REG - Smiths News PLC - FY2022 Preliminary Financial Results
09/11/2022 07:00
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RNS Number : 7522F Smiths News PLC 09 November 2022
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Audited Financial Results for the 52 weeks ended 27 August 2022
Performance ahead of expectations with material debt reduction and increased
dividend
Headlines
· Performance ahead of full year market expectations
· Core sales remaining resilient and benefiting from a favourable
margin mix
· Successful mitigation of inflation in line with expectations
· Free cash flow of £48.2m benefitting from £22m of expected
one-off inflows
· Significant reduction in bank net debt to £14.2m, representing
0.3x EBITDA (ex. IFRS16 leases)
· Final dividend of 2.75p proposed, making a full year dividend of
4.15p, a total payment of £10m
· Contracts for 35% of our newspaper and magazine revenues
re-secured until 2029
· New financial year has started well with trading in line with
expectations
FY2022 FY2021 % Change
Adjusted continuing results
Revenue £1,089.3m £1,109.6m -1.8%
EBITDA (ex. IFRS16 leases) £40.7m £42.6m -4.5%
Operating profit £38.1m £39.6m -3.8%
Profit before tax £31.1m £30.9m +0.6%
Earnings per share 10.8p 10.8p -0.0%
Cash flow and net debt
Free cash flow £48.2m £24.0m +100.8%
Bank Net Debt £14.2m £53.2m -73.3%
Average Bank Net Debt £49.9m £82.6m -39.6%
Statutory continuing results
Revenue £1,089.3m £1,109.6m -1.8%
Operating profit £32.4m £35.8m -9.5%
Profit before tax £27.9m £30.6m -8.8%
Earnings per share 9.8p 10.8p -9.3%
Statutory Net debt £39.4m £81.2m -51.5%
Dividend per share 4.15p 1.65p +151.5%
A strong performance in challenging times
Close management of the business essentials, together with an agile approach
to tactical opportunities, has delivered a strong performance in what are
challenging conditions in the wider UK economy. Newspaper and magazine sales
proved resilient, with year on year performance benefitting from the removal
of COVID-19 restrictions in the first half before returning to historic trends
as the year progressed. Strong sales of one shots and stickers which benefited
our margin mix were sustained across the year. In addition to cost savings,
the pursuit of ancillary revenues and reduction in interest payments have made
a marked contribution to offsetting inflationary pressures which, though
further challenged by the war in Ukraine, are broadly in line with our
forecasts. As a consequence, Adjusted EBITDA (ex. IFRS16), Net Debt and Cash
generation are all ahead of market expectations, supporting an increase in the
dividend payment to £10m for the full year (FY2021: £6m). As previously
announced, the Company's statutory results are impacted by the provisioning of
£4.4m to cover bad debt risk following the administration of McColls Retail
Group in May 2022.
Outlook
The new financial year has started well. Trading to date is in line with
expectations, and in October 2022, contracts representing 35% of newspaper and
magazine sales revenues, were renewed until 2029. Despite recent economic
volatility, inflationary pressures continue to be consistent with planning
assumptions and the combination of sustained margin mix and close cost control
give us confidence in maintaining performance in FY2023.
Jonathan Bunting, CEO, said:
'Our performance this year speaks to the strength of our business model and
culture. Despite clear and obvious pressures in the wider economy we have
maintained our focus, delivering results ahead of expectations. In doing so,
we have further strengthened the foundations of our finances and the prospects
of the business. The increased dividend is in line with our goal of meeting
the interests of all stakeholders and reflects our confidence in our markets
and the determined capability of our people'.
Enquiries:
Smiths News plc Via Buchanan below
Jonathan Bunting, Chief Executive Officer
Paul Baker, Chief Financial Officer
Investor.relations@smithsnews.co.uk
www.smithsnews.co.uk
Buchanan
Richard Oldworth/Jamie Hooper/Toto Berger 020 7466 5000
smithsnews@buchanan.com (mailto:smithsnews@buchanan.com)
www.buchanan.uk.com (http://www.buchanan.uk.com)
Smiths News plc's Preliminary Results 2022 are available at
www.smithsnews.co.uk
A recording of the presentation for analysts will be made available on the
Investor Relations section of the Company's website. See
www.smithsnews.co.uk/investors (http://www.smithsnews.co.uk/investors) .
Notes
The Company uses certain performance measures for internal reporting purposes
and employee incentive arrangements. The terms 'Bank Net Debt', 'free cash
flow', 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted
earnings per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined
terms under IFRS and may not be comparable with similar measures disclosed by
other companies.
(1) The following are key non-IFRS measures identified by the Company in the
consolidated financial statements as Adjusted results:
a. Continuing Adjusted operating profit - is defined as operating profit
including the operating profit of the businesses from the date of acquisition
and excludes Adjusted items and operating profit of businesses disposed of in
the year or treated as held for sale.
b. Continuing Adjusted profit before tax (PBT) - is defined as Continuing
Adjusted operating profit less finance costs and including finance income
attributable to Continuing Adjusted operating profit and before Adjusted
items.
c. Continuing Adjusted earnings per share - is defined as Continuing Adjusted
PBT, less taxation attributable to Adjusted PBT and including any adjustment
for minority interest to result in adjusted profit after tax attributable to
shareholders; divided by the basic weighted average number of shares in issue.
d. Adjusted items - Adjusting items of income or expense are excluded in arriving
at Adjusted operating profit to present a further measure of the Company's
performance. Each adjusting item is considered to be significant in nature
and/or quantum, non-recurring in nature and/or considered to be unrelated to
the Company's ordinary activities or are consistent with items treated as
adjusting in prior periods. Excluding these items from profit metrics provides
readers with helpful additional information on the performance of the business
across periods because it is consistent with how the business performance is
planned by, and reported to, the Board and the Executive Team. They are
disclosed and described separately in Note 4 of the Consolidated Financial
Statements to provide further understanding of the financial performance of
the Company. A reconciliation of adjusted profit to statutory profit is
presented on the income statement.
(2) Free cash flow - is defined as cash flow excluding the following: payment of
the dividend, the repayment of bank loans and EBT share purchases.
(3) Adjusted EBITDA (ex IFRS16) - is calculated as Adjusted operating profit
before depreciation and amortisation, excluding the impact of IFRS16 changes
to leases. In line with loan agreements Adjusted Bank EBITDA used for covenant
calculations is calculated as Adjusted operating profit before depreciation,
amortisation, Adjusted items and share based payments charge but after
adjusting for the last 12 months of profits/(losses) for any acquisitions or
disposals made in the year.
(4) Bank Net Debt - represents the net position drawn under the Company's banking
facilities and is calculated as total debt less cash and cash equivalents.
Total debt includes loans and borrowings and overdrafts but excludes
unamortised arrangement fees and excludes IFRS16 lease liabilities.
(5) FY2022 refers to the 52 week period ending 27 August 2022 and FY2021 refers to
the 52 week period ended 28 August 2021.
(6) The Consolidated Results have been prepared and presented on a Continuing
Operations basis after adjusting for the Discontinued Operations of the
Tuffnells business, which was sold in May 2020.
Cautionary Statement
This document contains certain forward-looking statements with respect to
Smiths News plc's financial condition, its results of operations and
businesses, strategy, plans, objectives and performance. Words such as
'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar
expressions, as well as statements in the future tense, identify
forward-looking statements. These forward-looking statements are not
guarantees of Smiths News plc's future performance and relate to events and
depend on circumstances that may occur in the future and are therefore subject
to risks, uncertainties and assumptions. There are a number of factors which
could cause actual results and developments to differ materially from those
expressed or implied by such forward looking statements, including, among
others the enactment of legislation or regulation that may impose costs or
restrict activities; the re-negotiation of contracts or licences; fluctuations
in demand and pricing in the industry; fluctuations in exchange controls;
changes in government policy and taxations; industrial disputes; war, pandemic
and terrorism. These forward-looking statements speak only as at the date of
this document. Unless otherwise required by applicable law, regulation or
accounting standard, Smiths News plc undertakes no responsibility to publicly
update any of its forward-looking statements whether as a result of new
information, future developments or otherwise. Nothing in this document should
be construed as a profit forecast or profit estimate. This document may
contain earnings enhancement statements which are not intended to be profit
forecasts and so should not be interpreted to mean that earnings per share
will necessarily be greater than those for the relevant preceding financial
period. The financial information referenced in this document does not contain
sufficient detail to allow a full understanding of the results of Smiths News
plc. For more detailed information, please see the Preliminary Financial
Results and/or the Annual Report and Accounts, each for the 52 week period
ended 27 August 2022 which can be found on the Investor Zone section of the
Smiths News plc website - www.smithsnews.co.uk. However, the contents of
Smiths News plc's website are not incorporated into and do not form part of
this document.
OPERATING REVIEW
Overview - Continued Progress Driven by Focus and Flexibility
During the year, we have delivered a strong financial result ahead of market
expectations by remaining focused on service and efficiency, while being
flexible in our pursuit of our overall goals. In addition to profit
performance, our key objectives of material debt reduction, continued cash
generation, the restoration of the dividend and the maintenance of service and
efficiency have all been met. In achieving these goals we have demonstrated
the continuing strength of our core business model and established a platform
for future opportunity.
Historically, Smiths News has sought to offset the margin impact of a
relatively predictable decline in core sales by securing sustainable
efficiencies across the network. This year, while still pursuing that
objective, the bridge to our profitability required us to address additional
challenges arising from the COVID-19 pandemic and growing inflationary
pressures. In this respect, the early actions we took to address warehouse and
driver shortages played a key role in our ability to maintain service with
consequent minimisation of waste and rectification costs.
The net impact of inflation was in line with our forecasts for the year,
despite the ramifications of the war in Ukraine which added further pressure
in the second half. In addition to close cost control we have benefited from
improved sales mix, cover price rises and ongoing network efficiencies. Our
performance was also aided by lower interest payments from the significant
reduction in average debt and by capitalising on a number of ancillary
opportunities.
Having made headway with our strategy to first strengthen the core business,
we have increased efforts to explore adjacent markets that can leverage our
network, daily deliveries and trading relationships. This year, we have
successfully trialled initiatives that include retailer waste collections and
partnering in parcel deliveries. These, together with other local actions,
have grown our ancillary revenues, making a modest and sustainable
contribution to profitability, but also suggesting there are encouraging early
opportunities to develop and scale these initiatives.
As anticipated, our core business has returned to historic sales trends and
the relative predictability this entails. Together with recent contract
renewals, this positions the business well given the current challenges and
uncertainty in the wider economy. Looking ahead, we will continue to focus
on containing the impact of inflation, but without damage or compromise to our
service and capabilities. We expect the combination of cost control, improved
margin and new revenues to continue to mitigate the impact of reduced
newspaper and magazine volumes, underpinning another successful year for the
business and its stakeholders.
Adoption of New Financial Metrics
The Board has reviewed the Company's key financial metrics and concluded that
the performance of the business would be better monitored by the adoption of
revised headline measures. Going forward, the Company will focus on Adjusted
Operating Profit as its primary measure of overall financial performance, a
measure that continues to be disclosed on the Company's Income Statement.
Financial Performance
Adjusted Operating Profit of £38.1m was down by 3.8% (FY2021: £39.6m) from
Revenue of £1,089.3m that was down by 1.8%. Adjusted Profit before tax of
£31.1m was £0.2m better than last year (FY2021 £30.9m) as the reduction in
Adjusted Operating Profit was offset by the benefit of lower interest charges
from the reduction in the Company's debt. Free cash flow, of £48.2m is up by
100% (FY2021: £24.0m) and includes the expected inflows arising from the
return of a pensions cash surplus (£8.1m) and settlement of Tuffnells
deferred consideration (£14m). Adjusted EPS of 10.8p was consistent with last
year.
The underlying factors in driving this performance were:
· Relatively stronger sales patterns as the restrictions of the
pandemic resulted in softer year on year comparators in H1, while strong price
rises helped sales in H2.
· Beneficial margin mix from the continued good performance of
higher margin one shots as schools returned and sticker collections and
trading cards flourished.
· Ancillary revenue gains from new initiatives and improved
performance of DMD, Instore and Rascal.
· The net impact of sustained inflation on both distribution and
other costs, including the national minimum wage.
· Lower interest charges from reduced debt and the new financing
agreements agreed in December 2021.
Statutory profit before tax of £27.9m is down by 8.8% (FY2021: £30.6m),
impacted by the administration of McColl's Retail Group in May 2022, for which
the Company has provisioned a bad debt risk of £4.4m as previously announced.
Sales and Markets
The newspaper and magazine market showed resilience this year, with both
categories returning a lower year on year decline than typical historical
trends. Combined sales of newspapers, magazines and one shots were down by
2.3%. This was in part driven by softer comparators from the previous year
(particularly in H1), however the sustained growth of one shots in a financial
year without a major football tournament, was an encouraging development.
Strong price rises in the second half reflect the sometimes counter-cyclical
nature of the market as publishers compensate for higher production costs -
typically these price rises tend to bunch before evening out over time.
Looking ahead, we expect core sales patterns to continue in line with historic
trends in FY2023. The impact of the pandemic restrictions has now washed
through and it is pleasing to note that the total number of retail customers
is broadly flat. The sale of McColl's Retail Group to Morrisons has secured
the continued trading of over 90% of its business with Smiths News and while
the administration of the former has required a material provision for bad
debt, the ongoing service and availability of supplies to consumers has been
protected.
Managing Inflationary Pressures
Our experience in securing efficiencies, together with the actions we took to
address driver shortages has limited the net impact of inflation to £2.1m in
the year, in line with the guidance we gave in the autumn of 2022. This has
been achieved through a combination of distribution efficiencies, tight
management of ongoing costs and growing ancillary revenues. As expected, there
will be some carry over into FY2023 as the key cost pressures on fuel,
national minimum wage and energy are annualised. The business is well placed
to meet this challenge and mitigating the impacts of inflation without
undermining customer service will remain operational priority in the months
ahead.
Ancillary Revenues
Our primary focus for the last two years has been to enhance the core
newspaper and magazine wholesaling business. Managing through a period of
unprecedented disruption we have worked to maintain service and enhance our
capabilities while strengthening the balance sheet and delivering growing
returns to shareholders. Against all these goals we have made good progress.
As the pandemic receded and our improvements embedded, we have increased our
attention to the potential for ancillary revenues and adjacent opportunities.
During the year we have taken advantage of smaller tactical initiatives,
benefitting revenue by £0.9m from measures such as renting spare depot space,
while also trialling opportunities that have greater potential to be
replicated across the network. We are currently exploring the logistics and
long term potential returns of two initiatives: the collection of retailer
waste; and the expansion of our partnership with a national courier to provide
sortation and distribution services at our local depots. Both these
opportunities can be developed with limited capital investment and without
distraction to our core service.
Our two established ancillary businesses, DMD and Instore, were
disproportionately impacted by the COVID-19 pandemic, which brought much
international travel to standstill and reduced the demand for instore
merchandising as retailers prioritised social distancing and basic services.
This year, we have seen some recovery in both markets and the businesses are
once again making a positive if more limited contribution to overall profit.
We will continue to support them on the recovery journey, believing they add
value to our role in the supply chain and enhance our skills and capabilities
to enter adjacent markets.
Contract Renewals
In October 2022 we announced the signing of new agreements with Frontline,
Seymour and Associated Newspapers. Together these represent circa 35% of
current newspaper and magazine revenues, and over 50% of the magazine market
through to 2029. Similar discussions with the other major publishers will
follow in due course and we are well placed to reach agreements that will
benefit all parties. The securing of long term contracts help not only to
improve the forecasting of future cash flows, it also assists our joint
efforts in seeking network efficiency, improved sustainability and future
supply chain development.
Net Debt
Bank Net Debt of £14.2m represents 0.3 x Adjusted EDITDA, benefitting from
one-off receipts of £22.1m resulting from the pension surplus (£8.1m) and
the settlement of Tuffnells deferred consideration (£14.0m), both of which
were used to pay down debt under the terms of the Company's banking
agreements. Average Net Debt reduced by 40% to £49.9m (FY2021: £82.6m).
Looking ahead, we expect to be able to continue paying down debt supported by
stable underlying cash flows.
Dividend
In December 2021 the Company favourably extended and amended its current
banking agreements, increasing the cap on dividends and distributions from
£6m to £10m for each financial year throughout the term of the facilities.
Subject to performance and meeting the investment needs of the business, the
Board intends to utilise the full extent of these distribution limits for the
return of cash to shareholders. Consequently, the Board has proposed a final
dividend of 2.75p, making a total dividend for the year of 4.15p (FY2021:
1.65p). The final dividend will be paid on 9 February 2023 to all shareholders
who are on the register at the close of business on 13 January 2023; the
ex-dividend date will be 12 January 2023.
Outlook
The new financial year has started well. Trading to date is in line with
expectations, and in October 2022, contracts representing 35% newspaper and
magazine sales revenues, were renewed until 2029. Despite recent economic
volatility, inflationary pressures continue to be consistent with planning
assumptions and the combination of sustained margin mix and close cost control
give us confidence in maintaining performance in FY2023.
FINANCIAL REVIEW
Overview
The Company continues to generate good underlying profit and free cash flow,
which, together with the benefit of one-off cash items, has reduced period end
net debt to £14.2m (FY2021: £53.2m) and enables dividends of £10m to be
proposed for the period.
Revenue was down 1.8% at £1,089.3m, a better performance than the historic
trend of 3-5%, buoyed by improved one shot and magazine sales, both of which
benefitted profitability through stronger margin mix. The impact of inflation
was managed in line with guidance given during the period, with the net impact
of £2.1m largely flowing to adjusted operating profit which was down £1.5m
at £38.1m.
Adjusted profit before tax, however, increased by £0.2m to £31.1m, due to a
£1.7m reduction in interest charges, a consequence of lower average net debt.
Adjusted EPS was stable at 10.8p, the same as FY2021.
Cash flow and net debt both benefitted from the return of the pension surplus
(£8.1m) and the settlement of Tuffnells deferred consideration (£14m) as
well as £26.1m of underlying cash generation.
On a statutory basis, operating profit decreased by £3.4m to £32.4m (FY2021:
£35.8m). The reduction was driven by the write down of £4.4m debt following
the administration of McColl's Retail Group, partially offset by lower other
adjusting items.
Statutory profit after tax of £23.4m was £2.9m lower than FY2021 (£26.3m)
reflecting the above factors and a higher effective rate of tax, the prior
period having benefitted from the use of Tuffnells losses. As a result,
statutory EPS reduced by 0.9p to 9.3p (FY2021: 10.2p).
A final dividend of 2.75p (£6.7m) has been proposed, taking the full period
FY2022 dividend to 4.15p or £10m (FY2021: £4m), an increase of £6m.
These financial results confirm the continuing success of the Company in
meeting its stated goals of maintaining the broad profitability and cash flows
of its core operation, materially reducing net debt and meeting the needs of
all stakeholders. Looking ahead, this strengthened financial position will
allow for greater flexibility in our delivery of further value for
shareholders.
Continuing Adjusted Results
£m 2022 2021 Change
Revenue 1089.3 1,109.6 -1.8%
EBITDA (ex. IFRS16)* 40.7 42.6 -4.5%
EBITDA 48.6 50.3 -3.4%
Operating profit 38.1 39.6 -3.8%
Net finance costs (7.0) (8.7) +19.5%
Profit before tax 31.1 30.9 +0.6%
Taxation (5.4) (4.6) -17.4%
Effective tax rate 17.4% 14.9% -16.8%
Profit after tax 25.7 26.3 -2.3%
* The Company gave guidance and set incentive targets using Adjusted EBITDA
(ex IFRS16) during FY2022. From FY2023 Adjusted operating profit will be used.
