Company Announcements

National World PLC

Half-yearly Financial Report

For the six months ended 3 July 2021

Results

*     Adjusted results are before non-recurring items, amortisation of intangible assets and implementation of IFRS 16.  Note 20 provides a reconciliation between Statutory and Adjusted results.

Key Highlights 

•   Acquisition of JPI Group

The acquisition of JPIMedia Publishing Limited and its subsidiaries ("JPI Group") was completed on 2 January 2021. Since completing the acquisition, significant progress has been made on the strategy to localise, energise, digitise and monetise relevant and unique content to create a modern operating model for news publishing across multiple brands and platforms.

•   Robust performance

Revenue and adjusted operating profit of £42.1 million and £4.2 million respectively with adjusted EBITDA of £4.6 million.

·     Strong digital revenue growth

Digital publishing revenue on a proforma basis grew by 21% year on year, partially mitigating the 9% fall in publishing print revenue.

•   Launch of 9 new World sites

Since the acquisition, we have been expanding our footprint into all major metropolitan centres in the UK with the launch of 9 "World" brand sites. The nationalworld.com site provides coverage across the whole of the UK and is supported by 8 "World" sites. Together with the JPI Media News brands, we now provide local coverage to 80% of the UK market. The new sites are being launched by leveraging existing resource and annualised investment of £2 million.  

·     On track to deliver at least £5.0 million of annualised cost savings

Delayering and flattening management structures have been completed, delivering annualised cost savings of £4.3 million (net of National World management costs). The Group remains on track to deliver at least £5.0 million of annualised cost savings (net of National World management costs) with restructuring costs of c.£4.0 million.

·     Strong balance sheet with significant financial flexibility

Strong cash management with cash of £19.1 million at the end of the period with outstanding debt of £1.0 million and deferred consideration on the acquisition of JPI Group of £5.0 million. £20.0 million convertible secured loan notes raised for the acquisition of JPI Group were all converted to equity on 7 May 2021.

·     Outlook

During July and August 2021 revenue on a proforma basis is broadly in line with 2020 and in line with management's expectations. Whilst there remains volatility in the trading environment following the lifting of government-imposed restrictions due to the COVID-19 pandemic, the Board anticipates trading for the full year to be in line with market expectations despite a significant increase in newsprint prices in the second half of the year mitigated by further cost savings.

Commenting on the results, Chairman David Montgomery, said

'I am pleased with the progress made since the acquisition of JPI Group. I pay tribute to the staff who have energetically deployed their skills and talent to transform the business. Our product launches, including nationalworld.com and eight World sites in key markets, move the Company from its traditional geographical base to a UK wide footprint.

'The scene is set for further organic growth in audience based on original content not available elsewhere and further acquisitions. These will support first and foremost the increase in our digital capabilities and assist in the creation of a sustainable growth publishing model. We will also consider heritage assets at an appropriate valuation.'

Forward looking statements

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual results and developments could differ materially from those expressed or implied by the forward-looking statements.  Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement are based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect. Save as required by applicable law or regulation, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Directors' expectations or to reflect events or circumstances after the date of this announcement.

Management Report

Acquisition of JPIMedia Publishing Limited and its subsidiaries

The acquisition of JPIMedia Publishing Limited and its subsidiaries ("JPI Group") announced on 31 December 2020 was completed on 2 January 2021. JPI Group's portfolio of iconic brands provide a strong base to implement the Company's strategy of creating a modern platform for news publishing with a new operational model supporting local sites across the entire UK. 

Operational Performance

The Group delivered a robust performance in the period with revenue of £42.1 million even though the trading environment remained challenging due to the COVID-19 pandemic and government-imposed restrictions, including a national lockdown in the first quarter of 2021.

Tight management of the cost base and restructuring ensured that the Group delivered an adjusted operating profit of £4.2 million and an operating margin of 10%. The Group delivered £4.3 million annualised cost savings (net of National World management costs) and is on track to deliver at least £5.0 million annualised costs savings in 2021 with £1.5 million cost savings benefiting H1 2021 operating performance.

Adjusted EBITDA in the period was £4.6 million reflecting an EBITDA margin of 11%. The robust EBITDA with minimal capital expenditure and tight management of working capital ensured the Group delivered an operating cash flow on a statutory basis of £4.6 million, before the payment of non-recurring restructuring costs of £1.5 million. 

On a proforma basis, assuming the acquisition of JPI Group was completed at the beginning of 2020, Group revenue fell by 6%, with print revenue falling by 9%, digital revenue growing by 21% and other revenue falling by 3%. Total digital revenue in the period was £5.8 million.

Adjusted financing costs were £0.7 million (2020: £nil) and adjusted profit before tax improved by £3.6 million from a loss before tax of £0.1 million in 2020 to a profit before tax of £3.5 million in 2021. Statutory financing costs were £0.8 million (2020: £nil) including IFRS16 lease finance costs of £0.1 million.

Statutory loss before tax was £0.9 million reflecting the impact of £3.3 million of restructuring costs for the delivery of the targeted cost savings and £0.8 million costs relating to the acquisition of JPI Group, loan note issue and share re-listing.

Statutory loss per share for the period of 0.8 pence per share (2020: loss 0.2 pence per share). Adjusted earnings per share for the period was 2.4 pence per share.

