adjustments), gave us the evidence we needed for our opinion on the Group financial statements as a whole. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements £7.25 million (2018: £7.20 million). 5% of adjusted profit before tax and non- controlling interests. The Group is profit-oriented. Adjusted profit before taxation and non-controlling interests is the adjusted performance measure that is reported to investors and shareholders and is the measure which the Directors consider best represents the underlying performance of the Group. We have applied a 5% rule of thumb, which is the rule of thumb suggested by ISAs (UK) for the audit of profit-oriented entities. Company financial statements £33 million (2018: £38 million). 1% of total assets. The Company is not profit-oriented. Total assets is used as the benchmark as the Company’s principal activity is to hold investments, creditors, and debtors balances. We have applied a 1% rule of thumb suggested by ISAs (UK) as the Company is a public interest entity. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £0.68 million and £6.2 million. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5 million (Group audit) (2018: £0.5 million) and £1.6 million (Company audit) (2018: £1.9 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 87 Strategic ReportGovernanceFinancial StatementsShareholder InformationFinancial Statements Financial Statements Independent auditor’s report to the members of Daily Mail and General Trust plc Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation We are required to report if we have anything material to add or draw attention to in respect of the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material uncertainties to the Group’s and the Company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. Outcome We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the wider economy. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06) and ISAs (UK) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 30 September 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group As a result of the Directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the ‘Code’), we are required to report to you if we have anything material to add or draw attention to regarding: • The Directors’ confirmation on pages 34 to 39 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. • The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • The Directors’ explanation on page 26 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report in respect of this responsibility. Other Code Provisions As a result of the Directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in our opinion: • The statement given by the Directors, on pages 45 and 46, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit. • The section of the Annual Report on pages 48 to 53 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have nothing to report in respect of this responsibility. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) 88 Strategic ReportGovernanceFinancial StatementsShareholder InformationDaily Mail and General Trust plc Annual Report 2019 Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Directors’ Responsibilities set out on page 79, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of Directors’ remuneration specified by law are not made; or • the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the audit committee, we were appointed by the members on 4 February 2015 to audit the financial statements for the year ended 30 September 2015 and subsequent financial periods. The period of total uninterrupted engagement is 5 years, covering the years ended 30 September 2015 to 30 September 2019. Other voluntary reporting Going concern The Directors have requested that we review the statement on page 79 in relation to going concern as if the Company were a premium listed Company. We have nothing to report having performed our review. The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group The Directors have requested that we perform a review of the Directors’ statements on pages 34 to 39 and 26 that they have carried out a robust assessment of the principal risks facing the Group and in relation to the longer-term viability of the Group, as if the Company were a premium listed Company. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. We have nothing to report having performed this review. Other Code provisions The Directors have prepared a corporate governance statement and requested that we review it as though the Company were a premium listed Company. We have nothing to report in respect of the requirement for the auditors of premium listed companies to report when the Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Neil Grimes (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 4 December 2019 89 Strategic ReportGovernanceFinancial StatementsShareholder InformationFinancial Statements Financial Statements Consolidated Income Statement For the year ended 30 September 2019 CONTINUING OPERATIONS Revenue Year ended 30 September 2019 £m Year ended 30 September 2018 £m Note 3 1,337.0 1,340.9 Adjusted operating profit Exceptional operating costs, impairment of internally generated and acquired computer software, property, plant and equipment Amortisation and impairment of acquired intangible assets arising on business combinations and impairment of goodwill 3, (i) 3 3, 21, 22 4 7 8 9 10 10 11 19 39 40 14 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 investment revenue, net finance costs and tax Investment revenue Finance expense Finance income Net finance costs Profit before tax Tax Profit after tax from continuing operations DISCONTINUED OPERATIONS Loss from discontinued operations PROFIT FOR THE YEAR Attributable to: Owners of the Company Non-controlling interests* Profit for the year 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. 135.8 144.6 (11.9) (29.3) 94.6 (28.1) 66.5 73.7 140.2 11.5 (24.5) 7.1 (17.4) 134.3 (20.4) 113.9 (22.6) 91.3 90.9 0.4 91.3 38.3p 37.8p (7.6)p (7.5)p 30.7p 30.3p 38.6p 38.1p (82.6) (12.2) 49.8 118.4 168.2 565.5 733.7 4.8 (37.5) 5.5 (32.0) 706.5 (7.6) 698.9 (10.7) 688.2 689.4 (1.2) 688.2 197.7p 196.0p (3.0)p (3.6)p 194.7p 192.4p 42.2p 41.7p (i) Adjusted operating profit is defined as total operating profit from continuing operations before share of results of joint ventures and associates, exceptional operating costs, impairment of goodwill and intangible assets, amortisation of acquired intangible assets arising on business combinations and impairment of property, plant and equipment. 90 90 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Consolidated Statement of Comprehensive Income For the year ended 30 September 2019 Profit for the year Items that will not be reclassified to Consolidated Income Statement Actuarial (loss)/gain on defined benefit pension schemes Foreign exchange differences on translation of foreign operations of non-controlling interests Tax relating to items that will not be reclassified to Consolidated Income Statement Fair value movement of financial assets through other comprehensive income Year ended 30 September 2019 £m 91.3 Year ended 30 September 2018 £m 688.2 (45.3) (0.1) 7.7 (4.5) 183.6 0.2 (31.2) – Note 39 40 39 25, 39 Total items that will not be reclassified to Consolidated Income Statement (42.2) 152.6 Items that may be reclassified subsequently to Consolidated Income Statement Loss on hedges of net investments in foreign operations Costs of hedging Cash flow hedges: Change in fair value of cash flow hedges Transfer of gain on cash flow hedges from translation reserve to Consolidated Income Statement Share of joint ventures’ and associates’ items of other comprehensive (expense)/income Translation reserves recycled to Consolidated Income Statement on disposals Foreign exchange differences on translation of foreign operations 39 39 39 39 7, 39 8, 18, 19, 39 39 Total items that may be reclassified subsequently to Consolidated Income Statement Other comprehensive (expense)/income for the year Total comprehensive income for the year Attributable to: Owners of the Company Non-controlling interests Continuing operations Discontinued operations Total comprehensive income/(expense) for the year from continuing operations attributable to: Owners of the Company Non-controlling interests 91 (13.5) (0.1) – – (0.7) (3.6) 16.2 (1.7) (2.1) – 4.9 (4.9) 14.7 (10.4) (8.9) (6.7) (43.9) 145.9 47.4 834.1 47.1 0.3 47.4 67.4 (20.0) 47.4 67.1 0.3 67.4 835.1 (1.0) 834.1 848.4 (14.3) 834.1 849.4 (1.0) 848.4 91 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Consolidated Statement of Changes in Equity For the year ended 30 September 2019 At 30 September 2017 Profit/(loss) for the year Other comprehensive income/(expense) for the year Total comprehensive income/(expense) for the year Dividends Own shares acquired in the year Own shares released on exercise of share options Changes in non-controlling interests following disposal and closure of businesses 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 At 30 September 2018 Adjustment for transition to IFRS 15 Adjustment for transition to IFRS 9 Restated at 1 October 2018 Profit for the year Other comprehensive expense for the year Total comprehensive income/(expense) for the year Cancellation of A Ordinary Non-Voting Shares Dividends Euromoney dividend in specie Euromoney impairment Euromoney cash distribution Own shares acquired in the year Own shares released on exercise of share options Changes in non-controlling interests following disposal and closure of businesses Credit to equity for share–based payments Settlement of exercised share options of subsidiaries Deferred tax on other items recognised in equity Note 39, 40 39, 40 12, 39, 40 39 39 40 39 39 39 37, 39 2, 39 2, 39 39, 40 39, 40 38, 39 12, 39, 40 12, 39 39 12, 39 39 39 40 39 39 37, 39 Called-up share capital £m 45.3 – Share premium account £m 17.8 – Capital redemption reserve £m 5.0 – Own shares £m (64.3) – Translation reserve £m 74.9 – Retained earnings £m 829.5 689.4 Equity attributable to owners of the Company £m 908.2 689.4 Non- controlling interests £m 11.0 (1.2) Total equity £m 919.2 688.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (14.3) 21.4 – – – – – (21.4) 167.1 145.7 0.2 145.9 (21.4) 856.5 (81.0) – 835.1 (81.0) (14.3) (1.0) (0.2) – 834.1 (81.2) (14.3) – 21.4 – 21.4 – 10.8 (13.8) 2.3 – 10.8 (13.8) 2.3 (6.8) (6.8) 3.7 – 3.7 10.8 – – – (13.8) 2.3 (6.8) 45.3 17.8 5.0 (57.2) 53.5 1,597.5 1,661.9 13.5 1,675.4 – – – – – – – – – – (2.4) (2.9) (2.4) (2.9) – – (2.4) (2.9) 45.3 17.8 5.0 (57.2) 53.5 1,592.2 1,656.6 13.5 1,670.1 – – – (16.0) – – – – – – – – – – – – – – – – – – – – – – – – – – – 16.0 – – – – – – – – – – – – – – – – – – (2.5) 10.6 – – – – – (1.0) 90.9 (42.8) (1.0) 48.1 – (74.1) (661.8) (11.8) (200.0) – 90.9 (43.8) 47.1 – (74.1) (661.8) (11.8) (200.0) (2.5) 0.4 (0.1) 0.3 – (1.0) – – – – 91.3 (43.9) 47.4 – (75.1) (661.8) (11.8) (200.0) (2.5) – 10.6 – 10.6 – 21.1 – 21.1 (12.8) – (12.8) 21.1 (11.5) (11.5) 0.6 0.6 774.3 – – – (11.5) 0.6 774.3 – – – – – – – – – – – – – – – – – – – At 30 September 2019 29.3 17.8 21.0 (49.1) 52.5 702.8 92 92 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Consolidated Statement of Financial Position At 30 September 2019 ASSETS Non–current assets Goodwill Other intangible assets Property, plant and equipment Investments in joint ventures Investments in associates Financial assets at fair value through other comprehensive income Available for sale investments Trade and other receivables Other financial assets Derivative financial assets Retirement benefit assets Deferred tax assets Current assets Inventories Trade and other receivables Current tax receivable Other financial assets 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 At 30 September 2019 £m At 30 September 2018 £m Note 21 22 23 24 24 25 25 27 28 34 35 37 26 27 31 28 34 29 20 30 31 32 33 34 36 20 30 32 33 34 35 36 37 251.2 69.9 74.4 8.1 90.9 33.8 – 26.6 12.0 3.6 225.7 54.9 851.1 26.8 288.7 0.8 15.4 – 299.1 153.5 784.3 1,635.4 (478.0) (3.5) – (11.8) (18.7) (44.7) (72.6) (629.3) (2.3) – (202.8) (5.7) (10.7) (7.8) (2.5) (231.8) (861.1) 333.2 131.2 99.7 1.0 769.5 – 20.4 27.3 18.4 9.0 249.1 49.5 1,708.3 31.5 264.3 5.4 245.3 0.7 437.8 – 985.0 2,693.3 (492.9) (6.1) (0.6) (222.3) (6.6) (38.8) – (767.3) (2.0) (7.6) (205.7) (13.5) (5.6) (10.0) (6.2) (250.6) (1,017.9) 774.3 1,675.4 93 93 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Financial Statements Consolidated Statement of Financial Position Consolidated Statement of Financial Position At 30 September 2019 At 30 September 2019 SHAREHOLDERS’ EQUITY Called-up share capital SHAREHOLDERS’ EQUITY Share premium account Called-up share capital Share capital Share premium account Capital redemption reserve Share capital Own shares Capital redemption reserve Translation reserve Own shares Retained earnings Translation reserve Equity attributable to owners of the Company Retained earnings Non-controlling interests Equity attributable to owners of the Company Non-controlling interests Note Note 38 39 38 39 39 39 39 39 39 39 39 39 40 40 At 30 September 2019 At £m 30 September 2019 £m 29.3 17.8 29.3 47.1 17.8 21.0 47.1 (49.1) 21.0 52.5 (49.1) 702.8 52.5 774.3 702.8 – 774.3 774.3 – 774.3 At 30 September 2018 At £m 30 September 2018 £m 45.3 17.8 45.3 63.1 17.8 5.0 63.1 (57.2) 5.0 53.5 (57.2) 1,597.5 53.5 1,661.9 1,597.5 13.5 1,661.9 1,675.4 13.5 1,675.4 The financial statements of DMGT plc (Company number 184594) on pages 90 to 183 were approved by the Directors and authorised for issue on 4 December 2019. They were signed on their behalf by The financial statements of DMGT plc (Company number 184594) on pages 90 to 183 were approved by the Directors and authorised for issue on 4 December 2019. They were signed on their behalf by The Viscount Rothermere P A Zwillenberg The Viscount Rothermere Directors P A Zwillenberg Directors 94 94 94 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Consolidated Cash Flow Statement For the year ended 30 September 2019 Cash generated by operations Taxation paid Taxation received Net cash generated by operating activities Investing activities Interest received Dividends received from joint ventures and associates Dividends received from financial assets held at fair value through other comprehensive income Purchase of property, plant and equipment Expenditure on internally generated intangible fixed assets Expenditure on other intangible assets Purchase of financial assets held at fair value through other comprehensive income Purchase of available for sale investments Proceeds on disposal of property and plant and equipment Proceeds on disposal of available for sale investments Purchase of businesses and subsidiary undertakings Settlements and collateral payments on treasury derivatives Investment in joint ventures and associates Loans advanced to joint ventures and associates Loans to joint ventures and associates repaid (Costs)/proceeds on disposal of businesses and subsidiary undertakings Proceeds on disposal of joint ventures and associates Sale/(purchase) of other financial assets Net cash generated by investing activities Financing activities Equity dividends paid Dividends paid to non-controlling interests Purchase of own shares Net (payment)/receipt on settlement of subsidiary share options Interest paid Bonds repaid Bonds redeemed Premium on redemption of bonds Loan notes repaid 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 year Exchange gain on cash and cash equivalents Net cash and cash equivalents at end of year Note 15 24 9 23 22 22 25 25 17 24 18 8, 24 28 12, 39 40 39 16 16 10 16 16 16 29 16 16, 29 Year ended 30 September 2019 £m 165.0 (20.0) 9.8 154.8 Year ended 30 September 2018 £m 137.3 (27.1) 4.8 115.0 7.4 12.3 – (15.9) (13.9) – (6.1) – 9.3 – (27.6) (12.3) (39.4) – 0.2 (11.6) 81.4 237.3 0.9 23.1 0.1 (30.4) (19.5) (0.2) – (19.3) 0.1 1.0 (19.1) 7.7 (1.8) (8.4) 0.2 146.3 637.9 (237.3) 221.1 481.3 (274.1) (1.0) (2.5) (0.8) (28.7) (218.5) (6.7) (0.9) (0.1) – (81.0) (0.2) (14.3) 7.6 (37.7) – – – (0.1) (43.7) (533.3) (169.4) (157.4) 435.9 10.7 289.2 426.9 7.4 1.6 435.9 95 95 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 1 Basis of preparation DMGT plc is a company incorporated and domiciled in the United Kingdom. The address of the registered office is Northcliffe House, 2 Derry Street, London, W8 5TT. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and related IFRS Interpretations Committee (IFRS IC) interpretations 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 year ended 30 September 2019. Other than the Daily Mail, The Mail on Sunday and Metro businesses, the Group prepares accounts for a year ending on 30 September. The Daily Mail, The Mail on Sunday and Metro businesses prepare financial statements for a 52 or 53 week financial period ending on a Sunday near to the end of 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 these businesses and the end of the Group’s financial year and makes any material adjustments as appropriate. The significant accounting policies used in preparing this information are set out in Note 2. The Group’s 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 derivative financial instruments, hedged items, equity investments, contingent consideration, put options and the pension scheme surplus/(deficit) all of which are measured at fair value. The Group presents the results from discontinued operations separately from those of continuing operations. An operation is classed as discontinued if it has been, or is in the process of being disposed and represents either a separate major line of business or a geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or exit a major geographical area of operations. Prior period amounts have been re-presented to conform to the current period’s presentation, as prescribed by IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. All amounts presented have been rounded to the nearest £0.1 million. 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 Review, and the Strategic Report. As highlighted in Note 33 and 34 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 surplus cash balances and committed bank facilities which expire in March 2023. 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. Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements. 2 Significant accounting policies The following new and amended IFRSs have been adopted during the period: • IFRS 9, Financial Instruments (effective 1 October 2018) • IFRS 15, Revenue from Contracts with Customers (effective 1 October 2018) • IFRIC 22, Foreign Currency Transactions and Advance Consideration (effective 1 January 2018) IFRS 9, Financial Instruments replaced IAS 39, Financial Instruments: Recognition and Measurement. The key areas of IFRS 9 which affect the Group are those which relate to the recognition of impairment provisions against receivables, the treatment of available for sale investments and new hedging requirements. In accordance with the transitional provisions of IFRS 9 the Group has adopted IFRS 9 on a modified retrospective basis such that comparative figures have not been restated and remain in line with the requirements of IAS 39. IFRS 9 contains three principal classification categories for financial assets – Measured at Amortised Cost, Fair Value through Other Comprehensive Income (FVTOCI) and Fair Value through Profit and Loss (FVTPL) and eliminates the IAS 39 categories of held to maturity, loans and receivables and available for sale. The main effect resulting from this reclassification relates to the Group’s equity investments which under IAS 39 were classified as available for sale whilst under IFRS 9 are now classified as Fair Value through Other Comprehensive Income. As a result, all fair value movements are now recorded in Other Comprehensive Income and gains and losses will not be recycled to the Consolidated Income Statement on disposal although dividend income will continue to be recorded in the Consolidated Income Statement. A fair value gain of £9.4 million has been recorded on transition to IFRS 9. 96 96 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 With regard to impairment provisions, IFRS 9 introduces the expected credit loss (ECL) model which requires an impairment provision to be made on initial recognition of the receivable which under IAS 39 was required only when a loss event occurred. IFRS 9 requires ECLs to be recognised by reference to historical recovery rates and forward-looking indicators. The Group has applied the simplified approach to trade receivables, contract assets and other receivables. The IFRS 9 ECL model has resulted in an ECL loss of £0.3 million on transition to IFRS 9 in relation to other receivables. The IFRS 9 ECL model also applies to long-term receivables due from associates and joint ventures. The Group has recorded an ECL loss of £12.0 million on transition to IFRS 9 in relation to amounts due from its associates. The Group has adopted the new general hedge accounting model in IFRS 9 which aligns hedge accounting with the Group’s risk management strategy. All hedge relationships designated under IAS 39 are treated as continuing hedges under IFRS 9. Under the new standard, the Group has excluded the currency basis from its hedge designation retrospectively. A summary of the transition impact of IFRS 9 is shown below: Financial assets at FVTOCI Non-current other receivables Other financial assets Total As at 1 October 2018 IFRS 9 transition adjustment £m 9.4 (0.3) (12.0) (2.9) Previously reported £m 20.4 27.3 18.4 66.1 Note 25 27 28 Restated £m 29.8 27.0 6.4 63.2 IFRS 15 Revenue from Contracts with Customers replaced IAS 18 Revenue. In accordance with the transitional provisions of IFRS 15 the Group has adopted IFRS 15 on a modified retrospective basis such that comparative figures have not been restated and remain in line with the requirements of IAS 18. The new revenue recognition standard introduced additional guidance surrounding performance obligations within sales contracts and the timing of revenue recognition. The standard introduces a five step model which will require judgement in their application, which are as follows: • Identify the contract(s) with the customer • Identify the separate performance obligations in the contract • Determine the contract price • Allocate the transaction price to the performance obligations in the contract • Recognise revenue when each performance obligation has been satisfied In addition to changes to the timing of revenue recognition IFRS 15 also introduces changes to the recognition of incremental costs incurred when obtaining a contract with a customer known as contract acquisition costs. These include commissions paid to employees. The standard requires such costs to be recognised as an asset, when the Group expects to recover them, and charge them to the Consolidated Income Statement on a systematic basis rather than being expensed immediately. Judgement is required to determine this period and whether this is the contract term or a longer period such as the estimated customer life for contracts which are expected to renew. Such deferred costs are de-recognised and charged immediately to the Consolidated Income Statement when no future economic benefits are expected. The adoption of IFRS 15 resulted in a reduction in net assets of £2.4 million which is summarised as follows: Segment Insurance Risk Property Information EdTech Energy Information Total Increased contract acquisition costs £m 1.1 1.0 – 1.6 (Increased)/ decreased deferred revenue and accruals £m 1.2 (1.1) (7.3) – Increased/ (decreased) deferred tax assets £m (0.6) – 1.9 (0.2) IFRS 15 transition adjustment £m 1.7 (0.1) (5.4) 1.4 3.7 (7.2) 1.1 (2.4) The IFRS 15 transition adjustment represents the reversal of certain revenues which met the criteria for recognition under IAS 18 but do not so under IFRS 15 together with contract acquisition costs which were expensed immediately under IAS 18 and which are now deferred and recognised on a systemic basis under IFRS 15. The Group has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published but are only effective for the Group’s accounting periods beginning on or after 1 October 2019. These new pronouncements are listed below: • IFRS 16, Leases (effective 1 January 2019) • Amendment to IFRS 2, Share Based Payments – benefits (effective 1 January 2019 but not yet endorsed by the EU) • IFRIC 23, Uncertainty over Income Tax Treatments (effective 1 January 2019 but not yet endorsed by the EU) 97 97 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued Other than IFRS 16, the adoption of standards, amendments and interpretations which have been issued but are not yet effective are not expected to have a material impact on the Group’s Consolidated Financial Statements. IFRS 16, effective for the 2020 fiscal year, eliminates the distinction between operating and finance leases for lessees and requires lessees to recognise right of use assets and corresponding liabilities for all leases. The new standard replaces the operating lease expense with a depreciation charge included within operating costs on the underlying right of use asset and an interest expense included within finance costs on the lease liability. Lessors will continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting largely unchanged from its predecessor, IAS 17. The Group will adopt IFRS 16 on a modified retrospective basis such that the Group will recognise the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings i.e. as at 1 October 2019 with no restatement of prior periods. As permitted by IFRS 16 the Group will apply the following practical expedients: • The Group has not brought onto the balance sheet short-term leases (those with 12 months or less to run as at 1 October 2019 including reasonably certain options to extend) or low-value assets. Costs for these items will therefore continue to be expensed directly in the Income Statement. • The Group has relied on its onerous lease assessments under IAS 37 to impair right of use assets in place of performing an impairment assessment on adoption of IFRS 16. • The Group has measured right of use assets at an amount equal to the lease liability on adoption of IFRS 16 as adjusted by existing lease accruals, prepayments and dilapidations and onerous lease provisions. • The Group also expects to separate non-lease components from lease components as part of the transition adjustment. At 1 October 2019, on the adoption of IFRS 16 the Group will recognise right of use assets of approximately £91.6 million and lease liabilities of approximately £93.4 million. This includes right of use assets of approximately £7.3 million and lease liabilities of approximately £7.5 million relating to businesses held for sale. The additional lease liability will not equal the operating lease commitment in Note 41 largely because the lease liabilities are discounted under IFRS 16 and lease terms determined under IFRS 16 may be longer than under IAS 17. The impact on the Consolidated Income Statement for the year to 30 September 2020 will depend on factors which may occur during that year including new leases entered into, changes to exchange rates and discount rates. The operating lease charge for the year ended 30 September 2019 amounted to £43.7 million and this will be replaced with a depreciation charge and an interest charge, other than for those leases which are short-term and low-value assets which will continue to be charged to the Consolidated Income Statement. From continuing operations for the year ended 30 September 2020, the Group estimates the depreciation charge on IFRS 16 right of use assets will be approximately £22.6 million and interest on additional IFRS 16 lease liabilities will be approximately £1.9 million. Lease rentals of approximately £25.2 million will no longer be charged to the Consolidated Income Statement. In the Consolidated Cash Flow Statement there will be no impact in the total change in cash and cash equivalents. Under IFRS 16 the repayment of the lease liabilities will be included in financing activities and interest on IFRS 16 leases will be shown in operating activities whereas under IAS 17 lease rental payments were in operating activities. Business combinations The acquisition of subsidiaries and businesses is 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 the consideration for an acquisition includes any asset or liability resulting from a contingent arrangement, this is measured at its discounted fair value on the date of acquisition. Subsequent changes in fair values are adjusted through the Consolidated Income Statement in Financing. Changes in the fair value of contingent consideration classified as equity is not recognised. Put options granted to non-controlling interests are recorded at present value as a reduction in equity on initial recognition, since the arrangement represents a transaction with equity holders. Changes in present value after initial recognition are recorded in the Consolidated Income Statement in Financing. 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 at the date of the acquisition that, if known, would have affected the amounts recognised as at 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 at the acquisition date and is a maximum of one year. 98 98 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 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 interests. 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 financial assets at fair value through other comprehensive income at fair value on initial recognition. On disposal of a subsidiary all amounts deferred in equity are recycled to the Consolidated Income Statement. Contingent consideration receivable Where the consideration for a disposal includes consideration resulting from a contingent arrangement, the contingent consideration receivable is discounted to its fair value, with any subsequent movement in fair value being recorded in the Consolidated Income Statement in Financing. Discontinued operations The Group presents the results from discontinued operations separately from those of continuing operations. An operation is classed as discontinued if it has been, or is in the process of being disposed and represents either a separate major line of business or a geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or exit a major geographical area of operations. Assets and liabilities of businesses held for sale An asset or disposal group is classified as held for sale if its carrying amount is intended to be recovered principally through sale rather than continuing use, is available for immediate sale and it is highly probable that the sale will be completed within 12 months of classification as held for sale. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment is recognised in the Consolidated Income Statement and is first allocated to the goodwill associated with the disposal group and then to the remaining assets and liabilities on a pro rata basis. No further depreciation or amortisation is charged on non-current assets classified as held for sale from the date of classification. Accounting for subsidiaries A subsidiary is an entity controlled by the Group. Control is achieved where the Group has power over an investee; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the returns. The results of subsidiaries acquired or disposed of during the period 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, either at fair value or at the non-controlling interest’s share of the net assets of the subsidiary, on a case-by-case basis. The total comprehensive income of a subsidiary is apportioned between the Group and the non-controlling interest, even if it results in a deficit balance for the non-controlling interest. 99 99 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued 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. 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 into 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 on 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 4 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. On disposal of a subsidiary, associate 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. 100 100 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Impairment of goodwill The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired. 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 CGU 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, prorated on the basis of the carrying amount of each asset in the unit, but subject to not reducing any asset below its recoverable amount. When testing for impairment, the recoverable amounts for all of the Group’s CGUs are measured at the higher of value in use or 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 Board-approved budgets and projections which reflect management’s current experience and future expectations of the markets in which the CGU operates. Risk adjusted pre-tax discount rates used by the Group in its impairment tests range from 10.50% to 15.28% (2018 13.25% to 15.28%) the choice of rates depending on the risks specific to that CGU. The Directors’ estimate of the Group’s post tax weighted average cost of capital is 8.5% (2018 8.5%). The cash flow projections consist of Board-approved budgets for the following year, together with forecasts for up to two additional years and nominal long-term growth rates beyond these periods. The nominal long-term growth rates range between 2.0% and 3.0% (2018 nominal long-term growth rate of 3.0%) used varies with management’s view of the CGU’s market position, maturity of the relevant market and does not exceed the long-term average growth rate for the market in which the CGU operates. An impairment loss recognised for goodwill is charged 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, such development expenditure is charged to the Consolidated Income Statement in the period in which it is incurred. Licences 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 intangible assets. 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 programs are recognised as an expense as incurred. Other intangible assets Other intangible assets with finite lives are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to Operating Profit in 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, mastheads and titles Brands Market and customer-related databases and customer relationships Computer software 5 – 30 years 3 – 20 years 3 – 20 years 2 – 5 years Amortisation of intangible assets not arising on business combinations are included within Adjusted Operating Profit in the Consolidated Income Statement. The Group has no intangible assets with indefinite lives. 101 101 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued Impairment of intangible assets At each period end date, reviews are carried out of the carrying amounts of 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, 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 CGU to which the asset belongs. If the recoverable amount of an asset or CGU is estimated to be less than its net carrying amount, the net carrying amount of the asset or CGU is reduced to its recoverable amount. Impairment losses are recognised immediately in the Consolidated Income Statement. At the end of each reporting period the Group assesses 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: (i) whether the asset’s market value has increased significantly during the period; (ii) 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 (iii) 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. 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. Plant 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 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 method in the Consumer Media segment for newsprint and the First In First Out method for all other inventories. Exhibitions, training and event costs Directly attributable costs relating to future exhibitions, training and events are deferred within work in progress and measured at the lower of cost and net realisable value. These costs are charged to the Consolidated Income Statement when the exhibition, training or event takes place. 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. These are recognised in the Consolidated Income Statement on publication. Marketing costs All marketing and promotional costs are charged to the Consolidated Income Statement in the period in which they are incurred. Direct event costs are charged to the Consolidated Income Statement within Direct Event Costs. 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 and which are subject to insignificant changes in value. For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are as defined above, net of bank overdrafts. 102 102 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Revenue 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 and support), all aspects of the transaction are considered 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 consumer media segment enters into agreements with advertising agencies and certain clients, which are subject to a minimum spend and typically include a commitment to deliver rebates to the agency or client based on the level of agency spend over the contract period. The principal revenue performance obligations are: • 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 the publication or report; • advertising revenue is recognised on issue of the publication or over the period of the online campaign; • 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 revenue is recognised on delivery of the software or the technology or over a period of time where the transaction is a licence (the licence term). If support is unable to be separately identified from hosting and revenue is unable to be allocated on a fair and reliable basis, support revenue is recognised over the licence term. Commissions paid to acquire software and services contracts are capitalised in prepayments and recognised over the term of the contract; • support revenue associated with software licences and subscriptions is recognised over the term of the support contract; and Adjusted measures The Group presents adjusted operating profit and adjusted profit before tax adjusting for costs and profits which management believe to be significant by virtue of their size, nature or incidence or which have a distortive effect on current year earnings. In the Director’s judgement such items would include, but are not limited to, costs associated with business combinations, gains and losses on the disposal of businesses and subsidiary undertakings, finance costs relating to premium on bond buy backs, fair value movements, exceptional operating costs, impairment of goodwill and amortisation and impairment of intangible assets arising on business combinations. The board and management team believe these adjusted results, used in conjunction with statutory IFRS results, give a greater insight into the financial performance of the Group and the way it is managed. Similarly, adjusted results are used in setting management remuneration. See Note 13 for a reconciliation of profit before tax to adjusted profit before and after tax. The Group also presents a measure of net debt. In the judgement of the Directors this measure should include the currency gain or loss on derivatives entered into with the intention of economically converting the currency borrowings into an alternative currency. See Note 16 for further detail. 