REG - Smiths News PLC - Interim Financial Results
03/05/2023 07:00
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RNS Number : 1868Y Smiths News PLC 03 May 2023
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Unaudited Interim Financial Results for the 26 weeks ended 25 February 2023
Continued good performance delivering on all key metrics
Headlines
· Revenues up 1.0% driven by price increases and sporting &
news events
· Adjusted operating profit of £20.4m up 6.8%
· Inflationary impacts and operational efficiencies in line with
planning assumptions
· Major contract renewals - 65% of total newspaper and magazine
revenues now secured through to at least 2029
· Further progress of ancillary revenues and organic business
development
· Good performance driving Adjusted EPS of 5.6p up 9.8%
· Bank Net Debt of £22.9m is down 41.0% and Average Net Debt of
£26.3m is down 55.3%
· Interim dividend of 1.4p, in line with intent to pay £10.0m in
total dividends for the year, the maximum payable under existing banking
facilities
· On-track to meet market expectations for the full year
Adjusted continuing results ((1)) 26 weeks to 26 weeks to Change
25 Feb 2023 26 Feb 2022
Revenue £550.1m £544.8m 1.0%
Adjusted operating profit £20.4m £19.1m 6.8%
Profit before tax £17.1m £15.3m 11.8%
Earnings per share 5.6p 5.1p 9.8%
Statutory continuing results
Revenue £550.1m £544.8m 1.0%
Profit before tax £17.1m £14.6m 17.1%
Statutory profit £13.3m £11.6m 14.7%
Earnings per share 5.6p 4.8p 16.7%
Interim dividend per share 1.4p 1.4p -
Free cash flow (outflow) / inflow ((2)) (£0.2m) £17.5m (101.1%)
Bank Net Debt ((3)) £22.9m £38.8m (41.0%)
Average Bank Net Debt £26.3m £58.9m (55.3%)
A combination of stronger revenues, beneficial margin mix and the focused
management of cost pressures has delivered profit growth and debt reduction in
an inflationary environment. Revenues increased by 1.0% aided by newspaper
price increases, which have had the consequent impact of reducing volumes.
In parallel, the securing of cost efficiencies across the network has
mitigated inflationary impacts in line with plan. As a result, Adjusted
operating profit, Cash Generation and Bank Net Debt remain firmly on track to
meet market expectations.
Outlook
Over the last 12 months, our core sales have benefitted from strong cover
price rises across the newspaper sector; we see this as a consequence of
inflationary pressures rather than a structural change in the market. Revenue
and volumes are expected to return towards historic trends in the second half.
We are confident, however, that with our continued focus on efficiency and
close management of costs, the business remains on track to meet market
expectations for the full year. As a result, the Board has the confidence to
reiterate its intention to pay £10.0m in total dividends for this financial
year, the maximum payable under existing banking facilities.
Jonathan Bunting, Chief Executive Officer, commented:
"This is a pleasing first half performance, founded on the hard work and
focused strategy of the last three years. Our results have benefitted from
strong revenues but are equally a consequence of robust cost management and
the securing of efficiencies that can be sustained over time. Smiths News
generates strong and predictable cash flows as demonstrated by a further
year-on-year reduction in net debt. The business is on-track to meet
expectations for the full year and with 65% of publisher contract revenues
secured to 2029, we can look ahead with confidence."
Enquiries:
Smiths News PLC Via Buchanan
Jonathan Bunting, Chief Executive Officer
Paul Baker, Chief Financial Officer
www.smithsnews.co.uk (http://www.smithsnews.co.uk)
Buchanan
Richard Oldworth / Jamie Hooper / Toto Berger 020 7466 5000
smithsnews (mailto:smithsnews@buchanan.uk.com) @buchanan.uk.com
www.buchanan.uk.com (http://www.buchanan.uk.com)
A recording of the presentation for analysts will be made available on the
Company's website on the afternoon of Wednesday 3 May 2023 - see the Investor
Zone section at www.smithsnews.co.uk
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' 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. 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
Interim 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 impact of acquisitions and disposals, the
repayment of bank loans and EBT share purchases.
(3) 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.
(4) H1 2023 - refers to the 26 weeks ended 25 February 2023 and FY2023
refers to the 52 week period ending 26 August 2023. H1 2022 refers to the 26
week period ended 26 February 2022 and FY2022 refers to the 52 week period
ended 27 August 2022.
(5) The Interim Financial 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 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 Interim Financial Results
for the half-year ended 25 February 2023 and the Report and Accounts for the
year ended 27 August 2022 which can each 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 of performance
Our performance over the first half represents a clear continuation of the
progress over recent years, with a stable business model delivering profit and
cash in line with expectations.
Adjusted operating profit of £20.4m was up 6.8% (HY2022: £19.1m) from
Revenue of £550.1m that was up by 1.0%. Adjusted profit before tax of £17.1m
was up 11.8% (HY2022: £15.3m). Free cash outflow of £0.2m was temporarily
impacted by the phasing of payments but remains in line with expectations as
indicated by our Average Net Debt which has fallen by 55.3% to £26.3m.
Adjusted EPS of 5.6p (HY2022: 5.1p) is up 9.8%.
The key factors in driving this overall performance were:
• Strong cover price rises driving revenues into growth, significantly
ahead of historic trends
• Continued strong sales from higher margin one shots and sticker
collections, further boosted by World Cup volumes and magazine special
editions
• Securing of efficiencies to mitigate inflationary impacts in line
with our planning assumptions
• Improvements in ancillary revenues of £0.3m in the period
• Lower depreciation charges of £0.5m
H1 revenue boosted by cover price increases
Cover price increases on newspapers have contributed to a reversal of historic
trends at a revenue level, with a consequent impact on volumes which declined
at higher levels than historically. Higher margin one shots have also
maintained their growth, driven by a combination of World Cup, Premier League
and Pokémon sticker collections, with a further boost from news events.
Looking ahead, we expect revenues in the second half to return towards
historic trends, due to a slowing of cover price rises and a stronger H2
comparator.
Operational efficiencies mitigating net inflation
On the cost side, inflationary impacts remain in line with our planning
assumptions, with operating efficiencies delivering a significant, if not
total, mitigation. This is a good result in what has been an especially
challenging environment for cost control.
The last eighteen months have seen significant pressure on distributors as
driver shortages and fuel prices add to wage inflation and increases in
overhead costs. While our contractor model has helped to reduce the volatility
of these pressures, it is not immune to the macro trends. Cost efficiency
measures will remain a key element of our business model going forward as
sales volumes continue to decline. This is a core strength of the business and
we are confident of maintaining the current level of inflationary offset over
the full year. We continue to plan on the basis of an ability to secure
sustainable operational efficiencies in the region of £4.0m to £5.0m per
annum.
Major contract renewals
As previously announced, the Company concluded new contracts with each of
Frontline, Seymour and Associated Newspapers in October 2022 and with
Telegraph Media Group in January 2023. In total, by the end of the period, we
had secured circa 46% of our current newspaper and magazine revenues on new
long-term agreements extending to 2029.
In April 2023, Smiths News reached a further agreement with News UK to renew
our exclusive distribution contract encompassing all of our existing
territories. This means we have now secured over 65% of our current business
revenues on long-term agreements through to at least 2029. With the majority
of the publisher agreements now in place and the remaining contracts phased
over the intervening years, we can plan ahead with confidence.
Organic business development
Smiths News Recycle, our new business initiative providing convenient waste
recycling services to retailers has proceeded from regional trial to
network-wide experimentation. The service leverages our current distribution
and network recycling facilities, making it an attractive and complementary
bolt-on to core operations. We are pleased with the initial response of our
independent customers to this new service and to date, we have c.1,900
customers as part of the wider trial. We continue to refine our offer, measure
the economics and assess the scalability, in line with our strategic approach.
In addition, we continue to pursue our strategy of exploring and trialing new
profit streams from a range of adjacent opportunities that complement our core
operations. Notably, in the period, we have increased the supply of DVDs and
books to leading supermarkets and will be reviewing the potential for similar
offers across our customer base. Meanwhile, the additional rental income we
secured in FY2022 from third party logistics suppliers has repeated and
continues to make a small, but welcome, contribution to reducing overheads.
M&A
During the period, the Company recorded costs of £0.6m in exploring a
potential acquisition aligned to our growth strategy. The target was
complementary to our core business, had close alignment with our markets and
commercial synergies with elements of our operations. Despite making
significant progress and undertaking due diligence, the economics of the
proposed transaction and the changing macro-economic climate meant that the
Board concluded that proceeding would not be in the interests of all
stakeholders.