Revenue of £1,089.3m (FY2021: £1,109.6m) was down 1.8% on the prior period,
a better performance compared to the pre-COVID-19 (2015-2020) trend of c3%-5%.
Underpinning this performance was the success of one shot releases (+43%
increase in revenue period on period), with particularly strong showings of
Premier League football and Pokémon trading cards. Daily newspapers (-2%),
weekly (-3%) and monthly (-2%) magazines also performed better than historic
trends, offset by lower revenue from Sunday newspapers (-9%).
Daily newspapers, unlike the Sundays, benefitted from cover price increases in
the second half of the period. Magazines recovered further against a
comparative still impacted by COVID-19 and were also helped by increased
summer travel.
DMD also benefitted from increased travel. Revenue of £4.2m was a 27%
increase on FY2021 (£3.3m) and there was positive news towards the end of the
period with additional newspaper and magazine supply to Emirates and Thai
Airways who increased volumes on flights and in lounges.
At a profit level, continuing adjusted operating profit of £38.1m was a
decrease of £1.5m (-3.8%) on the prior period (FY2021: £39.6m) with
inflationary pressures having an impact on the delivery and warehouse cost
base.
The decrease can be attributed to the net impact of:
· Inflationary pressures (net impact £2.1m) affecting delivery and
warehouse processing costs, with increases to agency usage and contractor
rates offset by cost savings and higher rates for sale of waste paper.
· The benefit of product mix moving towards magazines and one shots on
wholesale margin (£1.4m).
· The benefit of ancillary revenue streams (£0.9m) including leasing of
spare warehouse space and improvement in performance of Rascal joint venture.
· Net impact of other items in depot costs and overheads (£1.7m)
including strategic planning support costs, an increase to the accrual for
unused annual leave, redundancy provisions, increased depot repair costs and
the impact of inflation on the dilapidations provision. Utility costs were
flat period on period with fixed price contracts in place until 2024.
Net finance charges of £7.0m (FY2021: £8.7m) were lower than the prior
period by £1.7m due to lower bank interest charges (£1.5m) and lower loan
arrangement fee amortisation (£0.2m).
Adjusted profit before tax was £31.1m, up 0.6% on last period. Taxation of
£5.4m indicates a higher effective tax rate of 17.4% compared to the prior
period (FY2021: 14.9%) the prior period having benefitted from the use of
Tuffnells losses.
Statutory Results
£m 2022 2021 Change
Revenue 1,089.3 1,109.6 -1.8%
Operating profit 32.4 35.8 -9.5%
Net finance costs (4.5) (5.2) +13.5%
Profit before tax 27.9 30.6 -8.8%
Taxation (4.5) (4.3) -4.7%
Effective tax rate 16.1% 14.1% -14.2%
Profit after tax 23.4 26.3 -11.0%
Discontinued Operations £m
Loss for the period from Discontinued Operations - (0.1)
Profit/(loss) attributable to equity shareholders 23.4 26.2 -10.7%
Statutory continuing profit before tax of £27.9m was a £2.7m decrease on the
prior period (FY2021: £30.6m). The decrease was driven by the £2.9m of
additional adjusting items which included the £4.4m McColl's write down.
The effective statutory income tax rate for the Continuing Operations was
16.1% (FY2021: 14.1%), the prior period having benefitted from the use of
Tuffnells losses.
The Company has net liabilities of £32.0m on its balance sheet (FY2021:
£57.7). The period on period reduction of £35.7m was driven by £23.4m of
statutory profit, the £10m net pension credit in other comprehensive income,
offset by £6.1m of dividends. Net liabilities have arisen largely as the
result of impairments relating to the Tuffnells business prior to its sale in
May 2020.
The Company-entity balance sheet continues to have distributable reserves of
£118.7m (FY2021: £124.9m) to allow for future dividend payments.
Earnings Per Share
Continuing Adjusted Continuing Statutory
2022 2021 2022 2021
Earnings attributable to ordinary shareholders (£m) 25.7 26.3 23.4 26.3
Basic weighted average number of shares (millions) 238.5 243.5 238.5 243.5
Basic Earnings per share 10.8p 10.8p 9.8p 10.8p
Diluted weighted number of shares (millions) 252.0 254.8 252.0 254.8
Diluted Earnings per share 10.2p 10.2p 9.3p 10.2p
Earnings attributable to shareholders on a continuing adjusted basis of
£25.7m resulted in an adjusted EPS of 10.8p, the same as FY2021. The impact
of lower profit as described above was offset by a lower basic weighted
average number of shares.
Statutory continuing earnings per share is down 0.9p to 9.3p (FY2021: 10.2p
per share), the result of a £2.9m lower profit, also offset by a higher
diluted weighted number of shares.
The fully diluted weighted number of shares was 252.0m (FY2021: 254.8m).
Fully diluted shares include a 13.5m diluted share adjustment for employee
incentive schemes (FY2021: 11.3m) due to purchases made during the period.
Dividend
2022 2021
Dividend per share (paid & proposed) 4.15p 1.65p
Dividend per share (recognised) 2.55p 0.50p
The Board is proposing a final dividend of 2.75p, taking the full period
dividend to 4.15p (FY2021: 1.65p). The proposed final dividend is subject to
approval by shareholders at the Annual General Meeting on 24 January 2023 and
has not been included as a liability in these accounts. The dividend
recommendation represents the maximum permissible sum that can be paid under
the distribution cap limits within our banking arrangements (£10m per annum)
and is based on the forecast number of shares in issue at the record date. The
proposed dividend, if approved, will be paid on 9 February 2023 to
shareholders on the register at close of business on 13 January 2022. The
ex-dividend date will be 12 January 2022.
Adjusted Items
Adjusted items before tax of £3.2m (cost) relating to Continuing Operations
were a £2.9m increase from the prior period (FY2021: £0.3m cost). The major
contributing factors to the increased cost were the impairment of receivables
(£4.4m increased costs) which was offset by £1m lower finance income.
Impairment of receivables is a provision resulting from McColl's going into
administration in May 2022.
Adjusted items are defined in the accounting policies in Note 1 of the Group
Financial Statements and present a further measure of our performance.
Excluding these items from profit metrics provides readers with helpful
additional information on the performance of the business across periods
because it is consistent with how the business performance is planned by, and
reported to, the Board and the Executive Team. Alternative Performance
Measures (APMs) should be considered in addition to, and are not intended to
be a substitute for, or superior to, IFRS measurements.
The tables below and commentary provide a summary of the adjusting items
impacting Continuing Operations. Full details of these and those impacting
discontinued items can be found in Note 4 of the Group Financial Statements.
£m 2022 2021
Impairment of receivables (4.4) -
Pensions (1.8) (1.0)
Transformation programme planning costs (0.9) (1.1)
Asset impairment reversal/(impairment) 1.2 (1.6)
Network and re-organisation costs 0.2 0.1
Share of profits from joint ventures - (0.3)
Other - 0.1
Total before tax and interest (5.7) (3.8)
Finance income - unwind of deferred consideration 2.5 3.5
Total before tax (3.2) (0.3)
Taxation 0.9 0.3
Total after taxation (2.3) -
Adjusted items from Continuing Operations before tax was a cost of £3.2m
(FY2021: £0.3m cost).
During the period, the Company provided for £4.4m impairment loss on
receivables as a result of McColl's going into administration. This represents
80% of the total receivables of £5.5m due from McColl's at the point of
administration and is in line with the administrator's estimated expected
payment to unsecured creditors. Having reviewed the nature of the bad debt,
the treatment in the past of material items, and the relevance to users of the
future predictability of the performance of the business, the £4.4m provision
is presented as an adjusting item, within the Company's existing alternative
performance measure.
Pension costs in the current and prior periods related to the buy-out of the
Company's defined benefit pension scheme, as discussed further below.
During the period, the Company incurred professional fees in relation to
transformation programme planning of £0.9m (FY2021: £1.1m).
An asset impairment reversal of £1.2m was recognised in the period (FY2021:
impairment costs £1.6m) in respect of the joint venture investment in Rascal
Solutions Limited ("Rascal"). An impairment was booked in the prior period
driven by increased market competition and increased risk of contractor
non-renewal. The business proved to be resilient having secured significant
contract extensions during the period resulting in a reversal of impairment.
Network and re-organisation costs were a credit of £0.2m (FY2021: £0.1m)
owing to an overprovision of costs in the prior periods.
In the prior period, Rascal fully impaired an intangible asset in its annual
accounts because it is considered to no longer have future economic value. The
net book value of this asset was £0.6m of which 50% (£0.3m) of the write off
is attributed to Smiths News.
A finance income credit of £2.5m (FY2021: £3.5m) arose on unwind of the
discount on the Tuffnells deferred consideration.
The tax credit on continuing adjusted items was £0.9 (FY2021: £0.3m).
Adjusted items before tax for Discontinued Operations -£0.1m (FY2021: £0.2m)
related to residual costs on the disposed Tuffnells business and, in prior
period, a VAT refund.
Free Cash Flow
( )
Free cash flow generation remains one of the Company's key strengths. Free
cash flow includes lease payments, Adjusted items, interest and tax.
£m 2022 2021
Operating profit continuing (including Adjusted items) 32.4 35.8
Adjusting items 5.7 3.8
Depreciation & amortisation 10.5 10.7
Adjusted EBITDA 48.6 50.3
Working capital movements (0.6) 1.0
Capital expenditure (1.9) (2.4)
Lease payments (6.4) (5.9)
Net interest and fees (8.0) (9.5)
Taxation (5.3) (6.3)
Other 1.2 0.8
Free cash flow (excluding adjusted items) 27.6 28.0
Adjusted items (cash effect) - return of pension surplus 8.1 -
Adjusted items (cash effect) - receipt of deferred consideration 14.0 -
Adjusted items (cash effect) - Other (1.5) (4.0)
Continuing Free cash flow 48.2 24.0
The Company generated £48.2m of free cash flow which was £24.2m higher than
FY2021 (£24.0) due to the £8.1m receipt of pension surplus and £14m
deferred consideration received from Tuffnells and lower levels of cash
adjusting items.
The decrease in working capital in the period was £0.6m (FY2021: increase
£1.0m). Working capital is affected by the billing cycles of both publishers
and retailers and leads to intra-month working capital movements of up to
£40m. Those cycles were largely consistent at the FY2022 and FY2021 period
end cut-off points, resulting in only a £0.6m movement.
With management focused on inflationary pressures in the first half of the
period, cash spent on capital programmes in the period reduced by £0.5m to
£1.9m (FY2021: £2.4m). In the last quarter of FY2022, the depot
refurbishment programme has regained momentum with £1.3m of orders and
capital creditors on the balance sheet at period end.
Lease payments increased to £6.4m (FY2021: £5.9m) due to lease renewals and
rent reviews completed during the period.
Net interest and fees of £8.0m (FY2021: £9.5m) has decreased by £1.5m, due
to the lower levels of net debt. Both the current and the prior period
included the payment of arrangement fees in relation to the Company's
refinancing of its banking facilities (FY2022: £2.9m, FY2021: £2.8m).
Cash tax outflow of £5.3m was a £1.0m decrease on the prior period (FY2021:
£6.3m outflow) as the write down of McColl's reduced the final quarter
payment.
The wind-up of the Company's defined benefit pension scheme (detailed further
below) resulted in the receipt of £8.1m in respect of the pension surplus in
December 2021.
FY2022 cash flow also benefitted from the receipt of £14m of deferred
consideration from Tuffnells, comprising the first instalment in November 2021
(£6.5m) and the final settlement of £7.5m in April 2022.
The total net cash impact of other adjusted items was a £1.5m outflow
(FY2021: £4.0m outflow). This comprised: £1.3m (FY2021: £1.2m) of
Transformation programme planning costs and £0.2m (FY 2022: £0.6m) of
Pension related costs. The prior period included £2.2m of network and
reorganisation costs (FY2022: £nil).
A reconciliation of free cash flow to the net movement in cash and cash
equivalents is given in the Glossary.
Net Debt
£m 2022 2021
Opening Bank Net Debt (53.2) (79.7)
Continuing Operations Free cash flow 48.2 24.0
Discontinued Operations Free cash flow (0.5) (0.4)
Free cash flow 47.7 23.6
Other movement - -
Dividend paid (6.1) (1.2)
Purchase of own shares for employee share schemes (2.6) (2.6)
Discontinued Operations - Tuffnells working capital loan - 6.7
Bank Net Debt (14.2) (53.2)
Bank net debt closed the period at £14.2m compared to £53.2m in August 2021,
a decrease of £39m.
The reduction in net debt was driven by free cash flow from Continuing
Operations of £48.2m as described above. These inflows were offset by the
payment of the FY2021 final dividend of £2.8m in February 2022, the FY2022
interim dividend of £3.3m and a £2.6m purchase of own shares.
The Company's bank net debt/ EBITDA ratio decreased to 0.3x (H1 2022: 0.9x,
FY2021: 1.2x). The period end fell just before major publisher payments of
c.£25m were made, which benefitted reported bank net debt. Bank Net Debt rose
to £34.5m on 31 August 2022 after the period end (£69.3m on 1 September
2021).
The publisher payments are part of the Company's normal working capital cash
flow cycle which generates a routine and predictable cash swing of up to £40m
within each period.
Our average daily bank net debt during FY2022 was £49.9m (FY2021: 82.6m) a
decrease of 39.5% for the full period. Since the settlement of the Tuffnells
deferred consideration (£7.5m) in April 2022, average net debt has been
£36.7m (FY2021: £75.3m).
Discontinued items cash flow in the current and prior period relates to
insurance settlements for incidents which occurred during the Company's
ownership of Tuffnells prior to 2 May 2020.
The bank net debt to EBITDA covenant of 0.3x is comfortably within our main
leverage covenant ratio of 2.0x (reducing to 1.75x in February 2023) and we
remain well within all our other bank covenant tests at period end.
A reconciliation of bank net debt (which excludes the IFRS16 lease creditor
and unamortised arrangement fees) to the balance sheet is provided in the
Glossary.
Going Concern
Having considered the Company's banking facility, the ongoing inflationary
pressures within the macro economy and the funding requirements of the
Company, the directors are confident that headroom under our bank facility
remains adequate, future covenant tests can be met and there is a reasonable
expectation that the business can meet its liabilities as they fall due for a
period of greater than 12 months (being an assessment period of 16 months)
from the date of approval of the Group Financial Statements. For this reason,
the directors continue to adopt the going concern basis in preparing the
financial statements and no material uncertainty has been identified.
Pension Schemes
In December 2021, the Company received the sum of £8.1m in respect of the net
cash surplus held by the Trustee from the finalisation of the buy-out of the
defined benefit liabilities in the News Section of the WH Smiths Pension
Scheme. As agreed with the Trustee of the Scheme, the return of surplus
preceded the formal winding up steps of the News Section - the winding up of
the News Section being formally completed on 25 February 2022 through the
purchase of insurance run-off cover and the payment of taxes owed to HMRC,
which were settled by the Trustee.
As part of the wind up, £1.3m was paid to an escrow account for the Trustee
to purchase indemnity insurance and to cover future claims from members owed
amounts following the Lloyds ruling in November 2020, and £0.2m was paid for
insurance run-off cover. The Company incurred £0.4m (FY2021: £0.6m) in
pension administrative expenses and other professional fees as a result of the
winding up process.
PRINCIPAL AND EMERGING RISKS
The Company has a clear framework in place to continuously identify and review
both the principal and emerging risks it faces. This includes, amongst others,
a detailed assessment of business and functional teams' principal risks and
regular reporting to and robust challenge from both the Executive Team and
Audit Committee. The directors' assessment of these principal risks is
aligned to the strategic business planning process.
Specifically, key risks are plotted on risk maps with descriptions, owners,
and mitigating actions, reporting against a level of materiality (principally
relating to impact and likelihood) consistent with its size. These risk maps
are reviewed and challenged by the Executive Team and Audit Committee and
reconciled against the Company's risk appetite. As part of the regular
principal risk process, a review of emerging risks (internal and external) is
also conducted, and a list of emerging risks is maintained and rolled-forward
to future discussions by the Executive Team and Audit Committee. Where
appropriate, these emerging risks may be brought into the principal risk
registers. Additional risk management support is provided by external
experts in areas of technical complexity to complete our bottom-up and
top-down exercises.
As part of the Board's ongoing assessment of the principal and emerging risks,
the Board has considered the performance of the business, its markets, the
changing regulatory landscape, the Company's future strategic direction and
ambition as well as the growing climate-related risk environment. The
directors have carried out a robust assessment of the Group's emerging and
principal risks, including those that could threaten its business model,
future performance, solvency or liquidity. Following those assessments three
emerging risks have been elevated to principal risks in our risk register.
They are: (i) changes to our retail customers' commercial model, (ii)
execution risk in implementing our growth and diversification ambitions and
(iii) sustainability and climate-related change environment.
Risks are still subject to ongoing monitoring and appropriate mitigation.
The table below details each principal business risk, those aspects that would
be impacted were the risk to materialise, our assessment of the current status
of the risk and how each is mitigated.
Principal risks and potential impact Mitigations Strategic link/ Change
Macroeconomic uncertainty
Deterioration in the macro-economic environment results in supply side cost Annual budgets and forecasts take into account the current macro-economic Strategic Link:
inflation. environment to set expectations internally and externally, allowing for or
changing objectives to meet short and medium term financial targets. Cost and efficiencies, Operations
Weekly cost monitoring enables oversight and action on a timely basis.
The Company is presented with cost challenges in a number of areas which are
being driven by increased competition in the distribution labour market and Predictable level of volume decline within the core business enables cost Change:
rises in fuel and utility prices. These cost increases present a risk when optimisation planning.
they cannot be fully mitigated through increased prices or other productivity
Increasing
gains. Use of fixed term contracts as a hedge against rapidly rising prices e.g.
energy costs.
The Company continues to be significantly cash generating to support its
This results in deterioration in the level of profitability in both the short strategic priorities.
and medium term and impacts on the Company's ability to execute its
strategies, including level of debt and liquidity objectives.
Acquisition and retention of labour
Due to the current competition in the distribution labour market the Company We seek to offer market competitive terms to ensure talent remains engaged. Strategic Link:
is facing an increased risk of being unable to recruit and retain warehouse
colleagues and support staff. We offer long-term contracts with our sub-contracted delivery partners. People first,
We use a variety of platforms to recruit employees and contractors. Culture and values,
The same pressures are also being felt in sourcing and retaining delivery The level of vacancies across warehouse and delivery contractors are monitored Costs and efficiencies
sub-contractors as well as filling in-house roles within our central support daily.
functions.
We undertake workforce planning; performance, talent and succession
initiatives; learning and development programs; and promote the Company's Change:
culture and core values.
A failure to maintain an appropriate level of resourcing could result in
Stable
increased costs, employee disengagement and/or loss of management focus and Retention plans are reviewed to address key risk areas, and attrition across
underpins the ability to address the strategic priorities and to deliver the the business is regularly monitored.
forecast performance.
Regular surveys are undertaken to monitor the engagement of colleagues.
IT infrastructure and cyber security
To meet the needs of our stakeholders, our IT infrastructure needs to be Defined risked based approach to the information security roadmap and Strategic Link:
flexible, reliable and secure. technology strategy which is aligned to the strategic plans.
Technology
Regular tracking of key programmes against spend targets and delivery dates.
Secure infrastructure prevents external cyber-attack, insider threat or The Company assesses cyber risk on a day to day basis, using proactive and
supplier breach could cause service interruption and/or the loss of company reactive information security controls to mitigate common threats. Change:
and customer data.
Dedicated information security investments and access to third-party cyber Stable
security specialists.