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 subsidiary undertakings and profit or loss on sale of joint ventures and associates. EBITDA The Group discloses EBITDA, being adjusted operating profit before depreciation of property, plant and equipment. EBITDA is broadly used by analysts, rating agencies, investors and the Group’s banks as part of their assessment of the Group’s performance. A reconciliation of EBITDA from operating profit is shown in Note 15 and the ratio of net debt to EBITDA is disclosed in Note 34. 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. 103 103 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued Borrowing costs Unless capitalised under IAS 23, Borrowing Costs, 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 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 Consolidated Statement of 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 net finance income/(charge) is also charged to the Consolidated Income Statement within net finance costs. 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 current tax 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 set off 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. Deferred tax liabilities are recognised for taxable temporary differences arising in investments in subsidiaries, joint ventures and associates 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 is reduced or increased as appropriate 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, or it becomes probable that sufficient taxable profits will be available. 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 set off 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 recognised directly in equity. 104 104 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Actual tax liabilities or refunds may differ from those anticipated due to changes in tax legislation, differing interpretations of tax legislation and uncertainties surrounding the application of tax legislation. In situations where uncertainties exist, provision is made for contingent tax liabilities and assets when it is more likely than not that there will be a cash impact. These provisions are made for each uncertainty individually on the basis of management judgement following consideration of the available relevant information. The measurement basis adopted represents the best predictor of the resolution of the uncertainty which is usually based on the most likely cash outflow. The Company reviews the adequacy of these provisions at the end of each reporting period and adjusts them based on changing facts and circumstances. Financial instruments Financial assets and financial liabilities are recognised on the Consolidated Statement of 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 interest and are recognised initially at the value of the invoice sent to the customer i.e. amortised cost and subsequently reduced by allowances for estimated irrecoverable amounts. Other receivables include loans which are held at the capital sum outstanding plus unpaid interest. Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected. In the current period the Group applies the simplified approach permitted by IFRS 9, which requires the use of the lifetime expected loss provision for all receivables, including contract assets. These estimates are based on historic credit losses, macro-economic and specific country-risk considerations with higher default rates applied to older balances. In addition if specific circumstances exist which would indicate that the receivable is irrecoverable a specific provision is made. A provision is made against trade receivables and contract assets until such time as the Group believes there to be no reasonable expectation of recovery, after which the trade receivable or contract asset balance is written off. In the prior period, under IAS 39, impairment losses relating to trade receivables were recorded when a loss event occurred. Financial assets at fair value through other comprehensive income Financial assets are recognised and derecognised 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. In the current period, as permitted by IFRS 9, the Group classifies its equity investments at Fair Value through Other Comprehensive Income. All fair value movements are recorded in Other Comprehensive Income and gains and losses are not recycled to the Consolidated Income Statement on disposal. Dividend income from Financial assets held at fair value through Other Comprehensive Income is recorded in the Consolidated Income Statement. Unlisted equity investments are valued using a variety of approaches including comparable company valuation multiples and discounted cash flow techniques. In extremely limited circumstances, where insufficient recent information is available to measure fair value or when there is a wide range of possible fair value measurements, cost is used since this represents the best estimate of fair value in the range of possible valuations. The fair value of listed equity investments is determined based on quoted market prices. Available for sale investments In the prior period available for sale investments were classified as either fair value through profit or loss or available for sale. Where investments were held-for-trading purposes, gains and losses arising from changes in fair value were included in net profit or loss for the period. For available for sale investments, gains and losses arising from changes in fair value were 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. The fair value of listed investments was determined based on quoted market prices. Unlisted investments were recorded at cost less provision for impairment with their recoverable amount determined by discounting future cash flows to present value using market interest rates. 105 105 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued Financial liabilities and equity instruments Trade payables Trade payables are non-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. Derecognition The Group derecognises a financial asset, or a portion of a financial asset, from the Consolidated Statement of Financial Position where the contractual rights to cash flows from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant risks and rewards, along with the unconditional ability to sell or pledge the asset. Financial liabilities are derecognised when the liability has been settled, has expired or has been extinguished. Derivative financial instruments and hedge accounting Derivative financial instruments are used to manage exposure to market risks. The principal derivative instruments used by the Group are foreign currency swaps, interest rate swaps, foreign exchange forward contracts and options. The Group does not hold or issue derivative financial instruments for trading or speculative purposes. Changes in the fair value of derivative instruments which do not qualify for hedge accounting are recognised immediately in the Consolidated Income Statement. Where the derivative instruments do qualify for hedge accounting, the following treatments are applied: Fair value hedges Changes in the fair value of the hedging instrument are recognised in the Consolidated Income Statement for the year 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. Cash flow hedges 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. Net investment hedges Exchange differences arising from the translation of the net investment in foreign operations are recognised 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. 106 106 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 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. Onerous contract provisions are recognised for losses on contracts where the forecast costs of fulfilling the contract throughout the contract period exceed the forecast income receivable. The provision is calculated based on cash flows to the end of the contract. Vacant property provisions are recognised when the Group has committed to a course of action that will result in the property becoming vacant. Share-based payments The Group issues equity-settled and cash-settled share-based payments to certain Directors and 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. Investment in own shares Treasury shares Where the Company purchases its equity share capital as Treasury Shares, the consideration paid, including any directly attributable incremental costs (net of income taxes) is recorded as a deduction from shareholders’ equity until such shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised in equity, with any difference between the proceeds from the sale and the original cost being taken to retained earnings. Employee Benefit Trust The Company has established an Employee Benefit Trust (EBT) for the purpose of purchasing shares in order to satisfy outstanding share options and potential awards under long-term incentive plans. The assets of the EBT comprise shares in DMGT plc and cash balances. The EBT is administered by independent trustees and its assets are held separately from those of the Group. The Group bears the major risks and rewards of the assets held by the EBT until the shares vest unconditionally with employees. The Group recognises the assets and liabilities of the EBT in the consolidated financial statements and shares held by the EBT are recorded at cost as a deduction from shareholders’ equity. Consideration received for the sale of shares held by the EBT is recognised in equity, with any difference between the proceeds from the sale and the original cost being taken to retained earnings. 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: Adjusted measures Management believes that the adjusted profit and adjusted earnings per share measures provide additional useful information to users of the Report and Accounts on the performance of the business. Accordingly the Group presents adjusted operating profit and adjusted profit before tax by adjusting for costs and profits which management judge to be significant by virtue of their size, nature or incidence or which have a distortive effect on current year earnings. In management’s judgement such items would include, but are not limited to, costs associated with business combinations, gains and losses on the disposal of businesses and subsidiary undertakings, finance costs relating to premium on bond buy backs, fair value movements, exceptional operating costs, impairment of goodwill and amortisation and impairment of intangible assets arising on business combinations. Exceptional operating costs include reorganisation costs and similar items of a significant and a non-recurring nature. In addition, the Group presents an adjusted profit after tax measure by making adjustments for certain tax charges and credits which management judge to be significant by virtue of their size, nature or incidence or which have a distortive effect. The Group uses these adjusted measures to evaluate performance and as a method to provide shareholders with clear and consistent reporting. See Note 13 for a reconciliation of profit before tax to adjusted profit before and after tax. The Group also presents a measure of net debt. In the judgement of management this measure should include the currency gain on loss on derivatives entered into with the intention of economically converting the currency borrowings into an alternative currency. See Note 16 for further detail. 107 107 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 2 Significant accounting policies continued Critical accounting judgements and key sources of estimation uncertainty continued Investment in Euromoney The Directors have considered factors which may indicate de facto control following the reduction in its shareholding to below 50.0% in a prior period. The Directors have judged that it does not have de facto control over Euromoney since it cannot block any ordinary resolutions, which comprise the majority of corporate actions, has no control over the remuneration of Euromoney’s directors and has no control over Euromoney’s day-to-day operations nor budgets. In addition, the Group has no material trading activities or relationships which are critical for Euromoney to carry out its business. Accordingly, the Group has equity accounted for Euromoney during the year. The Group’s investment in Euromoney was distributed to shareholders by way of a dividend in specie on 2 April 2019, see Note 12 for further detail. Retirement benefits When a surplus on a defined benefit pension scheme arises, management are required to consider the rights of the Trustees in preventing the Group from obtaining a refund of that surplus in the future. Where the Trustees are able to exercise this right the Group would be required to restrict the amount of surplus recognised. After considering the principles set out in IFRIC 14, the Directors have judged it appropriate to recognise a surplus of £225.7 million (2018 £249.1 million) and report a net surplus on its pension schemes amounting to £215.0 million (2018 £243.5 million). The following represent key sources of estimation uncertainty that have the most significant effect on the amounts recognised in the financial statements: Forecasting The Group prepares medium-term forecasts based on Board-approved budgets and two-year outlooks. These are used to support estimates 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. See Note 21 for a sensitivity assessment of these long-term growth rates on the carrying values of certain of the Group’s goodwill and intangible assets. Impairment of goodwill and intangible assets Determining whether goodwill and intangible or other assets are impaired or whether a reversal of an impairment should be recorded requires a comparison of the balance sheet carrying value with the recoverable amount of the asset or CGU. The recoverable amount is the higher of the value in use and fair value less costs to sell. The value in use calculation requires management to estimate the future cash flows expected to arise from the asset or CGU and calculate the net present value of these cash flows using a suitable discount rate. A key area of estimation is deciding the long-term growth rate and the operating cash flows of the applicable businesses and the discount rate applied to those cash flows (Note 21). The key assumptions used and associated sensitivity analysis in relation to Group’s EdTech segment is shown in Note 21. The carrying amount of goodwill and intangible assets within this segment at the year end amounted to £96.9 million (2018 £97.3 million) 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, to be used. The Group recognises intangible assets acquired as part of a business combination at fair value at the date of acquisition. The determination of these fair values is based upon management’s estimate 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. 108 108 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 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 more challenging. The resolution of issues is not always within the control of the Group and actual tax liabilities or refunds may differ from those anticipated due to changes in tax legislation, differing interpretations of tax legislation and uncertainties surrounding the application of tax legislation. 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. In situations where uncertainties exist, provision is made for contingent tax liabilities and assets when it is more likely than not that there will be a cash impact. These provisions are made for each uncertainty individually based on management’s estimates following consideration of the available relevant information. The measurement basis adopted represents the best predictor of the resolution of the uncertainty which is usually based on the most likely cash outflow. The Company reviews the adequacy of these provisions at the end of each reporting period and adjusts them based on changing facts and circumstances. In addition, 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. See Note 37 for further information concerning recognised and unrecognised deferred tax assets. Retirement benefits 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, future salary increases and mortality rates. 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 fair value of the Group’s pension scheme assets include quoted and unquoted investments. The value of unquoted investments are estimated as their values are not directly observable. Accordingly the assumptions used in valuing unquoted investments are affected by current market conditions and trends which could result in changes in their fair value after the measurement date. A 1.0% movement in the value of unquoted pension scheme assets is estimated to change the value of the Group’s pension scheme assets by £23.4 million. The carrying amount of the retirement benefit obligation at 30 September 2019 was a surplus of £215.0 million (2018 £243.5 million). The assumptions used and the associated sensitivity analysis can be found in Note 35. Legal claim provision DMGT and certain of its subsidiaries are involved in various lawsuits and claims which arise in the course of business. The Group records a provision for these matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The amounts accrued for legal contingencies often result from complex judgments about future events and uncertainties that rely heavily on estimates and assumptions. As disclosed in Note 19, Genscape has been involved in a dispute with the US Environmental Protection Agency (EPA) since 2016. In 2017 Genscape voluntarily paid a 2.0% liability cap associated with invalid Renewable Identification Numbers (RINs) at a cost of US$1.3 million, based on the then-prevailing market rates, subject to a reservation of rights. However, during 2019 the EPA ordered Genscape to replace 69.2 million RINs it had validated. By way of settlement Genscape has made an offer to replace 4.6 million RINs at a cost of approximately US$2.5 million but the EPA have not responded to this offer. Discussions with the EPA are ongoing but considering the uncertainties involved, the length of time involved and taking note of the order from the EPA, the Group, without admitting any wrongdoing, has made a provision for the potential maximum replacement RINs cost of US$40.0 million, including directly attributable costs. This estimate was based on the average two-year RIN price due to the liquidity and volatility of the market price of RINs. If the provision was made using the year end price of 41 cents, the potential maximum claim would be US$29.7 million, including directly attributable costs. This provision could change substantially over time as the dispute progresses and new facts emerge. 109 109 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 3 Segment analysis The Group’s business activities are split into six operating divisions: Insurance Risk, Property Information, EdTech, Events and Exhibitions, Energy and Consumer Media. These divisions are the basis on which information is reported to the Group’s Chief Operating Decision Maker, which has been determined to be 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 of acquired intangible assets arising on business combinations, impairment charges, other gains and losses, net finance costs and taxation. 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. The Group’s revenues are disaggregated by major product line as follows: Segment operating profit/(loss) £m 39.7 41.9 4.4 22.3 8.4 67.9 184.6 (27.8) (8.4) Less operating profit/(loss) of joint ventures and associates £m (0.7) 0.5 – – – 0.8 0.6 12.0 – Total and external revenue £m 244.3 222.1 79.7 118.7 73.6 672.2 1,410.6 – (73.6) 1,337.0 Adjusted operating profit/(loss) £m 40.4 41.4 4.4 22.3 8.4 67.1 184.0 (39.8) (8.4) 135.8 (11.9) (19.1) (10.2) 94.6 (28.1) 66.5 73.7 140.2 11.5 (24.5) 7.1 134.3 (20.4) (22.6) 91.3 Year ended 30 September 2019 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Discontinued operations Adjusted operating profit Exceptional operating costs, impairment of internally generated and acquired computer software, property, plant and equipment Impairment of goodwill and acquired intangible assets arising on business combinations Amortisation of acquired intangible assets arising on business combinations 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 investment revenue, net finance costs and tax Investment revenue Finance expense Finance income Profit before tax Tax Loss from discontinued operations Profit for the year Note 19 21 22 19 110 110 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 An analysis of the amortisation and impairment of goodwill and intangible assets, exceptional operating costs by segment is as follows: Year ended 30 September 2019 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Relating to discontinued operations Continuing operations The Group’s exceptional operating costs are analysed as follows: Note 19 Note Year ended 30 September 2019 EdTech Energy Information Consumer Media Corporate costs Relating to discontinued operations 19 Continuing operations Pension past service cost (Note 35) (ii) £m – – (1.9) (1.9) (1.2) (3.1) – (3.1) LTIP (i) £m – – (1.5) (1.5) (8.1) (9.6) – (9.6) Amortisation of intangible assets not arising on business combinations (Note 22) £m (0.1) (6.3) (7.7) – (4.1) (3.0) (21.2) Amortisation of intangible assets arising on business combinations (Note 22) £m – (7.1) (1.6) (1.4) (3.2) (0.1) (13.4) Impairment of goodwill and intangible assets arising on business combinations (Note 21) £m – (19.1) – – – – (19.1) Exceptional operating costs £m – – 0.1 – (31.3) (2.0) (33.2) (0.8) (22.0) 4.1 (17.9) – (13.4) 3.2 (10.2) Property £m 0.1 – 2.4 2.5 – 2.5 – 2.5 Legal fees and claims £m – (31.3) – (31.3) – (31.3) 31.3 – – (19.1) – (19.1) Others £m – – (1.0) (1.0) (0.7) (1.7) – (1.7) (10.0) (43.2) 31.3 (11.9) Total £m 0.1 (31.3) (2.0) (33.2) (10.0) (43.2) 31.3 (11.9) The Group’s tax charge includes a related credit of £9.1 million in relation to these exceptional operating costs of which £6.6 million relates to discontinued operations. (i) During the prior period, the Group sold its investment in ZPG resulting in a profit on sale of £508.4 million and in the current period, the Group disposed of its investment in Euromoney. As a direct consequence of these disposals the value of the DMGT Long Term Incentive Plans (LTIPs) are estimated to have increased by £21.9 million. As the LTIPs include a service period condition, IFRS 2 Share Options requires the LTIP charge to be spread over the service period until the awards vest. The LTIP charge recognised in the period, which relates to the disposals of ZPG and Euromoney, amounts to £9.6 million. Since the profit on the sale of ZPG and the capital benefit of the Euromoney disposal are excluded from our adjusted profit measure we have treated the incremental increase in the LTIP charge as an adjusting item and will continue to do so until the awards vest. (ii) The pension past service cost represents a non-cash charge. This follows a High Court ruling in the Lloyds Banking Group case to equalise benefits for the effect of unequal Guaranteed Minimum Pensions (GMP) between men and women for UK pension schemes which had contracted out of the State Earnings Related Pension Scheme. 111 111 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 3 Segment analysis continued An analysis of the depreciation of property, plant and equipment, research costs, investment revenue, and finance income and expense by segment is as follows: Year ended 30 September 2019 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Relating to discontinued operations 19 Continuing operations Year ended 30 September 2018 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Discontinued operations Adjusted operating profit Exceptional operating costs, impairment of internally generated and acquired computer software, property, plant and equipment Impairment of goodwill and acquired intangible assets arising on business combinations Amortisation of acquired intangible assets arising on business combinations 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 investment revenue, net finance costs and tax Investment revenue Finance expense Finance income Profit before tax Tax Loss from discontinued operations Profit for the year Note Depreciation of property, plant and equipment (Note 23) £m (5.3) (2.3) (0.3) (0.3) (2.6) (14.0) (24.8) Investment revenue (Note 9) £m 0.4 – 1.4 – – – 1.8 9.7 11.5 – 11.5 Segment operating profit/(loss) £m 33.8 58.0 7.4 27.7 0.3 83.6 210.8 12.0 (0.3) Finance income (Note 10) £m – – – – – 7.1 7.1 – 7.1 – 7.1 Less operating profit/(loss) of joint ventures and associates £m (0.8) – – – – 19.3 18.5 59.4 – Research costs £m (39.7) (0.1) – – (5.2) (0.5) (45.5) – (45.5) 5.2 (40.3) Total and external revenue £m 229.4 271.6 68.3 117.8 85.5 653.8 1,426.4 – (85.5) 1,340.9 Finance expense (Note 10) £m – (0.1) (0.1) – (0.1) (0.3) (0.6) (24.0) (24.6) 0.1 (24.5) Adjusted operating profit/(loss) £m 34.6 58.0 7.4 27.7 0.3 64.3 192.3 (47.4) (0.3) 144.6 (82.6) – (12.2) 49.8 118.4 168.2 565.5 733.7 4.8 (37.5) 5.5 706.5 (7.6) (10.7) 688.2 (0.5) (25.3) 2.6 (22.7) Note 19 21, 22 22 19 (i) Revenue and adjusted operating profit relating to the discontinued operations of Energy Information have been deducted in order to reconcile total segment result to Group profit before tax from continuing operations. 112 112 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 An analysis of the amortisation and impairment of goodwill and intangible assets, exceptional operating costs by segment is as follows: Year ended 30 September 2018 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Relating to discontinued operations Continuing operations Note 19 The Group’s exceptional operating costs are analysed as follows: Note Year ended 30 September 2018 Property Information EdTech Energy Information Consumer Media Corporate costs Relating to discontinued operations Continuing operations 19 Severance costs £m 0.1 0.2 – (0.1) 0.2 – 0.2 – 0.2 Amortisation of intangible assets not arising on business combinations (Note 22) £m (15.0) (3.9) (5.2) (0.1) (3.4) (5.2) (32.8) Amortisation of intangible assets arising on business combinations (Note 22) £m – (8.7) (2.8) (0.6) (3.3) (0.1) (15.5) Impairment of goodwill and intangible assets arising on business combinations (Notes 21, 22) £m – – – – (0.3) – (0.3) Impairment of internally generated and acquired computer software (Note 22) £m (58.3) – – – (0.1) – (58.4) Exceptional operating costs £m – (1.5) – – 3.8 (18.2) (15.9) – (32.8) 3.4 (29.4) LTIP (i) £m – – – (0.8) (0.8) (4.7) (5.5) – (5.5) – (15.5) 3.3 (12.2) Pension past service cost (Note 35) (ii) £m – – – (17.3) (17.3) – (17.3) – (17.3) – (0.3) 0.3 – Property £m – (0.2) – – (0.2) – (0.2) – (0.2) – (58.4) 0.1 (58.3) Legal fees (iii) £m (1.6) – 3.8 – 2.2 0.1 2.3 (3.8) (1.5) (4.6) (20.5) (3.8) (24.3) Total £m (1.5) – 3.8 (18.2) (15.9) (4.6) (20.5) (3.8) (24.3) The Group’s tax charge includes a related credit of £4.3 million in relation to these exceptional operating costs. (i) During the prior period, the Group sold its investment in ZPG resulting in a profit on sale of £508.4 million. As a direct consequence of this disposal, the value of the DMGT 2017 Long Term Incentive Plan (the LTIP) is estimated to have increased by £16.5 million. As the LTIP includes a service period condition, IFRS 2, Share Options requires the LTIP charge to be spread over the service period until the award vests. The LTIP charge recognised in the period which relates to the disposal of ZPG amounts to £5.5 million which is anticipated to be repeated for the following two years. Since the profit on sale of ZPG is excluded from our adjusted profit measure we have treated the incremental increase in the LTIP charge as an adjusting item and will continue to do so until the award vests. (ii) The pension past service cost represents a non-cash charge. This follows a change to the scheme rules in one of the Group’s defined benefit (DB) pension plans capping future pension increases at 5.0%. This aligns the pension increases of this scheme with all other Group DB pension plans. (iii) Exceptional charges in the Property Information segment relate to fees paid to the Group’s lawyers in defence of various claims brought against businesses in this segment. The exceptional credit in the Energy Information segment relates to a release of provisions no longer required. 113 113 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 3 Segment analysis continued An analysis of the depreciation of property, plant and equipment, research costs, investment revenue, and finance income and expense by segment is as follows: Year ended 30 September 2018 Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Relating to discontinued operations Continuing operations Depreciation of property, plant and equipment (Note 23) £m (4.9) (2.8) (0.6) (0.5) (3.3) (14.9) (27.0) (0.2) (27.2) 3.3 (23.9) Note 19 Research costs £m (37.2) (0.1) – – (4.0) (0.5) (41.8) – (41.8) 4.0 (37.8) Investment revenue (Note 9) £m 0.3 – 1.4 – – – 1.7 3.1 4.8 – 4.8 Finance income (Note 10) £m – – – – – 2.0 2.0 3.5 5.5 – 5.5 Finance expense (Note 10) £m – – – – (2.5) (1.1) (3.6) (36.4) (40.0) 2.5 (37.5) The Group’s revenue comprises sales excluding value added tax, less discounts and commission where applicable and is analysed as follows: Year ended 30 September 2019 Total Under IFRS 15 £m 184.5 145.1 284.1 Year ended 30 September 2019 Total Point in time Under IFRS 15 £m 184.5 0.8 284.1 Year ended 30 September 2019 Total Over time Under IFRS 15 £m – 144.3 – Year ended 30 September 2019 Discontinued operations Total Under IFRS 15 (Note 19) £m – – – Year ended 30 September 2019 Discontinued operations Point in time Under IFRS 15 (Note 19) £m – – – Year ended 30 September 2019 Discontinued operations Over time Under IFRS 15 (Note 19) £m – – – Year ended 30 September 2019 Continuing operations Total Under IFRS 15 £m 184.5 145.1 284.1 Year ended 30 September 2019 Continuing operations Point in time Under IFRS 15 £m 184.5 0.8 284.1 Year ended 30 September 2019 Continuing operations Over time Under IFRS 15 £m – 144.3 – 428.8 118.0 250.1 1,410.6 7.7 118.0 225.8 820.9 421.1 – 24.3 589.7 72.6 – 1.0 73.6 6.5 – 1.0 7.5 66.1 – – 66.1 356.2 118.0 249.1 1,337.0 1.2 118.0 224.8 813.4 355.0 – 24.3 523.6 Year ended 30 September 2018 Total £m 187.0 135.9 291.4 399.1 116.2 296.8 1,426.4 Year ended 30 September 2018 Total Point in time £m 187.0 1.3 291.4 9.6 116.2 263.8 869.3 Year ended 30 September 2018 Total Over time £m – 134.6 – 389.5 – 33.0 557.1 Year ended 30 September 2018 Discontinued operations Total (Note 19) £m – 1.2 – 73.2 – 11.1 85.5 Year ended 30 September 2018 Discontinued operations Point in time (Note 19) £m – 1.2 – 0.5 – 8.0 9.7 Year ended 30 September 2018 Discontinued operations Over time (Note 19) £m – – – 72.7 – 3.1 75.8 Year ended 30 September 2018 Continuing operations Total £m 187.0 134.7 291.4 325.9 116.2 285.7 1,340.9 Year ended 30 September 2018 Continuing operations Point in time £m 187.0 0.1 291.4 9.1 116.2 255.8 859.6 Year ended 30 September 2018 Continuing operations Over time £m – 134.6 – 316.8 – 29.9 481.3 Print advertising Digital advertising Circulation Subscriptions and recurring licenses Events, conferences and training Transactions and other Print advertising Digital advertising Circulation Subscriptions Events, conferences and training Transactions and other 114 114 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 By geographic area The majority of the Group’s operations are located in the United Kingdom and North America. The analysis of Group revenue below is based on the location of Group companies in these regions. Year ended 30 September 2019 Total Under IFRS 15 £m 814.5 467.6 128.5 1,410.6 Year ended 30 September 2019 Total Point in time Under IFRS 15 £m 674.2 38.3 108.4 820.9 Year ended 30 September 2019 Total Over time Under IFRS 15 £m 140.3 429.3 20.1 589.7 Year ended 30 September 2019 Discontinued operations Total Under IFRS 15 (Note 19) £m – 68.0 5.6 73.6 Year ended 30 September 2019 Discontinued operations Point in time Under IFRS 15 (Note 19) £m – 7.2 0.3 7.5 Year ended 30 September 2019 Discontinued operations Over time Under IFRS 15 (Note 19) £m – 60.8 5.3 66.1 Year ended 30 September 2019 Continuing operations Total Under IFRS 15 £m 814.5 399.6 122.9 1,337.0 Year ended 30 September 2019 Continuing operations Point in time Under IFRS 15 £m 674.2 31.1 108.1 813.4 Year ended 30 September 2019 Continuing operations Over time Under IFRS 15 £m 140.3 368.5 14.8 523.6 Year ended 30 September 2018 Total £m 812.0 475.4 139.0 1,426.4 Year ended 30 September 2018 Total Point in time £m 687.4 66.0 115.9 869.3 Year ended 30 September 2018 Total Over time £m 124.6 409.4 23.1 557.1 Year ended 30 September 2018 Discontinued operations Total (Note 19) £m – 78.9 6.6 85.5 Year ended 30 September 2018 Discontinued operations Point in time (Note 19) £m – 9.4 0.3 9.7 Year ended 30 September 2018 Discontinued operations Over time (Note 19) £m – 69.5 6.3 75.8 Year ended 30 September 2018 Continuing operations Total £m 812.0 396.5 132.4 1,340.9 Year ended 30 September 2018 Continuing operations Point in time £m 687.4 56.6 115.6 859.6 Year ended 30 September 2018 Continuing operations Over time £m 124.6 339.9 16.8 481.3 UK North America Rest of the World UK North America Rest of the World The analysis of Group revenue below is based on the geographic location of customers in these regions. Year ended 30 September 2019 Total Under IFRS 15 £m 748.0 421.6 241.0 1,410.6 Year ended 30 September 2019 Total Point in time Under IFRS 15 £m 640.1 48.1 132.7 820.9 Year ended 30 September 2019 Total Over time Under IFRS 15 £m 107.9 373.5 108.3 589.7 Year ended 30 September 2019 Discontinued operations Total Under IFRS 15 (Note 19) £m 4.3 58.1 11.2 73.6 Year ended 30 September 2019 Discontinued operations Point in time Under IFRS 15 (Note 19) £m – 7.3 0.2 7.5 Year ended 30 September 2019 Discontinued operations Over time Under IFRS 15 (Note 19) £m 4.3 50.8 11.0 66.1 Year ended 30 September 2019 Continuing operations Total Under IFRS 15 £m 743.7 363.5 229.8 1,337.0 Year ended 30 September 2019 Continuing operations Point in time Under IFRS 15 £m 640.1 40.8 132.5 813.4 Year ended 30 September 2019 Continuing operations Over time Under IFRS 15 £m 103.6 322.7 97.3 523.6 Year ended 30 September 2018 Total £m 772.4 410.8 243.2 1,426.4 Year ended 30 September 2018 Total Point in time £m 662.6 63.3 143.4 869.3 Year ended 30 September 2018 Total Over time £m 109.8 347.5 99.8 557.1 Year ended 30 September 2018 Discontinued operations Total (Note 19) £m 4.2 71.3 10.0 85.5 Year ended 30 September 2018 Discontinued operations Point in time (Note 19) £m – 9.3 0.4 9.7 Year ended 30 September 2018 Discontinued operations Over time (Note 19) £m 4.2 62.0 9.6 75.8 Year ended 30 September 2018 Continuing operations Total £m 768.2 339.5 233.2 1,340.9 Year ended 30 September 2018 Continuing operations Point in time £m 662.6 54.0 143.0 859.6 Year ended 30 September 2018 Continuing operations Over time £m 105.6 285.5 90.2 481.3 UK North America Rest of the World UK North America Rest of the World 115 115 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 3 Segment analysis continued The closing net book value of goodwill, intangible assets, property, plant and equipment is analysed by geographic area as follows: UK North America Rest of the World At 30 September 2019 Closing net book value of property, plant and equipment (Note 23) £m 59.7 13.3 1.4 74.4 At 30 September 2018 Closing net book value of property, plant and equipment (Note 23) £m 76.1 20.3 3.3 99.7 At 30 September 2019 Closing net book value of goodwill (Note 21) £m 101.6 132.9 16.7 251.2 At 30 September 2018 Closing net book value of goodwill (Note 21) £m 94.1 204.2 34.9 333.2 At 30 September 2019 Closing net book value of intangible assets (Note 22) £m 39.3 25.9 4.7 69.9 At 30 September 2018 Closing net book value of intangible assets (Note 22) £m 44.6 72.0 14.6 131.2 The additions to non-current assets are analysed as follows: Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Year ended 30 September 2019 Property, plant and equipment (Note 23) £m 5.1 1.9 0.4 0.5 1.7 6.1 15.7 0.2 15.9 Year ended 30 September 2018 Property, plant and equipment (Note 23) £m 4.7 9.8 0.2 0.2 2.0 7.9 24.8 5.6 30.4 Year ended 30 September 2019 Goodwill (Note 21) £m – 17.5 – 1.2 – 3.3 22.0 – 22.0 Year ended 30 September 2018 Goodwill (Note 21) £m – – – 3.0 0.2 – 3.2 – 3.2 Year ended 30 September 2019 Intangible assets (Note 22) £m – 6.0 3.8 2.3 1.8 – 13.9 Year ended 30 September 2018 Intangible assets (Note 22) £m 0.1 7.4 10.9 2.6 1.3 – 22.3 4.0 17.9 – 22.3 116 116 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 4 Operating profit/(loss) analysis Operating profit/(loss) 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, consumables and direct staff costs Inventories recognised as an expense in the year Staff costs Impairment of goodwill and intangible assets Amortisation of intangible assets arising on business combinations Amortisation of internally generated and acquired computer software not arising on business combinations 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 Rental of property Other property costs Rental of plant and equipment Foreign exchange translation differences Net credit losses on financial assets Other expenses Operating profit/(loss) before share of results of joint ventures and associates Year ended 30 September 2019 Total £m 1,410.6 Note Year ended 30 September 2019 Discontinued operations (Note 19) £m 73.6 Year ended 30 September 2019 Continuing operations £m 1,337.0 Year ended 30 September 2018 Total £m 1,426.4 Year ended 30 September 2018 Discontinued operations (Note 19) £m 85.5 Year ended 30 September 2018 Continuing operations £m 1,340.9 21, 22 22 22 23 (4.9) (221.8) (226.7) (527.2) (19.1) – – – (34.7) – (4.9) (3.6) – (3.6) (221.8) (230.7) (5.5) (225.2) (226.7) (492.5) (19.1) (234.3) (495.4) (58.7) (5.5) (44.7) (0.4) (228.8) (450.7) (58.3) (13.4) (3.2) (10.2) (15.5) (3.3) (12.2) (22.0) (30.4) (38.8) (105.7) (40.5) (33.4) (25.3) (25.6) (22.3) (18.1) (0.2) (0.8) (192.6) (4.1) – – – – (4.7) (2.6) (1.7) – – 0.1 (0.5) (48.3) (17.9) (30.4) (38.8) (105.7) (40.5) (28.7) (22.7) (23.9) (22.3) (18.1) (0.3) (0.3) (144.3) (32.8) (33.5) (35.5) (109.3) (40.5) (39.1) (27.2) (25.9) (22.0) (19.2) 1.3 (4.1) (184.5) (3.4) – – – – (6.5) (3.3) (1.8) – – 0.1 (0.8) (15.5) (29.4) (33.5) (35.5) (109.3) (40.5) (32.6) (23.9) (24.1) (22.0) (19.2) 1.2 (3.3) (169.0) 68.5 (26.1) 94.6 50.2 0.4 49.8 117 117 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 5 Auditor’s remuneration Fees payable to the Company’s Auditor for the audit of the Company’s annual accounts Fees payable to the Company’s Auditor and its associates pursuant to legislation for the audit of the Company’s subsidiaries for the audit of the Company’s associates Audit services provided to all Group companies Audit-related assurance services Assurance services Total non-audit services Total remuneration Year ended 30 September 2019 £m 0.5 Year ended 30 September 2018 £m 0.3 1.4 0.8 2.7 0.2 0.6 0.8 3.5 1.5 1.2 3.0 0.2 0.3 0.5 3.5 Included within non-audit services in the table above are audit-related assurance services of £0.1 million and assurance services of £0.1 million provided to Euromoney prior to its disposal. 