Current Trading and Outlook

During July and August 2021 revenue on a proforma basis is broadly in line with 2020 and in line with management's expectations. Whilst there remains volatility in the trading environment following the lifting of government-imposed restrictions due to the COVID-19 pandemic, the Board anticipates trading for the year to be in line with market expectations despite a significant increase in newsprint prices in the second half of the year mitigated by further cost savings.

The Company's cash management and balance sheet is strong and your Company continues to pursue strategic acquisitions and investments to create its stated objective of building a modern platform for news publishing. 

Strategic Update

The Company's objective remains:

"To create a modern platform for news publishing through the implementation of a new operating model across multiple brands and platforms by acquiring a number of media and digital technology assets and leveraging its portfolio to launch new media brands across the UK."

Key pillars of transformation

In a world of media commoditisation and increasing domination by a handful of tech behemoths, National World's strategy is to create a new publishing business model that enables us to "localise, energise, digitise and monetise" relevant and unique content: 

• Localise - Our publishing assets provide compelling content for local communities, both consumers and businesses. A greater sense of community awareness has also been generated during the COVID-19 pandemic as more consumers have lived their lives in a smaller locale.  With this new spirit of localism, we will ensure our journalists and commercial teams are more connected with the local communities they serve.
• Energise - Enhance users' experience of our products and services to increase engagement and provide a strong platform to leverage our unique quality content to launch new products and services across multiple platforms. While our print news-brands will be managed creatively and profitably, our strategic focus is on growing local, regional and national online audiences who are deeply engaged with our content.
• Digitise - Enhance our digital infrastructure to improve responsiveness, engagement, data analytics, AI content generation and user insights.
• Monetise - Create enhanced first party data and use the latest available digital technology to more effectively define audiences to drive multiple digital revenue streams: digital display advertising - targeting growth in higher yielding video content and local digital advertising, digital subscription - targeting both consumers and businesses and e-commerce - focusing on specific categories of content.

The Company's strategy involves consolidation and change by combining acquired digital technology innovation and traditional print assets in a new industry model designed to grow revenue by aggregation of audiences and maximising efficiencies.

Since completing the acquisition of JPI Group, good progress has been made on transformation through: 

• streamlining the large head office function and transformation of the operating structure with the creation of seven regional media divisions covering commercially homogeneous geographical markets;
• realigning local editorial and commercial resource, with P&L responsibility vested with local management;
• enhancement of existing news websites and the launch of nationalworld.com providing a national footprint and the launch of eight regional World websites providing coverage of the key metropolitan hubs in the UK. The new sites have been launched by leveraging existing resource and annualised investment of £2 million;
• enhancing the quality and appeal of newspapers and websites with increased unique local content;
• trialling of a new subscription platform to engage on our website for premium content on a daily basis;
• training and development of commercial teams in digital marketing skills;
• expansion of the digital team and increased investment in website development to enhance our existing websites and launch of the nine World sites; and
• the delayering and flattening of the management structures and other efficiencies is expected to deliver annualised savings of £5.0 million during 2021 with restructuring costs of £4.0 million. The cost savings are before increased investment for the launch of the new World sites.

We are continuing to review opportunities for investment and acquisitions to enhance our digital capabilities (content and commercial) and expand our portfolio of publishing assets.

Key Performance Indicators

Significant progress has been made on improving the performance of the JPI Group since completing the acquisition on 2 January. As we continue with our transformation programme, management has set some initial Key Performance Indicators for tracking performance:

·      Grow digital audience (page views) with a target of c200m average monthly page views by the end of 2022;

·      Increase digital revenue and achieve stability in Group revenue ;

·      Optimise the long-term viability of our print brands alongside maximising revenue and profit; and

·      EBITDA margin of at least 10%

Group Review

Income statement

The statutory and adjusted results have been prepared for the 26 weeks ended 3 July 2021 (2021) and the comparative period is for the 26 weeks ended 30 June 2020 (2020). 

Note 20 sets out the reconciliation between the statutory and adjusted results and the reconciliation between the statutory and proforma revenue.

The Group delivered a robust performance in the period with revenue of £42.1 million and adjusted operating profit of £4.2 million and an operating margin of 10%. Adjusted EBITDA in the period was £4.6 million with an EBITDA margin of 11%. 

Adjusted financing costs were £0.7 million (2020 actual: £nil) and adjusted profit before tax improved by £3.6 million from a loss before tax of £0.1 million in 2020 to a profit before tax of £3.5 million in 2021. Statutory financing costs were £0.8 million (2020: £nil) including IFRS16 lease finance costs of £0.1 million.

Statutory loss before tax was £0.9 million reflecting the impact of £3.3 million of restructuring costs for the delivery of the targeted cost savings and £0.8 million costs relating to the acquisition of JPI Group, loan notes issue and re-listing.

Statutory loss per share for the period of 0.8 pence per share (2020: loss 0.2 pence per share). Adjusted earnings per share for the period was 2.4 pence per share.

Proforma Revenue

The acquisition of JPI Group was completed on 2 January 2021. In the prior period, National World plc had not completed an acquisition after listing on 19 September 2019 and therefore it had no operating businesses. The table below provides a summary of revenue for the period ended 3 July 2021 with comparatives for the 26 weeks ended 4 July 2020 assuming the acquisition of JPI Group was completed at the beginning of 2020.

