REG - WH Smith PLC - Interim Results
27/04/2022 07:00
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RNS Number : 4456J WH Smith PLC 27 April 2022
27 April 2022
WH SMITH PLC
INTERIM RESULTS ANNOUNCEMENT
For the six months ended 28 February 2022
The Group has emerged from the pandemic operationally stronger and with
significantly enhanced growth opportunities
· Successfully navigated the business through the pandemic - recovery
well underway
· Group well positioned to benefit from new store opening opportunities
in the global travel market
· Total Travel revenue in the 8 week period to 23 April 2022 at 114% of
2019
· New store pipeline of over 125 stores won in Travel, including 63 in
North America and 31 in Spain; 28 new InMotion technology stores now open in
UK airports; global rollout of InMotion continues
· Focused plan on customer conversion, increasing average transaction
value (ATV) and category development continues to drive performance as
passenger numbers recover
· Headline profit before tax and non-underlying items* of £14m (2021:
loss of £19m)
· Total Travel trading profit* of £10m (2021: loss of £28m)
· High Street trading profit* of £26m (2021: £24m)
· Continued investment across the business funded from cash flow
and strong balance sheet
Carl Cowling, Group Chief Executive, commented:
"The Group has delivered a good performance with a strong rebound in
profitability. We have seen a recovery across all our travel markets despite
the impact of the Omicron variant in Q2, and we are in a strong position to
capture growth as the recovery continues. I would like to thank all our
colleagues around the world who have worked extremely hard to help the
business make such good progress and deliver these results.
"Across the globe, we continue to roll out our Travel stores across all our
formats. Since the start of the financial year, we have won 74 stores,
including a significant tender win in Spain, bringing the total pipeline to
over 125 stores. We expect more space to become available, particularly in
North America, as our markets continue to recover.
"In addition, we have opened 28 new technology stores in the UK under our
InMotion brand, including our recently opened flagship store at Heathrow
Terminal 5. These stores have received excellent feedback from landlords and
customers. Outside of the US and the UK, we have opened and won a further 11
InMotion stores across 6 countries and we see significant potential to grow
the brand globally.
"Our High Street business delivered a resilient and profitable performance in
the period, despite the challenges facing the UK high street. During the
period, our online businesses continued to perform well against a strong
pandemic-related performance in the prior year.
"Looking ahead, we continue to invest in the business where we see attractive
growth opportunities and have positioned the Group well to benefit from the
return of passenger numbers. We have improved the scale and footprint of the
business and are operationally stronger than prior to the pandemic. While
there are some uncertainties in the broader global economy, the Group is well
positioned to capitalise on the ongoing recovery in our key markets and take
advantage of the many opportunities ahead."
* Pre-IFRS 16
Group financial summary:
IFRS Headline
pre-IFRS 16(2)
6 months to 6 months to 6 months to 6 months to Feb 2021
Feb 2022 Feb 2021 Feb 2022
Travel UK trading profit/(loss)(1) £9m £(19)m £3m £(19)m
North America trading profit/(loss)(1) £8m £(4)m £8m £(3)m
Rest of the World trading loss(1) £(2)m £(8)m £(1)m £(6)m
Total Travel trading profit/(loss)(1) £15m £(31)m £10m £(28)m
High Street trading profit(1) £35m £33m £26m £24m
Group profit/(loss) from trading operations(1) £50m £2m £36m £(4)m
Group profit/(loss) before tax and non-underlying items(1) £24m £(17)m £14m £(19)m
Earnings / (loss) per share before non-underlying items(1) 13.0p (12.9)p 6.9p (13.6)p
Non-underlying items(1) £(6)m £(21)m £(3)m £(18)m
Group profit/(loss) before tax £18m £(38)m £11m £(37)m
Basic earnings/(loss) per share 9.2p (26.7)p 5.3p (26.0)p
Diluted earnings/(loss) per share 9.2p (26.5)p 5.3p (25.8)p
Revenue performance:
% change vs 6 months to Feb 2021
£m
Travel UK 189 139%
North America 116 111%
Rest of the World 33 106%
Total Travel 338 125%
High Street 270 -%
Group 608 45%
(1) Alternative Performance Measure (APM) defined and explained in the
Glossary on page 41.
(2) The Group adopted IFRS 16 'Leases' with effect from 1 September 2019. The
Group continues to monitor performance and allocate resources based on
pre-IFRS 16 information (applying the principles of IAS 17), and therefore the
results for the periods ended 28 February 2022 and 28 February 2021 have been
presented on both an IFRS 16 and a pre-IFRS 16 basis.
Measures described as 'Headline' are presented pre-IFRS 16.
For the purposes of narrative commentary on the Group's performance and
financial position, both pre-IFRS 16 and IFRS 16 measures are provided.
Reconciliations from pre-IFRS 16 measures to IFRS 16 measures are provided in
the Glossary on page 41. Group revenue was not affected by the adoption of
IFRS 16, and therefore all references to and discussion of revenue are based
on statutory measures.
WEBCAST:
A live webcast will be held today at 9.00am BST for investors and analysts and
will be available on our website at www.whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
ENQUIRIES:
WH Smith PLC
Nicola Hillman Media Relations 01793 563354
Mark Boyle Investor Relations 07879 897687
Brunswick
Tim Danaher 020 7404 5959
WH Smith PLC's Interim Results 2022 are available at www.whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
GROUP OVERVIEW
Strategic Initiatives
In the first few months of the financial year, we saw a steady improvement in
Travel's trading performance as vaccination rates increased and travel
restrictions eased. This improving trend was interrupted by the emergence of
the Omicron variant in December. We acted quickly to ensure we kept stores
trading, managed inventory levels and continued to recruit colleagues,
anticipating the impact of Omicron would be relatively short. Since February,
as travel restrictions have been further eased, we have seen the recovery in
our travel markets continue with a strong performance over the Easter holiday
period.
Throughout the pandemic, we have continued to focus on a number of key
strategic initiatives, including:
· Driving ATV and sales per passenger
· Developing our formats in Travel to better meet customer and landlord
requirements by repositioning our stores as one-stop-shops for travel
essentials
· Working with landlords, building on our strong relationships, to
create opportunities for:
i. Winning new business
ii. Extending categories
iii. Renewing key contracts, and
iv. Improving the quality and location of the space where we operate.
· Investing capex in strategically important projects which set us up
well for the future, such as our new Travel store formats in the UK, North
America and the Rest of the World
· Building our internet proposition by extending ranges, investing in
the websites, marketing, fulfilment and building customer engagement through
social media
· Forensic focus on returns on investment, costs and cash.
Group Summary
Total Group revenue in the first half was £608m (2021: £420m), up 45% on
last half year.
Travel saw a steady recovery from September to November. This was interrupted
by the Omicron variant for a short period from December to February. Since
then, we have seen a relaxing of restrictions around the world. Travel revenue
for the half was at 82% of 2019(3), compared to 63% in Q4 of the previous
financial year. In the 8 week period to 23 April 2022, Travel revenue has been
114% of 2019(3) which demonstrates the strength of the recovery. Over the
Easter holiday period, Travel revenue was at 126% of 2019, giving us
confidence for the key summer trading period.
We saw a consistently good performance in High Street throughout the half with
the important December trading period at 90% of 2019.
The Headline Group profit from trading operations(1) for the period was £36m
(2021: loss of £4m) with Headline Group profit before tax and non-underlying
items(1) at £14m (2021: loss of £19m).
Including non-underlying items, the Headline Group profit before tax(1) was
£11m (2021: loss of £37m). Group profit before tax, on a statutory basis
(after non-underlying items and including the effect of IFRS 16), was £18m
(2021: loss of £38m).
The Group's financing arrangements include a £250m Revolving Credit Facility
(RCF) which matures in 2025, £327m of convertible bonds which mature in 2026
and £133m of term loan with a maturity in 2025. The Group pays a fixed coupon
at 1.625% on the convertible bonds and the term loan is interest bearing at a
margin over SONIA and is due to mature on 28 April 2025.
(3) Equivalent month in 2019
The Group has the following cash, committed facilities and drawn debt as at 28
February 2022:
28 February 2022 Maturity
Cash and cash equivalents £88m(4)
Revolving Credit Facility(5) £250m April 2025
Term Loan £133m April 2025
Convertible bond £327m April 2026
(4) Cash and cash equivalents comprises cash on deposit of £65m and cash in
transit of £23m
(5) Undrawn as at 28 February 2022 and 26 April 2022
As at 28 February 2022, Headline net debt(1) was £336m (2021: £336m) with
access to £315m of liquidity (£65m cash on deposit and £250m undrawn RCF).
We continue to focus on cash. Group free cash flow(1) was an outflow of £29m
(2021: outflow of £13m), largely driven by capital investment of £38m (2021:
£22m).
The Group's approach to capital allocation remains unchanged:
· investing in our existing business and in new opportunities where
we see attractive rates of return, ahead of the cost of capital;
· re-establishing a dividend for our shareholders;
· undertaking attractive value-creating acquisitions in strong and
growing markets;
· returning surplus capital to shareholders by way of share buybacks
In normalised conditions, we have a leverage target of between 0.75X and 1.25X
EBITDA.
Outlook
The Group has continued to manage the business well in an evolving trading
environment. We continue to invest in new Travel stores and have the financial
capacity to capitalise on the ongoing recovery in our Travel markets and the
significant medium term new store opening opportunities.
Our High Street business has delivered another robust performance and is well
placed to continue to generate cash from its portfolio of well-located stores
and internet businesses.
Given our low ticket-value categories and strong supplier relationships, we
are managing the impact of current inflationary pressures.
Since the period end, and following the further relaxing of travel
restrictions, we have continued to see a good recovery across all our travel
markets and channels. We remain well placed for the ongoing Travel recovery
and the key summer trading period which gives the Board confidence in the
outlook for the remainder of the financial year.
Looking further ahead, while the broader global economy remains uncertain, the
Group is well positioned to capitalise on the ongoing recovery in our key
markets and take advantage of the many new store opening opportunities ahead.
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America (NA) and Rest
of the World (ROW).
Total revenue was £338m (2021: £150m), up 125% compared to the previous year
resulting in a Total Travel Headline trading profit(1) in the period of £10m
(2021: loss of £28m).
£m Trading profit/(loss)(1) Headline trading profit/(loss)(1)
(IFRS 16) (pre-IFRS 16) Revenue
6 months to Feb 2022 6 months to Feb 2021 6 months to Feb 2022 6 months to Feb 2021 6 months to Feb 2022 6 months to Feb 2021
Travel UK 9 (19) 3 (19) 189 79
North America 8 (4) 8 (3) 116 55
Rest of the World (2) (8) (1) (6) 33 16
Total Travel 15 (31) 10 (28) 338 150
In all our markets, we have continued to focus on initiatives that position us
well as our markets recover:
· Business development and winning new business
We do this through building and managing relationships with all our landlord
partners to win new space, improve the quality and amount of space, develop
new formats and extend contracts.
· ATV growth and spend per passenger
We do this through our forensic analysis of the return on our space, cross
category promotions, merchandising, store layouts and store refits.
· Category development
We do this by developing adjacent product categories relevant for our
customers, such as health and beauty and electrical accessories ranges; and
expanding existing categories, e.g. premium food ranges.
· Minimising costs
We remain focused on cost control and minimising our cost base to reflect the
level of sales whilst retaining our ability to trade as recovery occurs.
As restrictions have eased, we have seen an encouraging improvement in
passenger numbers, led first by domestic travel and then short-haul. Whilst
there are some uncertainties in the global economy and the speed and shape of
the recovery, we are confident in the recovery of Travel, further supported by
the consensus of industry forecasts including the Airports Council
International (ACI) which expect passenger numbers to return to 2019 levels by
2024.
Despite the challenging trading environment during the pandemic, we are more
optimistic about the prospects for a full recovery and further growth than
ever before.
As at 28 February 2022, our global Travel business, including MRG and
InMotion, operated from 1,162 units (31 August 2021: 1,166 units). Outside of
the UK, as at 28 February 2022 we were present in over 100 airports and 29
countries.
Division Number of stores
UK 581
North America 288
Rest of World 293
Total 1,162
Excluding franchise units, Travel occupies 1.0m square feet (31 August 2021:
1.0m square feet)
TRAVEL UK
Our Travel UK business continues to recover strongly with a small impact in
the half from the Omicron variant.
