REG - Smiths News PLC - Preliminary Financial Results FY2023
08/11/2023 07:00
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RNS Number : 7086S Smiths News PLC 08 November 2023
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Audited Financial Results for the 52 weeks ended 26 August 2023
Performance ahead of expectations with further debt reduction and contract
renewals
Headlines
· Performance ahead of full year market expectations
· Revenues benefiting from strong cover price rises, FIFA World Cup and Royal
Succession
· Cost reduction programme and management actions substantially mitigating the
ongoing impacts of inflation in the year
· Contract renewals securing 65% of our current publisher revenue streams to at
least 2029
· Additional new national and regional newspaper contract awards in FY2024, with
a combined sales value of c.£32m p.a.
· Roll out of Smiths News Recycle - growing to c.4,000 customers following
successful trials
· Free cash flow of £21.8m in line with expectations after one-off benefits in
FY2022
· Further strong reductions in both Average and Bank Net Debt
· Proposed total dividend payment maintained at £10m, the maximum payable under
our banking agreements that run to August 2025
FY2023 FY2022 % Change
Adjusted continuing results
Revenue £1,091.9m £1,089.3m +0.2%
Operating profit £38.8m £38.1m +1.8%
Profit before tax £32.3m £31.1m +3.9%
Earnings per share 10.8p 10.8p -
Cash flow and net debt
Free cash flow £21.8m £48.2m -54.8%
Bank Net Debt £4.2m £14.2m -70.4%
Average Bank Net Debt £25.0m £49.9m -49.9%
Statutory continuing results
Revenue £1,091.9m £1,089.3m +0.2%
Operating profit £38.3m £32.4m +18.2%
Profit before tax £31.8m £27.9m +14.0%
Earnings per share 10.6p 9.8p +8.2%
Statutory Net Debt £26.1m £39.4m -33.8%
Dividend per share 4.15p 4.15p -
A good performance in a challenging economy
Despite wider economic uncertainty and continued inflationary pressures, the
business has delivered a good performance, exceeding market expectations while
making progress on all key metrics, including the accelerated renewal of our
publisher contracts. Core revenues and margin continued to benefit from strong
cover price rises and buoyant collectables sales together with a further boost
from the Royal Succession. Meanwhile, our well-established approach to cost
management has delivered £5.8m of sustainable savings making a substantial
contribution to offsetting margin decline as well as the impact of inflation
in the year. While it remains early days, our workstreams to grow
complementary revenues, including Smiths News Recycle and the delivery of DVDs
and books to selected large retailers, have also made progress, returning a
modest contribution to operating profit in the year.
As previously announced, the business has re-secured 65% of its current
publisher contract revenues through to at least 2029. This provides good
visibility of future cashflows, whilst allowing our teams to plan with greater
certainty for both future cost management initiatives and complementary profit
streams.
Financial progress is headlined by Adjusted Operating Profit that is up by
1.8% while Average Net Debt, which best reflects the day-to-day requirements
of the business, is down by 49.9%. Free cash flow of £21.8m is in line with
our ongoing expectations, supporting a second year of total dividend payments
amounting to £10m, the maximum allowable under our banking facilities, which
continue through to August 2025.
Outlook
The new financial year has started well. Our critical drivers of sales,
margin and sustainable cost reduction are being closely managed and we remain
attentive to ongoing inflationary pressures which remain above historic
levels. Cost reduction initiatives are well underway and progress continues to
be made with our growth strategy. We are confident in delivering results for
the current financial year in line with market expectations.
Jonathan Bunting, CEO, said:
"Smiths News has delivered another good performance against a challenging
macro-economic backdrop. We have worked tirelessly to maintain service, find
sustainable cost savings and secure new long-term publisher contracts. As a
result, we are well placed to continue delivering reliable profits and cash,
meeting the needs of all stakeholders, through a combination of market
leadership, sound finances and exceptional people."
Enquiries:
Smiths News plc Via Buchanan below
Jonathan Bunting, Chief Executive Officer
Paul Baker, Chief Financial Officer
Investor.relations@smithsnews.co.uk
www.smithsnews.co.uk (http://www.smithsnews.co.uk)
Buchanan
Richard Oldworth / Jamie Hooper / Toto Berger 020 7466 5000
smithsnews@buchanan.uk.com
www.buchanan.uk.com
Smiths News plc's Preliminary Results 2023 are available at
www.smithsnews.co.uk
A recording of the presentation for analysts will be made available on the
Investor Zone of the Company's website after midday on 8 November 2023. See
www.smithsnews.co.uk/investors (http://www.smithsnews.co.uk/investors) .
Notes
The Company uses certain performance measures for internal reporting purposes
and employee incentive arrangements. The terms 'Adjusted operating profit',
'Adjusted profit before tax', 'Adjusted earnings per share', 'Adjusting
items', 'free cash flow', 'Bank Net Debt' and 'Bank EBITDA', 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
excluding Adjusted items.
b. Adjusted profit before tax (PBT) - is defined as Adjusted operating
profit less finance costs and including finance income attributable to
Adjusted operating profit and before Adjusting items.
c. Adjusted earnings per share - is defined as 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. Adjusting items - Adjusting items of income or expense are excluded
in arriving at Adjusted operating profit to present a further measure of the
Company's performance. Each adjusting item is considered to be significant in
nature and/or quantum, non-recurring in nature and/or considered to be
unrelated to the Company's ordinary activities or are consistent with items
treated as adjusting in prior periods. Excluding these items from profit
metrics provides readers with helpful additional information on the
performance of the business across periods because it is consistent with how
the business performance is planned by, and reported to, the Board and the
Executive Team. They are disclosed and described separately in Note 4 of the
Consolidated Financial Statements to provide further understanding of the
financial performance of the Company. A reconciliation of adjusted profit to
statutory profit is presented on the income statement.
(2) Free cash flow - is defined as cash flow excluding the following: payment
of the dividend, the repayment of bank loans and EBT share purchases.
(3) 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) Bank EBITDA - is calculated in line with loan agreements and is used for
covenant calculations, being Adjusted operating profit before depreciation,
amortisation, excluding the impact of IFRS16 lease accounting, excluding
Adjusting items and excluding share based payments charge.
(5) FY2023 refers to the 52-week period ending 26 August 2023 and FY2022
refers to the 52-week period ended 27 August 2022.
(6) The Consolidated Results have been prepared and presented on a Continuing
Operations basis after adjusting for the Discontinued Operations of the
Tuffnells business, which was sold in May 2020.
Cautionary Statement
This document contains certain forward-looking statements with respect to
Smiths News plc's financial condition, its results of operations and
businesses, strategy, plans, objectives and performance. Words such as
'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks',
'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar
expressions, as well as statements in the future tense, identify
forward-looking statements. These forward-looking statements are not
guarantees of Smiths News plc's future performance and relate to events and
depend on circumstances that may occur in the future and are therefore subject
to risks, uncertainties and assumptions. There are a number of factors which
could cause actual results and developments to differ materially from those
expressed or implied by such forward looking statements, including, among
others the enactment of legislation or regulation that may impose costs or
restrict activities; the re-negotiation of contracts or licences; fluctuations
in demand and pricing in the industry; fluctuations in exchange controls;
changes in government policy and taxations; industrial disputes; war, pandemic
and terrorism. These forward-looking statements speak only as at the date of
this document. Unless otherwise required by applicable law, regulation or
accounting standard, Smiths News plc undertakes no responsibility to publicly
update any of its forward-looking statements whether as a result of new
information, future developments or otherwise. Nothing in this document should
be construed as a profit forecast or profit estimate. This document may
contain earnings enhancement statements which are not intended to be profit
forecasts and so should not be interpreted to mean that earnings per share
will necessarily be greater than those for the relevant preceding financial
period. The financial information referenced in this document does not contain
sufficient detail to allow a full understanding of the results of Smiths News
plc. For more detailed information, please see the Preliminary Financial
Results and/or the Annual Report and Accounts, each for the 52-week period
ended 26 August 2023 which can be found on the Investor Zone section of the
Smiths News plc website - www.smithsnews.co.uk. However, the contents of
Smiths News plc's website are not incorporated into and do not form part of
this document.
OPERATING REVIEW
Overview
Despite uncertainty in the wider economy and continued inflationary pressures,
the business has performed well, driving a typically robust result that is
founded on sound operating principles, well-executed plans and maintaining
close attention to our strategic priorities. The fundamentals of excellent
service, cost control and our ability to adapt to market trends, remain
signature qualities of our business model and its continued resilience.
We have exceeded market expectations for the full year by ensuring the benefit
of stronger revenue was able to flow through to profitability. While top line
sales were boosted by the FIFA World Cup, the Royal Succession and sustained
price rises above historic norms, our performance was also driven by the
mitigation of volume declines and inflationary impacts as a result of
management actions and our ongoing programme of operational cost savings
across the network. In this respect, the renewal of 65% of our publisher
contracts to at least 2029 has given us the certainty required to proceed with
network optimisation plans that will deliver savings over the lifetime of our
agreements.
In parallel with our resilient profit performance, the underlying finances of
the business have continued to strengthen, with Average Net Debt reducing to
£25.0m. Free Cash of £21.8m and Earnings per Share of 10.8p are in line with
our expectations, while a total dividend payment for the year of £10m is the
maximum allowable under our banking arrangements, which run to August 2025.
More broadly, the easing in labour markets has aided recruitment, helping to
ensure our market leading service metrics have been maintained. This underpins
our relationships with publishers and retailers and further reduces cost by
minimising waste and rectification expense. Drawing on a deep well of
experience, we remain closely focused on operational efficiency and adapting
to the structural decline in volumes in a way that maintains service for
customers and performance for our stakeholders.
Our stated plans to explore adjacent market opportunities have progressed and
we have learned a great deal in researching, testing and evaluating a range of
initiatives that leverage our skills, technology and capacity. The regional
trial and subsequent national launch of Smiths News Recycle is a highlight,
and we remain optimistic about the prospects of supplying new categories to
existing customers. Meanwhile, we continue to explore the potential for
carefully targeted bolt-on acquisitions that provide greater scale to our new
revenues while also complementing our core business and its customer
relationships by adding value to our role and services.
In summary, our strategy and plans continue to achieve their objectives of
strengthening the core while exploring appropriate platforms for future
opportunity. That we have met and surpassed the majority of our targets in
such challenging economic conditions is testament to the resilience of our
business model and its reliability in delivering for all our stakeholders.
Financial performance and key variables
Adjusted Operating Profit of £38.8m was up by 1.8% (FY2022: £38.1m) from
Revenue of £1,091.9m that was up by 0.2%. Adjusted Profit before tax of
£32.3m was up 3.9% (FY2022: £31.1m) as a result of lower financing charges
and from the continued reduction in the Company's average debt requirements.
Adjusted EPS is maintained at 10.8p (FY2022: 10.8p).
Statutory Profit Before Tax of £31.8m is up by 14.0% (FY2022: £27.9m), the
difference primarily due to the previous year's provision of £4.4m for bad
debt risk associated with the administration of McColl's Retail Group in May
2022.
The most significant variables in driving our financial performance were:
· Overall revenue growth driven by strong cover price rises across
the year
· Additional sales from the Royal Succession and the FIFA World Cup
· New revenues from ancillary contracts and ventures
· Lower wholesale margin due primarily to magazine volumes
declining in line with historic norms
· Inflationary pressures on distribution costs, wages and
third-party providers
· Cost savings of £5.8m from our actions to improve operational
efficiency
· Lower depreciation costs reflecting sustained reductions in
capital expenditure.
Newspaper and magazine sales performance and trends
Overall sales in our core markets showed marginal growth as a result of
sustained inflationary price increases as publishers looked to recover higher
production costs. Newspapers have performed more strongly than magazines for
which greater volume declines have offset the benefit of increased cover
prices. The continued strong year on year performance of higher margin trading
cards and stickers (aided by the men's FIFA World Cup in H1) amounted to a
further revenue boost of £8m. The Royal Succession had a broadly similar
revenue impact, spread across newspapers magazines and special editions.
As we start the current financial year sales continue to benefit from the
remaining flow through of price rises in FY2023. We expect volumes to continue
to decline and we are planning accordingly, taking the opportunity to
reconfigure our network and operations as part of our cost reduction
programme. Furthermore, while underlying patterns are relatively predictable
and stable we are mindful that sales gains from the World Cup and Royal
Succession will not repeat in FY2024.
Publisher contract success
By accelerating our contract renewals we have secured favourable agreements
representing 65% of our current revenues through to at least 2029. As
previously announced, we concluded new agreements with each of Frontline,
Seymour Distribution, Associated Newspapers, Telegraph Media Group and News UK
in the year. The renewed contracts not only give us security of territories
but also enviable visibility of potential revenue and cash flows over their
lifetime.
In addition to the renewal of existing contracts, in October 2023 the Company
announced a supplementary agreement with News UK for newspaper distribution in
our existing London territories (commencing in November 2023) and, also,
secured a new contract with National World plc to distribute the Midland News
Association regional press titles (expected to commence distribution in the
Midlands in December 2023). Taken together, these contract awards represent
additional sales value of c.£32m p.a.
Our remaining publisher contracts continue to operate well and we would very
much expect them to be renegotiated in line with their end dates, which are
staggered over the next three years.
Smiths News Recycle
The first of our organic growth ventures, Smiths News Recycle is a new and
convenient waste recycling service for our retail customers. The service
collects plastic and cardboard waste largely from our independent customers
using our existing delivery runs and recycling facilities to transport and
consolidate the waste. Starting as a regional trial in FY2022 we have moved
from concept to launch across our network in February 2023. The service
currently has c.4,000 subscribing customers, and the near-term potential in
its current scope to make profits of c.£1.0m. We plan to continue scaling
the operation in a way that first leverages our existing capacity and have
opened exploratory discussions with selected larger customers to explore its
potential in new categories and outside the independent sector.
New revenue streams
Our plans to develop new and ancillary revenues, announced in FY2023, are
founded on finding opportunities to leverage our physical capability and spare
capacity; our technology and market intelligence; and our supply chain
relationships. In adopting an agile approach to organic initiatives we were
mindful of taking a prudent approach to long term investment, and clear that
while some trials would succeed, others would likely prove less practical at
scale. Our plans also include exploring the potential for small scale
bolt-on acquisitions that would complement our core business without risk to
our dividend policy or commitment to maintaining a strong balance sheet.
The exploitation of spare warehouse capacity and new revenues arising from
parcel sortation services for other non-competitor carriers continues to drive
a welcome contribution to overheads and our national launch of Smiths News
Recycle is a highlight of our organic opportunities. In other areas we have
started to pick, pack and deliver books and DVDs to major supermarkets and
have maintained our investment in Love Media, a digital solution for the sale
of single issue magazines. These further initiatives remain in their early
stages.
We continue to explore opportunities for acquisitions of appropriate scale
that would enhance our capabilities and add value to our role in the supply
chain. While mindful of the current macro economic climate our ambition to
grow in new areas is undiminished, however, we will only act when we have the
identified the right combination strategic fit, timing and commercial
opportunity.
Cash Flow and Net Debt
Free cash flow of £21.8m (FY2022: £48.2m) represents a further good
performance as the previous year had benefited from £22.1m of exceptional
inflows. After removing these one-off factors and allowing for other timing
and trading adjustments we are satisfied that our cash generation remains
strong and appropriate to meeting the needs of all stakeholders.
Furthermore, the greater visibility of our publisher contract revenues and
associated capital requirements, together with the relative predictability of
such revenues, means we are confident that the levels of free cash flow can be
maintained at or about current levels.
Bank Net Debt (excluding IFRS16 leases) of £4.2m is down by 70.4% (FY2022:
£14.2m) representing just 0.1 x Bank Net Debt/EBITDA. While this is
excellent progress the figure can be impacted by the timing of publisher and
retailer payments, hence a better indication of our ongoing requirements is
Average Net Debt which at £25.0m is down 49.9% (FY2022: £49.9m).
The consistent progress we have made since FY2020 has reduced our interest
payments, affording greater flexibility over future options and positioning us
well to refinance our facilities, which run to August 2025.
Dividend
After considering the Company's financial progress and in line with our
previously stated policy and the terms of our banking agreements, the Board
proposes to use the full extent of the £10m distribution limits for the
return of cash to shareholders. Consequently, the Board has proposed a final
dividend of 2.75p, making a total dividend for the year of 4.15p (FY2022:
4.15p). The final dividend will be paid on 8 February 2024 to all shareholders
who are on the register at the close of business on 12 January 2024; the
ex-dividend date will be 11 January 2024.
