REG - WH Smith PLC - Interim Results
20/04/2023 07:00
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RNS Number : 8290W WH Smith PLC 20 April 2023
20 April 2023
WH SMITH PLC
The global travel retailer
INTERIM RESULTS ANNOUNCEMENT
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023
Strong first half performance ahead of expectations
· Strong first half performance with Group revenue up 41% to £859m
(2022: £608m)
· Headline profit before tax and non-underlying items* of £45m (2022:
£14m)
· Strong momentum across our global Travel business with significant
recovery in passenger numbers, strong average transaction value ('ATV')
growth, successful category expansion and further space growth
· 60 new stores won so far this year including 11 in Canada
· New store pipeline of over 120 stores won and yet to open in Travel,
including 60 in North America
· Investing for growth with capex in the current financial year
expected to be around £150m
· Interim dividend of 8.1p per share reflecting strong current trading
and confidence in future prospects
· Total Travel trading profit* of £47m (2022: £10m)
· High Street trading profit* of £24m (2022: £26m)
· Strong start to the second half, trading momentum continues ahead
of peak summer period
Carl Cowling, Group Chief Executive, commented:
"We have seen a strong performance in the first half of the year further
strengthening our confidence in the prospects of our global travel business.
We expect Travel to represent over 70% of Group revenue and around 85% of
Group profit from trading operations by the end of this financial year.
"In North America, we continue to open new stores with 29 opened in the period
and these are performing well. At the same time, we have grown our new store
pipeline with significant tender wins. We have won a further 28 stores so far
this year, including 11 in Canada across Calgary and Edmonton airports. In the
current financial year, we expect this division to generate over £50m profit*
- making it our second largest division.
"Travel UK, our largest division, has delivered a strong first half
performance and has excellent growth prospects. Revenues are 19% ahead of 2019
levels despite passenger numbers being considerably below 2019 levels. This
performance has been driven by our category expansion, focus on average
transaction value, the success of InMotion and our travel essentials
one-stop-shop format.
"I am increasingly excited by the opportunity in our Rest of the World
division. Our strategy of establishing a presence in multiple countries as a
base for significant growth is demonstrated well by the growth in our store
estates in Spain, Germany and Australia.
"This set of results would not be possible without the fantastic efforts of
our entire team and I would like to take this opportunity to thank them.
"Looking ahead, we are very well positioned to capitalise on the substantial
growth drivers across our markets and we expect to make further good progress
in the years ahead. Current trading is strong and we are ahead of expectations
for the full year."
* Pre-IFRS 16
Group financial summary
Headline
IFRS pre-IFRS 16(2)
6 months to 6 months to 6 months to 6 months to Feb 2022
Feb 2023 Feb 2022 Feb 2023
Travel UK trading profit(1) £31m £9m £31m £3m
North America ('NA') trading profit(1) £16m £8m £14m £8m
Rest of the World ('ROW') trading profit/(loss)(1) £2m £(2)m £2m £(1)m
Total Travel trading profit(1) £49m £15m £47m £10m
High Street trading profit(1) £32m £35m £24m £26m
Group profit from trading operations(1) £81m £50m £71m £36m
Group profit before tax and non-underlying items(1) £47m £24m £45m £14m
Diluted earnings per share before non-underlying items(1) 24.8p 13.0p 23.3p 6.9p
Non-underlying items(1) £(2)m £(6)m £(2)m £(3)m
Group profit before tax £45m £18m £43m £11m
Basic earnings per share 24.6p 9.2p 23.1p 5.3p
Diluted earnings per share 24.1p 9.2p 22.6p 5.3p
Revenue performance
6 months to Feb 2023 6 months to Feb 2022 % change
£m £m
Travel UK 314 189 66%
North America 177 116 53%
Rest of the World 102 33 209%
Total Travel 593 338 75%
High Street 266 270 (1)%
Group 859 608 41%
(1) Alternative Performance Measure (APM) defined and explained in the
Glossary on page 37.
(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 2023, 31 August 2022 and 28 February
2022 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 37. 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.