Cash generation and debt reduction
The business continues to generate strong and predictable cash flow.
Comparisons with the prior year are impacted by an adverse timing impact of
£5.0m in the payment cycle and one-off receipts of £14.6m in the equivalent
period last financial year.
As working capital varies significantly across the monthly payment cycle, we
consider Average Net Debt to be the best indicative measure of our progress
against the extent to which we are drawing on our facilities. Its reduction to
£26.3m is a significant milestone, confirming the transformation in our
underlying capital strength over the last three years.
Dividend
An interim dividend of 1.4p per share will be paid on 6 July 2023 to
shareholders on the register on 9 June 2023; the ex-dividend date will be 8
June 2023. This distribution is in line with last year and consistent with the
Company's intention, subject to performance, of paying total annual dividends
of £10.0m p.a., the maximum payable under the terms of our banking facilities
which mature in August 2025.
Board announcements
As previously announced, Deborah Rabey joined the Board as an independent
non-executive director with effect from 1 March 2023. Deborah brings a wealth
of experience in supply chains, global sourcing, change management and general
marketing. She spent 23 years with Tesco PLC to October 2022 and is currently
Interim Chief Customer Officer at the mixed-goods retailer, Wilko.
Outlook
Over the last 12 months, our core sales have benefitted from strong cover
price rises across the newspaper sector; we see this as a consequence of
inflationary pressures rather than a structural change in the market. Revenue
and volumes are expected to return towards historic trends in the second half.
We are confident, however, that with our continued focus on efficiency and
close management of costs, the business remains on track to meet market
expectations for the full year. As a result, the Board has the confidence to
reiterate its intention to pay £10.0m in total dividends for this financial
year, the maximum payable under existing banking facilities.
FINANCIAL REVIEW
Overview
Key financial profit and debt metrics were ahead of the prior year half,
driven by strong sales, beneficial margin mix and the focused mitigation of
inflationary pressures.
Revenues of £550.1m were ahead of last year by 1.0% (H1 2022: £544.8m)
having benefitted from one-off events and from newspaper price increases,
which have had a consequent impact on volumes. Inflationary pressures were
still present, but largely mitigated by cost management and continuing
ancillary revenue streams. Adjusted operating profit of £20.4m was a £1.3m
increase on the prior year half (H1 2022: £19.1m).
The increase in Adjusted operating profit led to an increase in profit before
tax from £15.3m to £17.1m and an increase in Adjusted EPS from 5.1p to 5.6p.
Average Bank Net Debt for the half year fell by £32.6m (55.3%) from £58.9m
in H1 2022 to £26.3m in H1 2023, owing to strong ongoing cash flow and the
receipt of the final Tuffnells £7.5m deferred consideration in April 2022.
Bank Net Debt reduced from £38.8m in H1 2022 to £22.9m this half year
(FY2022: £14.2m).
Continuing free cash flow for the half year was an outflow of £0.2m (H1 2022:
£17.5m inflow) and includes a working capital outflow since year end of
-£13.6m (H1 2022: -£7.8m), part of our normal working capital cycle. Free
cash flow is -£17.7m lower than last year as the prior year benefitted from a
one-off pension surplus (£8.1m), Tuffnells deferred consideration receipt
(£6.5m) and due to the £5m timing impact of trade receivables which were
paid on 27 February 2023, the first working day of the second half.
Adjusting items had a net neutral impact on statutory profit after tax, with
£0.6m of costs associated with an aborted acquisition, offset by provisions
releases which were the result of a contract renewal with our shared service
centre partner. Statutory profit after tax increased from £11.5m in H1 2022
to £13.3m.
An interim dividend of 1.4p per share (£3.3m) is proposed by the Board, due
to be paid in July 2023.
Continuing Adjusted Results
Group
Continuing Adjusted results £m 26 weeks to 26 weeks to Change
25 Feb 2023 26 Feb 2022
Revenue 550.1 544.8 1.0%
Operating profit 20.4 19.1 6.8%
Net finance costs (3.3) (3.8) 13.2%
Profit before tax 17.1 15.3 11.8%
Taxation (3.8) (3.1) (22.6)%
Effective tax rate 22.2% 20.3% 190bps
Profit after tax 13.3 12.2 9.0%
Revenue was £550.1m (H1 2022: £544.8m), up 1.0% on the prior year, aided by
the 2022 World Cup, Premier League and Pokémon trading cards and by newspaper
cover price increases. This compares to the historic revenue trend of c.-3% to
-5%.
Newspaper revenues were up 0.5% and included the benefit of cover price
increases since the second half of FY2022, which had an impact on volumes.
Magazine revenue was down c.6%, in line with historic trends. Revenue from one
shots was up 88%, supported by World Cup football collections and by a
continuation of strong Premier League and Pokémon trading card performance
seen in H2 FY2022.
The increase in Adjusted operating profit of £1.3m to £20.4m (H1 2022:
£19.1m) can be attributed to:
· Improvement in wholesale margin (£0.8m), driven by higher
underlying revenue
· The benefit of new ancillary revenue contracts (£0.3m)
· The annualisation of inflationary increases to the depot cost
base made last year, offset by depot cost savings and the benefit of higher
rates for the sale of waste paper (net impact -£0.3m)
· Lower depreciation (£0.5m) reflecting lower capex over the last
3 years
Net finance charges of £3.3m (H1 2022: £3.8m) were lower than the prior year
half by £0.5m due to lower amortisation of bank arrangement fees following
the amendment and extension of banking facilities in December 2021. Interest
on bank debt of £1.9m was consistent with the prior year (H1 2022: £1.9m) as
lower average net debt was offset by increased interest rates.
Adjusted profit before tax was £17.1m, up 11.8% on H1 2022. Taxation of
£3.8m includes a higher effective tax rate of 22.2% compared to the prior
period (H1 2022: 20.3%) due to the increase in the corporation tax rate from
19% to 25% from April 2023.
Statutory Results
Group
Continuing Operations £m 26 weeks to 26 weeks to Change
25 Feb 2023 26 Feb 2022
Revenue 550.1 544.8 1.0%
Operating profit 20.4 17.0 20.0%
Net finance costs (3.3) (2.4) (37.5)%
Profit before tax 17.1 14.6 17.1%
Taxation (3.8) (3.0) (26.7)%
Effective tax rate 22.2% 20.5% 170bps
Profit after tax 13.3 11.6 14.7%
Discontinued Operations £m
Loss for the year from discontinued operations - (0.1) 100.0%
Profit attributable to equity shareholders continuing and discontinued 13.3 11.5 15.7%
operations
Statutory Continuing profit before tax of £17.1m was a £2.5m increase on the
prior year (H1 2022: £14.6m). The increase was driven by the £1.8m increase
in Adjusted profit before tax described above and lower adjusting items (H1
2023: net £nil, H1 2022: £0.7m).
The Company has net liabilities of £25.7m on its balance sheet (H1 2022:
£38.7m). The net liabilities arose largely as a result of impairments to
the assets and goodwill of the Tuffnells business prior to its sale in May
2020.
Earnings per share
Continuing Adjusted Continuing Statutory
26 weeks to 26 weeks to 26 Feb 2022 26 weeks to 26 weeks to 26 Feb 2022
25 Feb 2023
25 Feb 2023
Earnings attributable to ordinary shareholders (£m) 13.3 12.2 13.3 11.6
Basic weighted average number of shares (millions) 236.7 240.7 236.7 240.7
Basic Earnings per share 5.6p 5.1p 5.6p 4.8p
Diluted weighted number of shares (millions) 249.3 252.0 249.3 252.0
Diluted Earnings per share 5.3p 4.8p 5.3p 4.6p
Continuing Adjusted basic earnings per share of 5.6p, is an increase of 0.5p
on the prior year driven by the improved trading of the business and a
reduction of average number of shares due to employee benefit trust share
purchases.
Statutory continuing basic earnings per share, which includes adjusted items,
is up 0.8p to 5.6p (H1 2022: 4.8p) due to increased profit and a reduction in
the weighted number of shares.
Dividend
26 weeks to 26 weeks to
25 Feb 2023 26 Feb 2022
Dividend per share (proposed) 1.4p 1.4p
Dividend per share (paid and recognised) 2.75p 1.15p
The Board is proposing an interim dividend of 1.4p per share (H1 2022: 1.4p).
The proposed dividend will be paid on 6 July 2023 to shareholders on the
register at close of business on 9 June 2023. The ex-dividend date will be 8
June 2023.