Cyber incidents could lead to major adverse customer, financial, reputational The Company encourages a cyber aware culture by undertaking exercises such as
and regulatory impacts. computer-based training and more regular communications about specific cyber
threats.
We continue to pursue Cyber Essentials and Cyber Essential Plus
Flexible and reliable IT infrastructure means the Company is able to meet its accreditations.
strategic goals and react quickly to changing events. The lack of this could
lead to the Company being unable to execute its strategic goals.
Legal and regulatory compliance
The Company is required to be compliant with all applicable laws and Changes in laws and regulations are monitored with policies and procedures Strategic link:
regulations. Failure to adhere to these could result in financial penalties being updated as required.
and/or reputational damage.
Technology,
Business-wide mandatory training programmes for higher-risk regulatory areas.
Sustainability,
External experts are used where applicable.
Key areas of legal and regulatory compliance include:
Operations
All major policies are reviewed by the Board or Audit Committee on an annual
· GDPR basis.
· Health and Safety Operational auditing and monitoring systems for higher risk areas. Change:
· Tax compliance Stable
· Environmental legislation
· Employment law
Changes to retailers' commercial model
Our largest retailers (e.g. grocers and symbol group members) remain under Our EPOS-based returns (EBR) solution has been introduced instore with our Strategic link:
significant pressure to maximise sales and profitability by channel within largest retailers, improving staff efficiency in managing the magazine
their retail stores and at associated sale outlets, such as at petrol category, thereby reducing cost to the retailer. Cost and efficiencies
forecourt stores. This could result at any time in a category review of the
newspaper and magazine channel, leading to a significant reduction in
newspapers' and/or magazines' selling space instore in favour of other higher
margin products and/or the delisting of all/particular titles of newspapers Longer term potential to extend EBR to newspapers in order to broaden Change:
and/or magazines. efficiency-benefits to retailers.
New
A reduction in sales space and/or full delisting of newspapers and/or Form stronger partnerships with emerging retailers to stock
magazines by our largest retailers could materially reduce the Company's
revenue, profitability and cash flow. magazines and newspapers.
Growth and diversification
A successful growth and diversification strategy is essential to the long-term Strong project management and governance in place to sign-off growth Strategic link:
success of the Company. At the same time, maintaining the Company's initiatives and oversee their implementation.
outstanding and sector-leading standards of service in newspaper and magazine
Cost and efficiencies
wholesaling is paramount to help fund growth and diversification opportunities
and support publisher contract renewals, each of which deliver shareholder
value. A Growth Delivery Operations Steering Committee has been established to
monitor the impact of new business opportunities on core operations. Change:
New
Implementing new business growth opportunities without detrimentally impacting
the Company's core newspaper and magazine wholesaling carries an execution Pilots and trials of new business opportunities have been deployed to assess
risk to both the new initiative and ensuring the Company remains able to both the potential economic benefit of such opportunity and its likely impact
deliver sector-leading support to publisher clients. on maintaining the Company's outstanding and sector-leading standards of
service in newspaper and magazine wholesaling.
Executive Team balanced scorecard of key performance indicators ensures
sub-optimal performance is tracked and monitored on a regular basis and allows
appropriate interventions to be made.
Sustainability and climate change
Climate change is a widely acknowledged global emergency. In the UK, Sustainability Steering Committee established (chaired by the Chief Financial Strategic link:
government and regulatory changes in response to a drive to 'net zero' carbon Officer) to coordinate the Company's action on climate change.
emissions and increasingly stringent air quality targets for UK towns and
Cost and efficiencies,
cities could make it more difficult and costly for the Company to undertake
newspaper and magazine wholesaling activities within the UK or particular
Operations,
towns and cities. In addition to these transitional risks associated with Emissions and air quality targets in UK towns and cities are monitored by a
moving to a low carbon future, there are also a range of ongoing physical central team in the Operations function which ensures the Company can fulfil Sustainability
risks. These include an increase in the frequency of extreme weather events its obligations to customers and remain compliant with legal requirements.
which may result in power outages, disruption to our service operations and/or
impact our ability to serve our customers in an efficient and cost-effective
manner.
Change:
Operational sites are reviewed for their resilience to extreme weather events
such as floodings, with upgrades and interventions made where these are New
cost-effective.
In common with all major organisations, there is a risk of reputational damage
and/or loss of revenue if the Company fails to meet stakeholder expectations
for action on climate change.
Depots are relocated to new sites (e.g. during lease break windows) where this
represents a better option than adapting an existing location.
Working with suppliers to ensure they share the Company's vision to act on
climate change.
GROUP FINANCIAL STATEMENTS
Group Income Statement for the 52 week period ended 27 August 2022
£m 2022 2021
Note Adjusted* Adjusted items Total Adjusted* Adjusted items Total
Revenue 2 1,089.3 - 1,089.3 1,109.6 - 1,109.6
Cost of Sales 3 (1,016.6) - (1,016.6) (1,036.2) - (1,036.2)
Gross profit 3 72.7 - 72.7 73.4 - 73.4
Administrative expenses 3 (35.0) (2.5) (37.5) (33.9) (1.9) (35.8)
Net impairment loss on trade receivables 4 - (4.4) (4.4) - - -
Other income 0.1 - 0.1 - - -
Income from joint ventures 13 0.3 - 0.3 0.1 (0.3) (0.2)
Impairment of joint venture investment 13 - 1.2 1.2 - (1.6) (1.6)
Operating profit 2,3 38.1 (5.7) 32.4 39.6 (3.8) 35.8
Finance costs 7 (7.0) - (7.0) (8.8) - (8.8)
Finance income 7 - 2.5 2.5 0.1 3.5 3.6
Profit/(loss) before tax 31.1 (3.2) 27.9 30.9 (0.3) 30.6
Income tax credit/(expense) 8 (5.4) 0.9 (4.5) (4.6) 0.3 (4.3)
Profit/(loss) for the year from continuing operations 25.7 (2.3) 23.4 26.3 - 26.3
Discontinued operations
Loss for the year from discontinued operations 4 - - - - (0.1) (0.1)
Profit/(loss) attributable to equity shareholders continuing and discontinued 25.7 (2.3) 23.4 26.3 (0.1) 26.2
operations
Earnings/(Loss) per share from continuing operations
Basic 10 10.8 9.8 10.8 10.8
Diluted 10 10.2 9.3 10.2 10.2
Earnings per share total
Basic 10 10.8 9.8 10.8 10.8
Diluted 10 10.2 9.3 10.2 10.2
Equity dividends per share (paid and proposed) 9 4.15 4.15 1.65 1.65
* This measure is described in Note 1(4) of the accounting policies and the
Glossary to the Accounts. Adjusted items are set out in Note 4 to the Group
Financial Statements.
Group Statement of Comprehensive Income for the 52 week period ended 27 August
2022
£m Note 2022 2021
Continuing
Items that will not be reclassified to the Group Income Statement
Reassessment as to recoverability of retirement benefit scheme surplus 6 14.8 (0.4)
Impact of IFRIC 14 on defined benefit pension scheme 6 - 0.8
Tax relating to components of other comprehensive income that will not be 8 (5.1) 0.2
reclassified
9.7 0.6
Items that may be subsequently reclassified to the Group Income Statement
Currency translation differences - -
Other comprehensive result for the year - continuing 9.7 0.6
Profit for the year - continuing 23.4 26.3
Total comprehensive income for the year - continuing 33.1 26.9
Other comprehensive income for the period discontinued - -
(Loss) for the year - discontinued - (0.1)
Total comprehensive (expense) for the year - discontinued - (0.1)
Total comprehensive income/(expense) for the year 33.1 26.8
Group Balance Sheet as at 27 August 2022
£m Note 2022 2021
Non-current assets
Intangible assets 11 1.7 2.3
Property, plant and equipment 12 8.6 9.4
Right of use assets 19 26.3 28.4
Interest in joint ventures 13 4.2 2.9
Other receivables 15 - 2.3
Deferred tax assets 20 1.1 1.8
41.9 47.1
Current assets
Inventories 14 15.6 13.2
Trade and other receivables 15 95.7 106.6
Cash and bank deposits 17 35.3 19.3
Corporation tax receivable 0.9 -
147.5 139.1
Total assets 189.4 186.2
Current liabilities
Trade and other payables 16 (140.3) (136.5)
Current tax liabilities - (0.3)
Bank loans and other borrowings 17 (8.0) (21.2)
Lease liabilities 19 (5.9) (5.9)
Provisions 21 (3.0) (3.6)
(157.2) (167.5)
Non-current liabilities
Bank loans and other borrowings 17 (39.1) (50.1)
Lease liabilities 19 (21.7) (23.3)
Non-current provisions 21 (3.4) (3.0)
(64.2) (76.4)
Total liabilities (221.4) (243.9)
Total net liabilities (32.0) (57.7)
Equity
Called up share capital 25(a) 12.4 12.4
Share premium account 25(c) 60.5 60.5
Demerger reserve 26(a) (280.1) (280.1)
Own shares reserve 26(b) (4.6) (3.9)
Translation reserve 26(c) 0.4 0.4
Retained earnings 27 179.4 153.0
Total shareholders' deficit (32.0) (57.7)
The accounts were approved by the Board of Directors and authorised for issue
on 8 November 2022 and were signed on its behalf by:
Jonathan Bunting Paul Baker
Chief Executive Officer Chief Financial Officer
Registered number - 05195191
Group Statement of Changes in Equity for the 52 week period ended 27 August
2022
£m Note Share capital Share premium account Demerger reserve Own shares reserve Hedging & translation reserve *Retained earnings *Total
Balance at 30 August 2020 12.4 60.5 (280.1) (1.8) 0.4 127.0 (81.6)
Profit for the year - - - - - 26.2 26.2
Actuarial gain on defined benefit pension scheme 6 - - - - - (0.4) (0.4)
Impact of IFRIC 14 on defined benefit pension scheme 6 - - - - - 0.8 0.8
Tax relating to components of other comprehensive income - - - - - 0.2 0.2
Total comprehensive expense/income for the year - - - - - 26.8 26.8
Dividends paid 9 - - - - - (1.2) (1.2)
Employee share schemes purchases - - - (2.7) - - (2.7)
Employee share scheme awards - - - 0.6 - (0.6) -
Recognition of share based payments net of tax - - - - - 1.0 1.0
Balance at 28 August 2021 12.4 60.5 (280.1) (3.9) 0.4 153.0 (57.7)
Profit for the year - - - - - 23.4 23.4
Actuarial gain on defined benefit pension scheme 6 - - - - - 14.8 14.8
Tax relating to components of other comprehensive income - - - - - (5.1) (5.1)
Total comprehensive expense/income for the year - - - - - 33.1 33.1
Dividends paid 9 - - - - - (6.1) (6.1)
Employee share schemes purchases - - - (2.2) - - (2.2)
Employee share scheme awards - - - 1.5 - (1.5) -
Recognition of share based payments net of tax - - - - - 1.2 1.2
Current tax recognised in equity - - - - - (0.1) (0.1)
Deferred tax recognised in equity - - - - - (0.2) (0.2)
Balance at 27 August 2022 12.4 60.5 (280.1) (4.6) 0.4 179.4 (32.0)
Group Cash Flow Statement for the 52 week period ended 27 August 2022
£m Note 2022 2021
Net cash inflow from operating activities 24 49.8 41.4
Investing activities
Dividends received from joint ventures 0.2 0.2
Purchase of property, plant and equipment (1.3) (2.4)
Purchase of intangible assets (0.7) -
Net proceeds on sale of property, plant and equipment 0.1 -
Interest received - 0.1
Loan repayment received - 6.5
Deferred consideration receipts 14.0 -
Net cash generated from investing activities 12.3 4.4
Financing activities
Interest paid (5.1) (6.8)
Arrangement fees paid (2.9) (2.7)
Dividend paid 9 (6.1) (1.2)
Repayments of lease principal (6.4) (5.9)
Repayment of term loan (83.0) (57.5)
New loans issued 60.0 80.0
Net decrease in revolving credit facility and overdrafts - (80.2)
Purchase of shares for employee benefit trust (2.6) (2.6)
Net cash (used in)/generated financing activities (46.1) (76.9)
Net (decrease)/increase in cash and cash equivalents 16.0 (31.1)
Effect of foreign exchange rate changes - (0.2)
16.0 (31.3)
Opening net cash and cash equivalents 19.3 50.6
Closing net cash and cash equivalents 17 35.3 19.3
Notes to the Accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc ('the Company') is a company incorporated in England UK under
Companies Act 2006. The Group accounts for the 52 week period ended 27 August
2022 comprise the Company and its subsidiaries (together referred to as the
'Group') and the Group's interests in joint ventures and associates.
Subsidiary undertakings are included in the Group Accounts from the date on
which control is obtained. They are deconsolidated from the date on which
control ceases. All significant subsidiary accounts are made up to 27 August
2022 and are included in the Group Accounts.
Unless otherwise noted references to 2021 and 2022 relate to a 52 week period
ended 28 August 2021 and 27 August 2022 as opposed to calendar year.
The Accounts were authorised for issue by the directors on 8 November 2022.
(2) Accounting basis of preparation
The financial information contained within this preliminary announcement for
the 52 weeks to 27 August 2022 and the 52 weeks to 28 August 2021 does not
comprise statutory financial statements for the purpose of the Companies Act
2006, but is derived from those statements. The statutory accounts for Smiths
News PLC for the 52 weeks to 28 August 2021 have been filed with the Registrar
of Companies and those for the 52 weeks to 27 August 2022 will be filed
following the Company's annual general meeting. The auditor's reports on the
accounts for both the 52 weeks to 27 August 2022 and the 52 weeks to 28 August
2021 were unqualified, did not draw attention to any matters by way of
emphasis, and did not include a statement under Section 498 (2) or (3) of the
Companies Act 2006. The Annual Report and Accounts will be available for
shareholders in December 2022.
The Accounts are prepared on the historical cost basis with the exception of
certain financial instruments and are presented in Pound Sterling and rounded
to £0.1m, except where otherwise indicated.
The Group Accounts have been prepared in accordance with UK-adopted
International Accounting Standards (IAS) in conformity with the requirements
of the Companies Act 2006.
Intra-group balances and unrealised gains and losses or income and expenses
arising from intra-group transactions, are eliminated in preparing Group
Accounts. Unrealised gains and losses arising from transactions with the joint
ventures are eliminated to the extent of the Group's interest in the entities.
(3) Going concern
The Group accounts have been prepared on a going concern basis.
When assessing the going concern of the Group, the directors have reviewed the
year to date financial actuals, as well as detailed financial forecasts for
the period up to 29 February 2024, the going concern period.
The Group currently has a net liability position of £32.0m as at 27 August
2022. All bank covenant tests were met at the year end. The key bank net debt:
EBITDA (ex IFRS16) ratio of 0.34x, was below the covenant test threshold of
2.0x. The threshold reduces to 1.75x from 25 February 2023.
The intra-month working capital cash flow cycle at Smiths News generates a
routine and predictable cash swing of up to £40m. This results in a
predictable fluctuation of bank net debt during the course of the month
compared to the closing net debt position. Our average net borrowings during
2022 were £49.8m (2021: £82.6m). The Company utilises the Revolving Credit
Facility (RCF) to manage the cash swing. At the year end, £30.0m of the RCF
was available and the Company had £35.3m of cash on hand giving headroom of
£64m.
3i) Bank facility
The Group has a facility of £79.5 million at the balance sheet date,
comprising a £49.5 million amortising term loan and a revolving credit
facility (RCF) with a limit of £30.0m. The Group's banking facility was
amended and extended in December 2021 and has a final maturity date of 31
August 2025. The new facility comprises an initial £60 million amortising
term loan, of which the Group has since repaid £10.5 million as at the
balance sheet date. The available facility was £27.65m at year end due to
£2.35m of letters of credit (see note 17). The agreement is with a syndicate
of banks comprising HSBC, Barclays, Santander and Clydesdale.
The facility's current margin is 4% per annum over SONIA.
Consistent with the Company's stated strategic priorities to reduce net debt,
the terms of the facility agreement include: an amortisation schedule of £6m
in the first year and £10m per annum thereafter for the repayment of the term
loan; a reduction in the RCF of £5m per year after the first year; and capped
dividend payments at £10m per year.
The final maturity date of the facility is 31 August 2025.
3ii) Reverse stress testing
The directors have prepared their base case forecast which represents their
best estimate of cash flows over the going concern period, which is up to 29
February 2024 and in accordance with FRC guidance have prepared a reverse
stress test that would create a covenant break scenario which could lead to
the facilities being repayable on demand.
The break scenario would occur in February 2024 if EBITDA (ex IFRS 16) was 48%
below the board approved three year plan. Facility headroom of £11m would
still exist at this point. The directors consider the likelihood of this level
of downturn to be remote based on:
· current trading which is in line with expectations
· year-on-year declines in revenues would have to be
significantly greater than historical trends
· the contracts are secured with publishers until at least
2024; and
· the Company continues to trade with adequate profit to
service its debt covenants.
3iii) Mitigating actions
In the event the break environment scenario went from being remote to possible
then management would seek to take mitigating actions to maintain liquidity
and compliance with the bank facility covenants. The options within the
control of management would be to:
· Optimise liquidity by working capital management of the
peak-to-trough intra-month movement of up to £40m. Utilising existing vendor
management finance arrangements with retailers and optimising contractual
payment cycles to suppliers which would improve liquidity headroom,
· Not pay planned dividend,
· Delay non-essential capex projects,
· Cancel discretionary annual bonus payments; and
· Identify other overhead and depot savings.
More extreme mitigating actions would also be available if the scenario arose.
*The Company has vendor finance arrangements in place where it has the ability
to request early payment of invoices at a small discount, the payments are
non-recourse and the invoices are considered settled from both sides once
payment is received. The Company has not made use of this facility in FY2022
nor FY2021 or since the Balance Sheet date.
3iv) Assessment
Having considered the above and the funding requirements of the Group and
Company, the directors are confident that headroom under the bank facility
remains adequate, future covenant tests can be met and there is a reasonable
expectation that the business can meet its liabilities as they fall due for a
period of greater than 12 months (being an assessment period of 16 months)
from the date of approval of the Group Financial Statements. For this reason,
the directors continue to adopt the going concern basis in preparing the
financial statements and no material uncertainty has been identified.
(4) Alternate performance measures
In reporting financial information, the Group presents alternative performance
measures (APMs), which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs (listed in the glossary, are not considered
to be a substitute for, or superior to, IFRS measures but provide stakeholders
with additional helpful information on the performance of the business. These
APMs are consistent with how the business performance is planned and reported
within the internal management reporting to the Board and Executive Team.
The APMs do not have standardised meaning prescribed by IFRS and therefore may
not be directly comparable to similar measures presented by other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of newspapers and
magazines. The Group is considered to be the principal based on the following
indicators of control over its inventory: discretion to establish prices; it
holds some of the risk of obsolescence once in control of the inventory; and
has the responsibility of fulfilling the performance obligation on delivery of
inventory to its customers. If the Group were considered to be the agent,
revenue and cost of sales would reduce by £921.3m (2021: £945.2m).
Determining lease terms
In determining lease terms, management considers all facts and circumstances
that create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after termination
options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated).
For leases of distribution centres and equipment, the following factors are
the most relevant:
· The Company continually considers the optimal network
structure in its judgement over lease terms;
· If there are significant penalties to terminate (or not
extend), the Company is typically reasonably certain to extend (or not
terminate);
· If any leasehold improvements are expected to have a
significant remaining value, the Company is typically reasonably certain to
extend (or not terminate); and
· Otherwise, the Group considers other factors including
historical lease durations and the costs and business disruption required to
replace the leased asset. Most extension options in vehicles leases have not
been included in the lease liability, because the Group could replace the
assets without significant cost or business disruption.