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 2023 are available at whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
GROUP OVERVIEW
The Group has delivered a strong first half performance and continues to go
from strength to strength as a global travel retailer. At the end of this
financial year, we expect the Travel division to represent over 70% of Group
revenue and c.85% of Headline Group profit from trading operations(1).
We continue to capitalise on multiple growth opportunities including the
significant recovery in passenger numbers, growing average transaction value,
expanding our categories, and winning new stores across the globe utilising
our broad suite of brands. As a result, the Group is in its strongest ever
position as a global travel retailer.
We have had another very successful period in winning new business. Across
North America, Rest of the World and the UK we have won 60 stores so far this
financial year and we now have over 120 stores won and due to open, with over
50 stores scheduled to open in the second half.
Our progress and success is supported by the key pillars of our strategy and
our ongoing forensic approach to retailing across each of our businesses.
These include:
TRAVEL
· Space growth:
o Opening new stores;
o Winning new business; going forward we would expect to win, on average,
over 50 stores each year;
o New, better quality space;
o Extending contracts;
o Developing formats and brands
· ATV growth:
o Space management;
o Refitting stores;
o Range development
· Category development:
o One-stop-shop travel essentials format;
o Developing the InMotion brand;
o Improving ranges, e.g. health and beauty, food to go, and tech accessories
· Cost and cash management:
o Flexible rent model;
o Investing for growth (capex in the current financial year expected to be
around £150m);
o Productivity and efficiencies
HIGH STREET
· Maintain profitability and cash generation of UK High Street business
and grow our digital businesses
CAPITAL ALLOCATION POLICY
· Disciplined capital allocation, supporting investment in growth and
shareholder returns
Group revenue
Revenue Revenue 7 weeks to
6 months to Feb 2023 6 months to Feb 2023 15 April 2023(8)
Total LFL(1) Total LFL(1) Total
vs 2022 vs 2022 vs 2019(3) vs 2019(3) vs 2019(3)
Travel UK 66% 52% 19% 2% 24%
North America 53% 22% 22%(4) (2)% 33%(4)
Rest of the World 209% 122% 31%(5) (1)% 46%(5)
Total Travel 75% 48% 48%(6) 1% 59%(6)
High Street(7) (1)% -%
Group 41% 27%
Total Group revenue at £859m (2022: £608m) was up 41% for the first six
months compared to the prior year.
In Travel, we saw a strong performance across all our markets and a rebound in
profitability. Total Travel revenue for the first half was up 48%6 versus
20193 and up 1% on a like-for-like1 ('LFL') basis. This was driven by strong
performances in all three Travel divisions with the UK up 19%, North America
up 22%4, and ROW up 31%5 on 20193. In UK Travel, Air was our strongest channel
with LFL sales up 4% versus 20193, despite passenger numbers still around 15%
behind 20193 during the period. In North America, TSA data shows passenger
numbers in the half down 4% versus 20193. Our LFL1 revenue was down 2%. This
includes very strong sales in InMotion in the comparative period following the
launch of Apple AirPods in 2019. Air and Resorts in MRG were both ahead of
2019 on a LFL1 basis.
Compared to last year, revenue in Travel was up 75% in total, with Travel UK
up 66%, North America up 53% and ROW up 209%, driven by the strong recovery in
passenger numbers and our key growth initiatives.
We saw a consistently good performance in High Street throughout the period,
with the important Christmas trading period flat year on year on a LFL basis.
We are pleased with the start to the second half. In the 7 week period to 15
April 2023, Travel revenue was up 59% with all three divisions continuing to
perform well. In the UK, we saw a strong performance over Easter despite
passenger numbers still well below 2019 levels. Looking forward, this is
likely to be the last time we report against 2019 as it is becoming a
progressively less relevant comparison.
Group profit
For the six month period to 28 February 2023, Travel delivered a Headline
trading profit1 of £47m (2022: £10m). In UK Travel, Headline trading profit1
increased by £28m to £31m and in North America, Headline trading profit1
increased by £6m to £14m, in both cases driven by a recovery in sales and
improved margins. ROW delivered a Headline trading profit1 of £2m.
High Street delivered a Headline trading profit1 of £24m (2022: £26m), in
line with expectations.