The revenue environment has remained volatile with the ongoing impact of the COVID-19 pandemic and related lockdown restrictions imposed by the UK Government. The first lockdown restrictions imposed during March 2020 were partially lifted during the summer in 2020 and the second half of 2020 with a second full lockdown imposed again at the beginning of 2021 with restrictions starting to ease during April 2021. The restrictions have impacted trading from late March 2020.

Revenue in the period fell 6% year on year.  Whilst there has been an easing of restrictions in April 2021, the year on year performance for the period reflects the more stable trading experienced before the national lockdown for the most part of Q1 2020 which resulted in the first quarter of 2021 being significantly impacted year on year with total revenue 18% lower than the first quarter of 2020.

Revenue trends year on year improved in the second quarter as lockdown restrictions were eased and comparative figures were impacted by the first national lockdown in March 2020, resulting in revenue increasing year on year by 12% compared to the same period in 2020. 

Print revenue

Print revenue comprises all revenue driven by the local newspaper titles, including all digital revenue packages sold with print and COVID-19 related government spend. Print revenue fell 9% with a 21% decline in the first quarter partially offset by growth of 8% in the second quarter.

Advertising revenue fell by 25% year on year in the first quarter as a result of the more stable trading experienced in Q1 2020 before the first national lockdown imposed in March 2020. The Group saw a revenue improvement in the second quarter with growth of 21% largely reflecting the easing of the national lockdown from April onwards with weaker comparatives as the second quarter of 2020 was significantly impacted by the first national lockdown in March 2020.

Circulation revenue fell by 9% during the period with a decline of 15% in the first quarter and a material improvement to a decline of only 2% in the second quarter. Average monthly circulation volumes in the period were 2.4 million for the daily newspapers and 1.0 million for the weekly newspapers representing an annual decline of 8% and 16% respectively. The impact of falling volumes was partially mitigated by cover price increases for the majority of the Group's newspapers from January 2021 onwards.

The Group continues to have a strong print subscriber base with print subscription revenue of £1.7 million in the period, a decline of 6% year on year which is significantly lower than the overall circulation revenue decline of 9%.

Other revenue, which includes syndication, leaflets and business services agreement revenues, fell by 19%. The reduction mainly relates to the business services agreements.

Digital revenue

Digital revenue comprises all revenue sold programmatically, digital-led direct sales, subscriptions, syndication and revenue generated from the Google and Facebook initiatives.

Digital revenue increased by 21% in the period amplified by a significant improvement in year on year performance in the second quarter with growth of 50% compared to decline of 1% in the first quarter.

Advertising revenue fell by 16% in the first quarter as a result of the more stable trading experienced in Q1 2020 pre the first national lockdown imposed in March 2020. Growth of 35% in Q2 largely reflects the easing of national lockdown from April onwards and the second quarter of 2020 being significantly impacted by the first national lockdown in March 2020. Advertising revenue is predominantly driven by audience and the Group had average monthly Unique Users (UUs) and Pages Views (PVs) of 36 million and 111 million respectively. The audience performance has been volatile during the period due to disruption caused by the sales process run by the previous vendors, organisational changes implemented in the first quarter of 2021, coupled with system issues which impacted user engagement and access to our sites. These issues contributed to average monthly PVs of 103 million in the second quarter compared to 118 million in the first quarter. These issues are being addressed and we are seeing more stability in performance in July and August 2021 where we have achieved average monthly UUs of 38 million and PVs of 115 million.  

Subscription revenue growth of 195% is driven by the roll out of subscription services across 13 daily newspaper websites during 2019 and 2020 and 21 weekly papers in the second quarter of 2021.

Other digital revenue grew by 36% and includes revenue of £0.1 million per month from February 2021 from the Google/Facebook content initiatives.

Other revenue

Other revenue reflects grants from the BBC for local democracy reporters and from Facebook for the funding of 47 journalists.  

Operating Costs

Operating costs of £42.2 million comprise:

Adjusted operating costs comprise:

Operating costs were only £0.1 million in 2020 reflecting the business operating as a cash shell.

Operating costs during the period are £42.2 million on a statutory basis and £37.9 million on an adjusted basis. Adjusted costs are before:

·      the implementation of IFRS 16 (increase in other costs of £0.8 million and a reduction in depreciation of £0.7 million);

·      the amortisation of intangible assets of £0.3 million; and

·      non-recurring costs of £4.1 million.

Labour

The Group employed an average of 1,262 employees during the period with 1,193 employees as at 3 July 2021. The labour costs are net of a furlough credit of £0.5 million received during the period. In the full year 2020 the furlough credit was £3.5 million. As the trading environment improved, management recalled all staff from furlough on 1 April 2021.

The majority of savings achieved since the acquisition have been driven by staff savings with the first half of 2021 benefiting from savings of £1.5 million (net of costs associated with the National World management).

Newsprint and Production costs

Newsprint and production costs on a proforma basis have fallen during the period reflecting reduced print volumes, lower pagination and printing of some free titles remaining suspended during the early part of 2021. From 1 July 2021, newsprint prices have increased by 18% and a potential further increase could arise on 1 October 2021. The 18% increase on 1 July 2021 will increase newsprint costs by c£0.3 million in the second half of 2021.