The lease term is reassessed if an option is actually exercised (or not
exercised) or the Group becomes obliged to exercise (or not exercise) it. The
assessment of reasonable certainty is only revised if a significant event or a
significant change in circumstances occurs, which affects this assessment, and
that is within the control of the lessee.
Adjusting items
Adjusting items of income or expense are excluded in arriving at Adjusted
operating profit to present a further measure of the Group's performance. Each
adjusting item is considered to be significant in nature and/or quantum,
non-recurring in nature and/or are considered to be unrelated to the Group's
ordinary activities or are consistent with items treated as adjusting in prior
periods. Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business across
periods because it is consistent with how the business performance is planned
by, and reported to, the Board and the Executive Team.
The classification of adjusting items requires significant management
judgement after considering the nature and intentions of a transaction.
Adjusted measures are defined with other APM's in the glossary.
Based on the nature of the transactions, Adjusting items after tax including a
£4.4m net loss on trade receivables in respect of the Group's outstanding
trade receivable with McColl's Retail Group, totalled £2.3m (2021: £0.1m)
and a breakdown is included within Note 4.
Retirement benefits
During the year, the Trustee reached the position where it was advised that it
could legally distribute the pension cash surplus to the employer as it had
completed activities to trace former members of the Trust impacted by the GMP
ruling. This gave the Company an unconditional right to the surplus asset and
as such the IAS 19 pre-tax surplus of £14.8m has been recognised through
other comprehensive income in the year and the IFRIC14 ceiling eliminated.
Subsequently, the Company received the sum of £8.1m, the value of the surplus
net of tax and costs on 3 December 2021.
As agreed with the Trustee, the return of the surplus preceded the formal
winding up steps of the News Section of the pension scheme, with the winding
up of the scheme formally being completed on 25 February 2022 through the
purchase of insurance run-off cover and payment of taxes owed to HMRC by the
Trustee.
As part of the closure of the scheme the Company agreed to deposit £1.3m of
the pension surplus into an escrow account to fund the insurance costs for the
Trustee and the outstanding liability to former
members in respect of the Lloyds GMP ruling in November 2020. The funds held
in escrow are not considered an asset of the Company and are not recognised on
the balance sheet. The cost of the insurances have been recognised through
administration expenses in the income statement and treated as an Adjusted
item.
The Company has agreed run-off indemnity coverage for any member claims that
are uninsured liabilities capped at £6.5m over the next 60 years. This
potential liability is considered a contingent liability at the period end and
reported as such.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The key assumption concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period that may have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount may not be recoverable.
When a review for impairment is conducted, the recoverable amount is
determined using value in use calculations. The value in use method requires
the Company to determine appropriate assumptions in relation to the cash flow
projections over the three-year plan period (which is a key source of
estimation uncertainty), the terminal growth rate to be applied beyond this
three-year period and the risk-adjusted post-tax discount rate used to
discount the assumed cash flows to present value. The assumption that cash
flows continue into perpetuity is a source of significant estimation
uncertainty.
During the period, the Company reviewed the business plan for the Rascal Joint
Venture and it was determined that the potential challenges anticipated to
arise in the prior period, have not materialised with the successful renewal
of contracts previously considered to be at risk. The Company has therefore
chosen to reverse the impairment previously booked by £1.2m. In the prior
period, it was assessed that certain challenges may arise from increasing
market competition, resulting in an impairment loss of £1.6m being
recognised. A value in use of £4.2m has been calculated based on future cash
flows of the business and have been discounted at a rate of 13% and a terminal
growth rate applied of 0%. The result is a reversal of impairment of £1.2m.
Refer to Note 13, for further details.
Property provision
The Group holds a property provision which estimates the future liabilities to
restore leased premises to an agreed standard at the date the lease is
terminated. The provision is calculated based on key assumptions including the
length of time properties will be occupied, the future costs of restoration
and the condition of the property at the future exit date.
The property provision represents the estimated future cost of the Group's
potential dilapidation costs on non-trading properties across the Group. As
the current economic outlook is for increased inflation, the Group has
assessed the effect of inflation as material on the provisions in the current
year. The provisions have therefore been adjusted for the effect of inflation
in the current year. These provisions have been discounted to present value
and this discount will be unwound over the life of the leases.
A change in any of these assumptions could materially impact the provision
balance. Refer to Note 21 for further details on the sensitivity of the
assumptions used to calculate the property provision. The property provisions
carrying value at the year end is £4.4m (2021: £3.8m).
Net impairment loss on trade receivables
On 9 May 2022 ("the administration date"), McColl's Retail Group went into
administration. A statement of claim form was filed with the Administrators
for an amount of £5.5m. The administrators issued notification on 27 May 2022
that they expected unsecured creditors to receive between 20-40% of approved
claims. Management has not received any further information from the
Administrators as at the balance sheet date and issuance of this report and
has therefore provided a best estimate that only 20% of the outstanding
balance is recoverable. The Company has therefore recognised a net impairment
loss of £4.4m, representing 80% of the total balance of £5.5m in the current
financial period. If the Company had considered 40% of the total balance of
£5.5m to be recoverable in line with the upper range of the administrators
estimate, the provision recognised would have been £3.3m. The net impairment
loss of £4.4m does not have an impact on the Group's assessment of its
expected credit losses in respect of its remaining trade receivables and
therefore remains negligible. For this reason, the provision for the McColl's
net impairment loss of £4.4m has been disclosed separately as a specific
provision for doubtful debts, with the net impairment loss expense presented
in adjusting items.
(6) Discontinued
operations
On 2 May 2020, the Company completed the sale of Tuffnells and assumed
liability to settle certain pre-disposal insurance and legal claims relating
to employer's liability, public liability, motor accident claims and legal
claims, held as provisions. The Company continues to present the cash outflows
from these provisions for comparative purposes.
In accordance with IFRS 5 'Non-current assets held for sale and Discontinued
operations', the net results of discontinued operations have been presented
separately in the comparative Group Income statement and the assets and
liabilities of operations are presented separately in the Group balance sheet
if they meet the held for sale criteria at the balance sheet date or were
disposed of during the year.
A cash generating unit would meet the classification of a discontinued
operation when considered a material to the Group's overall results.
(7) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of the products
has transferred, that is, when the products are delivered to the retailer and
there is no unfulfilled obligation that could affect the retailer's acceptance
of the products, the risks of obsolescence and loss have been transferred to
the retailer. Goods are sold to retailers on a sale or return basis.
Distribution income
Distribution income is recognised when the products such as newspapers and
magazines are delivered to the retailer and there are no unfulfilled
obligations that could affect the retailer's acceptance of the products.
Voucher income
Voucher income represents the margin income received from managing the process
of collecting voucher payments from retailers and passing them on to voucher
processing centres. The Group is primarily responsible for fulfilling the
service.
Sales and marketing
The Group supplies marketing services to both retailers and suppliers. This
includes services such as shelf stacking, stock checking and merchandising.
The Group is primarily responsible for fulfilling the services.
Sale of waste
Income from the sale of waste represents the amount received per tonne of
newspapers and magazines returns sold on for recycling. The Group has primary
responsibility for fulfilling the service.
Return Reserve
Newspapers and Magazines sales are made on a sale or return basis, therefore
the Group is required to estimate a value relating to expected returns from
retailers. Likewise as the publishers are required to provide the Group with
credit for any purchase returns, so a purchase returns reserve is also
required. The key estimates used in calculating the period end reserve are
rates of returns (based on historical tends), average shelf life of the
product types and average price of each product type. These estimates are
similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net of the value
of any returns. Newspapers and magazines are often sold with retrospective
volume discounts based on aggregate sales. Revenue from these sales is
recognised based on the price specified in the contract, net of the estimated
volume discounts. Accumulated experience is used to estimate and provide for
the discount and returns', using the expected value method and revenue is only
recognised to the extent that it is highly probable that a significant
reversal will not occur. A returns reserve accrual and discount accrual
(included in trade and other payables) is recognised for expected volume
discounts and refunds payable to customers in relation to sales made until the
end of the reporting period. A right to the returned goods (included in other
debtors) are recognised for the products expected to be returned. Newspapers
and Magazines are made on a sale or return basis, therefore the Group is
required to estimate a value relating to expected returns from retailers.
Likewise as the publishers are required to provide the Group with credit for
any purchase returns a purchase returns reserve is also required No element of
financing is deemed present, because the sales are made with short credit
terms, which is consistent with market practice.
A receivable is recognised when the goods are delivered, since this is the
point in time that the consideration is unconditional because only the passage
of time is required before the payment is due.
(8) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of inventories recognised
as an expense and distribution costs as these are considered to represent for
the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of sales.
(9) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement, except to the extent it relates to
items recognised in other comprehensive income or directly in equity. Current
tax is the expected tax payable based on the taxable profit for the year,
using tax rates enacted, or substantively enacted at the balance sheet date
and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
The amount of deferred tax provided is calculated using tax rates enacted or
substantively enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax liability is
settled. Deferred tax assets are recognised to the extent that it is probable
that future taxable profits will be available against which these temporary
differences can be utilised.
(10) Dividends
Interim and final dividends are recorded in the financial statements in the
period in which they are paid.
(11) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group is able to
demonstrate all of the following: the technical feasibility of the resulting
asset; the ability (and intention) to complete the development and use it; how
the asset will generate probable future economic benefits; adequate technical,
financial and other resources to complete the development and to use the
software are available; and the ability to measure reliably the expenditure
attributable to the asset during its development. Software costs are also
capitalised if they can be hosted on another server, are portable and the
Group has sole rights to the software. Subsequent to initial recognition,
internally generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as
intangible assets that are acquired separately.
(12) Joint ventures
The Group Accounts include the Group's share of the total recognised gains and
losses in its joint ventures on an equity accounted basis.
Investments in joint ventures are carried in the balance sheet at cost
adjusted by post-acquisition changes in the Group's share of the net assets of
the joint ventures, less any impairment losses. The carrying values of
investments in joint ventures include acquired goodwill. Losses in joint
ventures that are in excess of the Group's interest in the joint venture are
recognised only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint venture.
(13) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account for business
combinations. The cost of an acquisition is measured at the fair value of the
assets given, equity instruments issued, liabilities incurred or assumed at
the date of exchange. Acquisition related costs are recognised in profit or
loss as incurred. Any deferred or contingent purchase consideration is
recognised at fair value over the period of entitlement. If the contingent
purchase consideration is classified as equity, it is not remeasured and
settlement is accounted for in equity. Any deferred or contingent payment
deemed to be remuneration as opposed to purchase consideration in nature is
recognised in profit or loss as incurred, and excluded from the acquisition
method of accounting for business combinations. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business combination
are measured, initially, at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
non-controlling interest is measured, initially, at the non-controlling
interest's proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised. Goodwill is measured as the excess of the
sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's previously
held equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
Goodwill arising on all acquisitions is initially recognised as an asset at
cost and is subsequently measured at cost less any accumulated impairment
losses.
The carrying value is reviewed annually for impairment or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Intangible assets arising under a business combination (acquired
intangibles) are capitalised at fair value as determined at the date of
exchange and are stated at fair value less accumulated amortisation and
impairment losses. Amortisation of acquired intangibles is charged to the
income statement on a straight-line basis over the estimated useful lives as
follows:
Customer relationships
- 2.5 to 7.5 years
Trade name
- 5 to 10 years
Software and development costs - 3 to 7
years
Computer software and internally generated development costs which are not
integral to the related hardware are capitalised separately as an intangible
asset and stated at cost less accumulated amortisation and impairment losses.
Assets held under 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. All intangible assets are reviewed for impairment in
accordance with IAS 36 'Impairment of Assets' when there are indications that
the carrying value may be higher than its recoverable value. The recoverable
value used is the value in use. The value in use is determined by estimating
the future cash inflows and outflows to be derived from continuous use of the
asset and applying the appropriate discount rate to those future cash flows.
Where the carrying value is higher than the calculated value in use, an
impairment loss will be recognised.
(14) Property, plant and equipment
Property, plant and equipment assets are stated at cost less accumulated
depreciation and any recognised impairment losses. No depreciation has been
charged on freehold land. Other assets are depreciated, to a residual value,
on a straight-line over their estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease period and the
estimated remaining economic life
Fixtures and fittings
- 3 to 15 years
Equipment
- 5 to 12 years
Computer equipment
- up to 5 years
Vehicles
- up to 5 years
Assets held under 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. All property, plant and equipment is reviewed for impairment
in accordance with IAS 36 'Impairment of Assets' when there are indications
that the carrying value may not be recoverable.
(15) Leasing
Leases are recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
· fixed payments (including in-substance fixed payments),
less any lease incentives receivable;
· variable lease payment that are based on an index or a
rate, initially measured using the index or rate as at the commencement date;
· amounts expected to be payable by the Group under
residual value guarantees;
· the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
· Payments of penalties for terminating the lease, if the
lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also
included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases in the Group, the lessee's incremental borrowing rate is used,
being the rate that the individual lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset
in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
· where possible, uses recent third-party financing
received by the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was received;
· uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the Group, which
does not have recent third party financing; and
· Makes adjustments specific to the lease, e.g. term,
country, currency and security.
The Group is exposed to potential future increases in variable lease payments
based on an index or rate, which are not included in the lease liability until
they take effect. When adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted against the
right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability;
· any lease payments made at or before the commencement
date less any lease incentives received;
· any initial direct costs; and
· Restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is
depreciated over the underlying asset's useful life.
Payments associated with short-term leases of equipment and vehicles and all
leases of low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of
12 months or less. Low-value assets comprise IT equipment and small items of
office furniture.
Extension and termination options
Extension and termination options are included in a number of property and
equipment leases across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the Group's operations.
The majority of extension and termination options held are exercisable only by
the Group and not by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted
using a revised discount rate. The carrying value of lease liabilities is
similarly revised when the variable element of future lease payments dependent
on a rate or index is revised, except the discount rate remains unchanged.
In both cases an equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being amortised over the
remaining (revised) lease term. If the carrying amount of the right-of-use
asset is adjusted to zero, any further reduction is recognised in profit or
loss.
(16) Inventories
Inventories comprise goods held for resale and are stated at the lower of cost
or net realisable value. Inventories are valued using a weighted average cost
method. Costs comprise 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.
(17) Financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The Group derecognises financial assets and liabilities only
when the contractual rights and obligations are transferred, discharged or
expire.
Financial assets comprise trade and other receivables and cash and cash
equivalents. Financial liabilities comprise trade payables, financing
liabilities, bank borrowings.
(18) Financial assets
The group classifies its financial assets in the following measurement
categories:
· those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
Trade receivables
Trade receivables are initially measured at fair value, which for trade
receivables is equal to the consideration expected to be received from the
satisfaction of performance obligations, plus any directly attributable
transaction costs. Subsequent to initial recognition these assets are measured
at amortised cost less any provision for impairment losses including expected
credit losses. In accordance with IFRS 9 the Group applies the simplified
approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on shared credit risk
characteristics such as the ageing of the debt and the credit risk of the
customers. An historical credit loss rate is then calculated for each group
and then adjusted to reflect expectations about future credit losses. The
Group does not have any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for
settlement within 30 days and are therefore all classified as current. Trade
receivables are recognised initially at the amount of consideration that is
unconditional, unless they contain significant financing components, in which
case they are recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so it
measures them subsequently at amortised cost using the effective interest
method. Details about the Group's impairment policies and the calculation of
the loss allowance are provided in Note 15.
Due to the short-term nature of the current receivables, their carrying amount
is considered to be the same as their fair value.
Other receivables
Other receivables are recognised on trade date, being the date on which the
Group has the right to the asset. Other receivables are derecognised when the
rights to receive cash flows from the other receivables have expired or have
been transferred and the group has transferred substantially all the risks and
rewards of ownership.
At initial recognition, the Group measures other receivable at their fair
value plus, in the case of a financial asset not at fair value through profit
or loss (FVPL), transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
Subsequent measurement of other receivables depends on the Group's business
model for managing the asset and the cash flow characteristics of the asset.
The group classifies its other receivables at amortised cost.
Assets that are held for collection of contractual cash flows, where those
cash flows represent solely payments of principal and interest, are measured
at amortised cost. Interest income from these financial assets is included in
finance income using the effective interest rate method. Any gain or loss
arising on derecognition is recognised directly in profit or loss and
presented in other gains/ (losses) together with foreign exchange gains and
losses. Impairment losses are presented as a separate line item in Note 3.
The Group classifies its financial assets as at amortised cost only if both of
the following criteria are met:
· the asset is held within a business model whose objective
is to collect the contractual cash flows; and
· the contractual terms give rise to cash flows that are
solely payments of principal and interest.
The Group applies the general approach to impairment under IFRS 9 based on
significant increases in credit risk rather than the simplified approach for
trade receivables using lifetime ECL.
(19) Trade and other payables
These amounts represent liabilities for goods and services provided to the
Group prior to the end of the financial year which are unpaid. The amounts are
unsecured and are usually paid within 30 days of recognition. Trade and other
payables are presented as current liabilities unless payment is not due within
12 months after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the effective
interest method.
(20) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at bank and in
hand and short term deposits with an original maturity of three months or
less. BACS and next day payments are recognised at the settlement date, rather
than when they are initiated, to more appropriately reflect the nature of
these transactions. In the consolidated balance sheet, bank overdrafts are
shown within borrowings in current liabilities. Cash and cash equivalents in
the cash flow statement comprise cash at bank and in hand and bank overdrafts
which form part of the groups cash management.
Financial liabilities and equity
Financial liabilities and equity instruments 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 Group
after deducting all of its liabilities. Equity instruments issued are recorded
at the proceeds received, net of direct issue costs.
Bank borrowings Interest bearing bank loans and overdrafts are initially
measured at fair value (being proceeds received, net of direct issue costs),
and are subsequently measured at amortised cost, using the effective interest
rate method. Finance charges, including premiums payable on settlement or
redemptions and direct issue costs are accounted for on an accruals basis and
taken to the income statement using the effective interest rate method and are
added to the carrying value of the instrument to the extent that they are not
settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is extinguishment of
the original financial liability and recognition of a new financial liability.
Equally, modification of the terms of existing financial liability is
accounted for as an extinguishment of the original financial liability and
recognition of a new financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and are translated at foreign
exchange rates ruling at the balance sheet date. The revenues and expenses of
foreign operations are translated at an average rate for the period where this
rate approximates to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated at the foreign
exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated at foreign exchange
rates ruling at the dates the fair value was determined.
(21) Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are
measured at the present value of the directors' best estimate of the
expenditure required to settle the present obligation at the balance sheet
date and if this amount is capable of being reliably estimated. If such an
obligation is not capable of being reliably estimated, no provision is
recognised and the item is disclosed as a contingent liability where material.
Where the effect is material, the provision is determined by discounting the
expected future cash flows.
(22) Retirement benefit costs
Defined contribution schemes
The Group operates a number of defined contribution schemes for the benefit of
its employees. Payments to the Group's schemes are recognised as an expense in
the income statement as incurred.
Defined benefit scheme
Following the disposal of Tuffnells, the Group previously operated one defined
benefit pension scheme, the news section of The WH Smith Pension Trust. On 3
December 2021, the Group received the sum of £8.1m in respect of the net cash
surplus held by the Trustee following finalisation of the buy-out of the
defined benefit liabilities in the News Section of the Trust. As agreed with
the Trustee, the return of surplus preceded the formal winding up steps of the
News Section of the Trust, the winding up of the News Section of the Trust
being formally completed on 25 February 2022 through the purchase of insurance
run-off cover and payment of taxes owed to HMRC. The IAS 19 pre-tax surplus of
£14.8m has been recognised through other comprehensive income in the current
financial period after the Trustee confirmed its intention to return the
surplus cash to the employer giving the Company an unconditional right to the
surplus.