% of 2019 Revenue(3)
Air Hospitals Rail Total
September 2021 42% 87% 71% 60%
October 2021 59% 92% 74% 71%
November 2021 71% 91% 74% 78%
December 2021 65% 94% 69% 74%
January 2022 59% 83% 58% 66%
February 2022 75% 94% 71% 78%
March 2022 92% 98% 81% 90%
Second half to date(6) 104% 98% 84% 97%
We have experienced periods of strong growth, particularly over the school
holidays, indicating good demand for a return to leisure travel. In addition,
tour operators have reported a healthy recovery in holiday bookings for 2022
versus pre-Covid levels. We have a robust plan in place to maximise these
opportunities over the key summer trading period.
We have worked hard across all our channels, focusing on key priorities within
our control. Total revenue in the period was £189m which, along with improved
margins, resulted in a Headline trading profit1 of £3m (2021: loss of £19m).
We have seen a consistent double digit increase in ATV versus 2019 across our
Air, Hospital and Rail channels during the period.
As at 28 February 2022, Travel UK had 581 stores of which 535 were open and 46
were hibernated. We anticipate opening all of these hibernated stores in time
for the peak summer trading period. In addition, over the next three years, we
expect to win and open an additional 10 to 15 stores each year in UK Travel.
Air
In Air, we saw another step up in revenue over the half-term holiday in
February and again over the Easter period, with sales over the February
half-term and Easter holiday periods at 86% and 119% respectively of the
comparable periods in 2019.
Leisure passengers continue to be our most important customer segment. We are
expanding our proposition for leisure passengers by investing in new store
formats. This includes the repositioning of our traditional news, books and
convenience (NBC) format to a unique one-stop-shop for travel essentials
format across our larger stores. Within these one-stop-shop travel essential
stores, we have extended categories, such as health and beauty, technology,
food to go and pharmacy products to provide time-pressed travelling customers
with a fast and convenient shopping experience, under one roof. This enables
us to expose a broader range of categories to customers which has resulted in
an increase in sales per square metre and a higher ATV and spend per
passenger. This delivers good returns for us and attractive economics for our
landlords.
We have opened this one-stop-shop format in 4 airports, including Heathrow
Terminal 2, Gatwick and Manchester as well as at Euston Station. Customer and
landlord feedback has been very positive. Going forward, we expect more space
to become available for this format.
We have now opened 28 of the InMotion stores that we recently won in UK Air,
including a flagship store at London Heathrow Terminal 5. Combining the
learnings and expertise from our InMotion stores in the US, as well as the
results of extensive customer research in the UK, these stores provide a
first-class customer service experience and showcase a range of premium
brands, such as Apple, Bose, Sony and Samsung, as well as an extensive range
of tech accessories.
We are very pleased with the performance of the stores to date and early
indications suggest that annual sales will be ahead of our original forecast
of around £80m of incremental sales in a normalised travel market.
(6 )8 weeks to 23 April 2022
Hospitals
The Hospital channel is an important channel for us and is our second largest
channel by revenue in Travel UK. In the first six months, we saw an
improvement in revenue as restrictions eased and these stores performed well.
This strength in performance has extended to the second half of the financial
year with revenue in March at 98% of 2019 levels.
The opportunities to increase our number of stores in the hospital market
continues to grow with additional government investment in the health service.
We are well placed to meet the increased demand for retail services as
hospitals extend operating hours to tackle department backlogs.
Our Hospital channel is a good example of how we continue to innovate with a
strong proposition tailored to each location, and a broad suite of formats and
brands, including more recently, our first WH Smith hospital format with a
Post Office. We also have 46 M&S Simply Food or shared space stores across
our hospital estate.
In addition, there are considerable opportunities for us to open new space in
hospitals. As at 28 February 2022, we operated from 136 stores in around 100
hospitals and we believe there are a further 200 hospitals which could support
at least one of our three store formats (a WH Smith format, a M&S Simply
Food and a Costa Coffee).
Over the medium-term, we would expect to open on average c.8-10 new stores
each year in this channel.
Rail
Rail remains an attractive channel. According to the Department for Transport,
pre-pandemic rail had approximately 1.7bn passenger journeys per year with
leisure passengers accounting for around 40% of these journeys.
We have seen a steady improvement in revenue as travel restrictions have
eased. Passenger numbers are now at 74% of 2019 levels with leisure and
weekend passenger numbers recovering the fastest. We know from our
segmentation and return on space analysis that this customer segment is most
valuable to us.
As with our other channels in Travel, we continue to invest in new formats and
in new opportunities to meet customer and landlord needs. During the period,
we opened our first one-stop-shop format in Rail at London's Euston Station.
This store combines our traditional news, books and convenience offer with
electrical accessories, health and beauty products and a pharmacy. We have
received positive feedback from customers and it is performing strongly.
In addition, we have opened a new standalone bookshop at Edinburgh Waverley
Station and our first rail store with a combined M&S food offer at Bristol
Temple Meads Station. Again, early customer and landlord reaction has been
positive.
NORTH AMERICA
We saw a strong performance from North America where, despite a small impact
from Omicron, there has been a steady recovery in air passenger numbers and
visitors to Las Vegas. Total revenue for the period in NA was £116m (2021:
£55m), with a Headline trading profit(1) of £8m (2021: loss of £3m),
reflecting the recovery in passenger numbers and improved margins.
The growth opportunities in North America are substantial. The US is the
largest travel retail market in the world with annual sales, pre-pandemic, at
$3.2bn. Approximately 85% of passengers are domestic, with leisure passengers
being the biggest segment. TSA (Transportation Security Administration) data
continues to show the gradual recovery in passenger numbers week on week, with
passenger numbers at the end of March 2022 at 90% of 2019 levels.
MRG currently have 120 and InMotion 122 stores open or won in airports. Our
analysis of the North America market pre-pandemic shows that there were a
total of 1,885 news and gift and specialty retail stores in the top 50
airports, giving our North America business a small market share of c.13%.
With MRG's success rate of winning new tenders and our expectation of the
amount of space likely to come to the market for tender over the medium-term,
we are well placed to grow our North America business.
We continue to invest in digital technology to enhance the customer experience
in our stores and, during the period, we opened our first frictionless,
checkout-free store at LaGuardia Airport, New York. The WH Smith branded
store, our first in the US, provides US customers with a quick and easy way to
shop using Amazon's Just Walk Out technology and early customer and landlord
feedback has been very positive.
Outside of the airport business, the Resorts channel continues to be
resilient. MRG is a leading player in this channel in Las Vegas with very
longstanding relationships and a significant amount of expertise. The Resorts
channel has similar dynamics to our Travel business with a high number of
short stay visitors who tend to stay around the Las Vegas Strip and Fremont
Street areas, where most of our stores are located. We saw a small impact from
Omicron on the number of visitors to Las Vegas but this has recovered in March
with conferences and events returning to the city. Passenger numbers in Las
Vegas' Harry Reid International Airport were in line with 2019 by the end of
March 2022, the best performance since October 2021.
Our revenue performance has reflected these trends with overall revenue in
North America at 104%(7) of 2019 levels for the month of March 2022. We
currently have 273 stores open and trading (158 MRG and 115 InMotion).
REST OF THE WORLD
Total revenue for the first six months in ROW was £33m (2021: £16m). The
Headline trading loss(1) for the period was £1m (2021: loss of £6m) with the
improvement driven by the higher sales. The pace of recovery has varied by
geography, as expected, with Europe the best performing region. As we have
done in Travel UK, we remain focused on areas within our control, including
increasing ATV.
As this market recovers, we expect to see more space become available. Our
strong and compelling proposition and our very low market share means there is
significant opportunity to grow this business in new and existing territories
through NBC and with technology tenders under the InMotion brand.
We continue to build on areas where we already have stores, for example, in
Spain which is one of the most popular destinations for the UK leisure
traveller. We know from our experience of operating 19 stores in Spain that
our brand and offer resonates well in this market. During the half, we won a
significant and highly competed tender in Spain which included 31 additional
stores in locations including Madrid, Barcelona, Majorca and Ibiza. We entered
this market 6 years ago with a single store in Alicante and have since grown
our presence to now become the market leading NBC operator in Spanish airports
with a total of over 50 stores. We expect to open these 31 additional
directly-run stores by 2023.
We have also won 6 stores in Australia as well as a further 8 stores in
Malaysia, Finland, Bahrain and Sweden making a total of 52 stores won
(including InMotion) since the start of the financial year.
We continue to see good opportunities to win new business in the technology
market under our InMotion brand. During the period, we have won 7 InMotion
stores in Dublin, Milan and Stockholm and Gothenburg. We now have a total of
11 InMotion stores outside of the UK and North America of which 4 are open. We
remain well positioned to benefit from further opportunities as more space
becomes available.
We opened 12 stores in ROW in the half, including stores in Australia, Spain
and Germany, giving us a total of 293 stores now open and a further 65 won and
yet to open. Of the 293 stores open, 41% are directly-run, 9% are joint
venture and 50% are franchise. We will continue to use these three economic
models flexibly in order to create value and win new business.
Region Number of stores
Europe 86
Middle East and India 86
Asia Pacific 121
( )
(7) Includes proforma MRG for 2019. Constant currency
HIGH STREET
During the period, High Street delivered a resilient performance with Headline
trading profit(1) of £26m (2021: profit of £24m which included £17m benefit
from rates) with revenue of £270m, in line with last year. We managed the
business tightly, keeping focused on costs and cash generation.
The market has changed significantly during the pandemic resulting in a shift
in consumer behaviour over the past two years. Footfall on the UK high street
is down c.20% versus 2019 levels with internet retailing growing. The speed of
this change has accelerated during the pandemic.
As a consequence, we have acted quickly to this changing market in a number of
ways:
· Reviewing our categories and extending them where appropriate to
ensure we have greater relevance in this market and where competitors have
closed. Additional categories include working from home ranges and tech
accessories, and we have increased our ranges of cards where competition has
weakened
· Making best use of space in our well located portfolio, for example,
our trial with Deliveroo across 10 stores to deliver products direct to door
in under 20 minutes
· Investing in our whsmith.co.uk, funkypigeon.com and cultpens.com
websites to position them for growth over the medium term
· We restructured the cost base to reduce costs and increase the level
of flexibility in our business model for example labour costs in stores, head
offices and the distribution centres, and in occupancy costs reducing rent and
keeping leases short and flexible
The strategy we have in place in our High Street business remains as relevant
today as it has ever been: space and category management, increasing margins
and reducing costs.
We consider retail space as a strategic asset and we utilise our space to
maximise returns in the current year, in ways that are sustainable for future
years. We have extensive and detailed space and range elasticity data for
every store, built up over many years and we utilise our space to maximise the
return on every metre drop of display space in every store. This approach
remains as appropriate today.
Driving efficiencies remains a core part of our strategy and we continue to
focus on all areas of cost in the business. We are on track to deliver savings
of £41m in the year. These savings come from right across the business,
including rent savings at lease renewal (on average 50%) which continue to be
a significant proportion, marketing efficiencies and productivity gains from
our distribution centres. We have, for many years, actively hedged our energy
costs in stores well in advance of consuming the energy. We are currently
hedged to August 2023. The hedge was put in place 12 months ago.
Over the years, we have actively looked to put as much flexibility into our
store leases as we can, and this leaves us well positioned in the current
environment. The average lease length in our High Street business, including
where we are currently holding over at lease end, is 2 years. We only renew a
lease where we are confident of delivering economic value over the life of
that lease. We have c.450 leases due for renewal over the next three years,
including 160 where we are holding over and in negotiation with our landlord.
As at 28 February 2022, the High Street business operated from 537 WH Smith
stores (2021: 544) which occupy 2.6m square feet (2021: 2.6m square feet). 7
WH Smith stores were closed in the period (2021: 7).
Specialist websites
During the period, we increased our investment and focus on whsmith.co.uk and
have seen good growth through investing in the site. This has included
improving customer conversion, product presentation and broadening our
approach to marketing. Our specialist pen website, c (http://www.cultpens.com)
ultpens.com (http://www.cultpens.com) , has continued to perform well,
particularly over the Christmas trading period. We have extended our ranges to
broaden our customer offer and introduced related categories such as filing
and storage and we are seeing good results.
Following a very strong prior year and a period of exceptional growth,
Funkypigeon.com delivered, as expected, total revenue of £21m (2021: £29m)
and EBITDA of £4m (2021: £9m). We therefore expect the current year will see
lower sales and Headline EBITDA(1) as a result of annualising lockdowns last
year and ongoing investment in the business. However, we remain confident of
the substantial opportunities to grow the platform further and significantly
grow revenue and profits over the medium-term.
The market for greetings cards in the UK is substantial and estimated at
£1.6bn(8) with online penetration estimated at c.15%(8) with OC&C
forecasting online growth of single cards over the next three years, taking
penetration to c.20%(8) of the card market by 2024. The UK greetings card
market has been stable with adults sending on average 20(8) greetings cards
per person each year.