The FY2022 final dividend of 2.75p per share (£6.5m) was approved by
shareholders at the Annual General Meeting on 24 January 2023, paid on 9
February 2023 and is recognised in the Interim Financial Statements.
Adjusted items
Continuing Operations £m 26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022
Transformation programme planning credit/ (costs) - (0.6)
Aborted acquisition costs (0.6) -
Pensions - (1.7)
Network and reorganisation credit/ (costs) 0.6 0.2
Total before tax and interest - (2.1)
Finance income - unwind of deferred consideration - 1.4
Total before tax - (0.7)
Taxation - 0.1
Total after taxation - (0.6)
Adjusted items before tax of net £0.02m were a £0.7m decrease on the prior
year period (H1 2022: £0.7m). In the current period, the Company incurred
£0.6m of costs for due diligence and legal activity associated with an
aborted acquisition. These costs were offset by £0.6m of credits relating to
provisions releases which were the result of a contract renewal with our
shared service centre partner.
In the prior year, adjusting items related to £0.6m of costs connected to
strategic planning projects, £1.7m of costs in respect of the return of the
net £8.1m pension surplus and rationalising the Company's pension portfolio,
reorganisation provision releases of £0.2m (credit) and £1.4m to the unwind
of the Tuffnells deferred consideration which was settled by the end of April
2022.
Further information on these items can be found in Note 4 of the Interim
Financial Statements. Adjusted items are defined in the Glossary to the
Interim Financial Statements and present a further measure of the Group's
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.
Free cash flow
£m 26 weeks to 26 weeks to
25 Feb 2023 26 Feb 2022
Adjusted operating profit 20.4 19.1
Depreciation & amortisation 4.8 5.3
Adjusted EBITDA 25.2 24.4
Working capital movements (13.6) (7.8)
Capital expenditure (2.1) (1.2)
Lease payments (3.2) (3.3)
Net interest and fees (2.7) (5.2)
Taxation (3.9) (3.4)
Other 0.8 0.4
Free cash flow (excluding Adjusted items) 0.5 3.9
Adjusted items (cash effect) - return of pension surplus - 8.1
Adjusted items (cash effect) - receipt of deferred consideration - 6.5
Adjusted items (cash effect) - Other (0.7) (1.0)
Continuing Free cash flow (0.2) 17.5
Free cash flow of £0.2m (outflow) was £17.7m lower than H1 2022 (£17.5m
inflow) due to a £5.8m increase in the working capital movement and two
one-off items in H1 2022, being the £8.1m pension surplus receipt and £6.5m
deferred consideration received from Tuffnells. These items were offset by the
absence of bank refinancing fees (H1 2022: £2.7m).
The increase in working capital of £13.6m since year end (H1 2022: £7.8m) is
due to the timing of period end compared to the billing cycles of both
publishers and retailers. At H1 2023, this included the impact of £5m due
from a major supermarket which was received on Monday 27 February 2023 (the
first working day of the second half). These working capital cycles led to
intra-month working capital movements of up to £40m. Underlying working
capital levels remain consistent with the prior year period.
Cash capital expenditure in the period was £2.1m (H1 2022: £1.2m), an
increase of £0.9m due to depot refurbishments which were initiated at the end
of FY2022.
Lease payments of £3.2m (H1 2022: £3.3m) decreased by £0.1m due to the exit
of a depot lease in the second half of last financial year.
Net interest and fees of £2.7m (H1 2022: £5.2m) decreased by £2.5m, as the
prior year period included the payment of £2.7m arrangement fees in relation
to the Company's refinancing of its banking facilities.
Cash tax outflow of £3.9m was a £0.5m increase on the prior year period (H1
2022: £3.4m outflow) owing principally to the increase in corporation tax
rate from 19% to 25% in April 2023.
Other items relate predominantly to the non-cash share-based payment expense
and the increase is linked to increases in the Company's share price.
In the prior year period, the wind-up of the Company's defined benefit pension
scheme (detailed further below) resulted in the receipt of £8.1m and the
first scheduled instalment of deferred consideration was received from
Tuffnells (£6.5m).
The total net cash impact of other Adjusted items was a £0.7m outflow (H1
2022: £1.0m outflow). In the current period, amounts related to aborted
acquisition costs (£0.5m) and reorganisation costs (£0.2m). In the prior
year half, adjusting items comprised: £0.8m of Transformation programme
planning costs; £0.1m of Pension related costs and £0.1m of Network and
reorganisation costs.
A reconciliation of free cash flow to the net movement in cash and cash
equivalents is given in the Glossary.
Net debt
£m As at As at
25 Feb 2023 26 Feb 2022
Opening Bank Net Debt (14.2) (53.2)
Continuing operations free cash flow (0.2) 17.5
Discontinued operations free cash flow - (0.3)
Free cash flow (0.2) 17.2
Dividend paid (6.5) (2.8)
Investment in joint venture (0.2) -
Purchase of shares for employee benefit trust (1.8) -
Bank Net Debt (22.9) (38.8)
Bank Net Debt closed the period at £22.9m compared to £38.8m at February
2022, a decrease of £15.9m. Average daily net debt reduced from £58.9m in
the first half of last year to £26.3m this half year, a reduction of £32.6m.
The reduction in both reported and average daily bank net debt was driven by
the Company's ongoing cash flow generation and aided by £22.1m of one-off
receipts in FY2022, being the pension receipt of £8.1m in December 2021 and
deferred consideration receipts from Tuffnells of £6.5m in November 2021 and
£7.5m in April 2022.
The Company's Bank Net Debt/EBITDA ratio decreased to 0.5x (H1 2022: 0.9x).
The period end fell just before major publisher payments of c.£17m were made,
which benefitted reported Bank Net Debt. Bank Net Debt rose to £39.8m on 28
February 2023 after the half year end.
The intra-month working capital cash flow cycle generates a routine and
predictable cash swing of up to £40m within the overall bank facility of
£71.5m at the period end (H1 2022: £90m). This results in a predictable
fluctuation of net debt during the month compared to the closing net debt
position.
Discontinued items cash flow in the prior period relates to insurance
settlements for incidents which occurred during the Company's ownership of
Tuffnells prior to 2 May 2020.
During the current period, the FY2022 final dividend of £6.5m was paid (H1
2022: £2.8m), bringing the total dividend paid in respect of FY2022 to £9.8m
(FY2022: £6m). The Company invested £0.2m during the period in LoveMedia, a
joint venture for retailing single copy electronic versions of newspapers and
magazines.
The Bank Net Debt to EBITDA covenant of 0.5x is comfortably within our main
leverage covenant ratio of 1.75x and we remain well within all our other bank
covenant tests at period end.
A reconciliation of Bank Net Debt (which excludes the IFRS 16 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 impact of
inflationary pressures within the macro economy and the funding requirements
of the Group and 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 Interim 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
On 3 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 Smith 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.
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 and emerging
risks and regular reporting to, and robust challenge from, both the Executive
Team and Audit Committee. The directors' assessment of these risks is
aligned to the strategic business planning process and regulatory landscape.
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 and macro-economic landscape, the Company's future
strategic direction and ambition as well as the heightened 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. Risks remain
subject to ongoing scrutiny, 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
Macro-economic uncertainty
Deterioration in the macro-economic environment results in supply side cost • Annual budgets and forecasts take into account the current Strategic Link:
inflation and/or a reduction in demand-side sales volumes. macro-economic environment to set expectations internally and externally,
allowing for or changing objectives to meet short and medium term financial Cost and efficiencies, Operations
Supply-side macro-economic pressures present the Company with additional cost targets.
challenges e.g. increased competition in the distribution labour market and
rises in fuel and utility prices. Adverse changes to economic conditions • Weekly cost monitoring enables oversight and action on a
result in reduced consumer demand for newspapers and magazines and/or timely basis. Change:
reduction in titles/editions. These cost increases and sales pressures present
a risk when they cannot be fully mitigated through increased prices or other • Cover price increases in magazine and newspaper titles provide Decreasing
productivity gains. some offset against the impact of volume decline.
This results in deterioration in the level of profitability in both the short • Use of fixed term contracts as a hedge against rapidly rising
and medium term and impacts on the Company's ability to execute its prices e.g. energy costs.
strategies, including level of debt and liquidity objectives.
• The Company continues to be significantly cash generating to
support its strategic priorities.
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 Strategic Link:
is facing an increased risk of being unable to recruit and retain warehouse remains engaged.
colleagues and support staff.