Depreciation

Depreciation relates to the tangible fixed assets, largely IT and property related items, with a charge of £0.4 million for the period. Minimal capital expenditure of £0.1 million has been incurred in the period and we expect capital expenditure of c£1.0 million for the full year.

Other

Other costs comprise property, IT, digital product and engineering, administration and other operating costs.

Non-recurring costs

During the period non-recurring costs of £4.1 million comprise £3.3 million restructuring costs and £0.8 million costs associated with the acquisition, loan note issue and share re-listing.

£3.3 million restructuring costs have delivered annualised savings of £4.3 million (net of National World management costs). £1.5 million of the restructuring costs have been paid in the first half with the majority of the outstanding costs to be settled over the remainder of 2021. The Group is on track to deliver at least £5.0 million of annualised cost savings with restructuring costs of c£4 million.  

£1.3 million of costs were incurred in the period (of which £0.5 million is directly attributed to the new share issue and has been deducted from share premium, Note 20), in addition to the £0.8 million reported in the 2020 annual financial statement, all in relation to the acquisition of JPI Group. £1.9 million of these costs were paid in the period. No further costs in relation to the acquisition, loan note issue and share re-listing are expected. 

Financing charges

Financing charges on a statutory and adjusted basis are:

The financing costs of £0.8 million comprise £0.1 million interest charge on IFRS 16 lease liabilities, interest on the £20.0 million convertible secured loan notes until conversion on 7 May 2021, and the £1.0 million interest only unsecured loan notes. The £20.0 million convertible secured loan notes and accrued interest of £0.6 million converted to equity on 7 May 2021 and no further interest is due on these loan notes. The £1.0 million interest only loan notes will continue to accrue interest at 15% per annum, with the next interest payment due at the end of December 2021.

Statutory tax credit and effective tax rate

The statutory tax rate for the period is 19% and the effective rate on the statutory loss for the period is 0% resulting in £nil tax credit.

The adjusted tax rate is 20% with a tax charge in the period of £0.7 million. The difference between the adjusted tax rate of 20% and the statutory tax rate of 19% is due to a number of items in operating costs (in particular costs associated with the acquisition and share re-listing) being disallowable.

Cash flow

Robust operating cash generation, the benefit of restructuring and low capital expenditure ensured the Group maintains a substantial cash balance and retains financial flexibility.  

From the total cash generated by the issue of loan notes of £21.0 million (£12.6 million in the period and £8.4 million in December 2020) £8.8 million was utilised to pay costs in relation to the acquisition of JPI Group, capital raise and share issue (£2.2 million acquisition, £1.9 million capital raise and share issue costs and £4.7 million repayment of loan to JPIMedia Ltd).

During the period adjusted operating cash flow of £2.2 million, proceeds from the issue of the loan notes (£12.6 million in the period) and £0.5 million cash left in the JPI Group on completion was utilised to settle costs in relation to the acquisition, capital raise and share issue of £8.8 million and capital expenditure of £0.1 million with the remaining £6.4 million increasing cash balances from £12.7 million to £19.1 million.

Acquisition of JPI Group

On 2 January 2021 National World plc acquired 100% of the issued share capital of JPI Group, one of the largest regional and local multimedia publishers in the United Kingdom, providing information services to communities through a portfolio of 135 publications and websites. The acquisition of JPI Group will provide a platform for National World to implement its strategy of creating a sustainable local online news publishing model. 

The consideration for the acquisition was as follows:

On completion, £0.5 million was paid for equity and £4.7 million was paid to JPIMedia Limited the previous vendor, in full settlement of the outstanding inter-company balance payable on completion from JPI Group.

In March 2021, £1.7 million was paid as equity consideration for cash left in the business at completion (£0.5 million) and the working capital at completion being in excess of normalised working capital (£1.2 million).

The £5.0 million deferred equity consideration is payable in two equal tranches, £2.5 million on 31 March 2022 and £2.5 million on 31 March 2023.

Capital raise

Loan notes totalling £21.0 million (£20.0 million convertible secured and £1.0 million interest only unsecured) were issued to fund the acquisition of the JPI Group, future investment and ongoing working capital requirements. The 10% convertible secured loan notes were issued in three tranches; £8.4 million in December 2020, £5.5 million on 21 January 2021 and £6.1 million on 8 February 2021. The £1.0 million 15% interest only unsecured loan notes were issued on 12 February 2021. 

On 7 May the £20.0 million 10% convertible secured loan notes, including accrued interest and 10% premium on conversion were converted to 205.4 million ordinary shares at £0.11 per share.

£8.8 million of the funds raised were utilised during the period to fund the acquisition of JPI Group and related capital raise costs: 

·      £0.5 million initial cash consideration for the equity;

·      £4.7 million outstanding inter-company balance payable to the previous vendor (JPIMedia Limited);

·      £1.9 million acquisition and costs relating to the capital raise. £0.2 million remains outstanding at the period end; and

·      £1.7 million payment to JPIMedia for completion working capital being higher than target. This included £0.5 million cash left in the business at completion.

The balance of net proceeds from the loan notes and cash held prior to the acquisition will be used to fund the future investment and development of the enlarged Group; and to the extent not covered by future cash flows, £5.0 million deferred consideration for the acquisition.