While the pandemic accelerated the growth of online shopping, it is still
apparent that this is an underpenetrated market with plenty of opportunity to
develop this business further and we therefore see significant growth
opportunities with funkypigeon.com.
We continue to invest, both in the site and in strengthening the management
team. During the period, we have developed the funkypigeon.com app to improve
customer conversion by extending our fulfilment centre, and we have also
launched a new next day delivery service, which operates seven days a week to
further enhance our customer proposition. Orders placed before 9:30pm will be
fulfilled the following day. This has received very positive customer
feedback.
Update on the Funky Pigeon Cyber Security Incident
Further to our recent announcement regarding a cyber security incident
impacting Funky Pigeon, the team is working to ensure we can securely resume
services for our customers, and we expect the site to be live imminently.
No customer payment data, such as bank account or credit card details, has
been placed at risk - all of this data is processed securely via accredited
third parties and is securely encrypted. We also do not believe any customer
account passwords have been placed at risk.
We take the security of customer data extremely seriously and we are currently
investigating the extent to which any personal data, specifically names,
addresses, e-mail addresses, telephone numbers and personalised card and gift
designs has been accessed. Whilst we have written to our customers, our work
is ongoing, and we will be in contact with any affected customers should we
have a material update that affects them.
Based on the analysis of the situation performed to date, this incident is not
expected to have a material impact on the financial position of the WH Smith
Group.
Environmental, Social and Corporate Governance ('ESG')
We have continued to focus on our ESG performance. Our ultimate goal is for
net zero by 2050 at the latest. We recognise that we cannot do this alone, and
we are collaborating with our suppliers, landlords and customers to work
towards this goal.
We were delighted to be included in this year's Dow Jones Sustainability Index
for the second year as one of only 12 retailers, globally, to be included. In
addition, we are currently the highest performing specialty retailer in
Morningstar's ESG Sustainalytics benchmark.
Across the Group, we continue to focus on more environmentally responsible
sourcing practices and we have redesigned and removed plastic packaging from
our seasonal ranges wherever possible.
We continue to champion children's literacy through our partnership with the
National Literacy Trust by donating books and additional funds to ensure we
support children across the UK who most need this support.
The Group responded quickly to the humanitarian crisis in Ukraine. We have
supported by donating funds to the British Red Cross, sending product from our
distribution centres and international stores, installing donation points for
customers across every till point in our UK store estate, and supporting our
colleagues and their families should they welcome a Ukrainian refugee or
family into their home. We have also committed to support with employment
opportunities within the WH Smith Group for any refugee residing with a WH
Smith colleague.
(8 )Company estimates / OC&C 2019
GROUP
The Group generated Headline profit before tax(1) of £14m (2021: loss of
£19m) and, after non-underlying items and IFRS 16, statutory profit before
tax of £18m (2021: loss of £38m).
IFRS Headline
pre-IFRS 16
£m 6 months to 6 months to 6 months to 6 months to
Feb 2022 Feb 2021 Feb 2022 Feb 2021
Travel UK profit / (loss)(1) 9 (19) 3 (19)
North America profit / (loss)(1) 8 (4) 8 (3)
Rest of the World loss(1) (2) (8) (1) (6)
Total Travel trading profit / (loss)(1) 15 (31) 10 (28)
High Street trading profit(1) 35 33 26 24
Group profit / (loss) from trading operations(1) 50 2 36 (4)
Unallocated central costs(1) (10) (9) (10) (9)
Group operating profit / (loss)( )before non-underlying items(1) 40 (7) 26 (13)
Net finance costs (16) (10) (12) (6)
Group profit / (loss) before tax and non-underlying items(1) 24 (17) 14 (19)
Non-underlying items (6) (21) (3) (18)
Group profit / (loss) before tax 18 (38) 11 (37)
Non-underlying items(1)
Items which are not considered part of the normal operating costs of the
business, are non-recurring and are exceptional because of their size, nature
or incidence, are treated as non-underlying items and disclosed separately.
Non-underlying items in the half mainly relate to amortisation of acquired
intangible assets and impairment of property, plant and equipment and
right-of-use assets, due to the ongoing impact of Covid-19 on the business,
and are all non-cash.
The Group has carried out an assessment for indicators of impairment across
the store portfolio. This assessment has identified a small number of stores
where, following the emergence of the Omicron variant and subsequent changes
to government guidance, the trading performance in the first 6 months of the
year has been more negatively impacted than expected, and the longer-term
impact of Covid-19 has become more clear, driven by the ongoing impact of
Covid-19 on consumer shopping patterns.
As a result of this exercise, a charge of £4m was recorded within
non-underlying items, of which £1m relates to property, plant and equipment
and £3m relates to right-of-use assets.
IFRS Headline
pre-IFRS 16
£m 6 months to 6 months to 6 months to 6 months to
Feb 2022 Feb 2021 Feb 2022 Feb 2021
Items directly attributable to Covid-19
Impairment 4 14 1 6
Onerous leases - - - 2
Stock provisions, write-offs and other costs - 4 - 7
Other non-underlying items
Integration costs - 1 - 1
Amortisation 2 2 2 2
6 21 3 18
The cash spend relating to non-underlying items in the first half was £8m and
mainly related to restructuring announced in 2020 and 2021.
Net Finance Costs
IFRS Headline
pre-IFRS 16
£m 6 months to 6 months to 6 months to 6 months to
Feb 2022 Feb 2021 Feb 2022 Feb 2021
Interest payable on bank loans and overdrafts 4 6 4 6
Interest on convertible bonds 7 - 7 -
Unwind of discount on onerous lease provisions (pre-IFRS 16) - - 1 -
Interest on lease liabilities 5 4 - -
Net finance costs 16 10 12 6
Pre-IFRS 16 net finance costs for the half were £12m (2021: £6m) with the
year on year increase reflecting the refinancing activity during the prior
year.
The interest on the convertible bonds includes the accrued coupon (a fixed
coupon of 1.625%) and c.£4m of the non-cash debt accretion charge.
Lease interest of £5m arises on lease liabilities recognised under IFRS 16,
bringing the total net finance costs under IFRS 16 to £16m (2021: £10m).
We expect finance costs on a pre-IFRS 16 basis for the full year to be
approximately £25m, with cash finance costs approximately £10m lower than
this.
Tax
The effective tax rate(1) was 22% on the profit for the half (2021: 2%).
Corporation tax payments in the period were £3m (2021: £nil).
Fixed Charges Cover(1)
6 months to Year ended
£m Feb 2022 Feb 2021 Aug 2021
Headline net finance charges(1) 12 6 16
Net operating lease rentals (pre-IFRS 16)(1) 96 58 151
Total fixed charges 108 64 167
Headline profit/(loss) before tax and non-underlying items(1) 14 (19) (55)
Headline profit before tax, non-underlying items and fixed charges 122 45 112
Fixed charges cover(1) - times 1.1x 0.7x 0.7x
Fixed charges, comprising property operating lease rentals and net finance
charges, were covered 1.1 times (2021: 0.7 times) by Headline profit before
tax and fixed charges.
Cash Flow
Free cash flow(1) reconciliation
pre-IFRS 16
6 months to
£m Feb 2022 Feb 2021
Headline Group operating profit / (loss) before non-underlying items(1) 26 (13)
Depreciation, amortisation and impairment (pre-IFRS 16)(9) 24 25
Non-cash items 5 3
Operating cash flow(1, 9) 55 15
Capital expenditure (38) (22)
Working capital (pre-IFRS 16)(9) (36) (1)
Net tax paid (3) -
Net interest paid (pre-IFRS 16) (7) (4)
Other - (1)
Free cash flow (29) (13)
(9 )Excludes cash( )flow impact of non-underlying items
The free cash outflow(1) for the period was £29m. This mainly reflects the
return to profit of the business with the operating cash inflow increasing by
£40m to £55m and continued investment in the Group as we both recover and
open new stores.
We had a working capital outflow of £36m in the half relating to timing from
last year as expected; the launch of InMotion in the UK; investment to support
the recovery of trading in Travel; and the impact of the trading cadence in
the Group where the first half is the least cash generative time of the
year.
Net corporation tax payments in the period were £3m, compared to £nil last
year.
Capital expenditure was £38m (2021: £22m). We anticipate the full year capex
spend to be around £110m which includes the additional spend from winning 31
stores in Spain.
6 months to
£m Feb 2022 Feb 2021
New stores and store development 20 10
Refurbished stores 4 4
Systems 6 5
Other 8 3
Total capital expenditure 38 22
Reconciliation of Headline net debt(1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See Note 9 of the
Interim financial statements for the impact of IFRS 16 on net debt.
As at 28 February 2022, the Group had Headline net debt(1) of £336m
comprising £132m term loan, £288m convertible bond, £4m finance lease
liabilities and cash of £88m, of which £65m was on deposit (31 August 2021:
Headline net debt of £291m, comprising £132m term loan, £283m convertible
bond, £6m finance lease liabilities and cash of £130m).
Headline
pre-IFRS 16
6 months to Year ended
£m Feb 2022 Feb 2021 Aug 2021
Opening Headline net debt(1) (291) (301) (301)
Movement in period
Free cash flow (29) (13) 14
Pensions (1) (1) (3)
Non-underlying items (8) (22) (38)
Net purchase of own shares for employee share schemes (2) - (2)
Equity component of convertible bond - - 41
Non-cash movements relating to convertible bond (4) - (2)
Other (1) 1 -
Closing Headline net debt(1) (336) (336) (291)
Cash 88 72 130
Term Loans (net of fees) (132) (400) (132)
Convertible bond (288) - (283)
Finance leases (pre-IFRS 16) (4) (8) (6)
(336) (336) (291)
The Group's Headline net debt has increased by £45m since year end. In
addition to the free cash outflow of £29m, the Group has incurred £8m of
cash spend on non-underlying items which mainly relate to restructuring costs
as previously reported and charged to the income statement in the prior year.
This restructuring is now complete.
We expect full year net debt to be around £335m.
Balance sheet
Headline
IFRS pre-IFRS 16
£m Feb 2022 Aug 2021 Feb 2021 Feb 2022 Aug 2021 Feb 2021
Goodwill and other intangible assets 483 473 471 484 474 472
Property, plant and equipment 189 174 182 182 167 178
Right-of-use assets 330 328 370 - - -
Investments in joint ventures 2 2 2 2 2 2
1,004 977 1,025 668 643 652
Inventories 153 135 123 153 135 123
Payables less receivables (195) (214) (148) (216) (237) (181)
Working capital (42) (79) (25) (63) (102) (58)
Derivative financial liability - - (1) - - (1)
Net current and deferred tax asset 55 56 32 45 46 20
Provisions (14) (14) (14) (28) (28) (27)
Operating assets employed 1,003 940 1,017 622 559 586
Net debt (793) (755) (837) (336) (291) (336)
Net assets excluding pension liability 210 185 180 286 268 250
Pension liability (2) (3) (4) (2) (3) (4)
Deferred tax asset on pension liability - 1 1 - 1 1
Total net assets 208 183 177 284 266 247
The Group had Headline net assets of £286m before pension liabilities and
associated deferred tax assets, £18m higher than last year end reflecting the
profit in the period. Headline net assets after the pension liability and
associated deferred tax asset were £284m compared to £266m at 31 August
2021. Under IFRS the Group had net assets of £208m.
Pensions
The latest actuarial valuation of the main defined benefit pension scheme, the
WHSmith Pension Trust, was at 31 March 2020 at which point the deficit was
£9m. The Group agreed a continuation of the annual funding schedule with
the Trustees from March 2020 for the following five years, which includes the
deficit recovery contributions and other running costs of just under £3m per
annum. During the period ended 28 February 2022, the Group made a contribution
of £1m to the scheme.
The scheme has been closed to new members since 1996 and closed to defined
benefit service accrual since 2007. The Liability Driven Investment (LDI)
policy adopted by the scheme continues to perform well with approximately 100%
of the inflation and interest rate risks hedged.
As at 28 February 2022, the Group had an IFRIC 14 minimum funding requirement
in respect of the WHSmith Pension Trust of £2m (31 August 2021: £2m) and an
associated deferred tax asset of £nil (2021: £1m) based on the latest
schedule of contributions agreed with the Trustees. As at 28 February 2022,
the scheme had an IAS 19 surplus of £357m (31 August 2021: surplus of £284m)
which the Group has continued not to recognise. There is an actuarial deficit
due to the different assumptions and calculation methodologies used compared
to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined benefit pension
scheme was £nil (31 August 2021: £1m).