Outlook
The new financial year has started well. Our critical drivers of sales,
margin and sustainable cost reduction are being closely managed and we remain
attentive to ongoing inflationary pressures which remain above historic
levels. Cost reduction initiatives are well underway and progress continues to
be made with our growth strategy. We are confident in delivering results for
the current financial year in line with market expectations.
FINANCIAL REVIEW
Overview
The Company has continued to deliver a strong financial performance with both
revenue and adjusted operating profit increasing since last year despite the
ongoing pressures of inflation within the wider economy. Reliable cash
generation has enabled the maximum dividend of £10m to be proposed by the
Board and for average net debt to be reduced to £25m (FY2022: £50m).
Revenues of £1,091.9m were ahead of last year by 0.2% benefitting from sales
associated with the Royal Succession and the FIFA World Cup, and from
newspaper price increases which had a consequent adverse impact on volumes.
Adjusted operating profit of £38.8m was a £0.7m increase on the prior year
(FY2022: £38.1m) due to both the additional revenue and to cost savings which
delivered ahead of plan, although the overall cost base continued to be
affected by higher levels of inflation. Adjusted profit before tax increased
by £1.2m to £32.3m, with £0.5m lower financing charges on debt fees and
leases. Adjusted profit after tax decreased by £0.1m to £25.6m due to a
£1.3m higher tax charge which included a higher headline rate in FY2023.
Adjusted EPS remained at 10.8p (FY2022: 10.8p).
Average Bank Net Debt for the year fell by £24.9m (50%) to £25.0m, with good
continuing cash flow across both years assisted by the one-off pension surplus
(£8.1m) and Tuffnells deferred consideration receipts (£14.0m) in 2022. Free
cash flow of £21.8m was £26.3m lower than last year due to those one-off
receipts (£22.1m) and to the £5.4m timing impact of trade receivables at the
end of August 2023, which fell into the first week of FY2024. Bank Net Debt on
26 August 2023 was £4.2m compared to £14.2m 52 weeks earlier. At two points
during the second half of the year, the Company was in a net cash position,
the first time since demerger from WH Smith in 2006.
Adjusting items reduced by £1.8m to £0.5m in FY2023 as the prior year
included the provision for McColls receivables (£3.6m cost after tax) and the
unwind of a discount on the Tuffnells deferred consideration (£2m benefit
after tax). Statutory profit after tax increased from £23.4m in FY2022 to
£25.1m and statutory EPS from 9.8p in FY2022 to 10.6p in FY2023.
A final dividend of 2.75p per share (£6.7m) is proposed by the Board, due to
be paid in February 2024. Combined with the interim dividend of 1.4p paid in
July 2023, total dividends for the year are 4.15p or £10m, consistent with
last year.
The financial results evidence the ability of the Company to deliver value in
what is otherwise considered a declining sector and with a background of
instability in the wider economy. While the Company does not expect the
one-offs events which have benefitted FY2023 to repeat in FY2024, the
Company's financial performance and balance sheet provide a stable basis for
delivering future value to shareholders.
Adjusted Results
Adjusted results £m 2023 2022 Change
Revenue 1,091.9 1,089.3 0.2%
Operating profit 38.8 38.1 1.8%
Net finance costs (6.5) (7.0) 7.1%
Profit before tax 32.3 31.1 3.9%
Taxation (6.7) (5.4) (24.1%)
Effective tax rate 20.7% 17.4% (19.0%)
Profit after tax 25.6 25.7 (0.4%)
Revenue
Revenue was £1,091.9m (FY2022: £1,089.3m), up 0.2% on the prior year
(FY2022: down -1.8%) compared to the historic revenue trend of c.-3% to -5%.
This was aided by the 2022 FIFA World Cup, Premier League and Pokémon trading
cards and by newspaper cover price increases.
Newspaper revenues were up 0.6%, benefitting from newsworthy events and
ongoing cover price increases since the second half of FY2022, which had an
impact on volumes. Magazine revenue was down 5.1%, broadly in line with
historic trends. Revenue from collectibles was up 43% (FY2022 43%), supported
by World Cup football collections and by a continuation of strong Premier
League and Pokémon trading card performance.
Operating profit
The increase in Adjusted operating profit of £0.7m to £38.8m (FY2022:
£38.1m) can be attributed to:
· The benefit to wholesale margin (£1.5m) from sales associated
with the Royal Succession and the FIFA World Cup;
· A reduction in other wholesale margin (£3.4m), driven primarily
by magazine revenue declines, in line with historic trends;
· Cost-out plans, which are designed to offset reductions in
wholesale margin and inflation as part of the Company's business model, which
reduced costs by £5.8m and were ahead of plan;
· The impact of inflation on the depot and support functions' cost
bases of £4.7m, a greater level than experienced historically;
· New ancillary revenue contracts which contributed £0.7m; and
· Lower depreciation on owned assets £1.0m reflecting lower capex
over the last 3 years than previously.
Profit after tax
Net finance charges of £6.5m (FY2022: £7.0m) were lower than the prior year
due to £0.6m lower amortisation of bank arrangement fees following the
amendment and extension of banking facilities in December 2021 and £0.3m
lower interest on leases and other items. Interest on bank debt was higher by
£0.4m than the prior year (FY2022: £3.5m) as lower average net debt was more
than offset by increased interest rates.
Adjusted profit before tax was £32.3m, up 3.9% on FY2022.
Taxation of £6.7m includes a higher effective tax rate of 20.7% compared to
the prior year (FY2022: 17.4%) due to the increase in the corporation tax rate
from 19% to 25% from April 2023 and beneficial one-off adjustments in FY2022
relating to capital allowances.
As a result of the £1.3m increase to the tax charge which partially offset
the £1.2m increase in profit before tax, profit after tax decreased by £0.1m
to £25.6m.
Statutory Results
£m 2023 2022 Change
Revenue 1,091.9 1,089.3 0.2%
Operating profit 38.3 32.4 18.2%
Net finance costs (6.5) (4.5) (44.4%)
Profit before tax 31.8 27.9 14.0%
Taxation (6.7) (4.5) (48.9%)
Effective tax rate 21.1% 16.1% (31.1%)
Profit attributable to equity shareholders 25.1 23.4 7.3%
Statutory profit includes the impact of adjusting items, which had a less
significant impact on the FY2022 result than on the current year. Adjusting
items are covered in more detail below.
Statutory operating profit of £38.3m was £5.9m higher than in FY2022, owing
to £0.7m higher adjusted operating profit and £5.2m lower adjusting items,
including the provision for McColls bad debt risk in FY2022 (£4.4m).
Net finance costs of £6.5m were £2.0m higher than FY2022 as the prior year
statutory result benefitted from a £2.5m credit from the unwind of discount
on the Tuffnells deferred consideration.
Statutory profit after tax of £25.1m was a £1.7m increase on the prior year,
largely due to a decrease in the impact of adjusting items after tax.
The Company has net liabilities of £16.3m on its balance sheet (FY2022:
£32.0m). The net liabilities arose largely because 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
2023 2022 2023 2022
Earnings attributable to ordinary shareholders (£m) 25.6 25.7 25.1 23.4
Basic weighted average number of shares (millions) 237.3 238.5 237.3 238.5
Basic Earnings per share 10.8 10.8 10.6 9.8
Diluted weighted number of shares (millions) 249.9 252.0 249.9 252.0
Diluted Earnings per share 10.2 10.2 10.0 9.3
Continuing Adjusted basic earnings per share of 10.8p, is consistent with the
prior year driven by the higher profit after tax and by the reduction in the
average number of shares due to Employee Benefit Trust's share purchases.
Statutory continuing basic earnings per share, which includes adjusting items,
is up 0.8p to 10.6p (FY2022: 9.8p) due to lower level of adjusting items and a
reduction in the weighted number of shares.
Dividend
2023 2022
Dividend per share (paid and proposed) 4.15p 4.15p
Dividend per share (recognised) 4.15p 2.55p
The Board is proposing a final dividend of 2.75p per share (FY2022: 2.75p),
taking the full period dividend to 4.15p (FY2022: 4.15p). The proposed final
dividend is subject to approval by shareholders at the Annual General Meeting
on 31 January 2024 and has not been included as a liability in these accounts.
The dividend recommendation represents the maximum permissible sum that can be
paid under the distribution cap limits within our banking arrangements (£10m
per annum) and is based on the forecast number of shares in issue at the
record date.
The proposed final dividend will be paid on 8 February 2024 to shareholders on
the register at close of business on 12 January 2024. The ex-dividend date
will be 11 January 2024.
Adjusting Items
£m 2023 2022
Aborted acquisition costs (0.6) -
Tuffnells insurance provision (0.4) -
Network and re-organisation credits 0.5 0.2
Impairment of receivables - McColls - (4.4)
Pension - (1.8)
Transformation programme planning costs - (0.9)
Impairment reversal of investment in joint ventures - 1.2
Total before tax and interest (0.5) (5.7)
Finance income - unwind of deferred consideration - 2.5
Total before tax (0.5) (3.2)
Taxation - 0.9
Total after taxation (0.5) (2.3)
Adjusting items before tax of £0.5m (net cost) were a £2.7m decrease on the
prior year (FY2022: £3.2m).
In the current year, the Company incurred £0.6m of costs for due diligence
and legal activity associated with exploring a potential acquisition aligned
to our adjacent opportunities strategy. While the target entity was
complementary to our core business, aligned with our markets and synergised
with elements of our business, macro-economic challenges in the latter half of
2022 led to the decision to abort the opportunity.
The Tuffnells insurance provision costs of £0.4m were recognised as a result
of Tuffnells' administration in June 2023. The provision relates to incidents
arising during the Company's period of ownership of Tuffnells up to May 2020.
The above costs were offset by £0.5m of network and re-organisation credits
relating to provision releases which were the result of a contract renewal
with our shared service centre partner.
In the prior year, the Company provided for £4.4m impairment loss on
receivables as a result of McColl's going into administration. This
represented 80% of the total receivable of £5.5m due from McColl's at the
point of administration and is in line with the administrator's estimated
expected payment to unsecured creditors. During the reporting period no
further impairment charge or reversal has been recognised.
Pension costs in the prior year related to the buy-out of the Company's
defined benefit pension scheme.
The Company also incurred professional fees of £0.9m in the prior year in
relation to transformation programme planning.
An asset impairment reversal of £1.2m was recognised in the prior period in
respect of the joint venture investment in Rascal Solutions Limited
("Rascal"). During the reporting period, no further impairment charge or
reversal has been recognised.
The finance income credit in the prior period of £2.5m is the unwind of the
discount on the Tuffnells deferred consideration which was settled by the end
of April 2022.
The tax on adjusting items was £nil (FY2022: a credit of £0.9m).
Further information on these items can be found in Note 4 of the Group
Financial Statements. Adjusting items are defined in the Glossary to the Group
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 years 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
Free cash flow of £21.8m was £26.4m lower than FY2022 (£48.2m) due to the
£8.1m pension surplus receipt and £14.0m deferred consideration received
from Tuffnells in FY2022 and a £5.9m increase in the working capital movement
in FY2023.
£m 2023 2022
Adjusted operating profit 38.8 38.1
Depreciation & amortisation 9.2 10.5
Adjusted EBITDA 48.0 48.6
Working capital movements (4.9) (0.6)
Capital expenditure (3.4) (1.9)
Lease payments (6.1) (6.4)
Net interest and fees (5.3) (8.0)
Taxation (6.6) (5.3)
Other 1.1 1.2
Free cash flow (excluding Adjusting items) 22.8 27.6
Adjusting items (cash effect) - return of pension surplus - 8.1
Adjusting items (cash effect) - receipt of deferred consideration - 14.0
Adjusting items (cash effect) - Other (1.0) (1.5)
Free cash flow 21.8 48.2
The increase in working capital reflects from the timing of £5.4m due before
the end of August 2023 from a major supermarket which was received on Thursday
31 August 2023 (the first week of FY2024). These working capital cycles led to
average intra-month working capital movements of £28.7m (FY2022: £28.4m).
Cash capital expenditure in the year was £3.4m (FY2022: £1.9m), an increase
of £1.5m due to depot refurbishments which were initiated at the end of
FY2022.
Lease payments of £6.1m (FY2022: £6.4m) decreased by £0.3m due to the exit
of a depot lease in the second half of the last financial year and the
non-renewal of a further depot lease in H2 FY2022.
Net interest and fees of £5.3m (FY2022: £8.0m) decreased by £2.7m, as the
prior year included the payment of £2.9m arrangement fees in relation to the
Company's refinancing of its banking facilities.
Cash tax outflow of £6.6m was a £1.3m increase on the prior year (FY2022:
£5.3m outflow) due to the increase in corporation tax rate from 19% to 25% in
April 2023 and lower taxable profit in FY2022 due to the £4.4m provision for
the McColls debtor.
Other items relate predominantly to the non-cash share-based payment expense.
In the prior year, the wind-up of the Company's defined benefit pension scheme
(detailed further below) resulted in the receipt of £8.1m and settlement of
deferred consideration due from Tuffnells (£14.0m).
The total net cash impact of other Adjusting items was a £1.0m outflow
(FY2022: £1.5m outflow). In the reporting period, amounts related to aborted
acquisition costs (£0.6m), payments in respect of legacy Tuffnells insurance
matters (£0.2m) and reorganisation costs (£0.2m). In the prior year,
adjusting items comprised: £1.3m of Transformation programme planning costs
and £0.2m of Pension related costs.
A reconciliation of free cash flow to the net movement in cash and cash
equivalents is given in the Glossary.
Net Debt
£m 2023 2022
Opening Bank Net Debt (14.2) (53.2)
Continuing operations free cash flow (excluding adjusting items) 22.8 27.6
Continuing operations free cash flow (adjusting items) (1.0) 20.6
Discontinued operations free cash flow - (0.5)
Free cash flow 21.8 47.7
Dividend paid (9.8) (6.1)
Investment in joint venture (0.3) -
Purchase of shares for employee benefit trust (1.7) (2.6)
Bank Net Debt (4.2) (14.2)
Bank Net Debt closed the year at £4.2m compared to £14.2m at August 2022, a
decrease of £10.0m. Average daily net debt reduced from £49.9m last year to
£24.9m this year, a reduction of £25.0m.
The reduction in both reported and average daily bank net debt was driven by
the Company's ongoing cash flow generation and aided by £21.1m 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 0.1x (FY2022: 0.3x). The
year end fell just before major publisher payments of c.£18m were made, which
benefitted reported Bank Net Debt. Bank Net Debt rose to £19.5m on 5
September 2023 after the year end.
The intra-month working capital cash flow cycle generates a routine and
predictable cash swing averaging £28.7m (FY2022 £28.4m) within the overall
bank facility of £64.0m at the year end (FY2022: £79.5m). 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 year relates to insurance
settlements for incidents which occurred during the Company's ownership of
Tuffnells prior to 2 May 2020.
Total dividends paid during the year amounted to £9.8m (FY2022 £6.1m) an
increase of £3.7m. The FY2022 final dividend of £6.5m was paid in February
(FY2022: £2.8m), bringing the total dividend paid in respect of FY2022 to
£9.8m (FY2022: £6.1m). The Company also paid an interim dividend in July
2023 of £3.3m (FY2022: £3.3m). The Company invested £0.3m during the year
in LoveMedia, a joint venture for retailing single copy electronic versions of
newspapers and magazines.
A reconciliation of Bank Net Debt (which excludes the IFRS16 lease creditor
and unamortised arrangement fees) to the balance sheet is provided in the
Glossary.
Going Concern
Having considered the Company's banking facility, the ongoing 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 year of greater than 12 months (being an assessment period of
16 months) from the date of approval of the Group Financial Statements. For
this reason, the directors continue to adopt the going concern basis in
preparing the financial statements and no material uncertainty has been
identified.
Pension Schemes
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. Following those
assessments, one emerging risk has been elevated to principal risks in our
risk register and relates to the risk of a major newspaper title/s potentially
exiting the market and/or moving to digital only editions.
Risks are still 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
1. Cyber Security
To meet the needs of our stakeholders, our IT infrastructure and data • Defined risk-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, internal 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: Increasing - this risk has been re-evaluated following enhancement of
proactive and reactive information security controls to detect and mitigate the Company's IT Infrastructure and now focuses exclusively on cyber security
Cyber incidents could lead to major adverse customer, financial, reputational common threats. related risks. That said, despite ongoing investment in the Company's IT
and regulatory impacts.
infrastructure and IT security (notably gaining Cyber Essentials Plus
• Dedicated information security investments and access to certification), the backdrop remains heightened, leading to an increased risk
third-party cyber security specialists, including 24/7 security monitoring, assessment.
incident response and specialist testing.