Other items

Principal risks and uncertainties

The Group's principal risks and uncertainties, which could impact the Group for the remainder of the current financial year, are identified on pages 8 to 10 of National World plc's Annual Report for the year ended 31 December 2020 which is available on the Company's website. These risks are as follows: strategy, acquisition of JPI Group, infrastructure and operations, cyber security, loss of key senior management and COVID-19. 

The Directors have reviewed these principal risks and uncertainties. Apart from removing the risk that the Group could not achieve re-admission of the National World plc shares to trading on the LSE as re-admission was achieved on 7 May 2021, the Directors confirm the risks are still applicable for the remainder of the year.

Going concern statement

The Directors assessed the Group's prospects, both as a going concern and its long-term viability, at the time of the approval of National World plc's Annual Report for the year ended 31 December 2020. Further information is set out in the 2020 Annual Report of National World plc.

At the half year, the Directors have reviewed the assessment, in particular the ongoing impact of COVID-19 on revenue. With mitigating actions in place to manage costs and cash flow, combined with the significant financial flexibility with cash of £19.1 million at 3 July 2021, the Directors are satisfied that the Group will be able to operate with sufficient financial flexibility and headroom for the foreseeable future.

Related party transactions

Mediaforce (Holdings) Limited has a 24% interest in the equity of National World plc and is therefore deemed to be a related party. Transactions with Mediaforce (Holdings) Limited and its subsidiaries are undertaken at arm's length and during the period the Group earned revenue of £3.4 million and incurred charges for services received of £1.0 million. The amount owing to the Group at 3 July 2021 is £1.0 million. 

Statement of Directors' responsibilities

The Directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations.

The Directors confirm to the best of their knowledge:

a)  The interim consolidated financial statements, prepared in accordance with International Accounting Standard 34 Interim Financial Reporting give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole; and

b)  The Management Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

On behalf of the Board

David Montgomery

Executive Chairman

9 September 2021

Condensed consolidated income statement

for the 26 weeks ended 3 July 2021 (26 weeks ended 30 June 2020 and the year ended 31 December 2020)

Set out in Note 9 is the calculation of adjusted earnings per share and Note 20 presents the reconciliation between the statutory and adjusted results.

Condensed statement of comprehensive income

for the 26 weeks ended 3 July 2021 (26 weeks ended 30 June 2020 and the year ended 31 December 2020)

Condensed statement of financial position

At 3 July 2021

Condensed consolidated statement of changes in equity

for the 26 weeks ended 3 July 2021 (26 weeks ended 30 June 2020 and the year ended 31 December 2020)

Condensed consolidated cash flow statement

for the 26 weeks ended 3 July 2021 (26 weeks ended 30 June 2020 and the year ended 31 December 2020)

Notes to the consolidated financial statements

1. General information

National World plc ('the Company') is a public limited company listed on the London Stock Exchange in England and Wales. The Company is domiciled in England and its registered office is 201 Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT, United Kingdom. The principal activities of the Group are to provide news and information services in the United Kingdom through a portfolio of multimedia publications and websites.

The condensed consolidated Interim Financial Statements of the Company and its subsidiaries for the 26-week period ended 3 July 2021 comprise the Company and its subsidiaries (together referred to as the 'Group'). Following the acquisition of JPI Group, the Company has realigned its 26-week reporting period to 3 July 2021 consistent with JPI Group.

These Interim Financial Statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 22 April 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The auditors, Crowe U.K. LLP, have carried out a review of the Interim Financial Statements and their report is set out at the end of this document.

The financial information for the year ended 31 December 2020 is extracted from National World plc's financial statements for that year.

The half-yearly financial report was approved by the Directors on 9 September 2021. This announcement is available at the Company's registered office at 201 Temple Chambers, 3-7 Temple Avenue, London EC4Y 0DT and on the Company's website at www.nationalworldplc.com.

Significant changes in the current reporting period 

COVID-19 continues to impact the UK economy and the news publishing sector, particularly on circulation and advertising revenues.

The financial position and performance of the Group was particularly affected by the following events and transactions during the six months to 3 July 2021:

• the acquisition of JPI Group on 2 January 2021 has led to a significant increase in revenue and movement in the Statement of financial position items
• securing additional funding via the successful issue of convertible secured loan notes and interest only unsecured loan notes, increasing cash
• the conversion of all convertible secured loan notes to equity on re-admission to the Official List (by way of a Standard Listing under Chapter 14 of the Listing Rules) and to trading on the Main Market of the London Stock Exchange on 7 May 2021 (see Notes 15 and 19 for further information). 

For a detailed review of the Group's performance and financial position please refer to the Management Report on pages 3 to 11.

2. Basis of preparation

These Interim Financial Statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the United Kingdom. The interim report does not include all the notes of the type included in an annual financial report.  Accordingly, this report should be read in conjunction with financial statements of National World plc for the year ended 31 December 2020 and JPIMedia Publishing Group for the period ended 2 January 2021, which have been prepared in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board as adopted by the European Union. The consolidated Interim Financial Statements were authorised for issue by the Board of Directors on 9 September 2021.

These Interim Financial Statements are presented in British pounds, which is the functional currency of all entities in the Group.  All financial information has been rounded to the nearest thousand except when otherwise indicated.