People first,
• We offer long-term contracts with our sub-contracted delivery
The same pressures are also being felt in sourcing and retaining delivery partners. Culture and values,
sub-contractors as well as filling in-house roles within our central support
functions. • We use a variety of platforms to recruit employees and Costs and efficiencies
contractors.
A failure to maintain an appropriate level of resourcing could result in
increased costs, employee disengagement and/or loss of management focus and • The level of vacancies across warehouse and delivery
underpins the ability to address the strategic priorities and to deliver the contractors are monitored daily. Change:
forecast performance.
• We undertake workforce planning; performance, talent and Decreasing
succession initiatives; learning and development programs; and promote the
Company's culture and core values.
• Retention plans are reviewed to address key risk areas, and
attrition across the business is regularly monitored.
• Regular surveys are undertaken to monitor the engagement of
colleagues.
Cyber security
To meet the needs of our stakeholders, our IT infrastructure and data • Defined risked based approach to the information security Strategic Link:
processes need to be flexible, reliable and secure from cyber-attacks. roadmap and technology strategy which is aligned to the strategic plans.
Technology
Secure infrastructure acts as a deterrent to and helps prevent and/or mitigate • Regular tracking of key programs against spend targets and
the impact of external cyber-attack, insider threat or supplier-related delivery dates.
breach, which could cause service interruption and/or the loss of Company and
customer data. • The Company assesses cyber risk on a day-to-day basis, using Change:
proactive and reactive information security controls to mitigate common
Cyber incidents could lead to major adverse customer, financial, reputational threats. Increasing - this risk has been re-evaluated following enhancement of the
and regulatory impacts.
Company's IT Infrastructure and now focuses exclusively on Cyber-related
• Dedicated information security investments and access to security risks. That said, despite ongoing investment in the Company's IT
third-party cyber security specialists. infrastructure and IT security (notably gaining Cyber Essentials Plus
certification), the backdrop remains heightened, leading to an increased risk
• The Company encourages a cyber aware culture by undertaking assessment.
exercises such as computer-based training and more regular communications
about specific cyber threats.
• We have successfully secured Cyber Essentials and Cyber
Essential Plus accreditation.
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 Strategic link:
regulations. Failure to adhere to these could result in financial penalties and procedures being updated as required.
and/or reputational damage.
Technology,
• Business-wide mandatory training programmes for higher-risk
Key areas of legal and regulatory compliance include: regulatory areas. Sustainability,
· GDPR • External experts are used where applicable. Operations
· Health and Safety • All major policies are reviewed by the Board or Audit
Committee on an annual basis.
· Tax compliance
Change:
• Operational auditing and monitoring systems for higher risk
· Environmental legislation areas. Stable
· Employment law
Changes to our retailers' commercial environment
Our largest retailers (e.g. grocers and symbol group members) remain under · Our EPOS-based returns (EBR) solution has been introduced instore Strategic link:
significant pressure to maximise sales and profitability by channel within with our largest retailers, improving staff efficiency in managing the
their retail stores and at associated sale outlets, such as at petrol magazine 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 · Potential to extend EBR to newspapers in order to broaden
newspapers' and/or magazines' selling space instore in favour of other higher efficiency-benefits to retailers.
margin products and/or the delisting of all/particular titles of newspapers
Change:
and/or magazines. · Form stronger partnerships with emerging retailers to stock
magazines and newspapers. Stable
A reduction in sales space and/or full delisting of newspapers and/or
magazines by our largest retailers (or a high number of other retailers) could · Expand retail offering to include single copy digital downloads
materially reduce the Company's revenue, profitability and cash flow. of newspapers and/or magazines to supplement physical print and category range
instore.
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 Strategic link:
success of the Company. At the same time, maintaining the Company's growth 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 · A Growth Delivery Operations Steering Committee has been
and support publisher contract renewals, each of which deliver shareholder established to monitor the impact of new business opportunities on core
value. operations.
Change:
Implementing new business growth opportunities without detrimentally impacting · Pilots and trials of new business opportunities have been
the Company's core newspaper and magazine wholesaling carries an execution deployed to assess both the potential economic benefit of such opportunity and Stable
risk to both the new initiative and ensuring the Company remains able to its likely impact on maintaining the Company's outstanding and sector-leading
deliver sector-leading support to publisher clients. 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 Strategic link:
government and regulatory changes in response to a drive to 'net zero' carbon Chief Financial 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 · Emissions and air quality targets in UK towns and cities are
newspaper and magazine wholesaling activities within the UK or within monitored by a central team in the Operations function, which ensures the Operations,
particular towns and cities. In addition to these transitional risks Company can fulfil its obligations to customers and remain compliant with
associated with moving to a low carbon future, there are also a range of legal requirements. Sustainability
ongoing physical risks. These include an increase in the frequency of extreme
weather events which may result in power outages, disruption to our service · Operational sites are reviewed for their resilience to extreme
operations and/or impact our ability to serve our customers in an efficient weather events such as floodings, with upgrades and interventions made where
and cost-effective manner. these are cost-effective. Depots are relocated to new sites (e.g. during Change:
lease break windows) where this represents a better option than adapting an
In common with all major organisations, there is a risk of reputational damage existing location. Stable
and/or loss of revenue if the Company fails to meet stakeholder expectations
for action on climate change. · Working with suppliers to ensure they share the Company's vision
to act on climate change.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
· the unaudited condensed set of financial statements has been
prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting';
· the interim management report includes a true and fair review of
the information required by DTR 4.2.7R, being an indication of important
events during the first 26 weeks and description of principal risks and
uncertainties for the remaining 26 weeks of the year; and
· the interim management report includes a true and fair review of
the information required by DTR 4.2.8R, being disclosure of related parties'
transactions that have taken place in the first 26 weeks of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
On behalf of the Board
Jonathan Bunting Paul Baker
Chief Executive Officer Chief Financial Officer
2 May 2023 2 May 2023
INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Income Statement (Unaudited)
For the 26 weeks to 25 February 2023
26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 Audited
52 weeks to 27 Aug 2022
£m Note
Adjusted Adjusted items Total Adjusted Adjusted items Total Adjusted* Adjusted items Total
(Note 4) (Note 4) (Note 4)
Continuing Operations
Revenue 3 550.1 - 550.1 544.8 - 544.8 1,089.3 - 1,089.3
Cost of Sales (512.4) - (512.4) (508.0) - (508.0) (1,016.6) - (1,016.6)
Gross profit 37.7 - 37.7 36.8 - 36.8 72.7 - 72.7
Administrative expenses (17.4) (0.0) (17.4) (17.9) (2.1) (20.0) (35.0) (2.5) (37.5)
Net impairment loss on trade receivables - - - - - - - (4.4) (4.4)
Other income - - - - - - 0.1 - 0.1
Income from joint ventures 0.1 - 0.1 0.2 - 0.2 0.3 - 0.3
Impairment of joint venture investment - - - - - - - 1.2 1.2
Operating profit 3 20.4 (0.0) 20.4 19.1 (2.1) 17.0 38.1 (5.7) 32.4
Finance costs (3.3) - (3.3) (3.8) - (3.8) (7.0) - (7.0)
Finance Income - - - - 1.4 1.4 - 2.5 2.5
Profit before tax 3 17.1 (0.0) 17.1 15.3 (0.7) 14.6 31.1 (3.2) 27.9
Income tax credit/(expense) 6 (3.8) - (3.8) (3.1) 0.1 (3.0) (5.4) 0.9 (4.5)
Profit for the period from Continuing Operations 13.3 (0.0) 13.3 12.2 (0.6) 11.6 25.7 (2.3) 23.4
Discontinued Operations
Loss for the period from Discontinued Operations 9 - - - - (0.1) (0.1) - - -
Profit attributable to equity shareholders Continuing and Discontinued 13.3 (0.0) 13.3 12.2 (0.7) 11.5 25.7 (2.3) 23.4
Operations
26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 Audited
Note 52 weeks to 27 Aug 2022
Earnings in pence per share from Continuing Operations
Basic 8 5.6 5.6 5.1 4.8 10.8 9.8
Diluted 8 5.3 5.3 4.8 4.6 10.2 9.3
Earnings in pence per share total
Basic 8 5.6 5.6 5.1 4.8 10.8 9.8
Diluted 8 5.3 5.3 4.8 4.6 10.2 9.3
Equity dividends pence per share (paid and proposed) 7 1.4 1.4 4.15 4.15
* This measure is described in the Glossary. Adjusted items are set out in
Note 4 of the interim financial statements.