• The Company encourages a cyber-aware culture by undertaking
exercises, such as computer-based training and simulated phishing attacks and
regular communications about specific cyber threats.
• We have successfully secured Cyber Essentials and Cyber
Essential Plus certification.
2. Macro-economic uncertainty
Deterioration in the macro-economic environment results in supply side cost • Annual budgets and forecasts take into account the current
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 Strategic Link:
Supply-side macro-economic pressures present the Company with additional cost targets.
challenges e.g. increased competition in the distribution labour market and
Cost and efficiencies, Operations
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.
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 Change:
productivity gains. some offset against the impact of volume decline.
This results in deterioration in the level of profitability in both the short • Predictable level of volume decline within the core business
and medium-term and impacts on the Company's ability to execute its enables cost optimisation planning. Stable
strategies, including level of debt and liquidity objectives.
• Use of fixed term contracts as a hedge against rapidly rising
prices, e.g. energy costs
• The Company continues to be significantly cash generating to
support its strategic priorities.
3. Changes to 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/or 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 (or its location) in efficiency-benefits to retailers.
favour of other higher margin products and/or the delisting of all/particular
Change:
titles of newspapers and/or magazines. · Form stronger partnerships with emerging retailers to stock
magazines and newspapers.
A reduction in (or change in location of) sales space and/or full delisting of
newspapers and/or magazines by our largest retailers (or a high number of Expand retail offering to include single copy digital downloads of newspapers Stable
other retailers) could materially reduce the Company's revenue, profitability and/or magazines to supplement physical print and category range instore.
and cash flow.
4. Acquisition and retention of labour
Due to the current competition in the distribution labour market, an increased • We seek to offer market competitive terms to ensure talent Strategic Link:
risk of being unable to recruit and retain warehouse colleagues and support remains engaged.
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 our ability to address the strategic priorities and to deliver contractors are monitored daily. Change:
forecasted performance.
• We undertake workforce planning; performance, talent and Stable
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.
5. 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 Business Development Group and Growth Operations
and support publisher contract renewals, each of which deliver shareholder Delivery Steering Committee have been established to review and control new
value. business opportunities and then plan and measure the impact of these
opportunities on core operations. Change:
· Experimentation through trials of new business opportunities have
Implementing new business growth opportunities without detrimentally impacting been deployed to assess the demand and potential economic benefit of such
the Company's core newspaper and magazine wholesaling carries an execution opportunities and any likely impact on maintaining the Company's outstanding Stable
risk to both the new initiative and ensuring the Company remains able to and sector-leading standards of service in newspaper and magazine wholesaling.
deliver sector-leading support to publisher clients.
· The Executive Team's 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.
6. 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 particular monitored by a central team in the Operations function which ensures the Operations,
towns and cities. In addition to these transitional risks associated with Company can fulfil its obligations to customers and remain compliant with
moving to a low carbon future, there are also a range of ongoing physical legal requirements. Sustainability
risks. These include an increase in the frequency of extreme weather events
which may result in power outages, disruption to our service operations and/or · Operational sites are reviewed for their resilience to extreme
impact our ability to serve our customers in an efficient and cost-effective weather events, such as floodings, with upgrades and interventions made where
manner. these are cost-effective. Depots are relocated to new sites (e.g. during lease Change:
break windows) where this represents a better option than adapting an existing
location.
In common with all major organisations, there is a risk of reputational damage · Working with suppliers to ensure they share the Company's vision Stable
and/or loss of revenue if the Company fails to meet stakeholder expectations to act on climate change.
for action on climate change.
7. Major newspaper titles exit the market or move to digital only editions
Significant decline in advertising and/or circulation, together with rising · We seek to ensure full availability of alternative newspaper Strategic link:
production costs, lead to one or more national newspaper titles exiting the titles to maximise substitution opportunities for customers.
market and/or publications being taken fully digital. This could lead to a
Costs and efficiencies
significant deterioration in the Company's profitability and cash flow in both · Partial mitigation against newspaper title closures is built into
the short and medium-term as well as impacting on its ability to execute its our contracts with major publishers.
strategies.
· Ongoing successful execution of our growth and diversification Change:
strategy provides longer-term mitigation though alternative profitable revenue
streams. New risk
8. 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.
third party redress 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
GROUP FINANCIAL STATEMENTS
Group Income Statement for the 52-week period ended 26 August 2023
£m 2023 2022
Note Adjusted* Adjusting Total Adjusted* Adjusting items Total
items
Revenue 2 1,091.9 - 1,091.9 1,089.3 - 1,089.3
Cost of Sales 3 (1,019.4) - (1,019.4) (1,016.6) - (1,016.6)
Gross profit 3 72.5 - 72.5 72.7 - 72.7
Administrative expenses 3 (33.7) (0.5) (34.2) (35.0) (2.5) (37.5)
Net impairment loss on trade receivables 4 (0.1) - (0.1) - (4.4) (4.4)
Other income - - - 0.1 - 0.1
Income from joint ventures 13 0.1 - 0.1 0.3 - 0.3
Impairment reversal of joint venture investment 13 - - - - 1.2 1.2
Operating profit 2,3 38.8 (0.5) 38.3 38.1 (5.7) 32.4
Finance costs 7 (6.5) - (6.5) (7.0) - (7.0)
Finance income 7 - - - - 2.5 2.5
Profit/(loss) before tax 32.3 (0.5) 31.8 31.1 (3.2) 27.9
Income tax (expense)/credit 8 (6.7) - (6.7) (5.4) 0.9 (4.5)
Profit/(loss) for the year attributable to equity shareholders 25.6 (0.5) 25.1 25.7 (2.3) 23.4
Earnings per share
Basic 10 10.8 10.6 10.8 9.8
Diluted 10 10.2 10.0 10.2 9.3
Equity dividends per share (paid and proposed) 9 4.15 4.15 4.15 4.15
*This measure is described in Note 1(4) of the accounting policies and the
Glossary to the Accounts. Adjusting items are set out in Note 4 to the Group
Financial Statements.
Group Statement of Comprehensive Income for the 52-week period ended 26 August
2023
£m Note 2023 2022
Items that will not be reclassified to the Group Income Statement
Reassessment as to recoverability of retirement benefit scheme surplus 6 - 14.8
Tax relating to components of other comprehensive income that will not be 6 - (5.1)
reclassified
- 9.7
Other comprehensive result for the year - 9.7
Profit for the year 25.1 23.4
Total comprehensive income for the year 25.1 33.1
Group Balance Sheet as at 26 August 2023
£m Note 2023 2022
Non-current assets
Intangible assets 11 1.9 1.7
Property, plant and equipment 12 8.8 8.6
Right of use assets 19 21.8 26.3
Interest in joint ventures 13 4.4 4.2
Deferred tax assets 20 1.7 1.1
38.6 41.9
Current assets
Inventories 14 17.7 15.6
Trade and other receivables 15 101.1 95.7
Cash and bank deposits 17 37.3 35.3
Corporation tax receivable 0.6 0.9
156.7 147.5
Total assets 195.3 189.4
Current liabilities
Trade and other payables 16 (141.5) (140.3)
Bank loans and other borrowings 17 (10.0) (8.0)
Lease liabilities 19 (4.9) (5.9)
Provisions 21 (2.5) (3.0)
(158.9) (157.2)
Non-current liabilities
Bank loans and other borrowings 17 (30.2) (39.1)
Lease liabilities 19 (18.3) (21.7)
Non-current provisions 21 (4.2) (3.4)
(52.7) (64.2)
Total liabilities (211.6) (221.4)
Total net liabilities (16.3) (32.0)
Equity
Called up share capital 25(a) 12.4 12.4
Share premium account 25(c) 60.5 60.5
Demerger reserve 26(a) (280.1) (280.1)
Own shares reserve 26(b) (4.4) (4.6)
Translation reserve 26(c) 0.4 0.4
Retained earnings 27 194.9 179.4
Total shareholders' deficit (16.3) (32.0)
The accounts were approved by the Board of Directors and authorised for issue
on 7 November 2023 and were signed on its behalf by:
Jonathan
Bunting
Paul Baker
Chief Executive
Officer
Chief Financial Officer
Registered number - 05195191
Group Statement of Changes in Equity for the 52-week period ended 26 August
2023
£m Note Share capital Share premium account Demerger reserve Own shares reserve Hedging & translation reserve *Retained earnings *Total
Balance at 28 August 2021 12.4 60.5 (280.1) (3.9) 0.4 153.0 (57.7)
Profit for the year - - - - - 23.4 23.4
Actuarial gain on defined benefit pension scheme 6 - - - - - 14.8 14.8
Tax relating to components of other comprehensive income - - - - - (5.1) (5.1)
Total comprehensive expense/income for the year - - - - - 33.1 33.1
Dividends paid 9 - - - - - (6.1) (6.1)
Employee share schemes purchases - - - (2.2) - - (2.2)
Employee share scheme awards - - - 1.5 - (1.5) -
Recognition of share-based payments net of tax - - - - - 1.2 1.2
Current tax recognised in equity - - - - - (0.1) (0.1)
Deferred tax recognised in equity - - - - - (0.2) (0.2)
Balance at 27 August 2022 12.4 60.5 (280.1) (4.6) 0.4 179.4 (32.0)
Profit for the year - - - - - 25.1 25.1
Total comprehensive expense/income for the year - - - - - 25.1 25.1
Dividends paid 9 - - - - - (9.8) (9.8)
Employee share schemes purchases - - - (1.7) - - (1.7)
Employee share scheme awards - - - 1.9 - (1.9) -
Recognition of share-based payments net of tax - - - - - 1.5 1.5
Deferred tax recognised in equity - - - - - 0.6 0.6
Balance at 26 August 2023 12.4 60.5 (280.1) (4.4) 0.4 194.9 (16.3)
Group Cash Flow Statement for the 52-week period ended 26 August 2023
£m Note 2023 2022
Net cash inflow from operating activities 24 36.4 49.8
Investing activities
Dividends received from joint ventures 0.2 0.2
Purchase of property, plant and equipment (2.6) (1.3)
Purchase of intangible assets (0.8) (0.7)
Investment in joint venture 13 (0.3) -
Net proceeds on sale of property, plant and equipment - 0.1
Deferred consideration receipts - 14.0
Net cash (used in)/generated from investing activities (3.5) 12.3
Financing activities
Interest paid (5.3) (5.1)
Arrangement fees paid - (2.9)
Dividend paid 9 (9.8) (6.1)
Repayments of lease principal (6.1) (6.4)
Repayment of term loan (8.0) (83.0)
New loans issued - 60.0
Purchase of shares for employee benefit trust (1.7) (2.6)
Net cash (used in)/generated from financing activities (30.9) (46.1)
Net increase in cash and cash equivalents 2.0 16.0
2.0 16.0
Opening net cash and cash equivalents 35.3 19.3
Closing net cash and cash equivalents 17 37.3 35.3
Notes to the Accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc ('the Company') is a company incorporated in England UK under
the Companies Act 2006. The Group accounts for the 52-week period ended 26
August 2023 comprise the Company and its subsidiaries (together referred to as
the 'Group') and the Group's interests in joint ventures and associates.
Subsidiary undertakings are included in the Group Accounts from the date on
which control is obtained. They are deconsolidated from the date on which
control ceases. All significant subsidiary accounts are made up to 26 August
2023 and are included in the Group Accounts.
Unless otherwise noted references to 2022 and 2023 relate to a 52-week period
ended 27 August 2022 and 26 August 2023 as opposed to calendar year.
The Accounts were authorised for issue by the directors on 7 November 2023.
(2) Accounting basis of preparation
The financial information contained within this preliminary announcement for
the 52 weeks to 26 August 2023 and the 52 weeks to 27 August 2022 does not
comprise statutory financial statements for the purpose of the Companies Act
2006 but is derived from those statements. The statutory accounts for Smiths
News PLC for the 52 weeks to 27 August 2022 have been filed with the Registrar
of Companies and those for the 52 weeks to 26 August 2023 will be filed
following the Company's annual general meeting. The auditor's reports on the
accounts for both the 52 weeks to 26 August 2023 and the 52 weeks to 27 August
2022 were unqualified, did not draw attention to any matters by way of
emphasis, and did not include a statement under Section 498 (2) or (3) of the
Companies Act 2006. The Annual Report and Accounts will be available for
shareholders in December 2023.
The Accounts are prepared on the historical cost basis with the exception of
certain financial instruments and are presented in Pound Sterling and rounded
to £0.1m, except where otherwise indicated.
The Group Accounts have been prepared in accordance with UK-adopted
International Accounting Standards (IAS) in conformity with the requirements
of the Companies Act 2006.
Intra-group balances and unrealised gains and losses or income and expenses
arising from intra-group transactions, are eliminated in preparing the Group
Accounts. Unrealised gains and losses arising from transactions with joint
ventures are eliminated to the extent of the Group's interest in these
entities.
(3) Going concern
The Group accounts have been prepared on a going concern basis.
When assessing the going concern of the Group, the directors have reviewed the
year to date financial actuals, as well as detailed financial forecasts for
the period up to 28 February 2025, the going concern period.
The Group currently has a net liability position of £16.3m as at 26 August
2023. All bank covenant tests were met at the year end. The key bank net debt:
EBITDA (ex. IFRS 16) ratio of 0.1x, was below the covenant test threshold of
1.75x. The threshold reduces to 1.5x from 25 February 2024.
The intra-month working capital cash flow cycle at Smiths News generates a
routine and predictable cash swing averaging £28.7m during 2023. This results
in a predictable fluctuation of bank net debt during the course of the month
compared to the closing net debt position. The Group's average net borrowings
during 2023 were £25.0m (2022: £49.8m). The Company utilises the Revolving
Credit Facility (RCF) to manage the cash swing. At the year end, £21.0m of
the RCF was available and the Company had £37.3m of cash on hand, giving
headroom of £58.3m.
3i) Bank facility
The Group has a facility of £64.0m at the balance sheet date, comprising a
£41.5m amortising term loan and a revolving credit facility (RCF) with a
limit of £22.5m. The Group's banking facility was amended and extended in
December 2021 and has a final maturity date of 31 August 2025. The facility
comprised an initial £60m amortising term loan, of which the Group has since
repaid £18.5m as at the balance sheet date and a RCF comprising an initial
£30m, of which £22.5m is available less committed letters of credit
amounting to £1.5m (see Note 17). The agreement is with a syndicate of banks
comprising HSBC, Barclays, Santander and Clydesdale.
The facility's current margin is 4% per annum over SONIA.
Consistent with the Company's stated strategic priorities to reduce net debt,
the terms of the facility agreement include: an amortisation schedule of £10m
per annum for the repayment of the term loan; a reduction in the RCF of £5m
per year after the first year; and capped dividend payments at £10m per year.
The final maturity date of the facility is 31 August 2025.
3ii) Reverse stress testing
The directors have prepared their base case forecast which represents their
best estimate of cash flows over the going concern period which is up to 28
February 2025 and in accordance with FRC guidance have prepared a reverse
stress test that would create a covenant break scenario which could lead to
the facilities being repayable on demand.
The break scenario would occur in February 2025 if EBITDA was 48% below the
Board approved three year plan. Facility headroom of £3m 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 publisher contracts are secured for 65% of revenue
until 2029; and
· the Company continues to trade with adequate profit to
service its debt covenants.
3iii) Mitigating actions
In the event the break environment scenario went from being remote to possible
then management would seek to take mitigating actions to maintain liquidity
and compliance with the bank facility covenants. The options within the
control of management would be to:
· optimise liquidity by working capital management of the
peak-to-trough intra-month movement averaging £28.7m in 2023;
· utilising existing vendor management finance arrangements
with retailers and optimising contractual payment cycles to suppliers which
would improve liquidity headroom;
· not pay planned dividends;
· 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 2023 nor
2022 or since the Balance Sheet date.
3iv) Assessment
Having considered the above and the funding requirements of the Group and
Company, the directors are confident that headroom under the bank facility
remains adequate, future covenant tests can be met and there is a reasonable
expectation that the business can meet its liabilities as they fall due for a
period of greater than 12 months (being an assessment period of 16 months)
from the date of approval of the Group Financial Statements. For this reason,
the directors continue to adopt the going concern basis in preparing the
financial statements and no material uncertainty has been identified.