These Interim Financial Statements have been prepared under the historical cost basis.

Going concern

These consolidated financial statements have been prepared on a going concern basis as set out in the Financial Review in this half-yearly financial report.

Changes in accounting policies and disclosures

The standards that became applicable in the period did not materially impact the Group's accounting policies and did not require retrospective adjustments.

3.  Significant accounting policies

The accounting policies adopted are consistent with those of National World plc and JPI Group for the previous year. National World's annual report is available at nationalworldplc.com and JPI Group's on the Companies House website. Taxes on income in the interim periods are accrued using tax rates that would be applicable to expected total annual profit or loss.

New and revised IFRS Standards in issue but not yet effective

None of the standards which have been issued by the UK Endorsement Board but are not yet effective are expected to have a material impact on the Group.

Basis of consolidation

The Group Interim Financial Statements consolidate the Interim Financial Statements of National World plc and all its subsidiary undertakings owned during the period ended 3 July 2021. The comparative financial statements for the six months to 30 June 2020 and the year ended 31 December 2020 are for National World plc alone as the reporting periods were prior to the acquisition of JPI Group on 2 January 2021.

Subsidiaries are included in the Group's Interim Financial Statements using the acquisition method of accounting. The results of subsidiaries acquired or disposed of during the period are consolidated from the effective date of acquisition or up to the effective date of disposal, as appropriate. Purchase consideration is allocated to the assets and liabilities on the basis of their fair value at the date of acquisition. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Where necessary, adjustments are made to the Interim Financial Statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in the Income Statement as incurred.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, including publishing titles, are recognised at their fair value at the acquisition date.

Alternative performance measures

The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and proforma basis. The Company believes that the adjusted basis and proforma trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 20 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow and reconciliation to statutory cash flow is presented in Note 21.

Adjusting items

Adjusting items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusting items are set out in Note 20.

4.  Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group's accounting policies

The preparation of financial statements requires management to exercise judgement in applying the Group's accounting policies. It also requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual amounts may differ from these estimates. The Directors have identified the following critical accounting judgements or estimates relating to the financial information of the Group.

Key sources of estimation uncertainty

Valuation judgements

Acquisition of JPI Group

On 2 January 2021 the Company acquired JPI Group. The acquisition has been treated as a business combination under IFRS 3, refer to Note 16. 

Intangible Assets

The acquisition of JPI Group by National World was completed at the beginning of the period, and the intangibles assets are recognised at the acquired fair value. The value in use calculation prepared for the JPI Group at 2 January 2021, determined the fair value of the CGU, and was prepared using consistent methodologies to that applied in the prior period. With regard to the methodologies applied in the valuation, the intangible assets of the Group were assessed using an income approach based method. The income approach is suitable for assets which generate the majority of their value from their income-generating capacity. It operates under the premise that the value of that asset can be accurately derived from the value of the future net cashflows which will be generated by it over time, discounted back to their present value at an appropriate discount rate. 

5. Revenue

The analysis of the Group's contracted revenue for the period from continuing operations is as follows:

¹Includes Local Democracy Reporting Service funding from the BBC and Facebook to support news coverage of top-tier local authorities and other public service organisations; 2021: £0.7 million (2020: £nil).

6. Non-recurring costs

Loss for the half-year includes the following items that are unusual because of their nature, size or incidence:

a)   Acquisition, loan note issue and share re-listing costs

The £0.8 million cost in the current period relates to:

·      the acquisition of JPI Group which was completed on 2 January 2021 (Note 16);

·      the issue of loan notes (Note 15); and

·      the re-admission to Listing on 7 May 2021 (Note 19). 

The £0.8 million cost incurred in 2020 related to the acquisition of JPI Group (£0.5 million) and loan note issue costs (£0.3 million).

b)   Restructuring costs

Restructuring costs of £3.3 million have been incurred in the period for the delivery of annualised cost savings of £4.3 million.

7.   Finance costs

Interest was being incurred at 10% per annum on £20.0 million of convertible secured loan notes up until 7 May 2021 at which time they were converted to shares (Note 19). Interest is being accrued at 15% on £1.0 million of interest only unsecured loan notes (Note 15). 

8.  Tax

Income tax expense is recognised based on management's estimate of the weighted average effective annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the six months to 3 July 2021 is 19%, the same as for the six months ended 30 June 2020 and full year ended 31 December 2020.

The corporation tax rate will increase to 25% for the year beginning 1 April 2023. The change to the standard rate of corporation tax rate to 25%, substantively enacted by parliament in May 2021, has been accounted for in the calculation of the deferred tax. There is no overall tax credit in the Consolidated Income Statement, as the increase to the deferred tax liability on publishing titles and rights, is offset by a higher deferred tax asset relating to carried forward tax losses. 

9.  Earnings/(loss) per share

Basic earnings/(loss) per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings/(loss) per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.

On 7 May 2021, the Company issued 205.4 million ordinary shares (Note 19).

¹The effect of the potential dilutive shares on the statutory earnings/(loss) per share would have been anti-dilutive and therefore were not included in the calculation of diluted statutory loss per share.

10.  Goodwill

During the period the Group acquired JPIMedia Publishing Limited and its subsidiaries (JPI Group) which created goodwill of £5.2 million (Note 16).