6 Employees The average monthly number of persons employed by the Group including Directors is analysed as follows: Insurance Risk Property Information EdTech Events and Exhibitions Energy Information Consumer Media Corporate costs Note (i) Year ended 30 September 2019 Number 1,483 1,124 386 393 350 2,292 73 6,101 Year ended 30 September 2018 Number 1,348 2,320 382 340 467 2,249 87 7,193 (i) Includes the average monthly number of persons employed by On-geo for the period ended 12 June 2019 when the business ceased to be a subsidiary undertaking. The prior year includes the average monthly number of persons employed by Xceligent for the period ended 30 November 2017 and EDR and SiteCompli for the period ended 31 March 2018 when these businesses ceased to be subsidiary undertakings. The total average number of persons employed by the Group in the year, for the purposes of calculating an average cost per employee, is 6,049 (2018 6,267). Total staff costs comprised: Wages and salaries Share-based payments Social security costs Pension costs 118 118 Note 42 Year ended 30 September 2019 £m 455.1 21.1 42.0 14.4 532.6 Year ended 30 September 2018 £m 448.6 10.1 40.4 28.5 527.6 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 7 Share of results of joint ventures and associates Share of adjusted operating profits/(losses) from operations of joint ventures Share of adjusted operating profits from operations of associates Share of profits before exceptional operating costs, amortisation, impairment of goodwill, interest and tax Share of associates’ other gains and losses Share of exceptional operating income/(costs) of associates Share of amortisation of intangibles arising on business combinations of associates Share of associates’ interest payable Share of joint ventures’ tax Share of associates’ tax Share of impairment of goodwill in associates Share of fair value movement of contingent consideration payable of associates Impairment of carrying value of Euromoney Share of Euromoney prior year tax exposures Share of Euromoney tax on prior year tax exposures Adjustment to impairment of carrying value of Euromoney following Euromoney prior year tax exposures Impairment of carrying value of other associates Note (i) 13 13 13 11, 13 11, 13 13 13 13, 24, (ii) 13, 24, (iii) 11, 13, 24, (iii) 13, 24, (iii) 13, 24, (iv) Share of associates’ items of other comprehensive income Share of results of joint ventures and associates Share of results from operations of joint ventures Share of results from operations of associates Impairment of carrying value of associates Share of associates’ items of other comprehensive income Share of results of joint ventures and associates 24 24 24 24 Year ended 30 September 2019 £m 1.7 10.9 Year ended 30 September 2018 £m (3.2) 77.2 12.6 – 7.0 (6.5) (0.1) (0.2) (7.1) – – (27.7) – (6.1) (28.1) (0.7) (28.8) 1.5 – (29.6) (28.1) (0.7) (28.8) 74.0 102.9 (4.9) (16.7) (4.0) (0.1) (31.2) (1.5) 0.7 – – – – (0.8) 118.4 14.7 133.1 (3.3) 122.5 (0.8) 118.4 14.7 133.1 (5.3) 1.1 4.2 (i) Share of adjusted operating profits from associates includes £23.0 million (2018 £55.9 million) from the Group’s interest in Euromoney held centrally for the period to 2 April 2019. (ii) At 31 March 2019 the Group’s investment in Euromoney was transferred to Assets Held for Sale at the lower of carrying value and fair value less costs to sell. This resulted in an impairment charge of £27.7 million for the period to 31 March 2019 which was taken to the Consolidated Income Statement in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. (iii) During the period Euromoney engaged external advisors to undertake an audit of their compliance with the off-payroll working rules. As a result of the review Euromoney identified an underpayment of payroll taxes to HMRC for the six years to 30 September 2019 amounting to £8.2 million including interest and penalties. During the period Euromoney also discovered a VAT exposure in the UK relating to the understatement of VAT on supplies made between entities within the Euromoney Group in respect of the four years ended 30 September 2018. Based on their current assessment Euromoney’s exposure as at 30 September 2019 is £11.3 million including interest. The total impact on Euromoney as at 30 September 2019 amounts to an understatement of taxes, penalties and interest of £17.0 million net of deferred and corporation taxes. Euromoney consider this to be material and have corrected these understatements of their prior period accounts in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The DMGT Group disposed of its 49.9% interest in Euromoney on 2 April 2019 and the post-tax impact of these adjustments on DMGT at that date amounts to a charge of £4.2 million. This has been corrected in the current period since the Directors do not consider this to be material for DMGT. The charge against profits has been treated as an adjusting item due to its significance and non-recurring nature. This adjustment has reduced the impairment charge booked in the first half in relation to the Group’s investment in Euromoney from £27.7 million to £23.5 million. (iv) Represents a £1.3 million write-down in the carrying value of Skymet Weather Services Pvt (Skymet), a £0.9 million write-down in the carrying value of Liases Foras, a £3.0 million write-down in the carrying value of Funcent, and a £0.9 million write-down in the carrying value of Propstack all held centrally. In the prior period, represents a £0.5 million write-down in the carrying value of Eatfirst UK Ltd held centrally and £0.3 million write-down in the carrying value of RLTO in the Property Information segment. 119 119 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 8 Other gains and losses Profit on disposal of available for sale investments Impairment of available for sale assets Profit on disposal of property, plant and equipment (Loss)/profit on disposal and closure of businesses Recycled cumulative translation differences (Loss)/gain on dilution of stake in associate Loss on change in control Profit on disposal of joint ventures and associates Note 13, 25 13, 25 13 13, 18, (i) 13, 18, 39, (ii) 13, 24, (iii) 13, (iv) 13, (v) Year ended 30 September 2019 £m – – 1.1 (1.8) (3.6) (0.7) (0.8) 79.5 73.7 Year ended 30 September 2018 £m 1.0 (1.8) – 51.3 8.7 0.7 (3.5) 509.1 565.5 There is a tax charge of £15.0 million in relation to these other gains and losses (2018 £17.6 million). (i) In the current period this principally relates to a loss of £2.3 million relating to the disposal of On-geo in the Property Information Segment. In the prior period this principally relates to a £51.7 million profit on the sale of EDR in the Property Information segment, £6.3 million loss on the sale of Locus Energy, a £0.9 million profit on disposal of assets in acquiring an interest in Linevision and a £7.2 million loss on the disposal Digital H2O in the Energy segment, a £4.8 million loss on Hobsons Solutions and additional costs of £3.5 million on the sale of Hobsons Admissions and Edumate on in the EdTech segment. Additionally, a loss of £4.8 million was recognised on the closure of Xceligent, gains on various disposals amounting to £0.4 million recognised in the Consumer Media segment and £0.1 million in the Events segment. (ii) Represents cumulative translation differences required to be recycled through the Consolidated Income Statement on disposals. (iii) In the current period this represents a loss on dilution of the Group’s stakes in Skymet and Laundrapp Ltd (formerly known as Zipjet Ltd). In accordance with IAS 28, Investments in Associates and Joint Ventures, this dilution has been treated as a deemed disposal. The carrying value of these investments has decreased resulting in a loss on dilution of £0.7 million. In the prior period this represents a gain on dilution of the Group’s stakes in Praedicat and Skymet. In accordance with IAS 28, Investments in Associates and Joint Ventures, this dilution has been treated as a deemed disposal. The carrying value of these investments has increased resulting in a gain on dilution of £0.7 million. (iv) In the current period the Group reduced its interest in Trepp Port, LLC (TreppPort) in the Property Information segment. The remaining shareholding in TreppPort has been treated as a joint venture. In accordance with IFRS 3, Business Combinations, the difference between the fair value of the investment retained and the carrying value of £0.7 million is treated as a gain on change in control. Additionally, in the current period the Group purchased the remaining 50.0% of Daily Mail On-Air LLC (DailyMailTV) in the Consumer Media segment, a joint venture in the prior period, increasing its existing shareholding from 50.0% to 100% and became a wholly owned subsidiary. The difference between the fair value of the joint venture and the net assets acquired of £1.5 million is treated as a loss on change in control. In the prior period the Group reduced its interest in SiteCompli in the Property Information Segment and SiteCompli became an associate. In accordance with IFRS3, Business Combinations, the difference between the fair value of the investment retained less a capital contribution and the carrying value is treated as a loss on change in control. (v) In the current period this principally represents a profit of £59.7 million on the sale of Real Capital Analytics, Inc. in the Corporate costs segment and profit of £27.2 million on disposal of SiteCompli in the Property information segment, offset by costs of £7.9 million incurred in relation to the Group’s distribution of Euromoney to shareholders. In the prior period this principally relates to the disposal of ZPG for gross proceeds of £641.7 million, resulting in a profit on disposal of £508.4 million. 120 120 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 9 Investment revenue Dividend income Interest receivable from short-term deposits Interest receivable on loan notes 10 Net finance costs Interest, arrangement and commitment fees payable on bonds, bank loans and loan notes Premium on bond redemption Loss on derivatives, or portions thereof, not designated for hedge accounting Change in fair value of derivative hedge of bond Change in fair value of hedged portion of bond Finance charge on discounting of contingent consideration payable Change in fair value of undesignated financial instruments Change in fair value of contingent consideration payable Finance expense Profit on derivatives, or portions thereof, not designated for hedge accounting Finance income on defined benefit pension schemes Change in fair value of undesignated financial instruments Finance income Net finance expense Year ended 30 September 2019 £m – 7.6 3.9 11.5 Year ended 30 September 2018 £m 0.1 1.7 3.0 4.8 Year ended 30 September 2019 £m (19.0) (0.9) (3.5) 2.8 (2.8) – (0.9) (0.2) (24.5) – 7.1 – 7.1 Year ended 30 September 2018 £m (35.8) – (1.7) (2.3) 2.3 (0.1) – 0.1 (37.5) 0.4 2.0 3.1 5.5 (17.4) (32.0) Note (i) 16, 34 16, 34 36, (ii) 13 13, 36, (iii) 13, 35 13 (i) During the period the Company bought back £6.4 million nominal of its outstanding 2021 bonds incurring a premium of £0.9 million. (ii) The finance charge on the discounting of contingent consideration arises from the unwinding of the discount following the requirement under IFRS 3, Business Combinations, to record contingent consideration at fair value using a discounted cash flow approach. (iii) The fair value movement of contingent consideration arises from the requirement of IFRS 3, Business Combinations, to measure such consideration at fair value with changes in fair value taken to the Income Statement. 121 121 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 11 Tax The charge on the profit for the period consists of: UK tax Corporation tax at 19.0% (2018 19.0%) Adjustments in respect of prior years Overseas tax Corporation tax Adjustments in respect of prior years Total current tax Deferred tax Origination and reversals of temporary differences Adjustments in respect of prior years Total deferred tax Total tax charge Relating to discontinued operations Year ended 30 September 2019 £m Year ended 30 September 2018 £m Note – 0.3 0.3 (17.7) 7.1 (10.6) (10.3) 0.3 (0.4) (0.1) (10.4) (10.0) (20.4) (0.7) (0.2) (0.9) (24.3) (0.6) (24.9) (25.8) 22.1 – 22.1 (3.7) (3.9) (7.6) 37 19 In December 2017 the Tax Cuts and Jobs Act was enacted in the US which included a broad range of tax changes. One key provision was a reduction in the corporate tax rate from 35.0% to 21.0% from 1 January 2018. US deferred tax balances were re-measured in the prior period to reflect this reduced rate as this is the rate that will apply on reversal. The other key provision impacting the Group in the prior period was a one-off toll charge arising from the deemed mandatory repatriation of previously undistributed earnings and profits of non-US corporations owned by the Group’s US subsidiaries. The current and deferred tax implications of Brexit on the Group have been considered by management and are not expected to have any material impact. In April 2019 the EU Commission released its final decision on the State Aid investigation into the Group Financing Exemption (GFE) included within the UK’s controlled foreign company (CFC) rules. The Commission ruled that the GFE constituted State Aid to the extent that non-trade finance profits of a CFC arose as a result of Significant People Functions (SPFs) in the UK. Up until 2018 the Group financed its US operations through a Luxembourg resident finance company which had received clearance from HM Revenue & Customs (HMRC) that it benefitted from the GFE. If the State Aid investigation ultimately leads to a reversal of the benefits that the Group has accrued through the GFE, the cost to the Group would be in the range from £nil to £7.5 million tax and interest. It is not currently possible to quantify the exposure of the Group as HMRC have not yet released guidance on how UK SPFs should be calculated. In October 2019 the Group lodged its appeal to the General Court of the EU against the Commission’s decision. The Directors consider that the Group’s appeal is more than likely to be successful, and accordingly have made no provision in these financial statements. A deferred tax credit of £7.7 million (2018 charge of £31.2 million) relating to the actuarial movement on defined benefit pension schemes was recognised directly in the Consolidated Statement of Comprehensive Income. A deferred tax credit of £0.6 million (2018 charge of £6.8 million) and a current tax charge of £nil (2018 credit of £2.3 million) were recognised directly in equity. Legislation was enacted in September 2016 to reduce the UK corporation tax rate to 17.0% from 1 April 2020. UK deferred tax balances therefore have been measured at 17.0% as this is the tax rate that will apply on reversal unless the timing difference is expected to reverse before April 2020, in which case the appropriate tax rate has been used. 122 122 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 The tax charge for the year is lower than the standard rate of corporation tax in the UK of 19.0% (2018 19.0%) 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 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 Unrecognised tax losses utilised Write off/disposal of subsidiaries and associates Effect of change in tax rate Adjustment in respect of prior years Other Total tax charge on the profit for the year – continuing and discontinued operations Year ended 30 September 2019 £m 134.3 (32.6) 101.7 Year ended 30 September 2018 £m 706.5 (14.6) 691.9 (19.3) (131.5) (4.0) (1.1) 2.5 11.5 (1.8) 0.3 2.3 (7.5) (0.9) 7.0 0.6 (10.4) (2.2) (1.0) 4.3 0.3 (5.2) 22.6 1.9 97.2 10.7 (0.8) – (3.7) Note 19 (i) (ii) (iii) (iv) 13 (i) Additional items deductible for tax purposes amounting to £2.5 million (2018 £4.3 million) primarily relates to Research and Development tax credits and in the prior year also included financing arrangements that result in asymmetrical tax treatments in the territories involved. Some of these are expected to recur in the short term. (ii) Recognition of previously unrecognised deferred tax assets of £11.5 million relates to tax losses agreed with HM Revenue & Customs following the settlement of a prior year enquiry. (iii) In the prior period includes £96.6 million relating to the profit on sale of ZPG which was non-taxable by virtue of the Substantial Shareholding Exemption. (iv) The adjustment in respect of prior years credit of £7.0 million (2018 charge of £0.8 million) arose largely from a reassessment of temporary differences. 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 £29.4 million (2018 £33.2 million) and the resulting rate is 20.3% (2018 18.2%). The differences between the tax charge and the adjusted tax charge are shown in the reconciliation below: Total tax charge on the profit for the year Share of tax in joint ventures and associates Deferred tax on intangible assets Reassessment of temporary differences Tax on other gains and losses Tax on exceptional operating costs Tax on other adjusting items Share of tax on associates other adjusting items Adjusted tax charge on the profit for the year Year ended 30 September 2019 £m (10.4) (6.2) (3.8) (13.5) 15.0 (9.1) (2.7) 1.3 (29.4) Year ended 30 September 2018 £m (3.7) (31.3) (22.6) – 17.6 (4.3) 11.1 – (33.2) Note 7, 19 13 123 123 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 11 Tax continued In calculating the adjusted tax rate, the Group excludes the potential future impact of the deferred tax effects of intangible assets (other than internally generated and acquired computer software), as the Group prefers to give users of its accounts a view of the tax charge based on the current status of such items. Deferred tax would only crystallise on a sale of the relevant businesses, which is not anticipated at the current time, and such a sale, being an exceptional item, would result in an exceptional tax impact. Reassessment of temporary differences of £13.5 million mainly relates to recognition of tax losses agreed with HM Revenue & Customs. Included in tax on other adjusting items are items arising from tax reform in the US comprising a deferred tax credit of £nil (2018 £12.5 million) relating to the re-measurement of US deferred tax balances following the reduction in the US corporate tax rate, a current tax charge of £nil (2018 £6.1 million) in respect of the transitional toll charge and a deferred tax charge of £nil (2018 £4.0 million) relating to the impact of the internal refinancing of the US group. 12 Dividends paid Year ended 30 September 2019 Pence per share Year ended 30 September 2019 £m Year ended 30 September 2018 Pence per share Year ended 30 September 2018 £m Note Amounts recognisable as distributions to equity holders in the year Ordinary Shares – final dividend for the year ended 30 September 2018 A Ordinary Non-Voting Shares – final dividend for the year ended 30 September 2018 Ordinary Shares – final dividend for the year ended 30 September 2017 A Ordinary Non-Voting Shares – final dividend for the year ended 30 September 2017 Ordinary Shares – interim dividend for the year ended 30 September 2019 A Ordinary Non-Voting Shares – interim dividend for the year ended 30 September 2019 Ordinary Shares – interim dividend for the year ended 30 September 2018 A Ordinary Non-Voting Shares – interim dividend for the year ended 30 September 2018 Euromoney cash distribution – B shares Euromoney cash distribution – C shares Euromoney dividend in specie (i) (i) (i) 16.2 16.2 – – – 7.3 7.3 – – 146.8 647.0 691.3 – – 3.2 54.2 – – 57.4 1.5 15.2 – – 183.0 17.0 661.8 878.5 935.9 – – 15.8 15.8 – – – 7.1 7.1 – – – – – – – 3.1 52.8 55.9 – – 1.4 23.7 – – – 25.1 81.0 (i) During the period the Group disposed of its remaining stake in Euromoney by way of a dividend in specie together with a cash distribution to shareholders. The dividend in specie was distributed on 2 April 2019 and the cash distribution on 15 April 2019. Before these distributions were made c46.4% of the A shares held by Fully Participating Shareholders were converted into a new class of B Shares and c4.0% of the A Shares held by Rothermere Affiliated Shareholders converted into a new class of C Shares. The dividend in specie was paid to Fully Participating Shareholders and amounted to £661.8 million. This was based on the Euromoney share price of £12.38 at 8am on 2 April 2019. The cash distribution of £183.0 million in cash was paid to Fully Participating Shareholders in respect of the B Shares and a restricted special dividend of £17.0 million in cash was paid to the Rothermere Affiliated Shareholders in respect of C Shares. Once these distributions were made the B Shares and the C Shares were converted into Deferred B Shares and Deferred C Shares respectively before being transferred to the Company for no valuable consideration and cancelled shortly thereafter. The Board has declared a final dividend of 16.6 pence per Ordinary/A Ordinary Non-Voting Share (2018 16.2 pence) which will absorb an estimated £37.8 million (2018 £57.4 million) of shareholders’ equity for which no liability has been recognised in these financial statements. It will be paid on 7 February 2020 to shareholders on the register at the close of business on 13 December 2019. 124 124 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 13 Adjusted profit Profit before tax – continuing operations Loss before tax – discontinued operations Adjust for: Amortisation of intangible assets in Group profit, including joint ventures and associates, arising on business combinations Impairment of goodwill and intangible assets arising on business combinations Impairment of goodwill and intangible assets arising on business combinations of joint ventures and associates Exceptional operating costs, impairment of internally generated and acquired computer software and property, plant and equipment Share of exceptional operating costs and prior year tax exposures of joint ventures and associates Share of joint ventures’ and associates’ other gains and losses Impairment of carrying value of joint ventures and associates Other gains and losses: Impairment of available for sale assets Profit on disposal of available for sale investments Profit on disposal of property, plant and equipment Profit on disposal of businesses, joint ventures, associates, change of control and recycled cumulative translation differences Finance costs: Year ended 30 September 2019 £m 134.3 (32.6) Year ended 30 September 2018 £m 706.5 (14.6) 19.9 19.1 – 43.2 (1.7) – 29.6 – – (1.1) 32.2 0.3 1.5 78.9 4.9 (102.9) 0.8 1.8 (1.0) – Note 3 19 3, 7, 19 3, 19 7 3, 19 7 7 7 8 8 8 8, 19 (66.2) (553.8) Finance income on defined benefit pension schemes Fair value movements including share of joint ventures and associates 10 7, 10, 19, (i) Tax: Share of tax in joint ventures and associates Adjusted profit before tax and non-controlling interests Total tax charge on the profit for the year Adjust for: Share of tax in joint ventures and associates Deferred tax on intangible assets Reassessment of temporary differences Tax on other gains and losses Tax on exceptional operating costs Tax on other adjusting items Share of tax on associates other adjusting items Non-controlling interests Adjusted profit after taxation and non-controlling interests 7, 11 11 7, 11 11 11 11 11 11 11 (ii) (7.1) 1.1 6.2 144.7 (10.4) (6.2) (3.8) (13.5) 15.0 (9.1) (2.7) 1.3 (0.8) 114.5 (2.0) (1.6) 31.3 182.3 (3.7) (31.3) (22.6) – 17.6 (4.3) 11.1 – 0.2 149.3 (i) Fair value movements include movements on undesignated financial instruments, contingent consideration payable and receivable and change in value of acquisition put options. (ii) The adjusted non-controlling interests’ share of profits for the year of £0.8 million (2018 losses of £0.2 million) is stated after eliminating a credit of £0.4 million (2018 £1.0 million), being the non-controlling interests’ share of adjusting items. 125 125 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 14 Earnings per share Basic earnings per share of 30.7 pence (2018 194.7 pence) and diluted earnings per share of 30.3 pence (2018 192.4 pence) are calculated, in accordance with IAS 33, Earnings per share, on Group profit for the financial year of £90.9 million (2018 £689.4 million) as adjusted for the effect of dilutive Ordinary Shares of £nil (2018 £nil) and losses from discontinued operations of £22.6 million (2018 £10.7 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 38.6 pence (2018 42.2 pence) 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 £114.5 million (2018 £149.3 million), as set out in Note 13 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 Losses from discontinued operations Adjusted earnings from continuing and discontinued operations Effect of dilutive Ordinary Shares Earnings per share from continuing operations Effect of dilutive Ordinary Shares Earnings per share from discontinued operations Earnings per share from continuing and discontinued operations Year ended 30 September 2019 Diluted earnings £m 113.5 – (22.6) 90.9 Year ended 30 September 2018 Diluted earnings £m 700.1 – (10.7) 689.4 Year ended 30 September 2019 Basic earnings £m 113.5 – (22.6) 90.9 Year ended 30 September 2018 Basic earnings £m 700.1 – (10.7) 689.4 114.5 – 114.5 149.3 – 149.3 114.5 – 114.5 149.3 – 149.3 Year ended 30 September 2019 Diluted pence per share 37.8 – (7.5) 30.3 Year ended 30 September 2018 Diluted pence per share 196.0 – (3.6) 192.4 Year ended 30 September 2019 Basic pence per share 38.3 – (7.6) 30.7 Year ended 30 September 2018 Basic pence per share 197.7 – (3.0) 194.7 Adjusted earnings per share from continuing and discontinued operations Effect of dilutive Ordinary Shares Adjusted earnings per share from continuing and discontinued operations 38.1 – 38.1 41.7 – 41.7 38.6 – 38.6 42.2 – 42.2 The weighted average number of Ordinary Shares in issue during the year for the purpose of these calculations is as follows: Year ended 30 September 2019 Number m 303.5 (7.1) 296.4 3.8 300.2 Year ended 30 September 2018 Number m 362.1 (8.0) 354.1 4.3 358.4 Number of Ordinary Shares in issue Own shares held Basic earnings per share denominator Effect of dilutive share options Dilutive earnings per share denominator 126 126 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 15 EBITDA and cash generated by operations Continuing operations Adjusted operating profit Non-exceptional depreciation charge Amortisation of internally generated and acquired computer software not arising on business combinations Operating profits from joint ventures and associates Share of charge of depreciation and amortisation of internally generated and acquired computer software not arising on business combinations of joint ventures and associates Dividend income Note 3 3, 23 3, 22 7 9 Discontinued operations Adjusted operating profit Non-exceptional depreciation charge Amortisation of internally generated and acquired computer software not arising on business combinations 19 19, 23 3, 19, 22 EBITDA Adjustments for: Share-based payments Loss on disposal of property, plant and equipment Share of profits from joint ventures and associates Exceptional operating costs Non-cash pension past service cost Dividend income Share of depreciation charge of joint ventures and associates Decrease/(increase) in inventories Increase in trade and other receivables Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Additional payments into pension schemes Cash generated by operations 39 7 3 3, 35 9 35 Year ended 30 September 2019 £m Year ended 30 September 2018 £m 135.8 22.7 17.9 12.6 1.5 – 8.4 2.6 4.1 205.6 21.1 0.6 (12.6) (43.2) 3.1 – (1.5) 5.9 (40.9) 0.9 38.8 (12.8) 165.0 144.6 23.9 29.4 74.0 8.7 0.1 0.3 3.3 3.4 287.7 10.8 1.4 (74.0) (20.5) 17.3 (0.1) (8.7) (5.7) (46.5) (10.5) (1.1) (12.8) 137.3 127 127 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 16 Analysis of net debt Cash and cash equivalents Bank overdrafts Net cash and cash equivalents Debt due within one year Bonds Loan notes Debt due after one year Bonds Net cash before effect of derivatives Effect of derivatives on debt Collateral deposits Other financial assets Net cash at closing exchange rate Net cash at average exchange rate Note 29 29, 33 33 33 33 (ii) 28 28 At 30 September 2018 £m 437.8 (1.9) 435.9 (218.7) (1.7) (205.7) 9.8 (22.4) 8.0 237.3 232.7 234.3 Cash flow £m (147.5) (9.9) (157.4) 218.5 0.1 6.7 67.9 7.1 7.4 (237.3) (154.9) Fair value hedging adjustments £m – – – Foreign exchange movements £m 10.8 (0.1) 10.7 Other non-cash movements (i) £m – – – At 30 September 2019 £m 301.1 (11.9) 289.2 0.7 – (3.4) (2.7) 2.7 – – – – – – 10.7 (5.8) – – 4.9 (0.5) – (0.4) (0.9) 0.1 – – (0.8) – (1.6) (202.8) 84.8 (18.3) 15.4 – 81.9 76.2 The net cash outflow of £157.4 million (2018 inflow of £426.9 million) includes a cash inflow of £0.1 million (2018 outflow of £9.7 million) in respect of operating exceptional items. (i) Other non-cash movements comprise the unwinding of bond issue discount amounting to £0.7 million (2018 £2.9 million) and amortisation of bond issue costs of £0.1 million (2018 £0.3 million). (ii) The effect of derivatives on debt is the net currency gain or loss on derivatives entered into with the intention of economically converting the currency borrowings into an alternative currency. 17 Summary of the effects of acquisitions On 1 October 2018, the Consumer Media segment acquired a further 50.0% of Daily Mail-On-Air LLC (DailyMailTV), increasing its existing shareholding from 50.0% to 100%, for total consideration of £4.8 million. DailyMailTV produces a US TV entertainment news programme which airs for one hour every weekday across the US on various channels. DailyMailTV contributed £13.1 million to the Group’s revenue, reduced the Group’s operating profit by £2.5 million and reduced the Group’s profit after tax by £2.0 million for the period between the date of acquisition and 30 September 2019. On 31 January 2018, the Consumer Media segment acquired 100% of the assets of Rcoaster.ie (RollerCoaster) for total consideration of £0.7 million. RollerCoaster is an Irish website providing information about pregnancy and parenting. RollerCoaster contributed £0.1 million to the Group’s revenue, £0.1 million to the Group’s operating profit and £0.1 million to the Group’s profit after tax for the period between the date of acquisition and 30 September 2019. If the acquisition had been completed on the first day of the financial period, RollerCoaster would have contributed £0.1 million to the Group’s revenue, £0.1 million to the Group’s operating profit and £0.1 million to the Group’s adjusted profit after tax. On 24 July 2019, the Property Information segment acquired the entire share capital of Aventria Limited for total consideration of £19.0 million. Aventria Limited was subsequently renamed Landmark Optimus Limited (Optimus). Optimus is a conveyancing panel management business. Optimus contributed £0.2 million to the Group’s revenue, reduced the Group’s operating profit by £0.2 million and reduced the Group’s profit after tax by £0.1 million for the period between the date of acquisition and 30 September 2019. If the acquisition had been completed on the first day of the financial period, Optimus would have contributed £0.8 million to the Group’s revenue, reduced the Group’s operating profit by £0.2 million and reduced the Group’s adjusted profit after tax by £0.1 million. On 20 February 2019, the Events and Exhibitions segment acquired EGYPS for total consideration of £3.5 million. EGYPS is the largest oil and gas show in North Africa. EGYPS contributed £nil to the Group’s revenue, £nil to the Group’s operating profit and £nil to the Group’s profit after tax for the period between the date of acquisition and 30 September 2019. If the acquisition had been completed on the first day of the financial period, EGYPS would have contributed £nil to the Group’s revenue, £nil to the Group’s operating profit and £nil to the Group’s adjusted profit after tax. 128 128 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Provisional fair value of net assets acquired with all acquisitions: Goodwill Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax Group share of net assets acquired Cost of acquisitions: Cash paid in current year Contingent consideration Cash consideration payable Total consideration at fair value Note 21, (i) 22 23 37 Note 36, (ii) DailyMailTV £m 3.0 – – 2.5 2.2 (2.9) – 4.8 RollerCoaster £m 0.4 – – 0.1 0.2 – – 0.7 DailyMailTV £m 4.8 – – 4.8 RollerCoaster £m 0.7 – – 0.7 Optimus £m 17.4 1.7 0.1 0.6 – (0.5) (0.3) 19.0 Optimus £m 15.7 1.6 1.7 19.0 EGYPS £m 1.2 2.3 – – – – – 3.5 EGYPS £m 3.5 – – 3.5 Total £m 22.0 4.0 0.1 3.2 2.4 (3.4) (0.3) 28.0 Total £m 24.7 1.6 1.7 28.0 (i) The amount of goodwill which is deductible for the purposes of calculating the Group’s tax charge is £nil. Goodwill arising on these 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. (ii) The estimated range of undiscounted outcomes for contingent consideration relating to acquisitions in the year is £nil to £1.6 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. All of the companies acquired during the period contributed £13.4 million to the Group’s revenue and reduced the Group’s profit after tax by £2.0 million for the period between the date of acquisition and 30 September 2019. Acquisition-related costs, amounting to £0.4 million, have been charged against profits for the period in the Consolidated Income Statement. If all acquisitions had been completed on the first day of the period, Group revenues for the period would have been £1,337.6 million and Group profit attributable to equity holders of the parent would have been a profit of £90.9 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 period. Reconciliation to purchase of businesses and subsidiary undertakings as shown in the Consolidated Cash Flow Statement: Cash consideration Cash paid to settle contingent consideration in respect of acquisitions Cash paid to settle acquisition put options Cash and cash equivalents acquired with subsidiaries Purchase of businesses and subsidiary undertakings Note 36, (i) 32 Year ended 30 September 2019 £m 24.7 4.7 0.6 (2.4) 27.6 Year ended 30 September 2018 £m 5.0 14.4 – (0.3) 19.1 (i) Cash paid to settle contingent consideration in respect of acquisitions includes £0.2 million (2018 £1.5 million) within the Property Information segment, £0.4 million (2018 £0.2 million) within the EdTech segment, £4.1 million (2018 £12.5 million) in the Energy Information segment and £nil (2018 £0.2 million) within the Events and Exhibitions segment. 129 129 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 18 Summary of the effects of disposals On 1 October 2018 the Property Information segment reduced its shareholding in Trepp Port, LLC (TreppPort) from 51.0% to 50.0% for cash consideration of £0.2 million before directly attributable costs of £0.3 million. Since the Group now has joint control of TreppPort the remaining shareholding has been treated as a joint venture. On 12 June 2019 the Property Information segment disposed of the On-geo business for consideration of £6.9 million. The impact of the disposal of businesses and subsidiary undertakings completed during the period on net assets is as follows: Goodwill Intangible assets Property, plant and equipment Investments in joint ventures Trade and other receivables Cash and cash equivalents Trade and other payables Current tax payable Deferred tax liabilities Net assets disposed Non-controlling interest share of net assets disposed (Loss)/profit on sale of businesses including recycled cumulative exchange differences Satisfied by: Cash received Directly attributable costs paid Deferred consideration Fair value of investment in joint venture Recycled cumulative translation differences Note 21 22 23 24 37 40 24, (i) 39 TreppPort £m 5.3 3.7 – – 2.0 4.4 (2.8) – (1.0) 11.6 (3.3) (0.5) 7.8 0.2 (0.3) – 6.8 1.1 7.8 On-geo £m 3.3 11.3 0.9 0.5 11.0 3.9 (4.3) 0.2 (3.2) 23.6 (9.5) (4.7) 9.4 5.1 (3.0) 4.8 – 2.5 9.4 Other £m – – – – 0.5 – (0.2) – – 0.3 – 0.5 0.8 0.9 (0.1) – – – 0.8 Total £m 8.6 15.0 0.9 0.5 13.5 8.3 (7.3) 0.2 (4.2) 35.5 (12.8) (4.7) 18.0 6.2 (3.4) 4.8 6.8 3.6 18.0 (i) The investment in the TreppPort joint venture involves an estimation of the fair value of the Group’s equity holding in TreppPort. A 10.0% increase/(decrease) in the fair value of the Group’s stake would decrease/(increase) the loss on change in control of TreppPort by £0.7 million. Reconciliation to disposal of businesses and subsidiary undertakings as shown in the Consolidated Cash Flow Statement: Cash consideration net of disposal costs Impact of cashflow hedges Cash consideration net of disposal costs – discontinued operations Working capital adjustment cash paid – discontinued operations Cash consideration received in the current year relating to businesses sold in the prior year Cash and cash equivalents disposed with subsidiaries (Costs)/proceeds on disposal of businesses and subsidiary undertakings Year ended 30 September 2019 £m 2.8 – (5.2) (0.9) – (8.3) (11.6) Year ended 30 September 2018 £m 143.8 4.9 – (3.7) 0.7 0.6 146.3 All of the businesses and subsidiary undertakings disposed of during the period absorbed £15.0 million of the Group’s net operating cash flows, paid £1.8 million in respect of investing activities and paid £nil in respect of financing activities. The Group’s tax charge includes £11.2 million in relation to these disposals. 