(4) Alternate performance measures
In reporting financial information, the Group presents alternative performance
measures (APMs), which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs (listed in the glossary), are not
considered to be a substitute for, or superior to, IFRS measures but provide
stakeholders with additional helpful information on the performance of the
business. These APMs are consistent with how the business performance is
planned and reported within the internal management reporting to the Board and
Executive Team.
The APMs do not have standardised meaning prescribed by IFRS and therefore may
not be directly comparable to similar measures presented by other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of newspapers and
magazines. The Group is considered to be the principal based on the following
indicators of control over its inventory: discretion to establish prices; it
holds some of the risk of obsolescence once in control of the inventory; and
has the responsibility of fulfilling the performance obligation on delivery of
inventory to its customers. If the Group were considered to be the agent,
revenue and cost of sales would reduce by £926.5m (2022: £921.3m).
Determining lease terms
In determining lease terms, management considers all facts and circumstances
that create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after termination
options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated).
For leases of distribution centres and equipment, the following factors are
the most relevant:
· the Company continually considers the optimal network
structure in its judgement over lease terms;
· if there are significant penalties to terminate (or not
extend), the Company is typically reasonably certain to extend (or not
terminate);
· if any leasehold improvements are expected to have a
significant remaining value, the Company is typically reasonably certain to
extend (or not terminate); and
· otherwise, the Group considers other factors including
historical lease durations and the costs and business disruption required to
replace the leased asset. Most extension options in vehicles leases have not
been included in the lease liability, because the Group could replace the
assets without significant cost or business disruption.
The lease term is reassessed if an option is actually exercised (or not
exercised) or the Group becomes obliged to exercise (or not exercise) it. The
assessment of reasonable certainty is only revised if a significant event or a
significant change in circumstances occurs, which affects this assessment, and
that is within the control of the lessee.
Adjusting items
Adjusting items of income or expense are excluded in arriving at Adjusted
operating profit to present a further measure of the Group's performance. Each
adjusting item is considered to be significant in nature and/or quantum,
non-recurring in nature and/or are considered to be unrelated to the Group's
ordinary activities or are consistent with items treated as adjusting in prior
periods. Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business across
periods because it is consistent with how the business performance is planned
by, and reported to, the Board and the Executive Team.
The classification of adjusting items requires significant management
judgement after considering the nature and intentions of a transaction.
Adjusted measures are defined with other APM's in the glossary.
Based on the nature of the transactions Adjusting items after tax totalled
£0.5m (2022: £2.3m) and a breakdown is included within Note 4.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The key assumption concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period that may have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount may not be recoverable.
When a review for impairment is conducted, the recoverable amount is
determined using value in use calculations. The value in use method requires
the Company to determine appropriate assumptions in relation to the cash flow
projections over the three-year plan period (which is a key source of
estimation uncertainty), the terminal growth rate to be applied beyond this
three-year period and the risk-adjusted post-tax discount rate used to
discount the assumed cash flows to present value. The assumption that cash
flows continue into perpetuity is a source of significant estimation
uncertainty.
During the prior period 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 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 the period ended 26 August 2023, a value-in-use of £4.3m was calculated
based on the future cash flows of the Rascal business, which were discounted
at a rate of 13% and a terminal growth rate applied of 0%. As a result, there
was no further adjustment to the carrying value of the investment in the
Rascal Joint Venture in the current period. Refer to Note 13 for further
details.
Property provision
The Group holds a property provision which estimates the future liabilities to
restore leased premises to an agreed standard at the date the lease is
terminated. The provision is calculated based on key assumptions including the
length of time properties will be occupied, the future costs of restoration
and the condition of the property at the future exit date.
The property provision represents the estimated future cost of the Group's
potential dilapidation costs on properties across the Group. As the current
economic outlook is for increased inflation, the Group has assessed the effect
of inflation as material on the provisions in the current year. The provisions
have therefore been adjusted for the effect of inflation in the current year.
These provisions have been discounted to present value and this discount will
be unwound over the life of the leases.
A change in any of these assumptions could materially impact the provision
balance. Refer to Note 21 for further details on the sensitivity of the
assumptions used to calculate the property provision. The property provision's
carrying value at the year end is £4.9m (2022: £4.4m).
Net impairment loss on trade receivables
During the prior period ended 27 August 2022 McColl's Retail Group had gone
into administration and an impairment loss provision of £4.4m was recognised.
During the current period the administrators issued an update, stating that
unsecured creditors can be expected to receive between 20-50% of approved
claims (2022: 20-40%). Management has determined that a best estimate of only
20% of the outstanding balance remains recoverable. The Company has therefore
continued to hold a net impairment loss of £4.4m (2022: £4.4m), representing
80% of the total balance of £5.5m (2022: £5.5m) in the current financial
period. If the Company had considered 50% of the total balance of £5.5m to be
recoverable in line with the upper range of the administrator's estimate, the
provision recognised would have been £2.8m (2022: 40%, £3.3m).
In the prior period, the net impairment loss of £4.4m was disclosed
separately as a specific provision for doubtful debts and presented in
adjusting items as it did not have an impact on the Group's assessment of its
expected credit losses in respect of its remaining trade receivables.
(6) Discontinued
operations
On 2 May 2020, the Company completed the sale of Tuffnells and assumed
liability to settle certain pre-disposal insurance and legal claims relating
to employer's liability, public liability, motor accident claims and legal
claims, held as provisions. During the current period, the Company is no
longer presenting cash outflows from these provisions as discontinued
operations, comparatives have not been restated.
(7) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of the products
has transferred, that is, when the products are delivered to the retailer and
there is no unfulfilled obligation that could affect the retailer's acceptance
of the products, the risks of obsolescence and loss have been transferred to
the retailer. Goods are sold to retailers on a sale or return basis.
Distribution income
Distribution income is recognised when the products such as newspapers and
magazines are delivered to the retailer and there are no unfulfilled
obligations that could affect the retailer's acceptance of the products.
Voucher income
Voucher income represents the margin income received from managing the process
of collecting voucher payments from retailers and passing them on to voucher
processing centres. The Group is primarily responsible for fulfilling the
service.
Sales and marketing
The Group supplies marketing services to both retailers and suppliers. This
includes services such as shelf stacking, stock checking and merchandising.
The Group is primarily responsible for fulfilling the services.
Sale of waste
Income from the sale of recyclable waste represents the amount received per
tonne of newspapers and magazines returns sold on for recycling. The Group has
primary responsibility for fulfilling the service.
Return Reserve
Newspapers and Magazines sales are made on a sale or return basis, therefore
the Group is required to estimate a value relating to expected returns from
retailers. Likewise, as the publishers are required to provide the Group with
credit for any purchase returns, so a purchase returns reserve is also
required. The key estimates used in calculating the period end reserve are
rates of returns (based on historical tends), average shelf life of the
product types and average price of each product type. These estimates are
similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net of the value
of any returns. Newspapers and magazines are often sold with retrospective
volume discounts based on aggregate net sales. Revenue from these sales is
recognised based on the price specified in the contract, net of the estimated
volume discounts. Accumulated experience is used to estimate and provide for
the discount and returns, using the expected value method and revenue is only
recognised to the extent that it is highly probable that a significant
reversal will not occur. A returns reserve accrual and discount accrual
(included in trade and other payables) is recognised for expected volume
discounts and refunds payable to customers in relation to sales made until the
end of the reporting period. A right to the returned goods (included in other
debtors) are recognised for the products expected to be returned.
No element of financing is deemed present because the sales are made with
short credit terms, which is consistent with market practice.
A receivable is recognised when the goods are delivered, since this is the
point in time that the consideration is unconditional because only the passage
of time is required before the payment is due.
(8) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of inventories recognised
as an expense and distribution costs as these are considered to represent for
the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of sales.
(9) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement, except to the extent it relates to
items recognised in other comprehensive income or directly in equity. Current
tax is the expected tax payable based on the taxable profit for the year,
using tax rates enacted, or substantively enacted at the balance sheet date
and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
The amount of deferred tax provided is calculated using tax rates enacted or
substantively enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax liability is
settled. Deferred tax assets are recognised to the extent that it is probable
that future taxable profits will be available against which these temporary
differences can be utilised.
(10) Dividends
Interim and final dividends are recorded in the financial statements in the
period in which they are paid.
(11) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group is able to
demonstrate all of the following: the technical feasibility of the resulting
asset; the ability (and intention) to complete the development and use it; how
the asset will generate probable future economic benefits; adequate technical,
financial and other resources to complete the development and to use the
software are available; and the ability to measure reliably the expenditure
attributable to the asset during its development. Software costs are also
capitalised if they can be hosted on another server, are portable and the
Group has sole rights to the software. Subsequent to initial recognition,
internally generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as
intangible assets that are acquired separately.
(12) Joint ventures
The Group Financial Statements include the Group's share of the total
recognised gains and losses in its joint ventures on an equity accounted
basis.
Investments in joint ventures are carried in the balance sheet at cost
adjusted by post-acquisition changes in the Group's share of the net assets of
the joint ventures, less any impairment losses. The carrying values of
investments in joint ventures include acquired goodwill. Losses in joint
ventures that are in excess of the Group's interest in the joint venture are
recognised only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint venture.
(13) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account for business
combinations. The cost of an acquisition is measured at the fair value of the
assets given, equity instruments issued, liabilities incurred or assumed at
the date of exchange. Acquisition related costs are recognised in profit or
loss as incurred. Any deferred or contingent purchase consideration is
recognised at fair value over the period of entitlement. If the contingent
purchase consideration is classified as equity, it is not remeasured and
settlement is accounted for in equity. Any deferred or contingent payment
deemed to be remuneration as opposed to purchase consideration in nature is
recognised in profit or loss as incurred and excluded from the acquisition
method of accounting for business combinations.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured, initially, at their fair
values at the acquisition date, irrespective of the extent of any
non-controlling interest. The non-controlling interest is measured, initially,
at the non-controlling interest's proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised. Goodwill is
measured as the excess of the sum of the consideration transferred, the amount
of any non-controlling interests in the acquiree, and the fair value of the
acquirer's previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
Goodwill arising on all acquisitions is initially recognised as an asset at
cost and is subsequently measured at cost less any accumulated impairment
losses.
The carrying value is reviewed annually for impairment or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Intangible assets arising under a business combination (acquired
intangibles) are capitalised at fair value as determined at the date of
exchange and are stated at fair value less accumulated amortisation and
impairment losses. Amortisation of acquired intangibles is charged to the
income statement on a straight-line basis over the estimated useful lives as
follows:
Customer relationships - 2.5 to
7.5 years
Trade name
- 5 to 10 years
Software and development costs - 3 to 7 years
Computer software and internally generated development costs which are not
integral to the related hardware are capitalised separately as an intangible
asset and stated at cost less accumulated amortisation and impairment losses.
Assets held under leases are depreciated over their expected useful lives on
the same basis as owned assets or, where shorter, over the term of the
relevant lease.
All intangible assets are reviewed for impairment in accordance with IAS 36
'Impairment of Assets' when there are indications that the carrying value may
be higher than its recoverable value. The recoverable value used is the value
in use. The value in use is determined by estimating the future cash inflows
and outflows to be derived from continuous use of the asset and applying the
appropriate discount rate to those future cash flows. Where the carrying value
is higher than the calculated value in use, an impairment loss will be
recognised.
(14) Property, plant and equipment
Property, plant and equipment assets are stated at cost less accumulated
depreciation and any recognised impairment losses. No depreciation has been
charged on freehold land. Other assets are depreciated, to a residual value,
on a straight-line over their estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease
period and the estimated remaining economic life
Fixtures and fittings
- 3 to 15 years
Equipment
- 5 to 12 years
Computer equipment - up
to 5 years
Vehicles
- up to 5 years
Assets held under leases are depreciated over their expected useful lives on
the same basis as owned assets or, where shorter, over the term of the
relevant lease. All property, plant and equipment is reviewed for impairment
in accordance with IAS 36 'Impairment of Assets' when there are indications
that the carrying value may not be recoverable.
(15) Leasing
Leases are recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
· fixed payments (including in-substance fixed payments)
less any lease incentives receivable;
· variable lease payment that are based on an index or a
rate, initially measured using the index or rate as at the commencement date;
· amounts expected to be payable by the Group under
residual value guarantees;
· the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
· payments of penalties for terminating the lease, if the
lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also
included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases in the Group, the lessee's incremental borrowing rate is used,
being the rate that the individual lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset
in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
· where possible, uses recent third-party financing
received by the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was received;
· uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the Group, which
does not have recent third party financing; and
· makes adjustments specific to the lease, e.g. term,
country, currency and security.
The Group is exposed to potential future increases in variable lease payments
based on an index or rate, which are not included in the lease liability until
they take effect. When adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted against the
right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Right-of-use assets are measured at cost comprising the following:
· the amount of the initial measurement of lease liability;
· any lease payments made at or before the commencement
date less any lease incentives received;
· any initial direct costs; and
· Restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is
depreciated over the underlying asset's useful life.
Payments associated with short-term leases of equipment and vehicles and all
leases of low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of
12 months or less. Low-value assets comprise IT equipment and small items of
office furniture.
Extension and termination options
Extension and termination options are included in a number of property and
equipment leases across the Group. These are used to maximise operational
flexibility in terms of managing the assets used in the Group's operations.
The majority of extension and termination options held are exercisable only by
the Group and not by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted
using a revised discount rate. The carrying value of lease liabilities is
similarly revised when the variable element of future lease payments dependent
on a rate or index is revised, except the discount rate remains unchanged.
In both cases an equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being amortised over the
remaining (revised) lease term. If the carrying amount of the right-of-use
asset is adjusted to zero, any further reduction is recognised in profit or
loss.
(16) Inventories
Inventories comprise goods held for resale and are stated at the lower of cost
or net realisable value. Inventories are valued using a weighted average cost
method. Costs comprise direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories
to their present location and condition.
(17) Financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The Group derecognises financial assets and liabilities only
when the contractual rights and obligations are transferred, discharged or
expire.
Financial assets comprise trade and other receivables and cash and cash
equivalents. Financial liabilities comprise trade payables, financing
liabilities, bank borrowings.
(18) Financial assets
The group classifies its financial assets in the following measurement
categories:
· those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
Trade receivables
Trade receivables are initially measured at fair value, which for trade
receivables is equal to the consideration expected to be received from the
satisfaction of performance obligations, plus any directly attributable
transaction costs. Subsequent to initial recognition these assets are measured
at amortised cost less any provision for impairment losses including expected
credit losses. In accordance with IFRS 9 the Group applies the simplified
approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on shared credit risk
characteristics such as the ageing of the debt and the credit risk of the
customers. An historical credit loss rate is then calculated for each group
and then adjusted to reflect expectations about future credit losses. The
Group does not have any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for
settlement within 30 days and are therefore all classified as current. Trade
receivables are recognised initially at the amount of consideration that is
unconditional, unless they contain significant financing components, in which
case they are recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so it
measures them subsequently at amortised cost using the effective interest
method. Details about the Group's impairment policies and the calculation of
the loss allowance are provided in Note 15.
Due to the short-term nature of the current receivables, their carrying amount
is considered to be the same as their fair value.
Other receivables
Other receivables are recognised on trade date, being the date on which the
Group has the right to the asset. Other receivables are derecognised when the
rights to receive cash flows from the other receivables have expired or have
been transferred and the group has transferred substantially all the risks and
rewards of ownership.
At initial recognition, the Group measures other receivable at their fair
value plus, in the case of a financial asset not at fair value through profit
or loss (FVPL), transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
Subsequent measurement of other receivables depends on the Group's business
model for managing the asset and the cash flow characteristics of the asset.
The group classifies its other receivables at amortised cost.
Assets that are held for collection of contractual cash flows, where those
cash flows represent solely payments of principal and interest, are measured
at amortised cost. Interest income from these financial assets is included in
finance income using the effective interest rate method. Any gain or loss
arising on derecognition is recognised directly in profit or loss and
presented in other gains/(losses) together with foreign exchange gains and
losses. Impairment losses are presented as a separate line item in Note 3.
The Group classifies its financial assets as at amortised cost only if both of
the following criteria are met:
· the asset is held within a business model whose objective
is to collect the contractual cash flows; and
· the contractual terms give rise to cash flows that are
solely payments of principal and interest.
The Group applies the general approach to impairment under IFRS 9 based on
significant increases in credit risk rather than the simplified approach for
trade receivables using lifetime ECL.