Prior to the winding up of the News Section of the Trust, actuarial gains and
losses were calculated by independent actuaries and recognised in full in the
period in which they occur in the Group statement of comprehensive income. As
at 28 August 2021, there were a small proportion of liabilities within the
Trust relating to amounts owed to former members of the Trust. As these
liabilities were not long-term in nature, actuarial assumptions at 28 August
2021 were not required. The Group did not previously recognise any surplus
unless there was an unconditional right to do so.
(23) Employee Benefit Trust
Smiths News Employee Benefit Trust
Where any Group company purchases the Company's shares, for example as the
result of a share buy-back or a share-based payment plan, the consideration
paid, including any directly attributable incremental costs (net of income
taxes) is deducted from equity as 'own shares reserve' until those shares are
either cancelled or reissued.
The shares held by the Smiths News Employee Benefit Trust are valued at the
historical cost of the shares acquired. This value is deducted in arriving at
shareholders' funds and presented as the own share reserve in line with IAS 32
'Financial Instruments: Disclosure and Presentation'.
(24) Share schemes
Share based payments
The Group operates several share-based payment schemes, being the Sharesave
Scheme, the Executive Share Option Scheme, the LTIP and the Deferred Bonus
Plan. Details of these are provided in the Directors' Remuneration report and
in Note 28.
Equity-settled share-based schemes are measured at fair value at the date of
grant. The fair value is expensed with a corresponding increase in equity on a
straight-line basis over the period during which employees become
unconditionally entitled to the options. The fair values are calculated using
an appropriate option pricing model. The income statement charge is then
adjusted to reflect expected and actual levels of vesting based on non-market
performance related criteria.
Administrative expenses and distribution and marketing expenses include the
cost of the share-based payment schemes.
(25) Changes in accounting policies
The Group's accounting policy has been changed to recognise BACS and next day
payments at the settlement date, rather than when they are initiated, to more
appropriately reflect the nature of these transactions. The comparative
amounts have not been restated as the prior period is unaffected by this
change in accounting policy.
The Group has applied the following standards and amendments for the first
time for the annual reporting period commencing 29 August 2021:
· Proceeds before intended use - Amendments to IAS 16;
· Onerous contracts - Amendments to IAS 37;
· Definition of Material - Amendments to IAS 1 and IAS 8;
· Definition of a Business - Amendments to IFRS3;
· Interest Rate Benchmark Reform - Amendments to IFRS 9,
IAS 39 and IFRS 7;
· Revised Conceptual Framework for Financial Reporting;
· Annual Improvements to IFRS Standards 2018-2020 Cycle;
and
· Where applicable, Covid-19-Related Rent Concessions -
Amendments to IFRS.
None of the other amendments listed above did have any impact on the amounts
recognised in prior periods and are not expected to significantly affect the
current or future periods.
New Standards and Interpretations not yet applied.
At the date of authorisation of these financial statements, the following
Standards and Interpretations that are potentially relevant to the Group and
which have not been applied in these financial statements were in issue but
not yet effective (and in some cases had not yet been adopted by the UK):
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1;
· Definition of Accounting Estimates - Amendments to IAS 8;
· Disclosure of Accounting Policies - Amendments to IAS 1
and IFRS Practice Statement ; and
· Deferred Tax related to Assets and Liabilities arising
from a Single Transaction - Amendments to IAS 12.
There are no other standards that are not yet effective and that would be
expected to have a material impact on the entity in the current or future
reporting periods and on foreseeable future transactions.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has identified its
operating segments based wholly on the overall activities of the Group. The
Group has therefore determined that it has only one reportable operating
segment under IFRS 8, which is that of a 'UK market leading distributor of
newspapers and magazines', referred to as 'Smiths News'. The performance of
Smiths News is reviewed, on a monthly basis, by the Board. The Board primarily
uses a measure of Adjusted operating profit before tax to assess its
performance. The Board also receives information about the segments' revenue.
The Smiths News continuing operating segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to approximately
24,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to airlines and
travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths News.
The Company derives revenue from the transfer of goods and services in the
following major product line and geographical regions:
Revenue
£m 2022 2021
Smiths News 1,089.3 1,109.6
Total revenue from contracts with customers 1,089.3 1,109.6
The Company's revenue by geographical location is UK 99.9% (2021: 99.9%) and
Rest of World 0.1% (2021: 0.1%).
Information about major customers
Included in revenues arising from Smiths News are revenues of approximately
£102.5m (2021: £121.9m) which arose from sales to the Group's largest
customer. Three other customers contributed 13.3% or more of the Group's
revenue in 2022 (2021: 6.0%).
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in Note 1.
3. Operating profit
The Group's results are analysed as follows:
£m 2022 2021
Continuing operations Note Adjusted Adjusted items Total Adjusted Adjusted items Total
Revenue 1,089.3 - 1,089.3 1,109.6 - 1,109.6
Cost of inventories recognised as an expense (921.3) - (921.3) (945.2) - (945.2)
Distribution costs (95.3) - (95.3) (91.0) - (91.0)
Cost of sales (1,016.6) - (1,016.6) (1,036.2) - (1,036.2)
Gross profit 72.7 - 72.7 73.4 - 73.4
Other administrative expenses (23.3) (2.5) (25.8) (22.1) (1.9) (24.0)
Share-based payment expense 28 (1.2) - (1.2) (1.0) - (1.0)
Net impairment loss on trade receivables - (4.4) (4.4) - - -
Impairment reversal/(charge) of joint venture Investment - 1.2 1.2 - (1.6) (1.6)
Impairment - - - (0.1) - (0.1)
Other income 0.1 - 0.1 - - -
Share of profits from joint ventures 13 0.3 - 0.3 0.1 (0.3) (0.2)
EBITDA 48.6 (5.7) 42.9 50.3 (3.8) 46.5
Depreciation on property, plant & equipment 12 (2.3) - (2.3) (2.4) - (2.4)
Depreciation on right use assets 19 (6.9) - (6.9) (6.4) - (6.4)
Amortisation of intangibles 11 (1.3) - (1.3) (1.9) - (1.9)
Operating profit 38.1 (5.7) 32.4 39.6 (3.8) 35.8
The operating profit is stated after charging/ (crediting):
£m Note 2022 2021
Total Total
Depreciation on property, plant & equipment 12 2.3 2.4
Amortisation of intangible assets 11 1.3 1.9
Depreciation on right use assets 19 6.9 6.4
Short term and low value lease charges
· occupied land and buildings - 0.1
· equipment and vehicles 0.3 0.4
Lease rental income - land and buildings (0.4) (0.2)
(Loss)/gain on disposal of non-current assets - 0.2
Staff costs (excluding share based payments) 5 43.7 43.8
Included in administrative expenses are amounts payable by the Company and its
subsidiary undertakings in respect of audit and non-audit services which are
as follows:
£m 2022 2021
Fees payable to the Company's auditor for the audit of the Company's annual 0.2 0.2
accounts - BDO LLP
Fees payable to the Company's auditor for the audit of the Company's 0.4 0.2
subsidiaries - BDO LLP
Total non-audit fees 0.1 0.1
Total fees 0.7 0.5
Details of the Company's policy on the use of auditors for non-audit services
and how the auditor's independence and objectivity was safeguarded are set out
in the Audit Committee report.
4. Adjusted items
£m 2022 2021
Continuing Discontinued Total Continuing Discontinued Total
Transformation programme planning costs. (0.9) - (0.9) (1.1) - (1.1)
(a)
Pension (b) (1.8) - (1.8) (1.0) - (1.0)
Other - - - 0.1 - 0.1
Network and re-organisation costs (c) 0.2 - 0.2 0.1 - 0.1
Administrative expenses (2.5) - (2.5) (1.9) - (1.9)
Net impairment loss on trade receivables (d) (4.4) - (4.4) - - -
Share of profits from joint ventures (e) - - - (0.3) - (0.3)
Asset impairment reversal/(charge) (f) 1.2 - 1.2 (1.6) - (1.6)
VAT refund (g) - - - - 0.4 0.4
Review and sale of Tuffnells (h) - - - - (0.6) (0.6)
Total before tax and interest (5.7) - (5.7) (3.8) (0.2) (4.0)
Finance income - unwind of deferred consideration 2.5 - 2.5 3.5 - 3.5
(i)
Total before tax (3.2) - (3.2) (0.3) (0.2) (0.5)
Taxation 0.9 - 0.9 0.3 0.1 0.4
Total after taxation from continuing operations (2.3) - (2.3) - - -
Total loss from discontinued operations - - - - (0.1) (0.1)
Total for the year from both continuing and discontinued operations (2.3) - (2.3) - (0.1) (0.1)
The Group incurred a total of £3.2m (2021: £0.5m) of Adjusted items before
tax and after tax £2.3m (2021: £0.1m) respectively.
Adjusted items are defined in the accounting policies in Note 1 and in the
glossary in the directors' opinion the impact of removing these items, from
the adjusted profit provide a relevant analysis of the trading results of the
Group because it is consistent with how the business performance is planned
by, and reported to the Board and Executive Team. However, these additional
measures are not intended to be a substitute for, or superior to, IFRS
measures.
They comprise:
Continuing operations - Administrative expenses £2.5m (2021: £1.9m)
(a) Transformation programme planning costs: £0.9m (2021: £1.1m)
During the financial period, the Company incurred professional fees in
relation to transformation programme planning projects. These projects were
concluded in the current period.
These costs are reported as adjusting items on the basis that they are
significant in nature and quantum and are considered to be non-underlying
items.
The total impact on net cash inflow from operating activities was a £1.3m
outflow (2021: £0.7m), see note 24.
(b) Pensions: £1.8m (2021: £1.0m)
The Trust completed the wind-up of the news section of the WH Smiths Pension
Trust (the Company's defined benefit pension scheme), with a Deed of
Termination signed by the Company and the Trustee on 25 February 2022.
As part of the wind up, £1.3m was paid to an escrow account in December 2021
for the Trustee to purchase indemnity insurance and to cover future claims
from members owed amounts following the Lloyds ruling in November 2020. This
amount has been accounted for as an adjusted item through the income
statement.
The winding up of the News Section was formally completed on 25 February 2022
through the purchase of insurance run-off cover, plus other associated
professional fees at a total cost of £0.6m. £0.3m of these costs was funded
from the total pre-tax pension surplus received of £14.8m, see Note 6 for
further details. A refund of £0.1m due to the Company in relation to the
total amount previously held in escrow, has been credited against these costs.
In the prior period, the Company incurred £1.0m in pension administrative
expenses and other professional fees as a result of the winding up process.
These costs are reported as adjusting items on the basis that they are
significant in nature and quantum and are unrelated to the Group's ordinary
activities.
The total impact on net cash inflow from operating activities was an £7.9m
inflow (2021: £0.6m outflow). An £8.1m inflow was received from the return
of the pension surplus, less a net £0.2m outflow in respect of the insurance
run-off cover, see note 24.
(c) Network and re-organisation: £0.2m credit (2021: £0.1m credit)
The disposal of the Tuffnells business in 2020 and lockdowns associated with
the COVID-19 pandemic led to the Company restructuring its support functions
and a reorganisation provision was put in place. The Company released £0.2m
of this provision in the current period (2021: £0.1m) and the release was
reported as an adjusting item.
Continuing operations - Net impairment loss on trade receivables £4.4m (2021:
£nil)
(d) Net impairment loss on trade receivables
On 9 May 2022 ("the administration date"), McColl's Retail Group went into
administration. A statement of claim form was filed with the Administrators
for an amount of £5.5m. The administrators issued notification on 27 May 2022
that they expected unsecured creditors to receive between 20-40% of approved
claims. Management has not received any further information from the
Administrators as at the balance sheet date and issuance of this report and
has therefore provided a best estimate that only 20% of the outstanding
balance is recoverable. The Company has therefore recognised a net impairment
loss of £4.4m, representing 80% of the total balance of £5.5m in the current
financial period.
Simultaneously on the administration date, Wm Morrison Supermarkets Ltd
("Morrisons") agreed terms with the administrator to acquire McColl's in a
pre-packaged insolvency agreement. The Company continues to trade with
McColl's under the new ownership structure. The Company's bad debt exposure
relates solely to the outstanding trade receivable balance as at the
administration date.
This cost is reported as an adjusting item on the basis that they are
significant in nature and quantum, are considered non-underlying
items, outside the normal course of activity and aid comparability from one
period to the next. The bad debt from McColl's has limited predictive value
given the historic low level of bad debts incurred in the ordinary course of
business.
Continuing operations - Share of profits from Joint Ventures £nil (2021:
£0.3m)
(e) Share of profits from Joint Ventures: £nil (2021: £0.3m)
In the prior financial period, Rascal Solution Limited, one of the Group's
joint ventures, has impaired an intangible asset. The Company's share of the
impairment was £0.3m.
These costs are reported as adjusting items on the basis that they are
significant to the investment in Rascal, are considered non-underlying items,
outside the normal course of activity and aid comparability from one period to
the next regarding the performance of the Joint Venture.
Continuing operations - Asset impairments - impairment reversal £1.2m (2021:
impairment loss £1.6m)
(f) Asset impairments: impairment reversal £1.2m (2021: impairment charge
£1.6m)
During the period, the Company reviewed the business plan for the Rascal Joint
Venture and it was determined that the potential challenges anticipated to
arise in the prior period, have not materialised with the successful renewal
of contracts previously considered to be at risk. The Company has therefore
chosen to reverse the impairment previously booked by £1.2m. In the prior
period, it was assessed that certain challenges may arise from increasing
market competition, resulting in an impairment loss of £1.6m being
recognised.
The Group considers the impact of the above to be adjusting given the
impairment charges are being significant in both quantum and nature to the
results of the Group.
Total discontinued operations before tax and interest £nil (2021: £0.2m)
(g) VAT refund: £nil (2021: £0.4m credit)
During the prior period the Company received a refund of VAT previously
considered as non-recoverable on prior disposals of businesses previously
owned by the Group.
This income was considered to be adjusting given its quantum and is unrelated
to the Group's ordinary activities.
(h) Review and sale of Tuffnells: £nil (2021: £0.6m expense)
During the prior period, as part of the sale of Tuffnells in 2020, the Company
assumed a liability to settle certain pre-disposal insurance and legal claims
related to: employer's liability, public liability, motor accident claims and
legal claims. In the prior period, £0.6m of costs were recognised due to
clarification of the likely settlement costs of existing claims.
Continuing operations - Finance income £2.5m credit (2021: £3.5m credit)
(i) Finance Income - Deferred consideration £2.5m credit (2021: £3.5m
credit)
During the year, £2.5m has been recognised in Finance income, £3.5m (2021:
£3.5m) as the unwind of discount on the original total deferred consideration
due of £15.0m. This is offset by the £1.0m agreed reduction in deferred
consideration due, see note 15 for further details. The deferred consideration
relates to the disposal of Tuffnells that took place in 2020 and for that
reason has been classified as adjusting because it does not relate to the
Group's ordinary activities.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive directors) was:
£m Note 2022 2021
Continuing
Wages and salaries 39.2 39.2
Social security 3.4 3.4
Pension costs 6 1.1 1.2
Share-based payments expense 1.2 1.0
Total 44.9 44.8
Pension costs shown above exclude charges and credits for pension scheme
financing and actuarial gains and losses arising on the pension schemes.
(b) Employee numbers
The average total monthly number of employees relating to operations
(including directors) was:
Number 2022 2021
Continuing operations
Operations 1,425 1,536
Support functions 149 154
Total 1,574 1,690
6. Retirement benefit obligation
Defined benefit pension schemes
During the current and prior period, the Group operated one defined benefit
scheme, the news section of the WH Smith Pension Trust (the 'Pension Trust').
The amounts recognised in the balance sheet are as follows:
£m 2022 2021
Present value of defined benefit obligation (0.1) (0.1)
Fair value of assets 14.9 14.9
Net surplus 14.8 14.8
Amounts not recognised due to asset limit - (14.8)
Administrative expenses (1.6) -
Tax paid (5.1) -
Refund of surplus to Company (8.1) -
Pension liability - -
Return of the surplus and formal winding up of the Pension Trust during the
current period
The IAS 19 pre-tax surplus of £14.8m has been recognised through other
comprehensive income in the current financial period after the Trustee
confirmed its intention to return the surplus cash to the employer giving the
Company an unconditional right to the surplus. The asset was not previously
recognised as the Company did not have an unconditional right to the surplus
and, therefore, the net surplus in the scheme was restricted with an IFRIC 14
asset ceiling, which has now been reversed. On 3 December 2021, the Company
received the sum of £8.1m in respect of the net cash surplus held by the
Trustee following finalisation of the buy-out of the defined benefit
liabilities in the News Section of the Trust. As agreed with the Trustee, the
return of surplus preceded the formal winding up steps of the News Section,
the winding up of the News Section being formally completed on 25 February
2022 through the purchase of insurance run-off cover and payment of taxes owed
to HMRC. The pension surplus of £8.1m (net of tax and costs) received was
recognised as cash on the balance sheet and in accordance with the
requirements of the banking agreement, this cash has been used to repay
existing debt. The tax charge which represents 35% of the surplus (£5.1m) has
been treated in accordance with the recognition of the surplus and recognised
through other comprehensive income. The liability was extinguished in January
2022 when the Trustee paid the outstanding tax balance on behalf of the
Company. The Company had agreed to deposit £1.3m of the pension surplus into
an escrow account to fund the insurance costs for the Trustee and the
outstanding liability to former members in respect of the Lloyds GMP
equalisation ruling in November 2020. The funds held in escrow are not
considered an asset of the Company and are not recognised on the balance
sheet. The cost of the insurances has been recognised through administration
expenses in the income statement and treated as an Adjusted item. During the
period £0.3m of administration expenses were incurred by the Trustee to
obtain legal and consulting advice before the surplus of £8.1m could be
refunded. These administration costs have been recognised in the income
statement as an Adjusted item.
Information relating to the prior period
Prior to the winding up of the scheme, the valuation of the defined benefit
schemes for the IAS 19 (revised) disclosures were carried out by independent
qualified actuaries based on updating the most recent funding valuations of
the respective scheme, adjusted as appropriate for membership experience and
changes in the actuarial assumptions.
The principal long-term assumptions used to calculate scheme liabilities on
all Group schemes up to the disposal date are:
% p.a. 2022 2021
Discount rate N/a 1.95
Inflation assumptions - CPI N/a 2.8
Inflation assumptions - RPI N/a 3.4
Demographic assumptions for WH Smith Pension Trust: 2022 2021
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 N/a N/a 21.7 23.7
Member currently aged 45 N/a N/a 22.8 24.9
Inflation assumptions
Pension increases in deferment in both Schemes are granted in line with CPI
for all deferred members. RPI inflation is used to determine the increases for
pensions currently in payment, subject to any annual caps and floors.