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 26 weeks to 25 February 2023
£m Note Audited
26 weeks to 26 weeks to 52 weeks to
25 Feb 2023 26 Feb 2022 27 Aug 2022
Continuing
Items that will not be reclassified to the Income Statement
Reassessment as to recoverability of retirement benefit scheme surplus 5 - 14.8 14.8
Tax relating to components of other comprehensive income that will not be 5 - (5.1) (5.1)
reclassified
Other comprehensive income for the period - Continuing - 9.7 9.7
Profit for the period - Continuing 13.3 11.6 23.4
Total comprehensive income for the period - Continuing 13.3 21.3 33.1
Loss for the period - Discontinued - (0.1) -
Total comprehensive loss for the period - Discontinued - (0.1) -
Total comprehensive income for the period 13.3 21.2 33.1
Consolidated Balance Sheet (Unaudited)
As at 25 February 2023
£m Note Audited
As at As at As at
25 Feb 2023 26 Feb 2022 27 Aug 2022
Non-current assets
Intangible assets 10 1.8 2.0 1.7
Property, plant and equipment 8.4 8.3 8.6
Right of use assets 23.3 27.7 26.3
Interest in joint venture 4.5 3.0 4.2
Other receivables - - -
Deferred tax assets 1.4 1.7 1.1
39.4 42.7 41.9
Current assets
Inventories 18.8 14.6 15.6
Trade and other receivables 104.6 106.0 95.7
Cash and bank deposits 11 23.6 24.3 35.3
Corporation tax receivable 0.6 - 0.9
147.6 144.9 147.5
Total assets 187.0 187.6 189.4
Current liabilities
Trade and other payables (137.4) (131.3) (140.3)
Current tax liabilities - - -
Bank loans and other borrowings 11 (10.0) (13.3) (8.0)
Lease Liabilities (5.3) (6.1) (5.9)
Provisions 12 (2.2) (2.4) (3.0)
(154.9) (153.1) (157.2)
Non-current liabilities
Bank loans and other borrowings 11 (34.7) (46.9) (39.1)
Lease Liabilities (19.6) (22.5) (21.7)
Non-current provisions 12 (3.5) (3.8) (3.4)
(57.8) (73.2) (64.2)
Total liabilities (212.7) (226.3) (221.4)
Total net liabilities (25.7) (38.7) (32.0)
Equity
Called up share capital 14 12.4 12.4 12.4
Share premium account 14 60.5 60.5 60.5
Other reserves (285.8) (282.1) (284.3)
Retained earnings 187.2 170.5 179.4
Total shareholders' deficit (25.7) (38.7) (32.0)
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 26 weeks to 25 February 2023
£m Note Share Capital Share Premium Account Other Retained Earnings Total equity
Reserves
Balance at 28 August 2021 12.4 60.5 (283.6) 153.0 (57.7)
Profit for the period - - - 11.5 11.5
Actuarial gain on defined benefit pension scheme 5 - - - 14.8 14.8
Tax relating to components of other comprehensive income - - - (5.1) (5.1)
Total comprehensive income for the period - - - 21.2 21.2
Dividends Paid 7 - - - (2.8) (2.8)
Employee share schemes awards - - 1.5 (1.5) -
Recognition of share-based payments - - - 0.6 0.6
Balance at 26 February 2022 12.4 60.5 (282.1) 170.5 (38.7)
Profit for the period - - - 11.9 11.9
Total comprehensive income for the period - - - 11.9 11.9
Dividends Paid 7 - - - (3.3) (3.3)
Employee share schemes purchases - - (2.2) - (2.2)
Recognition of share-based payments, net of tax - - - 0.6 0.6
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 (284.3) 179.4 (32.0)
Profit for the period - - - 13.3 13.3
Total comprehensive income for the period - - - 13.3 13.3
Dividends Paid 7 - - - (6.5) (6.5)
Employee share schemes purchases - - (1.8) - (1.8)
Recognition of share-based payments - - - 1.0 1.0
Deferred tax recognised in equity - - 0.3 - 0.3
Balance at 25 February 2023 12.4 60.5 (285.8) 187.2 (25.7)
Condensed Consolidated Cash Flow Statement (Unaudited)
For the 26 weeks to 25 February 2023
£m Note 26 weeks to 26 weeks to Audited
25 Feb 2023 26 Feb 2022 52 weeks to
27 Aug 2022
Net cash inflow from operating activities 9 7.8 20.3 49.8
Investing activities
Dividends received from joint ventures - 0.1 0.2
Purchase of property, plant and equipment (2.1) - (1.3)
Purchase of intangible assets - - (0.7)
Net proceeds on sale of property, plant and equipment - - 0.1
Investment in joint ventures (0.2) - -
Capital expenditure - (1.2) -
Deferred consideration receipts - 6.5 14.0
Net cash (used in) / generated from investing activities (2.3) 5.4 12.3
Financing activities
Interest paid (2.7) (2.5) (5.1)
Arrangement fees paid - (2.7) (2.9)
Dividend paid (6.5) (2.8) (6.1)
Repayments of lease principal (3.2) (3.3) (6.4)
Repayment of term loan (3.0) (50.4) (83.0)
New loans issued - 60.0 60.0
Decrease in borrowings - (19.0) -
Purchase of shares for employee benefit trust (1.8) - (2.6)
Net cash used in financing activities (17.2) (20.7) (46.1)
Net (decrease) / increase in cash and cash equivalents (11.7) 5.0 16.0
Effect of foreign exchange rate changes - - -
(11.7) 5.0 16.0
Opening net cash and cash equivalents 35.3 19.3 19.3
Closing net cash and cash equivalents 23.6 24.3 35.3
Notes to the Condensed Unaudited Interim Financial Statements
For the 26 weeks to 25 February 2023
1 Basis of Preparation
Smiths News plc is comprised of the Company and its subsidiaries (together
referred to as the 'Company').
These unaudited condensed consolidated interim financial statements have been
prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting'
and also in accordance with the measurement and recognition principles of UK
adopted international accounting standards. They do not include all of the
information required for full annual financial statements and should be read
in conjunction with the 2022 Annual Report and Accounts. On 31 December
2020, the International Financial Reporting Standards (IFRS) as adopted by the
European Union at that date was brought into the UK law and became UK-adopted
international accounting standards, with future changes being subject to
endorsement by the UK Endorsement Board. The Company transitioned to
UK-adopted international accounting standards in its consolidated financial
statements for the 52-week period ending 27 August 2022. There was no impact
or changes in accounting from the transition. The financial period represents
the 26 weeks ended 25 February 2023 (prior financial period 26 weeks to 26
February 2022, prior financial period 52 weeks ended 27 August 2022).
The Company has applied the same accounting policies and methods of
computation in these interim consolidated financial statements, as in its
statutory accounts for the 52 weeks ended 27 August 2022.
These condensed consolidated interim financial statements for the current
period and prior financial periods do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. A copy of the statutory
accounts for the 52 weeks ended 27 August 2022 has been filed with the
Registrar of Companies. The auditor's report on those accounts was not
qualified, did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying the report and did not
contain statements under section 498(2) or (3) of the Companies Act 2006. The
auditor's review opinion on the 26 weeks period ended 25 February 2023 is at
the end of this report.
Going concern
The condensed interim financial statements have been prepared on a going
concern basis.
The Company currently has a net liability position of £25.7m as at 25
February 2023. All bank covenant tests were met at the period end with the key
Bank Net Debt: EBITDA (ex IFRS 16) ratio of 0.6x, below the facility agreement
covenant test threshold of 1.75x, with no further reduction thereafter.
The intra-month working capital cash flow cycle 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 daily Bank Net Debt during H1 2023 was
£26.3m (H1 2022: £58.9m). The Company utilises the Revolving Credit Facility
(RCF) to manage the cash swing. At the end of the period £25m was available
and the Company had £23.6m of cash on hand giving headroom of £48.6m.
Bank facility
The Company has a facility comprising a £46.5 million amortising term loan
('Facility A') and a £25 million revolving credit facility ('RCF'). The
agreement is with a syndicate of banks comprising lenders HSBC, Barclays,
Santander and Clydesdale Banks.
The facility's current margin is 4% per annum over SONIA (in respect of
Facility A and the RCF).
Consistent with the Company's stated strategic priorities to reduce net debt,
the terms of the facility agreement include: an amortisation schedule of £8m
in FY2023, and then £10m in FY2024 and FY2025; a reduction in the RCF of £5m
per year; and capped dividend payments at £10m per year.