11.  Publishing Intangible assets

Intangible assets acquired on the acquisition of JPI Group consist of regional publishing titles with a value of £5.3 million and software and digital development assets of £0.5 million. Intangible assets are amortised over their useful economic life and the carrying value of the titles is reviewed when there are indicators that an impairment has occurred. The amortisation charge for the period is £0.3 million, comprising £0.2 million for regional publishing titles, and £0.1 million for software and digital development assets.

Impairment assessment

The Group tests the carrying value of the CGU held within the Group for impairment annually or more frequently if there are indications that the carrying value is less than the recoverable amount. If an impairment charge is required, this is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU but subject to not reducing any asset below its recoverable amount.

The Group has one identifiable CGU, the regional publishing business, which includes intangible publishing titles, digital intangible assets, goodwill, property, plant and equipment, trade and other receivables and trade and other payables. Within the single CGU there is an interdependency of revenue and costs within a matrix management structure, single wholesale and distribution agreements, substantial packaged advertising sales across all titles and websites and dependence on central support infrastructure. 

The acquisition of JPI Group by National World was completed at the beginning of the period, and the intangibles assets are recognised at the acquired fair value. The value in use calculation prepared for the JPI Group at 2 January 2021, determined the fair value of the CGU, and was prepared using consistent methodologies to that applied in the prior period. With regard to the methodologies applied in the valuation, the intangible assets of the Group were assessed using an income approach based method. The income approach is suitable for assets which generate the majority of their value from their income-generating capacity. It operates under the premise that the value of that asset can be accurately derived from the value of the future net cashflows which will be generated by it over time, discounted back to their present value at an appropriate discount rate. 

There were no indicators of impairment in the first half and therefore no impairment review has been undertaken at the half year.

12.  Tangible assets

£1.4 million of office equipment assets were acquired on acquisition of JPI Group and there were additions of £0.1 million during the period.  The assets are depreciated over their useful lives. 

13.  Other financial assets and liabilities

Trade and other receivables

Trade and other receivables of £13.3 million were recognised on acquisition of JPI Group (Note 16), the reduction of £1.0 million in the current period is due to revenue declines and improved debt collection.

Trade and other payables

Total trade and other payables of £13.7 million were acquired by the Group as part of the acquisition of JPI Group (Note 16). Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.  VAT includes £0.8 million of deferred VAT due to Government concessions in relation to COVID-19, which the Group commenced repaying to HMRC in March 2021 and will be fully repaid by 30 January 2022. 

14.  Leases

Right of use assets and their associated lease liabilities were recognised on the acquisition of JPI Group.  The Group lease office buildings and motor vehicles for use in its business operations. Rights of use assets are depreciated over the term of associated lease. The carrying amounts of right of use assets and the movements during the year are set out below:

The carrying amounts of lease liabilities and the movements during the year are set out below:

15.  Borrowings

National World plc issued £8.4 million 10% convertible secured loan notes in December 2020 to fund the acquisition of JPIMedia Publishing Limited and its subsidiaries (JPI Group).

During the period there were a further two issues of 10% convertible secured loan notes: £5.5 million on 21 January and £6.1 million on 8 February 2021 increasing the total of convertible secured loan notes in issue to £20.0 million, the maximum allowed under the convertible loan note documentation. On 7 May 2021, the convertible secured loan notes, 10% conversion premium and accrued interest of £0.6 million were converted to 205.4 million ordinary shares.

On 12 February 2021, the Company raised £1.0 million through the issue of £1.0 million 15% interest only unsecured loan notes.

Borrowings at 3 July 2021 comprises £1.0 million 15% interest only unsecured loan notes.

A maturity analysis of the Company's borrowings is shown below:

16.  Business combinations

On 2 January 2021, the Company acquired 100% of the issued shares in JPI Group, one of the largest regional and local multimedia publishers in the United Kingdom, providing information services to communities through a portfolio of 135 publications and websites. The acquisition of JPI Group will provide a platform for National World to implement its strategy of creating a sustainable local online news publishing model. The acquisition is classified as a reverse takeover, under Chapter 14 of the listing rules published by the FCA. However, as the Company was incorporated as a special purpose acquisition vehicle, the acquisition meets the definition of a business combination and has been accounted for using the acquisition accounting method in accordance with the Company's accounting policies.

Details of the purchase consideration are as follows:

Cash paid on Completion comprised of two parts - £0.5 million for the issued share capital of the JPI Group and £4.7 million due to JPIMedia Limited by JPI Group, and paid by the Company directly to JPIMedia Limited, and treated by JPI Group as discharging the outstanding debt due to JPIMedia Limited.

In March 2021, £1.7 million was paid as equity consideration for cash left in the business at completion (£0.5 million) and the working capital at completion being in excess of normalised working capital (£1.2 million).

The £5.0 million deferred equity consideration is payable in two equal tranches, £2.5 million on 31 March 2022 and £2.5 million on 31 March 2023.

The provisional fair value of the assets and liabilities recognised as a result of the acquisition and goodwill are as follows:

The fair value of the Publishing and Digital Intangible assets reported in the 2020 annual report were provisionally estimated to be £11.0 million and this has been revised to £5.8 million. This revision increases the goodwill on acquisition to £5.2 million. The revision to the provisional fair value, is based on new information arising since the acquisition, driven by operational issues with the digital infrastructure and formal termination of the digital acceleration programme that had been initiated by previous management for which significant costs had been capitalised.   