A summary of the movements in the net balance sheet asset/ (liability) and
amounts recognised in the Group Income Statement and Other Comprehensive
Income are as follows:
( )
£m Fair value of scheme assets Defined benefit obligation Impact of IFRIC 14 on defined benefit pension schemes Total
At 29 August 2020 496.4 (481.2) (15.2) -
Net interest cost 4.4 (4.2) (0.2) -
Administration expenses (0.4) - - (0.4)
Total amount recognised in income statement 4.0 (4.2) (0.2) (0.4)
Actual return on scheme assets (excluding amounts included in net interest (8.7) - - (8.7)
expense)
Actuarial gains arising from changes in financial assumptions - 2.4 - 2.4
Actuarial gains arising from changes in demographic assumptions - 6.1 - 6.1
Change in surplus not recognised - - 0.6 0.6
Amount recognised in other comprehensive income (8.7) 8.5 0.6 0.4
Benefit payments (14.5) 14.5 - -
Amounts included in cash flow statement (14.5) 14.5 - -
Settlement (462.3) 462.3 - -
At 28 August 2021 14.9 (0.1) (14.8) -
Purchase of indemnity insurance (1.3) - - (1.3)
Other administration expenses (0.3) - - (0.3)
Total amount recognised in income statement (1.6) - - (1.6)
Change in surplus not previously recognised (0.1) 0.1 14.8 14.8
Tax relating to the repayment of pension surpluses - - (5.1) (5.1)
Amount recognised in other comprehensive income (0.1) 0.1 9.7 9.7
Tax paid (5.1) - 5.1 -
Refund of surplus to Company (8.1) - - (8.1)
Amounts included in cash flow statement (13.2) - 5.1 (8.1)
At 28 August 2022 - - - -
Included within Current liabilities -
The charge in the prior period for the current service cost is included within
administrative expenses. 'Net interest costs' were calculated by applying a
discount rate to the net defined benefit asset or liability scheme assets and
are included within finance income and expense in the prior period.
An analysis of the assets at the balance sheet date is detailed below:
£m 2022 2021
Gilts and swaps portfolio Quoted and Unquoted N/a 11.4
Corporate bonds Quoted and Unquoted N/a -
Equity funds Unquoted N/a -
Insurance policy Unquoted N/a -
Cash and other Unquoted N/a 3.5
N/a 14.9
The return on scheme assets during 2022 was a loss of £0.4m (2021: £8.7m).
The value of the assets held by the Trust in Smiths News Plc (formerly Connect
Group PLC) issued financial instruments is £nil (2021: £nil).
The Company has agreed run-off indemnity coverage for any member claims that
are uninsured liabilities capped at £6.5m over the next 60 years.
Defined contribution schemes
The Group operates two defined contribution schemes. For the 52 weeks ended 27
August 2022, contributions from the respective employing company for
continuing operations totalled £1.1m (2021: £1.1m) which is included in the
Income Statement.
A defined contribution plan is a pension plan under which the Group pays
contributions to an independently administered fund - such contributions are
based upon a fixed percentage of employees' pay. The Group has no legal or
constructive obligations to pay further contributions to the fund once the
contributions have been paid. Members' benefits are determined by the amount
of contributions paid by the Company and the member, together with investment
returns earned on the contributions arising from the performance of each
individual's chosen investments and the type of pension the member chooses to
buy at retirement. As a result, actuarial risk (that benefits will be lower
than expected) and investment risk (that assets invested in will not perform
in line with expectations) fall on the employee.
7. Finance costs
£m Note 2022 2021
Continuing operations
Interest on bank overdrafts and loans (3.5) (5.0)
Amortisation of loan arrangement fees (1.7) (2.0)
Interest payable on leases (1.6) (1.6)
Total interest cost on financial liabilities at amortised cost (6.8) (8.6)
Unwinding of discount on provisions - trading 21 (0.2) (0.2)
Finance costs - continuing operations (7.0) (8.8)
Interest income on loans and deferred consideration 2.5 3.6
Net Finance costs - continuing operations (4.5) (5.2)
Interest payable on leases - -
Unwinding of discount on provisions - trading 21 - -
Net Finance costs - discontinued operations - -
Net Finance costs - continuing and discontinued operations (4.5) (5.2)
8. Income tax expense
£m 2022 2021
Continuing operations Adjusted Adjusted items Total Adjusted Adjusted items Total
Current tax 5.7 (0.9) 4.8 6.3 (0.3) 6.0
Adjustment in respect of prior year (0.8) - (0.8) (0.9) - (0.9)
Total current tax charge/(credit) 4.9 (0.9) 4.0 5.4 (0.3) 5.1
Deferred tax - current year (0.3) - (0.3) (0.4) - (0.4)
Deferred tax - prior year 0.6 - 0.6 (0.1) - (0.1)
Deferred tax - impact of rate change 0.2 - 0.2 (0.3) - (0.3)
Total tax charge/(credit) - continuing operations 5.4 (0.9) 4.5 4.6 (0.3) 4.3
Effective tax rate 17.4% 16.1% 14.9% 14.1%
Tax (credit)/charge - discontinued operations - - - - (0.1) (0.1)
Tax charge/(credit) - continuing and discontinued operations 5.4 (0.9) 4.5 4.6 (0.4) 4.2
The effective adjusted income tax rate for continuing operations in the year
was 17.4% (2021: 14.9%). After the impact of Adjusted items of £0.9m (2021:
£0.3m), the effective statutory income tax rate for continuing operations was
16.1% (2021: 14.1%).
Corporation tax is calculated at the main rates of UK corporation tax, those
being 19.0% (2021: 19.0%). The UK Finance Act 2021 has been substantively
enacted, increasing the corporate tax rate to 25% effective from 1 April 2023.
Since this change has been substantively enacted, the Group has assessed its
deferred tax positions using the higher enacted rate of 25%. Taxation for
other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
The tax charge for the year can be reconciled to the profit in the income
statement as follows:
£m 2022 2021
Continuing Profit before tax 27.9 30.6
Tax on profit at the standard rate of UK corporation tax 19.0% (2021: 19.0%) 5.3 5.9
Income not subject to tax (1.0) (0.7)
Expenses not deductible for tax purposes 0.2 0.4
Adjustment in respect of prior years (0.2) (1.0)
Impact of change in UK tax rate 0.2 (0.3)
Tax charge 4.5 4.3
Income not subject to tax comprised mainly of the tax effect of the Tuffnells
discount unwind.
Amounts recognised directly in equity
£m 2022 2021
Aggregate current tax and deferred tax arising in the reporting period and not
recognised in net profit or loss or other comprehensive income but directly
(charged)/credited to equity:
Current tax: share-based payments (0.1) -
Deferred tax assets: share-based payments (0.2) 0.2
9. Dividends
Amounts paid and proposed as distributions to equity shareholders in the
years:
2022 2021 2022 2021
Paid & proposed dividends for the year Per share Per share £m £m
Interim dividend - paid 1.40p 0.50p 3.3 1.2
Final dividend - proposed 2.75p 1.15p 6.7 2.4
4.15p 1.65p 10.0 3.6
Recognised dividends for the year
Final dividend - prior year 1.15p - 2.8 -
Interim dividend - current year 1.40p 0.50p 3.3 1.2
2.55p 0.50p 6.1 1.2
A final 2.75p dividend per share is proposed for the 52 weeks ended 27 August
2022 (2021: 1.15p), which is expected to be paid on 9 February 2023 to all
shareholders who are on the register of members at close of business on 13
January 2023. The ex-dividend date will be 12 January 2023.
10. Earnings per share
2022 2021
£m Million Pence £m Million Pence
Earnings Weighted average number of shares per share Earnings Weighted average number of shares per share
Weighted average number of shares in issue 247.7 247.7
Shares held by the ESOP (weighted) (9.2) (4.2)
Basic earnings per share (EPS)
Continuing operations
Adjusted earnings attributable to ordinary shareholders 25.7 238.5 10.8 26.3 243.5 10.8
Adjusted items (2.3) - - - - -
Earnings attributable to ordinary shareholders 23.4 238.5 9.8 26.3 243.5 10.8
Discontinued operations
Adjusted profit/(loss) attributable to ordinary shareholders - - - - 243.5 -
Adjusted items - - - (0.1) - -
Loss/(profit) attributable to ordinary shareholders - - - (0.1) 243.5 -
Total - Continuing and discontinued operations
Adjusted earnings attributable to ordinary shareholders 25.7 238.5 10.8 26.3 243.5 10.8
Adjusted items (2.3) - - (0.1) - -
Earnings attributable to ordinary shareholders 23.4 238.5 9.8 26.2 243.5 10.8
Diluted earnings per share (EPS)
Effect of dilutive share options - continuing operations 13.5 13.5
Effect of dilutive share options - adjusting continuing 13.5 13.5
Effect of dilutive share options - discontinued operations - -
Effect of dilutive share options - total 13.5 13.5
Continuing operations
Diluted adjusted EPS 25.7 252.0 10.2 26.3 257.0 10.2
Diluted EPS 23.4 252.0 9.3 26.3 257.0 10.2
Discontinued operations - Diluted EPS
Diluted adjusted EPS - - - - 257.0 -
Diluted EPS - - - (0.1) 257.0 -
Total - Continuing and discontinued operations
Diluted adjusted EPS* 25.7 252.0 10.2 26.3 257.0 10.2
Diluted EPS* 23.4 252.0 9.3 26.2 257.0 10.2
Dilutive shares increase the basic number of shares at 27 August 2022 by 12.7m
to 251.2m (28 August 2021: 257.0m).
The calculation of diluted EPS reflects the potential dilutive effect of
employee incentive schemes of 12.7m dilutive shares (28 August 2021: 13.5m).
*The prior period number of dilutive share options was amended from 11.3m to
13.5m. The effect of which decreased both the diluted adjusted EPS and diluted
EPS from 10.3p to 10.2p.
11. Intangible assets
Acquired Intangibles Internally generated development costs Computer software costs
£m Goodwill Customer relationships Trade name Software Total
Cost:
At 29 August 2021 5.7 2.4 0.2 - 2.7 7.2 18.2
Additions - - - - 0.5 0.2 0.7
Disposal - - - - - - -
At 27 August 2022 5.7 2.4 0.2 - 3.2 7.4 18.9
Accumulated amortisation and impairment:
At 29 August 2021 (5.7) (2.4) (0.2) - (1.8) (5.8) (15.9)
Amortisation charge - - - - (0.3) (1.0) (1.3)
Disposals - - - - - - -
At 27 August 2022 (5.7) (2.4) (0.2) - (2.1) (6.8) (17.2)
Net book value at 27 August 2022 - - - - 1.1 0.6 1.7
Cost:
At 30 August 2020 5.7 2.4 0.2 - 2.9 7.5 18.7
Additions - - - - 0.4 - 0.4
Disposals - - - - (0.6) (0.3) (0.9)
At 28 August 2021 5.7 2.4 0.2 - 2.7 7.2 18.2
Accumulated amortisation and impairment:
At 30 August 2020 (5.7) (2.4) (0.2) - (1.9) (4.5) (14.7)
Amortisation charge - - - - (0.4) (1.5) (1.9)
Disposals - - - - 0.5 0.2 0.7
At 28 August 2021 (5.7) (2.4) (0.2) - (1.8) (5.8) (15.9)
Net book value at 28 August 2021 - - - - 0.9 1.4 2.3
Impairment tests goodwill
Goodwill is not amortised but has been tested annually for impairment. As a
result of these reviews goodwill is fully impaired at the end of FY2022 and
FY2021.
12. Property, plant and equipment
£m Land & Buildings
Long term leasehold improvements Short term leasehold improvements Fixtures & fittings Equipment & vehicles Total
Cost:
At 29 August 2021 0.2 10.2 2.9 22.1 35.4
Additions - 0.3 0.1 1.2 1.6
Disposals - - - (0.3) (0.3)
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
Accumulated depreciation:
At 29 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
Depreciation charge - (0.5) (0.2) (1.6) (2.3)
Disposals - - - 0.2 0.2
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
Net book value at 27 August 2022 - 1.8 1.2 5.6 8.6
Cost:
At 30 August 2020 0.2 10.1 2.7 22.4 35.4
Additions 0.6 0.4 1.8 2.8
Disposals - (0.5) (0.2) (2.1) (2.8)
At 28 August 2021 0.2 10.2 2.9 22.1 35.4
Accumulated depreciation:
At 30 August 2020 (0.2) (8.2) (1.7) (15.9) (26.0)
Depreciation charge - (0.5) (0.2) (1.7) (2.4)
Disposals - 0.5 0.3 1.6 2.4
At 28 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
Net book value at 28 August 2021 - 2.0 1.3 6.1 9.4
13. Interests in joint ventures
£m 2022 2021
At 29/30 August 2.9 4.9
Share of profit/(loss) 0.3 (0.2)
Impairments reversal/(charge) 1.2 (1.6)
Dividends received (0.2) (0.2)
At 27/28 August 4.2 2.9
The Joint venture listed below has share capital consisting solely of ordinary
shares, which are held directly by the Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group % Registered address Measurement method
(number)
Fresh On The Go Limited Ordinary Shares 30% 61 Bridge Street, Kington, HR5 3DJ Equity method
08775703
Bluebox Systems Group Limited SC544863 Ordinary A Shares 36.1% Estantia House, Pitreavie Drive, Pitreavie Business Park, Dunfermline, Fife Equity method
KY11 8US
Rascal Solutions Limited Ordinary A Shares 50% Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF Equity method
05191277
The Group owns 50% of the ordinary shares of Rascal Solutions Limited, a
company incorporated in England, which in turn owns 100% of the ordinary
shares of Open-Projects Limited. The latest statutory accounts of Rascal
Solutions Limited were drawn up to 31 August 2022. Rascal Solutions Limited
provides retail support services and is a strategic partnership for the Group
to provide additional services to its existing customers.
Bluebox Systems Group Limited, is the holding company of Bluebox Aviation
Systems Ltd, the principal activity of which is the sale of innovative
in-flight entertainment systems. This business is a strategic partnership with
DMD which also provides inflight media to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee vending and other
related products.
All Joint ventures are private companies and there is no quoted market price
available for their shares.
The Group has no commitments relating to its joint ventures
The results, assets and liabilities of joint ventures are as follows:
£m 2022 2021
Rascal solutions Limited Other Total Rascal Solutions Limited Other Total
Revenue 6.0 2.8 8.8 5.7 1.3 7.0
Depreciation - - - (1.6) (0.1) (1.7)
Tax (0.2) 0.3 0.1 0.1 - 0.1
Profit/(loss) after tax 0.6 (0.8) (0.2) (0.1) (0.6) (0.7)
Non-current assets 2.2 - 2.2 2.3 0.6 2.9
Current assets 1.5 1.6 3.1 1.7 1.5 3.2
Cash 1.6 0.7 2.3 1.0 0.3 1.3
Total assets 5.3 2.3 7.6 5.0 2.4 7.4
Current liabilities (1.7) (1.6) (3.3) (1.6) (0.9) (2.5)
Non-current liabilities - (1.4) (1.4) - (1.3) (1.3)
Total liabilities (1.7) (3.0) (4.7) (1.6) (2.2) (3.8)
Net assets/(liabilities) 3.6 (0.7) 2.9 3.4 0.2 3.6
Share of net assets 1.8 - 1.8 1.7 - 1.7
Goodwill* 2.4 - 2.4 1.2 - 1.2
Share of net assets and Goodwill 4.2 - 4.2 2.9 - 2.9
*Goodwill represents the difference between the fair value of the share of the
net assets acquired and the amount paid, and forms part of the investment in
the joint venture.
Dividends of £0.2m (2021: £0.2m) were received in the 52 weeks to 27 August
2022 from joint ventures.
Rascal Solutions Limited investment
During the period Rascal Solutions Limited (Rascal) recorded a profit of
£0.6m (FY2021: loss of £0.1m). The prior year result includes the full
impairment (£0.6m) of a software development intangible fixed asset which was
found to no longer be of economic value to Rascal. The Company's share of
this impairment was 50% (£0.3m) and was reported as an adjusting item in
income from joint ventures.
During the period, the Company reviewed the business plan for the Rascal Joint
Venture and it was determined that the potential challenges anticipated to
arise in the prior period, have not materialised with the successful renewal
of contracts previously considered to be at risk. The Company has therefore
chosen to reverse the impairment previously booked by £1.2m. In the prior
period, it was assessed that certain challenges may arise from increasing
market competition, resulting in an impairment loss of £1.6m being
recognised. The current period impairment review was performed, resulting in a
value in use of £4.2m being calculated based on future cash flows of the
Rascal business. These cash flows were discounted at a post-tax discount rate
of 13.0% (pre-tax discount rate of 15.2%) (2021: 15.4% post-tax discount rate
and pre-tax discount rate of 18.5%) and a terminal growth rate applied of 0%
(2021: 0%). The result was a reversal of the previous impairment loss
recognised by £1.2m (2021: £1.6m impairment loss).
Sensitivities to assumptions
If the post-tax discount rate had been increased by 1.0%, the impairment
reversal would have reduced by £0.3m and if the post-tax discount rate had
been reduced by 1.0%, the impairment reversal would have increased by
£0.4m.
14. Inventories
£m 2022 2021
Goods held for resale 15.5 13.1
Raw materials and consumables 0.1 0.1
Inventories 15.6 13.2
15. Trade and other receivables
£m 2022
2021
Trade receivables 69.0 65.8
Specific provision for doubtful debts((1)) (4.4) -
Provision for expected credit losses (0.1) (0.1)
64.5 65.7
Other debtors 28.6 29.1
Deferred consideration((2)) - 9.2
Prepayments 1.0 1.2
Accrued income 1.6 1.4
Trade and other receivables 95.7 106.6
(1) Net impairment loss on trade receivables - McColls
Retail Group
During the period, the Company received notice that McColl's Retail Group went
into administration. A statement of claim was filed with the Administrators
for an amount of £5.5m. The administrators issued notification on 27 May 2022
that they expected unsecured creditors to receive between 20-40% of approved
claims. Management has not received any further information from the
Administrators as at the balance sheet date and issuance of this report and
has therefore provided a best estimate that only 20% of the outstanding
balance is recoverable. The Company has therefore recognised a net impairment
loss of £4.4m, representing 80% of the total balance of £5.5m in the current
financial period. For more information, see note 4.
The net impairment loss of £4.4m has been allocated to both the 61-91 days
overdue and 91-120 days overdue ageing buckets, matching the ageing profile of
the £5.5m total receivable due. £1.4m of the total impairment loss of £4.4m
has been allocated to the 61-90 days overdue ageing bucket and £3.0m to the
91-120 days overdue ageing bucket.
If the Company had considered 40% of the total balance of £5.5m to be
recoverable in line with the upper range of the administrators estimate, the
provision recognised would have been £3.3m, £1.0m allocated to the 61-90
days overdue ageing bucket and £2.3m to the 91-120 days overdue ageing
bucket.
Trade receivables
The average credit period taken on sale is 23 days (2021: 22 days). Trade
receivables are generally non-interest bearing.
The following table provides information about the Group's exposure to credit
risk and ECLs against customer balances as at 27 August 2022 under IFRS 9:
£m 2022 2021
Gross Specific provision for doubtful debts Loss Net Gross Loss allowance Net
carrying allowance carrying carrying carrying
amount amount amount amount
Current (not overdue) 63.0 - (0.1) 62.9 63.9 (0.1) 63.8
30-60 days overdue 0.2 - - 0.2 1.9 - 1.9
61-90 days overdue 2.0 (1.4) - 0.6 - - -
91-120 days overdue 3.8 (3.0) - 0.8 - - -
Over 120 days overdue - - - - - - -
69.0 (4.4) (0.1) 64.5 65.8 (0.1) 65.7
The following table provides information about the Group's loss rates applied
against customer balances as at 27 August 2022 under IFRS 9:
% 2022 2021
Current (not overdue) 0.1 0.1
30-60 days overdue - -
61-90 days overdue 1.2 0.9
91-120 days overdue 0.1 11.4
Over 120 days overdue 0.1 15.5
Of the trade receivables balance at the end of the year:
· Two customers (2021: one) had individual balances that represented
more than 10% of the total trade receivables balance. The total of these was
£16.9m (2021: £9.7m); and
· A further three customers (2021: five) had individual balances that
represented more than 5% of the total trade receivables balance. The total of
these was £15.6m (2021: £24.2m).