130 130 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 19 Discontinued operations On 26 August 2019, the Group announced that it had agreed the sale of its Energy Information segment to Verisk. The sale completed on 5 November 2019 following the completion of customary closing conditions. The results of the Energy Information segment for the full year are included in discontinued operations for the current and prior period. The Group’s Consolidated Income Statement includes the following results from discontinued operations: Revenue Expenses Depreciation Amortisation of intangible assets not arising on business combinations Adjusted operating profit Exceptional operating costs Impairment of goodwill and intangible assets Amortisation of intangible assets arising on business combinations Operating (loss)/profit Other gains and losses Loss before net finance costs and tax Interest, arrangement and commitment fees payable on bonds, bank loans and loan notes Finance charge on discounting of contingent consideration payable Change in fair value of contingent consideration payable Finance costs Loss before tax Tax credit Loss after tax attributable to discontinued operations Note 3 3 3 3 3, 13, (i) 3 3, 13 4 13 13 3 11 Year ended 30 September 2019 £m 73.6 (58.5) (2.6) (4.1) 8.4 (31.3) – (3.2) (26.1) (6.4) (32.5) (0.1) – – (0.1) (32.6) 10.0 (22.6) Year ended 30 September 2018 £m 85.5 (78.5) (3.3) (3.4) 0.3 3.8 (0.4) (3.3) 0.4 (12.5) (12.1) (0.1) (0.1) (2.3) (2.5) (14.6) 3.9 (10.7) (i) The Group’s Energy Information business (Genscape) provided a third-party auditor service verifying Renewable Identification Numbers (RINs) for renewable fuel production activities in the US, as part of the Renewable Fuel Standard Quality Assurance Program (Program), a regulatory program administered by the US Environmental Protection Agency (EPA). Following discovery and self-reporting to the EPA by Genscape of potential fraudulent RINs generated by two companies but verified by Genscape in 2014 under the Program, the EPA issued a notice of intent to revoke the ability of Genscape to verify RINs as a third-party auditor on 4 January 2017. Following the EPA investigation of the two companies in April 2016, the two companies pleaded guilty of fraud in connection with generating the RINs. EPA regulations for the audit Program set a liability cap on replacement of invalid RINs of 2.0% of the RINs. In April 2017 Genscape voluntarily paid the 2.0% liability cap associated with the invalid RINs at a cost of US$1.3 million, based on the then-prevailing market rates, subject to a reservation of rights. The EPA regulations allow for situations where the cap does not apply – including fraud, auditor error and negligence. The EPA has not formally alleged any fraud or intentional wrongdoing by Genscape, but in its May 2019 final determination letter, EPA did find grounds for auditor error and negligence by Genscape and ordered Genscape to replace 69.2 million RINs it had verified. In July 2019, Genscape filed a petition for review with the Sixth Circuit Court of Appeals and a motion to stay the EPA’s order to replace the 69.2 million RINs which was accepted for the duration of Genscape’s petition for review. Since RINs trade in a volatile range, averaging approximately 56 cents over the previous 24 months, this equates to a potential maximum claim of approximately US$38.4 million. Using the year end price of 41 cents the potential maximum claim would be US$28.1 million. Genscape continues to co-operate with EPA and in October 2019 Genscape made an offer to replace 4.6 million RINs at a cost of approximately US$2.5 million but the EPA have not responded to this offer. Discussions with the EPA are ongoing but considering the uncertainties involved, the length of time involved and taking note of the order from the EPA, the Group, without admitting any wrongdoing, has made a provision for the potential maximum replacement RINs cost of US$40.0 million (£31.3 million), including directly attributable costs. This estimate was based on the average two-year RIN price due to the liquidity and volatility of the market price of RINs. This provision could change substantially over time as the dispute progresses and new facts emerge. A deferred tax credit of US$8.4 million arises on this provision. In future periods, as new facts emerge and circumstances change in relation to this provision, any adjustment will be disclosed as an exceptional operating item within discontinued operations. Cash flows associated with discontinued operations comprise operating cash flows of £11.9 million (2018 £3.5 million), investing cash flows of £13.3 million (2018 £12.4 million) and financing cash flows of £0.2 million (2018 £0.7 million). 131 131 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 20 Total assets and liabilities of businesses held for sale At 30 September 2019, the assets and liabilities held for sale relate to the Group’s Energy Information segment, together with BuildFax, Inc. and Inframation AG which are included in the Property segment. The main classes of assets and liabilities comprising the operations classified as held for sale are set out in the table below. The proceeds of disposal less costs to sell exceed the net carrying amount of the relevant assets and liabilities and, accordingly, no impairment loss has been recognised on the classification of these operations as held for sale. At 30 September 2018 there were no assets and liabilities of businesses held for sale. Goodwill Intangible assets Deferred tax Property, plant and equipment Trade and other receivables: Trade receivables Expected credit losses Prepayments Contract acquisition costs Contract assets Other receivables Cash and cash equivalents Current tax receivable Total assets associated with businesses held for sale Trade and other payables Bank overdrafts Loan notes Provisions Total liabilities associated with businesses held for sale Net assets of the disposal group Note 21 22 37 23 27 27 27 27 27 27 29 31 30 33 33 36 At 30 September 2019 £m 83.3 32.0 5.9 7.1 At 30 September 2018 £m – – – – 10.0 (0.4) 3.3 3.1 0.3 6.3 2.0 0.6 153.5 (36.7) (0.1) (1.6) (34.2) (72.6) 80.9 – – – – – – – – – – – – – – – 132 132 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Note Goodwill £m 17 18 20 Note 3 3 18 20 506.2 3.2 (90.6) 3.6 422.4 22.0 (27.7) (145.2) 8.1 279.6 Goodwill £m 143.1 0.3 (54.8) 0.6 89.2 19.1 (19.1) (61.9) 1.1 28.4 363.1 333.2 251.2 21 Goodwill Cost At 30 September 2017 Additions Disposals Exchange adjustment At 30 September 2018 Additions Disposals Classified as held for sale Exchange adjustment At 30 September 2019 Accumulated impairment losses At 30 September 2017 Impairment Disposals Exchange adjustment At 30 September 2018 Impairment Disposals Classified as held for sale Exchange adjustment At 30 September 2019 Net book value – 2017 Net book value – 2018 Net book value – 2019 The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired. Intangible assets, all of which have finite lives, are tested separately from goodwill only where impairment indicators exist. Goodwill impairment losses recognised in the period amounted to £19.1 million relating to On-geo in the Property Information segment. There is a tax credit of £nil associated with this impairment charge. In the prior year ended 30 September 2018, the Group recorded a goodwill impairment charge of £0.3 million relating to Genscape in the Energy Information segment. There was a tax credit of £nil associated with this impairment charge. 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 a reasonably possible change in key assumptions may result in an impairment. Using this criteria the Group has provided a sensitivity analysis of the key assumptions used in the EdTech segment. 133 133 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 21 Goodwill continued The Group’s EdTech segment holds goodwill with a carrying value of £75.0 million (2018 £71.2 million) together with intangible assets with a carrying value of £21.9 million (2018 £26.1 million). The carrying value of EdTech 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) cash flows for the business for the following year derived from budgets for 2020. The Directors believe these to be reasonably achievable; (ii) subsequent cash flows for two additional years increased in line with growth expectations of the business; (iii) cash flows beyond the three-year period extrapolated using a long-term nominal growth rate of 2.0%; and (iv) a pre-tax discount rate of 15.28%. Using the above methodology the recoverable amount exceeded the total carrying value by £35.0 million (2018 £9.9 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 the discount rate would need to be increased by 5.30% to 20.58% (2018 by 1.10% to 16.40%), the long-term growth rate would need to decline by 4.36% to -2.36% (2018 by 1.00% to 2.00%), or the CGU would need to miss budget by 44.9% (2018 50.2%). The impairment charge is analysed by major CGU as follows: CGU On-geo Total Segment Property Goodwill Impairment £m 19.1 19.1 Intangible asset Impairment £m – Recoverable amount £m – – – Reason for Impairment charge Goodwill was impaired to fair value prior to the sale of On–geo Recoverable amounts have been determined using value in use calculations for all of the above CGUs. 22 Other intangible assets Publishing rights, mastheads and titles £m Note Cost At 30 September 2017 Additions from business combinations Other additions Internally generated Disposals Exchange adjustment At 30 September 2018 Analysis reclassifications Additions from business combinations Internally generated Disposals Classified as held for sale Exchange adjustment At 30 September 2019 17 18 20 95.9 – – – (2.7) 0.5 93.7 (8.8) – – – (14.7) 0.9 71.1 Market- and customer-related databases and customer relationships £m 105.6 1.8 – – (3.9) 0.5 104.0 – 3.6 – (13.9) (10.8) 0.9 83.8 Brands £m 48.5 0.8 – – (0.5) 1.1 49.9 8.8 – – (0.6) (25.3) 2.5 35.3 Computer software (i) £m 372.5 – 0.2 19.5 (56.2) 8.1 344.1 – 0.4 13.9 (12.2) (49.6) 16.3 312.9 Other £m 6.5 – – – – 0.1 6.6 – – – – (6.8) 0.4 0.2 Total £m 629.0 2.6 0.2 19.5 (63.3) 10.3 598.3 – 4.0 13.9 (26.7) (107.2) 21.0 503.3 134 134 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Accumulated amortisation At 30 September 2017 Charge for the year Impairment Disposals Exchange adjustment At 30 September 2018 Charge for the year Disposals Classified as held for sale Exchange adjustment At 30 September 2019 Net book value – 2017 Net book value – 2018 Net book value – 2019 Note 3 3 3 18 20 Publishing rights, mastheads and titles £m 81.0 1.3 – (2.7) 0.4 80.0 0.8 – (10.6) 0.7 70.9 14.9 13.7 0.2 Market- and customer-related databases and customer relationships £m Computer software (i) £m 57.7 7.4 – (3.9) 0.3 61.5 7.5 (5.1) (8.4) 0.7 56.2 47.9 42.5 27.6 229.2 36.4 58.4 (55.6) 5.3 273.7 24.4 (6.2) (33.0) 14.2 273.1 143.3 70.4 39.8 Brands £m 43.2 3.1 – (0.5) 0.9 46.7 2.0 (0.4) (17.1) 1.9 33.1 5.3 3.2 2.2 Other £m 4.9 0.1 – – 0.2 5.2 0.7 – (6.1) 0.3 0.1 1.6 1.4 0.1 Total £m 416.0 48.3 58.4 (62.7) 7.1 467.1 35.4 (11.7) (75.2) 17.8 433.4 213.0 131.2 69.9 (i) Computer software includes purchased and internally generated intangible assets, not arising on business combinations, as follows: Note £m Cost At 30 September 2017 Additions Disposals Exchange adjustment At 30 September 2018 Additions Disposals Classified as held for sale Exchange adjustment At 30 September 2019 Accumulated amortisation At 30 September 2017 Charge for the year Impairment Disposals Exchange adjustment At 30 September 2018 Charge for the year Disposals Classified as held for sale Exchange adjustment At 30 September 2019 Net book value – 2017 Net book value – 2018 Net book value – 2019 3 3 330.0 19.7 (48.0) 7.6 309.3 14.3 (7.8) (36.0) 15.3 295.1 199.7 32.8 58.3 (47.1) 4.4 248.1 22.0 (4.0) (23.5) 13.4 256.0 130.3 61.2 39.1 135 135 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 22 Other intangible assets continued 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 year since they have not been brought into use. Cost At 30 September 2017 Additions Projects completed Exchange adjustment At 30 September 2018 Additions Projects completed Exchange adjustment At 30 September 2019 £m 19.5 10.3 (15.6) 0.6 14.8 5.1 (13.8) 0.1 6.2 The methodologies applied to the Group’s 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 ten largest intangible assets are further analysed as follows: DIIG Customer relationships Landmark Valuation Hub Human Resources Central Information system Estate Technical Solutions Limited Customer relationships Starfish Customer relationships Naviance Modernisation TreppCLO Analytics Intersect Presence Millar & Bryce Modernisation* Naviance Institutional Student Success* * Not yet in use. At 30 September 2019 Carrying Value £m 15.3 4.5 3.2 3.1 2.9 2.9 2.2 1.7 1.6 1.4 At 30 September 2018 Carrying Value £m 19.0 4.7 – 3.6 3.3 3.5 2.0 0.5 1.0 – At 30 September 2019 Remaining amortisation period Years 5.0 4.2 2.4 5.4 6.0 3.6 3.4 1.8 – – At 30 September 2018 Remaining amortisation period Years 6.0 – – 6.4 7.0 4.6 4.0 2.8 – – Segment Property Property Central Property EdTech EdTech Property EdTech Property EdTech 136 136 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 23 Property, plant and equipment Cost At 30 September 2017 Additions Disposals Owned by subsidiaries disposed Reclassifications Exchange adjustment At 30 September 2018 Owned by subsidiaries acquired Additions Disposals Classified as held for sale Owned by subsidiaries disposed Exchange adjustment At 30 September 2019 Accumulated depreciation and impairment At 30 September 2017 Charge for the year Disposals Owned by subsidiaries disposed Reclassifications Exchange adjustment At 30 September 2018 Charge for the year Disposals Classified as held for sale Owned by subsidiaries disposed Exchange adjustment At 30 September 2019 Net book value – 2017 Net book value – 2018 Net book value – 2019 Note 3 17 3 20 18 Note 3 3 20 18 Freehold properties £m Long leasehold properties £m Short leasehold properties £m Plant and equipment £m 57.9 4.7 (21.7) – (0.1) (0.4) 40.4 – 0.2 (8.2) – – – 32.4 0.6 0.1 – (0.3) – (0.4) – – – – – – – – 26.3 0.5 (0.7) (0.2) (5.6) 0.4 20.7 – 0.7 (0.3) – – 1.0 22.1 336.5 25.1 (53.5) (8.7) 5.6 2.1 307.1 0.1 15.0 (17.8) (23.4) (5.1) 3.7 279.6 Freehold properties £m Long leasehold properties £m Short leasehold properties £m Plant and equipment £m 38.6 1.2 (21.7) – (1.3) – 16.8 1.3 – – – – 18.1 19.3 23.6 14.3 – – – – – – – – – – – – – 0.6 – – 17.7 2.3 (0.7) (0.1) (5.3) 0.4 14.3 2.7 (0.3) – – 0.8 17.5 8.6 6.4 4.6 261.7 23.7 (52.0) (3.6) 6.7 0.9 237.4 21.3 (17.2) (16.3) (4.2) 3.1 224.1 74.8 69.7 55.5 Total £m 421.3 30.4 (75.9) (9.2) (0.1) 1.7 368.2 0.1 15.9 (26.3) (23.4) (5.1) 4.7 334.1 Total £m 318.0 27.2 (74.4) (3.7) 0.1 1.3 268.5 25.3 (17.5) (16.3) (4.2) 3.9 259.7 103.3 99.7 74.4 137 137 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 24 Investments in joint ventures and associates Joint ventures At 30 September 2017 Disposals Share of retained reserves Dividends received Reclassification from other debtors Exchange adjustment At 30 September 2018 Additions – non cash Owned by subsidiaries disposed Share of retained reserves Dividends received Reclassification from other financial assets Transfer to investment in subsidiaries Exchange adjustment At 30 September 2019 Note (i) 7 (ii) 8, (iii) 18 7 (iv) 8 Cost of shares £m Share of post- acquisition retained reserves £m 2.8 (1.1) – – 5.1 0.1 6.9 6.8 – – – 0.1 (5.2) 0.4 9.0 (2.6) 0.7 (3.3) (0.5) – (0.2) (5.9) – (0.5) 1.5 (0.3) – 4.5 (0.2) (0.9) Total £m 0.2 (0.4) (3.3) (0.5) 5.1 (0.1) 1.0 6.8 (0.5) 1.5 (0.3) 0.1 (0.7) 0.2 8.1 (i) During the prior period, the Group disposed of Artirix in the Consumer Media segment. (ii) During the prior period, the Group received dividends from Decision First Ltd and from HypoPort On-Geo GmbH in the Property Information segment. (iii) Non-cash additions during the year relate to a fair-value adjustment on the transfer of TreppPort from an investment in subsidiary to a joint venture. (iv) During the period, the Group received dividends from PointX and TreppPort in the Property Information segment. Summary aggregated financial information for the Group’s joint ventures, extracted on a 100% basis from the joint ventures’ own financial information, is set out below: Year ended 30 September 2019 Property Information At 30 September 2019 Property Information Year ended 30 September 2018 Property Information Consumer Media At 30 September 2018 Property Information Consumer Media Revenue £m 8.3 8.3 Operating profit £m 1.0 1.0 Total expenses £m (8.0) (8.0) Profit for the year £m 0.3 0.3 Total comprehensive income £m 0.3 0.3 Current assets £m 4.6 4.6 Total assets £m 4.6 4.6 Current liabilities £m (1.9) (1.9) Total liabilities £m (1.9) (1.9) Net assets £m 2.7 2.7 Revenue £m 9.9 9.8 19.7 Operating (loss)/profit £m 0.9 (8.8) (7.9) Total expenses £m (9.2) (18.6) (27.8) (Loss)/profit or the year £m 0.7 (8.8) (8.1) Total comprehensive (expense)/income £m 0.7 (8.8) (8.1) Current assets £m 4.8 19.6 24.4 Total assets £m 4.8 19.6 24.4 Current liabilities £m (1.9) (6.1) (8.0) Total liabilities £m (1.9) (6.1) (8.0) Net assets £m 2.9 13.5 16.4 At 30 September 2019 the Group’s joint ventures had capital commitments amounting to £nil (2018 £nil). There were no material contingent liabilities (2018 none). 138 138 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Segment Principal activity Year ended Description of holding Group interest % Centrally held EdTech Photogrammetric mapping and GIS data conversion Provider of online educational services Provider of a ‘Points of Interest’ database covering Great Britain Provider of an end-to- end lending, surveillance and risk management web-based platform 30 September 2019 Preferred stock 30 September 2019 Common 49.0 50.0 31 March 2019 Ordinary B 50.0 30 September 2019 Membership interests 50.0 Information on principal joint ventures: Unlisted The Sanborn Map Company, Inc. (incorporated and operating in the US) Knowlura, Inc. (incorporated and operating in the US) PointX Ltd (incorporated and operating in the UK) Property Information Trepp Port LLC, (incorporated and operating in the US) Property Information Associates At 30 September 2017 Additions – cash Additions – non cash Share of retained reserves Dividends received Impairment Deemed disposal of investment in associates Transfer from available for sale investments Disposals Exchange adjustment At 30 September 2018 Additions – cash Additions – non cash Share of retained reserves Dividends received Impairment of Euromoney Adjustment to impairment of carrying value of Euromoney following correction of Euromoney prior year tax exposures Impairment of other associates Impairment of Euromoney following dividend in specie Deemed disposal of investment in associates Transfer to financial assets at fair value through Other Comprehensive Income Disposal of other associates Disposal of Euromoney Exchange adjustment At 30 September 2019 Note Cost of shares £m Share of post- acquisition retained reserves £m (i) 7 (ii) 7 8 25 (iii) (iv) (v) 7 (ii) 7 7 7 39 8 25 (vi) 771.3 1.8 15.6 – – (0.8) 0.7 29.4 (95.9) 1.4 723.5 39.4 7.8 – – (27.7) 4.2 (6.1) (11.8) (0.7) (2.9) (20.8) (573.6) 2.2 133.5 (36.1) – – 137.2 (22.6) – – – (32.9) 0.4 46.0 – – (0.7) (12.0) – – – – – 1.7 11.3 (88.2) (0.7) (42.6) Total £m 735.2 1.8 15.6 137.2 (22.6) (0.8) 0.7 29.4 (128.8) 1.8 769.5 39.4 7.8 (0.7) (12.0) (27.7) 4.2 (6.1) (11.8) (0.7) (1.2) (9.5) (661.8) 1.5 90.9 139 139 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 24 Investments in joint ventures and associates continued The cumulative unrecognised share of losses of the Group’s associates principally comprises £17.8 million (2018 £17.4 million) in relation to the Group’s investment in ITN. Joint ventures and associates have been accounted for under the equity method using unaudited financial information to 30 September 2019. (i) During the prior period the Energy Information segment disposed of its investment in Locus Energy, Inc. in exchange for £3.0 million cash consideration together with a 17.9% ownership share of AlsoEnergy Holdings, Inc. (Also), representing 20.0% of Also voting rights. In addition the Group has representation on the Also Board. As a result the Group has significant influence over Also and has treated the stake in Also as an associated undertaking. (ii) Dividends received in the current and prior period principally relate to the Group’s investments in ZPG (2019 £nil, 2018 £5.0 million) in the Consumer Media segment and Euromoney (2019 £11.9 million, 2018 £17.1 million) held centrally. (iii) During the prior period the Group disposed of its investment in Shopcreator, Social metrix, Carsping Ltd and ZPG plc in the Consumer Media segment and RGJ Destiny LLC held centrally. (iv) Cash additions during the year relate to additions in Mercatus, Inc. in the Property Information segment, Praedicat in the Insurance Risk segment, and Also Energy Holdings, Yopa, Cazoo, Bricklane Technologies and Entale all held centrally. (v) Non-cash additions during the year relate additions in Zipjet, Yopa, Cazoo and Bricklane Technologies all held centrally paid for with media credits. (vi) During the period the Group disposed of its investment in Truffle Pig LLC, Real Capital Analytics, Inc. and Wellington Weekly held centrally. Summary aggregated financial information for the Group’s associates, extracted on a 100% basis from the associates’ own financial information is set out below: Revenue £m 6.5 3.4 1.3 159.1 170.3 Operating loss £m (1.9) (2.2) – (25.6) (29.7) Total expenses £m (8.4) (4.4) (1.3) (198.4) (212.5) Loss for the year £m (1.9) (1.0) – (39.3) (42.2) Other comprehensive income £m – – – – – Total comprehensive expense £m (1.9) (1.0) – (39.3) (42.2) Non-current assets £m 3.0 0.1 – 70.6 73.7 Current assets £m 7.9 2.1 0.4 156.9 167.3 Revenue £m 5.0 1.8 1.0 1.4 – 560.4 569.6 Total assets £m 10.9 2.2 0.4 227.5 241.0 Operating profit/(loss) £m 1.8 (4.1) (0.1) (8.2) (3.2) 139.1 125.3 Current liabilities £m (2.6) (1.8) – (116.5) (120.9) Non-current liabilities £m (0.1) (0.5) – (154.9) (155.5) Total liabilities £m (2.7) (2.3) – (271.4) (276.4) Net (liabilities)/assets £m 8.2 (0.1) 0.4 (43.9) (35.4) Total expenses £m (7.1) (5.9) (1.1) (9.8) (3.2) (389.1) (416.2) Profit/(loss) for the year £m (2.1) (4.1) (0.1) (8.4) (3.2) 171.3 153.4 Other comprehensive income £m – – – – – 28.7 28.7 Total comprehensive income/(expense) £m (2.1) (4.1) (0.1) (8.4) (3.2) 200.0 182.1 Year ended 30 September 2019 Insurance Risk Property Information Events and Exhibitions Centrally held At 30 September 2019 Insurance Risk Property Information Events and Exhibitions Centrally held Year ended 30 September 2018 Insurance Risk Property Information Events and Exhibitions Energy Information Consumer Media Centrally held 140 140 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 At 30 September 2018 Insurance Risk Property Information Events and Exhibitions Consumer Media Centrally held Non-current assets £m 2.8 0.1 – – 639.3 642.2 Current assets £m 7.6 2.8 0.3 – 249.0 259.7 Total assets £m 10.4 2.9 0.3 – 888.3 901.9 Current liabilities £m (1.1) (1.6) (0.3) (3.2) (304.5) (310.7) Non-current liabilities £m – – – – (151.6) (151.6) Total liabilities £m (1.1) (1.6) (0.3) (3.2) (456.1) (462.3) Net (liabilities)/assets £m 9.3 1.3 – (3.2) 432.2 439.6 At 30 September 2019 the Group’s associates had capital commitments amounting to £nil (2018 £nil). There were no material contingent liabilities (2018 none). Information on principal associates: Unlisted LineVision, Inc. (incorporated and operating in the US) Excalibur Holdco Ltd (incorporated and operating in the UK) Entale Media Ltd (incorporated and operating in the UK) Independent Television News Ltd (incorporated and operating in the UK) Cazoo Ltd (incorporated and operating in the UK) Praedicat, Inc. (incorporated and operating in the US) Propstack Services Private Ltd (incorporated and operating in India) Yopa Property Ltd (incorporated and operating in the UK) Segment Note Principal activity Year ended Description of holding Group interest % Centrally held (i) Centrally held Provider of transmission line monitoring and asset management for utilities Operator of online discount businesses 31 December 2018 Series A 55.9 30 September 2019 B Ordinary 23.9 Centrally held Provider of a podcast platform 31 March 2019 Ordinary 36.8 Centrally held Centrally held Insurance Risk Centrally held Independent TV news provider Provider of an online used car sales platform Provision of catastrophe risk analytics Provider of commercial real estate information 31 December 2018 Ordinary 20.0 31 December 2019 Series A 21.1 30 September 2019 Preferred stock 26.6 31 March 2019 Ordinary 22.7 Centrally held Online property portal 31 December 2018 Ordinary D 45.3 (i) Since the Group’s share of voting rights in the investment in LineVision, Inc. is 49.0%, the Group does not have control therefore the investment has been treated as an associated undertaking. 141 141 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 25 Financial assets at fair value through Other Comprehensive Income At 30 September 2017 Additions – cash Additions – non cash, conversion of loan note Transfer to investment in associates Impairment charge Exchange adjustment At 30 September 2018 Available for sale investments Adjustment for transition to IFRS 9 Restated at 1 October 2018 Additions – cash Additions – non cash Transfer from investment in associates Fair value movement in the period Exchange adjustment At 30 September 2019 Financial assets at fair value through Other Comprehensive Income Note 24, (i) 8 2 24, (ii) 39 Unlisted £m 30.6 19.3 1.5 (29.4) (1.8) 0.2 20.4 9.4 29.8 6.1 0.8 1.2 (4.5) 0.4 33.8 The financial assets above represent 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. (i) In the prior period, the Group acquired an additional interest in Yopa Ltd, taking its overall holding to 25.8%. By virtue of the Group’s board representation and shareholder rights the Group now has significant influence over Yopa Ltd and has treated this investment as an associate (see Note 24). (ii) In the current period, the Group’s investments in Skymet and Laundrapp Ltd (formerly Zipjet Ltd), previously associates, have been diluted and therefore these have been classified as financial assets above. Financial assets at fair value through Other Comprehensive Income at 30 September 2019 and available for sale investments at 30 September 2018 are analysed as follows: Note Class of Holding Group interest % At 30 September 2019 £m At 30 September 2018 £m Unlisted BDG Media, Inc. (incorporated and operating in the US) PA Media Group Ltd (incorporated and operating in the UK) Kortext Ltd (incorporated and operating in the UK) Cue Ball Capital LP (incorporated and operating in the US) Hambro Perks Ltd (incorporated and operating in the UK) Taboola.com Ltd (incorporated and operating in Israel) Farewill Ltd (incorporated and operating in the UK) Air Mail, LLC (incorporated and operating in the US) Live Better With Ltd (incorporated and operating in the UK) CompStak, Inc. (incorporated and operating in the US) Quick Move Ltd (incorporated and operating in the UK) Evening Standard Ltd (incorporated and operating in the UK) Brit Media, Inc. (incorporated and operating in the US) Other (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) Common Stock Ordinary Ordinary Limited Partner Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 3.2 15.6 11.3 2.5 2.9 0.4 7.2 5.0 4.6 2.0 5.7 10.0 8.9 7.9 6.9 3.8 3.0 2.3 2.3 1.2 1.2 1.0 0.6 0.5 0.4 – 2.7 33.8 4.9 – 0.7 1.5 2.0 2.0 – – 0.5 0.5 – 1.1 6.2 1.0 20.4 (i) BDG Media, Inc. operates a website with news, entertainment, fashion and beauty, books and lifestyle content. (ii) PA Media Group Ltd provides news, sport and entertainment information to the media and other customers. (iii) Kortext Ltd provides a digital learning platform and supplies digital textbooks. (iv) Cue Ball Capital LP is a venture capital and private equity firm specialising in start-ups, early-stage, mid-venture, growth equity scale-ups and buy-out investments. (v) Hambro Perks Ltd is a growth investment firm. 142 142 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 (vi) Taboola.com Ltd provides a content marketing platform that provides a web widget to content creators on their website to show contents that include relevant links within the site and from other publishers. (vii) Farewill Ltd provides online-based will-writing services. (viii) Air Mail, LLC owns and operates an online media that provides weekly digital newsletter covering politics, business, the environment, the arts, literature, film and television, food, design, travel, architecture, society, fashion, and crime. (ix) Live Better With Ltd provides a range of products to help improve the quality of day-to-day life for cancer patients. (x) CompStak, Inc. provides commercial real estate information to brokers, appraisers, researchers, landlords, lenders and investors. (xi) Quick Move Ltd is the serviced marketplace for the purchase and resale of second-hand luxury goods. (xii) Evening Standard Ltd publishes a weekday newspaper, distributed for free throughout Greater London. (xiii) Brit Media, Inc. owns and operates an online media and e-commerce platform that provides tools to teach, inspire, and enable creativity among women and girls. Interest analysis of financial assets at fair value through Other Comprehensive Income at 30 September 2019 and of available for sale investments at 30 September 2018 is as follows: Non-interest bearing 26 Inventories Raw materials and consumables Work in progress 27 Trade and other receivables Current assets Trade receivables Impairment allowance Prepayments Contract acquisition costs Contract assets Other receivables Classified as held for sale Non-current assets Trade receivables Prepayments Contract acquisition costs Contract assets Interest receivable Other receivables Impairment allowance At 30 September 2019 £m 33.8 At 30 September 2018 £m 20.4 At 30 September 2019 £m 6.1 20.7 26.8 At 30 September 2018 £m 6.9 24.6 31.5 At 30 September 2019 £m At 30 September 2018 £m Note 20 231.5 (3.7) 227.8 54.9 8.5 5.0 15.1 311.3 (22.6) 288.7 2.4 0.7 3.7 0.1 2.9 17.1 (0.3) 26.6 182.5 (5.1) 177.4 69.7 – – 17.2 264.3 – 264.3 3.0 2.6 – – 5.4 16.3 – 27.3 315.3 291.6 143 143 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 27 Trade and other receivables continued Movement in the impairment allowance is as follows: At start of year – calculated under IAS 39 Adjustment for transition to IFRS 9 Restated at 1 October 2018 Impairment losses recognised Amounts written off as uncollectable Amounts recovered during the year Owned by subsidiaries disposed Exchange adjustment Classified as held for sale At end of year Note 2 20 At 30 September 2019 £m (5.1) (0.3) (5.4) (1.7) 2.3 0.9 – (0.1) (4.0) 0.4 (3.6) At 30 September 2018 £m (5.1) – (5.1) (4.3) 1.8 0.3 2.5 (0.3) (5.1) – (5.1) IFRS 9 introduced an expected credit loss (ECL) model which requires an impairment provision to be made on initial recognition of the receivable which in the prior year under IAS 39 was required only when a loss event occurred. Accordingly, the Group now recognises an ECL by reference to historical recovery rates and forward-looking indicators. The Group applies the IFRS 9 simplified approach to measuring impairment allowances using a lifetime expected credit loss allowance for trade receivables, contract assets and other short-term receivables. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experience as adjusted for current and forward-looking information and macroeconomic factors in the countries where the debtor is located. For trade receivables the expected credit loss allowance is calculated using a provision matrix, with higher default rates applied to older balances. The provision rates are based on days past due for groupings of customers with similar loss patterns. Trade receivables and contract assets with a contractual amount of £1.6 million written off during the period are still subject to enforcement activity. The Group applies IFRS 9 in measuring impairment allowances using a 12-month expected credit loss allowance for long-term other receivables. To estimate a range of expected credit losses, the probability of default tables based on the debtor’s proxy credit rating was estimated and applied to the carrying amount outstanding at 30 September 2019. The IFRS 9 ECL model has resulted in an ECL loss of £0.3 million on transition to IFRS 9 in relation to other long-term receivables. At 30 September 2019 the lifetime expected loss provision for trade receivables, contract assets and other receivables is as follows: At 30 September 2019 Expected loss rate Gross carrying amount (£m) Loss allowance provision (£m) Current More than 30 days past due More than 60 days past due More than 90 days past due 0.4% 145.9 0.6 0.2% 45.1 0.1 1.4% 14.1 0.2 5.2% 52.4 2.7 Total 1.4% 257.5 3.6 Ageing of impaired trade receivables, contract assets and other receivables: 0 – 30 days 31 – 60 days 61 – 90 days 91 – 120 days 121+ days Total At 30 September 2019 £m 0.2 0.2 0.2 0.2 2.8 3.6 At 30 September 2018 £m 0.6 0.2 0.5 0.4 3.4 5.1 Included in the Group’s trade receivables are amounts owed with a carrying value of £53.8 million (2018 £70.8 million) which are past due at 30 September 2019 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. 144 144 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Ageing of past due but not impaired trade receivables and contract assets is as follows: 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 to their fair value. 28 Other financial assets Current assets Collateral Cash deposits with original maturities of three months or more Non-current assets Loans to associates and joint ventures At 30 September 2019 £m 24.7 6.1 4.3 18.7 53.8 At 30 September 2018 £m 28.5 12.0 9.1 21.2 70.8 Note (i) (ii) At 30 September 2019 £m At 30 September 2018 £m 15.4 – 15.4 12.0 12.0 8.0 237.3 245.3 18.4 18.4 (i) The Group deposits collateral with its bank counterparties with whom it has entered into a credit support annex to an ISDA (International Swaps and Derivatives Association) Master Agreement. This represents cash that cannot be readily used in operations. (ii) Represents cash deposits held with the Group’s bank counterparties with an original maturity date of three months or more. As required by IAS 7, Statement of Cash Flows, these have been classified within other financial assets. Movement in the impairment allowance is as follows: At start of year – calculated under IAS 39 Adjustment for transition to IFRS 9 Restated at 1 October 2018 Movement in the year At end of year Note 2 At 30 September 2019 £m – 12.0 12.0 – 12.0 At 30 September 2018 £m – – – – – IFRS 9 introduced an expected credit loss (ECL) model which requires an impairment provision to be made on initial recognition of the receivable which in the prior year under IAS 39 was required only when a loss event occurred. The Group applies the IFRS 9 simplified approach to measuring impairment allowances using a lifetime expected credit loss provision for long-term receivables from associates. To estimate a range of expected credit losses for long-term receivables from associates and joint ventures, the probability of default tables based on the associates’ proxy credit rating were used together with EBITDA multiples of the associates based on the total projected amount outstanding at maturity date. The IFRS 9 ECL model has resulted in an ECL loss of £12.0 million on transition to IFRS 9 in relation to long-term receivables from associates. At 30 September 2019 the loan receivable net of expected credit loss provision is as follows: Total gross loans to associates and joint ventures Loss allowance provision Loan receivable net of expected credit loss provision At 30 September 2019 £m 24.0 (12.0) 12.0 145 145 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 29 Cash and cash equivalents Cash and cash equivalents Classified as held for sale Cash and cash equivalents Unsecured bank overdrafts Cash and cash equivalents in the cash flow statement 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 interest Fixed rate interest Note (i) 20 (i) 33 16 At 30 September 2019 £m 301.1 (2.0) 299.1 At 30 September 2018 £m 437.8 – 437.8 301.1 (11.9) 289.2 50.3 236.0 0.1 0.5 0.9 11.3 299.1 90.8 208.3 299.1 437.8 (1.9) 435.9 333.9 89.4 0.2 0.8 5.4 8.1 437.8 2.0 435.8 437.8 (i) Cash and cash equivalents include £117.0 million which the Company intends to make available for the benefit of the Group’s defined benefit pension schemes following the distribution of its shareholding in Euromoney. The carrying amount of cash and cash equivalents equates to their fair values. 30 Trade and other payables At 30 September 2019 £m At 30 September 2018 £m Note 36.7 3.6 11.7 12.9 191.3 258.5 514.7 (36.7) 478.0 2.3 480.3 39.9 14.2 10.8 8.1 185.5 234.4 492.9 – 492.9 2.0 494.9 20 Current liabilities Trade payables Interest payable Other taxation and social security Other creditors Accruals Deferred revenue Classified as held for sale Non-current liabilities Other creditors The carrying amount of trade and other payables approximates to their fair value. 146 146 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 31 Current tax Corporation tax payable Corporation tax receivable Classified as held for sale 32 Acquisition put option commitments Current Non-current The carrying amount of put option commitments approximates to their fair value. 33 Borrowings The Group’s borrowings are unsecured and are analysed as follows: Note 20 At 30 September 2019 £m 3.5 At 30 September 2018 £m 6.1 (1.4) 0.6 (0.8) 2.7 (5.4) – (5.4) 0.7 At 30 September 2019 £m – – – At 30 September 2018 £m 0.6 7.6 8.2 At 30 September 2019 Within one year Classified as held for sale Between one and two years Over five years At 30 September 2018 Within one year Between two and five years Over five years The Group’s borrowings are analysed by currency and interest rate type as follows: At 30 September 2019 Fixed rate interest Floating rate interest At 30 September 2018 Fixed rate interest Floating rate interest Sterling £m US dollar £m 202.8 10.5 213.3 424.4 0.3 424.7 – 1.2 1.2 – 3.1 3.1 Note 20 Overdrafts £m Bonds £m Loan notes £m 11.9 (0.1) 11.8 – – – 11.8 – – – 0.8 202.0 202.8 202.8 1.6 (1.6) – – – – – Total £m 13.5 (1.7) 11.8 0.8 202.0 202.8 214.6 1.9 218.7 1.7 222.3 – – – 1.9 9.1 196.6 205.7 424.4 Euro £m – – – – 0.2 0.2 – – – 1.7 Other £m – 0.1 0.1 – – – 9.1 196.6 205.7 428.0 Total £m 202.8 11.8 214.6 424.4 3.6 428.0 147 147 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 33 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, interest rate caps and currency derivatives, are as follows: At 30 September 2019 Fixed rate interest Floating rate interest At 30 September 2018 Fixed rate interest Floating rate interest Sterling £m US dollar £m 141.2 (21.4) 119.8 317.1 (11.6) 305.5 170.7 (76.0) 94.7 320.7 (198.3) 122.4 Euro £m – – – – 0.1 0.1 Other £m – 0.1 0.1 – – – Total £m 311.9 (97.3) 214.6 637.8 (209.8) 428.0 Committed borrowing facilities The Group’s bank loans bear interest charged at LIBOR plus a margin. The margin varies by bank and is based on the Group’s ratio of net debt to EBITDA or the Group’s credit rating. EBITDA for these purposes is defined as the aggregate of the Group’s consolidated operating profit including 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, and is shown in Note 34. During the current period the Group cancelled committed bank facilities amounting to US$77.0 million (£62.6 million), after which the Group’s total committed bank facilities amount to £381.4 million (2018 £431.2 million). Of these facilities £205.0 million (2018 £205.0 million) are denominated in sterling and £176.4 million (US$217.0 million) (2018 £226.2 million (US$294.0 million)) are denominated in US dollars. Drawings are permitted in all major currencies. The Group’s committed bank facilities analysed by maturity are as follows: 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 30 September 2019 £m 381.4 – 381.4 At 30 September 2018 £m – 431.2 431.2 The following undrawn committed borrowing facilities were available to the Group in respect of which all conditions precedent had been met: 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 The Group has issued standby letters of credit amounting to £2.9 million (2018 £3.3 million). At 30 September 2019 £m 381.4 – 381.4 At 30 September 2018 £m – 431.2 431.2 148 148 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Bonds The nominal, carrying and fair values of the Group’s bonds and the coupons payable are as follows: Maturity 7 December 2018 9 April 2021 21 June 2027 Annual coupon % 5.75 10.00 6.375 At 30 September 2019 Fair value £m – 0.8 237.1 237.9 At 30 September 2018 Fair value £m 220.2 8.4 228.8 457.4 At 30 September 2019 Carrying value £m – 0.8 202.0 202.8 At 30 September 2018 Carrying value £m 218.7 9.1 196.6 424.4 At 30 September 2019 Nominal value £m – 0.8 200.0 200.8 At 30 September 2018 Nominal value £m 218.5 7.2 200.0 425.7 The Group’s bonds have been adjusted from their nominal values to take account of direct issue costs, discounts and movements in hedged risks. The issue costs and discount are being amortised over the expected lives of the bonds using the effective interest method. The unamortised issue costs amount to £0.5 million (2018 £0.6 million) and the unamortised discount amounts to £0.7 million (2018 £1.2 million). The fair value of the Group’s bonds have been calculated on the basis of quoted market rates. The Company’s 2018 bonds matured during the period and were repaid in full. In addition the Company bought back £6.4 million nominal of its outstanding 2021 bonds incurring a premium of £0.9 million. Loan notes The Group has issued loan notes which attract interest at 3.0%. 