The final maturity date of the facility is 31 August 2025.
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 the 16
months up to 31 August 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 August 2024 if EBITDA (ex IFRS 16) was 35%
below the Board's approved three-year plan. Facility headroom of £2.7m
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 past 2024; and
· the Company continues to trade with adequate profit to service
its debt covenants.
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 c.£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 payments;
· 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 HY2023
nor FY2022.
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 Interim 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.
2 Accounting Policies
Adoption of new IFRSs
There has been no significant impacts from the adoption of new accounting
standards in the current period.
Alternative performance measures
In reporting financial information, the Company presents alternative
performance measures (APMs), which are not defined or specified under the
requirements of IFRS and therefore may not be directly comparable to similar
measures presented by other companies.
The Company 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.
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 Company recognises the wholesale sales price for its sales of newspapers
and magazines. The Company 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 Company were considered to
be the agent, revenue and cost of sales would reduce by £464.9m (HY2022:
£460.8m).
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 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.
The classification of adjusting items requires significant management
judgement after considering the nature and intentions of a transaction.
Adjusted measures are defined with other APMs in the Glossary.
Based on the nature of the transactions, Adjusting items after tax totalled
£0.02m (H1 2022: £0.7m) and a breakdown is included within Note 4.
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. The provisions
have therefore been adjusted for the effect of inflation. 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 12 for further details on the sensitivity of the
assumptions used to calculate the property provision. The property provisions
carrying value at the end of the period is £4.7m (H1 2022: £4.2m)
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 prior financial year, 52-weeks ended 27 August 2022, the Company
had reviewed the business plan for the Rascal Joint Venture, and it was
determined that the potential challenges anticipated to arise in 2021 have not
materialised, with the successful renewal of contracts previously considered
to be at risk. The Company therefore chose to reverse the impairment
previously booked by £1.2m. In 2021, the assessment was that certain
challenges could arise from increasing market competition, which resulted in
an impairment loss of £1.6m being recognised. Following this, a value-in-use
of £4.2m was calculated based on the future cash flows of the business, which
were discounted at a rate of 13% and a terminal growth rate applied of 0%. The
outcome was a reversal of impairment of £1.2m in 2022.
For 2023, the available headroom after comparing the net assets of the joint
venture to its computed value-in-use is continuously being monitored. There
was no impairment reversal for Rascal in the current period.
Impairment of 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 recognised a net impairment loss of
£4.4m, representing 80% of the total balance of £5.5m in FY2022.
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.
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. Management
considers that the level of bad debt provision in place is adequate and has
decided not to make any additional provision for this debt.
Retirement benefit obligations
During FY2022, the Trustee reached the position where it was advised that it
could legally distribute the pension cash surplus to the employer and 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 H1 2022 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.
3 Segmental Analysis of Results
In accordance with IFRS 8 'Operating Segments', management has identified its
operating segments. The performance of these operating segments is reviewed,
on a monthly basis, by the Board. Since the discontinuation of the Tuffnells
business, management consider that due to size there is now only one
Continuing segment that meets the IFRS 8 criteria.
4 Adjusted Items
The table below summarises the (costs) / income that have been
classified as Adjusted items in the period:
£m 26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 52 weeks to 27 Aug 2022
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
Note
Transformation programme planning credit/(costs) (a) - - - (0.6) - (0.6) (0.9) - (0.9)
M&A costs (b) (0.6) - (0.6) - - - - - -
Pension (c) - - - (1.7) - (1.7) (1.8) - (1.8)
Network and re-organisation costs (d) 0.6 - 0.6 0.2 - 0.2 0.2 - 0.2
Administrative expenses (0.0) - (0.0) (2.1) - (2.1) (2.5) - (2.5)
Net impairment loss on trade receivables (e) - - - - - - (4.4) - (4.4)
Asset impairment reversal (f) - - - - - - 1.2 - 1.2
Review and sale of Tuffnells (g) - - - - (0.1) (0.1) - - -
Total before tax and interest (0.0) - (0.0) (2.1) (0.1) (2.2) (5.7) - (5.7)
Finance income - unwind of deferred consideration (h) - - - 1.4 - 1.4 2.5 - 2.5
Total before tax (0.0) - (0.0) (0.7) (0.1) (0.8) (3.2) - (3.2)
Taxation (0.0) - (0.0) 0.1 - 0.1 0.9 - 0.9
Total after taxation (0.0) - (0.0) (0.6) (0.1) (0.7) (2.3) - (2.3)
The Company incurred a total of £0.02m (H1 2022: £0.8m) of Adjusted items
before tax and after tax £0.02m (H1 2022: £0.7m) respectively.
Adjusted items are defined in the Glossary. The impact of removing these items
from the adjusted
profit provides a relevant analysis of the trading results of the Company
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:
a) Transformation programme planning £nil (H1 2022: £0.6m cost, FY2022:
£0.9m cost)
These relate to prior transformation projects. These were reported as
adjusting items in the previous period on the basis that they were significant
in nature and quantum and are considered to be non-underlying items.
The total impact on net cash from operating activities was £nil (H1 2022:
£1.3m outflow).
b) M&A costs £0.6m (H1 2022: £nil, FY2022: £nil)
The Company incurred costs during the period for due diligence and legal costs
associated with an aborted acquisition during 2022. The cash impact of these
items was £0.5m outflow (H1 2022: £nil).
c) Pensions £nil (H1 2022: £1.7m, FY2022: £1.8m)
In FY2022, 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 was accounted for as an adjusted item through the income statement.
In addition, on 25 February 2022, the winding up of the News Section was
formally completed 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 5 for further details. A refund of £0.1m due to the Company in relation
to the total amount previously held in escrow was credited against these
costs.
In 2021, the Company incurred £1.0m in pension administrative expenses and
other professional fees as a result of the winding up process.
These costs were reported as adjusting items on the basis that they are
significant in nature and quantum and are unrelated to the Group's ordinary
activities.
There is no impact on net cash inflow from operating activities during the
current period as the winding up process is now completed (FY2022: £7.9m
inflow).
d) Network and re-organisation £0.6m credit (H1 2022: £0.2m credit,
FY2022: £0.2m credit)
During the financial period, there has been a reversal of accrued amounts of
£0.5m relating to projects in connection with our outsourced Shared Service
Centre (SSC) in India, where accrued costs relating to overheads on projects
will no longer materialise. These amounts have been released to the income
statement. The projects were concluded in FY2022.
In addition, during FY2022, the Company restructured its support functions and
put in place a reorganisation provision. This arose in FY2021 as a result of
the disposal of the Tuffnells business in FY2020, and subsequent lockdowns
associated with the COVID-19 pandemic. The Company has released £0.1m of this
provision in the current period (H1 2022: £0.2m, FY2022: £0.2m). The cash
impact of restructuring payments was a £0.2m outflow (H1 2022: £0.1m, FY2022
£0.1m)
e) Net impairment loss on trade receivables £nil (H1 2022: £nil, FY2022:
£4.4m)
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 recognised a net impairment loss of
£4.4m, representing 80% of the total balance of £5.5m in FY2022.
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.
In the FY2022, this cost was reported as an adjusting item on the basis that
they were significant in nature and quantum, are considered non-underlying
items, outside the normal course of activity and will 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. No additional provision for this debt in the current
period.
f) Asset impairment reversal £nil (H1 2022: £nil, FY2022: £1.2m)
During FY2022, the Company reviewed the business plan for the Rascal Joint
Venture and it was determined that the potential challenges anticipated to
arise in 2021 had not materialised, with the successful renewal of contracts
previously considered to be at risk. The Company therefore chose to reverse
the impairment previously booked by £1.2m in period ended 27 August 2022.
There has been no changes in the current period.
The Company considers the impact of the above to be adjusting given the
impairment charges are significant in both quantum and nature to the results
of the Company.
g) Review and sale of Tuffnells £nil (HY 2022: £0.1m, FY2022: £nil)
During the period ended 28 August 2021, 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 2021, £0.6m of costs were recognised due
to clarification of the likely settlement costs of existing claims.
h) Finance income - deferred consideration £nil (H1 2022: £1.4m income,
FY2022: £2.5m credit)
During the 52-week period ended 27 August 2022, £2.5m was recognised in
Finance income, £3.5m as the unwind of discount on the original total
deferred consideration that was due of £15.0m. This was offset by the £1.0m
agreed reduction in deferred consideration due. The deferred consideration
related to the disposal of Tuffnells that took place in 2020, and for that
reason it was classified as adjusting because it did not relate to the Group's
ordinary activities.