Principal Risks and Uncertainties
The Group's Annual Report and Accounts 2021, a copy of which is available on
the Group's website at www.whsmithplc.co.uk, sets out the principal risks and
uncertainties which could impact the Group for the remainder of the current
financial year along with mitigating activities relevant to each risk (see
Annual Report and Accounts 2021 pages 21 to 28). These include:
· economic, political, competitive and market risks;
· brand and reputation;
· key suppliers and supply chain management;
· store portfolio;
· business interruption (including pandemics);
· reliance on key personnel;
· international expansion;
· treasury, financial and credit risk management; and
· cyber risk, data security and GDPR compliance; and
· environment and sustainability.
The Annual Report and Accounts 2021 also identified specific changes to our
risk profile as a consequence of the Covid-19 pandemic following the Board's
assessment of the ongoing impact of Covid-19 as a significant risk facing the
Group, due to uncertainty around the timing and extent of recovery on our
ability to re-open and operate our Travel and High Street stores, both in the
UK and internationally, and its impact upon the levels of global and domestic
travel.
Ukrainian Conflict
We are saddened and horrified at the conflict in Ukraine, where our thoughts
are with those who have been impacted by this conflict. WH Smith is supporting
the victims of the war in several ways, through charitable donations and
measures aimed at supporting refugees where they are being sponsored by our
colleagues. WH Smith has no direct operations in Russia, Ukraine or Belarus,
nor do we have any product suppliers located in these territories. In line
with many businesses, we do however anticipate that this conflict may impact
us, through increasing competition and costs of shipping goods internationally
from the Far East, and from increasing inflationary pressures on our sourcing
and supply chain. These risks will continue to be monitored through our
ongoing risk management framework and principal risk reporting.
This announcement contains inside information which is disclosed in accordance
with the Market Abuse Regulations.
This announcement contains certain forward-looking statements with respect to
the operations, performance and financial condition of the Group. By their
nature, these statements involve uncertainty since future events and
circumstances can cause results to differ from those anticipated. Nothing in
this announcement should be construed as a profit forecast. We undertake no
obligation to update any forward-looking statements whether as a result of new
information, future events or otherwise.
WH Smith PLC
Condensed Group Income Statement
For the 6 months to 28 February 2022
6 months to 28 Feb 2022 6 months to 28 Feb 2021 12 months to 31 Aug 2021
(unaudited) (unaudited) (audited)
£m Note Before non-underlying items(1) Non-underlying items(2) Total Before non-underlying items(1) Non-underlying items(2) Total Before non-underlying items(1) Non-underlying items(2) Total
Revenue 2 608 - 608 420 - 420 886 - 886
Group operating profit / (loss) 2 40 (6) 34 (7) (21) (28) (27) (65) (92)
Finance costs 5 (16) - (16) (10) - (10) (24) - (24)
Profit / (loss) before tax 24 (6) 18 (17) (21) (38) (51) (65) (116)
Income tax (expense) / credit 6 (5) 1 (4) - 3 3 24 12 36
Profit / (loss) for the period 19 (5) 14 (17) (18) (35) (27) (53) (80)
Attributable to equity holders of the parent 17 (5) 12 (17) (18) (35) (29) (53) (82)
Attributable to non-controlling interests 2 - 2 - - - 2 - 2
19 (5) 14 (17) (18) (35) (27) (53) (80)
Earnings / (loss) per share
Basic 7 9.2p (26.7)p (62.6)p
Diluted 7 9.2p (26.5)p (62.6)p
( )
(1) Alternative Performance Measure. The Group has defined and explained the
purpose of its alternative performance measures in the Glossary on page 41.
(2) See Note 3 for an analysis of Non-underlying items. See Glossary on page
41 for definition of alternative performance measures.
WH Smith PLC
Condensed Group Statement of Comprehensive Income
For the 6 months to 28 February 2022
£m Note 6 months to 28 Feb 2022 6 months to 28 Feb 2021 12 months to
(unaudited) (unaudited) 31 Aug 2021
(audited)
Profit / (loss) for the period 14 (35) (80)
Other comprehensive (loss) / income:
Items that will not be reclassified subsequently to the income statement:
Actuarial losses on defined benefit pension schemes 4 (1) (1) (1)
(1) (1) (1)
Items that may be reclassified subsequently to the income statement:
(Losses) / gains on cash flow hedges
- Net fair value losses - (1) -
Exchange differences on translation of foreign operations 11 (16) (13)
11 (17) (13)
Other comprehensive income / (loss) for the period, net of tax 10 (18) (14)
Total comprehensive income / (loss) for the period 24 (53) (94)
Attributable to equity holders of the parent 22 (53) (96)
Attributable to non-controlling interests 2 - 2
24 (53) (94)
WH Smith
PLC
Condensed Group Balance Sheet
As at 28 February 2022
At At At
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
Note (unaudited) (unaudited) (audited)
Non-current assets
Goodwill 8 416 402 406
Other intangible assets 8 67 69 67
Property, plant and equipment 8 189 182 174
Right-of-use assets 8 330 370 328
Investments in joint ventures 2 2 2
Deferred tax assets 54 26 57
Trade and other receivables 6 8 6
1,064 1,059 1,040
Current assets
Inventories 153 123 135
Trade and other receivables 48 44 45
Current tax receivable 1 8 -
Cash and cash equivalents 9 88 72 130
290 247 310
Total assets 1,354 1,306 1,350
Current liabilities
Trade and other payables (249) (200) (265)
Retirement benefit obligations 4 (1) (1) (1)
Lease liabilities 9 (105) (119) (108)
Derivative financial liabilities - (1) -
Short-term provisions (2) (5) (2)
(357) (326) (376)
Non-current liabilities
Retirement benefit obligations 4 (1) (3) (2)
Bank loans and other borrowings 9 (420) (400) (415)
Long-term provisions (12) (9) (12)
Lease liabilities 9 (356) (390) (362)
Deferred tax liabilities - (1) -
(789) (803) (791)
Total liabilities (1,146) (1,129) (1,167)
Total net assets 208 177 183
Shareholders' equity
Called up share capital 11 29 29 29
Share premium 316 316 316
Capital redemption reserve 13 13 13
Translation reserve (16) (30) (27)
Other reserves (242) (280) (240)
Retained earnings 97 124 82
Total equity attributable to equity holders of the parent 197 172 173
Non-controlling interests 11 5 10
Total equity 208 177 183
WH Smith PLC
Condensed Group Cash Flow Statement
For the 6 months to 28 February 2022
6 months to 12 months to
£m Note 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Operating activities
Cash generated from operating activities 10 55 34 113
Interest paid(1) (12) (7) (13)
Net cash inflow from operating activities 43 27 100
Investing activities
Purchase of property, plant and equipment (33) (16) (37)
Purchase of intangible assets (5) (6) (7)
Acquisition of subsidiaries, net of cash acquired - 1 1
Net cash outflow from investing activities (38) (21) (43)
Financing activities
Distributions to non-controlling interests (1) - -
Issue of new shares for employee share schemes - 1 1
Purchase of own shares for employee share schemes (2) - (2)
Proceeds from issuance of convertible bonds - - 327
Repayment of borrowings - - (267)
Financing arrangement fees - (1) (8)
Repayments of obligations under leases (44) (42) (86)
Net cash outflow from financing activities (47) (42) (35)
Net (decrease) / increase in cash and cash equivalents in the period (42) (36) 22
Opening cash and cash equivalents 130 108 108
Effect of movements in foreign exchange rates - - -
Closing cash and cash equivalents 88 72 130
(1) Includes interest payments of £5m on lease liabilities (28 February 2021:
£5m)
WH Smith PLC
Condensed Group Statement of Changes in Equity
For the 6 months to 28 February 2022
£m Called up share capital and share premium Translation reserves Other reserves(1) Retained earnings Total equity attributable to equity holders of the parent Non-controlling interest Total equity
Capital redemption reserve
Balance at 1 September 2021 345 13 (27) (240) 82 173 10 183
Profit for the period - - - - 12 12 2 14
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes - - - - (1) (1) - (1)
Exchange differences on translation of foreign operations - - 11 - - 11 - 11
Total comprehensive income for the period - - 11 - 11 22 2 24
Non-controlling interest distributions - - - - - - (1) (1)
Recognition of share-based payments - - - - 4 4 - 4
Employee share schemes - - - (2) - (2) - (2)
Balance at 28 February 2022 (unaudited) 345 13 (16) (242) 97 197 11 208
Balance at 1 September 2020 344 13 (14) (279) 158 222 5 227
Loss for the period - - - - (35) (35) - (35)
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes - - - - (1) (1) - (1)
Cash flow hedges - - - (1) - (1) - (1)
Exchange differences on translation of foreign operations - - (16) - - (16) - (16)
Total comprehensive loss for the period - - (16) (1) (36) (53) - (53)
Recognition of share-based payments - - - - 2 2 - 2
Issue of shares 1 - - - - 1 - 1
Balance at 28 February 2021 (unaudited) 345 13 (30) (280) 124 172 5 177
Balance at 1 September 2020 344 13 (14) (279) 158 222 5 227
Loss for the year - - - - (82) (82) 2 (80)
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes - - - - (1) (1) - (1)
Exchange differences on translation of foreign operations - - (13) - - (13) - (13)
Total comprehensive loss for the year - - (13) - (83) (96) 2 (94)
Issue of shares 1 - - - - 1 - 1
Issue of convertible bonds - value of conversion rights - - - 40 - 40 - 40
Deferred tax on share-based payments - - - - 1 1 - 1
Employee share schemes - - - (1) 6 5 - 5
Non cash movement on non-controlling interests - - - - - - 3 3
Balance at 31 August 2021 (audited) 345 13 (27) (240) 82 173 10 183
(1 )Other reserve includes Revaluation reserve of £2m (August 2021: £2m),
ESOP reserve of £(5)m (August 2021: (£(5)m), hedging reserve of £nil
(August 2021: £nil), convertible bond reserve of £40m (August 2021: £40m)
and Other reserves of £(279)m (August 2021: £(277)m). The 'Other' reserve
includes reserves created in relation to the historical capital reorganisation
and proforma restatement of £(238)m (2021: £(238)m), the demerger from
Smiths News PLC in 2006 of £69m (2021: £69m) and cumulative amounts relating
to employee share schemes of £(110)m (2021: £(108)m).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval of Interim Statement
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards
(IFRS), with future changes being subject to endorsement by the UK Endorsement
Board. WH Smith PLC transitioned to UK-adopted International Accounting
Standards in its consolidated financial statements on 1 September 2021. This
change constitutes a change in accounting framework. However, there is no
impact on recognition, measurement or disclosure in the period reported as a
result of the change in framework.
This Condensed Interim Financial Statements for the 6 months ended 28 February
2022 have been prepared in accordance with the UK-adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
The interim report does not include all of the notes of the type normally
included in an annual financial report. Accordingly, this report should be
read in conjunction with the Group's Annual Report and Accounts 2021, which
were prepared in accordance with both "International Accounting Standards in
conformity with the requirements of the Companies Act 2006" and "International
Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union", and any public announcements made by WH
Smith PLC during the interim reporting period.
The financial information set out in this report does not constitute statutory
accounts within the meaning of section 435 of the Companies Act 2006. The
Annual Report and Accounts 2021 have been filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified, did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying the report and did not contain statements under
s498(2) or s498(3) of the Companies Act 2006.
The Condensed Interim Financial Statements have been prepared in accordance
with the accounting policies set out in the 2021 Annual Report and Accounts
and it is these accounting policies which are expected to be followed in the
preparation of the full financial statements for the financial year ended 31
August 2022, except as outlined below.
Taxes on income in the interim period are accrued using the tax rate that
would be applicable to the expected total annual profit or loss.
The Group has adopted the following standards and interpretations which became
mandatory for the first time during the current financial year. The adoption
of these standards has had no material impact on the Group.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2
At the balance sheet date, the following standards and interpretations, which
have not been applied in these financial statements, were in issue but not yet
effective (and in some cases had not yet been endorsed by the UK):
IFRS 17 Insurance contracts
Amendments to IAS 1 Presentation of financial statements on classification of liabilities
Amendments to IAS 12 and IFRS 1 Deferred tax related to assets and liabilities arising from a single
transaction
Annual Improvements 2018-2020
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8
The directors anticipate that the adoption of these standards and
interpretations will have no material impact on the Group's financial
statements.
Alternative performance measures
The Group has identified certain Alternative Performance Measures ("APMs")
that it believes will assist the understanding of the performance of the
business. These APMs are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for, or superior to, IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The APMs are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs.