Movement in the allowance for doubtful debts:
£m 2022 2021
At 29/30 August 0.1 0.4
Impairment losses recognised 4.4 (0.2)
Amounts written off as uncollectible - 0.1
Amounts recovered during the year - (0.2)
Disposal of business - -
At 27/28 August 4.5 0.1
The directors consider that the carrying amount of trade and other receivables
approximates their fair value which is considered to be a level 2 methodology
of valuing them. The inputs used to measure fair value are categorised into
different levels of the fair value hierarchy (levels 1 to 3). The fair value
measurement is categorised in its entirety in the level of the lowest level
input that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
The Group performed sensitivity analysis on the expected credit loss
(excluding the McColls Retail Group net impairment loss) and should the
default rate change from expected.
· An increase in default rate by 2% would increase the expected
credit loss by £1.2m and
· A decrease in default rate by 2% would result in no credit losses.
· An increase in default rate by 5% would increase the expected
credit loss by £3.1m and
· A decrease in default rate would result in no credit losses.
Other debtors and prepayments
The largest items included within this balance are returns reserve asset of
£18.3m (2021: £18.5m) (refer to Note 1 Accounting Policies, section 7) and
£7.9m (2021: £6.5m) of publisher debtors.
Non-Current - other receivables
£m 2022 2020
Deferred consideration((2)) - 2.3
Loans receivable - -
- 2.3
(2) Tuffnells Deferred Consideration
Previously included within other receivables were deferred consideration
amounts relating to the disposal of the Tuffnells business unit on 2 May 2020.
The original unsecured consideration payable by Tuffnells Holdings Limited to
the Group was £15.0m, payable in three tranches as follows:
· £6.5m on the date 18 months following Completion;
· £4.25m on or prior to the date 27 months following Completion; and
· £4.25m on or prior to the date 36 months following Completion.
The first tranche of the unsecured consideration (£6.5m) was paid on 2
November 2021. Following this payment, Tuffnells Holdings Limited (formerly
Palm Bidco Limited ("THL")) approached the Company regarding the outstanding
deferred consideration due of £8.5m. Mindful of the current macro-economic
climate and to extinguish any further liability or outstanding arrangements
with THL, the Board agreed revised terms such that the Company would accept
£7.5m in full and final settlement of the outstanding deferred consideration
due. This amount was received in full during the current financial period.
Previously, the Company had discounted the total consideration due at 30% and
recognised £7.1m on Completion. At 28 August 2021, the Company recognised
total discounted deferred consideration of £11.5m (£2.3m non-current and
£9.2m current). On settlement of the outstanding deferred consideration,
£2.5m has been recognised in adjusted items representing the effect of
unwinding the total discount of £3.5m, less the £1.0m agreed reduction in
settlement of the remaining deferred consideration. See Note 4 for further
details.
16. Trade and other payables
£m 2022 2021
Trade payables (98.6) (94.9)
Other creditors (35.1) (33.8)
Accruals (6.5) (7.4)
Deferred income (0.1) (0.4)
(140.3) (136.5)
Included within other creditors is a balance of £21.6m (2021: £21.7m)
relating to the returns reserve accrual. (Refer to Note 1 Accounting Policies,
section 7).
Trade and other payables principally comprise amounts outstanding for trade
purchases and on-going costs. The average credit period taken for trade
purchases is 31 days (2021: 27 days). No interest is charged on trade
payables. The directors consider that the carrying amount of trade and other
payables approximates to their fair value using a level 2 valuation.
17. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
£m Sterling Euro US Dollar Other Total 2022 2021
Cash and bank deposits 34.1 0.6 0.4 0.2 35.3 19.7
Overdrafts - included in cash and cash equivalents - - - - - (0.4)
Net Cash and cash equivalents 34.1 0.6 0.4 0.2 35.3 19.3
Overdrafts - included in borrowings - - - - - -
Revolving credit facility - disclosed within current liabilities - - - - - -
Term loan - disclosed within current liabilities (8.0) - - - (8.0) (21.2)
Term loan - disclosed within non-current liabilities (41.5) - - - (41.5) (51.3)
Unamortised arrangement fees - disclosed within non-current liabilities 2.4 - - - 2.4 1.2
Total borrowings (47.1) - - - (47.1) (71.3)
Net borrowings (13.0) 0.6 0.4 0.2 (11.8) (52.0)
Total borrowings
Amount due for settlement within 12 months (8) - - - (8) (21.2)
Amount due for settlement after 12 months (39.1) - - - (39.1) (50.1)
(47.1) - - - (47.1) (71.3)
Cash and bank deposits comprise cash held by the Company and short-term bank
deposits with an original maturity of three months or less. The carrying
amount of these assets approximates their fair value.
In December 2021, an agreement was signed to extend and amend the existing
financing arrangements. The original facility which was due to expire in
November 2023 has been extended to August 2025. The new facility comprises an
initial £60 million amortising term loan ('Facility A') and a £30 million
revolving credit facility ('RCF'). Facility A is also repayable from any
proceeds received from the deferred consideration as part of the sale of
Tuffnells, and any disposal proceeds. The agreement is with a syndicate of
banks comprising lenders HSBC, Barclays, Santander and Clydesdale Banks. The
final maturity date of the facility is 31 August 2025.
The terms of the facility agreement include: agreed repayments against
Facility A arising from funds received in relation to deferred consideration
received following the sale of Tuffnells and any disposal proceeds plus £8m
in FY2023 and then £10m in FY2024 and FY2025 respectively for the repayment
of Facility A and a final bullet payment; and capped dividend payments of up
to £10m in respect of any financial year. At the year end, the Term Loan had
reduced to £49.5m. The RCF, which remained £30m at year end, will reduce by
£5m in November 2022 and then by £2.5m every 6 months from February 2023
onwards. As part of the terms of the financing, the Company and its principal
trading subsidiaries have agreed to provide security over their assets to the
lenders.
The current rate on the facility is 4.00% per annum over SONIA (in respect of
Facility A and the RCF).
At 27 August 2022, the Company had £30.0m (28 August 2021: £40.0m) of
undrawn committed borrowing and cash facilities in respect of which all
conditions precedent had been met.
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated statement of
cash flows as cash flows from financing activities.
£m Note 29/08/2021 Financing cash flows New leases Disposals Other changes 27/08/2022
Term Loan* 18 71.3 (29.4) - - 5.2 47.1
Revolving credit facility 18 - - - - - -
Overdrafts 18 0.4 (0.4) - - - -
Leases 29.2 (8.0) 5.4 (0.6) 1.6 27.6
Total 100.9 (37.8) 5.4 (0.6) 6.8 74.7
£m Note 29/08/2020 Financing cash flows New leases Disposals Other changes 28/08/2021
Term Loan* 18 49.8 21.5 - - - 71.3
Revolving credit facility 18 39.0 (39.0) - - - -
Overdrafts 18 41.3 (40.9) - - - 0.4
Leases 33.4 (5.9) - - 1.7 29.2
Total 163.5 (64.3) - - 1.7 100.9
*The opening term loan liabilities have been amended to include the associated
loan arrangement fees.
Analysis of net debt
£m Note 2022 2021
Cash and cash equivalents 18 35.3 19.3
Current borrowings 18 (8.0) (21.2)
Non-current borrowings 18 (39.1) (50.1)
Net borrowings (11.8) (52.0)
Lease liabilities 20 (27.6) (29.2)
Net debt (39.4) (81.2)
18. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group's
funding requirements and financial risks in line with the Board approved
treasury policies and procedures and their delegated authorities. Treasury's
role is to ensure that appropriate financing is available for running the
businesses of the Group on a day to day basis, whilst minimising interest
cost. No transactions of a speculative nature are undertaken. Dealings are
restricted to those banks with suitable credit ratings and counterparty risk
and credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The
capital structure of the Group consists of debt, which includes the
borrowings, cash and cash equivalents as disclosed in Note 19 and equity
attributable to equity holders of the parent, comprising issued capital,
reserves and retained earnings as disclosed in the Group Statement of Changes
in Equity.
The only externally imposed capital requirements for the Group are debt to
EBITDA, fixed charge cover and interest cover under the terms of the bank
facilities. The Group has fully complied during both the current year and the
prior year. To maintain or adjust its capital structure, the Group may adjust
the dividend payment to shareholders and/or issue new shares. There is a
future cap on dividends of £10.0m under the new banking facility, this is
also subject to all the covenants.
The Board regularly reviews the capital structure. As part of this review, the
Board considers the cost of capital and the risks associated with each class
of capital. We expect free cash from operations to be sufficient to reduce net
debt while also maintaining an attractive total shareholder return. The Group
is targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by 2023,
with repayment achieved through surplus free cash from operations. The Group's
facilities include a frozen GAAP clause in relation to IAS17 and the net
debt/EBITDA is stated on this basis.
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking
facilities and by monitoring forecast and actual cash flows. The facilities
that the Group has at its disposal to further reduced liquidity risk are
described below.
As at 27 August 2022, the Group had £79.5m committed bank facilities in place
(2021: £112.5m). Bank facilities comprised:
· £49.5 million amortising term loan (Facility A); and
· £30 million revolving credit facility (RCF)
which together expire in August 2025.
The facility described above is subject to the following covenants which are
subject to a frozen GAAP clause:
· Leverage cover - the net debt: adjusted EBITDA ratio which must
remain below 2.00x, reducing 0.25x annually to 1.5x at 24 February 2024. At 27
August 2022 the ratio was 0.3x (2021: 1.2x);
· Interest cover - the consolidated net interest: adjusted EBITDA
ratio which must remain above 4.0x. As at 27 August 2022 the ratio was 12.0x
(2021: 8.5x);
· Fixed charge cover - the ratio of adjusted EBITDA to consolidated
fixed charges is not less than 1.75x to 1. As at 27 August 2022 the ratio was
4.3x (2021: 4.0x); and
· Guarantor cover - The annual turnover, gross assets and pre-tax
profits of the Guarantors contribute at any time 80% or more of the annual
consolidated turnover, gross assets and pre-tax profits of the Group for each
of its financial years. The guarantors, which are all 100% owned or wholly
owned subsidiaries of the Smiths News plc (formerly Connect Group PLC), are
each of Smiths News plc, Smiths News Holdings Limited, and Smiths News Trading
Limited.
At 27 August 2022, the Group had available £27.7m (2021: £35.1m) of undrawn
committed borrowing facilities. There were no breaches of loan agreements
during either the current or prior years.
As the Group is cash generative its liquidity risk is considered low. The
Group's cash generation allows it to meet all loan commitments as they fall
due as well as sustain a negative working capital position.
The Group invests significant resources in the forecasting and management of
its cash flows. This is critical given a routine cash cycle at Smiths News
that results in significant predictable swings within each month of around
£40.0m, the Groups average gross borrowings for the past year was £62.3m
(2021: £94.5m). The Group has utilised the Revolving Credit Facility of
£30.0m for this.
The following is an analysis of the undiscounted contractual cash flows
payable under financial liabilities and derivatives. The undiscounted cash
flows will differ from both the carrying value and fair value. Floating rate
interest is estimated using the prevailing rate at the balance sheet date.
£m Due within 1 Year Due between 1 and 2 years Due between 2 and 3 years Greater than 3 years
At 27 August 2022
Non derivative financial liabilities
Bank and other borrowings (8.0) (10.0) (10.0) (21.5)
Trade and other payables (140.3) - - -
Leases (7.3) (5.8) (4.8) (14.5)
Total (155.6) (15.8) (14.8) (36.0)
At 28 August 2021
Non derivative financial liabilities
Bank and other borrowings (21.3) (23.5) (27.8) -
Trade and other payables (136.5) - - -
Leases (5.9) (5.7) (4.4) (13.1)
Total (163.7) (29.2) (32.2) (13.1)
Counterparty risk
Dealings are restricted to those banks with suitable credit ratings and
counterparty risk and credit exposure is monitored.
Foreign currency risk
· The majority of the Group's transactions are carried out in the
functional currencies of its operations, and so transactional exposure is
limited.
· The majority of the Group's net liabilities are held in Sterling,
with only £0.6m (2021: £0.7m) of net assets held in overseas currencies.
Translation exposure arises on the re-translation of overseas subsidiaries
profits and net assets into sterling for financial reporting purposes and is
not seen as significant.
· Note 19 denote borrowings by currency.
· There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the Group's debt
exposure, consideration of the macroeconomic environment and sensitivity to
potential interest rate rises. The Group avoids the use of derivatives or
other financial instruments in circumstances when the outcome would
effectively be largely dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the balance sheet
date were outstanding for the whole year, if interest rates had been 0.5%
higher/lower and all other variables were held constant, the Group's profit
and equity for the 52 weeks ending 27 August 2022 would decrease/increase by
£0.2m (2021: £0.4m).
Credit risk
The Group considers its exposure to credit risk at 27 August 2022 to be as
follows:
£m 2022 2021
Bank deposits 35.3 19.3
Deferred consideration - 11.5
Trade and other receivables 93.1 94.8
128.4 125.6
Further detail on the Group's policy relating to trade receivables and other
receivables can be found in Note 15.
19. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to leases:
£m Equipment & vehicles Land & buildings Total
Cost:
At 29 August 2021 1.6 38.6 40.2
Additions 0.1 5.3 5.4
Disposals - (1.8) (1.8)
At 27 August 2022 1.7 42.1 43.8
Accumulated depreciation:
At 29 August 2021 (0.6) (11.2) (11.8)
Depreciation charge (0.4) (6.5) (6.9)
Disposals - 1.2 1.2
At 27 August 2022 (1.0) (16.5) (17.5)
Net book value at 27 August 2022 0.7 25.6 26.3
Cost:
At 30 August 2020 1.8 36.9 38.7
Additions - 2.8 2.8
Disposals (0.2) (1.1) (1.3)
At 28 August 2021 1.6 38.6 40.2
Accumulated depreciation:
At 30 August 2020 (0.4) (5.5) (5.9)
Depreciation charge (0.4) (6.0) (6.4)
Disposals 0.2 0.3 0.5
At 28 August 2021 (0.6) (11.2) (11.8)
Net book value at 28 August 2021 1.0 27.4 28.4
Lease commitments
The company have the following lease commitments:
2022 2021
Due within 1 year 5.9 5.9
Due in more than 1 year, but no more than 5years 15.2 16.6
Due in more than 5 years 6.5 6.7
Total lease commitments 27.6 29.2
Amounts recognised in the income statement
£m 2022 2021
Continuing operations
Interest expense (included in finance cost) 1.6 1.6
Expense relating to low value leases (included in cost of sales and 0.3 (0.1)
administrative expenses)
Property rental income (0.4) 0.3
Total cash outflow from leases 6.6 6.2
£m 2022 2021
Lease Liabilities
Current (5.9) (5.9)
Non-current (21.7) (23.3)
Total (27.6) (29.2)
20. Deferred tax
Deferred tax assets and liabilities are attributable to the following:
£m Fixed Assets Share based payments Retirement benefits Total
At 30 August 2021 1.4 0.4 - 1.8
(Charge)/credit to income (0.8) 0.3 - (0.5)
Charge to equity - (0.2) - (0.2)
At 27 August 2022 0.6 0.5 - 1.1
Deferred tax assets 0.6 0.5 - 1.1
Deferred tax liabilities - - - -
At 29 August 2020 0.7 0.1 - 0.8
Credit to income 0.7 0.1 - 0.8
Credit to other comprehensive income - 0.2 - 0.2
At 28 August 2021 1.4 0.4 - 1.8
Deferred tax assets 1.4 0.4 - 1.8
Deferred tax liabilities - - - -
The deferred tax assets have been deemed recoverable as the Group forecasts
that it will continue to make profits against which the assets can be utilised
for tax purposes.
The Group has capital losses carried forward of £20.2m (2021: £20.2m).
Deferred tax assets of £5.1m (2021: £3.8m) have not been recognised in
respect of the capital losses carried forward due to the uncertainty of their
utilisation.
The UK Finance Act 2021 has been substantively enacted, increasing the
corporate tax rate to 25% effective from 1 April 2023.
The deferred tax asset at the period end has been calculated based on the rate
of 25% substantively enacted at the balance sheet date on the basis that the
temporary differences are expected to unwind when that rate applies.
21. Provisions
£m Provision for onerous contracts and other provisions Re-organisation provisions Insurance and legal provision Property provisions Total
At 29 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
Charged to income statement - (0.1) - (1.0) (1.1)
Credited to income statement 0.2 - 0.2 - 0.4
Utilised in period - - 0.5 0.6 1.1
Unwinding of discount utilisation - - - (0.2) (0.2)
At 27 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
At 30 August 2020 (0.9) (2.7) (1.8) (3.9) (9.3)
Charged to income statement - (0.5) (0.6) (0.2) (1.3)
Credited to income statement - 0.3 - - 0.3
Utilised in period 0.2 2.1 1.1 0.5 3.9
Unwinding of discount utilisation - - - (0.2) (0.2)
At 28 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
£m 2022 2021
Included within current liabilities (3.0) (3.6)
Included within non-current liabilities (3.4) (3.0)
Total (6.4) (6.6)
Included within non-current liabilities is £3.4m (2021: £3.0m) relating to
real estate property provisions.
Re-organisation provisions of £0.9m (2021: £0.8m) relates to the restructure
of the DMD business, the Smiths News network and the Group's support
functions, this was all announced in the prior year.
Insurance & legal provisions represent the expected future costs of
employer's liability, public liability, motor accident claims and legal
claims, included within the total balance is £0.6m (2021: £1.0m) relating to
claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of the Group's
onerous leases on non-trading properties and for potential dilapidation costs
across the Group. These provisions have been discounted to present value and
this discount will be unwound over the life of the leases. The provisions
cover the period to 2036, however, a significant portion of the liability
falls within ten years.
The Group has performed sensitivity analysis on property provision using
possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision would change
by +/-£0.1m (2021: +/-£0.1m).
If the repair cost per square foot changes by +/- £1.00p, the property
provision would change by +/-£0.3m (2021: +/- £0.9m).
22. Contingent liabilities and capital commitments
£m 2022 2021
Bank and other guarantees 2.4 4.9
Other potential liabilities that could crystallise are in respect of previous
assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH
Smith PLC, any such contingent liability in respect of assignment prior to
demerger, which becomes an actual liability, will be apportioned between
Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that the actual
liability of Smiths News plc in any 12 month period does not exceed £5m). The
Company's share of these leases has an estimated future cumulative gross
rental commitment at 27 August 2022 of £0.5m (2021: £0.5m).
Contracts placed for future capital expenditure approved by the directors but
not provided for amount to: £nil (2021: £0.2m).
As at 27 August 2022, the Group had approved letters of credit of £2.4m
(2021: £4.9m) to the insurers of the Group for the motor insurance and
employer liability insurance policies. The letters of credit cover the
employer deductible element of the insurance policy for insurance claims.
On winding up of the News Section of the Trust defined benefit pension scheme,
the Company has agreed run-off indemnity coverage for any member claims that
are uninsured liabilities capped at £6.5m over the next 60 years.
23. Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants for the
following future minimum lease payments:
£m 2022 2021
Within one year 0.2 0.2
In the second to fifth years inclusive 0.3 0.5
More than five years - -
0.5 0.7
24. Net cash inflow from operating activities
£m Note 2022
2021
Operating profit - continuing 3 32.4 35.8
Operating profit/(loss) - discontinued 3 - (0.2)
Operating profit - total 32.4 35.6
Profit on disposal of assets - (0.2)
Impairment (reversal)/charge of investments in joint ventures 13 (1.2) 1.6
Share of profits of joint ventures 13 (0.3) 0.2
Adjustment for pension funding 6 8.1 -
Depreciation of property, plant and equipment 12 2.3 2.4
Depreciation of right of use assets 19 6.9 6.4
Amortisation of intangible assets 11 1.3 1.9
Impairment of assets 4 - 0.1
Share based payments 1.2 1.0
(Increase)/decrease in inventories (2.4) 0.7
Decrease in receivables 1.7 5.4
Increase/(decrease) in payables 3.9 (5.1)
(Decrease) in provisions (0.4) (2.8)
Non cash pension costs 1.6 0.5
Income tax paid (5.3) (6.3)
Net cash inflow from operating activities 49.8 41.4
Net cash flow from operating activities is stated after the following adjusted
items:
Continuing operations
Re-organisation, restructuring & Transformation programme planning (1.3) (2.2)
costs((1))
Pension (0.2) (0.6)
Return of pension surplus 8.1 -
Other strategic costs - (1.2)
6.6 (4.0)
Discontinued operations((2))
Re-organisation & restructuring costs - (0.1)
Strategic review - -
Sale and leaseback - -
Insurance cost (0.5) (1.1)
VAT refund - 0.8
(0.5) (0.4)
Total adjusting items cash flow 6.1 (4.4)
(1) Included in the Re-organisation, restructuring &
Transformation programme planning costs adjusted cash flows in the prior
period of £2.2m was £0.7m of Transformation programme planning costs.
(2) On 2 May 2020, the Company completed the sale of
Tuffnells and assumed liability to settle certain pre-disposal insurance and
legal claims relating to employer's liability, public liability, motor
accident claims and legal claims, held as provisions. The Company continues to
present the cash outflows from these provisions for comparative purposes.
25. Share Capital
(a) Share capital
£m 2022 2021
Issued, authorised and fully paid:
At 27/28 August 12.4 12.4
Shares issued during the year - -
247.7m ordinary shares of 5p each (2021: 247.7m) 12.4 12.4
(b) Movement in share capital
Number (m) Ordinary shares of 5p each
28 August 2021 247.7
Shares issued during the year -
At 27 August 2022 247.7
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at the general
meetings of the Company. The Company has one class of ordinary shares, which
carry no right to fixed income.
No shares were issued during the 52 weeks to 27 August 2022 or the period to
28 August 2021.
(c) Share premium
£m 2022 2021
Balance at 27/28 August 60.5 60.5
Balance at 27/28 August 60.5 60.5
26. Reserves
(a) Demerger reserve
£m 2022 2021
At 27/28 August (280.1) (280.1)
At 27/28 August (280.1) (280.1)
This relates to reserves created following the capital re-organisation
undertaken as part of the demerger of WH Smith PLC in 2006. The balance
represented the difference between the share capital and reserves of the Group
restated on a pro-forma basis as at 31 August 2004 and the previously reported
share capital.
(b) Own shares reserve
£m 2022 2021
Balance at 27/28 August (3.9) (1.8)
Acquired in the period (2.2) (2.7)
Disposed of on exercise of options 1.5 0.6
Balance at 27/28 August (4.6) (3.9)
The reserve represents the cost of shares in Smiths News plc purchased in the
market and held by the Smiths News Employee Benefit Trust to satisfy awards
and options granted under the Group's Executive Share Schemes (see Note 28).
The number of ordinary shares held by the Trust as at 27 August 2022 was
12,084,239 (2021: 8,121,362). In accordance with IAS 32, these shares are
deducted from shareholders' funds. Under the terms of the Trust, the Trustee
has waived all dividends on the shares it holds.
(c) Translation reserve
£m 2022 2021
Balance at 27/28 August 0.4 0.4
Exchange differences on translating net assets of foreign operations - -
Balance at 27/28 August 0.4 0.4
27. Retained Earnings
£m
Balance at 30 August 2020 127.0
Amounts recognised in Total comprehensive expense 26.8
Dividends paid (1.2)
Disposed of on exercise of options (0.6)
Equity-settled share based payments, net of tax 1.0
Balance at 28 August 2021 153.0
Amounts recognised in total comprehensive expense 33.1
Dividends paid (6.1)
Disposed of on exercise of options (1.5)
Equity-settled share based payments, net of tax 1.2
Current tax recognised in equity (0.1)
Deferred tax recognised in equity (0.2)
Balance at 27 August 2022 179.4
28. Share-based payments
In 2022, the Group recognised a total charge of £1.2m related to
equity-settled share-based payment transactions. In 2021 there was a total
charge of £1.0m. The average share price throughout the year was 35.6p (2021:
33.2p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Smiths News Group Sharesave Scheme, the Board may grant
options to purchase ordinary shares in the Company to eligible employees who
enter into an HM Revenue & Customs approved Save-As-You-Earn ('SAYE')
savings contract for a term of three years. Options are granted at a 20%
discount to the market price of the shares on the day preceding the date of
offer and are normally exercisable for a period of six months after completion
of the SAYE contract.
Executive Share Option Scheme (ESOS) Under the terms of the Smiths News Group Executive Share Option Scheme, the
Board may grant options to purchase ordinary shares in the Company to
executives up to an annual limit of 200% of base salary. The exercise of
options is conditional on the achievement of adjusted profit after a three
year period, which is determined by the Remuneration Committee at the time of
grant. Provided that the target is met, options are normally exercisable until
the day preceding the 10(th) anniversary of the date of grant.
LTIP Under the terms of the Smiths News Group LTIP, executive directors and key
senior executives may be awarded each year conditional entitlements to
ordinary shares in the Company (which may be in the form of nil cost options
or conditional awards) or, in order to retain flexibility and at the Company's
discretion, a cash sum linked to the value of a notional award of shares up to
a value of 200% of base salary. The vesting of awards is subject to the
satisfaction of a three year performance condition, which is determined by the
Remuneration Committee at the time of grant. Subject to the satisfaction of
the performance condition, awards are normally exercisable until the 10(th)
anniversary of the date of grant.
Deferred Bonus Plan (DBP) Under the terms of the Smiths News Group Deferred Bonus Plan, each year
executive directors and key senior executives may be granted share awards (in
the form of nil cost options) dependent on the achievement of the Annual Bonus
Plan performance targets. Awards are immediately exercisable but a two year
hold-back period applies, during which the share certificate for such shares
is held by the Company. Separately, key senior executives may also be granted
share awards (in the form of nil cost options) under the DBP plan in respect
of a (discounted) restricted share award (dependent on continued employment
with the Company).
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number of options/ awards No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p)
At 29 Aug 2020 8,252,887 34.2 1,785,833 126.7 10,967,034 - 1,464,611 -
Granted 2,122,030 43.64 - - 4,350,408 - 1,541,268 -
Exercised (59,495) - - - - - (938,854) -
Expired /Forfeited (1,927,785) 23.12 (62,621) 108.7 (1,389,340) - (41,481) -
At 28 Aug 2021* 8,387,637 28.92 1,723,212 126.7 13,928,102 - 2,025,544 -
Granted 900,405 34.70 - - 4,043,731 - 1,807,242 -
Exercised (92,308) - - (1,113,915) - (2,333,638) -
Expired /Forfeited (1,616,651) 35.80 (666,468) 137.8 (4,439,620) - - -
At 27 Aug 2022 7,579,083 1,056,744 12,418,298 1,499,148
Exercisable at 27 Aug 2022 - - 1,056,744 126.1 - - - -
Exercisable at 28 Aug 2021 - - 1,723,212 113.8 - - - -
*During the current period, the opening number of options for the Sharesave,
LTIP and DBP schemes were restated to amend disclosure errors made in the
prior period.
The weighted average remaining contractual life in years of options/awards is
as follows:
Sharesave ESOS LTIP DBP
Outstanding at 27 August 2022 1.9 5.2 1.2 1.5
Outstanding at 28 August 2021 1.9 6.2 1.2 1.3
Details of the options/awards granted or commencing during the current and
comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2022:
Effective date of grant or commencement date July 2022 - Dec 2021 Dec 2020
Average fair value at date of grant or scheme commencement - pence 4.3 - 26.0 38.0
During 2021:
Effective date of grant or commencement date Jun 2020 - Dec 2020 Dec 2020
Average fair value at date of grant or scheme commencement - pence 19.7 - 25.0 35.0
The options outstanding at 27 August 2022 had exercise prices ranging from nil
to 167.8p (2021: nil to 167.8p).
The weighted average share price on the date of exercise was 37p (2021: 39p).
The Sharesave options granted during each period have been valued using the
Black-Scholes model, the LTIP performance measures include 70% total
shareholder return (TSR) metric this is valued by reference to the share price
at date of grant less an adjustment for the TSR portion of the award. The DBP
schemes are valued by reference to the share price at the date of grant.
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
2022 options/awards:
Share price at grant date - pence 34.7 38 38
TSR adjustment - pence - (17) -
Exercise price - pence 32.0 - -
Expected volatility - per cent 40.3 - -
Expected life - years 3 - -
Risk free rate - per cent 1.7 - -
Expected dividend yield - per cent 8.37 - -
Weighted average fair value - pence 4.3 21 38
2021 options/awards:
Share price at grant date - pence 44.0 30 30
TSR adjustment - pence - (6.0) -
Exercise price - pence 35.0 - -
Expected volatility - per cent 97.0 - -
Expected life - years 3 - -
Risk free rate - per cent (0.1) - -
Expected dividend yield - per cent - - -
Weighted average fair value - pence 19.7 24.0 30
29. Post balance sheet events
The directors have considered the period between the balance sheet date and
the date when the accounts are authorised for issue for evidence of conditions
that existed at the balance sheet date, either adjusting or non-adjusting post
balance sheet events and have concluded that there are no such events in the
current period.
30. Related party transactions
Transactions between businesses within the Group which are related parties
have been eliminated on consolidation and are not disclosed in this note.
Transactions with the Group's pension schemes are disclosed in Note 6.
Trading transactions
Sales to related parties Amounts owed by related parties
£m 2022 2021 2022 2021
Joint ventures 0.4 0.4 0.1 0.1
Sales to related parties are for management fees, payment is due on the last
day of the month following the date of invoice.
Non-trading transactions
Loans to related parties
£m 2022 2021
Joint ventures 0.1 0.2
The balance above is secured against the assets of Fresh on the Go Limited.
Tuffnells Deferred Consideration
On 2 November 2021, the Group received £6.5m (the first tranche) of the total
amount of unsecured consideration due of £15m. Following receipt of this
payment, the Board agreed revised terms with Tuffnells Holdings Limited
(formerly Palm Bidco Limited) regarding the outstanding deferred consideration
payable, such that it would accept £7.5m in full and final settlement of the
outstanding amount due, were it received on or before 2 August 2022. This
amount was received in full during the current financial period. The Chairman
of Tuffnells Holdings Limited is also a non-executive director of Smiths News
plc.
Directors' remuneration
£m 2022 2021
Salaries 0.9 0.9
Bonus 0.6 0.6
Non-executive director fees 0.3 0.3
Post-employment benefits - -
Termination benefits - 0.1
1.8 1.9
Information concerning directors' remuneration, interest in shares and share
options are included in the Directors' Remuneration report in the Annual
Report.
There are 2 (2021: 2) directors to whom retirement benefits are accruing in
respect of qualifying services under money purchase schemes.
Directors made gains on share options of £nil (2021: £nil).
Key management personnel (including
directors)
The remuneration of the directors and the Executive Team, who are the key
management personnel of the continuing Group, is set out below in aggregate
for each of the categories specified in IAS 24 'Related Party Disclosures.'
£m 2022 2021
Short-term employee benefits 2.8 2.8
Termination benefits - -
Share based payments 1.1 0.6
3.9 3.4
31. Subsidiary and associated undertakings
Company name/ Share Class Group % Company name/ Share Class Group %
(number) (number)
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH
Connect Limited Ordinary Shares 100% Martin-Lavell Limited Ordinary Shares 100%
02008952 02654521 (*)
Connect Logistics Limited Ordinary Shares 100% Pass My Parcel Limited Ordinary Shares 100%
09172965 09172022
Connect News & Media Limited Ordinary Shares 100% Phantom Media Limited Ordinary Shares 100%
08572634 03805661 (*)
Connect Parcel Freight Limited Ordinary Shares 100% Smiths News Holdings Limited Ordinary Shares 100%
09295023 04236079
Connect Parcels Limited Ordinary Shares 100% Smiths News Instore Limited Ordinary Shares 100%
09172850 03364589
Connect Services Limited Ordinary Shares 100% Smiths News Investments Limited(*) Ordinary Shares 100%
08522170 06831284
Connect Specialist Distribution Group Limited Ordinary Shares 100% Smiths News Distribution Limited Ordinary Shares 100%
08458801 08506961
Connect2U Limited Ordinary Shares 100% Smiths News Trading Limited Ordinary Shares 100%
03920619 00237811
Dawson Media Services Limited 06882722 Ordinary Shares 100% Dawson Limited Ordinary Shares 100%
03433262
Dawson Guarantee Company Limited 06882393 Ordinary Shares 100% Dawson Media Direct Limited (*) 06882366 Ordinary Shares 100%
Dawson Holdings Ltd (*) Ordinary Shares 100%
00034273
France
Dawson Media Direct SAS Ordinary Shares 100% 11 rue Léopold Bellan, 75000 Paris, France
450 101 340 RCS Bobigny
Spain
Dawson Media Direct Iberica SL Ordinary Shares 100% Calle Zurbano 76 Madrid 28010, Spain
CIF-B84692904
Germany
Dawson Media Direct GmbH Ordinary Shares 100% Johannstr. 39 40476 Dusseldorf, Germany
HRB 99445
Belgium
Dawson Media Direct NV Ordinary Shares 99% Priester Cuypersstraat 3 Brussel 1040, Belgium
474.114323
Turkey
Dawson Media Direct Anonim Sirketi Ordinary Shares 100% Park Plaza, No:14/24 Resitpasa Mahallesi Istanbul Turkey
14449-5
Australia
Dawson Media Direct Australia Pty Limited Ordinary Shares 100% C/O Grant Thornton Australia Level 17, 383 Kent Street, Sydney NSW 2000,
Australia
615545545
Hong Kong
Dawson Media Direct China Limited Ordinary Shares 100% Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
1167911
Thailand
Dawson Media Direct Co. Ltd Ordinary Shares 48.9% 87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road, Lumpini
Sub-District, Pathumwan District, Bangkok, Thailand
105558138385
* Audit exemption statement
For the 52 weeks ended 27 August 2022, the companies as indicated in the table
by '(*)' above were entitled to exemption from audit under section 479A of the
Companies Act 2006 relating to subsidiary companies. As such, Smiths News plc
(formerly Connect Group PLC) has provided a guarantee against all debts and
liabilities in these subsidiaries as at 27 August 2022. The members of these
companies have not required them to obtain an audit of their financial
statements for the 52 weeks ended 27 August 2022.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have adopted various
APMs.
These measures are not defined by International Financial Reporting Standards
(IFRS) and therefore may not be directly comparable with other companies'
APMs, including those in the Group's industry.
APMs should be considered in addition to, and are not intended to be a
substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing additional useful
measures of the Group's performance. They provide readers with additional
information on the performance of the business across periods which is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Team.
Consequently, APMs are used by the directors and management for performance
analysis, planning, reporting and incentive-setting purposes.
The key APMs that the Group has focused on and changes to APMs within the
period can be found in Note 1.
APM Closest equivalent Adjustments to reconcile Note/page reference for Definition and purpose
IFRS measure to IFRS measure reconciliation
Income Statement
Adjusted Items No direct equivalent N/A Note 4 Adjusting items of income or expenses are excluded in arriving at Adjusted
operating profit to present a further measure of the Group's performance. Each
of these items is considered to be significant in nature and/or quantum,
non-recurring in nature and /or are considered to be unrelated to the Group's
ordinary activities or are consistent with items treated as adjusting in prior
periods. Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business across
periods because it is consistent with how the business performance is planned
by, and reported to, the Board and the Executive Team.
Adjusted operating profit Operating profit* Adjusted items Income statement/ Adjusted operating profit is defined as operating profit from continuing
operations, excluding the impact of adjusting items (defined above). This is
Note 4 the headline measure of the Group's performance and is a key management
incentive metric.
Adjusted profit before tax Profit before tax (PBT) Adjusted items Income statement/ Adjusted profit before tax is defined as profit before tax from continuing
operations, excluding the impact of adjusting items (defined above).
Note 4
Adjusted profit after tax Profit after tax (PAT) Adjusted items Income statement/ Adjusted profit after tax is defined as profit after tax from continuing
operations, excluding the impact of adjusting items (defined above).
Note 4
Adjusted Operating profit* Depreciation and amortisation Note 3 This measure is based on business unit operating profit from
EBITDA Adjusted items Continuing operations. It excludes depreciation, amortisation and adjusting
items. This is the headline measure of the Group's performance and is a key
management incentive metric.
Adjusted earnings per share Earnings per share Adjusted items Note 10 Adjusted earnings per share is defined as continuing adjusted PBT, less
taxation attributable to adjusted PBT and including any adjustment for
minority interest to result in adjusted
PAT attributable to shareholders; divided by the basic weighted average
number of shares in issue.
Cash flow Statement
Free cash flow Net movement in cash and cash equivalents Dividends, See Free Cash Flow in Financial Review section Free cash flow is defined as cash flow excluding the following: payment of
the dividend, acquisitions and disposals, the repayment of bank loan principal
acquisitions and disposals, amounts, EBT share purchases and cash flows relating to pension deficit
repair. This measure reflects the cash available to shareholders.
Repayment of bank loans,
EBT share purchases,
Pension deficit repair payments
Free cash flow (excluding adjusting items) Net movement in cash and cash equivalents Dividends, See Free Cash Flow in Financial Review section Free cash flow (excluding Adjusted items) is Free cash flow adding back
Adjusted cash costs.
acquisitions and disposals,
Repayment of bank loans,
EBT share purchases,
Pension deficit repair payments
Adjusted items
Balance Sheet
Bank Net Debt Borrowings less cash Cash flow statement Bank Net Debt is calculated as total debt less cash and cash equivalents.
Total debt includes loans and borrowings, overdrafts and obligations under
finance leases as defined by IAS 17.
Net debt Borrowings less cash Cash flow statement Net debt is calculated as total debt less cash and cash equivalents. Total
debt includes loans and borrowings, overdrafts and obligations under leases.
* Operating profit is presented on the Group income statement. It is not
defined per IFRS, however, is a generally accepted profit measure.
Reconciliation of Free cash flow to net movement in cash and cash equivalents
A reconciliation between free cash flow and the net increase/ (decrease) in
cash and cash equivalents are shown below:
£m 2022 2021
Net (decrease)/increase in cash & cash equivalents 16.0 (31.3)
Decrease in borrowings and overdrafts 23.0 57.8
Movement in borrowings and cash 39.0 26.5
Dividend paid 6.1 1.2
Working capital loan to Tuffnells - (6.7)
Outflow for EBT shares 2.6 2.6
Continuing free cash flow 47.7 23.6
Discontinued free cash flow 0.5 (0.4)
Total free cash flow 48.2 24.0
Continuing Adjusted EBITDA reconciliation
£m 2022 2021
Operating profit 32.4 35.8
Adjusting items 5.7 3.8
Adjusted operating profit 38.1 39.6
Depreciation 2.3 2.4
Amortisation 1.3 1.9
Right of use asset depreciation 6.9 6.4
Adjusted EBITDA 48.6 50.3
Operating lease charges (7.9) (7.7)
Adjusted EBITDA (excluding IFRS 16) 40.7 42.6
Reconciliation of Bank net debt to reporting net debt
£m 2022 2021
Bank net debt (14.2) (53.2)
Unamortised arrangement fees (Note 18) 2.4 1.2
IFRS 16 lease liabilities (Note 19) (27.6) (29.2)
Net debt (Note 17) (39.4) (81.2)
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