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. At 30 September 2019, all loan notes were classified as held for sale. 34 Financial instruments and risk management The Group’s financial instruments are classified into the following categories: Derivative instruments Trade receivables, contract assets and other receivables Trade payables Overdrafts, loan notes, finance leases and bank loans Bonds Equity investments Acquisition put option commitments Provision for contingent consideration payable Loans to joint ventures and associates Collateral Cash and cash equivalents Cash deposits with original maturities of three months or more Provision for contingent consideration receivable Note (i) IFRS 9 measurement category FVTPL IAS 39 measurement category FVTPL Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost (ii) Amortised cost Amortised cost FVTOCI Amortised cost FVTPL FVTPL FVTPL FVTPL Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost FVTPL FVTPL (i) To the extent that net investment hedges are effective, changes in fair value of the derivative are taken to the translation reserve through Other Comprehensive Income. (ii) The Group’s bonds are measured at amortised cost as adjusted for fair value hedging. 149 149 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 34 Financial instruments and risk management continued The carrying amounts and gains and losses on financial instruments are as follows: At 30 September 2019 Carrying value £m Year ended 30 September 2019 (Loss)/gain to income £m Year ended 30 September 2019 Gain/(loss) to equity £m At 30 September 2018 Carrying value £m Year ended 30 September 2018 (Loss)/gain to income £m Year ended 30 September 2018 Gain/(loss) to equity £m Note Financial assets Fair value through profit and loss Derivative instruments in designated hedge accounting relationships Interest rate swaps Forward foreign currency contracts Derivative instruments not in designated hedge accounting relationships Interest rate swaps Interest rate caps Provision for contingent consideration receivable Fair value through Other Comprehensive Income Financial assets Amortised cost Available for sale investments Trade receivables and contract assets Other receivables Collateral Cash deposits with original maturities of three months or more Loans to joint ventures and associates Cash and cash equivalents (i) (ii) (iii) (iv) Financial liabilities Fair value through profit and loss Derivative instruments in designated hedge accounting relationships Interest rate swaps Fixed–to–fixed cross–currency swaps Forward foreign currency contracts Provision for contingent consideration payable Acquisition put option commitments Amortised cost Trade payables Bank overdrafts Bonds Bank loans Loan notes 3.2 – – 0.4 0.3 4.3 – (1.2) (3.5) – – – – – – 33.8 – (4.0) – 225.4 25.3 15.4 – 12.0 299.1 614.9 – (24.4) – (2.1) – (35.9) (11.8) (202.8) – – (277.0) – (1.5) – – – 3.9 7.6 9.6 – (1.7) – (0.2) – – – (19.8) (2.3) (0.1) (24.1) – 6.6 3.0 – – – 10.8 16.4 – (13.6) – (0.2) (0.1) (0.5) (0.1) – – – (14.5) 2.6 – 3.2 3.9 0.1 – 20.4 180.4 33.4 8.0 237.3 18.4 437.8 945.5 (2.1) (18.0) – (4.8) (8.2) (39.9) (1.9) (424.4) – (1.7) (501.0) – (1.7) 3.4 0.4 – – (1.7) 2.2 – 3.0 – – 1.7 7.3 (1.0) (1.4) 4.9 – – – – (26.8) (6.8) (5.0) (36.1) – – – – – – 0.2 3.2 1.5 – – – 1.6 6.5 – (0.5) (1.6) (0.1) (0.2) (0.1) – – 2.6 – 0.1 Total for financial instruments 337.9 (14.5) 1.9 444.5 (28.8) 6.6 (i) Other receivables include a 9.0% fixed rate unsecured loan note, repayable on 27 September 2022 with a carrying value of £16.3 million (2018 £15.4 million). (ii) The Group deposits collateral with counterparties with whom it has entered into a credit support annex to an ISDA (International Swaps and Derivatives Association) Master Agreement. These collateral deposits, which represents cash that cannot be readily used in the Group’s operations, are disclosed within Other financial assets (Note 28). 150 150 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 (iii) As required by IAS 7, Statement of Cash Flows, cash deposits held with the Group’s bank counterparties with an original maturity date of three months or more are classified within Other financial assets. (iv) Loans to joint ventures and associates (included within other financial assets) include a 10.0% fixed rate unsecured loan note, repayable on 31 December 2025 with a carrying value of £12.0 million (30 September 2018 £17.3 million). Reconciliation of net gain taken to equity is as follows: Change in fair value of hedging derivatives Costs of hedging Fair value movement in financial assets at fair value through Other Comprehensive Income Translation of financial instruments of overseas operations Transfer of gain on cash flow hedges from translation reserve to the Consolidated Income Statement Total gain on financial instruments to equity Reconciliation of loss taken through income to net finance costs is as follows: Total loss on financial instruments to income Add back: Impairment of trade receivables, contract assets and other receivables Impairment of available for sale investments Dividend income Interest receivable Interest on pension scheme liabilities less expected return on pension scheme assets Net finance costs Year ended 30 September 2019 £m (13.5) (0.1) (4.5) 20.0 – 1.9 Year ended 30 September 2018 £m 2.8 – – 8.7 (4.9) 6.6 Year ended 30 September 2019 £m (14.5) Year ended 30 September 2018 £m (28.8) 1.5 – – (11.5) 7.1 (17.4) (2.2) 1.8 (0.1) (4.7) 2.0 (32.0) Note 39 39 25, 39 39 Note 27 8 9 9 10 10 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. Capital risk management The Group manages its capital, defined as equity shareholders’ funds and net cash or 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+ with Standard & Poor’s and BBB- with Fitch 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 and cash balances are sufficient to cover the likely medium-term funding requirements of the Group. Associates, joint ventures and other equity investments in general arrange and maintain their own financing and funding requirements. In all cases such financing is on a non-recourse basis to the Company. Whilst the Group’s internal target of a 12-month rolling net debt to EBITDA ratio is no greater than 2.0 times at any point, the limit imposed by its bank covenants is no greater than 3.50 times together with a minimum interest cover ratio of 3.0 times, measured in March and September. These covenants were met at the relevant testing dates during the year. The bank covenant ratio uses the average exchange rate in the calculation of net debt. Excluding cash deposits with an original maturity of three months or more amounting to £nil (2018 £237.3 million), the resultant net cash to EBITDA ratio is 0.37 times (2018 0.01 times net debt to EBITDA). Using a closing rate basis for the valuation of net cash, the net cash to EBITDA ratio is 0.40 times (2018 0.02 times net debt to EBITDA). 151 151 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 34 Financial instruments and risk management continued Cash and liquidity risk management The Group monitors its cash balances to ensure that sufficient resources are available to meet operational requirements as they fall due. 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. A detailed maturity analysis of both derivative and non-derivative financial liabilities are analysed in the table on page 156 of this note. Market risk management The Group’s primary market risks are interest rate fluctuations and exchange rate movements. Interest rate risk management The limit imposed by the Group’s bank covenants is at least 3.0 times EBITDA to net interest. The actual ratio for the year was 24.2 times (2018 9.2 times). Group debt is largely comprised of floating rate sterling (GBP) and US dollar (USD) bank borrowings and fixed GBP bond debt. 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 70.0% to 80.0% of interest rate exposures fixed with the balance floating. This is achieved by issuing fixed rate GBP 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. To meet policy the Group: • swaps a portion of its fixed GBP bond debt into GBP floating debt using interest rate swaps; • swaps a portion of its fixed GBP bond debt into USD fixed bond debt by using fixed-to-fixed cross-currency swaps; • buys caps to fix its debt; and • enters forward contracts, selling USD and buying GBP to swap its GBP floating rate debt into USD floating rate debt. The derivatives in place to meet Group policy are as follows: (i) Fixed-to-floating interest rate swaps, designated as fair value hedges of a portion of the Group’s bonds; changes in the fair value of the swaps are recognised in the Consolidated Income Statement and at the same time the carrying value of the hedged bonds are adjusted for movements in the hedged risk to the extent effective and those adjustments are also recognised in the Consolidated Income Statement. The notional value of these interest rate swaps amounts to £73.1 million (2018 £93.1 million) with the Group paying floating rates of between 0.77% and 0.96% (2018 0.33% and 0.94%). The average hedged interest rate for the period was 0.86% (2018 0.63%). (ii) Floating-to-fixed interest rate swaps which are not designated as hedging instruments; changes in the fair value of the swaps are recognised in the Consolidated Income Statement. These swaps were closed out during the year. The notional value of these interest rate swaps amounts to US$nil (2018 US$67.0 million) with the Group receiving floating US dollar interest at a rate of 2.35% (2018 rates between 1.33% and 2.35%). (iii) Fixed-to-fixed cross-currency swaps designated as hedges of the Group’s net investments in foreign operations. The notional value of these cross-currency swaps amounts to £72.0 million/US$115.0 million (2018 £96.3 million/US$155.0 million) resulting in the Group paying fixed US dollar interest at rates of between 5.56% and 6.99% (2018 5.56% and 6.99%). The average hedged GBP/USD exchange rate for the period was 1.60 (2018 1.61). (iv) The Group also had a number of outstanding interest rate caps. These amounted to US$95.0 million and £105.0 million notional (2018 US$195.0 million and £105.0 million) at rates of between 2.09% and 3.50% (2018 2.09% and 3.50%). Derivative financial instruments are measured at fair value at the date the derivatives are entered into and are subsequently remeasured to fair value at each reporting date. The fair value is determined by using market rates of interest and exchange as at 30 September 2019 and the use of established estimation techniques such as discounted cash flow and option valuation models. 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 by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars. The Group also designates currency swaps, forward contracts and US dollar bank borrowings as net investment hedges, hedging the Group’s overseas investments. 152 152 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 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 segment 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 48 days (2018 38 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 impairment allowance which is reviewed regularly in conjunction with an analysis of historical payment profiles, past default experience together with relevant forward looking information. Further information on impairment allowances relating to trade receivables, contract assets and other receivables can be found in Note 27. The maximum exposure to credit risk from trade and other receivables at the reporting date is the amount of each class disclosed in the table on page 150. 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 of 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. 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 credit risk on cash 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 the higher of £20.0 million or 25.0% of surplus cash balances deposited (or at risk) with any ‘AA’ or UK ring- fenced banking counterparty and no more than the higher of £10.0 million or 10.0% of surplus cash balances with ‘A’ rated counterparties but with no more than the higher of £50.0 million or 50.0% of surplus cash balances in aggregate. The Group has no significant concentration of risk with exposure spread over a large number of counterparties and customers. Expected credit losses on cash and cash equivalents (which includes cash deposits with an original maturity of less than three months) were reviewed at the reporting date and determined to be immaterial. The maximum exposure to credit risk from derivative assets and cash and cash equivalents at the reporting date is the amount of each class disclosed in the table on page 150. Derivative financial instruments and hedge accounting The Group designates certain derivatives as: (i) hedges of the change in 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 investments 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. The swaps are designated as a hedge of the change in fair value of the Group’s fixed rate debt. The notional amount of the interest rate swaps is used to hedge an equivalent notional amount of fixed rate debt. Accordingly, the hedge ratio is deemed to be 100%. Since the critical terms of the swaps match those of the fixed rate debt the Group expects a highly effective hedging relationship. The fair value of the designated fixed rate debt is expected to move in the opposite direction to the fair value of the interest rate swaps as a result of changes in external market interest rates. 153 153 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 34 Financial instruments and risk management continued The nominal and carrying amounts of hedged fixed rate debt are as follows: Nominal amount Carrying amount At 30 September 2019 £m 73.1 75.8 At 30 September 2018 £m 93.1 93.1 The carrying amount of debt in the table above is included within borrowings in the Consolidated Statement of Financial Position. The Change in value of the hedged fixed rate debt is used as the basis for recognising hedge ineffectiveness for the period. The following table shows the fair value adjustment to sterling debt (which is included in the carrying amount above) and the fair value of related derivatives designated in fair value hedging relationships included in the Consolidated Statement of Financial Position, together with the fair value gains and losses thereon included in the Consolidated Income Statement for the current and prior periods: Sterling interest rate swaps Sterling debt Total Fair value at 30 September 2017 £m 2.8 (2.8) – Year ended 30 September 2018 fair value (loss)/gain £m (2.3) 2.3 – Fair value at 30 September 2018 £m 0.5 (0.5) – Year ended 30 September 2019 fair value gain/(loss) £m 2.7 (2.7) – Fair value at 30 September 2019 £m 3.2 (3.2) – 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. There were no cash flow hedging relationships during the year ended 30 September 2019. All cash flow hedges were effective throughout the prior year ended 30 September 2018. 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. The carrying amount of the Group’s net investments in foreign operations exceeds the amount of the hedging instruments, such that the amount of net investments designated in the hedge relationship is equal to the amount of the hedging instruments. Accordingly, the hedge ratio is deemed to be 100%. Since the critical terms of the hedging instruments match those of the net investments in foreign operations the Group expects a highly effective hedging relationship. The carrying value of the designated net investments in foreign operations is expected to move in the opposite direction to the mark-to-market value of the hedging instruments as a result of changes in market exchange rates. Hedge effectiveness Since the Group expects the hedge relationships described above to be highly effective, a qualitative assessment of effectiveness is performed on inception, at each reporting date, and upon any material change in circumstances affecting the hedge effectiveness requirements. The key sources of ineffectiveness for the designated relationships described above are: (i) A reduction to the amount of the Group’s hedged fixed rate debt to an amount that is less than the notional amount of the interest rate swaps. (ii) An insufficient amount of net investments in foreign operations (i.e. less than the amount of the hedging instruments). (iii) A material change in the Group’s credit risk or that of its swap counterparties. If changes in circumstances cause the critical terms of the hedging instrument to no longer match those of the hedged item, ineffectiveness is monitored using the hypothetical derivative method. All designated hedge relationships were effective throughout the year ended 30 September 2019. There was no ineffectiveness recognised in the Consolidated Income Statement for the current or prior year. The Group’s derivative financial instruments, other than acquisition option commitments, and their maturity profiles are summarised as follows: 154 154 Strategic ReportGovernanceFinancial StatementsShareholder Information Derivative financial assets: At 30 September 2019 Between one and two years Between two and five years Over five years At 30 September 2018 Within one year Between two and five years Over five years Derivative financial liabilities: At 30 September 2019 Within one year Over five years At 30 September 2018 Within one year Over five years Daily Mail and General Trust plc Annual Report 2019 Derivatives not qualifying for hedge accounting £m Fair value hedges £m Derivative financial assets £m 1.3 – 1.9 3.2 3.2 0.7 1.9 – 1.9 2.6 – 0.1 0.3 0.4 0.4 – 1.1 6.0 7.1 7.1 1.3 0.1 2.2 3.6 3.6 0.7 3.0 6.0 9.0 9.7 Fair value hedges £m Net investment hedges £m Derivative financial liabilities £m – – – – (2.1) (2.1) (18.7) (5.7) (24.4) (6.6) (11.4) (18.0) (18.7) (5.7) (24.4) (6.6) (13.5) (20.1) 155 155 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 34 Financial instruments and risk management continued Maturity profile of financial liabilities The remaining undiscounted contractual liabilities and their maturities are as follows: At 30 September 2019 Trade payables Bank overdrafts Bonds Contingent consideration Fixed-to-fixed cross-currency swaps At 30 September 2018 Trade payables Bank overdrafts Bonds Loan notes Contingent consideration Acquisition put option commitments Interest rate swaps Fixed-to-fixed cross-currency swaps Within one year £m Between one and two years £m Between two and five years £m Between five and ten years £m (35.9) (12.0) (12.8) (0.6) (77.1) (138.4) (39.9) (1.9) (234.3) (1.7) (1.2) (0.6) 0.4 (36.7) (315.9) – – (13.5) (1.5) (1.4) (16.4) – – (13.5) – – – 0.4 (5.7) (18.8) – – (38.3) – (4.2) (42.5) – – (45.8) – (3.7) (7.7) 1.1 (17.1) (73.2) – – (234.7) – (24.2) (258.9) – – (247.5) – – – 1.3 (109.8) (356.0) Total £m (35.9) (12.0) (299.3) (2.1) (106.9) (456.2) (39.9) (1.9) (541.1) (1.7) (4.9) (8.3) 3.2 (169.3) (763.9) Included in the maturity table above are interest rate swaps with a notional value of US$nil (2018 US$67.0 million) and currency swaps with a notional value of US$90.0 million (2018 US$90.0 million) with mutual break clauses at fair value every five years. At 30 September 2019 these break clauses are exercisable within less than one year from the balance sheet date, therefore the cash flows associated with these fixed-to-fixed cross- currency swaps have been included in within one year. Reconciliation of undiscounted liabilities to amounts on the Consolidated Statement of Financial Position is as follows: At 30 September 2019 Trade payables Bank overdrafts Bonds Contingent consideration Fixed-to-fixed cross-currency swaps At 30 September 2018 Trade payables Bank overdrafts Bonds Loan notes Contingent consideration Acquisition put option commitments Interest rate swaps Fixed-to-fixed cross-currency swaps Undiscounted value of financial liabilities £m Interest £m Unamortised issue costs £m Unamortised premium on issue £m Discounting and mark to market adjustments £m Undiscounted value of financial asset £m (35.9) (12.0) (299.3) (2.1) (106.9) (456.2) (39.9) (1.9) (541.1) (1.7) (4.9) (8.3) 3.2 (169.3) (763.9) – 0.2 98.5 – 3.6 102.3 – – 115.4 – – – (3.2) 10.3 122.5 – – 0.5 – – 0.5 – – 0.6 – – – – – 0.6 – – 0.7 – – 0.7 – – 1.2 – – – – – 1.2 – – (3.2) – (2.9) (6.1) – – (0.5) – 0.1 0.1 (2.1) 4.9 2.5 – – – – 81.8 81.8 – – – – – – – 136.1 136.1 Total £m (35.9) (11.8) (202.8) (2.1) (24.4) (277.0) (39.9) (1.9) (424.4) (1.7) (4.8) (8.2) (2.1) (18.0) (501.0) At 30 September 2019, all interest rate swaps were in an asset position. Since interest rate swaps are settled on a net basis, no liability is included in the above maturity tables. 156 156 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Sensitivity analysis 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 statutory results. At 30 September 2019 it is estimated that an increase of 1.0% in interest rates would have decreased the Group’s finance costs by £1.2 million (2018 £8.1 million). There would have been no effect on amounts recognised directly in equity. A decrease of 1.0% in interest rates would have decreased the Group’s finance costs by £0.4 million (2018 £5.8 million increase). 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 30 September 2019 it is estimated that a 10.0% strengthening of sterling against the US dollar would have increased the net gain taken to equity by £11.9 million (2018 £13.3 million) and decreased the net loss taken to income by £1.6 million (2018 increased the net loss by £0.4 million). A 10.0% weakening of sterling against the US dollar would have decreased the net gain taken to equity by £14.5 million (2018 £16.3 million) and increased the net loss to income by £2.0 million (2018 decreased the net loss by £0.5 million). 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 30 September 2019, there were no outstanding acquisition put option commitments. At 30 September 2018, it was estimated that an increase or decrease of 1.0% in the rate used to discount the expected gross value of payments would not lead any change to the present value of acquisition put option commitments. 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 prices (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 (i.e. as prices) or indirectly (i.e. 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 30 September 2019 by valuation method under IFRS 9 Financial assets Financial assets at fair value through Other Comprehensive Income Fair value through profit and loss Derivative instruments not in designated hedge accounting relationships Provision for contingent consideration receivable Derivative instruments in designated hedge accounting relationships Financial liabilities Fair value through profit and loss Provision for contingent consideration payable Derivative instruments in designated hedge accounting relationships At 30 September 2018 by valuation method under IAS 39 Financial assets Available for sale investments Fair value through profit and loss Derivative instruments not in designated hedge accounting relationships Provision for contingent consideration receivable Derivative instruments in designated hedge accounting relationships Financial liabilities Fair value through profit and loss Provision for contingent consideration payable Derivative instruments in designated hedge accounting relationships Note 25, (i) (ii) (iii) (ii) 36, (iii) (ii) Note 25, (i) (ii) (iii) (ii) 36, (iii) (ii) Level 1 £m Level 2 £m Level 3 £m – – – – – – – – 25.7 0.4 – 3.2 29.3 – (24.4) (24.4) 8.1 – 0.3 – 8.4 (2.1) – (2.1) Level 1 £m Level 2 £m Level 3 £m – – – – – – – – – 7.1 – 2.6 9.7 – (20.1) (20.1) 20.4 – 0.1 – 20.5 (4.8) – (4.8) Total £m 33.8 0.4 0.3 3.2 37.7 (2.1) (24.4) (26.5) Total £m 20.4 7.1 0.1 2.6 30.2 (4.8) (20.1) (24.9) 157 157 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 34 Financial instruments and risk management continued Sensitivity analysis continued Equity investments classified as available for sale in the prior year were considered level 3 fair value instruments in line with the requirements of IAS 39. These instruments have been classified as FVTOCI as of 30 September 2019 and transferred to level 2 category as the observable market data used in the valuation became available during this reporting period. (i) Unlisted equity investments are valued using a variety of techniques including comparable company valuation multiples and discounted cashflows. In extremely limited circumstances, where insufficient recent information is available to measure fair value or when there is a wide range of possible fair value measurements, cost is used since this represents the best estimate of fair value in the range of possible valuations. Available for sale investments are recorded at cost less provision for impairment, as since there is no active market upon which they are traded their fair values cannot be reliably measured. The recoverable amount is determined by discounting future cash flows to present value using market interest rates. (ii) The fair value of derivative instruments is determined using market rates of interest and exchange, and established estimation techniques such as discounted cash flow and option valuation models. (iii) Contingent consideration is valued based on the future profitability of the businesses to which the contingent consideration relates, discounted at market rates of interest. Reconciliation of level 3 fair value measurement of financial assets is as follows: At 30 September 2017 Additions Contingent consideration received Transfer to investment in associates Impairment charge Exchange adjustment At 30 September 2018 Adjustment for transition to IFRS 9 Transfer from Level 3 to Level 2 on transition to IFRS 9 Restated at 1 October 2018 Transfer from investment in associates Fair value movement in financial assets at fair value through Other Comprehensive Income Exchange adjustment At 30 September 2019 Reconciliation of level 3 fair value measurement of financial liabilities is as follows: At 30 September 2017 Cash paid to settle contingent consideration in respect of acquisitions Change in fair value of contingent consideration Finance charge on discounting of contingent consideration Additions to contingent consideration Contingent consideration owned by subsidiaries disposed At 30 September 2018 Cash paid to settle contingent consideration in respect of acquisitions Change in fair value of contingent consideration Additions to contingent consideration Exchange adjustment At 30 September 2019 158 158 Note 2 Note 36 10, 19, 36 10, 19, 36 36 36 36 10, 36 36 36 £m 30.9 20.8 (0.2) (29.4) (1.8) 0.2 20.5 9.4 (21.9) 8.0 0.3 (0.1) 0.2 8.4 £m (17.0) 14.4 (2.2) (0.2) (0.2) 0.4 (4.8) 4.7 (0.2) (1.6) (0.2) (2.1) Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 The key inputs into the significant level 3 financial liabilities are the future profitability of the businesses to which the contingent consideration relate and the discount rate. The estimated range of possible outcomes for the fair value of these liabilities is £nil to £2.9 million (2018 £nil to £19.4 million). The increase in fair value of contingent consideration of £0.2 million (2018 increase of £2.2 million) and finance charge on discounting of contingent consideration of £nil (2018 £0.2 million) were charged to the Consolidated Income Statement within net finance costs (Note 10). A one percentage point increase or decrease in the growth rate used in estimating the expected profits, results in the contingent consideration liability at 30 September 2019 increasing or decreasing by £nil and £nil respectively (2018 £0.4 million and £0.4 million), with the corresponding change to the value at 30 September 2019 charged or credited to the Consolidated Income Statement in future periods. The rates used to discount contingent consideration range from 0.0% to 1.0% (2018 0.8% to 1.1%). A one percentage point increase or decrease in the discount rate used to discount the expected gross value of payments, results in the liability at 30 September 2019 decreasing or increasing by £nil and £nil respectively (2018 £0.1 million and £0.1 million), with the corresponding change to the value at 30 September 2019 charged or credited to the Consolidated Income Statement in future periods. 35 Retirement benefit obligations 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 30 September 2019 were £7.3 million (2018 £9.3 million). The schemes include a number of defined contribution pension arrangements, in addition to funded defined benefit pension arrangements which are closed to future accrual. The defined benefit schemes in the UK, together with some defined contribution plans, are administered by Trustees or Trustee Companies. Defined benefit schemes 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 closed to new entrants and to further accrual. Full actuarial valuations of the defined benefit schemes are carried out triennially by the scheme actuary. Following the results of the latest triennial valuation as at 31 March 2016, the Company agreed a Recovery Plan involving a series of annual funding payments, of £13.0 million on 5 October 2016 to 2018, £16.3 million on 5 October 2019, £16.2 million on 5 October 2020 to 2025 and £76.2 million on 5 October 2026. The Company considers that these contribution rates are sufficient to eliminate any deficit over the agreed period. This Recovery Plan will be reviewed at the next triennial funding valuation of the main schemes which is due to be completed with an effective date of 31 March 2019. In addition the Company has agreed with the Trustees that, should it make any permanent reductions in the Company’s capital, including share buy-backs, it will make additional contributions to the schemes amounting to 20.0% of the capital reduction. Contributions of £nil (2018 £nil) relating to this agreement were made in the year to 30 September 2019. The Company intends to make available £117.0 million from the Group’s cash resources to the Group’s defined benefit pension schemes following the disposal of Euromoney. In light of the forthcoming actuarial valuation as at 31 March 2019, the Group and the Trustees of the pension schemes are in discussions to finalise these arrangements. Limited Partnership investment vehicle HPS owns a beneficial interest in a Limited Partnership investment vehicle (LP). The LP has been designed to facilitate annual payments of £10.8 million as part of the deficit funding payments described above over the period to 2026. In addition, the LP is required to make a final payment to the scheme of £149.9 million, or the funding deficit within the scheme on an ongoing actuarial valuation basis, at the end of the period to 2026 if this is less. The Recovery Plan above assumes £60.0 million of the £149.9 million final payment is required. For funding purposes, the interest of HPS in the LP is treated as an asset of the scheme and reduces the actuarial deficit within the scheme. However, under IAS 19, Employee benefits, the LP is not included as an asset of the scheme and therefore is not included in the disclosures below. 159 159 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 35 Retirement benefit obligations continued Defined benefit schemes continued Strategic Plan The Trustee has developed a comprehensive approach to managing the schemes’ investment strategy to ensure it is always aligned with the Strategic Plan. The schemes’ financial performance has been sufficiently better than envisaged so the Trustee has reduced risk largely by decreasing the equity allocation and increasing its interest rate and inflation rate hedging which is reflected in the analysis of the schemes’ assets. In addition the Strategic Plan has been amended to target an asset allocation that may enable all pension obligations to be under written with insurance policies by 2030. The Strategic Plan may involve the Trustee reducing risk further. This framework defines a series of triggers which present opportunities for the Trustee to reduce risk either by reducing the allocation to return seeking assets, such as equities and increasing the interest rate and inflation hedge or a combination of the two. The figures in this note are based on calculations using membership data as at 30 September 2019 along with asset valuations and cash flow information from the schemes for the year to 30 September 2019. 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 Surplus/(deficit) reported in the Consolidated Statement of Financial Position At 30 September 2019 Schemes in surplus £m (2,918.7) 3,144.4 At 30 September 2019 Schemes in deficit £m (57.1) 46.4 At 30 September 2019 Total £m (2,975.8) 3,190.8 At 30 September 2018 Schemes in surplus £m (2,541.5) 2,790.6 At 30 September 2018 Schemes in deficit £m (53.4) 47.8 At 30 September 2018 Total £m (2,594.9) 2,838.4 225.7 (10.7) 215.0 249.1 (5.6) 243.5 The IAS 19 accounting surplus/(deficit) data above differs to the triennial actuarial surplus/(deficit) calculation used in the assessment of future funding obligations. There are a number of reasons for this – the actuarial valuation is as at the schemes’ year end date of 31 March and is calculated triennially based on more prudent assumptions including those covering discount rates and mortality. IAS 19 requires the Company to use best estimate assumptions. 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. In relation to HPS and the SEPF, having taken account of the rules of the schemes, the Company has an unconditional right to a refund of any surplus under IFRIC 14 and considers that the recognition of surpluses in these schemes on its Statement of Financial Position is in accordance with the interpretations of IFRIC 14. In relation to the AVC, having taken account of the rules of the scheme, the Company does not have an unconditional right to a refund under IFRIC 14. However, at 30 September 2019 the AVC Plan showed a deficit and no contributions are payable into the AVC Plan. Therefore no asset ceiling needs to be applied to restrict surplus on the balance sheet and no additional minimum funding liability is needed under IFRIC 14. IFRIC 14 is in the process of being revised which may lead to a reassessment of the Company’s recognition of any pension surplus on its Statement of Financial Position. The surplus/(deficit) for the year, set out above, excludes a related deferred tax liability of £39.9 million (2018 £41.0 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 Interest cost Past service cost Net benefit payments Actuarial (loss)/gain as a result of: – changes in financial assumptions – changes in demographic assumptions – membership experience Defined benefit obligation at end of year 160 160 Note 10 3 39 39 39 Year ended 30 September 2019 £m (2,594.9) (71.0) (3.1) 112.6 (411.6) (7.1) (0.7) (2,975.8) Year ended 30 September 2018 £m (2,690.7) (68.7) (17.3) 99.2 58.7 15.8 8.1 (2,594.9) Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 A reconciliation of the fair value of assets is shown in the following table: Fair value of assets at start of year Interest income on scheme assets Company contributions Net benefit payments Return on plan assets, excluding amounts included in interest income on scheme assets Fair value of assets at end of year The fair value of assets is categorised as follows: Note 10 15 39 Year ended 30 September 2019 £m 2,838.4 78.1 12.8 (112.6) 374.1 3,190.8 Year ended 30 September 2018 £m 2,753.1 70.7 12.8 (99.2) 101.0 2,838.4 Equity – Investment funds – Private equity Liability Driven Investments Bonds Property Infrastructure Cash/Other Total Assets Note (i) (ii) (iii) (iv) Year ended 30 September 2019 £m Year ended 30 September 2019 % Year ended 30 September 2018 £m Year ended 30 September 2018 % 360.4 209.1 831.8 1,008.8 488.4 220.3 72.0 3,190.8 11 7 26 32 15 7 2 100 464.6 212.0 565.1 817.6 521.3 215.3 42.5 2,838.4 16 7 20 29 18 8 2 100 (i) Equities include hedge funds and infrastructure funds. Quoted securities in active markets are valued at the latest available bid price at the reporting date. Private equity and infrastructure funds are valued by investment managers using appropriate valuation techniques. These are derived from market based multiples and discount rates of comparable quoted businesses or market transactions which have been determined by the Trustees’ investment advisors to represent fair value. (ii) Liability Driven Investment funds (LDI) are a collateralised portfolio of gilt repo and swap contracts designed to hedge approximately 65% (by value of assets) of the schemes’ inflation and discount rate risks. These are independently valued using quoted prices and for OTC instruments by the investment manager using recognised discounting techniques. (iii) Bonds and loans include corporate bonds, distressed credit and loans. Corporate bonds are held in unitised pooled investment vehicles and are valued at the latest available bid price provided by the pooled investment manager. Distressed credit and loans are valued by the investment managers using relevant valuation techniques. (iv) The schemes’ property portfolio represent a mixture of industrial, retail, office and leisure. These assets are independently valued at open market value at 31 March each year with subsequent changes in value based on changes in the Investment Property Databank Index (IPD) which tracks retail, office and industrial property transactions. The value of employer-related assets held on behalf of the schemes at 30 September 2019 was £nil (0.0% of assets), (2018 £nil, 0.0% of assets). The main financial assumptions are shown in the following table: Price inflation Pension increases Discount rate Year ended 30 September 2019 % 3.10 3.00 1.80 Year ended 30 September 2018 % 3.25 3.10 2.80 The discount rate for both scheme liabilities and the fair value of scheme assets reflects yields at the year-end date on high-quality corporate bonds and are based on a cash flow-based yield curve, calculating a single equivalent discount rate reflecting the average duration of the schemes’ liabilities, rounded to the nearest 0.05% p.a. This methodology incorporates bonds given an AA rating from at least two of the main four rating agencies (Standard & Poor’s, Moody’s, Fitch and DBRS). RPI inflation is derived in a similar way to the discount rate but with reference to the Bank of England spot curve at the duration of the schemes’ weighted averaged duration with an appropriate allowance for inflation risk premium (0.20% p.a.), rounded to the nearest 0.05% p.a. 161 161 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 35 Retirement benefit obligations continued Defined benefit schemes continued Mortality assumptions take account of scheme experience, and also allow for further improvements in life expectancy based on the Continuous Mortality Investigation (CMI) projections but with a long-term rate of improvement in future mortality rates of 1.25% p.a.. Allowance is made for the extent to which employees have chosen to commute part of their pension for cash at retirement. The average duration of the defined benefit obligation at the end of the year is approximately 18 years (2018 18 years). 