The key APMs that the Group uses include: measures before non-underlying
items, Headline profit before tax, Headline earnings per share, trading
profit, Headline trading profit, Headline Group profit from trading
operations, like-for-like revenue, gross margin, fixed charges cover, EBITDA,
Net debt/funds and Headline net debt/funds and free cash flow.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval of Interim Statement
(continued)
Alternative performance measures (continued)
These APMs are set out in the Glossary on page 41 including explanations of
how they are calculated and how they are reconciled to a statutory measure
where relevant.
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items, that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures may exclude the
financial effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, costs relating to business combinations, impairment charges
and other property costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax effect of
these items. In addition, measures before non-underlying items exclude the
income statement impact of amortisation of intangible assets acquired in
business combinations, which are recognised separately from goodwill. This
amortisation is not considered to be part of the underlying operating costs of
the business and has no associated cash flows.
The Group believes that the separate disclosure of these items provides
additional useful information to users of the financial statements to enable a
better understanding of the Group's underlying financial performance.
Further details of the non-underlying items are provided in Note 3.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of condensed interim financial statements in conformity with
generally accepted accounting principles requires management to make
judgements, estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities. Actual results could differ from these estimates and any
subsequent changes are accounted for with an effect on income at the time such
updated information becomes available.
The most critical accounting judgements and sources of estimation uncertainty
in determining the financial condition and results of the Group are those
requiring the greatest degree of subjective or complex judgement. These relate
to the classification of items as non-underlying, assessment of lease
substitution rights, determination of the lease term, determination of the
incremental borrowing rate, valuation of retirement benefit obligations,
valuation of goodwill and other non-current assets and inventory valuation.
The key areas where the judgments, estimates and assumptions applied have a
significant risk of causing a material adjustment to the carrying value of
assets and liabilities are consistent with those applied in the Group's
financial statements for the year ended 31 August 2021, as set out on pages
111 to 112 of those financial statements.
For details of changes to significant estimates for impairment of property,
plant and equipment and right-of-use assets in the current period, refer to
Notes 3 and 8.
Going concern
The condensed interim financial statements have been prepared on a going
concern basis.
The directors are required to assess whether the Group can continue to operate
for at least the 12 months from the date of approval of these financial
statements, and to prepare the financial statements on a going concern basis.
The directors report that they have assessed the principal risks, reviewed
current performance and forecasts, combined with expenditure commitments,
including capital expenditure, and borrowing facilities and any mitigating
actions in the control of the directors. The directors have concluded that it
is appropriate to adopt the going concern basis of accounting in preparing
these financial statements, having undertaken a rigorous assessment of the
financial forecasts, for the reasons set out below.
In making the going concern assessment, the directors have modelled two
scenarios for a 16 month period to August 2023 in order to assess the impact
on the covenants which are also measured at this date. The base case scenario
is based on a Board approved forecast for the year ending August 2022 and the
three year plan for the period ending 31 August 2023 adjusted for the latest
view of sales in our High Street business. In High Street we have assumed that
rents are paid as normal across the period and on a monthly basis. In all
Travel segments, rents are based on agreed concessions or contractual
agreements with landlords and our reasonable assessment of extending those
agreements where necessary to incorporate the 16 month review period.
A downside scenario has also been modelled, applying severe but plausible
assumptions to the base case. This replicates the Group's performance in the
year ending August 2022, by applying the sales experienced to January 2022 and
forecast for the remainder of the financial year, to the period December 2022
to August 2023.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval of Interim Statement
(continued)
Going concern (continued)
This includes a recurrence of another Covid-19 variant with no mitigating
actions, increasing the severity of the scenario. It does not assume a full
national lock down.
In both the base case and severe but plausible scenarios the Group would
continue to have sufficient liquidity headroom on its existing facilities and
meet its covenant tests, as described below.
The covenants tests on the above facilities for August 2022 are based on a
minimum liquidity test. The covenant tests for February 2023 and August 2023
are based on leverage and fixed charge cover. In the base case and severe but
plausible scenarios, the Group meets the conditions of all its covenant tests
up to and including August 2023.
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same basis as that
used by the Chief Operating Decision Maker for assessing performance and
allocating resources. The Group's operating segments are based on the reports
reviewed by the Board of Directors who are collectively considered to be the
chief operating decision maker.
During the year ended 31 August 2021, the Group reviewed its assessment of its
operating segments, as a result of internal reorganisation and changes to the
composition of information used by the Board to monitor the performance of the
Group. This review resulted in a change to the reportable segments identified,
and prior year comparatives have been restated. There is no change to the
total revenue or Group profit from trading operations.
For management and financial reporting purposes, the Group is organised into
two operating divisions and which comprise four reportable segments - Travel
UK, North America, Rest of the World within the Travel division, and High
Street. The North America operating segment includes both MRG and InMotion.
The information presented to the Board is prepared in accordance with the
Group's IFRS accounting policies, with the exception of IFRS 16, and is shown
below as Headline information in Section b). A reconciliation to statutory
measures is provided below in accordance with IFRS 8, and in the Glossary on
page 41 (Note A1)
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
2. Segmental analysis of results (continued)
a) Group revenue
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited)
(unaudited)
(audited)
Travel UK 189 79 195
North America 116 55 166
Rest of the World(1) 33 16 40
Total Travel 338 150 401
High Street 270 270 485
Group revenue 608 420 886
( )
(1) Rest of the World revenue includes revenue from Australia of £11m (28
February 2021: £9m). No other country has individually material revenue.
Seasonality
Sales in the High Street business are subject to seasonal fluctuations, with
peak demand in the Christmas trading period, which falls in the first half of
the Group's financial year. Sales in the Travel business are also subject to
seasonal fluctuations, with higher demand during peak travel periods
particularly during the summer holiday months.
b) Group results
6 months to 28 Feb 2022 (unaudited) 6 months to 28 Feb 2021 (unaudited)
£m Headline (pre-IFRS16)(1) Headline non-underlying items (pre-IFRS 16) IFRS 16 Total Headline (pre-IFRS16)(1) Headline non-underlying items (pre-IFRS 16) IFRS 16 Total
Travel UK trading profit / (loss) 3 - 6 9 (19) - - (19)
North America trading profit / (loss) 8 - - 8 (3) - (1) (4)
Rest of the World trading loss (1) - (1) (2) (6) - (2) (8)
Total Travel trading profit / (loss) 10 - 5 15 (28) - (3) (31)
High Street trading profit 26 - 9 35 24 - 9 33
Group profit / (loss) from trading operations 36 - 14 50 (4) - 6 2
Unallocated central costs (10) - - (10) (9) - - (9)
Group operating profit / (loss) before non-underlying items 26 - 14 40 (13) - 6 (7)
Non-underlying items (Note 3) - (3) (3) (6) - (18) (3) (21)
Group operating profit / (loss) 26 (3) 11 34 (13) (18) 3 (28)
Finance costs (12) - (4) (16) (6) - (4) (10)
Group profit / (loss) before tax 14 (3) 7 18 (19) (18) (1) (38)
Income tax (expense) / credit (3) 1 (2) (4) 1 2 - 3
Profit/ (loss) for the period 11 (2) 5 14 (18) (16) (1) (35)
(1) Presented on a pre-IFRS 16 basis. Alternative Performance Measures are
defined and explained in the Glossary on page 41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
2. Segmental analysis of results (continued)
c) Other segmental items
6 months to 28 Feb 2022
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 17 (8) - - -
North America 9 (5) - - -
Rest of the World 2 (1) - - -
Total Travel 28 (14) - - -
High Street 11 (7) (2) - -
Unallocated - (1) - - -
Headline, before non-underlying items 39 (22) (2) - -
Headline non-underlying items (pre-IFRS 16) - (2) (1) - -
Headline, after non-underlying items 39 (24) (3) - -
Impact of IFRS 16 - - - (36) -
Non-underlying items (IFRS 16) - - - - (3)
Group 39 (24) (3) (36) (3)
6 months to 28 Feb 2021
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 4 (8) - - -
North America 8 (6) - - -
Rest of the World 1 (2) - - -
Total Travel 13 (16) - - -
High Street 8 (9) - - -
Unallocated - (2) - - -
Headline, before non-underlying items 21 (27) - - -
Headline non-underlying items (pre-IFRS 16) - (2) (6) - -
Headline, after non-underlying items 21 (29) (6) - -
Impact of IFRS 16 - 2 - (43) -
Non-underlying items (IFRS 16) - - 1 - (9)
Group 21 (27) (5) (43) (9)
(1) Non-current assets including property, plant and equipment and intangible
assets, but excluding right-of-use assets.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
3. Non-underlying items
Items which are not considered part of the normal operating costs of the
business are non-recurring and are considered exceptional because of their
size, nature or incidence, are treated as non-underlying items and disclosed
separately. Further details of the non-underlying items are included in Note
1, and in the Group Overview on page 11.
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(audited)
(unaudited) (unaudited)
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment 1 5 14
- Impairment of right-of-use assets 3 9 28
- Write-down of inventories - 5 5
- Restructuring costs - 2 9
- Costs associated with refinancing - - 6
- Other - (3) (2)
Costs relating to business combinations - 1 2
Amortisation of acquired intangible assets 2 2 3
Non-underlying items, before tax 6 21 65
Tax credit on non-underlying items (1) (3) (12)
Non-underlying items, after tax 5 18 53
Costs directly attributable to Covid-19
As described in the Group Overview the Covid-19 pandemic has continued to
impact on the Group's operations during the period. As a result, the Group has
incurred further costs which have been separately recognised in non-underlying
items, in accordance with the Group's accounting policy. The charges have
arisen as a direct consequence of Covid-19.
Impairment of Property, plant and equipment and Right-of-use assets
The Group has carried out an assessment for indicators of impairment across
the store portfolio. This assessment has identified a small number of stores
where, following the emergence of the Omicron variant and subsequent changes
to government guidance, the trading performance in the first 6 months of the
year has been more negatively impacted than expected, and the longer-term
impact of Covid-19 has become more clear, driven by the ongoing impact of
Covid-19 on consumer shopping patterns.
The impairment review compares the value-in-use of individual store
cash-generating units to their carrying value, based on managements'
assumptions regarding likely future trading performance. As a result of this
exercise, a charge of £4m was recorded within non-underlying items, of which
£1m relates to property, plant and equipment and £3m relates to right-of-use
assets.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and
InMotion brands in both the current and prior periods.
A tax credit of £1m has been recognised in relation to the above items (28
February 2021: £3m).
Prior year non-underlying items
Costs directly attributable to Covid-19
Impairment of Property, plant and equipment and Right-of-use assets
In the prior year, the Group carried out a review for potential impairment
across the entire store portfolio, as Covid-19 was considered to be an
over-arching indicator of impairment. Following this review, a charge of £14m
was recorded within non-underlying items for impairment of retail store
assets, of which £5m relates to property, plant and equipment and £9m
relates to right-of-use assets. Refer to Note 8 for details of impairment of
store cash-generating units.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
3. Non-underlying items (continued)
Prior year non-underlying items (continued)
Costs directly attributable to Covid-19 (continued)
Write-down of inventories
The Group assesses the recoverability of the carrying value of inventories at
every reporting period and, where the expected recoverable amount is lower
than the carrying value, a provision is recorded. In the prior period,
provisions of £4m were recorded against inventory, which related to dated and
perishable stock and stock subject to obsolescence. In addition, as a result
of the government lockdowns, the Group has incurred stock write-offs of £1m
mainly relating to perishable and dated product. The Group has recognised
these charges as non-underlying as they meet the Group's definition of
non-underlying.
Restructuring costs
In the prior year, the charges of £9m was principally attributable to
redundancies and restructuring costs following a review of store operations
across our High Street business, as a result of the impact of Covid-19 on
footfall on the UK high street. These costs were presented as a non-underlying
item as they are part of a Board-agreed restructuring programme, and are
considered material one-off in nature.
Other
Other non-underlying items in the prior year relate to costs in relation to
international franchisees, and derecognition of lease liabilities relating to
the disposal of WHSmith France.
Costs relating to business combinations
During the year ended 31 August 2021, the Group incurred further integration
costs of £2m in relation to the acquisition of Marshall Retail Group ('MRG'),
which completed on 20 December 2019.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
4. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit schemes (which are
closed to new entrants and future service accrual) and defined contribution
pension schemes. The main pension arrangements for employees are operated
through a defined contribution scheme, WH Smith Retirement Savings Plan, and a
defined benefit scheme, WHSmith Pension Trust. The most significant scheme is
the defined benefit WHSmith Pension Trust.