The total deferred consideration has now been received, and the Company is not
expecting any more additional payments.
5 Retirement Benefit Obligation
Defined benefit pension schemes
During FY2022, the Group operated one defined benefit scheme, the news section
of the WH Smith Pension Trust (the 'Pension Trust').
On 25 February 2022 the scheme was wound-up with a Deed of Termination being
signed by the Company and the Trustee at that date.
In the prior period to February 2022, £14.8m was recognised through other
comprehensive income after the previously unrecognised IAS19 pension asset was
received in cash, net of £5.1m tax and administrative expenses of £1.6m.
An 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. This was reversed during
the prior financial period, enabling the Company to receive the sum of £8.1m
(net of tax and costs) following finalisation of the buy-out of the defined
benefit liabilities in the News Section of the Trust.
The return of surplus preceded the formal winding up steps of the News
Section, the winding up of the News Section being formally completed during
the prior year on 25 February 2022 through the purchase of insurance run-off
cover and payment of taxes owed to HMRC.
A summary of the movements in the net balance sheet asset / (liability) and
amounts recognised in the Company 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 2021 14.9 (0.1) (14.8) -
Purchase of indemnity insurance (1.2) - - (1.2)
Other Administrative expenses (0.4) - - (0.4)
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 27 August 2022 - - - -
At 26 February 2023 - - - -
6 Income Tax Expense
The income tax charge for the 26 weeks ended 25 February 2023 is calculated
based upon the effective tax rates expected to apply to the Company for the
full year. The rate of tax on Adjusted profits from Continuing Operations is
22.2% (H1 2022: 20.3%). The rate of tax on Adjusted profits (on both
Continuing and Discontinued Operations) is 22.2% (H1 2022: 20.5%).
An increase in the UK corporation tax rate to 25% from 1 April 2023 was
substantially enacted at the balance sheet date. The effective tax rate for
the full year is computed based on a hybrid rate, which combines 19% for the
first seven months of the financial year with 25% for the remaining 5 months
of financial year.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
7 Dividends
Paid and proposed dividends for the period 26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 52 weeks to 27 Aug 2022 26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 52 weeks to 27 Aug 2022
Per share Per share Per share £m £m £m
Interim dividend - proposed 1.40p 1.40p 1.40p 3.3 3.3 3.3
Final dividend - proposed - - 2.75p - - 6.7
1.40p 1.40p 4.15p 3.3 3.3 10.0
Recognised dividends for the period
Per share Per share Per share £m £m £m
Final dividend - prior year 2.75p - 1.15p 6.5 2.8 2.8
Interim dividend - current year 1.40p - 1.40p 3.3 - 3.3
4.15p - 2.55p 9.8 2.8 6.1
An interim dividend of 1.4p per ordinary share is proposed for the 26-week
period to 25 February 2023 (February 2022: 1.4p per ordinary share), which is
expected to be paid on 6 July 2023 to all shareholders who are on the register
of members at the close of business on 9 June 2023. The ex-dividend date
will be 8 June 2023.
The FY2022 final dividend of 2.75p (£6.5m) was approved by shareholders at
the Annual General Meeting on 24 January 2023 and paid on 9 February 2023 and
is recognised in this period.
8 Earnings per share
26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 52 weeks to 27 Aug 2022
Earnings (£m) Weighted average number of shares million Pence per share Earnings (£m) Weighted average number of shares million Pence per share Earnings (£m) Weighted average number of shares million Pence per share
Weighted average number of shares in issue 247.7 247.7 247.7
Shares held by the ESOP (weighted) (11.0) (7.0) (9.2)
236.7 240.7 238.5
Basic earnings per share (EPS)
Continuing operations
Adjusted earnings attributable to ordinary shareholders 13.3 236.7 5.6 12.2 240.7 5.1 25.7 238.5 10.8
Adjusted items (0.0) (0.6) (2.3) - -
Earnings attributable to ordinary shareholders 13.3 236.7 5.6 11.6 240.7 4.8 23.4 238.5 9.8
Discontinued operations
Adjusted Profit attributable to ordinary shareholders - 236.7 - - 240.7 - - - -
Adjusted items - - - (0.1) - - - -
Profit/(loss) attributable to ordinary shareholders - 236.7 - (0.1) 240.7 - - - -
Total - Continuing and Discontinued Operations
Adjusted earnings attributable to ordinary shareholders 13.3 236.7 5.6 12.2 240.7 5.1 25.7 238.5 10.8
Adjusted items - (0.7) (2.3) - -
Earnings attributable to ordinary shareholders 13.3 236.7 5.6 11.5 240.7 4.8 23.4 238.5 9.8
Diluted earnings per share (EPS)
Effect of dilutive securities 12.6 11.3 13.5
Continuing
Diluted Adjusted EPS 13.3 249.3 5.3 12.2 252.0 4.8 25.7 252.0 10.2
Diluted EPS 13.3 249.3 5.3 11.6 252.0 4.6 23.4 252.0 9.3
Discontinued
Diluted Adjusted EPS - - - - 252.0 - - - -
Diluted EPS - - - (0.1) 252.0 - - - -
Total - Continuing and Discontinued Operations
Diluted Adjusted EPS 13.3 249.3 5.3 12.2 252.0 4.8 25.7 252.0 10.2
Diluted EPS 13.3 249.3 5.3 11.5 252.0 4.6 23.4 252.0 9.3
Due to the higher average amount of shares held in Trust during the period and
the number of options outstanding in the prior period, the dilutive shares
decreased the basic number of shares at February 2023 by 2.7m to 249.3m (Feb
2022: 252m) and resulted in a Continuing diluted Adjusted EPS of 5.3p, an
increase of 0.3p or 6% on prior period.
The calculation of diluted EPS reflects the potential dilutive effect of
employee incentive schemes of 12.6m dilutive shares (Feb 2022: 11.3m).
9 Net Cash Inflow from Operating Activities
26 weeks to 26 weeks to 52 weeks to
£m 25 Feb 2023 26 Feb 2022 27 Aug 2022
Operating profit - continuing 20.4 17.0 32.4
Operating loss - discontinued - (0.1) -
Operating profit - total 20.4 16.9 32.4
Impairment reversal of investments in joint ventures - - (1.2)
Share of profits of joint ventures (0.1) (0.2) (0.3)
Adjustment for pension funding - 8.1 8.1
Depreciation of property, plant and equipment 1.1 1.2 2.3
Depreciation of right of use assets 3.4 3.3 6.9
Amortisation of intangible assets 0.3 0.8 1.3
Share-based payments 1.0 0.6 1.2
Increase in inventories (3.2) (1.4) (2.4)
(Increase)/decrease in receivables (8.5) (2.2) 1.7
(Decrease)/increase in payables (1.9) (4.5) 3.9
Decrease in provisions (0.8) (0.5) (0.4)
Non-cash pension costs - 1.6 1.6
Income tax paid (3.9) (3.4) (5.3)
Net cash inflow from operating activities 7.8 20.3 49.8
During the period, cash outflow from operating activities attributed to
Discontinued Operations amounted to £nil (H1 2022: £0.3m outflow).
10 Intangible Assets
Goodwill is not amortised but tested annually for impairment. As a result of
these reviews, goodwill was fully impaired in previous periods.