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 Year ended 30 September 2019 Future life expectancy from age 60 (years) 26.7 28.3 27.1 29.0 Year ended 30 September 2018 Future life expectancy from age 60 (years) 26.2 28.2 26.7 29.2 The amounts charged to the Consolidated Income Statement relating to the Group’s defined benefit schemes, based on the above assumptions are shown in the following table: Past service cost Charge to operating profit Finance income Total credit/(charge) to the Consolidated Income Statement Note 3 10 Year ended 30 September 2019 £m (3.1) (3.1) 7.1 4.0 Year ended 30 September 2018 £m (17.3) (17.3) 2.0 (15.3) The fair value of some of our pension assets are made up of quoted and unquoted investments. The latter require more judgement as their values are not directly observable. The assumptions used in valuing unquoted investments are affected by current market conditions and trends which could result in changes in fair value after the measurement date. 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 Increase in pension obligation at 30 September 2019 from a one-year increase in life expectancy Change in projected pension cost for the year to 30 September 2020 from a one-year increase Inflation rate Decrease in pension obligation at 30 September 2019 from a 0.1 % p.a. increase (excluding hedging) Change in projected pension cost for the year to 30 September 2020 from a 0.1 % p.a. increase Discount rate Decrease in pension obligation at 30 September 2019 from a 0.1 % p.a. decrease (excluding hedging) Change in projected pension cost for the year to 30 September 2020 from a 0.1 % p.a. decrease Year ended 30 September 2019 £m Year ended 30 September 2018 £m +/- +/- +/- 115.0 2.0 24.0 0.4 51.5 1.0 87.7 2.4 44.2 1.1 50.0 1.5 There are significant risks in connection with running defined benefit schemes, and the key risks are highlighted below: Inflation rate risk A significant proportion of the defined benefit obligation is linked to inflation, therefore increased inflation will result in a higher pension obligation. The Trustees have sought to acquire certain assets with exposure to inflationary uplifts in order to negate a proportion of this risk. Monetary assets such as bonds and loans hedge approximately 65% of the schemes’ risk (by value of assets). Life expectancy risk The present value of the defined benefit obligation is calculated with reference to the best estimate of the mortality of scheme members. An increase in assumed life expectancy will result in an increase in the defined benefit obligation. Regular reviews of mortality experience are performed to ensure life expectancy assumptions remain appropriate. 162 162 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Investment risk This is a measure of the uncertainty that the return on the schemes’ assets meet the return necessary to fund pension obligations. The schemes hold a significant proportion of equities, but during the period have been reallocating some of these investments into credit and property investments which exhibit lower volatility of return and the LDI investments. Discount rate risk The present value of the defined benefit obligation is calculated using a discount rate set with reference to high-quality corporate bond yields. A decrease in corporate bond yields will increase the present value of the defined benefit obligation, although this will be partially offset by bonds and the LDI investment funds which reduce the gilt rate risk by hedging approximately 65% of the schemes’ risk (by value of assets). Amounts recognised in the Consolidated Statement of Comprehensive Income (SOCI) are shown in the following table: Actuarial (loss)/gain recognised in SOCI Cumulative actuarial gain recognised in SOCI at beginning of year Cumulative actuarial gain recognised in SOCI at end of year A history of experience gains and losses is shown in the following table: Note 39 Year ended 30 September 2019 £m (45.3) 331.3 286.0 Year ended 30 September 2018 £m 183.6 147.7 331.3 Present value of defined benefit obligation Fair value of scheme assets Combined surplus/(deficit) in schemes Experience adjustments on defined benefit obligation Experience adjustments on fair value of scheme assets At 30 September 2019 £m (2,975.8) 3,190.8 215.0 (419.4) 374.1 At 30 September 2018 £m (2,594.9) 2,838.4 243.5 82.6 101.0 At 30 September 2017 £m (2,690.7) 2,753.1 62.4 191.8 107.3 At 30 September 2016 £m (2,998.9) 2,752.9 (246.0) (574.9) 460.2 At 30 September 2015 £m (2,437.4) 2,278.1 (159.3) (47.0) 54.5 The Group expects to contribute approximately £16.3 million to the schemes during the year to 30 September 2019 relating to the deficit funding payments described above. In addition, the Company intends to make available £117.0 million from the Group’s cash resources to the Group’s defined benefit pension schemes following the disposal of Euromoney. In light of the forthcoming actuarial valuation as at 31 March 2019, the Group and the Trustees of the pension schemes are in discussions to finalise these arrangements. 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 segments. The benefits for all members of the trust-based plans have been transferred to individual policies held in the member’s own name and the scheme is now wound up. Insured death benefits previously held under this trust have already been transferred to a new trust-based arrangement specifically for life assurance purposes. The aggregate value of the Group personal pension plans was £159.2 million (2018 £140.1 million) at the year end. The pension cost attributable to these plans during the year amounted to £14.9 million (2018 £13.5 million). Overseas pension plans Overseas subsidiaries of certain Group segments operate defined contribution retirement benefit plans, primarily in North America. The pension cost attributable to these plans during the year amounts to £2.5 million (2018 £3.2 million). 163 163 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 36 Provisions Contract discounts and rebates £m Note Coupon discount £m Onerous leases £m Reorganisation costs £m Contingent consideration (ii) £m Claims and legal £m Other (i) £m Current liabilities At 30 September 2017 Additions Charged during year Utilised during year Transfer from non-current liabilities Contingent consideration paid Notional interest on contingent consideration Fair value adjustment to contingent consideration Exchange adjustment At 30 September 2018 Additions Charged during year Utilised during year Reclassification between categories Transfer from non-current liabilities Contingent consideration paid Fair value adjustment to contingent consideration Classified as held for sale Exchange adjustment At 30 September 2019 17 10 17 17 10 20 19.7 – 23.8 (21.5) 0.1 – – – – 22.1 – 24.1 (17.1) – – – – – – 29.1 0.5 – (0.3) – – – – – – 0.2 – – (0.1) – – – – – – 0.1 0.8 – 1.5 (0.7) 0.5 – – – – 2.1 – (0.3) (0.3) – – – – – – 1.5 Non-current liabilities At 30 September 2017 Charged during year Utilised during year Owned by subsidiaries disposed Transfer to current liabilities Fair value adjustment to contingent consideration Exchange adjustment At 30 September 2018 Additions Charged during year Utilised during year Transfer to current liabilities Exchange adjustment At 30 September 2019 1.5 – 0.3 (1.5) – – – – – 0.3 – – – (0.3) – – – – – – 3.4 0.2 – – 10.9 (14.4) 0.2 0.9 – 1.2 0.3 – – – 3.5 (4.7) 0.2 – 0.1 0.6 8.3 – 5.6 (9.6) – – – – – 4.3 – 36.6 (5.1) – – – – (32.5) – 9.4 – 2.8 (3.6) (0.1) – – – 0.1 8.6 – 1.5 (0.1) 0.3 – – – (1.7) 1.5 3.3 10.1 Onerous leases £m Contingent consideration (ii) £m Note 10 17 3.3 1.3 – – (0.5) – 0.1 4.2 – (0.6) – – 0.1 3.7 13.6 – – (0.4) (10.9) 1.3 – 3.6 1.3 – – (3.5) 0.1 1.5 Other (i) £m 2.2 0.3 (0.1) – – – (0.2) 2.2 – 0.4 (0.1) – 0.1 2.6 Total £m 43.6 0.2 33.7 (36.9) 11.4 (14.4) 0.2 0.9 0.1 38.8 0.3 61.9 (22.7) – 3.5 (4.7) 0.2 (34.2) 1.6 44.7 Total £m 19.1 1.6 (0.1) (0.4) (11.4) 1.3 (0.1) 10.0 1.3 (0.2) (0.1) (3.5) 0.3 7.8 (i) Other current provisions principally comprise tax provisions of £1.7 million (2018 £nil), end of service provisions of £4.8 million (2018 £3.8 million), dilapidation provisions of £2.0 million (2018 £2.0 million) and provisions for national insurance contributions of £1.7 million (2018 £1.7 million). Other non-current provisions principally comprise dilapidation provisions of £1.1 million (2018 £1.0 million), end of service provisions amounting to £0.9 million (2018 £0.6 million) and a provision for amounts payable to the Newspaper Society following the cessation of membership on disposal of Northcliffe Newspapers Ltd in 2012 of £0.6 million (2018 £0.7 million). 164 164 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 (ii) 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 30 September 2019 £m 0.6 1.5 – 2.1 At 30 September 2018 £m 1.2 – 3.6 4.8 The contingent consideration is based on future business valuations and profit multiples and has been estimated using available data forecasts. The estimated range of undiscounted outcomes for contingent consideration relating to acquisitions in the year is £nil to £1.6 million. Certain contingent consideration arrangements are not capped since they are based on future business performance. 37 Deferred taxation At 30 September 2017 Disclosed within non-current liabilities Disclosed within non-current assets (Charge)/credit to income (Charge)/credit to income due to change in tax rate Charge to equity Charge to equity due to change in tax rate Owned by subsidiaries acquired Owned by subsidiaries disposed Exchange adjustment Note 11, (i) 11 39, 40 41 Accelerated capital allowances £m 52.1 8.6 43.5 (11.6) (2.4) – – – (2.3) 0.1 Goodwill and intangible assets £m (68.7) (61.9) (6.8) 17.0 19.5 – – (0.5) 0.7 (2.8) Share-based payments £m 11.3 9.5 1.8 0.3 (0.9) (3.9) (2.9) – – (0.1) Deferred interest £m 34.0 – 34.0 (4.0) – – – – – – Trading losses and tax credits £m 27.5 19.1 8.4 (0.7) (0.1) – – – (0.1) 0.4 At 30 September 2018 Disclosed within non-current liabilities Disclosed within non-current assets Adjustment for transition to IFRS 15 Restated at 1 October 2018 (Charge)/credit to income Charge to equity Owned by subsidiaries acquired Owned by subsidiaries disposed Classified as held for sale Exchange adjustment At 30 September 2019 Disclosed within non-current liabilities Disclosed within non-current assets At 30 September 2019 11, (i) 39 17 18 20 35.9 – 35.9 – 35.9 (3.2) – – – (1.2) 0.3 31.8 – 31.8 31.8 (34.8) (6.2) (28.6) – (34.8) 7.4 – (0.3) 4.2 7.5 (1.6) (17.6) (2.5) (15.1) (17.6) 3.8 – 3.8 – 3.8 1.9 0.6 – – – – 6.3 – 6.3 6.3 30.0 – 30.0 – 30.0 (5.6) – – – – – 24.4 – 24.4 24.4 27.0 – 27.0 – 27.0 4.8 – – – (2.6) 2.3 31.5 – 31.5 31.5 Pension scheme deficit £m (6.6) – (6.6) 0.3 – (31.2) – – – – (37.5) – (37.5) – (37.5) (4.0) 7.7 – – – – (33.8) – (33.8) (33.8) Other £m 14.2 12.6 1.6 8.3 (3.6) – – – (3.1) 3.1 18.9 – 18.9 1.1 20.0 (1.4) – – – (9.6) 0.8 9.8 – 9.8 9.8 Total £m 63.8 (12.1) 75.9 9.6 12.5 (35.1) (2.9) (0.5) (4.8) 0.7 43.3 (6.2) 49.5 1.1 44.4 (0.1) 8.3 (0.3) 4.2 (5.9) 1.8 52.4 (2.5) 54.9 52.4 (i) Includes £7.6 million credit attributable to discontinuing operations in the year ended 30 September 2019 (£nil year ended 30 September 2018). The net deferred tax asset disclosed in the Consolidated Statement of Financial Position in respect of deferred interest, tax losses and tax credits is analysed as follows: UK North America Rest of the World At 30 September 2019 £m 45.8 9.0 1.1 55.9 At 30 September 2018 £m 40.1 15.7 1.2 57.0 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. 165 165 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 37 Deferred taxation continued There is an unrecognised deferred tax asset of £56.0 million (2018 £49.7 million) which relates to revenue losses and £88.3 million (2018 £96.1 million) which relates to deferred interest where there is insufficient certainty that these losses will be utilised in the foreseeable future. There is an additional unprovided deferred tax asset relating to capital losses carried forward of £115.0 million (2018 £113.9 million). No deferred tax liability is recognised on temporary differences of £278.5 million (2018 £74.6 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 30 September 2019 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 dividend withholding taxes levied by the overseas tax jurisdictions in which these subsidiaries operate. 38 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 30 September 2019 £m 2.5 26.8 29.3 Allotted, issued and fully paid At 30 September 2018 £m 2.5 42.8 45.3 Note (i) Allotted, issued and fully paid At 30 September 2019 Number of shares 19,890,364 214,913,327 234,803,691 Allotted, issued and fully paid At 30 September 2018 Number of shares 19,890,364 342,204,470 362,094,834 Note (i) 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. (i) On 3 March 2019, the Group announced its intention to distribute all of the Euromoney Institutional Investor PLC (Euromoney) shares owned by the Group to certain holders of DMGT’s A Ordinary Non-Voting Shares (A Shares), by way of a dividend in specie (the Euromoney Distribution), as well as a £200.0 million cash distribution (the Cash Distribution). The terms were such that Fully Participating Shareholders would participate in the Euromoney Distribution and Cash Distribution whilst Rothermere Affiliated Shareholders would only participate in the Cash Distribution and on a limited basis. The proposal was approved at a Class Meeting of the Fully Participating Shareholders on 26 March 2019. The Euromoney Distribution occurred at 8am on 2 April 2019 and the Cash Distribution on 15 April 2019. Before these distributions were made c.46.4% of the A Shares held by Fully Participating Shareholders were converted into a new class of B Shares and c.4.0% of the A Shares held by Rothermere Affiliated Shareholders converted into a new class of C Shares. The Euromoney Distribution and a special dividend of £183.0 million in aggregate in cash was then paid to the Fully Participating Shareholders in respect of the B Shares and a restricted special dividend of £17.0 million in aggregate in cash was paid to the Rothermere Affiliated Shareholders in respect of the C Shares. Once these distributions were made the B Shares and the C Shares were converted into Deferred B Shares and Deferred C Shares respectively before being transferred to the Company for no valuable consideration and cancelled shortly thereafter. Consequently, these distributions resulted in a reduction in the share capital of DMGT. The voting Ordinary Shares did not participate in the distributions. For each A Share held at 6.00pm on 29 March 2019, the conversion record time, the Fully Participating Shareholders received c.0.19933 of a Euromoney Share and c.68.13p in cash, and there was a reduction in their holding of c.0.46409 of an A Share. For each A Share held by the Rothermere Affiliated Shareholders, they received c.25.53p in cash and there was a reduction in their holding of c.0.03946 of an A Share. The Rothermere Affiliated Shareholders’ proportionate interest in the total number of A Shares in issue increased from 20.0% of the issued A Shares before the distributions to 30.0% after and their combined shareholding of A Shares and Ordinary Shares increased from 24.0% of the issued A Shares and Ordinary Shares before the distributions to 36.0% after. The Company intends to make available £117.0 million from the Group’s cash resources to the Group’s defined benefit pension schemes. In light of the forthcoming actuarial valuation as at 31 March 2019, the Group and the Trustees of the pension schemes are in discussions to finalise these arrangements. 166 166 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Year ended 30 September 2019 £m Year ended 30 September 2018 £m Note 17.8 17.8 5.0 16.0 21.0 (57.2) (2.5) 10.6 (49.1) 5.0 – 5.0 (64.3) (14.3) 21.4 (57.2) (i) (ii) 39 Reserves Share premium account At start and end of year Capital redemption reserve At start of year On cancellation of A Ordinary Non-Voting Shares At end of year Own shares At start of year Purchase of DMGT shares Own shares released on vesting of share options At end of year The Group’s investment in its own shares represents shares held in treasury or shares held by an employee benefit trust to satisfy incentive schemes. At 30 September 2019, this investment comprised 4,566,121 A Ordinary Non-Voting Shares (2018 4,812,419 shares) held in treasury and 2,157,613 A Ordinary Non-Voting Shares (2018 2,981,109 shares) held in the employee benefit trust. The market value of the Treasury Shares at 30 September 2019 was £38.9 million (2018 £33.8 million) and the market value of the shares held in the employee benefit trust at 30 September 2019 was £18.4 million (2018 £20.9 million). The employee benefit trust is independently managed and purchases shares in order to satisfy outstanding share options and potential awards under long-term incentive plans. (i) The Company purchased 0.4 million A Ordinary Non-Voting Shares having a nominal value of £0.1 million to match obligations under incentive plans. The consideration paid for these shares was £2.5 million. (ii) During the period, the Company utilised 1.5 million A Ordinary Non-Voting Shares in order to satisfy incentive schemes. This represented 0.7% of the called-up A Ordinary Non-Voting Share capital at 30 September 2019. The carrying value of these shares was £10.6 million. At 30 September 2019 options were outstanding under the terms of the Company’s Executive Share Option Schemes, Long-Term Incentive Plans and nil-cost options, over a total of 2,728,139 A Ordinary Non-Voting Shares (2018 3,075,745 shares). Translation reserve At start of year Foreign exchange differences on translation of foreign operations Translation reserves recycled to Consolidated Income Statement on disposals Transfer of gain on cash flow hedges from translation reserve to Consolidated Income Statement Change in fair value of cash flow hedges Loss on hedges of net investments in foreign operations Costs of hedging At end of year Note 8, 18 Year ended 30 September 2019 £m Year ended 30 September 2018 £m 53.5 16.2 (3.6) – – (13.5) (0.1) 52.5 74.9 (8.9) (10.4) (4.9) 4.9 (2.1) – 53.5 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. 167 167 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 39 Reserves continued Retained earnings At start of year Adjustment for transition to IFRS 15 Adjustment for transition to IFRS 9 Restated at 1 October 2018 Profit for the period Dividends paid Euromoney dividend in specie Adjustment to Euromoney dividend in specie Impairment of Euromoney following dividend in specie Euromoney cash distribution Actuarial (loss)/gain on defined benefit pension schemes Credit to equity for share-based payments Settlement of exercised share options of subsidiaries Fair value movement in financial assets at fair value through other comprehensive income Corporation tax on share-based payments Deferred tax on actuarial movement Deferred tax on other items recognised directly in equity Share of joint ventures’ and associates’ items of other comprehensive (expense)/income At end of year At end of year – total reserves Note 2 2 12 12, (i) 12, (i) 12, (ii) 12, (i) 35 15 25 37 37 7 (673.6) 11.8 Year ended 30 September 2019 £m Year ended 30 September 2018 £m 1,597.5 (2.4) (2.9) 1,592.2 90.9 (74.1) (661.8) (11.8) (200.0) (45.3) 21.1 (11.5) (4.5) – 7.7 0.6 (0.7) 702.8 829.5 – – 829.5 689.4 (81.0) – – – 183.6 10.8 (13.8) – 2.3 (31.2) (6.8) 14.7 1,597.5 745.0 1,616.6 (i) At 31 March 2019, in relation to the disposal of Euromoney, the Group made provision for a cash dividend payable on 15 April 2019 of £200.0 million in accordance with IAS 32 Financial Instruments, and a dividend in specie of £673.6 million, based on the fair value of Euromoney at 31 March 2019, in accordance with IFRIC 17 Distributions of non-cash assets to owners. The dividend in specie paid on 2 April 2019 amounted to £661.8 million and was calculated using a Euromoney share price of £12.36 at 8am on that date. This reduced the dividend provided at 31 March 2019 by £11.8 million, from £673.6 million to £661.8 million. (ii) At 31 March 2019 the Group’s investment in Euromoney was transferred to Assets Held for Sale at the lower of carrying value and fair value less costs to sell. This resulted in an impairment charge of £23.5 million for the period to 31 March 2019 which was taken to the Consolidated Income Statement in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. Following the Group’s half year end, the Euromoney share price fell from £12.58 on 31 March 2019 to £12.36 at 8am on 2 April 2019, the time and date of the distribution which reduced the dividend in specie provided at 31 March 2019 by £11.8 million. In addition, the fall in the Euromoney share price resulted in a further impairment charge of £11.8 million in the second half which, under the principles of IFRIC 17 was charged to retained earnings. 40 Non-controlling interests At start of year Share of profit/(loss) for the period Dividends paid Foreign exchange differences on translation of foreign operations Recycled to Consolidated Income Statement on disposals At end of year 168 168 Note 18 Year ended 30 September 2019 £m 13.5 0.4 (1.0) (0.1) (12.8) – Year ended 30 September 2018 £m 11.0 (1.2) (0.2) 0.2 3.7 13.5 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 41 Commitments and contingent liabilities Commitments At 30 September 2019, the Group had outstanding capital expenditure commitments as follows: Property, plant and equipment Contracted but not provided in the financial statements At 30 September 2019 £m At 30 September 2018 £m – – At 30 September 2019, 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 30 September 2019 Properties £m 28.1 23.4 39.8 9.3 100.6 At 30 September 2018 Properties £m 26.9 22.8 45.8 11.4 106.9 At 30 September 2019 Plant and equipment £m 1.4 0.8 0.7 – 2.9 At 30 September 2018 Plant and equipment £m 1.3 1.0 0.7 – 3.0 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, security of tenure and lease terms against the risk of entering into excessively long or onerous arrangements. Of the Group’s rented properties, the most significant operating lease commitments relate to the DMGT head office premises at 2 Derry Street, London W8 5TT, which expires in December 2022, and to the RMS head office premises at 7575 Gateway Blvd, Newark, California which expires in December 2020. At 30 September 2019, the Group had outstanding commitments under non-cancellable agreements made to secure venues for future events and exhibitions which fall due as follows: Within one year Between one and two years At 30 September 2019 £m 16.8 – 16.8 At 30 September 2018 £m 17.1 6.2 23.3 The Group has entered into arrangements with ink suppliers to obtain ink for the period to December 2020 at competitive prices and to secure supply. At 30 September 2019, the commitment to purchase ink over this period was £21.7 million (2018 £21.7 million). The Group has entered into agreements with various printers for periods up to December 2022 at competitive prices and to secure supply. At 30 September 2019, the commitment to purchase printing capacity over this period was £40.0 million (2018 £29.1 million). 169 169 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 41 Commitments and contingent liabilities continued Contingent liabilities The Group has issued standby letters of credit amounting to £2.9 million (2018 £3.3 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 and provides for any settlement costs when such an outcome is judged probable. The Group’s Energy Information business (Genscape) provided a third-party auditor service verifying Renewable Identification Numbers (RINs) for renewable fuel production activities in the US, as part of the Renewable Fuel Standard Quality Assurance Program (Program), a regulatory program administered by the US Environmental Protection Agency (EPA). Following discovery and self-reporting to the EPA by Genscape of potential fraudulent RINs generated by two companies but verified by Genscape in 2014 under the Program, the EPA issued a notice of intent to revoke the ability of Genscape to verify RINs as a third-party auditor on 4 January 2017. Following the EPA investigation of the two companies in April 2016, the two companies pleaded guilty of fraud in connection with generating the RINs. EPA regulations for the audit Program set a liability cap on replacement of invalid RINs of 2.0% of the RINs. In April 2017 Genscape voluntarily paid the 2.0% liability cap associated with the invalid RINs at a cost of US$1.3 million, based on the then-prevailing market rates, subject to a reservation of rights. The EPA regulations allow for situations where the cap does not apply – including fraud, auditor error and negligence. The EPA has not formally alleged any fraud or intentional wrongdoing by Genscape, but in its May 2019 final determination letter, EPA did find grounds for auditor error and negligence by Genscape and ordered Genscape to replace 69.2 million RINs it had verified. In July 2019, Genscape filed a petition for review with the Sixth Circuit Court of Appeals and a motion to stay the EPA’s order to replace the 69.2 million RINs which was accepted for the duration of Genscape’s petition for review. Since RINs trade in a volatile range, averaging approximately 56 cents over the previous 24 months, this equates to a potential maximum claim of approximately US$38.4 million. Using the year end price of 41 cents the potential maximum claim would be US$28.1 million. Genscape continues to co-operate with EPA and in October 2019 Genscape made an offer to replace 4.6 million RINs at a cost of approximately US$2.5 million but the EPA have not responded to this offer. Discussions with the EPA are ongoing but considering the uncertainties involved, the length of time involved and taking note of the order from the EPA, the Group, without admitting any wrongdoing, has made a provision for the potential maximum replacement RINs cost of US$40.0 million, including directly attributable costs. This estimate was based on the average two-year RIN price due to the liquidity and volatility of the market price of RINs. This provision could change substantially over time as the dispute progresses and new facts emerge. 42 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, Insurance Risk, Property Information and Consumer Media segments. 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. Details of the performance conditions relating to the DMGT schemes are explained in the Remuneration Report. The charge to the Consolidated Income Statement is as follows: Segment DMGT Board and Corporate Costs Insurance Risk Energy Information Property Information Consumer Media Social security costs Scheme Equity-Settled Executive Bonuses Long-Term Incentive Plan Option Plan Option Plan Option Plan Long-Term Incentive Plan Year ended 30 September 2019 £m – 13.9 1.6 – 0.7 4.9 2.1 23.2 Year ended 30 September 2018 £m 0.1 5.6 1.1 0.1 0.3 2.9 1.4 11.5 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, expected volatility has been estimated, based upon relevant historic data in respect of the DMGT A Ordinary Non-Voting 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 reprice any of its outstanding options during the period. Further details of the Group’s significant schemes are set out below: 170 170 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 DMGT 2006 Executive Share Option Scheme Under the DMGT 2006 Executive Share Option Scheme, each award of options has a maximum life of 10 years. The maximum award limit is 100.0% of salary in any year in normal circumstances and 200.0% of salary in exceptional circumstances. Awards will not normally vest until three years after the award and the performance conditions have been met. No options were outstanding to Directors during the year. Outstanding at 1 October 2018 Granted during the period Forfeited during the period Exercised during the period Expired during the period Modified during the period Outstanding at 30 September 2019 Exercisable at 30 September 2019 Exercisable at 1 October 2018 Note (i) Year ended 30 September 2019 Number of share options 413,314 300,000 – (46,074) (30,000) 23,865 661,105 168,903 178,314 Year ended 30 September 2019 Weighted average exercise price £ 6.21 5.91 – 5.16 7.06 4.08 5.87 5.23 5.12 Year ended 30 September 2018 Number of share options 885,743 100,000 (8,000) (242,626) (321,803) – 413,314 178,314 472,409 Year ended 30 September 2018 Weighted average exercise price £ 6.16 6.40 5.05 4.66 7.50 – 6.21 5.12 5.28 The aggregate of the estimated fair values of the options granted during the period is £0.6 million (2018 £0.1 million). The options outstanding at 30 September 2019 had a weighted average remaining contractual life of 6.9 years (2018 5.6 years). 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 (£) 5 December 2011 3.81 3.81 4,144 10.00 7.00 3.81 1.50 4.27 30.00 0.71 27 June 2012 3.74 3.74 103,624 10.00 7.00 3.74 1.00 4.43 30.00 0.70 17 December 2012 5.07 5.07 4,144 10.00 7.00 5.07 1.00 3.42 30.00 0.97 9 December 2013 8.81 8.81 25,906 10.00 5.00 8.81 1.50 2.00 25.00 1.69 10 December 2014 7.98 7.98 15,543 10.00 5.00 7.98 1.08 2.77 25.70 1.31 14 December 2015 6.81 6.81 15,542 10.00 7.00 6.81 1.19 3.26 25.10 0.93 6 December 2016 7.59 7.59 77,718 5.00 2.00 7.59 1.25 3.02 26.00 1.13 8 February 2018 6.18 6.18 103,621 10.00 7.00 6.18 0.82 3.24 27.88 0.94 25 January 2019 5.69 5.69 310,863 10.00 7.00 5.69 0.81 3.59 27.95 0.84 171 171 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 42 Share-based payments continued Nil-cost options under the DMGT Executive Bonus Scheme Since December 2009 a portion of the bonus earned by Executive Directors under the Executive Bonus Scheme has been deferred into shares in the form of nil-cost options. These options are to the value of the equity portion of the bonus and are fully expensed in the period in which they are earned. Further details are shown in the Remuneration Report. Outstanding at 1 October 2018 Granted during the period Exercised during the period Modified during the period Outstanding at 30 September 2019 Exercisable at 30 September 2019 Exercisable at 1 October 2018 Note (i) Year ended 30 September 2019 Number of share options 267,307 100,538 (259,714) 12,305 120,436 – 252,903 Year ended 30 September 2019 Weighted average exercise price £ – – – – – – – Year ended 30 September 2018 Number of share options 263,796 14,404 (10,893) – 267,307 252,903 250,992 Year ended 30 September 2018 Weighted average exercise price £ – – – – – – – The aggregate of the estimated fair values of the awards granted during the period is £nil (2018 £nil). The awards outstanding at 30 September 2019 had a weighted average remaining contractual life of 6.1 years (2018 1.2 years). DMGT Long-Term Incentive Plan Details of the terms and conditions relating to this scheme are set out in the Remuneration Report. Outstanding at 1 October 2018 Granted during the period Exercised during the period Expired during the period Modified during the period Outstanding at 30 September 2019 Exercisable at 30 September 2019 Exercisable at 1 October 2018 Note (i) Year ended 30 September 2019 Number of share options 2,395,124 518,856 (796,460) (264,996) 94,074 1,946,598 Year ended 30 September 2019 Weighted average exercise price £ – – – – – – Year ended 30 September 2018 Number of share options 2,903,042 372,598 (646,985) (233,531) – 2,395,124 Year ended 30 September 2018 Weighted average exercise price £ – – – – – – – – – – – – – – The aggregate of the estimated fair values of the awards granted during the period is £13.6 million (2018 £2.2 million). The awards outstanding at 30 September 2019 had a weighted average remaining contractual life of 1.2 years (2018 1.4 years). (i) As part of the Euromoney disposal, the DMGT Remuneration Committee’s approved principle was that participants in DMGT share awards should neither be advantaged nor disadvantaged as compared to participating shareholders. In order to meet this principle all unvested share awards prior to the Euromoney distribution on 2 April 2019, were uplifted by 4.8%. In the tables above this has been described as a modification. 172 172 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 28 February 2017 6.94 Nil 201,266 3.00 Nil Nil Nil Nil Nil 6.94 18 January 2018 5.43 Nil 23,263 2.00 Nil Nil Nil Nil Nil 5.43 30 May 2017 6.92 Nil 143,217 2.00 Nil Nil Nil Nil Nil 6.92 14 December 2017 5.43 Nil 60,359 3.00 Nil Nil Nil Nil Nil 5.43 14 June 2018 5.43 Nil 23,263 3.00 Nil Nil Nil Nil Nil 5.43 13 August 2018 7.24 Nil 38,394 3.00 Nil Nil Nil Nil Nil 7.24 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 (£) 22 December 2014 8.00 Nil 305,261 5.00 Nil Nil Nil Nil Nil 8.00 14 December 2015 6.81 Nil 362,772 5.00 Nil Nil Nil Nil Nil 6.81 16 January 2018 5.85 Nil 56,489 3.00 Nil Nil Nil Nil Nil 5.85 18 January 2018 5.43 Nil 188,646 3.00 Nil Nil Nil Nil Nil 5.43 14 December 2018 6.29 Nil 333,171 2.00 Nil Nil Nil Nil Nil 6.29 14 December 2018 6.29 Nil 210,497 3.00 Nil Nil Nil Nil Nil 6.29 DMGT Long-Term Executive Incentive Plan Award 2017, 2018 and 2019 These plans entitle certain executives to a percentage share of eligible profit growth over a three-year performance period. The awards are settled in A Ordinary Non-Voting Shares based on the later of the average share price for the first three days following release of the current year financial results or the date of employment. The charge for the period in the Consolidated Income Statement for these awards including social security costs amounts to £13.6 million (2018 £6.9 million) and is included in the Long-Term Incentive Plan charge. 173 173 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 42 Share-based payments continued Insurance Risk (RMS) option plans RMS maintains the following equity award plans: 2014 Equity Award Plan (“2014 Plan”) and the 2015 Equity Incentive Plan (“2015 Plan”). Awards from previous plans are no longer outstanding. The 2014 Plan was introduced during the year ended 30 September 2014. Under the 2014 Plan options and Restricted Stock Units (“RSUs”), both time and performance based, are granted to employees, officers, directors and consultants, who are deemed to be in a position to contribute to the long-term success of RMS. The 2015 Plan was introduced during the year ended 30 September 2016. Under the 2015 Plan, options are granted to employees, officers, directors and consultants of RMS. Options granted under this plan vest on satisfaction of two conditions – a service period and the occurrence of an initial public offering of RMS or an event in which the Group ceases to hold at least 50.0% of the voting rights of RMS. RMS options under all plans were granted at market value. The options lapse 10 years from grant date. RMS estimated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. RMS assumptions about stock price volatility were based exclusively on the implied volatilities of publicly traded options to buy stock with contractual terms closest to the expected life of options granted to RMS employees. The risk-free interest rate for periods within the contractual life of the award were based on the U.S. Government securities constant maturities in effect. The RSU fair value is determined by the fair market value of RMS stock at the date of grant. The expense is amortised using the graded vesting method. RMS share options Outstanding at 1 October 2018 Granted during the period Forfeited during the period Exercised during the period Expired during the period Outstanding at 30 September 2019 Exercisable at 30 September 2019 Exercisable at 1 October 2018 Year ended 30 September 2019 Number of share options 9,158,573 3,309,136 (1,980,245) – – 10,487,464 Year ended 30 September 2019 Weighted average exercise price US$ 9.35 9.63 9.47 – – 9.46 417,448 453,824 10.18 10.16 Year ended 30 September 2018 Number of share options 15,031,520 3,896,106 (8,594,253) (1,174,800) – 9,158,573 453,824 1,648,124 Year ended 30 September 2018 Weighted average exercise price US$ 9.31 9.62 9.27 10.00 – 9.35 10.16 10.04 The weighted average share price at the date of exercise for share options exercised during the period was $nil (2018 $10.24 million). The options outstanding at 30 September 2019 had a weighted average remaining contractual life of 7.4 years (2018 8.2 years). The inputs into the Black-Scholes model are as follows: Date of grant Market value of shares at date of grant (US$) 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$) During 2014 14.59 14.59 16,000 7 3-6 14.59 1.25 2.91 28.81 2.70 During 2015 10.00 10.00 401,448 7 4-5 10.00 1.25 3.63 25.63 1.44 During 2016 9.04 9.04 3,105,270 10 6 9.04 1.10 Nil 25.60 2.58 During 2017 10.11 9.52 1,897,314 10 4 9.52 1.00 Nil 35.00 4.00 During 2018 10.24 9.63 2,182,400 10 6 9.63 1.71 Nil 25.60 2.75 During 2019 10.24 9.63 2,885,032 10 6 9.63 1.71 Nil 25.60 2.58 Expected volatility was determined by calculating the historical volatility of comparable companies. 174 174 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 RMS RSU awards Outstanding at 1 October 2018 Forfeited during the period Vested during the period Outstanding at 30 September 2019 Year ended 30 September 2019 Number of share options Weighted average exercise price US$ – – – – Year ended 30 September 2019 Number of RSUs 10,914 – (10,914) – Year ended 30 September 2018 Number of RSUs 269,781 (14,332) (244,535) 10,914 Year ended 30 September 2018 Weighted average exercise price $ – – – – 43 Ultimate holding company The Company’s immediate parent Company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 for further detail). Daily Mail and General Trust plc is the only company in the Group to prepare consolidated financial statements. 