The retirement benefit obligations recognised in the balance sheet for the
respective schemes at the relevant reporting dates were:
£m At At At
28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
WHSmith Pension Trust (2) (3) (2)
United News Shops Retirement Benefits Scheme - (1) (1)
Retirement benefit obligation recognised in the balance sheet (2) (4) (3)
Recognised as:
Current liabilities (1) (1) (1)
Non-current liabilities (1) (3) (2)
WHSmith Pension Trust
The market value of the assets and the present value of the liabilities in the
scheme at the relevant reporting dates were:
£m At At At
28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Present value of the obligations (1,047) (1,121) (1,172)
Fair value of plan assets 1,404 1,319 1,456
Surplus before consideration of asset ceiling 357 198 284
Amounts not recognised due to effect of asset ceiling (357) (198) (284)
Additional liability recognised due to minimum funding requirements (2) (3) (2)
Retirement benefit obligation recognised in the balance sheet (2) (3) (2)
Total loss recognised in the Statement of Comprehensive Income ("SOCI"):
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Total actuarial gain / (loss) before consideration of asset ceiling 115 13 (50)
(Loss) / return on plan assets excluding amounts included in net interest cost (46) (86) 58
(Loss) / gain resulting from changes in amounts not recognised due to effect (70) 72 (11)
of asset ceiling excluding amounts recognised in net interest cost
Gain resulting from changes in additional liability due to minimum funding - - 1
requirements excluding amounts recognised in net interest cost
Total actuarial loss recognised in other comprehensive income (1) (1) (2)
Actuarial losses recognised in the statement of comprehensive income on the
United News Shops Retirement Benefits Scheme were £nil in the period to 28
February 2022 (28 February 2021: £nil).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
4. Retirement benefit obligations (continued)
Movement in net retirement benefit liability during the period:
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
At beginning of period (2) (3) (3)
Current service cost - - -
Contributions from sponsoring companies 1 1 3
Actuarial losses on defined benefit pension schemes (1) (1) (2)
At end of period (2) (3) (2)
In accordance with the requirements of IFRIC 14 management has recognised the
net present value of the schedule of contributions as a liability of £2m (28
February 2021: £3m). The defined benefit pension schemes are closed to
further accrual. The Group does not have an unconditional right to derive
economic benefit from any surplus, as the Trustees retain the right to enhance
benefits under the Trust deed, and therefore the present value of the economic
benefits of the IAS 19 surplus in the pension scheme of £357m (28 February
2021: £198m) available as a reduction of future contributions is £nil (28
February 2021: £nil). As a result, the Group has not recognised this IAS 19
surplus on the balance sheet. There is an ongoing actuarial deficit primarily
due to the different assumptions and calculation methodologies used compared
to those on interpretation of IAS 19.
A full actuarial valuation of the scheme is carried out every three years with
interim reviews in the intervening years. The latest full actuarial valuation
of the Pension Trust was carried out as at 31 March 2020 by independent
actuaries using the projected unit credit method. At 31 March 2020 the deficit
was £9m. The Group has agreed a continuation of the annual funding schedule
with the Trustees from March 2020 for the following 5 years, which includes
the deficit recovery contributions and other running costs of just under £3m.
During the period, the Group made a contribution of £1m to the WHSmith
Pension Trust (28 February 2021: £1m) in accordance with the agreed pension
deficit funding schedule. The Group expects the cash payments for the year
ended 31 August 2022 to be approximately £3m in total in relation to the
scheme (year ended 31 August 2021: £3m).
The principal long-term assumptions used in the IAS 19 valuation were:
6 months to 12 months to
% 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Rate of increase in pension payments 3.56 3.22 3.35
Rate of increase in deferred pensions 3.05 2.50 2.55
Discount rate 2.65 2.00 1.75
RPI Inflation assumption 3.75 3.30 3.45
CPI Inflation assumption 3.05 2.50 2.55
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
5. Finance costs
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Interest payable on bank loans and overdrafts 4 6 10
Interest on convertible bonds 7 - 4
Interest on lease liabilities 5 4 10
Net interest cost on the defined benefit pension liabilities - - -
16 10 24
( )
Interest on convertible bonds includes £3m accrued coupon and £4m non-cash
debt accretion charge.
6. Income tax expense
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Tax on profit / (loss) 2 - -
Adjustment in respect of prior years - - (1)
Total current tax expense / (credit) 2 - (1)
Deferred tax - current year 4 - (11)
Deferred tax - prior year (1) - (4)
Deferred tax - adjustment in respect of change in tax rates - - (8)
Tax on Headline (loss) / profit 5 - (24)
Tax on non-underlying items - deferred tax (1) (3) (12)
Total tax on (loss) / profit 4 (3) (36)
The effective tax rate, before non-underlying items, was a charge of 22 per
cent (31 August 2021: credit of 47 per cent). The 22 per cent effective tax
rate is higher than the statutory tax rate of 19 per cent mainly due to
differences in overseas tax rates.
The tax charge is calculated by applying the full year estimated tax rate to
the profits made in the first half of the year.
The UK corporation tax rate is 19 per cent. From 1 April 2023 the corporation
tax rate will increase to 25 per cent. This new law was substantively enacted
on 24 May 2021, and therefore the main impact of this rate change on the
deferred tax balances was reflected in the 2021 financial statements which
resulted in increasing the effective tax rate credit in the prior year.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
( )
7. Earnings / (loss) per share
a) Earnings
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Profit / (loss) for the period attributable to equity holders of the parent 12 (35) (82)
Non-underlying items (Note 3) 5 18 53
Headline profit / (loss) for the period attributable to equity holders of the parent 17 (17) (29)
( )
b) Weighted average share capital
6 months to 12 months to
Millions 28 Feb 2022 28 Feb 2021 31 Aug 2021 (audited)
(unaudited) (unaudited)
Weighted average ordinary shares in issue 131 131 131
Less weighted average ordinary shares held in ESOP Trust - - -
Weighted average ordinary shares for basic earnings per share 131 131 131
Add weighted average number of ordinary shares under option - 1 -
Weighted average ordinary shares for diluted earnings per share 131 132 131
( )
c) Basic and diluted earnings / (loss) per share
6 months to 12 months to
Pence 28 Feb 2022 28 Feb 2021 31 Aug 2021 (audited)
(unaudited) (unaudited)
Basic earnings / (loss) per share 9.2 (26.7) (62.6)
Adjustments for non-underlying items 3.8 13.7 40.5
Headline basic earnings / (loss) per share 13.0 (13.0) (22.1)
Diluted earnings / (loss) per share 9.2 (26.5) (62.6)
Adjustments for non-underlying items 3.8 13.6 40.5
Headline diluted earnings / (loss) per share 13.0 (12.9) (22.1)
Diluted earnings per share takes into account various share awards and share
options including SAYE schemes, which are expected to vest, and for which a
sum below fair value will be paid.
At 28 February 2022 the convertible bond has no dilutive effect as the
inclusion of these potentially dilutive shares would improve earnings per
share (31 August 2021: No dilutive effect).
The calculation of EPS on a pre-IFRS 16 basis is provided in the Glossary on
page 41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
( )
8. Non-current assets
During the 6 months to 28 February 2022, there were additions to property,
plant and equipment of £34m (28 February 2021: £15m). There were no material
disposals of tangible assets during the period (28 February 2021: £nil).
During the 6 months to 28 February 2022, there were additions right of use
assets of £39m (28 February 2021: £14m) through signing of new leases and
lease modifications.
Capital expenditure in respect of intangible assets totalled £5m (28 February
2021: £6m) in the period. There were no material disposals of intangible
assets during the period (28 February 2021: £nil).
Goodwill increased by £10m in the period, as a result of movements in
exchange rates (28 February 2021: decrease of £16m, as a result of movements
in exchange rates).
Impairment of property, plant and equipment, right-of-use assets and
intangible assets
For impairment testing purposes, the Group has determined that each store is a
separate CGU. Each CGU is tested for impairment at the balance sheet date if
any indicators of impairment have been identified. Following a review of
available information, indicators of impairment were identified in respect of
a small number of High Street CGUs and one CGU within the Rest of World
segment. The identified indicators include under-performance of individual
stores versus forecast as a result of slower than expected recovery from
Covid-19.
For these CGUs, Property, plant and equipment and right-of-use assets have
been tested for impairment by comparing the carrying amount of each CGU with
its recoverable amount determined from value-in-use calculations. The
value-in-use of each CGU has been calculated using discounted cash flows
derived from the Group's latest forecasts, taking into account the projected
impact of Covid-19, and reflects historic performance and knowledge of the
current market, together with the Group's views on the future achievable
growth for these specific stores. Cash flows beyond the forecast period are
extrapolated using growth rates and inflation rates appropriate to each
store's location. Cash flows have been included for the remaining lease life
for the specific store. These growth rates do not exceed the long-term growth
rate for the Group's retail businesses in the relevant territory. Where stores
have a relatively short remaining lease life, an extension to the lease has
been assumed where management consider it likely that an extension will be
granted. The discount rate applied to future cash flows was 10.4% (31 August
2021: 10.4%)
Where the value-in-use was less than the carrying value of the CGU, an
impairment of property, plant and equipment and right-of-use assets was
recorded. The Group has recognised an impairment charge of £3m to property,
plant and equipment and £3m to right-of-use assets as a result of impairment
testing. Impairments of £4m have been presented as non-underlying items in
the current year (see Note 3), and impairments of £2m have been included in
underlying results.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
9. Analysis of net debt
Movement in net debt can be analysed as follows:
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Cash and cash equivalents Net debt
Liabilities from financing activities
At 1 September 2021 (132) (283) - (470) (885) 130 (755)
Other non-cash movements - (5) - (31) (36) - (36)
Other cash movements - - - 44 44 (42) 2
Currency translation - - - (4) (4) - (4)
At 28 February 2022 (132) (288) - (461) (881) 88 (793)
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Cash and cash equivalents Net debt
Liabilities from financing activities
At 1 September 2020 (400) - - (559) (959) 108 (851)
Proceeds from borrowings - (327) - - (327) 327 -
Repayments of borrowings 267 - - - 267 (267) -
Bifurcation of convertible bond - 41 - - 41 - 41
Other non-cash movements - (2) - (7) (9) - (9)
Other cash movements 1 5 - 91 97 (38) 59
Currency translation - - - 5 5 - 5
At 31 August 2021 (132) (283) - (470) (885) 130 (755)
An explanation of Alternative performance measures, including Net debt on a
pre-IFRS 16 basis is provided in the Glossary on page 41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
9. Analysis of net debt (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank
deposits with an original maturity of three months or less. The carrying
amount of these assets approximates to their fair value.
Lease liabilities
Other (non-cash) movements in lease liabilities mainly relate to new leases,
modifications and remeasurements in the year.
Term loans and revolving credit facilities
On 28 2021 April the Group announced new financing arrangements. These
included the issuance of £327m of convertible bonds, the repayment of the
existing £400m term loans and replacement with a new £133m term loan, and an
increased revolving credit facility of £250m.
At 28 February 2022 the Group has in place a five-year committed
multi-currency revolving credit facility of £250m with Santander UK PLC, BNP
Paribas, HSBC UK Bank PLC, JP Morgan Securities PLC and Barclays Bank PLC. The
revolving credit facility is due to mature on 28 April 2025. The utilisation
is interest bearing at a margin over SONIA. As at 28 February 2022, the Group
has drawn down £nil on this facility (28 February 2021: £nil drawn down on
previous facility).
As part of the new financing arrangements the additional multi-currency
revolving credit facility of £120m, which was undrawn and due to expire in
November 2021, was cancelled.
The Group has a four-year committed £133m term loan with Banco Santander
S.A., London Branch, Barclays Bank PLC, BNP Paribas and HSBC UK Bank PLC, that
was drawn down at the time of the refinancing in April 2021. This loan is
interest bearing at a margin over SONIA and is due to mature on 28 April 2025.
Transaction costs incurred in the prior year of £1m relating to the term loan
are amortised to the Income statement through the effective interest rate
method. Transaction costs of £1m relating to the RCF have been capitalised
and are amortised to the Income statement on a straight-line basis.
Convertible bonds
On 28 April 2021, the Group announced the launch of an offering of £327m of
guaranteed senior unsecured convertible bonds due in 2026. Settlement and
delivery of convertible bonds took place on 7 May 2021. The total bond
offering of £327m covers a five-year term beginning on 7 May 2021 with a
1.625% per annum coupon payable semi-annually in arrears in equal instalments.