(19) Trade and other payables
These amounts represent liabilities for goods and services provided to the
Group prior to the end of the financial year which are unpaid. The amounts are
unsecured and are usually paid within 30 days of recognition. Trade and other
payables are presented as current liabilities unless payment is not due within
12 months after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the effective
interest method.
(20) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at bank and in
hand and short term deposits with an original maturity of three months or
less. BACS and next day payments are recognised at the settlement date, rather
than when they are initiated, to reflect the nature of these transactions. In
the consolidated balance sheet, bank overdrafts are shown within borrowings in
current liabilities. Cash and cash equivalents in the cash flow statement
comprise cash at bank and in hand and bank overdrafts which form part of the
Group's cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities. Equity instruments issued are recorded
at the proceeds received, net of direct issue costs.
Bank borrowings
Interest bearing bank loans and overdrafts are initially measured at fair
value (being proceeds received, net of direct issue costs), and are
subsequently measured at amortised cost, using the effective interest rate
method. Finance charges, including premiums payable on settlement or
redemptions and direct issue costs are accounted for on an accruals basis and
taken to the income statement using the effective interest rate method and are
added to the carrying value of the instrument to the extent that they are not
settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is extinguishment of
the original financial liability and recognition of a new financial liability.
Equally, modification of the terms of existing financial liability is
accounted for as an extinguishment of the original financial liability and
recognition of a new financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and are translated at foreign
exchange rates ruling at the balance sheet date. The revenues and expenses of
foreign operations are translated at an average rate for the period where this
rate approximates to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated at the foreign
exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated at foreign exchange
rates ruling at the dates the fair value was determined.
(21) Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are
measured at the present value of the directors' best estimate of the
expenditure required to settle the present obligation at the balance sheet
date and if this amount is capable of being reliably estimated. If such an
obligation is not capable of being reliably estimated, no provision is
recognised and the item is disclosed as a contingent liability where material.
Where the effect is material, the provision is determined by discounting the
expected future cash flows.
(22) Retirement benefit costs
Defined contribution schemes
The Group operates two defined contribution schemes for the benefit of its
employees. Payments to the Group's schemes are recognised as an expense in the
income statement as incurred.
Defined benefit scheme
The Group previously operated one defined benefit pension scheme, the news
section of The WH Smith Pension Trust. On 3 December 2021, the Group received
the sum of £8.1m in respect of the net cash surplus held by the Trustee
following finalisation of the buy-out of the defined benefit liabilities in
the News Section of the Trust. As agreed with the Trustee, the return of
surplus preceded the formal winding up steps of the News Section of the Trust,
the winding up of the News Section of the Trust being formally completed on 25
February 2022 through the purchase of insurance run-off cover and payment of
taxes owed to HMRC. The IAS 19 pre-tax surplus of £14.8m has been recognised
through other comprehensive income in the prior financial period after the
Trustee confirmed its intention to return the surplus cash to the employer
giving the Company an unconditional right to the surplus.
(23) Employee Benefit Trust
Smiths News Employee Benefit Trust
Where any Group company purchases the Company's shares, for example as the
result of a share buy-back or a share-based payment plan, the consideration
paid, including any directly attributable incremental costs (net of income
taxes) is deducted from equity as 'own shares reserve' until those shares are
either cancelled or reissued.
The shares held by the Smiths News Employee Benefit Trust are valued at the
historical cost of the shares acquired. This value is deducted in arriving at
shareholders' funds and presented as the own share reserve in line with IAS 32
'Financial Instruments: Disclosure and Presentation'.
(24) Share schemes
Share based payments
The Group operates several share-based payment schemes, being the Sharesave
Scheme, the Executive Share Option Scheme, the LTIP and the Deferred Bonus
Plan. Details of these are provided in the Directors' Remuneration report and
in Note 28.
Equity-settled share-based schemes are measured at fair value at the date of
grant. The fair value is expensed with a corresponding increase in equity on a
straight-line basis over the period during which employees become
unconditionally entitled to the options. The fair values are calculated using
an appropriate option pricing model. The income statement charge is then
adjusted to reflect expected and actual levels of vesting based on non-market
performance related criteria.
Administrative expenses and distribution and marketing expenses include the
cost of the share-based payment schemes.
(25) Changes in accounting policies
The Group has not applied any new standards or amendments for the annual
reporting period commencing 28 August 2022.
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the following
Standards and Interpretations that are potentially relevant to the Group and
which have not been applied in these financial statements were in issue but
not yet effective (and in some cases had not yet been adopted by the UK):
· Classification of Liabilities as Current or Non-current -
Amendments to IAS 1;
· Definition of Accounting Estimates - Amendments to IAS 8;
· Disclosure of Accounting Policies - Amendments to IAS 1
and IFRS Practice Statement; and
· Deferred Tax related to Assets and Liabilities arising
from a Single Transaction - Amendments to IAS 12.
· Lease liability in a Sale and Leaseback - IFRS 16 Leases
There are no other standards that are not yet effective and that would be
expected to have a material impact on the entity in the current or future
reporting periods and on foreseeable future transactions.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has identified its
operating segments based wholly on the overall activities of the Group. The
Group has therefore determined that it has only one reportable operating
segment under IFRS 8, which is that of a 'UK market leading distributor of
newspapers and magazines', referred to as 'Smiths News'. The performance of
Smiths News is reviewed, on a monthly basis, by the Board. The Board primarily
uses a measure of Adjusted operating profit before tax to assess its
performance. The Board also receives information about the segments' revenue.
The Smiths News continuing operating segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to approximately
23,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to airlines and
travel points worldwide.
Instore
Supplies field marketing services to retailers and suppliers across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths News.
The Company derives revenue from the transfer of goods and services in the
following major product line and geographical regions:
Revenue
£m 2023 2022
Smiths News 1,091.9 1,089.3
Total revenue from contracts with customers 1,091.9 1,089.3
The Company's revenue by geographical location is UK 99.8% (2022: 99.9%) and
Rest of World 0.2% (2022: 0.1%).
Information about major customers
Included in revenues arising from Smiths News are revenues of approximately
£99.5m (2022: £102.5m) which arose from sales to the Group's largest
customer. Three other customers contributed 13.1% or more of the Group's
revenue in 2023 (2022: 13.3%).
3. Operating profit
The Group's results are analysed as follows:
£m 2023 2022
Note Adjusted Adjusting items Total Adjusted Adjusting items Total
Revenue 1,091.9 - 1,091.9 1,089.3 - 1,089.3
Cost of inventories recognised as an expense (926.5) - (926.5) (921.3) - (921.3)
Distribution costs (92.9) - (92.9) (95.3) - (95.3)
Cost of sales (1,019.4) - (1,019.4) (1,016.6) - (1,016.6)
Gross profit 72.5 - 72.5 72.7 - 72.7
Other administrative expenses (23.4) (0.5) (23.9) (23.3) (2.5) (25.8)
Share-based payment expense 28 (1.1) - (1.1) (1.2) - (1.2)
Net impairment loss on trade receivables (0.1) - (0.1) - (4.4) (4.4)
Impairment reversal of joint venture investment - - - - 1.2 1.2
Other income - - - 0.1 - 0.1
Share of profits from joint ventures 13 0.1 - 0.1 0.3 - 0.3
EBITDA 48.0 (0.5) 47.5 48.6 (5.7) 42.9
Depreciation on property, plant and equipment 12 (2.2) - (2.2) (2.3) - (2.3)
Depreciation on right use assets 19 (6.4) - (6.4) (6.9) - (6.9)
Amortisation of intangibles 11 (0.6) - (0.6) (1.3) - (1.3)
Operating profit 38.8 (0.5) 38.3 38.1 (5.7) 32.4
Operating profit is stated after charging/(crediting):
£m Note 2023 2022
Total Total
Depreciation on property, plant and equipment 12 2.2 2.3
Amortisation of intangible assets 11 0.6 1.3
Depreciation on right use assets 19 6.4 6.9
Short term and low value lease charges on equipment and vehicles 0.4 0.3
Lease rental income - land and buildings (0.4) (0.4)
Staff costs (excluding share-based payments) 5 44.1 43.7
Included in administrative expenses are amounts payable by the Company and its
subsidiary undertakings in respect of audit and non-audit services which are
as follows:
£m 2023 2022
Fees payable to the Company's auditor for the audit of the Company's annual 0.2 0.2
accounts - BDO LLP
Fees payable to the Company's auditor for the audit of the Company's 0.4 0.4
subsidiaries - BDO LLP
Total non-audit fees 0.1 0.1
Total fees 0.7 0.7
Details of the Company's policy on the use of auditors for non-audit services
and how the auditor's independence and objectivity was safeguarded are set out
in the Audit Report.
4. Adjusting items
£m 2023 2022
Aborted acquisition costs (a) (0.6) -
Tuffnells provision (b) (0.4) -
Network and re-organisation credits (c) 0.5 0.2
Pension (d) - (1.8)
Transformation programme planning costs (e) - (0.9)
Administrative expenses (0.5) (2.5)
Net impairment loss on trade receivables (f) - (4.4)
Asset impairment reversal/(charge) (g) - 1.2
Total before tax and interest (0.5) (5.7)
Finance income - unwind of deferred consideration (h) - 2.5
Total before tax (0.5) (3.2)
Taxation - 0.9
Total after taxation (0.5) (2.3)
The Group incurred a total of £0.5m (2022: £3.2m) of adjusting items before
tax and £0.5m (2022: £2.3m) after tax respectively. All adjusting items
relate to continuing operations.
Adjusting items are defined in the accounting policies in Note 1 and in the
glossary. In the directors' opinion, the impact of removing these items from
the adjusted profit provide a relevant analysis of the trading results of the
Group because it is consistent with how the business performance is planned
by, and reported to the Board and Executive Team. However, these additional
measures are not intended to be a substitute for, or superior to, IFRS
measures. They comprise:
Administrative expenses £0.5m (2022: £2.5m)
(a) Aborted acquisition costs: £0.6m (2022: £nil)
During the period the Company incurred due diligence and legal costs
associated with an aborted acquisition. The cash impact of these items was an
outflow of £0.6m (2022: £nil).
(b) Tuffnells provision: £0.4m (2022: £nil)
As part of the sale of Tuffnells Parcels Express Limited (Tuffnells) in May
2020, a contractual agreement was put in place in respect of the future
treatment and responsibility of certain insurance claims brought or notified
to insurers. This agreement extinguished the Group's exposure to new accident
and insurance claims brought after the sale of Tuffnells but which related to
the Group's period of ownership of Tuffnells up to May 2020. However, as a
result of Tuffnells Parcel Express Limited (Tuffnells) falling into
administration in June 2023, the enforceability of, and subsequent
recoverability under, this contractual agreement has been negatively impacted
and the Company's insurers have looked to the Company to stand behind the
excess/deductible limit of such claims.
Costs of £0.4m were incurred to increase the existing insurance provisions,
which represents a best estimate of claims brought in relation to the period
which Tuffnells was part of the Group and that therefore are now probable to
be paid by the Group as a result. The cash impact of utilisations on existing
claims was a £0.2m outflow (2022: £0.5m, presented as discontinued
operations).
(c) Network and re-organisation: £0.5m credit (2022: £0.2m credit)
During the period, there has been a reversal of accrued amounts of £0.6m
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 2022. This is partially offset by £0.1m of
costs incurred in respect of simplifying the DMD group structure.
During the prior period, the Company restructured its support functions and
put in place a reorganisation provision. This arose in 2021 as a result of the
disposal of the Tuffnells business in May 2020, and subsequent lockdowns
associated with the COVID-19 pandemic. The Company has released £0.2m of this
provision in the prior period.
The cash impact of network and re-organisation was a £0.2m outflow (2022:
£0.1m).
(d) Pensions: £nil (2022: £1.8m)
In the prior period 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 GMP equalisation ruling in
November 2020. This amount has been accounted for as an adjusted item through
the income statement.
The winding up of the News Section was formally completed on 25 February 2022
through the purchase of insurance run-off cover, plus other associated
professional fees at a total cost of £0.6m. £0.3m of these costs were
funded from the total pre-tax pension surplus received of £14.8m, see Note 6
for further details. A refund of £0.1m due to the Company in relation to the
total amount previously held in escrow, has been credited against these costs.
In the prior period, the Company incurred £1.0m in pension administrative
expenses and other professional fees as a result of the winding up process.
These costs are reported as adjusting items on the basis that they are
significant in nature and quantum and are unrelated to the Group's ordinary
activities.
The total impact on net cash inflow from operating activities in the prior
period was a £7.9m inflow. An £8.1m inflow was received in the prior period
from the return of the pension surplus, less a net £0.2m outflow in respect
of the insurance run-off cover, see Note 24 for further details.
(e) Transformation programme planning costs: £nil (2022: £0.9m)
During the prior period the Company incurred professional fees in relation to
transformation programme planning projects. These projects were concluded in
the current period.
These costs are reported as adjusting items on the basis that they are
significant in nature and quantum and are considered to be non-underlying
items.
The total impact on net cash inflow from operating activities was £nil (2022:
outflow of £1.3m), see Note 24 for further details.
(f) Net impairment loss on trade receivables £nil (2022: loss of £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 latest issued notification from the
administrators on 8 June 2023 states that unsecured creditors can be expected
to receive between 20-50% of approved claims, previously 20-40%. Management
has maintained a best estimate that only 20% of the outstanding balance is
recoverable and that the level of provision in place is adequate. The Company
has therefore maintained a net impairment loss of £4.4m, representing 80% of
the total balance of £5.5m in the current financial period.
The Company continues to trade with McColl's as acquired by Wm Morrison
Supermarkets Ltd ("Morrisons") under a pre-packaged insolvency agreement with
the administrator. The Company's bad debt exposure relates solely to the
outstanding trade receivable balance as at the administration date.
This cost is reported as an adjusting item on the basis that they are
significant in nature and quantum, are considered non-underlying
items, outside the normal course of activity and aid comparability from one
period to the next. The bad debt from McColl's has limited predictive value
given the historic low level of bad debts incurred in the ordinary course of
business.
(g) Asset impairment: impairment reversal £nil (2022: £1.2m)
During the prior period, the Company reviewed the business plan for the Rascal
Joint Venture and it was determined that the potential challenges anticipated
to arise in the prior period, had not materialised, with the successful
renewal of contracts previously considered to be at risk. The Company has
therefore chosen to reverse the impairment previously booked by £1.2m. During
the current period, no further impairment charge or reversal has been
recognised.
The Group considers the impact of the above to be adjusting given the
impairment charges were significant in both quantum and nature to the results
of the Group.
(h) Finance Income - Deferred consideration £nil (2022:
£2.5m credit)
During the prior period, £2.5m has been recognised in finance income as the
unwind of discount on the original total deferred consideration due of
£15.0m. This is offset by the £1.0m agreed reduction in deferred
consideration due that was then received. The deferred consideration relates
to the disposal of Tuffnells that took place in May 2020 and for that reason
has been classified as adjusting because it does not relate to the Group's
ordinary activities.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive directors) was:
£m Note 2023 2022
Wages and salaries 39.2 39.2
Social security 3.7 3.4
Pension costs 6 1.2 1.1
Share-based payments expense 1.1 1.2
Total 45.2 44.9
Pension costs shown above exclude charges and credits for pension scheme
financing and actuarial gains and losses arising on the pension schemes.
(b) Employee numbers
The average total monthly number of employees relating to operations
(including directors) was:
Number 2023 2022
Operations 1,368 1,425
Support functions 140 149
Total 1,508 1,574
6. Retirement benefit obligation
Defined contribution schemes
The Group operates two defined contribution schemes. For the 52 weeks ended 26
August 2023, contributions from the respective employing company for
continuing operations totalled £1.2m (2022: £1.1m) which is included in the
Income Statement.
A defined contribution plan is a pension plan under which the Group pays
contributions to an independently administered fund - such contributions are
based upon a fixed percentage of employees' pay. The Group has no legal or
constructive obligations to pay further contributions to the fund once the
contributions have been paid. Members' benefits are determined by the amount
of contributions paid by the Company and the member, together with investment
returns earned on the contributions arising from the performance of each
individual's chosen investments and the type of pension the member chooses to
buy at retirement. As a result, actuarial risk (that benefits will be lower
than expected) and investment risk (that assets invested in will not perform
in line with expectations) fall on the employee.
Defined benefit pension schemes
During the prior period, 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 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 Pension Trust.