44 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. For the purposes of IAS 24, Related Party Disclosures, executives below the level of the Company’s Board are not regarded as related parties. The remuneration of the Directors at the year end, who are the key management personnel of the Group, is set out in aggregate in the audited part of the Directors’ Remuneration Report. Ultimate controlling party Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties of the Company. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also related parties of the Company. Transactions with Directors During the period, Forsters LLP in which Mr A Lane, a Non-Executive Director of the Company, is a partner, provided legal services to the Company amounting to £nil (2018 £14,820). 175 175 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 44 Related party transactions continued Transactions with joint ventures and associates Details of the Group’s principal joint ventures and associates are set out in Note 24. Associated Newspapers Ltd (ANL) has a 50.0% (2018 50.0%) shareholding in Northprint Manchester Ltd, a joint venture. The net amount due to ANL of £5.8 million (2018 £5.8 million) has been fully provided. Mail Media, Inc. had a 50.0% (2018 50.0%) shareholding in Daily Mail On Air LLC (DailyMailTV), a joint venture in the prior period. In the prior period, Mail Media, Inc. provided funding amounting to £4.9 million. At 30 September 2019, £nil (2018 £5.9 million) was owed by DailyMailTV. During the period, Mail Media, Inc. acquired the remaining 50.0% shareholding in DailyMailTV and DailyMailTV became a wholly-owned subsidiary. DMG US Investments, Inc. had a 45.0% (2018 45.0%) shareholding in Truffle Pig LLC, an associate, which was disposed of during the period. Funding of £nil (2018 £0.2 million) remained outstanding at 30 September 2019. DMGV Ltd (DMGV) has a 23.9% (2018 23.9%) shareholding in Excalibur Holdco Ltd (Excalibur), an associate. During the period, services provided to Excalibur amounted to £0.5 million (2018 £0.6 million). At 30 September 2019, amounts due from Excalibur amounted to £0.1 million (2018 £0.1 million), together with loan notes of £17.3 million (2018 £17.3 million). The loan notes carry a coupon of 10.0% and £6.5 million (2018 £4.0 million) was outstanding in relation to this coupon at 30 September 2019. At 30 September 2019, the Group had made an expected lifetime impairment allowance of £12.0 million (2018 on transition to IFRS 9 £12.0 million) in relation to amounts due from Excalibur. DMGV has a 45.3% (2018 25.8%) shareholding in Yopa Property Ltd (Yopa), an associate. During the period, the Consumer Media segment provided services to Yopa amounting to £0.6 million (2018 £0.5 million). At 30 September 2019, £0.1 million (2018 £0.1 million) was owed by Yopa to the Consumer Media segment. During the period, Yopa provided services to the Property Information segment amounting to £0.1 million (2018 £nil). DMGV has a 16.5% shareholding in Bricklane Technologies Ltd (Bricklane), an associate acquired during the period. During the period, the Consumer Media segment provided services to Bricklane amounting to £0.4 million. DMGV provided funding amounting to £1.2 million cash and £0.8 million of media credits. DMGV has a 21.1% shareholding in Cazoo Ltd, an associate acquired during the period. DMGV provided cash funding amounting to £22.5 million and £5.0 million of media credits during the period. DMGV has a 36.8% shareholding in Entale Media Ltd, an associate acquired during the period. DMGV provided cash funding amounting to £2.0 million during the period. Daily Mail and General Trust plc (DMGT) had a 49.8% (2018 49.8% owned by DMGZ Ltd (DMGZ)) shareholding in Euromoney Institutional Investor PLC (Euromoney). During the period, services were recharged to Euromoney amounting to £0.1 million (2018 £0.1 million) and consortium relief losses were surrendered under an agreement between Euromoney and the Group amounting to a rebate of £nil (2018 £0.1 million). During the period, all of the Euromoney shares were distributed to certain shareholders by way of dividend in specie. During the period, DMGZ received dividends of £11.9 million from Euromoney (2018 £17.1 million received by DMGZ and DMG Charles Ltd), an associate, prior to the shareholding in Euromoney being transferred from DMGZ to DMGT. During the period, DMG World Media (2006) Ltd recharged costs amounting to £nil (2018 £0.3 million) to BCA Research, Inc., a Euromoney subsidiary. During the period, ANL recharged costs amounting to £0.8 million (2018 £1.4 million) to Euromoney. At 30 September 2019, £nil (2018 £0.3 million) was owed by Euromoney. During the period, Euromoney provided services to Risk Management Solutions Ltd amounting to £0.1 million (2018 £0.1 million). DMGI Land & Property Europe Ltd (DMGILP), of which Landmark Information Group Ltd (Landmark) is a subsidiary undertaking, has a 50.0% (2018 50.0%) shareholding in Point X Ltd (Point X), a joint venture. During the period, Landmark charged management fees of £0.3 million (2018 £0.3 million) and recharged costs of £0.1 million (2018 £0.1 million) to Point X. Point X received royalty income from Landmark of £0.1 million (2018 £0.1 million). DMGILP received dividends of £0.2 million (2018 £nil) from Point X. Decision Insight Information Group (UK) Ltd (DIIG UK) has a 50.0% (2018 50.0%) shareholding in Decision First Ltd (DF), a joint venture. During the period, DIIG UK recharged costs to DF amounting to £0.2 million (2018 £0.2 million) and charged management fees amounting to £0.1 million (2018 £0.1 million) and received dividends from DF of £nil (2018 £0.4 million). On-Geo GmbH (On-geo) has a 50.0% (2018 50.0%) shareholding in HypoPort On-Geo (HypoPort), a joint venture. During the period, HypoPort made purchases from On-geo amounting to £4.6 million (2018 £9.1 million). During the period, On-geo received dividends of £nil (2018 £0.1 million) from HypoPort. At 30 September 2019, £nil (2018 £1.5 million) was owed by HypoPort. The Group disposed of On-geo in the Property Information segment during the period, and therefore, its shareholding in HypoPort was also disposed. 176 176 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 RMSI Ltd (RMSI), a company which shares a common director with the Landmark Group, invoiced sales amounting to £1.7 million (2018 £2.7 million). Costs were recharged by Landmark to RMSI amounting to £0.7 million (2018 £0.7 million). At 30 September 2019, £0.4 million (2018 £0.4 million) was owed to RMSI by Landmark. Hobsons, Inc. (Hobsons) has a 50.0% (2018 50.0%) shareholding in Knowlura, a joint venture. At 30 September 2019, £0.2 million (2018 £0.3 million) was owed by Knowlura. Risk Management Solutions, Inc. (RMS, Inc.) has a 20.0% (2018 20.0%) shareholding in OYO RMS Corporation (OYO), an associate. During the period, RMS, Inc. received a dividend of £nil (2018 £0.4 million) from OYO. RMS, Inc. has a 26.6% (2018 25.9%) shareholding in Praedicat, Inc. (Praedicat), an associate. During the period, RMS, Inc. provided funding of £0.5 million (2018 £1.5 million) to Praedicat. The Group has a 55.9% shareholding in LineVision, Inc. (LineVision). Since the Group’s share of voting rights in LineVision is 49.0%, the Group does not have control but has significant influence, therefore the investment is treated as an associate. In the prior period, Genscape sold assets with a net book value of US$0.1 million to LineVision for their fair value of US$2.1 million for US$nil cash proceeds. The Group reduced its shareholding in Trepp Port, LLC (TreppPort) on 1 October 2018 from 51.0% to 50.0% and TreppPort became a joint venture. During the period, Trepp, LLC. received dividends of £0.2 million (2018 £nil) from TreppPort. Other related party disclosures Under an agreement to guarantee the income generated from certain property assets held by the Harmsworth Pension Scheme which were purchased from the Group during a prior period, the Group was charged for rent and service charges in relation to the current period amounting to £0.2 million (2018 £0.3 million). At 30 September 2019, £0.1 million (2018 £0.1 million) was owed to the Harmsworth Pension Scheme by the Group. At 30 September 2019, the Group owed £0.9 million (2018 £0.8 million) to the pension schemes which it operates. This amount comprised employees’ and employer’s contributions in respect of September 2019 payrolls. The Group recharges its principal pension schemes with costs of investment management fees. The total amount recharged during the period was £0.3 million (2018 £0.3 million). Contributions made during the period to the Group’s retirement benefit plans are set out in Note 35, along with details of the Group’s future funding commitments. In July 2012, the Group entered into a contingent asset partnership whereby a £150.0 million loan note, guaranteed by the Group, was used to commit £10.8 million funding p.a. to the Harmsworth Pension Scheme. Interest payable to DMG Pension Partnership LP in the period totalled £11.0 million (2018 £11.0 million). ANL, which shares common control by Rothermere Continuation Limited, with DMGT Healthcare Trustees, paid contributions to the scheme totalling £0.8 million (2018 £0.7 million). At 30 September 2019, a total of £1.3 million (2018 £1.3 million) was owed to the scheme by ANL. 45 Post balance sheet events It is anticipated that until 5 December 2019, Rothermere Continuation Limited (RCL) will hold 100% of DMGT’s issued Ordinary Shares. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey, in the Channel Islands. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying control of DMGT will, however, remain unchanged and continue to lie with a discretionary trust (the Trust) that is held for the benefit of Lord Rothermere and his immediate family. Both RIL and the Trust are administered in Jersey. RIL and its directors, and the Trust are related parties of the Company. Disposals On 26 August 2019 the Group announced that it had agreed the sale of Genscape, its Energy Information business, to Verisk, a leading data analytics provider, for gross proceeds of US$364.0 million. Genscape will become part of Wood Mackenzie, a Verisk business, and will enhance Wood Mackenzie’s existing and complementary sector intelligence business in short-term energy data and analytics. The sale completed on 5 November 2019 following the completion of customary closing conditions. On 2 October 2019, the Group entered into a definitive agreement to dispose of Buildfax, a leading provider of property condition and history data, also to Verisk for gross proceeds of US$42.5 million. The sale completed on 11 October 2019 following completion of customary closing conditions. On 29 November 2019 the Group’s interest in Cazoo was diluted from 21.1% to 18.5%. The Group ceased to have significant influence over Cazoo and from that date will cease to equity account. Acquisitions On 29 November 2019 the Group acquired the entire share capital of the ‘i’, the UK national newspaper and website, from JPI Media Limited. Total cash consideration payable is £49.6 million. The ‘i’ has an established reputation for quality journalism with retail sales of approximately 170,000 newspapers each weekday and over 190,000 copies of the iweekend each Saturday. The website, inews.co.uk, attracts approximately 300,000 daily unique browsers. The acquisition will be reviewed by the UK Competition and Markets Authority. The ‘i’ reported pro-forma revenues of £34.4 million and pro-forma operating profits of £10.6 million for the 12 months to 31 December 2018. The Group has not presented a fair value table of the net assets acquired since, given the timing of the announcement, it is impractical to do so. 177 177 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 46 Subsidiaries exempt from audit The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006 for the year ending 30 September 2019: Subsidiary name Daily Mail International Ltd DMG Asset Finance Ltd DMG Atlantic Ltd DMG Business Media Ltd DMG Charles Ltd DMG Events International Ltd DMG Information Ltd DMG Investment Holdings Ltd Company registration number Subsidiary name 01966438 DMG Minor Investments Ltd 05528329 DMGRH Finance Ltd 04521108 DMGZ Ltd 02823743 Harmsworth Royalties Ltd 04211684 Kensington Finance Ltd 04118004 Northcliffe Media Ltd 03708142 Ralph US Holdings 03263138 Young Street Holdings Ltd Company registration number 04228751 03191181 00272225 04219212 03960683 03403993 06341444 04485808 The Directors of Daily Mail and General Trust plc have confirmed that the Company will provide a guarantee under Section 479C in relation to the subsidiaries listed above. No dormant subsidiaries have taken the exemption from preparing individual accounts by virtue of Section 394A of Companies Act 2006. No dormant subsidiaries have taken the exemption from filing with the registrar individual accounts by virtue of Section 448A of Companies Act 2006. The following UK subsidiaries will take advantage of the audit exemption set out within Section 480 of the Companies Act 2006, exemption from audit for dormant companies for the year ended 30 September 2019: Subsidiary name A&N International Media Ltd Central Independent News and Media Ltd Courier Media Group Ltd Daily Mail Ltd Derby Telegraph Media Group Ltd DMG Media Ltd Harmsworth Printing (Didcot) Ltd Harmsworth Printing Ltd Harmsworth Quays Printing Ltd Justice for Sgt Blackman Ltd Company registration number 04147978 03015855 00101944 01160542 00218661 05765286 05539456 02208579 02208582 09761390 Subsidiary name Lincolnshire Media Ltd MailLife Financial Services Ltd Northcliffe Trustees Ltd Pico Information Ltd Richards Gray Ltd South West Wales Media Ltd The Mail on Sunday Ltd The Western Gazette Co Ltd Trepp Ltd Watervale Ltd Company registration number 00037928 01063950 03394992 11149692 03209331 00120013 01160545 00022796 03087851 05231066 178 178 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Country of incorporation or registration UK UK Mauritius UK Singapore Jersey Ireland UK Classes of shares held Ordinary Ordinary % shareholding (% held directly by parent) 100% 100% Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 47 Full list of Group undertakings Subsidiary name A&N International Media Ltd A&N Media Finance Services Ltd AN Mauritius Ltd Argyll Environmental Ltd Asia Risk Centre Pte Ltd Associated Metro Holdings Ltd Associated Newspapers (Ireland) Ltd Associated Newspapers Ltd Associated Newspapers North America, Inc. Atticus Events Ltd Atticus Events MEA Ltd Registered office Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT 10th Floor, Standard Chartered Tower, 19 Cybercity, Ebène, Republic Of Mauritius, Mauritius 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 3F, 19 Cecil Street, Singapore 049704 15 Esplanade, St Helier, Jersey, JE1 1RB, Channel Islands Third Floor, Embassy House, Herbert Park Lane, Ballsbridge, Dublin 4 662817 Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT BuildFax, Inc. Central Independent News and Media Ltd Commodity Vectors (Ireland) Ltd Commodity Vectors Ltd Courier Media Group Ltd Daily Mail and General Holdings Ltd* Daily Mail and General Investments Ltd 42 N French Broad Ave, Asheville NC 28801, United States Northcliffe House, 2 Derry Street, London W8 5TT c/o Anne Brady McQuillans DFK, Iveagh Court, Harcourt Road, Dublin 2 Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Daily Mail and General Trust plc Daily Mail International Ltd Daily Mail Ltd Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT 137 N Larchmont Blvd, #705, Los Angeles, California, 90004, United States Daily Mail On-Air, LLC Level 12, 207 Kent Street, Sydney, NSW 2000 Dailymail.com Australia Pty Ltd Decision Insight Hub Ltd 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Decision Insight Information Group (Europe) Ltd 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Decision Insight Information Group (Ireland) Ltd 39/40 Upper Mount Street, Dublin 2, Ireland Decision Insight Information Group (UK) Ltd Decision Insight Packco Ltd Derby Telegraph Media Group Ltd DMG Angex Ltd DMG Asset Finance Ltd DMG Atlantic Ltd DMG Business Media Ltd DMG Charles Ltd DMG Conference & Exhibition Services (Shanghai) Ltd DMG Consolidated Holdings Pty Ltd 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Centenary House, Peninsula Park, Rydon Lane, Exeter, EX2 7XE PO Box 6795, St George Street, Leicester LE1 1ZP Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Room 428, Level 4, No 55 Xiya Road (Plot 5 Of Zone F), Shanghai, China Level 2, 452 Flinders Street, Melbourne VIC 3000, Australia Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States 302, 1333 8 St SW, Calgary, Alberta T2R 1M6, Canada Level 14/15 Commercial Bank Plaza, West Bay, Doha, Qatar Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States 8 Marina Boulevard #05-02, Marina Bay Financial Centre, Singapore 018981 Office 1, Mezzanine Floor, Hall 2, Egypt International Exhibition Centre, Elmoushir Tantawy Axis, New Cairo, Egypt Roppongi Hills Keyakizaka Terrace, 6151, Roppongi, Minatoku, Tokyo, Japan DMG Development Co DMG Events (Canada), Inc. DMG Events (Doha), LLC DMG Events (MEA) Ltd DMG Events (UK) Ltd DMG Events (USA), Inc. DMG Events Asia Pacific Pte Ltd DMG Events Egypt Ltd DMG Events Energy Japan KK (in liquidation) USA UK UK USA UK Common, Series A Ordinary Ordinary Common, Series A, B, C, D, E, G Preferred Stock Ordinary Ireland UK UK UK UK UK UK UK Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary and A ordinary non voting Ordinary Ordinary USA Membership interests Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Australia UK UK Ireland UK UK UK UK UK UK UK UK China Australia USA Canada Qatar UK UK Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary USA Common Singapore Ordinary Egypt Japan Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 90.0% 100% 100% 100% 100% 100% 100% N/A 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 179 179 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Notes to the accounts 47 Full list of Group undertakings continued Subsidiary name DMG Events India Private Ltd DMG Events International Ltd Registered office Unit 1, Level 2, B Wing, Times Square, Andheri Kurla Road, Andheri, Mumbai, 400059, India Northcliffe House, 2 Derry Street, London W8 5TT Office 408, Salama Tower, Al Madinah, Al Munawarah Road, As Salamah District, PO Box 3650, Jeddah, Saudi Arabia DMG Events, LLC DMG Exhibition Management Services (PTY) Ltd 76 Eleventh Street, Parkmore, Johannesburg, 2196, South Africa DMG Information Asia Pacific Pte Ltd DMG Information Hong Kong Company Ltd DMG Information Ltd DMG Investment Holdings Ltd DMG Loanco Ltd DMG Media Ltd DMG Minor Investments Ltd DMG Oceans Ltd DMG US Investments, Inc. DMG World Media Abu Dhabi Ltd (i) DMG World Media Dubai (2006) Ltd (i) DMGB Ltd* dmgi Land & Property Europe Ltd DMGRH Finance Ltd DMGT US Employee Services, Inc. DMGT US, Inc. DMGV Ltd DMGZ Ltd EDR Landmark Management Services Ltd EI Cap II, LLC Energy Fundamentals GmbH Energytics, Inc. EnvaPower, Inc. Estate Technical Solutions Ltd Eve 4 Ltd* Genscape Asia, Inc. Genscape Belgium SA Genscape Czech Republic s.r.o. Genscape France Genscape Germany GmbH Genscape Iberia SL Genscape, Inc. Genscape Intangible Holding, Inc. Genscape International, Inc. Genscape Italy Genscape Japan, K.K. Genscape Mex, S. de R.L. de C.V. Genscape Natural Gas, Inc. Genscape Netherlands 180 180 8 Marina Boulevard #05-02, Marina Bay Financial Centre, Singapore 018981 27/F 248 Queen’s Road East, Wanchai, Hong Kong Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Scottish Daily Mail, 20 Waterloo Street, Glasgow, G2 6DB Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States 15 Esplanade, St Helier, Jersey, JE1 1RB, Channel Islands 15 Esplanade, St Helier, Jersey, JE1 1RB, Channel Islands Northcliffe House, 2 Derry Street, London W8 5TT 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Technoparkstrasse 1, 8005, Zurich, Switzerland Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 15 Esplanade, St Helier, Jersey, JE1 1RB, Channel Islands Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Pegasuslaan 5, 1831 Deigem, Belgium Empiria Na Strzi, 65/1702, 140 00, Prague 4, Prague, Czech Republic 6 Place De La Madeleine, 75008, Paris, France Prinzenallee 7, 40549, Dusseldorf, Germany C/Conde De Aranda, 1 2 DO Izquierda, 28001, Madrid, Spain Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Via Torino 2, 20123, Milan, Italy Ark Hills Sengokuyama Mori Tower 28F, 1-9-10 Roppongi, Minato, Tokyo, Japan 1140 Garvin Place, Louisville, KY 40203, United States Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Damrak 20A, 1012 LH, Amsterdam, Netherlands Country of incorporation or registration Classes of shares held % shareholding (% held directly by parent) India UK Saudi Arabia South Africa Singapore Hong Kong UK UK UK UK UK UK USA Jersey Jersey UK UK UK USA USA UK UK UK Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Common Ordinary Ordinary Ordinary Ordinary Ordinary Common Common, Series A Ordinary Ordinary Ordinary USA Membership interests Ordinary Switzerland USA USA UK Jersey USA Belgium Czech France Germany Spain USA USA USA Italy Japan Mexico USA Netherlands Common Common Ordinary A, Ordinary B, Ordinary C, Ordinary D, Ordinary E Ordinary Common Ordinary Ordinary Ordinary Ordinary Ordinary Common Common Common Ordinary Ordinary Common Common Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Country of incorporation or registration Poland Slovakia UK Classes of shares held Ordinary Ordinary Ordinary % shareholding (% held directly by parent) 100% 100% 100% Subsidiary name Genscape Poland SA Genscape Slovakia s.r.o. Genscape UK Ltd Gloucestershire Media Ltd (in liquidation) GP Energy Management, LLC Gridfit, LLC Guildford Zoot, Inc. Harmsworth Printing (Didcot) Ltd Harmsworth Printing Ltd Harmsworth Quays Printing Ltd Harmsworth Royalties Ltd Hobsons, Inc. Inframation GmbH Justice for Sgt Blackman Ltd Kensington Finance Ltd Landmark Analytics Ltd Landmark FAS Ltd Landmark Information Group Ltd Landmark International Holdings Ltd Landmark Optimus Ltd Lawlink (UK) Ltd Lincolnshire Media Ltd Mail Finance Services Ltd Mail Media, Inc. MailLife Financial Services Ltd Millar & Bryce Ltd Naviance, Inc. Northcliffe Media Ltd Registered office Ul. Rzymowskiego, 02-697, Warsaw, Poland Kapitulska 18/A, Bratislava-Stare Mesto, 81101, Slovakia Northcliffe House, 2 Derry Street, London W8 5TT Begbies Traynor (London) LLP, 31st Floor, 40 Bank Street, London E14 5NR 131 Varick Street, Suite 1006, New York 10013, United States 3500 South Dupont Highway, c/o Interstate Agent Services, LLC, Dover 19901, United States 251 Little Falls Drive, Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States ParsevalstraBe 2, 99092, Erfurt, Germany Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT 10th Floor 133 Finnieston Street, Glasgow, G3 8HB Scotland Corporation Service Company, 251 Little Falls Drive, Wilmington DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe Trustees Ltd Northcliffe House, 2 Derry Street, London W8 5TT Ochresoft Technologies Ltd Petrotranz, Inc. Pico Information Ltd Power Supply Services, LLC Quest End Computer Services Ltd Ralph US Holdings RCoaster.ie Ltd Richards Gray Ltd Risk Management Solutions (Bermuda) Ltd Risk Management Solutions (Swiss) Risk Management Solutions Holdings, Inc. Risk Management Solutions Ltd Risk Management Solutions Ltd (China) Risk Management Solutions, Inc. RMS Japan KK RMS Risk Management Solutions India Pte Ltd RMS Technologies Ltd RMS UK Holdings, Inc. 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 855 – 2 Street SW, Suite 3500, Calgary AB T2P 4J8 Canada 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 131 Varick Street, Suite 1008-1009, New York 10013, United States 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Northcliffe House, 2 Derry Street, London W8 5TT Spinnaker House, Main Street, Kinvara, Co Galway, Ireland 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Milner House, 18 Parliament Street, Hamilton, HM 12 Bermuda Zweigniederlassung Zürich, Stampfenbachstrasse 85, CH-8006 Zurich, Switzerland 251 Little Falls Drive, Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT 12th Floor, Office 1205F, Beijing Excel Centre, No.6 Wudinghou Street, Xicheng District Beijing , 100033, PR China 7515 Gateway Blvd, Newark, CA 94560, United States Akasaka Kikyo Building 4th Floor, 11-15 Akasaka 3-Chome, Minato-Ku, Tokyo, 107-0052 Japan 406-407, Pooja Complex 22, Veer Savarkar Block, Shakarpur, Delhi 110092 India Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States UK USA USA USA UK UK UK UK Ordinary Membership units Membership units Ordinary Ordinary Ordinary Ordinary Ordinary USA Common Germany Ordinary, Preference UK Limited by Guarantee Ordinary UK Ordinary UK Ordinary UK Ordinary, Ordinary A, Redeemable Preference Ordinary Ordinary A Ordinary Ordinary Ordinary UK UK UK UK UK UK Ordinary Ordinary Ordinary Common Ordinary Ordinary A, Ordinary B Deferred, Ordinary, Ordinary A, Preference Ordinary Ordinary Class A membership units Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Common Ordinary Common Common USA UK UK USA UK UK UK Canada UK USA UK UK Ireland UK Bermuda Switzerland USA UK China USA Japan India UK USA 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99.3% 99.3% 100% 99.3% 99.3% 99.3% Ordinary 99.3% Ordinary Voting Ordinary Common 100% 100% 100% 181 181 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Financial Statements Notes to the accounts Notes to the accounts 47 Full list of Group undertakings continued 47 Full list of Group undertakings continued Subsidiary name Subsidiary name RMS Worldwide, Inc. RMS Worldwide, Inc. Rochford Brady Legal Services Ltd Rochford Brady Legal Services Ltd SearchFlow Ltd SearchFlow Ltd South West Wales Media Ltd South West Wales Media Ltd Springthorpe Drake, Inc. Springthorpe Drake, Inc. Starfish Retention Solutions, Inc. Starfish Retention Solutions, Inc. The Mail on Sunday Ltd The Mail on Sunday Ltd The Petrochemical Standard, Inc. The Petrochemical Standard, Inc. The Western Gazette Co Ltd The Western Gazette Co Ltd Trepp Holdings, Inc. Trepp Holdings, Inc. Trepp Ltd Trepp Ltd Trepp UK Ltd Trepp UK Ltd Trepp, LLC Trepp, LLC Vesseltracker.com GmbH Vesseltracker.com GmbH Watervale Ltd Watervale Ltd Young Street Holdings Ltd Young Street Holdings Ltd Registered office Registered office 7515 Gateway Blvd, Newark, CA 94560, United States 7515 Gateway Blvd, Newark, CA 94560, United States 39/40 Upper Mount Street, Dublin 2, Ireland 39/40 Upper Mount Street, Dublin 2, Ireland 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT 477 Madison Avenue, New York, NY 10022, United States 477 Madison Avenue, New York, NY 10022, United States Mundsburger Damm 14, D-22087, Hamburg, Germany Mundsburger Damm 14, D-22087, Hamburg, Germany 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Country of Country of incorporation incorporation or registration or registration USA USA Ireland Ireland UK UK UK UK Classes of Classes of shares held shares held Common Common Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary % shareholding % shareholding (% held directly (% held directly by parent) by parent) 99.3% 99.3% 100% 100% 100% 100% 100% 100% USA USA USA USA UK UK USA USA UK UK Ordinary Ordinary Common Common Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Common USA Common USA Ordinary UK Ordinary UK Ordinary UK Ordinary UK USA Membership Interests USA Membership Interests Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Germany Germany UK UK UK UK 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% All subsidiaries are included in the consolidated financial statements of the Group. All subsidiaries are included in the consolidated financial statements of the Group. * Direct investment held by the parent Company Daily Mail and General Trust plc (DMGT). All other subsidiaries are held indirectly through * Direct investment held by the parent Company Daily Mail and General Trust plc (DMGT). All other subsidiaries are held indirectly through subsidiaries of DMGT. subsidiaries of DMGT. (i) Principal place of business in the UAE. (i) Principal place of business in the UAE. Joint Venture name Joint Venture name Decision First Ltd Decision First Ltd Knowlura, Inc. Knowlura, Inc. Northprint Manchester Ltd Northprint Manchester Ltd PointX Ltd PointX Ltd The Sanborn Map Company, Inc. The Sanborn Map Company, Inc. Trepp Port, LLC Trepp Port, LLC Address of principal place of business Address of principal place of business Cardinal House, 9 Manor Road, Leeds, West Yorkshire, LS11 9AH Cardinal House, 9 Manor Road, Leeds, West Yorkshire, LS11 9AH Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States PO Box 68164, Kings Place, 90 York Way, London N1P 2 AP PO Box 68164, Kings Place, 90 York Way, London N1P 2 AP 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY 5-7 Abbey Court, Eagle Way, Sowton, Exeter, Devon EX2 7HY Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Corporation Service Company, 251 Little Falls Drive, Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States Wilmington, DE 19808, United States Classes of shares Classes of shares held held Ordinary Ordinary Financial year end Financial year end 31 December 31 December % capital % capital included in included in consolidation consolidation 50.0% 50.0% Common Common Ordinary Ordinary Ordinary B Ordinary B 30 September 30 September 31 March 31 March 31 March 31 March Ordinary Ordinary 31 December 31 December Ordinary Ordinary 30 September 30 September 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 49.0% 49.0% 50.0% 50.0% The Group has joint control over all of the joint ventures listed above, because key operating decisions require the unanimous consent of the Group The Group has joint control over all of the joint ventures listed above, because key operating decisions require the unanimous consent of the Group and the other investor(s). and the other investor(s). Associate name Associate name AlsoEnergy Holdings, Inc. AlsoEnergy Holdings, Inc. Bricklane Technologies Ltd Bricklane Technologies Ltd Cazoo Ltd Cazoo Ltd Entale Media Ltd Entale Media Ltd ES London Ltd ES London Ltd Excalibur Holdco Ltd Excalibur Holdco Ltd Funcent DMG Information Technology Funcent DMG Information Technology Hong Kong Company Ltd Hong Kong Company Ltd Global Event Partners Ltd Global Event Partners Ltd Independent Television News Ltd Independent Television News Ltd iProf Learning Solutions India Pte Ltd iProf Learning Solutions India Pte Ltd (in liquidation) (in liquidation) LineVision, Inc. LineVision, Inc. Mercatus, Inc. Mercatus, Inc. 182 182 182 Address of principal place of business Address of principal place of business Corporation Trust Centre, 1209 Orange Street, Wilmington, Corporation Trust Centre, 1209 Orange Street, Wilmington, DE 19801, United States DE 19801, United States Floor 3, 26 Finsbury Square, London, EC2A 1DS Floor 3, 26 Finsbury Square, London, EC2A 1DS 40 Churchway, London NW1 1LW 40 Churchway, London NW1 1LW C/O Founders Factory Limited, Northcliffe House, Young Street, C/O Founders Factory Limited, Northcliffe House, Young Street, London United Kingdom, W8 5EH London United Kingdom, W8 5EH Northcliffe House, 2 Derry Street, London W8 5TT Northcliffe House, 2 Derry Street, London W8 5TT Wowcher Towers, 12-27 Swan Yard, Islington, London N1 1SD Wowcher Towers, 12-27 Swan Yard, Islington, London N1 1SD 27/F 248 Queen’s Road East, Wanchai, Hong Kong 27/F 248 Queen’s Road East, Wanchai, Hong Kong Suite 1, 3rd Floor, 11-12 St. James’s Square, London SW1Y 4LB Suite 1, 3rd Floor, 11-12 St. James’s Square, London SW1Y 4LB 200 Grays Inn Road, London WC1X 8XZ 200 Grays Inn Road, London WC1X 8XZ Hong Kong Hong Kong UK UK UK UK G-15 / G-3, Gf Dilshad Colony, New Delhi, 110095, India G-15 / G-3, Gf Dilshad Colony, New Delhi, 110095, India 501 Boylston St, Suite 4102, Boston, MA 02116 USA 501 Boylston St, Suite 4102, Boston, MA 02116 USA 1735 Technology Dr, Suite 250, San Jose, California 95110, 1735 Technology Dr, Suite 250, San Jose, California 95110, United States United States India India USA USA USA USA Country of Country of incorporation incorporation or registration or registration Classes of Classes of shares held % shareholding shares held % shareholding USA USA UK UK UK UK UK UK UK UK UK UK Series A, Common Series A, Common Preference Preference Series A Series A Preference Preference Ordinary Ordinary B Ordinary B Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Series A1 Series A1 Ordinary Ordinary 17.9% 17.9% 16.5% 16.5% 21.1% 21.1% 36.8% 36.8% 100% 100% 23.9% 23.9% 23.6% 23.6% 15.0% 15.0% 20.0% 20.0% 10.8% 10.8% 55.9% 55.9% 10.8% 10.8% Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Associate name OYO RMS Corporation Praedicat, Inc. Propstack Services Private Ltd RLTO Ltd Skymet Weather Services Private Ltd WellAware Holdings, Inc. Whereoware, LLC Address of principal place of business Akasaka Kikyo Building 4th Floor, 11-15 Akasaka 3-Chome, Minato-Ku, Tokyo, 107-0052 Japan Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States 1st & 2nd Floor, Nyay Sagar Bdlg, Kalanagar, Bandra (East), Mumbai – 400 051 Office 7 35-37 Ludgate Hill, London EC4M 7JN 109, Kushal Bazar, Nehru Place, New Delhi – 110019 2330 N Loop 1604 W, Ste 110, San Antonio, TX 78248, United States Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States Yopa Property Ltd 22 Arlington Street, London, SW1A 1RD Investment name Air Mail, LLC BDG Media, Inc. Brit Media, Inc. Compstak, Inc. Cue Ball Capital LP Evening Standard Ltd Farewill Ltd Financial Network Analytics Ltd Hambro Perks Ltd IPSX Group Ltd Kortext Ltd Laundrapp Ltd LDR Realisations 2019 Ltd (previously Labrador Ltd) Lindentor 226. V V GmbH Live Better With Ltd Media Investors 17, LLC Nazca IT Solutions BV PA Media Group Ltd Pascal Metrics, Inc. Pembroke Holdings, LLC Plandek Ltd Quick Move Ltd Taboola.com Ltd Upstream Group, Inc. Workana, LLC Address of principal place of business Registered Agent Solutions, 9.E Loockerman Street, Suite 311, Dover, Kent, Delaware 19901, United States 559 Driggs Avenue, Suite 2, Brooklyn, NY 11211, United States 556 Sutter Street, San Francisco, CA 94102, United States Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801, United States Northcliffe House, 2 Derry Street, London W8 5TT Unit 7 1a Arbutus Street, London,E8 4DT 4 Crown Place, London EC2A 4BT 8 Greencoat Place, London SW1P 1PL Cannon Place, 78 Cannon Street, London EC4N 6AF 26-32 Oxford Road, Suite B, 6th Floor, Avalon House, Bournemouth, Dorset, BH8 8EZ 62-70 Shorts Gardens, Covent Garden, London WC2H 9AH 8 Greencoat Place, London, SW1P 1PL Charlttenstr. 4, D-10969, Berlin, Germany Rocketspace, 40 Islington High Street, London N1 8XB The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801, United States Standerdmolen 20, 3995 AA Houten, Netherlands The Point 37 North Wharf Road, Paddington, London, W2 1AF Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States 46 Southfield Ave Ste 400, Stamford CT 06902, United States Unit 10, 1 Luke Street, London, EC2A 4PX 86-90 Paul Street, London EC2A 4NE 7 Totseret Haaretz St., Tel-Aviv Israel Corporation Service Company, 251 Little Falls Drive, Wilmington, DE 19808, United States 13th Avenue, Suite 202 Brooklyn, New York, 11228, United States Country of incorporation or registration Classes of shares held % shareholding Japan Ordinary 20.0% USA India UK India USA Preference 26.6% Ordinary Ordinary Ordinary 22.7% 20.0% 14.7% Preference 8.2% USA Membership Interests C-1 Preference, C-2 Preference, C-3 Preference UK 19.5% 45.3% Country of incorporation or registration Classes of shares held % shareholding USA USA USA USA USA UK UK UK UK UK Preference Ordinary Ordinary Common Partnership Units Ordinary, Ordinary Non Voting A Preference Ordinary C Ordinary Ordinary UK Ordinary, Preference UK Ordinary, Preference UK Germany UK Ordinary Common B Ordinary USA Membership interests Ordinary Ordinary Netherlands UK USA Ordinary USA Membership Interests Ordinary B UK Ordinary UK Ordinary Israel USA Ordinary Argentina Membership interests 5.0% 3.2% 8.9% 2.0% 2.5% 10.0% 7.2% 10.0% 2.9% 2.5% 11.3% 1.7% 8.6% 0.1% 4.6% 12.8% 15.0% 15.6% 4.4% 10.0% 2.5% 5.7% 0.4% 3.6% 4.0% 183 183 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Five Year Financial Summary Consolidated Income Statement Revenue Adjusted operating profit Exceptional operating costs, impairment of internally generated and acquired computer software, property, plant and equipment and investment property, amortisation and impairment of acquired intangible assets arising on business combinations and impairment of goodwill 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 investment revenue, net finance costs and tax Investment revenue Net finance costs Profit/(loss) before tax Tax Profit/(loss) for the year after tax Discontinued operations Equity interests of minority shareholders Profit for the year 52 weeks ended 30 September 2015 £m 1,842.7 287.0 Year ended 30 September 2016 £m 1,514.2 177.0 Year ended 30 September 2017 £m 1,564.3 179.0 Year ended 30 September 2018 £m 1,340.9 144.6 Year ended 30 September 2019 £m 1,337.0 135.8 (80.2) (91.4) (324.4) (94.8) 206.8 11.3 218.1 82.4 300.5 4.0 (88.4) 216.1 (20.8) 195.3 50.0 (28.7) 216.6 85.6 4.9 90.5 130.8 221.3 2.2 (21.8) 201.7 (19.9) 181.8 32.4 (10.0) 204.2 (145.4) 16.9 (128.5) 14.0 (114.5) 2.5 (0.3) (112.3) (64.7) (177.0) 519.3 3.0 345.3 49.8 118.4 168.2 565.5 733.7 4.8 (32.0) 706.5 (7.6) 698.9 (10.7) 1.2 689.4 (41.2) 94.6 (28.1) 66.5 73.7 140.2 11.5 (17.4) 134.3 (20.4) 113.9 (22.6) (0.4) 90.9 Adjusted profit before tax and non-controlling interests 280.5 259.6 226.1 182.3 144.7 Earnings before interest, taxation, depreciation and amortisation (EBITDA) 376.8 363.7 350.4 287.7 Adjusted profit after taxation and non-controlling interests 215.5 197.8 196.3 149.3 Earnings/(loss) per share Number of shares for basic Number of shares for diluted Profit effect of dilutive shares From continuing operations Basic Diluted From discontinued operations Basic Diluted From continuing and discontinued operations Basic Diluted Adjusted earnings per share Basic Diluted 184 184 360.8 366.5 (0.3) 46.2p 45.4p 13.9p 13.6p 60.1p 59.0p 59.7p 58.7p 353.4 360.6 (0.9) 48.6p 47.4p 9.2p 9.0p 57.8p 56.4p 56.0p 54.7p 353.1 358.6 (0.1) (49.3)p (48.5)p 147.1p 144.8p 97.8p 96.3p 55.6p 54.7p 354.1 358.4 – 197.7p 196.0p (3.0)p (3.6)p 194.7p 192.4p 42.2p 41.7p 205.6 114.5 296.4 300.2 – 38.3p 37.8p (7.6)p (7.5)p 30.7p 30.3p 38.6p 38.1p Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 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 gain/(loss) on cash and cash equivalents Cash and cash equivalents at end of year Net (decrease)/increase in cash and cash equivalents Cash inflow/(outflow) from change in debt and finance leases Change in net debt from cash flows Loan notes issued and loans arising from acquisitions Other non-cash items (Increase)/decrease in net debt in the year Net cash/(debt) at start of year Net cash/(debt) at end of year Consolidated Statement of Financial Position Goodwill and intangible assets Property, plant and equipment Other investments including joint ventures and associates Other non-current assets Non-current assets Net current assets/(liabilities) Non-current liabilities Net assets Shareholders’ equity Called-up share capital Share premium account Other reserves Minority interests Retained earnings Total equity Shareholder information Dividend per share * Price of A Ordinary Non-Voting Shares: Lowest Highest 2015 £m 259.7 (44.2) (212.2) 3.3 29.0 (0.8) 31.5 3.3 (86.9) (83.6) – (15.1) (98.7) (602.8) (701.5) 2015 £m 1,332.6 181.1 157.0 230.7 1,901.4 (363.2) (1,078.4) 459.8 45.4 17.8 (97.3) 154.9 339.0 459.8 2015 21.40p £6.99 £10.74 2016 £m 232.1 (35.8) (214.6) (18.3) 31.5 4.3 17.5 (18.3) 101.5 83.2 (0.2) (60.2) 22.8 (701.5) (678.7) 2016 £m 1,480.8 176.1 165.9 285.5 2,108.3 (443.3) (1,135.7) 529.3 45.3 17.8 (71.8) 178.2 359.8 529.3 2016 22.00p £5.71 £7.90 2017 £m 219.5 138.6 (368.4) (10.3) 17.5 0.2 7.4 (10.3) 217.0 206.7 – 7.7 214.4 (678.7) (464.3) 2017 £m 576.1 103.3 766.0 189.9 1,635.3 (174.5) (541.6) 919.2 45.3 17.8 15.6 11.0 829.5 919.2 2017 22.70p £6.06 £8.36 2018 £m 115.0 481.3 (169.4) 426.9 7.4 1.6 435.9 426.9 268.4 695.3 – 1.7 697.0 (464.3) 232.7 2018 £m 464.4 99.7 790.9 353.3 1,708.3 217.7 (250.6) 1,675.4 45.3 17.8 1.3 13.5 1,597.5 1,675.4 2018 23.30p £5.00 £7.81 2019 £m 154.8 221.1 (533.3) (157.4) 435.9 10.7 289.2 (157.4) 2.5 (154.9) – 4.1 (150.8) 232.7 81.9 2019 £m 321.1 74.4 132.8 322.8 851.1 155.0 (231.8) 774.3 29.3 17.8 24.4 – 702.8 774.3 2019 23.90p £5.42 £8.54 * Represents the dividends declared by the Directors in respect of the above years excluding the Euromoney cash distributions and Euromoney dividend in specie. 