The bonds are convertible into new and/or existing ordinary shares of WH Smith
PLC. The initial conversion price was set at £24.99 representing a premium of
40% above the reference share price on 28 April 2021 (£17.85). If not
previously converted, redeemed or purchased and cancelled, the Bonds will be
redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument, consisting of a
financial liability component and an equity component, representing the value
of the conversion rights. The initial fair value of the liability portion of
the convertible bond is determined using a market interest rate for an
equivalent non-convertible bond at the issue date. The liability is
subsequently recognised on an amortised cost basis using the effective
interest rate method until extinguished on conversion or maturity of the
bonds. The remainder of the proceeds is allocated to the conversion option and
recognised in equity (Other reserves), and not subsequently remeasured. As a
result, £286m was initially recognised as a liability in the balance sheet on
issue and the remainder of the proceeds of £41m, which represents the option
component, was recognised in equity.
Transaction costs incurred in the prior year of £6m were allocated between
the two components and the element relating to the debt component of £5m is
being amortised through the effective interest rate method. The issue costs
apportioned to the equity component of £1m have been deducted from equity.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
10. Cash generated from operating activities
6 months to 12 months to
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021 (audited)
(unaudited) (unaudited)
Group operating profit / (loss) 34 (28) (92)
Depreciation of property, plant and equipment 18 20 36
Impairment of property, plant and equipment 3 4 16
Amortisation of intangible assets 6 7 14
Depreciation of right of use assets 36 43 84
Impairment of right of use assets 3 9 28
Non-cash change in lease liabilities (5) (13) (23)
Share-based payments 4 2 6
Gain on disposal and re-measurement of leases (2) (1) (3)
Other non-cash items - (3) (2)
(Increase) / decrease in inventories (17) 25 14
(Increase) / decrease in receivables (1) 8 4
(Decrease) / increase in payables (20) (39) 24
Pension funding (1) (1) (3)
Income taxes paid (3) - -
Income taxes refunded - - 10
Movement on provisions (through utilisation or income statement) - 1 -
Cash generated from operating activities 55 34 113
11. Called Up Share Capital
28 Feb 2022 28 Feb 2021 (unaudited) 31 Aug 2021
(unaudited) (audited)
Number of shares (millions) Nominal value Number of shares (millions) Nominal value Number of shares (millions) Nominal value
£m £m £m
Equity
Ordinary shares of 22 6/67p 131 29 131 29 131 29
Total 131 29 131 29 131 29
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 meetings of
the Company.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
12. Contingent liabilities and capital commitments
£m 28 Feb 2022 28 Feb 2021 31 Aug 2021 (audited)
(unaudited) (unaudited)
Bank guarantees and guarantees in respect of lease agreements 32 30 31
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 with
Smiths News PLC, any such contingent liability, which becomes an actual
liability, will be apportioned between the Group and Smiths News PLC in the
ratio 65:35 (provided that the actual liability of Smiths News PLC in any
12-month period does not exceed £5m). The Group's 65 per cent share of
these leases has an estimated future rental commitment at 28 February 2022 of
£1m (28 February 2021: £1m).
At 28 February 2022, contracts placed for future capital expenditure approved
by the directors but not provided for amounted to £22m (28 February 2021:
£9m).
13. Related Parties
Other than directors' remuneration, there have been no material related party
transactions during the interim period under review.
14. Financial instruments
IFRS 13 requires disclosure of fair value measurements by level based on the
following measurement hierarchy:
· Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2 - inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices); and
· Level 3 - inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
All fair value measurements made by the group are in the Level 2 category. The
fair value of forward foreign exchange contracts has been determined using
forward currency exchange rates at the balance sheet date. These have been
provided by the individual banking institutions with whom the contracts are
held. There have been no transfers of assets or liabilities between any levels
of the fair value hierarchy.
There were no material differences between the carrying value of
non-derivative financial assets and financial liabilities and their fair
values at the balance sheet date.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
14. Financial instruments (continued)
£m 28 Feb 2022 (unaudited) 28 Feb 2021 (unaudited) 31 Aug 2021 (audited)
Financial assets
Cash flow hedges:
Forward foreign currency contracts - - -
- - -
£m 28 Feb 2022 (unaudited) 28 Feb 2021 (unaudited) 31 Aug 2021 (audited)
Financial liabilities
Cash flow hedges:
Forward foreign currency contracts - (1) -
- (1) -
15. Events after the balance sheet date
WH Smith subsidiary, Funky Pigeon, the online greetings card and gift
retailer, was subject to a cyber security incident affecting part of its
systems on Thursday 14 April 2022.
No customer payment data, such as bank account or credit card details, has
been placed at risk - all of this data is processed securely via accredited
third-parties and is securely encrypted. We are currently investigating the
extent to which any personal data, specifically names, addresses, e-mail
addresses and personalised card and gift designs has been accessed.
Based on the analysis of the situation performed to date, the incident is not
expected to have a material impact on the financial position of the WH Smith
Group.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
(a) The condensed financial statements have been prepared in accordance with
IAS 34, Interim Financial Reporting, as adopted by the UK; and
(b) This interim report includes a fair review of the information required by:
· DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· DTR 4.2.8R of the Disclosure and Transparency Rules, being
related parties' transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or the performance of the Group during that period; and any changes
in the related parties' transactions described in the last annual report that
could do so.
The Directors of WH Smith PLC are listed on the website at
www.whsmithplc.co.uk/about-us/our-board
(http://www.whsmithplc.co.uk/about-us/our-board) .
By order of the Board
Carl Cowling
Robert
Moorhead
Group Chief Executive Chief
Financial Officer and Chief Operating Officer
27 April 2022
Independent review report to WH Smith Plc
Report on the Consolidated Interim Financial Statements
Our conclusion
We have reviewed WH Smith Plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Interim Results
Announcement of WH Smith Plc for the 6 month period ended 28 February 2022
(the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Group Balance Sheet as at 28 February 2022;
· the Condensed Group Income Statement and Condensed Group
Statement of Comprehensive Income for the period then ended;
· the Condensed Group Cash Flow Statement for the period then
ended;
· the Condensed Group Statement of Changes in Equity for the period
then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results Announcement
of WH Smith Plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim Results
Announcement and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Results Announcement, including the interim financial statements,
is the responsibility of, and has been approved by the directors. The
directors are responsible for preparing the Interim Results Announcement in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Results Announcement based on our review. This
report, including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 April 2022
WH Smith PLC
Glossary (unaudited)
Alternative 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, which are not considered to be a
substitute for or superior to IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The Alternative Performance Measures are not defined by
IFRS and therefore may not be directly comparable with other companies'
Alternative Performance Measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures may exclude the
financial effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, costs relating to business combinations, impairment charges
and other property costs, significant items related to pension schemes, and
impairment charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax effect of
these items. In addition, measures before non-underlying items exclude the
income statement impact of amortisation of intangible assets acquired in
business combinations, which are recognised separately from goodwill. This
amortisation is not considered to be part of the underlying operating costs of
the business and has no associated cash flows.
The Group believes that they provide additional useful information to users of
the financial statements to enable a better understanding of the Group's
underlying financial performance.
IFRS 16
The Group adopted IFRS 16 in the financial year ended 31 August 2020. IFRS 16
superseded the lease guidance under IAS 17 and the related interpretations.
IFRS 16 sets out the principles for the recognition, measurement, presentation
and disclosure of leases and requires lessees to account for all leases under
a single on-balance sheet model as the distinction between operating and
finance leases is removed. The only exceptions are short-term and low-value
leases. At the commencement date of a lease, a lessee will recognise a lease
liability for the future lease payments and an asset (right-of-use asset)
representing the right to use the underlying asset during the lease term.
Lessees are required to separately recognise the interest expense on the lease
liability and the depreciation expense on the right-of-use asset.
For the purposes of narrative commentary on the Group's performance and
financial position in the Strategic report, the effects of IFRS 16 have been
excluded, in order to provide meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income statement and
Segmental information is provided in Notes A1 and A2 below. There is no impact
on cash flows, although the classification of cash flows has changed, with an
increase in net cash inflows from operating activities being offset by a
decrease in net cash inflows from financing activities, as set out in Note A9
below. The balance sheet as at 28 February 2022 both including and excluding
the impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value determined at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
These assets are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, over the term of the relevant lease.
Lease payments are apportioned between finance charges and a reduction of the
lease obligations so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognised directly in
the income statement.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term. The Group
has a number of lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are accrued in
line with revenues generated.
WH Smith PLC
Glossary (unaudited)
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures issued by the
European Securities and Markets Authority ('ESMA'), we have provided
additional information on the APMs used by the Group below, including full
reconciliations back to the closest equivalent statutory measure.
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income Statement Measures
Headline measures Various See Notes A1-A11 Headline measures exclude the impact of IFRS 16 (applying the principles of
IAS 17). Reconciliations of all Headline measures are provided in Notes A1 to
A11.
Group profit / (loss) before tax and non-underlying items Group profit / (loss) before tax See Note A1 and A2 Group profit / (loss) before tax and non-underlying items excludes the impact
of non-underlying items as described below. A reconciliation from Group profit
/ (loss) before tax and non-underlying items to Group profit / (loss) before
tax is provided on the Group income statement on page 17, and on a Headline
(pre-IFRS 16) basis in Note A1 and A2.
Group profit / (loss) from trading operations and segment trading profit / Group operating profit / (loss) See Note 2 and Note A2 Group profit / (loss) from trading operations and segment trading profit /
(loss) (loss) are stated after directly attributable share-based payment and pension
service charges and before non-underlying items, unallocated costs, finance
costs and income tax expense.
A reconciliation from the above measures to Group operating profit / (loss)
and Group profit / (loss) before tax on an IFRS 16 basis is provided in Note 2
to the Condensed Interim Financial Statements and on a Headline (pre-IFRS 16)
basis in Note A2.
Non-underlying items None Refer to definition and see Note 3 and Note A6 Items which are not considered part of the normal operating costs of the
business, are non-recurring and considered exceptional because of their size,
nature or incidence, are treated as non-underlying items and disclosed
separately. The Group believes that the separate disclosure of these items
provides additional useful information to users of the financial statements to
enable a better understanding of the Group's underlying financial performance.
An explanation of the nature of the items identified as non-underlying on an
IFRS 16 basis is provided in Note 3 to the Condensed Interim Financial
Statements, and on a Headline (pre-IFRS 16) basis in Note A6.
Earnings / (loss) per share before non-underlying items Earnings / (loss) per share Non-underlying items, see Note 7 and Note A4 Profit / (loss) for the year attributable to the equity holders of the parent
before non-underlying items divided by the weighted average number of ordinary
shares in issue during the financial year. A reconciliation is provided on an
IFRS 16 basis in Note 7 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline EBITDA Group operating profit / (loss) Refer to definition Headline EBITDA is Headline Group operating profit / (loss) before
non-underlying items adjusted for pre-IFRS 16 depreciation, amortisation and
other non-cash items. See Group Overview on page 13.
Effective tax rate None Non-underlying items see Notes A3 and A6 Total income tax charge / credit excluding the tax impact of non-underlying
items divided by Group Headline profit / (loss) before tax and non-underlying
items. See Note 6 on an IFRS 16 basis, and Notes A3 and A6 on a pre-IFRS 16
basis.
Fixed charges cover None Refer to definition This performance measure calculates the number of times Profit before tax
covers the total fixed charges included in calculating profit or loss. Fixed
charges included in this measure are net finance charges (excluding finance
charges from IFRS 16 leases) and net operating lease rentals stated on a
pre-IFRS 16 basis.
The calculation of this measure is outlined in Note A5.
Gross Gross profit margin Not applicable Where referred to throughout the Interim financial statements, gross margin is
calculated as gross profit divided by revenue.
margin
WH Smith PLC
Glossary (unaudited)
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income Statement Measures (continued)
Like-for-like revenue Movement in revenue per the income statement - Revenue change from non like-for-like stores Like-for-like revenue is the change in revenue from stores that have been open
for at least a year, with a similar selling space at a constant foreign
- Foreign exchange impact exchange rate. As a result of the Covid-19 pandemic, this measure has not been
utilised in the current year.
Balance Sheet Measures
Headline net debt Net debt Reconciliation of net debt Headline net debt is defined as cash and cash equivalents, less bank
overdrafts and other borrowings and both current and non-current obligations
under finance leases as defined on a pre-IFRS 16 basis. Lease liabilities
recognised as a result of IFRS 16 are excluded from this measure.
A reconciliation of Net debt on an IFRS 16 basis provided in Note A8.
Other measures
Free cash flow Net cash inflow from operating activities See Group Overview Free cash flow is defined as the net cash inflow from operating activities
before the cash flow effect of IFRS 16, non-underlying items and pension
funding, less net capital expenditure. The components of free cash flow are
shown in Note A7 and on page 13, as part of the Group Overview.