The return of the 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 in the prior period 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 (1.3) - - (1.3)
Other administration expenses (0.3) - - (0.3)
Total amount recognised in income statement (1.6) - - (1.6)
Change in surplus not previously recognised (0.1) 0.1 14.8 14.8
Tax relating to the repayment of pension surpluses - - (5.1) (5.1)
Amount recognised in other comprehensive income (0.1) 0.1 9.7 9.7
Tax paid (5.1) - 5.1 -
Refund of surplus to Company (8.1) - - (8.1)
Amounts included in cash flow statement (13.2) - 5.1 (8.1)
At 27 August 2022 - - - -
At 26 August 2023 - - - -
On winding up of the News Section of the Pension Trust, the Company has agreed
run-off indemnity coverage for any member claims that are uninsured
liabilities capped at £6.5m over the following 60 years.
7. Finance costs
£m Note 2023 2022
Interest on bank overdrafts and loans (3.9) (3.5)
Amortisation of loan arrangement fees (1.1) (1.7)
Interest payable on leases (1.4) (1.6)
Total interest cost on financial liabilities at amortised cost (6.4) (6.8)
Unwinding of discount on provisions - trading 21 (0.1) (0.2)
Finance costs (6.5) (7.0)
Interest income on loans and deferred consideration 4 - 2.5
Net Finance costs (6.5) (4.5)
8. Income tax expense
£m 2023 2022
Adjusted Adjusting items Total Adjusted Adjusting items Total
Current tax 6.5 - 6.5 5.7 (0.9) 4.8
Adjustment in respect of prior year 0.2 - 0.2 (0.8) - (0.8)
Total current tax charge/(credit) 6.7 - 6.7 4.9 (0.9) 4.0
Deferred tax - current year 0.5 - 0.5 (0.3) - (0.3)
Deferred tax - prior year (0.4) - (0.4) 0.6 - 0.6
Deferred tax - impact of rate change (0.1) - (0.1) 0.2 - 0.2
Total tax charge/(credit) 6.7 - 6.7 5.4 (0.9) 4.5
Effective tax rate 20.7% 21.1% 17.4% 16.1%
The effective adjusted income tax rate in the year was 20.7% (2022: 17.4%).
After the impact of Adjusting items of £nil (2022: £0.9m), the effective
statutory income tax rate was 21.1% (2022: 16.1%).
Corporation tax is calculated at the main rates of UK corporation tax, those
being a blended rate of 21.5% (2022: 19.0%). The UK Finance Act 2021 increased
the corporate tax rate to 25% effective from 1 April 2023 and in the current
period this results in a blended rate. The Group has assessed its deferred tax
positions using the higher enacted rate of 25%. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
The tax charge for the year can be reconciled to the profit in the income
statement as follows:
£m 2023 2022
Profit before tax 31.8 27.9
Tax on profit at the standard rate of UK corporation tax 21.5% (2022: 19.0%) 6.8 5.3
Income not subject to tax 0.1 (1.0)
Expenses not deductible for tax purposes 0.1 0.2
Adjustment in respect of prior years (0.2) (0.2)
Impact of change in UK tax rate (0.1) 0.2
Tax charge 6.7 4.5
Income not subject to tax in the prior period comprised mainly of the tax
effect of the Tuffnells discount unwind.
Amounts recognised directly in equity
Aggregate current tax and deferred tax arising in the reporting period and not
recognised in net profit or loss or other comprehensive income but directly
credited/(charged) to equity was as follows:
£m 2023 2022
Current tax: share-based payments - (0.1)
Deferred tax assets: share-based payments 0.6 (0.2)
9. Dividends
Amounts paid and proposed as distributions to equity shareholders in the
years:
2023 2022 2023 2022
Paid and proposed dividends for the year Per share Per share £m £m
Interim dividend - paid 1.40p 1.40p 3.3 3.3
Final dividend - proposed 2.75p 2.75p 6.7 6.7
4.15p 4.15p 10.0 10.0
Recognised dividends for the year
Final dividend - prior year 2.75p 1.15p 6.5 2.8
Interim dividend - current year 1.40p 1.40p 3.3 3.3
4.15p 2.55p 9.8 6.1
A final 2.75p dividend per share is proposed for the 52 weeks ended 26 August
2023 (2022: 2.75p), which is expected to be paid on 8 February 2024 to all
shareholders who are on the register of members at close of business on 12
January 2024. The ex-dividend date will be 11 January 2024.
10. Earnings per share
2023 2022
£m Million Pence £m Million Pence
Earnings Weighted average number of shares per share Earnings Weighted average number of shares per share
Weighted average number of shares in issue 247.7 247.7
Shares held by the ESOP (weighted) (10.4) (9.2)
Basic earnings per share (EPS)
Adjusted earnings attributable to ordinary shareholders 25.6 237.3 10.8 25.7 238.5 10.8
Adjusting items (0.5) - - (2.3) - -
Earnings attributable to ordinary shareholders 25.1 237.3 10.6 23.4 238.5 9.8
Diluted earnings per share (EPS)
Effect of dilutive share options 12.6 13.5
Diluted adjusted EPS 25.6 249.9 10.2 25.7 252.0 10.2
Diluted EPS 25.1 249.9 10.0 23.4 252.0 9.3
Dilutive shares increase the basic number of shares at 26 August 2023 by 12.6m
to 249.9m (27 August 2022: 252m).
The calculation of diluted EPS reflects the potential dilutive effect of
employee incentive schemes of 12.6m dilutive shares (27 August 2022: 13.5m).
All earnings relate to continuing operations.
11. Intangible assets
Goodwill Acquired Intangibles Internally generated development costs Computer software costs Total
£m Customer relationships Trade name
Cost:
At 27 August 2022 5.7 2.4 0.2 3.2 7.4 18.9
Additions - - - 0.5 0.3 0.8
Disposal - - - (1.9) (4.9) (6.8)
At 26 August 2023 5.7 2.4 0.2 1.8 2.8 12.9
Accumulated amortisation and impairment:
At 27 August 2022 (5.7) (2.4) (0.2) (2.1) (6.8) (17.2)
Amortisation charge - - - (0.2) (0.4) (0.6)
Disposals - - - 1.9 4.9 6.8
At 26 August 2023 (5.7) (2.4) (0.2) (0.4) (2.3) (11.0)
Net book value at 26 August 2023 - - - 1.4 0.5 1.9
Cost:
At 29 August 2021 5.7 2.4 0.2 2.7 7.2 18.2
Additions - - - 0.5 0.2 0.7
At 27 August 2022 5.7 2.4 0.2 3.2 7.4 18.9
Accumulated amortisation and impairment:
At 29 August 2021 (5.7) (2.4) (0.2) (1.8) (5.8) (15.9)
Amortisation charge - - - (0.3) (1.0) (1.3)
At 27 August 2022 (5.7) (2.4) (0.2) (2.1) (6.8) (17.2)
Net book value at 27 August 2022 - - - 1.1 0.6 1.7
Impairment of goodwill
Goodwill is not amortised but has been reviewed annually for impairment. As a
result of these reviews goodwill is fully impaired at the end of 2023 and
2022.
12. Property, plant and equipment
£m Land and Buildings
Long term leasehold improvements Short term leasehold Fixtures and fittings Equipment and vehicles Total
improvements
Cost:
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
Additions - 1.0 0.9 0.5 2.4
Disposals - (2.3) (0.4) (6.5) (9.2)
At 26 August 2023 0.2 9.2 3.5 17.0 29.9
Accumulated depreciation:
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
Depreciation charge - (0.4) (0.5) (1.3) (2.2)
Disposals - 2.3 0.6 6.3 9.2
At 26 August 2023 (0.2) (6.8) (1.7) (12.4) (21.1)
Net book value at 26 August 2023 - 2.4 1.6 4.8 8.8
Cost:
At 29 August 2021 0.2 10.2 2.9 22.1 35.4
Additions - 0.3 0.1 1.2 1.6
Disposals - - - (0.3) (0.3)
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
Accumulated depreciation:
At 29 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
Depreciation charge - (0.5) (0.2) (1.6) (2.3)
Disposals - - - 0.2 0.2
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
Net book value at 27 August 2022 - 1.8 1.2 5.6 8.6
13. Interests in joint ventures
£m 2023 2022
At 28/27 August 4.2 2.9
Additions 0.3 -
Share of profit 0.1 0.3
Impairment reversal - 1.2
Dividends received (0.2) (0.2)
At 26/27 August 4.4 4.2
The Joint ventures listed below have share capital consisting solely of
ordinary shares, which are held directly by the Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group % Registered address Measurement method
(number)
Rascal Solutions Limited Ordinary A Shares 50% Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF Equity method
05191277
Bluebox Systems Group Limited SC544863 Ordinary A Shares 36.1% Estantia House, Pitreavie Drive, Pitreavie Business Park, Dunfermline, Fife Equity method
KY11 8US
Fresh On The Go Limited Ordinary Shares 30% 61 Bridge Street, Kington, HR5 3DJ Equity method
08775703
Lucid Digital Magazines Limited t/a LoveMedia Ordinary Shares 50% Rowan House Cherry Orchard North, Kembrey Park, Swindon, England, SN2 8UH Equity method
12738320
The Group owns 50% of the ordinary shares of Rascal Solutions Limited, a
company incorporated in England, which in turn owns 100% of the ordinary
shares of Open-Projects Limited. The latest statutory accounts of Rascal
Solutions Limited were drawn up to 31 August 2022. Rascal Solutions Limited
provides retail support services and is a strategic partnership for the Group
to provide additional services to its existing customers.
Bluebox Systems Group Limited, is the holding company of Bluebox Aviation
Systems Ltd, the principal activity of which is the sale of innovative
in-flight entertainment systems. This business is a strategic partnership with
DMD which also provides inflight media to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee vending and other
related products.
During the period, the Group purchased 50% of the ordinary shares in Lucid
Digital Magazines Limited t/a LoveMedia, a company incorporated in England.
LoveMedia provides single use downloads of newspapers and magazines to
consumers.
The Group has also provided a working capital loan of £0.3m to LoveMedia,
which is presented within other debtors. There are no other commitments
relating to its joint ventures.
All joint ventures are private companies and there is no quoted market price
available for their shares.
Dividends of £0.2m (2022: £0.2m) were received in the 52 weeks to 26 August
2023 from joint ventures.
Rascal Solutions Limited investment
During the period Rascal Solutions Limited (Rascal) recorded a profit of
£0.5m (2022: £0.6m). The Group holds £4.2m on the balance sheet comprising
a £1.8m (2022: £1.8m) share of net assets and £2.4m (2022: £2.4m) of
Goodwill. Goodwill represents the difference between the fair value of the
share of the net assets acquired and the amount paid, and forms part of the
investment in the joint venture.
During the prior period, 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 reversed the
impairment previously booked by £1.2m.
The current period impairment review was performed, resulting in a value in
use of £4.3m being calculated based on future cash flows of the Rascal
business. These cash flows were discounted at a post-tax discount rate of
13.6% and a pre-tax discount rate of 18.1% (2022: 13.0% post-tax discount rate
and pre-tax discount rate of 15.2%) and a terminal growth rate applied of 0%
(2022: 0%). As a result, there was no further adjustment (2022: reversal of
£1.2m impairment loss) to the carrying value of the investment in the Rascal
Joint Venture in the current period.
Sensitivities to assumptions
If the post-tax discount rate had been increased by 1.0%, there would be an
impairment of £0.2m, and if the post-tax discount rate had been reduced by
1.0%, there would be headroom of £0.4m.
14. Inventories
£m 2023 2022
Goods held for resale 17.5 15.5
Raw materials and consumables 0.2 0.1
Inventories 17.7 15.6
15. Trade and other receivables
£m 2023 2022
Trade receivables 73.5 69.0
Specific provision for doubtful debts((1)) (4.4) (4.4)
Provision for expected credit losses (0.1) (0.1)
69.0 64.5
Other debtors 29.4 28.6
Prepayments 1.1 1.0
Accrued income 1.6 1.6
Trade and other receivables 101.1 95.7
(1) Net impairment loss on trade receivables - McColl's
Retail Group
During the prior period, the Company received notice that McColl's Retail
Group had gone into administration. A statement of claim was filed with the
Administrators for an amount of £5.5m. The latest notification issued from
the administrators on 8 June 2023 states that unsecured creditors can be
expected to receive between 20-50% of approved claims, previously 20-40%.
Management has maintained a best estimate that only 20% of the outstanding
balance is recoverable. The Company has therefore maintained a net impairment
loss of £4.4m (2022: £4.4m), representing 80% of the total balance of £5.5m
in the current and prior period. For more information see Note 4.
The net impairment loss of £4.4m (2022: £4.4m) has been allocated to the
91-120 days overdue ageing bucket (2022: £1.3m to 61-90 days, £3.0m to
90-120 days), matching the ageing profile of the £5.5m total receivable due.
If the Company had considered 50% (2022: 40%) of the total balance of £5.5m
to be recoverable in line with the upper range of the administrator's
estimate, the provision recognised would have been £2.8m (2022: £3.3m),
allocated to the 91-120 days overdue ageing bucket (2022: £1.0m to 61-90
days, £2.3m to 91-120 days).
Trade receivables
The average credit period taken on sale is 27 days (2022: 23 days). Trade
receivables are generally non-interest bearing.
The following table provides information about the Group's exposure to credit
risk and ECLs against customer balances as at 26 August 2023 under IFRS 9:
£m 2023 2022
Gross Specific provision for doubtful debts Loss Net Gross Gross Loss allowance Net
carrying allowance carrying carrying carrying carrying
amount amount amount amount amount
Current (not overdue) 67.8 - (0.1) 67.7 63.0 - (0.1) 62.9
30-60 days overdue - - - - 0.2 - - 0.2
61-90 days overdue - - - - 2.0 (1.4) - 0.6
91-120 days overdue 0.2 - - 0.2 3.8 (3.0) - 0.8
Over 120 days overdue 5.5 (4.4) - 1.1 - - - -
73.5 (4.4) (0.1) 69.0 69.0 (4.4) (0.1) 64.5
The following table provides information about the Group's loss rates applied
against customer balances as at 26 August 2023 under IFRS 9:
% 2023 2022
Current (not overdue) <0.1 0.1
30-60 days overdue <0.1 -
61-90 days overdue <0.1 1.2
91-120 days overdue <0.1 0.1
Over 120 days overdue 80.0 0.1
Of the trade receivables balance at the end of the year:
· Three customers (2022: two) had individual balances that represented
more than 10% of the total trade receivables balance. The total of these was
£30.3m (2022: £16.9m); and
· A further two customers (2022: three) had individual balances that
represented more than 5% of the total trade receivables balance. The total of
these was £9.0m (2022: £15.6m).
Movement in the allowance for doubtful debts:
£m 2023 2022
At 28/29 August 4.5 0.1
Impairment losses recognised 0.1 4.4
Amounts written off as uncollectible (0.1) -
At 26/27 August 4.5 4.5
The directors consider that the carrying amount of trade and other receivables
approximates their fair value which is considered to be a level 2 methodology
of valuing them. The inputs used to measure fair value are categorised into
different levels of the fair value hierarchy (levels 1 to 3). The fair value
measurement is categorised in its entirety in the level of the lowest level
input that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
The Group performed sensitivity analysis on the expected credit loss
(excluding losses in respect of McColl's Retail Group) and should the default
rate change from expected.
· An increase in default rate by 2% would increase the expected credit
loss by £1.3m.
· A decrease in default rate by 2% would result in no credit losses.
· An increase in default rate by 5% would increase the expected credit
loss by £3.3m.
· A decrease in default rate would result in no credit losses.
Other debtors and prepayments
The largest items included within this balance are returns reserve asset of
£16.8m (2022: £18.3m) (refer to Note 1, section 7) and £9.8m (2022: £7.9m)
of publisher debtors.
16. Trade and other payables
£m 2023 2022
Trade payables (101.0) (98.6)
Other creditors (34.0) (35.1)
Accruals (6.4) (6.5)
Deferred income (0.1) (0.1)
(141.5) (140.3)
Included within other creditors is a balance of £19.7m (2022: £21.6m)
relating to the returns reserve accrual. (Refer to Note 1, section 7).
Trade and other payables principally comprise amounts outstanding for trade
purchases and on-going costs. The average credit period taken for trade
purchases is 32 days (2022: 31 days). No interest is charged on trade
payables. The directors consider that the carrying amount of trade and other
payables approximates to their fair value using a level 2 valuation.
17. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
£m Sterling Euro US Dollar Other Total 2023 2022
Cash and bank deposits 36.2 0.7 0.3 0.1 37.3 35.3
Net Cash and cash equivalents 36.2 0.7 0.3 0.1 37.3 35.3
Term loan - disclosed within current liabilities (10.0) - - - (10.0) (8.0)
Term loan - disclosed within non-current liabilities (31.5) - - - (31.5) (41.5)
Unamortised arrangement fees - disclosed within non-current liabilities 1.3 - - - 1.3 2.4
Total borrowings (40.2) - - - (40.2) (47.1)
Net borrowings (4.0) 0.7 0.3 0.1 (2.9) (11.8)
Total borrowings
Amount due for settlement within 12 months (10.0) - - - (10.0) (8.0)
Amount due for settlement after 12 months (30.2) - - - (30.2) (39.1)
(40.2) - - - (40.2) (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 a final maturity date of 31 August 2025.
The facility comprised an initial £60 million amortising term loan ('Facility
A') and a £30 million revolving credit facility ('RCF'). The agreement is
with a syndicate of banks comprising lenders HSBC, Barclays, Santander and
Clydesdale Bank.
The terms of the facility agreement include; agreed repayments against
Facility A arising from funds received in relation to deferred consideration
received following the sale of Tuffnells; repayments of £8m in FY2023 and
then £10m in FY2024 and FY2025 respectively for the repayment of Facility A
and a final bullet payment; and capped dividend payments of up to £10m in
respect of any financial year.
At the year end, the Term Loan had reduced to £41.5m. The RCF was £22.5m at
year end and will reduce by £2.5m every 6 months from February 2023 onwards.
As part of the terms of the financing, the Company and its principal trading
subsidiaries have agreed to provide security over their assets to the lenders.
The current rate on the facility is 4% per annum over SONIA (in respect of
Facility A and the RCF).
At 26 August 2023, the Company had £22.5m (2022: £30.0m) of fully undrawn
committed borrowing and cash facilities in respect of which all conditions
precedent had been met. This is partially reduced by letters of credit of
£1.5m (2022: £2.4m), further details are included in Note 22.
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated statement of
cash flows as cash flows from financing activities.
£m Note 28 August 2022 Financing cash flows New leases Disposals Other changes 26 August
2023
Term Loan 18 47.1 (11.9) - - 5.0 40.2
Leases 27.6 (7.5) 1.7 - 1.4 23.2
Total 74.7 (19.4) 1.7 - 6.4 63.4
£m Note 29 August Financing cash flows New leases Disposals Other changes 27 August
2021 2022
Term Loan 18 71.3 (29.4) - - 5.2 47.1
Overdrafts 18 0.4 (0.4) - - - -
Leases 29.2 (8.0) 5.4 (0.6) 1.6 27.6
Total 100.9 (37.8) 5.4 (0.6) 6.8 74.7
Other changes include interest accruals and the amortisation of loan fees.
Analysis of net debt
£m Note 2023 2022
Cash and cash equivalents 18 37.3 35.3
Current borrowings 18 (10.0) (8.0)
Non-current borrowings 18 (30.2) (39.1)
Net borrowings (2.9) (11.8)
Lease liabilities 20 (23.2) (27.6)
Net debt (26.1) (39.4)
18. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group's
funding requirements and financial risks in line with the Board approved
treasury policies and procedures and their delegated authorities. Treasury's
role is to ensure that appropriate financing is available for running the
businesses of the Group on a day-to-day basis, whilst minimising interest
cost. No transactions of a speculative nature are undertaken. Dealings are
restricted to those banks with suitable credit ratings and counterparty risk
and credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The
capital structure of the Group consists of debt, which includes the
borrowings, cash and cash equivalents as disclosed in Note 17 and equity
attributable to equity holders of the parent, comprising issued capital,
reserves and retained earnings as disclosed in the Group Statement of Changes
in Equity.
The only externally imposed capital requirements for the Group are net debt to
EBITDA (ex. IFRS 16), fixed charge cover and interest cover under the terms of
the banking facilities. The Group has fully complied during both the current
year and the prior year. To maintain or adjust its capital structure, the
Group may adjust the dividend payment to shareholders and/or issue new shares.
There is a cap on dividends of £10.0m under the banking facility, this is
also subject to all the covenants.
The Board regularly reviews the capital structure. As part of this review, the
Board considers the cost of capital and the risks associated with each class
of capital. We expect free cash from operations to be sufficient to reduce net
debt while also maintaining an attractive total shareholder return. The Group
is targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by 2023,
with repayment achieved through surplus free cash from operations. The Group's
facilities include a 'frozen GAAP' clause in relation to IAS 17 and the net
debt/EBITDA is stated on this basis.
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking
facilities and by monitoring forecast and actual cash flows. The facilities
that the Group has at its disposal to further reduced liquidity risk are
described below.
As at 26 August 2023, the Group had £64.0m committed bank facilities in place
(2022: £79.5m). Bank facilities comprised:
· £41.5m amortising term loan (Facility A); and
· £22.5m revolving credit facility (RCF)
which together expire on 31 August 2025.
The facility described above is subject to the following covenants which are
subject to a 'frozen GAAP' clause:
· Leverage cover - the net debt: adjusted EBITDA ratio which must
remain below 1.75x, reducing to 1.5x at 24 February 2024. At 26 August 2023
the ratio was 0.1x (2022: 0.3x);
· Interest cover - the consolidated net interest: adjusted EBITDA ratio
which must remain above 4.0x. As at 26 August 2023 the ratio was 10.5x (2022:
12.0x);
· Fixed charge cover - the ratio of adjusted EBITDA (less rental
charges) to consolidated fixed charges is not less than 2.0x. As at 26 August
2023 the ratio was 4.0x (2022: 4.3x); and
· Guarantor cover - The annual turnover, gross assets and pre-tax
profits of the guarantors under the banking facilities contribute, at any
time, 90% or more of the annual consolidated turnover, gross assets and
pre-tax profits of the Group for each of its financial years. The guarantors,
which are all 100% owned or wholly owned subsidiaries of the Smiths News plc,
comprise Smiths News plc, Smiths News Holdings Limited, and Smiths News
Trading Limited.
At 26 August 2023, the Group had available £21.0m (2022: £27.7m) of undrawn
committed borrowing facilities comprising the £22.5m (2022: £30.0m) RCF
above less letters of credit of £1.5m (2022: £2.4m) further details are
included in Note 22. There were no breaches of loan agreements during either
the current or prior years.
As the Group is cash generative its liquidity risk is considered low. The
Group's cash generation allows it to meet all loan commitments as they fall
due as well as sustain a negative working capital position.
The Group invests significant resources in the forecasting and management of
its cash flows. This is critical given a routine cash cycle at Smiths News
that results in significant predictable swings within each month of around
£40.0m, the Group's average gross borrowings for the past year was £45.4m
(2022: £62.3m). The Group has available funding via the undrawn RCF.
The following is an analysis of the undiscounted contractual cash flows
payable under non derivative financial liabilities. The undiscounted cash
flows will differ from both the carrying value and fair value. Floating rate
interest is estimated using the prevailing rate at the balance sheet date.
£m Due within 1 Year Due between 1 and 2 years Due between 2 and 3 years Greater than 3 years
At 26 August 2023
Bank and other borrowings (10.0) (10.0) (21.5) -
Trade and other payables (141.5) - - -
Leases (6.1) (5.1) (4.4) (12.0)
Total (157.6) (15.1) (25.9) (12.0)
At 27 August 2022
Bank and other borrowings (8.0) (10.0) (10.0) (21.5)
Trade and other payables (140.3) - - -
Leases (7.3) (5.8) (4.8) (14.5)
Total (155.6) (15.8) (14.8) (36.0)
Counterparty risk
Dealings are restricted to those banks with suitable credit ratings and
counterparty risk and credit exposure is monitored.
Foreign currency risk
· The majority of the Group's transactions are carried out in the
functional currencies of its operations, and so transactional exposure is
limited.
· The majority of the Group's net liabilities are held in Sterling,
with only £0.6m (2022: £0.6m) of net assets held in overseas currencies.
Translation exposure arises on the re-translation of overseas subsidiaries
profits and net assets into sterling for financial reporting purposes and is
not seen as significant.
· Note 17 denotes borrowings by currency.
· There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the Group's debt
exposure, consideration of the macroeconomic environment and sensitivity to
potential interest rate rises. The Group avoids the use of derivatives or
other financial instruments in circumstances when the outcome would
effectively be largely dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the balance sheet
date were outstanding for the whole year, if interest rates had been 0.5%
higher/lower and all other variables were held constant, the Group's profit
and equity for the 52 weeks ending 26 August 2023 would decrease/increase by
£0.2m (2022: £0.2m).
Credit risk
The Group considers its exposure to credit risk at 26 August 2023 to be as
follows:
£m 2023 2022
Bank deposits 37.3 35.3
Trade and other receivables 98.4 93.1
135.7 128.4
Further detail on the Group's policy relating to trade receivables and other
receivables can be found in Note 15.
19. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to leases:
£m Equipment & vehicles Land & buildings Total
Cost:
At 28 August 2022 1.7 42.1 43.8
Additions 0.3 1.4 1.7
Disposals - (5.1) (5.1)
At 26 August 2023 2.0 38.4 40.4
Accumulated depreciation:
At 28 August 2022 (1.0) (16.5) (17.5)
Depreciation charge (0.4) (6.0) (6.4)
Disposals - 5.3 5.3
At 26 August 2023 (1.4) (17.2) (18.6)
Net book value at 26 August 2023 0.6 21.2 21.8
Cost:
At 29 August 2021 1.6 38.6 40.2
Additions 0.1 5.3 5.4
Disposals - (1.8) (1.8)
At 27 August 2022 1.7 42.1 43.8
Accumulated depreciation:
At 29 August 2021 (0.6) (11.2) (11.8)
Depreciation charge (0.4) (6.5) (6.9)
Disposals - 1.2 1.2
At 27 August 2022 (1.0) (16.5) (17.5)
Net book value at 27 August 2022 0.7 25.6 26.3
Lease commitments
The company have the following lease commitments:
2023 2022
Due within one year 4.9 5.9
Due in more than one year, but no more than five years 13.3 15.2
Due in more than five years 5.0 6.5
Total lease commitments 23.2 27.6
Amounts recognised in the income statement
£m 2023 2022
Interest expense (included in finance cost) 1.4 1.6
Expense relating to low value leases (included in cost of sales and 0.4 0.3
administrative expenses)
Property rental income (0.4) (0.4)
Total cash outflow from leases 6.5 6.6
£m 2023 2022
Lease Liabilities
Current (4.9) (5.9)
Non-current (18.3) (21.7)
Total (23.2) (27.6)
20. Deferred tax
Deferred tax assets are attributable to the following:
£m Fixed Assets Share based payments Other temporary differences Total
At 28 August 2022 0.6 0.5 - 1.1
(Charge)/credit to income (0.2) (0.1) 0.3 -
Charge to equity - 0.6 - 0.6
At 26 August 2023 0.4 1.0 0.3 1.7
Deferred tax assets 0.4 1.0 0.3 1.7
At 29 August 2021 1.4 0.4 - 1.8
(Charge)/credit to income (0.8) 0.3 - (0.5)
Charge to equity - (0.2) - (0.2)
At 27 August 2022 0.6 0.5 - 1.1
Deferred tax assets 0.6 0.5 - 1.1
The deferred tax assets have been deemed recoverable as the Group forecasts
that it will continue to make profits against which the assets can be utilised
for tax purposes. There were no deferred tax liabilities recognised in either
reporting period.
The Group has capital losses carried forward of £20.2m (2022: £20.2m).
Deferred tax assets of £5.1m (2022: £5.1m) have not been recognised in
respect of the capital losses carried forward due to the uncertainty of their
utilisation.
The UK Finance Act 2021 has been substantively enacted, increasing the
corporate tax rate to 25% effective from 1 April 2023.
The deferred tax asset at the period end has been calculated based on the rate
of 25% substantively enacted at the balance sheet date on the basis that the
temporary differences are expected to unwind when that rate applies.
21. Provisions
£m Provision for onerous contracts and other provisions Re-organisation provisions Insurance and legal provisions Property provisions Total
At 28 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
Charged to income statement - (0.7) (0.4) (0.4) (1.5)
Credited to income statement 0.4 0.3 - - 0.7
Utilised in period 0.1 0.3 0.2 - 0.6
Unwinding of discount utilisation - - - (0.1) (0.1)
At 26 August 2023 - (1.0) (0.8) (4.9) (6.7)
At 29 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
Charged to income statement - (0.1) - (1.0) (1.1)
Credited to income statement 0.2 - 0.2 - 0.4
Utilised in period - - 0.5 0.6 1.1
Unwinding of discount utilisation - - - (0.2) (0.2)
At 27 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
£m 2023 2022
Included within current liabilities (2.5) (3.0)
Included within non-current liabilities (4.2) (3.4)
Total (6.7) (6.4)
Included within non-current liabilities is £4.2m (2022: £3.4m) relating to
real estate property provisions.
Re-organisation provisions of £1.0m (2022: £0.9m) relates to the restructure
of the DMD business, the Smiths News network and the Group's support
functions, with new programmes announced during the period.
Insurance and 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 £0.8m (2022: £0.6m) relating to
claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of 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 2034, however, a significant portion of the liability
falls within ten years.
The Group has performed sensitivity analysis on property provision using
possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision would change
by +/- £0.1m (2022: +/- £0.1m).
If the repair cost per square foot changes by +/-£1.00p, the property
provision would change by +/-£0.4m (2022: +/- £0.3m).
22. Contingent liabilities and capital commitments
£m 2023 2022
Bank and other guarantees 1.5 2.4
As reported in Note 4(b), following the administration of Tuffnells Parcels
Express Limited (Tuffnells) in June 2023 a provision of £0.4m has been made
in light of the probable outcome of certain insurance claims reverting to the
Group which were previously being handled by Tuffnells. The Board has
considered the administration and other associated processes in respect of
Tuffnells and is not currently aware of any further provision which may be
required.
Other potential liabilities that could crystallise are in respect of previous
assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH
Smith PLC in 2006, any such contingent liability in respect of assignment
prior to demerger, which becomes an actual liability, will be apportioned
between Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that the
actual liability of Smiths News plc in any 12-month period does not exceed
£5m). The Company's share of these leases has an estimated future cumulative
gross rental commitment at 26 August 2023 of £0.5m (2022: £0.5m).
Contracts placed for future capital expenditure approved by the directors but
not provided for amount to: £nil (2022: £nil).
As at 26 August 2023, the Group had approved letters of credit of £1.5m
(2022: £2.4m) to the insurers of the Group for the motor insurance and
employer liability insurance policies. The letters of credit cover the
employer deductible element of the insurance policy for insurance claims.
On winding up of the News Section of the WH Smith Pension Trust defined
benefit pension scheme in December 2021, the Company has agreed run-off
indemnity coverage for any member claims that are uninsured liabilities capped
at £6.5m over the following 60 years. The Group is not aware of any claims
brought during either the current or prior reporting period.
23. Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants for the
following future minimum lease payments:
£m 2023 2022
Within one year 0.2 0.2
In the second to fifth years inclusive 0.6 0.3
0.8 0.5
24. Net cash inflow from operating activities
£m Note 2023
2022
Operating profit 3 38.3 32.4
Impairment reversal of investment in joint venture 13 - (1.2)
Share of profits of joint ventures 13 (0.1) (0.3)
Adjustment for pension funding 6 - 8.1
Depreciation of property, plant and equipment 12 2.2 2.3
Depreciation of right of use assets 19 6.4 6.9
Amortisation of intangible assets 11 0.6 1.3
Share based payments 1.1 1.2
Increase in inventories (2.1) (2.4)
(Increase)/decrease in receivables (5.5) 1.7
Increase in payables 1.9 3.9
Increase/(decrease) in provisions 0.2 (0.4)
Non-cash pension costs - 1.6
Income tax paid (6.6) (5.3)
Net cash inflow from operating activities 36.4 49.8
Net cash flow from operating activities is stated after the following 4
adjusting items:
Continuing operations
Aborted acquisition costs (0.6) -
Tuffnells provision (0.2) -
Network and re-organisation and transformation programme planning costs (0.2) (1.3)
Pension - (0.2)
Return of pension surplus - 8.1
(1.0) 6.6
Discontinued operations((1))
Insurance cost - (0.5)
- (0.5)
Total adjusting items cash flow (1.0) 6.1
(1) On 2 May 2020, the Company completed the sale of Tuffnells and assumed
liability to settle certain pre-disposal insurance and legal claims relating
to employer's liability, public liability, motor accident claims and legal
claims, held as provisions. During the current period, cash flows of £0.2m
are presented within continuing operations.