185 185 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Financial Statements Company Statement of Financial Position At 30 September 2019 ASSETS Fixed assets Property, plant and equipment Shares in Group undertakings Financial assets at fair value through other comprehensive income Other investments Trade and other receivables Current assets Trade and other receivables Other financial assets Cash at bank and in hand Deferred tax Total assets LIABILITIES Creditors: amounts falling due within one year Trade and other payables Borrowings Creditors: amounts falling due after more than one year Borrowings Derivative financial liabilities Total liabilities Net assets CAPITAL AND RESERVES Called-up share capital Share premium account Share capital Reserve for own shares Capital redemption reserve Profit and loss account Equity shareholders’ funds At 30 September 2019 £m At 30 September 2018 £m Note 5 8 9 9 10 10 11 12 15 13 13 14 14 16 16 17 18 0.6 3,237.6 1.0 – 3.6 3,242.8 40.3 – 40.1 5.6 86.0 3,328.8 (264.5) (0.8) (265.3) (202.8) (24.4) (227.2) (492.5) 0.9 3,033.6 – 6.5 167.7 3,208.7 59.3 237.3 363.8 3.8 664.2 3,872.9 (102.7) (218.7) (321.4) (205.7) (20.1) (225.8) (547.2) 2,836.3 3,325.7 29.3 17.8 47.1 (49.1) 21.2 2,817.1 45.3 17.8 63.1 (57.2) 5.2 3,314.6 2,836.3 3,325.7 The financial statements on pages 186 to 196 were approved by the Directors and authorised for issue on 4 December 2019. They were signed on their behalf by: The Viscount Rothermere P Zwillenberg Directors 186 186 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Company Statement of Changes in Equity For the year ended 30 September 2019 At 30 September 2017 Profit for the year Total comprehensive income for the year Dividends paid Credit to equity for share-based payments Deferred tax on share-based payments Own shares acquired in the year Own shares released on vesting of share options At 30 September 2018 Adjustment for transition to IFRS 9 Restated at 1 October 2018 Profit for the year Total comprehensive income for the year Cancellation of A Ordinary Non-Voting shares Dividends paid Euromoney dividend in specie Euromoney cash distribution Credit to equity for share-based payments Deferred tax on share-based payments Own shares acquired in the year Settlement of exercised share options Own shares released on vesting of share options At 30 September 2019 Note Called-up share capital £m 45.3 – – – – – – – 45.3 – 45.3 – – (16.0) – – – – – – – – 29.3 (i) (i) (i) Share premium account £m 17.8 – – – – – – – 17.8 – 17.8 – – – – – – – – – – – 17.8 Capital redemption reserve £m 5.2 – – Reserve for own shares £m (64.3) – – Profit and loss account £m 2,972.3 417.9 417.9 – – – – – 5.2 – 5.2 – – 16.0 – – – – – – – – 21.2 – – – (14.3) 21.4 (57.2) – (57.2) – – – – – – – – (2.5) – 10.6 (81.0) 7.6 (1.5) – (0.7) 3,314.6 0.7 3,315.3 429.0 429.0 – (74.1) (661.8) (200.0) 10.2 0.6 – (0.7) (1.4) Total £m 2,976.3 417.9 417.9 (81.0) 7.6 (1.5) (14.3) 20.7 3,325.7 0.7 3,326.4 429.0 429.0 – (74.1) (661.8) (200.0) 10.2 0.6 (2.5) (0.7) 9.2 (49.1) 2,817.1 2,836.3 (i) On 3 March 2019, the Group announced its intention to distribute all of the Euromoney Institutional Investor PLC (Euromoney) shares owned by the Group to certain holders of DMGT’s A Ordinary Non-Voting Shares (A Shares), by way of a dividend in specie (the Euromoney Distribution), as well as a £200.0 million cash distribution (the Cash Distribution). The terms were such that Fully Participating Shareholders would participate in the Euromoney Distribution and Cash Distribution whilst Rothermere Affiliated Shareholders would only participate in the Cash Distribution and on a limited basis. The proposal was approved at a Class Meeting of the Fully Participating Shareholders on 26 March 2019. The Euromoney Distribution occurred at 8am on 2 April 2019 and the Cash Distribution on 15 April 2019. Before these distributions were made c.46.4% of the A Shares held by Fully Participating Shareholders were converted into a new class of B Shares and c.4.0% of the A Shares held by Rothermere Affiliated Shareholders converted into a new class of C Shares. The Euromoney Distribution and a special dividend of £183.0 million in aggregate in cash was then paid to the Fully Participating Shareholders in respect of the B Shares and a restricted special dividend of £17.0 million in aggregate in cash was paid to the Rothermere Affiliated Shareholders in respect of the C Shares. Once these distributions were made the B Shares and the C Shares were converted into Deferred B Shares and Deferred C Shares respectively before being transferred to the Company for no valuable consideration and cancelled shortly thereafter. Consequently, these distributions resulted in a reduction in the share capital of DMGT. The voting Ordinary Shares did not participate in the distributions. For each A Share held at 6.00pm on 29 March 2019, the conversion record time, the Fully Participating Shareholders received c.0.19933 of a Euromoney Share and c.68.13p in cash, and there was a reduction in their holding of c.0.46409 of an A Share. For each A Share held by the Rothermere Affiliated Shareholders, they received c.25.53p in cash and there was a reduction in their holding of c.0.03946 of an A Share. The Rothermere Affiliated Shareholders’ proportionate interest in the total number of A Shares in issue increased from 20.0% of the issued A Shares before the distributions to 30.0% after and their combined shareholding of A Shares and Ordinary Shares increased from 24.0% of the issued A Shares and Ordinary Shares before the distributions to 36.0% after. The Company intends to make available £117.0 million from the Group’s cash resources to the Group’s defined benefit pension schemes. In light of the forthcoming actuarial valuation as at 31 March 2019, the Group and the Trustees of the pension schemes are in discussions to finalise these arrangements. 187 187 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Notes to the Company Statement Notes to the Company Statement of Financial Performance of Financial Performance 1 Basis of preparation 19 Contingent liabilities and guarantees Daily Mail and General Trust plc (DMGT) is a company incorporated and domiciled in the United Kingdom. The address of the registered office is Northcliffe House, 2 Derry Street, London, W8 5TT. At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting The financial statements of DMGT have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. (FRS 101). The financial statements have been prepared under the historical cost convention, and in accordance with the Companies Act 2006. 20 Ultimate holding company The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. See Note 2 for further detail. The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited All amounts presented have been rounded to the nearest £0.1 million. (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual Profit for the financial year Report for further detail). 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 Ultimate controlling party accounts. The Company’s profit after tax for the year was £429.0 million (2018 £417.9 million). This includes dividends receivable from subsidiary Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued undertakings amounting to £537.8 million (2018 £781.8 million). Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary Impact of amendments to accounting standards trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party The Company has applied the exemption available under FRS 101 in relation to paragraphs 30 and 31 of IAS 8, Accounting policies, changes in of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties accounting estimates and errors (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued of the Company. and is not yet effective). The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere The following new and amended IFRS has been adopted during the period: Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also • IFRS 9, Financial Instruments (effective 1 January 2018) related parties of the Company. IFRS 9, Financial Instruments replaced IAS 39, Financial Instruments: Recognition and Measurement. The key areas of IFRS 9 which affect the 21 Post balance sheet events Company are those which relate to the treatment of available-for-sale investments. Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. In accordance with the transitional provisions of IFRS 9 the Company has adopted IFRS 9 on a modified retrospective basis such that comparative figures have not been restated and remain in line with the requirements of IAS 39. IFRS 9 contains three principal classification categories for financial assets – Measured at Amortised Cost, Fair Value through Other Comprehensive Income (FVTOCI) and Fair Value through Profit and Loss (FVTPL) and eliminates the IAS 39 categories of held to maturity, loans and receivables and held for sale. The main effect resulting from this reclassification relates to the Company’s equity investments which under IAS 39 were classified as available for sale whilst under IFRS 9 are now classified as Fair Value through Other Comprehensive Income. As a result, all fair value movements are now recorded in Other Comprehensive Income and gains and losses will not be recycled to the Profit and loss account on disposal although dividend income will continue to be recorded in the Income Statement. A fair value gain of £0.7 million on transition has been recorded on transition to IFRS 9. A summary of the transition impact of IFRS 9 is shown below: Financial assets at FVTOCI Previously reported £m 0.3 0.3 As at 1 October 2018 IFRS 9 transition adjustment £m 0.7 0.7 Restated £m 1.0 1.0 2 Significant accounting policies Foreign exchange Transactions in currencies other than the Company’s reporting currency are recorded at the exchange rate prevailing on the date of the transaction. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the reporting 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 profit and loss account for the year. Investments in subsidiary undertakings Investments in subsidiary undertakings are held at cost less any provision for impairment. 188 188 196 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Financial assets at fair value through Other Comprehensive Income Financial assets are recognised and derecognised 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. In the current period, as permitted by IFRS 9, the Group classifies its equity investments at Fair Value through Other Comprehensive Income. All fair value movements are recorded in Other Comprehensive Income and gains and losses are not recycled to the Income Statement on disposal. Dividend income from Financial assets held at fair value through other comprehensive income is recorded in the Income Statement. Unlisted equity investments are valued using a variety of approaches including comparable company valuation multiples and discounted cashflow techniques. In extremely limited circumstances, where insufficient recent information is available to measure fair value or when there is a wide range of possible fair value measurements, cost is used since this represents the best estimate of fair value in the range of possible valuations. The fair value of listed equity investments is determined based on quoted market prices. Available for sale investments In the prior period available for sale investments were classified as either fair value through profit or loss or available for sale. Where investments were held-for-trading purposes, gains and losses arising from changes in fair value were included in net profit or loss for the period. For available for sale investments, gains and losses arising from changes in fair value were recognised directly in equity, until the investments 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 investments was determined based on quoted market prices. Unlisted investments were recorded at cost less provision for impairment with their recoverable amount determined by discounting future cash flows to present value using market interest rates. 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 reporting date. Deferred tax is provided in full on timing differences that result in an obligation at the reporting 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. Financial instruments disclosures Financial assets Trade and other receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. The majority of other receivables relate to amounts owed by subsidiary undertakings. Further information concerning interest charged on these receivables is set out in Note 10. 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 and other payables Trade payables are non-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. 189 189 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Notes to the Company Statement Notes to the Company Statement of Financial Performance of Financial Performance 2 Significant accounting policies continued 19 Contingent liabilities and guarantees Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. to settle on a net basis, or realise the asset and liability simultaneously. 20 Ultimate holding company Derivative financial instruments and hedge accounting The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates The Company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The Company uses various that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited derivative financial instruments to manage its exposure to these risks. (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual The use of financial derivatives is set out in Note 34 of the Group’s Annual Report. The Company does not use derivative financial instruments for Report for further detail). speculative purposes. Ultimate controlling party The Company does not apply hedge accounting except for fair value hedges. Gains and losses arising on derivatives that form part of net investment Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued hedge or cash flow hedge relationships in the consolidated financial statements are recorded in the profit and loss account in the Company. Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party Financial instruments – disclosures of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties The Company has taken advantage of the exemption provided in IFRS 7, Financial Instruments: Disclosures and included disclosures relating of the Company. to financial instruments in Note 34 of the Group’s Annual Report. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Cash flow statement Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying The Company has utilised the exemptions provided under IAS 7, Statement of Cash Flows and has not presented a cash flow statement. control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also A consolidated cash flow statement has been presented in the Group’s Annual Report. related parties of the Company. Related party transactions 21 Post balance sheet events The Company has taken advantage of the exemptions of IAS 24, Related Party Disclosures and included disclosures relating to related parties in Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. Note 44 of the Group’s Annual Report. 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 42 of the Group’s Annual Report. Retirement benefits The defined benefit pension schemes’ surpluses/deficits have been allocated to Group companies on a buy-out basis – that is of an estimate of the liabilities and assets of the defined benefit schemes as at 30 September 2019. Accordingly the Company has not recorded an asset or liability in relation to the Group’s defined benefit scheme. Further information can be found in Note 35 of the Group’s Annual Report. Critical accounting judgements and key sources of estimation uncertainty The following represents the key source of estimation uncertainty that has the most significant effect on the amounts recognised in the financial statements: Impairment reviews are performed when there is an indicator that the carrying value of the shares in Group undertakings could exceed their recoverable values based on their value in use or 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 Board-approved budgets and projections which reflect management’s current experience and future expectations of the markets in which the Group undertaking operates. Risk adjusted pre-tax discount rates used by the Company in its impairment tests range from 9.6% to 16.0%, the choice of rates depending on the risks specific to that cash generating unit (CGU). The cash flow projections consist of Board-approved budgets for the following three years, together with forecasts for up to two additional years and nominal long-term growth rates beyond these periods. The nominal long-term (decline)/growth rates range from (3.0%) and 7.0% 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 the CGU operates. The carrying value of the investment in Group undertakings is £3,237.6 million (2018 £3,033.6 million). Using the criteria above the Company has provided a sensitivity analysis of the key assumptions used to support the carrying value of its investments in Group undertakings. If the growth rate assumptions above were reduced by 1.0% this would reduce the headroom by £289.4 million resulting in an impairment charge of £137.7 million. If the growth rate assumptions above were increased by 1.0% this would increase the headroom by £443.1 million. If the discount rate assumptions above were reduced by 1.0% this would increase the headroom by £381.0 million. If the discount rate assumptions above were increased by 1.0% this would reduce the headroom by £278.2 million resulting in an impairment charge of £126.5 million. 3 Auditor’s remuneration Statutory audit fees relating to the Company amounted to £0.5 million (2018 £0.3 million). 190 190 196 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 4 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 2019 Number 19 2018 Number 18 2019 £m 9.5 9.0 1.7 0.1 20.3 2018 £m 4.2 5.6 2.1 0.1 12.0 The remuneration of the Directors of the Company during the period are disclosed in the Remuneration Report of the Group’s Annual Report. 5 Property, plant and equipment Cost At 30 September 2017 Additions At 30 September 2018 and 2019 Accumulated depreciation At 30 September 2017 and 2018 Depreciation At 30 September 2019 Net book value – 2018 Net book value – 2019 Fixtures, fittings and artwork £m – 0.9 0.9 – (0.3) (0.3) 0.9 0.6 6 Tax There was a current tax credit for the year of £8.1 million (2018 £8.7 million). 7 Dividends During the period, the Company paid a final dividend for the year ended 30 September 2018 of 16.2 pence per share and an interim dividend for the year ended 30 September 2019 of 7.3 pence to Ordinary and A Ordinary shareholders amounting to £74.1 million (2018 £81.0 million). The Board has declared a final dividend for the year ended 30 September 2019 of 16.6 pence per Ordinary/A Ordinary Non-Voting Share (2018 16.2 pence) which will absorb an estimated £37.8 million (2018 £57.3 million) of shareholders’ equity for which no liability has been recognised in these financial statements. It will be paid on 7 February 2020 to shareholders on the register at the close of business on 13 December 2019. In addition, on 2 April 2019 the Group made a distribution to certain shareholders of its investment in Euromoney. Using the Euromoney share price at 2 April 2019, the dividend in specie amounted to £661.8 million. On 15 April 2019 the Group also made a cash distribution of £200.0 million as part of the distribution to shareholders. Further detail can be found in Note 12 of the Group’s Annual Report. 191 191 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Notes to the Company Statement Notes to the Company Statement of Financial Performance of Financial Performance 8 Shares in Group undertakings (listed on pages 179 to 182) 19 Contingent liabilities and guarantees Net book value At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil £m (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting 3,033.6 At 30 September 2018 to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. Additions 219.1 20 Ultimate holding company Impairment charge (15.1) The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates 3,237.6 At 30 September 2019 that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual Report for further detail). Provision £m (320.0) – (15.1) Cost £m 3,353.6 219.1 – 3,572.7 (335.1) Cost £m Provision £m Net book value £m Ultimate controlling party Analysis of movements in the period: Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued (8.6) Daily Mail and General Holdings Ltd Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary DMGB Ltd 213.5 trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party Eve 4 Ltd (0.9) of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties of the Company. (14.2) – (0.9) 5.6 213.5 – (15.1) 219.1 204.0 The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere 9 Financial assets at fair value through Other Comprehensive Income Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying Cost and net control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also book value related parties of the Company. £m 6.5 At 30 September 2018 Available for sale investments 21 Post balance sheet events Adjustment for transition to IFRS 9 0.7 Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. 7.2 Restated at 1 October 2018 (6.2) Disposals At 30 September 2019 Financial assets at Fair value through Other Comprehensive Income 10 Trade and other receivables Amounts falling due after more than one year Amounts owed by Group undertakings Other financial assets Derivative financial assets 1.0 2018 £m 150.0 8.0 9.7 167.7 Note (i) (ii) 2019 £m – – 3.6 3.6 (i) Included within amounts owed by Group undertakings is an amount owed by a subsidiary company, DMGZ Ltd, of £nil (2018 £150.0 million). The loan bore interest of 6.3% p.a. and was repaid during the period. (ii) Details of the Company’s derivative financial assets are set out in Note 34 of the Group’s Annual Report. Amounts falling due within one year Amounts owed by Group undertakings Other financial assets Prepayments and accrued income Other receivables Corporation tax Note (i) 2019 £m 16.6 15.4 0.2 0.2 7.9 40.3 2018 £m 48.7 – 0.9 0.2 9.5 59.3 (i) The Company deposits collateral with its bank counterparties with whom it has entered into a credit support annex to an ISDA (International Swaps and Derivatives Association) Master Agreement. This represents cash that cannot be readily used in operations. 192 192 196 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 11 Other financial assets Cash deposits Note (i) 2019 £m – 2018 £m 237.3 (i) Represents cash deposits held with the Group’s bank counterparties with an original maturity date of three months or more. As required by IAS 7, Statement of Cash Flows, these have been classified within other financial assets. 12 Cash at bank and in hand Cash at bank and in hand 13 Trade and other payables falling due within one year 5.75 % Bonds 2018 Bank overdrafts Interest payable Amounts owing to Group undertakings Accruals and deferred income Other payables Note (i) (i) Amounts owing to Group undertakings are repayable on demand and bear interest of UK bank base rate plus 0.5%. 14 Trade and other payables falling due after more than one year 10.00 % Bonds 2021 6.375 % Bonds 2027 Derivative financial liabilities The nominal values of the bonds are as follows: 5.75 % Bonds 2018 10.00 % Bonds 2021 6.375 % Bonds 2027 Note (i) 2019 £m 40.1 2019 £m – 0.8 3.6 251.8 8.9 0.2 265.3 2019 £m 0.8 202.0 24.4 227.2 2019 £m – 0.8 200.0 200.8 2018 £m 363.8 2018 £m 218.7 – 14.2 79.5 8.8 0.2 321.4 2018 £m 9.1 196.6 20.1 225.8 2018 £m 218.5 7.2 200.0 425.7 (i) Details of the Company’s derivative financial liabilities are set out in Note 34 of the Group’s Annual Report. The Company’s bonds have been adjusted from their nominal values to take account of direct issue costs, discounts and movements in hedged risks. The issue costs and discount are being amortised over the expected lives of the bonds using the effective interest method. The unamortised issue costs amount to £0.5 million (2018 £0.6 million) and the unamortised discount amounts to £0.7 million (2018 £1.2 million). Details of the fair value of the Company’s bonds are set out in Note 33 of the Group’s Annual Report. The bonds are subject to fair value hedging using derivatives as set out in Note 34 of the Group’s Annual Report. Consequently, their carrying value is also adjusted to take into account the effects of this hedging activity. During the period the Company bought back £6.4 million nominal of its outstanding 2021 bonds incurring a premium of £0.9 million. The Company’s 2018 bonds matured during the period and were repaid in full. The book value of the Company’s other borrowings equates to fair value. 193 193 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Notes to the Company Statement Notes to the Company Statement of Financial Performance of Financial Performance 2018 Low 0.98% 2.30% 2018 High 1.99% 2.96% 2019 High 1.70% – 2019 Low 1.70% – 14 Trade and other payables falling due after more than one year continued 19 Contingent liabilities and guarantees The interest rate charged on the Company’s bank loans during the period ranged as follows: At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. Sterling US dollar 20 Ultimate holding company The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates The maturity profile of the Company’s borrowings is as follows: that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual Report for further detail). 2019 Ultimate controlling party Within one year 252.6 Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party Between one and two years of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties Over five years of the Company. 0.8 202.0 202.8 The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere 455.4 Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also 2018 related parties of the Company. Within one year 21 Post balance sheet events Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. Between two and five years Over five years Owed to group undertakings £m 0.8 202.0 202.8 Overdrafts £m Bonds £m – – – – – – Total £m 251.8 202.8 251.8 218.7 298.2 79.5 0.8 0.8 – – – – – 9.1 196.6 205.7 – – – 9.1 196.6 205.7 15 Deferred tax Movements on the deferred tax asset were as follows: At start of year Share-based payments Tax charge for the year At end of year – 424.4 79.5 503.9 2019 £m 3.8 0.6 1.2 5.6 2018 £m 2.5 0.3 1.0 3.8 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. 194 194 196 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 2019 £m 17.8 2019 £m (57.2) (2.5) 10.6 (49.1) 2018 £m 17.8 2018 £m (64.3) (14.3) 21.4 (57.2) 16 Capital and Reserves Share premium account: At start and end of year Own shares: At start of year Additions Own shares released on vesting of share options At end of year The Company’s investment in its own shares represents shares held in treasury or shares held by an employee benefit trust to satisfy incentive schemes. At 30 September 2019, this investment comprised the cost of 4,566,121 A Ordinary Non-Voting Shares (2018 4,812,419 shares) held in treasury and 2,157,613 A Ordinary Non-Voting Shares (2018 2,981,109 shares) held in the employee benefit trust. The market value of the Treasury Shares at 30 September 2019 was £38.9 million (2018 £33.8 million) and the market value of the shares held in the employee benefit trust at 30 September 2019 was £18.4 million (2018 £20.9 million). The employee benefit trust is independently managed and has purchased shares in order to satisfy outstanding share options and potential awards under the long-term incentive plan. The Treasury Shares are considered to be a realised loss for the purposes of calculating distributable reserves. 17 Capital redemption reserve At start of year On cancellation of A Ordinary Non-Voting Shares At end of year 18 Profit and loss account At start of year Adjustment for transition to IFRS 9 Restated at 1 October 2018 Net profit for the year Dividends paid Euromoney dividend in specie Euromoney cash distribution Other movements on share option schemes At end of year Total reserves £m 5.2 16.0 21.2 2018 £m 2,972.3 – 2,972.3 417.9 (81.0) – – 5.4 3,314.6 2019 £m 3,314.6 0.7 3,315.3 429.0 (74.1) (661.8) (200.0) 8.7 2,817.1 2,807.0 3,280.4 The Directors estimate that £1,532.9 million of the Company’s profit and loss account reserve is not distributable (2018 £1,511.9 million). 195 195 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Statements Notes to the Company Statement Notes to the Company Statement of Financial Performance of Financial Performance 19 Contingent liabilities and guarantees 19 Contingent liabilities and guarantees At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting At 30 September 2019 the Company had guaranteed subsidiaries’ outstanding derivatives which had a mark to market liability valuation of £nil to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. (2018 £nil) and letters of credit with a principal value of £2.9 million (2018 £3.3 million). The Company is the guarantor of a loan note amounting to £150.0 million (2018 £150.0 million) in respect of the contingent asset partnership referred to in Note 44 of the Group’s Annual Report. 20 Ultimate holding company 20 Ultimate holding company The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited The Company’s immediate parent company is Rothermere Continuation Limited (RCL), a company incorporated in Bermuda. The Board anticipates (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited Report for further detail). (RIL), a company incorporated in Jersey. RIL will then hold 100% of the issued Ordinary Shares of the Company (see Note 45 of the Group’s Annual Report for further detail). Ultimate controlling party Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued Ultimate controlling party Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its 100% holding of DMGT’s issued trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party Ordinary Shares. RCL has controlled the Company for many years and as such is its immediate parent Company. RCL is controlled by a discretionary of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties trust (the Trust) which is held for the benefit of Viscount Rothermere and his immediate family. The Trust represents the ultimate controlling party of the Company. of the Company. Both RCL and the Trust are administered in Jersey, in the Channel Islands. RCL and its directors, and the Trust are related parties of the Company. The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying The Board anticipates that as of 5 December 2019, pursuant to a consolidation of the Group’s holding structure, RCL will be acquired by Rothermere control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also Investments Limited (RIL), a company incorporated in Jersey. RIL will then hold 100% of the Company’s issued Ordinary Shares. The underlying related parties of the Company. control of DMGT will, however, remain unchanged and continue to lie with the Trust. RIL is administered in Jersey, and RIL and its directors are also related parties of the Company. 21 Post balance sheet events 21 Post balance sheet events Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. Details of the Company’s post balance sheet events can be found within Note 45 of the Group’s Annual Report. 196 196 196 Strategic ReportGovernanceFinancial StatementsShareholder Information Daily Mail and General Trust plc Annual Report 2019 Shareholder Information Company Secretary and Registered Office Fran Sallas Northcliffe House 2 Derry Street London W8 5TT Telephone: +44 (0)20 3615 0000 E-mail: enquiries@dmgt.com England Registered Number: 184594 Website The Group’s website (www.dmgt.com) gives information on the Company and its operating companies and includes details of significant Group announcements. Financial calendar 2020 23 January 5 February 7 February 31 March 9 April 28 May 4 June 5 June 22 June 26 June 23 July 30 September 23 November 3 December 4 December Trading update Annual General Meeting Payment of final dividend Half year end Payment of interest on bonds Half yearly financial report released Interim ex-dividend date Interim record date Payment of interest on bonds Payment of interim dividend Trading update Year end Announcement of annual results Ex-dividend date Record date Capital gains tax The market value of the A Ordinary Non-Voting Shares (A Shares) in the Company on 31 March 1982 (adjusted for the 1994 bonus issue of A Shares and for the four-for-one share split in 2000) was 9.75 pence. Distribution of Euromoney shares The distribution to DMGT’s shareholders of shares in Euromoney Institutional Investor PLC (Euromoney) on 2 April 2019 was treated as income for UK tax purposes, in the same way as DMGT’s usual dividend payments. For the purposes of UK individual shareholders calculating dividend income and the base cost of Euromoney shares for capital gains tax purposes, the value per Euromoney share was £13.00. The ‘Retail Investor Tax FAQs’ document in the ‘Shareholders’ section of www.dmgt.com contains further information about the tax implications for UK individual shareholders, including the base cost for capital gains tax purposes of their remaining shares in DMGT. Registrars All enquiries regarding shareholdings, dividends, lost share certificates, or changes of address should be directed to Equiniti, the Company’s Registrars, at the address set out on the following page. Electronic communications Equiniti operates Shareview, a free online service which enables shareholders 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 contact details. Shareholders may register for the service at www.shareview.co.uk. This Annual 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. 197 Strategic ReportGovernanceFinancial StatementsShareholder InformationShareholder Information Shareholder Information Low-cost share dealing service Equiniti provides a simple low-cost dealing service for the Company’s A Shares, details of which are available at www.shareview.co.uk/dealing or by calling +44 (0)3456 037 037. Details of this and other low-cost dealing services can be found on the Company’s website at www.dmgt.com. Share price information The current price of the Company’s A Shares can be found on the home page of the Company’s website at www.dmgt.com. Eurobond paying agent The paying agent for the Company’s 10% Bonds due 2021 and the 6.375% Bonds due 2027 is Deutsche Trustee Company Limited, Winchester House, 1 Great Winchester Street, London EC2N 2DB. Enquiries should be directed to John Donegan, Group Financial Controller, whose email address is john.donegan@dmgt.com. CREST Shareholders have the choice of either 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, whose email address is adam.webster@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, ShareGift can be contacted by visiting its website at www.sharegift.org or by writing to ShareGift, 4th Floor Rear, 67/68 Jermyn Street, London SW1Y 6NY. Shareholdings at 30 September 2019 Ordinary Shares Balance ranges 1–500,000 500,001 and over Totals A Shares Balance ranges 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 and over Totals Total number of holdings Percentage of holders Total number of shares Percentage issued capital 0 3 3 0.00 100.00 100.00 0 19,890,364 19,890,364 0.00 100.00 100.00 Total number of holdings Percentage of holders Total number of shares Percentage issued capital 879 389 110 45 56 29 47 32 55.39 24.51 6.93 2.84 3.53 1.83 2.96 2.02 1,587 100.00 241,470 931,150 764,997 640,162 1,867,681 1,990,497 11,432,633 197,044,737 214,913,327 0.11 0.43 0.36 0.30 0.87 0.93 5.32 91.69 100.00 Advisers Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4QJ Telephone: +44 (0)20 7888 8888 Auditor PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH Telephone: +44 (0)20 7583 5000 J.P. Morgan Securities plc 25 Bank Street Canary Wharf London E14 5JP Telephone: +44 (0)20 7777 2000 198 Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: +44 (0)371 384 2302 Strategic ReportGovernanceFinancial StatementsShareholder InformationVisit www.dmgt.com to see what is happening across our business and the marketplaces in which we operate. Contact Details DMGT Head Office Northcliffe House 2 Derry Street London W8 5TT UK Tel +44 (0)20 7938 6000 enquiries@dmgt.com www.dmgt.com Designed and produced by This report is printed on UPM Fine offset which is FSC® certified, as well as having ISO 14001 EMS, EMAS and the European EcoLabel. Printed in the UK by Pureprint who are a CarbonNeutral® company. Both manufacturing mill and the printer are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified. Strategic ReportGovernanceFinancial StatementsShareholder Information S t r a t e g i c R e p o r t G o v e r n a n c e F i n a n c i a l S t a t e m e n t s S h a r e h o l d e r I n f o r m a t i o n See our online report at dmgt.com 

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