A1. Reconciliation of Headline to Statutory Group operating profit and Group
profit before tax
6 months to
28 Feb 2022
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 608 - 608 - 608
Cost of sales (240) - (240) - (240)
Gross profit 368 - 368 - 368
Distribution costs (264) - (264) 13 (251)
Administrative expenses (78) - (78) - (78)
Other income - - - 1 1
Non-underlying items - (3) (3) (3) (6)
Group operating profit / (loss) 26 (3) 23 11 34
Finance costs (12) - (12) (4) (16)
Profit / (loss) before tax 14 (3) 11 7 18
Income tax (charge) / credit (3) 1 (2) (2) (4)
Profit / (loss) for the period 11 (2) 9 5 14
Attributable to:
Equity holders of the parent 9 (2) 7 5 12
Non-controlling interests 2 - 2 - 2
11 (2) 9 5 14
WH Smith PLC
Glossary (unaudited)
A1. Reconciliation of Headline to Statutory Group operating profit and Group
profit before tax (cont'd)
6 months to
28 Feb 2021
pre-IFRS 16 basis
IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 420 - 420 - 420
Cost of sales (169) - (169) - (169)
Gross profit 251 - 251 - 251
Distribution costs (196) - (196) 6 (190)
Administrative expenses (68) - (68) (1) (69)
Other income - - - 1 1
Non-underlying items - (18) (18) (3) (21)
Group operating loss (13) (18) (31) 3 (28)
Finance costs (6) - (6) (4) (10)
Loss before tax (19) (18) (37) (1) (38)
Income tax credit 1 2 3 - 3
Loss for the period (18) (16) (34) (1) (35)
Attributable to:
Equity holders of the parent (18) (16) (34) (1) (35)
Non-controlling interests - - - - -
(18) (16) (34) (1) (35)
A2. Reconciliation of Headline to Statutory Segmental trading profit /
(loss) and Profit / (loss) for the period
6 months to 6 months to
28 Feb 2022 28 Feb 2021
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
£m Headline Non-underlying items Total IFRS 16 adjustments Total Headline Non-underlying items Total IFRS 16 adjustments Total
Travel UK trading profit / (loss) 3 - 3 6 9 (19) - (19) - (19)
North America trading profit / (loss) 8 - 8 - 8 (3) - (3) (1) (4)
Rest of the World trading loss (1) - (1) (1) (2) (6) - (6) (2) (8)
Total Travel trading profit / (loss) loss 10 - 10 5 15 (28) - (28) (3) (31)
High street trading profit 26 - 26 9 35 24 - 24 9 33
Group profit / (loss) from trading operations 36 - 36 14 50 (4) - (4) 6 2
Unallocated costs (10) - (10) - (10) (9) - (9) - (9)
Headline Group operating profit / (loss) 26 - 26 14 40 (13) - (13) 6 (7)
Non-underlying items - (3) (3) (3) (6) - (18) (18) (3) (21)
Group operating profit / (loss) 26 (3) 23 11 34 (13) (18) (31) 3 (28)
Finance costs (12) - (12) (4) (16) (6) - (6) (4) (10)
Profit / (loss) before tax 14 (3) 11 7 18 (19) (18) (37) (1) (38)
Income tax (expense) / credit (3) 1 (2) (2) (4) 1 2 3 - 3
Profit / (loss) for the period 11 (2) 9 5 14 (18) (16) (34) (1) (35)
Attributable to:
Equity holders of the parent 9 (2) 7 5 12 (18) (16) (34) (1) (35)
Non-controlling interests 2 - 2 - 2 - - - - -
11 (2) 9 5 14 (18) (16) (34) (1) (35)
WH Smith PLC
Glossary (unaudited)
A3. Reconciliation of Headline to Statutory tax (expense) / credit
6 months to 6 months to
28 Feb 2022 28 Feb 2021
£m IAS 17 IFRS 16 adjustments IFRS 16 IAS 17 IFRS 16 adjustments IFRS 16
Headline profit / (loss) before tax 14 10 24 (19) 2 (17)
Tax on profit 1 1 2 - - -
Adjustment in respect of prior year UK corporation tax - - - - - -
Total current tax charge 1 1 2 - - -
Deferred tax - current year 3 1 4 (1) 1 -
Deferred tax - prior year (1) - (1) - - -
Tax on Headline profit / (loss) 3 2 5 (1) 1 -
Tax on non-underlying items (1) - (1) (2) (1) (3)
Total tax on profit / (loss) 2 2 4 (3) - (3)
A4. Calculation of Headline and Statutory earnings per share
6 months to 6 months to
28 Feb 2022 28 Feb 2021
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
£m Headline Non-underlying items Total IFRS 16 adjustments Total Headline Non-underlying items Total IFRS 16 adjustments Total
Profit / (loss) for the year, attributable to equity holders of the parent 9 (2) 7 5 12 (18) (16) (34) (1) (35)
Weighted average shares in issue for earnings per share 131 - 131 - 131 131 - 131 - 131
Weighted average shares in issued for diluted earnings per share 131 - 131 - 131 132 - 132 - 132
Basic earnings / (loss) per share 6.9p (1.6)p 5.3p 3.9p 9.2p (13.7)p (12.3)p (26.0)p (0.7)p (26.7)p
Diluted earnings / (loss) per share 6.9p (1.6)p 5.3p 3.9p 9.2p (13.6)p (12.2)p (25.8)p (0.7)p (26.5)p
WH Smith PLC
Glossary (unaudited)
A5. Fixed charges cover
£m 6 months to 6 months to
28 Feb 2022 28 Feb 2021
Net finance costs (pre-IFRS 16) 12 6
Net operating lease rentals (pre-IFRS 16) 96 58
Total fixed charges 108 64
Headline profit / (loss) before tax 14 (19)
Headline profit / (loss) before tax and fixed charges 122 45
Fixed charges cover - times 1.1x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
6 months to 6 months to
28 Feb 2021
28 Feb 2022
£m IAS 17 IFRS 16 IAS 17 IFRS 16
Costs relating to business combinations
- Transaction costs - - - -
- Integration costs - - 1 1
Amortisation of acquired intangible assets 2 2 2 2
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment 1 1 6 5
- Impairment of right-of-use assets - 3 - 9
- Other property costs - - 2 -
- Write-down of inventories - - 5 5
- Restructuring costs - - 2 2
- Other - - - (3)
Non-underlying items, before tax 3 6 18 21
Tax credit on non-underlying items (1) (1) (3) (3)
Non-underlying items, after tax 2 5 15 18
Non-underlying items on a pre-IFRS 16 basis are calculated on a consistent
basis with IFRS 16, with the exception of the below items.
A tax credit of £1m has been recognised in relation to the above items (£1m
under IAS 17).
Impairment of property, plant and equipment and right-of-use assets
The impairment charge recognised on a pre-IFRS 16 basis differs from that
recognised under IFRS 16. This is mainly due to a lower asset base pre-IFRS
16, coupled with lower expected store cash flows, with rental expenses being
included in the forecast cash flows (treated as financing costs under IFRS
16), and a higher discount rate. The calculation of the Group's weighted
average cost of capital differs under IFRS 16 versus pre-IFRS 16. The pre-tax
discount rate used in the IFRS 16 calculation was 10.4 per cent and the
pre-tax discount rate used in the pre-IFRS 16 calculation was 13.9 per cent.
Right-of-use assets are not recognised on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
(continued)
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions for onerous
lease contracts; on an IFRS 16 basis, onerous lease contracts are recognised
as an impairment of the right-of-use asset. As a result of the impact of
Covid-19, the Group has carried out a review of leases where the obligations
of those leases exceed the potential economic benefits expected to be received
under them. In the prior year, we have recognised onerous provisions of £2m
for stores where we now anticipate we will make a cash loss over the remaining
term of their leases.
A7. Free cash flow
£m Note 6 months to 6 months to
28 Feb 2022 28 Feb 2021
Cash generated from operating activities 10 55 34
Interest paid (12) (7)
Net cash inflow from operating activities 43 27
Impact of IFRS 16 (Note A9) (43) (41)
Add back:
- Cash impact of non-underlying items 8 22
- Pension funding 1 1
Deduct:
- Purchase of property, plant and equipment (33) (16)
- Purchase of intangible assets (5) (6)
Free cash flow (29) (13)
A8. Headline Net debt
£m Note 6 months to 6 months to
28 Feb 2022
28 Feb 2021
Borrowings
- Revolving credit facility - -
- Convertible bonds (288) -
- Bank loans (132) (400)
- Lease liabilities (461) (509)
Liabilities from financing activities (881) (909)
Cash and cash equivalents 88 72
Net debt (IFRS 16) 9 (793) (837)
- Add back lease liabilities recognised under IFRS 16(1) 457 501
Net debt (IAS 17) (336) (336)
(1) Excludes lease liabilities previously recognised as finance leases on a
pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
A9. Cash flow disclosure impact of IFRS 16
There is no impact on cash flows, although the classification of cash flows
has changed, with an increase in net cash inflows from operating activities
being offset by a decrease in net cash inflows from financing activities.
6 months to 28 Feb 2022 6 months to 28 Feb 2021
£m Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
Net cash inflows from operating activities - 43 43 (14) 41 27
Net cash outflows from investing activities (38) - (38) (21) - (21)
Net cash inflows/(outflows) from financing activities (4) (43) (47) (1) (41) (42)
Net increase in cash in the period (42) - (42) (36) - (36)
A10. Balance sheet impact of IFRS 16
The balance sheet as at 28 February 2022 including and excluding the impact of
IFRS 16 is shown below:
At 28 Feb 2022 At 28 Feb 2021
Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
£m
Goodwill and other intangible assets 484 (1) 483 472 (1) 471
Property, plant and equipment 182 7 189 178 4 182
Right-of-use assets - 330 330 - 370 370
Investments in joint ventures 2 - 2 2 - 2
668 336 1,004 652 373 1,025
Inventories 153 - 153 123 - 123
Payables less receivables (216) 21 (195) (181) 33 (148)
Working capital (63) 21 (42) (58) 33 (25)
Derivative financial liability - - - (1) - (1)
Net current and deferred tax asset 45 10 55 20 12 32
Provisions (28) 14 (14) (27) 13 (14)
Operating assets employed 622 381 1,003 586 431 1,017
Net debt (336) (457) (793) (336) (501) (837)
Net assets excluding pension liability 286 (76) 210 250 (70) 180
Pension liability (2) - (2) (4) - (4)
Deferred tax asset on pension liability - - - 1 - 1
Total net assets 284 (76) 208 247 (70) 177
WH Smith PLC
Glossary (unaudited)
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis
are as follows:
£m 6 months to 28 Feb 2022 6 months to 28 Feb 2021
Net operating lease charges 96 58
For the year ended 31 August 2020, the Group adopted IFRS 16. IFRS 16 requires
lessees to account for all leases under a single on-balance sheet model as the
distinction between operating and finance leases is removed. In order to
provide comparable information, the Group has chosen to present Headline
measures of operating profit/(loss) and profit/(loss) before tax, as explained
in Note 2 Segmental analysis.
The table above presents the pre-IFRS 16 net operating lease charges, applying
the principles of IAS 17, and Group accounting policies as applicable prior to
1 September 2019, as described in the Glossary on page 41.
The Group leases various properties under non-cancellable operating lease
agreements. The leases have varying terms, escalation clauses and renewal
rights. The Group has a number of lease arrangements in which the rent payable
is contingent on revenue. Contingent rentals payable, based on store revenues,
are accrued in line with revenues generated.
The average remaining lease length across the Group is four years.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term.
Temporary rent reductions due to Covid-19, affecting rent payments due on or
before June 2022, have been recognised in the Income statement in the period
they are received.
A12. Analysis of retail stores and selling space
Number of High Street stores(1)
1 Sept 2021 Opened Closed 28 Feb 2022
Total 545 - (8) 537
(1) Excludes 100 WH Smith LOCAL franchised stores
Number of Travel units
A Travel store may consist of multiple units within one location. On an
individual unit basis, Travel stores can be analysed as follows:
1 Sept 2021 Opened Closed 28 Feb 2022
Non franchise units 807 32 (31) 808
Joint Venture and Franchise units(2) 359 12 (17) 354
Total 1,166 44 (48) 1,162
(2) Travel units include motorway and international franchise units, and
exclude kiosks in India, and Supanews and Wild Cards and Gifts franchisees in
Australia.
Retail selling square feet ('000s)
1 Sept 2021 Opened Closed 28 Feb 2022
High Street 2,610 - (23) 2,587
Travel 995 58 (44) 1,009
Total 3,605 58 (67) 3,596
Total Retail selling square feet does not include franchise units.
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