25. Share Capital
(a) Share capital
£m 2023 2022
Issued, authorised and fully paid:
247.7m ordinary shares of 5p each (2022: 247.7m) 12.4 12.4
(b) Movement in share capital
Number (m) Ordinary shares of 5p each
At 27 August 2022 and at 26 August 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.
No shares were issued during the 52 weeks to 26 August 2023 or the period to
27 August 2022.
(c) Share premium
£m 2023 2022
At 27 August 2022 and at 26 August 2023 60.5 60.5
26. Reserves
(a) Demerger reserve
£m 2023 2022
At 27 August 2022 and at 26 August 2023 (280.1) (280.1)
This relates to reserves created following the capital re-organisation
undertaken as part of the demerger of WH Smith PLC in 2006. The balance
represented the difference between the share capital and reserves of the Group
restated on a pro-forma basis as at 31 August 2004 and the previously reported
share capital.
(b) Own shares reserve
£m 2023 2022
Balance at 28/29 August (4.6) (3.9)
Acquired in the period (1.7) (2.2)
Disposed of on exercise of options 1.9 1.5
Balance at 26/27 August (4.4) (4.6)
The reserve represents the cost of shares in Smiths News plc purchased in the
market and held by the Smiths News Employee Benefit Trust to satisfy awards
and options granted under the Group's Executive Share Schemes (see Note 28).
The number of ordinary shares held by the Trust as at 26 August 2023 was
10,613,896 (2022: 12,084,239). In accordance with IAS 32, these shares are
deducted from shareholders' funds. Under the terms of the Trust, the Trustee
has waived all dividends on the shares it holds.
(c) Translation reserve
£m 2023 2022
At 27 August 2022 and at 26 August 2023 0.4 0.4
27. Retained Earnings
£m
Balance at 28 August 2021 153.0
Amounts recognised in total comprehensive expense 33.1
Dividends paid (6.1)
Disposed of on exercise of options (1.5)
Equity-settled share-based payments, net of tax 1.2
Current tax recognised in equity (0.1)
Deferred tax recognised in equity (0.2)
Balance at 27 August 2022 179.4
Amounts recognised in total comprehensive expense 25.1
Dividends paid (9.8)
Disposed of on exercise of options (1.9)
Equity-settled share-based payments, net of tax 1.5
Deferred tax recognised in equity 0.6
Balance at 26 August 2023 194.9
28. Share-based payments
The Group recognised a total charge of £1.5m (2022: £1.2m) related to
equity-settled share-based payment transactions. The average share price
throughout the year was 44.6p (2022: 35.6p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Group Sharesave Scheme, the Board may grant options to
purchase ordinary shares in the Company to eligible employees who enter into
an HM Revenue & Customs approved Save-As-You-Earn ('SAYE') savings
contract for a term of three years. Options are granted at up to a 20%
discount to the market price of the shares on the day preceding the date of
offer and are normally exercisable for a period of six months after completion
of the SAYE contract.
Executive Share Option Scheme (ESOS) Under the terms of the Group Executive Share Option Scheme, the Board may
grant options to purchase ordinary shares in the Company to executives up to
an annual limit of 200% of base salary. The exercise of options is conditional
on the achievement of adjusted profit after a three-year period, which is
determined by the Remuneration Committee at the time of grant. Provided that
the target is met, options are normally exercisable until the day preceding
the 10(th) anniversary of the date of grant.
LTIP Under the terms of the Group LTIP, executive directors and key senior
executives may be awarded each year conditional entitlements to ordinary
shares in the Company (which may be in the form of nil cost options or
conditional awards) or, in order to retain flexibility and at the Company's
discretion, a cash sum linked to the value of a notional award of shares up to
a value of 200% of base salary. The vesting of awards is subject to the
satisfaction of a three-year performance condition, which is determined by the
Remuneration Committee at the time of grant. Subject to the satisfaction of
the performance condition, awards are normally exercisable until the 10(th)
anniversary of the date of grant.
Deferred Bonus Plan (DBP) Under the terms of the Group Deferred Bonus Plan, each year executive
directors and key senior executives may be granted share awards (in the form
of nil cost options) dependent on the achievement of the Annual Bonus Plan
performance targets. Awards are immediately exercisable but a two-year
hold-back period applies, during which the share certificate for such shares
is held by the Company. Separately, key senior executives may also be granted
share awards (in the form of nil cost options) under the DBP plan in respect
of a (discounted) restricted share award (dependent on continued employment
with the Company).
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number of options/ awards No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p) No of shares Weighted average exercise price (p)
At 28 Aug 2021 8,387,637 28.92 1,723,212 126.7 13,928,102 - 2,025,544 -
Granted 900,405 34.70 - - 4,043,731 - 1,807,242 -
Exercised (92,308) - - (1,113,915) - (2,333,638) -
Expired /Forfeited* (1,616,651) 35.80 (666,468) 137.8 (5,964,046) - - -
At 27 Aug 2022* 7,579,083 25.27 1,056,744 126.1 10,893,872 - 1,499,148 -
Granted 1,316,234 55.40 - - 2,695,499 1,337,604
Exercised (264,430) - - - (2,791,373) (1,614,771)
Expired /Forfeited (670,274) 30.01 (256,294) 137.8 (1,429,910) -
At 26 Aug 2023 7,960,613 800,450 9,368,088 1,221,981
Exercisable at 26 Aug 2023 - - 800,450 125.3 - - - -
Exercisable at 27 Aug 2022 - - 1,056,744 126.1 - - - -
*During the current period, the opening number of options for the LTIP schemes
were restated to amend disclosure errors made in the prior period.
The weighted average remaining contractual life in years of options/awards is
as follows:
Sharesave ESOS LTIP DBP
Outstanding at 26 August 2023 1.4 5.2 1.2 1.5
Outstanding at 27 August 2022 1.9 5.2 1.2 1.5
Details of the options/awards granted or commencing during the current and
comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2023:
Effective date of grant or commencement date Jul 2023 - Jan 2023 Jan 2023
Average fair value at date of grant or scheme commencement - pence 21.5 - 34.9 50.6
During 2022:
Effective date of grant or commencement date Jul 2022 - Dec 2021 Dec 2020
Average fair value at date of grant or scheme commencement - pence 4.3 - 26.0 38.0
The options outstanding at 26 August 2023 had exercise prices ranging from nil
to 139.5p (2022: nil to 167.8p).
The weighted average share price on the date of exercise was 48p (2022: 37p).
The Sharesave options granted during each period have been valued using the
Black-Scholes model, the LTIP performance measures include 70% total
shareholder return (TSR) metric this is valued by reference to the share price
at date of grant less an adjustment for the TSR portion of the award. The DBP
schemes are valued by reference to the share price at the date of grant.
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
2023 options/awards:
Share price at grant date - pence 55.4 51 51
TSR adjustment - pence - (23) -
Exercise price - pence 44.3 - -
Expected volatility - per cent 121.5 - -
Expected life - years 3 - -
Risk free rate - per cent 4.7 - -
Expected dividend yield - per cent 8.83 - -
Weighted average fair value - pence 22 28 51
2022 options/awards:
Share price at grant date - pence 34.7 38 38
TSR adjustment - pence - (17) -
Exercise price - pence 32.0 - -
Expected volatility - per cent 40.3 - -
Expected life - years 3 - -
Risk free rate - per cent 1.7 - -
Expected dividend yield - per cent 8.37 - -
Weighted average fair value - pence 4.3 21 38
29. Post balance sheet events
The directors have considered the period between the balance sheet date and
the date when the accounts are authorised for issue for evidence of conditions
that existed at the balance sheet date, either adjusting or non-adjusting post
balance sheet events and have concluded that there are no such events in the
current period.
30. Related party transactions
Transactions between businesses within the Group which are related parties
have been eliminated on consolidation and are not disclosed in this note.
Transactions with the Group's pension schemes are disclosed in Note 6.
Trading transactions
Sales to related parties Amounts owed by related parties
£m 2023 2022 2023 2022
Joint ventures 0.4 0.4 - 0.1
Sales to related parties are for management fees, payment is due on the last
day of the month following the date of invoice.
Non-trading transactions
Loans to related parties
£m 2023 2022
Joint ventures 0.3 0.1
In the prior period, £0.1m of the balances above were secured against the
assets of Fresh on the Go Limited.
Tuffnells Deferred Consideration
On 2 November 2021, the Group received £6.5m (the first tranche) of the total
amount of unsecured consideration due of £15m. Following receipt of this
payment, the Board agreed revised terms with Tuffnells Holdings Limited
(formerly Palm Bidco Limited) regarding the outstanding deferred consideration
payable, such that it would accept £7.5m in full and final settlement of the
outstanding amount due, were it received on or before 2 August 2022. This
amount was received in full during the prior period. The Chairman of Tuffnells
Holdings Limited was also a non-executive director of Smiths News plc and
recused himself from all discussions relating to this matter.
Directors' remuneration
£m 2023 2022
Salaries 0.8 0.9
Bonus 0.5 0.6
Non-executive director fees 0.4 0.3
1.7 1.8
Information concerning directors' remuneration, interest in shares and share
options are included in the Directors' Remuneration report in the Annual
Report.
There are 2 (2022: 2) directors to whom retirement benefits are accruing in
respect of qualifying services under money purchase schemes.
Directors made gains on share options of £nil (2022: £nil).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who are the key
management personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 'Related Party Disclosures'.
£m 2023 2022
Short-term employee benefits 2.9 2.8
Share based payments 1.0 1.1
3.9 3.9
31. Subsidiary and associated undertakings
The below table summarises interests of the Group as at 26 August 2023:
Company name/ Share Class Group % Company name/ Share Class Group %
(number) (number)
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH
Connect Limited Ordinary Shares 100% Martin Lavell Limited Ordinary Shares 100%
02008952 02654521 (*)
Connect Logistics Limited Ordinary Shares 100% Pass My Parcel Limited Ordinary Shares 100%
09172965 09172022
Connect News & Media Limited Ordinary Shares 100% Phantom Media Limited Ordinary Shares 100%
08572634 03805661 (*)
Connect Parcel Freight Limited Ordinary Shares 100% Smiths News Holdings Limited Ordinary Shares 100%
09295023 04236079
Connect Parcels Limited Ordinary Shares 100% Smiths News Instore Limited Ordinary Shares 100%
09172850 03364589
Connect Services Limited Ordinary Shares 100% Smiths News Investments Limited (*) Ordinary Shares 100%
08522170 06831284
Connect Specialist Distribution Group Limited Ordinary Shares 100% Smiths News Distribution Limited Ordinary Shares 100%
08458801 08506961
Connect2U Limited Ordinary Shares 100% Smiths News Trading Limited Ordinary Shares 100%
03920619 00237811
Dawson Media Services Limited 06882722 Ordinary Shares 100% Dawson Limited Ordinary Shares 100%
03433262
Dawson Guarantee Company Limited 06882393 Ordinary Shares 100% Dawson Media Direct Limited (*) 06882366 Ordinary Shares 100%
Dawson Holdings Ltd (*) Ordinary Shares 100%
00034273
Germany
Dawson Media Direct GmbH Ordinary Shares 100% Johannstr. 39 40476 Dusseldorf, Germany
HRB 96649
Turkey
Dawson Media Direct Anonim Sirketi Ordinary Shares 100% Park Plaza, No:14/24 Resitpasa Mahallesi Istanbul Turkey
14449
Australia
Dawson Media Direct Australia Pty Limited Ordinary Shares 100% C/O Grant Thornton Australia Level 17, 383 Kent Street, Sydney NSW 2000,
Australia
615545545
Hong Kong
Dawson Media Direct China Limited Ordinary Shares 100% Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
1167911
Thailand
Dawson Media Direct Company Limited Ordinary Shares 48.9% 87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road, Lumpini
Sub-District, Pathumwan District, Bangkok, Thailand
105558138385
* Audit exemption statement
For the 52 weeks ended 26 August 2023, the companies as indicated in the table
by '(*)' above were entitled to exemption from audit under section 479A of the
Companies Act 2006 relating to subsidiary companies. As such, Smiths News plc
(formerly Connect Group PLC) has provided a guarantee against all debts and
liabilities in these subsidiaries as at 26 August 2023. The members of these
companies have not required them to obtain an audit of their financial
statements for the 52 weeks ended 26 August 2023.
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 Group's industry.
APMs should be considered in addition to, and are not intended to be a
substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing additional useful
measures of the Group's performance. They provide readers with additional
information on the performance of the business across periods which is
consistent with how the business performance is planned by, and reported to,
the Board and the Executive Team.
Consequently, APMs are used by the directors and management for performance
analysis, planning, reporting and incentive-setting purposes.
The key APMs that the Group has focused on and changes to APMs within the
period can be found in Note 1.
APM Closest equivalent Adjustments to reconcile Note/page reference for Definition and purpose
IFRS measure to IFRS measure reconciliation
Income Statement
Adjusting Items No direct equivalent N/A Note 4 Adjusting items of income or expenses are excluded in arriving at Adjusted
operating profit to present a further measure of the Group's performance. Each
of these items is considered to be significant in nature and/or quantum,
non-recurring in nature and /or are considered to be unrelated to the Group's
ordinary activities or are consistent with items treated as adjusting in prior
periods. Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business across
periods because it is consistent with how the business performance is planned
by, and reported to, the Board and the Executive Team.
Adjusted operating profit Operating profit* Adjusting items Income statement/ Adjusted operating profit is defined as operating profit from continuing
operations, excluding the impact of adjusting items (defined above). This is
Note 4 the headline measure of the Group's performance and is a key management
incentive metric.
Adjusted profit before tax Profit before tax (PBT) Adjusting 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) Adjusting items Income statement/ Adjusted profit after tax is defined as profit after tax from continuing
operations, excluding the impact of adjusting items (defined above).
Note 4
Adjusted Operating profit* Depreciation and amortisation Note 3 This measure is based on business unit operating profit from
EBITDA Adjusting items Continuing operations. It excludes depreciation, amortisation and adjusting
items. This is the headline measure of the Group's performance and is a key
management incentive metric.
Adjusted earnings per share Earnings per share Adjusting items Note 10 Adjusted earnings per share is defined as continuing adjusted PBT, less
taxation attributable to adjusted PBT and including any adjustment for
minority interest to result in adjusted
PAT attributable to shareholders; divided by the basic weighted average
number of shares in issue.
Cash flow Statement
Free cash flow Net movement in cash and cash equivalents Dividends, See Free Cash Flow in Financial Review section Free cash flow is defined as cash flow excluding the following: payment of the
dividend, acquisitions and disposals, the repayment of bank loan principal
acquisitions and disposals, amounts, EBT share purchases and cash flows relating to pension deficit
repair. This measure reflects the cash available to shareholders.
Repayment of bank loans,
EBT share purchases,
Pension deficit repair payments
Free cash flow (excluding adjusting items) Net movement in cash and cash equivalents Dividends, See Free Cash Flow in Financial Review section Free cash flow (excluding Adjusting items) is Free cash flow adding back
Adjusting cash costs.
acquisitions and disposals,
Repayment of bank loans,
EBT share purchases,
Pension deficit repair payments
Adjusting items
Balance Sheet
Bank Net Debt Borrowings less cash Cash flow statement Bank Net Debt is calculated as total debt less cash and cash equivalents.
Total debt includes loans and borrowings, overdrafts and obligations under
finance leases as defined by IAS 17.
Net debt Borrowings less cash Cash flow statement Net debt is calculated as total debt less cash and cash equivalents. Total
debt includes loans and borrowings, overdrafts and obligations under leases.
* Operating profit is presented on the Group income statement. It is not
defined per IFRS, however, is a generally accepted profit measure.
Reconciliation of Free cash flow to net movement in cash and cash equivalents
A reconciliation between free cash flow and the net increase in cash and cash
equivalents are shown below:
£m 2023 2022
Net increase in cash and cash equivalents 2.0 16.0
Decrease in borrowings and overdrafts 8.0 23.0
Movement in borrowings and cash 10.0 39.0
Dividend paid 9.8 6.1
Investment in joint venture 0.3 -
Outflow for EBT shares 1.7 2.6
Continuing free cash flow 21.8 47.7
Discontinued free cash flow - 0.5
Total free cash flow 21.8 48.2
Reconciliation of Bank net debt to reporting net debt
£m 2023 2022
Bank net debt (4.2) (14.2)
Unamortised arrangement fees (Note 18) 1.3 2.4
IFRS 16 lease liabilities (Note 19) (23.2) (27.6)
Net debt (Note 17) (26.1) (39.4)
Ends.
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