The goodwill represents the potential growth opportunities and synergy effects from the acquisition. The goodwill is not deductible for tax purposes.

Acquisition related costs

Acquisition related costs of £0.0 million (FY 2020: £0.5 million) are included in operating expenses in the income statement.

Deferred consideration

The deferred consideration arrangement requires the Group to pay the former owners, JPIMedia Limited, £5.0 million of deferred equity consideration in two equal tranches of £2.5 million payable on 31 March 2022 and 31 March 2023. The deferred consideration has not been discounted as we do not believe that the impact of such discounting is material.

Acquired receivables

The fair value of trade and other receivables is £13.3 million and includes trade receivables with a fair value of £8.1 million. The gross contractual amount for trade receivables due is £8.6 million, of which £0.5 million is expected to be uncollectible.

Revenue and profit contribution

The acquired business contributed revenues of £42.1 million and net profit of £0.6 million to the Group for the period 3 January to 3 July 2021.

17.  Notes to the Cash Flow Statement

18.  Related party transactions

The Group traded with the following associated undertakings during the current period which are subsidiaries of Mediaforce (Holdings) Limited, which has a 24% shareholding in the Company: 

·      Mediaforce Marketing UK Limited

·      Mediaforce (London) Limited

·      The Distribution Business Limited

·      Closehill Limited

·      The National Leaflet Company

·      The Insert Company

·      Mailbox Door Drop Limited

The Group earned revenue of £3.4 million (2020: nil) and the Group incurred charges for services received of £1.0 million (2020: nil). The amount outstanding at 3 July 2021 is £1.0 million (2020: nil) owed to the Group.  Purchases were made at market prices discounted to reflect volume purchase. Any outstanding amounts will be settled in cash.

19.  Share capital and reserves

Share capital

The 10% convertible secured loan notes were converted into 205,432,801 ordinary shares with a nominal value of 0.1 pence each on 7 May 2021. All 259,432,801 shares in issue rank equally for voting purposes, on any dividend declared and distributions made on winding up of the Company.

Reserves

The 205.4 million ordinary shares were issued on 7 May 2021 at a price of £0.11 per share (including the 10% conversion premium on the £20.0 million secured convertible loan notes) giving rise to a share premium of £20.4 million. £0.5 million of costs incurred were directly attributed to the new share issue and have been deducted from share premium in the current period.

20.  Alternative performance measures

To provide clarity of the underlying trading performance of the Group, the operating results are presented on an adjusted basis. Adjusted results are before non-recurring restructuring and organisational charges, IFRS16 adoption, transaction costs, amortisation of intangible assets and impairment charges. The Directors believe that it is appropriate to additionally present the alternative performance measures used by management in running the business, and that it will present a more meaningful and comparable financial result.

The adjusted results provide supplementary analysis of the 'underlying' trading of the Group. 

Operating loss as determined under IFRS to adjusted operating profit/(loss):

EBITDA and adjusted EBITDA are:

Reconciliation of revenue to proforma revenue

The proforma revenue trend presents the prior period revenues on a like for like basis for the prior periods assuming JPI Group was owned from the beginning of 2020.

21.  Reconciliation of IFRS to adjusted cash flow

The adjustments are:

·    £4.3 million increase in operating profit reflects £0.7 million depreciation of IFRS16 leased assets, £0.3 amortisation of intangible assets, £0.8 million of acquisition, loan note issue and share re-listing costs and £3.3 million restructuring costs partially offset by a lease costs charge of £0.8 million

·    £1.0 million reduction in depreciation and amortisation reflects the £0.7 million depreciation of IFRS16 lease assets and £0.3 million amortisation of intangible assets which has been added back to operating profit

·   The £1.5 million reduction for restructuring costs and £1.9 million negative working capital adjustment reflects the £3.3 million restructuring costs of which £1.5 million has been paid in the period and £1.8 million remains outstanding, and £0.2 million (2020: £0.1 million) of acquisition, capital raise and share issue costs remains outstanding

·      £0.8 million acquisition, loan note issue and share re-listing costs reduction as these were added back to operating profit

·    £0.1 million interest and £0.7 million principal payments on IFRS16 leases are added back as they have already been charged to operating profit.

INDEPENDENT REVIEW REPORT TO NATIONAL WORLD PLC

Introduction

We have been engaged by the Company to review the interim financial statements in the interim financial report for the 6 months ended 3 July 2021 which comprises the Condensed Consolidated Income Statement, the Condensed Statement of comprehensive income, the Condensed Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash flow Statement and the related explanatory notes.

We have read the other information contained in the half‐yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half‐yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half‐yearly financial report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. As disclosed in note 1, the annual financial statements of National World Plc are prepared in accordance with international accounting standards as adopted by the United Kingdom. The condensed set of financial statements included in this half‐yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting," as adopted by the United Kingdom.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the interim financial statements in the interim financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements in the interim financial report for the 6 months ended 3 July 2021 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the United Kingdom and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Crowe U.K. LLP

Statutory Auditor

London

9 September 2021