There are no material acquired intangible assets. The breakdown of acquired
intangibles and goodwill is as follows:
Goodwill Acquired Intangibles Total
£m On acquisition H1 H1 FY On acquisition H1 H1 FY On acquisition H1 H1 FY
2023 2022 2022 2023 2022 2022 2023 2022 2022
DMD 5.7 - - - 2.6 - - - 8.3 - - -
Smiths News - - - - 0.3 - - - 0.3 - - -
Total 5.7 - - - 2.9 - - - 8.6 - - -
Other intangibles 1.8 2.0 1.7
Total Intangible assets 1.8 2.0 1.7
11 Cash and Borrowings
Cash and borrowings by currency (sterling equivalent) are as follows:
£m Sterling Euro USD Other Total At 26 At 27
25 Feb 2023 Feb 2022 Aug 2022
Cash and bank deposits 22.2 0.7 0.5 0.2 23.6 24.3 35.3
Overdrafts- included in cash and cash equivalents - - - - - - -
Net Cash and cash equivalents 22.2 0.7 0.5 0.2 23.6 24.3 35.3
Revolving credit facility - - - - - (3.0) -
Term loan - disclosed within current liabilities (10.0) - - - (10.0) (10.3)
(8.0)
Term loan - disclosed within non-current liabilities (36.5) - - - (36.5) (49.8)
(41.5)
Unamortised arrangement fees - disclosed within non-current liabilities 1.8 - - - 1.8 2.9
2.4
Total borrowings (44.7) - - - (44.7) (60.2) (47.1)
Net borrowings (22.5) 0.7 0.5 0.2 (21.1) (35.9) (11.8)
Total borrowings
Amount due for settlement within 12 months
(10.0) - - - (10.0) (13.3) (8.0)
Amount due for settlement after 12 months
(34.7) - - - (34.7) (46.9) (39.1)
(44.7) - - - (44.7) (60.2) (47.1)
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 was also repayable from any
proceeds that were received from the deferred consideration as part of the
sale of Tuffnells, and any other 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: an amortisation schedule of £8m
in FY2023, and then £10m in FY2024 and FY2025; a reduction in the RCF of £5m
per year; and capped distributions at £10m per year. At the half year end,
the Term loan had reduced to £46.5m. The RCF reduced by £5m in November 2022
and was £25m at half year end, this will reduce by £2.5m every six months
from 28 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 25 February 2023, the Company had £25m (26 February 2022: £27.0m) of
undrawn committed borrowing and cash facilities in respect of which all
conditions precedent had been met.
Analysis of net debt
As at As at As at
£m 25 Feb 2023 26 Feb 2022 27 Aug 2022
Cash and cash equivalents 23.6 24.3 35.3
Current borrowings (10.0) (13.3) (8.0)
Non-current borrowings (34.7) (46.9) (39.1)
Net borrowings including unamortised arrangement fees (21.1) (35.9) (11.8)
Unamortised arrangement fees (1.8) (2.9) (2.4)
Bank Net Debt (22.9) (38.8) (14.2)
Lease liabilities (24.9) (28.6) (27.6)
Net debt (47.8) (67.4) (41.8)
12 Provisions
£m Provision for onerous contracts Reorganisation provisions Insurance and legal provision Property provisions Total
At 27 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
Charged to income statement - - - (0.2) (0.2)
Credited to income statement - - 0.1 - 0.1
Utilised in period 0.5 0.5 (0.1) - 0.9
Unwinding of discount utilisation - - - (0.1) (0.1)
At 25 February 2023 - (0.4) (0.6) (4.7) (5.7)
£m 25 Feb 2023 26 Feb 2022 27 Aug 2022
Included within current liabilities (2.2) (2.4) (3.0)
Included within non-current liabilities (3.5) (3.8) (3.4)
Total (5.7) (6.2) (6.4)
Re-organisation provisions of £0.4m relates to the restructure of the DMD
business, the Smiths News network and the Group's support functions that was
announced in prior periods.
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 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 Company has performed sensitivity analysis on the property provision using
the possible scenarios below:
· if the discount rate changes by +/- 0.5%, the property provision
would change by +/- £0.1m;
· if the repair cost per square foot changes by +/- £1.00, the
property provision would change by +/- £0.3m.
13 Contingent Liabilities
The Company has a potential liability that could crystallise in respect of
previous assignments of leases where the liability could revert to the Company
if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from
WH Smith PLC in 2006, any such contingent liability, 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 such liability
has an estimated future cumulative gross rental commitment at 25 February 2023
of £0.5m (27 August 2022: £0.5m).
As at 25 February 2023, the Company have approved letters of credit of £2.4m
to the insurers of the Company for the motor insurance and employer liability
insurance policy. 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.
14 Share Capital
a) Share capital
£m 25 Feb 2023 26 Feb 2022 27 Aug 2022
Issued, authorised and fully paid ordinary shares of 5p each
Opening balance 12.4 12.4 12.4
Closing balance 12.4 12.4 12.4
b) Movement in share capital
Number (m) Ordinary shares of 5p each
At 27 August 2022 247.7
At 25 February 2023 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.
c) Share premium
£m 25 Feb 2023 26 Feb 2022 27 Aug 2022
Opening balance 60.5 60.5 60.5
Closing balance 60.5 60.5 60.5
15 Related Party Transactions
No related party transactions had a material impact on the financial
performance in the period or financial position of the Company at 25 February
2023. There have been no material changes to or material transactions with
related parties as disclosed in Note 30 of the Annual Report and Accounts for
the 52-week period ended 27 August 2022 other than the below:
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 FY2022. The Chairman of Tuffnells Holdings
Limited is also a non-executive director of Smiths News plc and recused
himself from all discussions relating to this matter.
16 Subsequent events
There are no matters to report.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have adopted various
Alternative Performance Measures (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 Company'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.
APM Closest equivalent IFRS measure Adjustments to reconcile to IFRS measure Note/page reference for reconciliation Definition and purpose
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 Company'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 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.
Adjusted operating profit Operating profit* Adjusted items Income statement/ Note 4 Adjusted operating profit is defined as operating profit from continuing
operations, excluding the impact of adjusting items (defined above). This is
the headline measure of the Company'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 EBITDA Operating profit* Depreciation and amortisation Adjusted EBITDA (ex IFRS 16) Continuing Operations reconciliation following This measure is based on business unit operating profit from Continuing
this Glossary operations. It excludes depreciation, amortisation and adjusting items. This
Adjusted items is the headline measure of the Company's performance and is a key management
incentive metric.
Adjusted Operating profit* Depreciation and amortisation Adjusted EBITDA (ex IFRS16) Continuing Operations reconciliation following This measure is based on business unit operating profit from Continuing
EBITDA (ex IFRS16)
this Glossary Operations. It excludes depreciation, amortisation and adjusting items after
Adjusted items deducting IAS 17 operating lease costs. This is the headline measure of the
Company's performance and is a key management incentive metric.
Adjusted earnings per share Earnings per share Adjusted items Note 8 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 Cash generated Dividends, acquisitions and disposals, Reconciliation of free cash flow to net movement in cash and cash equivalents Free cash flow is defined as cash flow excluding the following: payment of the
from operating
following this Glossary dividend, acquisitions and disposals, the repayment of bank loans and EBT
activities Repayment of bank loans, share purchases and cash flows relating to pension deficit repair. This
measure reflects the cash available to shareholders.
EBT share purchases,
Pension deficit repair payments
Free cash flow (excluding adjusting items) Net movement in cash and cash equivalents Dividends, acquisitions and disposals, Reconciliation of free cash flow to net movement in cash and cash equivalents Free cash flow (excluding Adjusted items) is Free cash flow adding back
following this Glossary Adjusted cash costs.
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 Company's 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 of free cash flow to net movement in cash and cash
equivalents is shown below:
25 Feb 2023 26 Feb 2022 27 Aug 2022
Net increase/(decrease) in cash and cash equivalents (11.7) 5.0 16.0
Decrease in borrowings and overdrafts 3.0 9.4 23.0
Movement in borrowings and cash (8.7) 14.4 39.0
Dividend paid 6.5 2.8 6.1
Investment in joint ventures 0.2 - -
Outflow for EBT shares 1.8 - 2.6
Continuing free cash flow (0.2) 17.2 47.7
Discontinued free cash flow - 0.3 0.5
Total free cash flow (0.2) 17.5 48.2
Adjusted EBITDA (ex IFRS 16) Continuing Operations reconciliation
A reconciliation of operating profit to Adjusted EBITDA (ex IFRS
16) is included below:
£m 26 weeks to 25 Feb 2023 26 weeks to 26 Feb 2022 52 weeks to 27 Aug 2022
Operating profit 20.4 17.0 32.4
Adjusting items (0.0) 2.1 5.7
Depreciation and amortisation 4.8 5.3 10.5
Adjusted EBITDA 25.2 24.4 48.6
Operating lease charges* (3.9) (3.7) (7.9)
Adjusted EBITDA (ex IFRS 16) 21.3 20.7 40.7
* Operating lease charges is the rental charge that would have passed
through the income statement for leases previously defined as operating leases
under IAS 17.
INDEPENDENT REVIEW REPORT TO SMITHS NEWS PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks period ended 25 February 2023 is not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks period ended
25 February 2023 which comprises the Condensed Consolidated Income Statement,
the Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in
Equity, the Condensed Consolidated Group Cash Flow Statement and the related
notes to the Consolidated Unaudited Interim Financial Statements.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK & Ireland) 2410"). A
review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in Note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK & Ireland) 2410, however future events or conditions may cause
the Group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London UK
2 May 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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