Headline Group profit from trading operations1 for the period was £71m (2022:
£36m) with Headline Group profit before tax and non-underlying items1 at
£45m (2022: £14m).
The Group profit before tax, including non-underlying items and on an IFRS 16
basis, was £45m (2022: £18m) in the period.
( )
(3) Equivalent month in 2019
(4) 2019 comparatives include pro forma North America adjustment, at constant
currency
(5) Constant currency
(6) As reported (excludes 2019 pro forma North America adjustment)
(7) Includes internet businesses
(8) Adjusted for the timing of Easter in 2019
Group balance sheet
The Group has a strong balance sheet, is very cash generative and has
substantial liquidity. In addition to £327m of convertible bonds which mature
in 2026 and £126m of term loan with a maturity in 2025, the Group has an
undrawn £250m Revolving Credit Facility ('RCF'), which matures in 2025.
The Group has the following cash, committed facilities and drawn debt as at 28
February 2023:
28 February 2023 Maturity
Cash and cash equivalents(9) £46m
Revolving Credit Facility(10) £250m April 2025
Term loan(11) £126m April 2025
Convertible bonds £327m May 2026
( )
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. Therefore around 70% of our
debt is at fixed interest rates.
As at 28 February 2023, Headline net debt1 was £378m (31 August 2022: £296m)
with access to over £270m of liquidity (£24m cash on deposit and £250m
undrawn RCF).
Group cash flow
The Group generated an operating cash flow1 of £90m in the half demonstrating
the cash generative nature of the business. Capital investment was £60m
(2022: £38m) as we continued to invest in new stores, IT and energy efficient
store fixtures and fittings. We had a working capital outflow of £79m in the
period (2022: £36m). Of this outflow, c.£40m results from the usual working
capital cadence in the Group, where there has always been a large working
capital outflow in the first half, due to the seasonality in the Travel
business. The balance mainly relates to the investment in new stores and the
recovering Travel business. In total there was a free cash outflow in the half
of £66m.
For the full year, we expect to generate a free cash inflow, reflecting the
normal working capital cadence of the Group and the substantial level of
operating cash flows1 generated by the Group during the second half. We
anticipate full year debt to be in the region of £325m-£335m.
Capital allocation policy
The Group's disciplined approach to capital allocation remains unchanged:
· investing in our existing business and in new opportunities where
rates of return are ahead of the cost of capital;
· paying a dividend, we have a progressive dividend policy with a
target dividend cover of 2.5x;
· undertaking attractive value-creating acquisitions in strong and
growing markets;
· returning surplus cash to shareholders via share buy backs.
Leverage at 28 February 2023 was 2.0x Headline EBITDA1. We have a target
leverage level of between 0.75x and 1.25x Headline EBITDA1 and we anticipate
being close to the top end of this envelope by the end of this financial year
and to be annualising within it, even with this year's significant investment
programme.
Dividend
The Board has declared an interim dividend of 8.1p per share. This reflects
our strong start to the year, the cash generative nature of the business and
our confidence in the future prospects of the business. Our intention is to
return, in time, to a cover ratio of around 2.5 times earnings, paid on an
interim and final basis on a 1/3:2/3 split. The dividend will be paid on 3
August 2023.
( )
(9 ) Cash and cash equivalents comprises cash on deposit of £24m and cash
in transit of £22m
(10 )Undrawn as at 28 February 2023 and 19 April 2023
(11) Repayments of £27m are due within 12 months and are recorded as
current liabilities (see Note 10 to the Financial Statements)
( )
TOTAL TRAVEL
Total revenue for the period was £593m (2022: £338m), up 75% compared to the
previous year from our key growth initiatives and as passenger numbers
continue to recover, generating a Total Travel Headline trading profit(1) of
£47m (2022: £10m).
Trading profit/(loss)(1) Headline trading profit/(loss)(1)
IFRS pre-IFRS 16 Revenue
£m 6 months to Feb 2023 6 months to Feb 2022 6 months to Feb 2023 6 months to Feb 2022 6 months to Feb 2023 6 months to Feb 2022
Travel UK 31 9 31 3 314 189
North America 16 8 14 8 177 116
Rest of the World 2 (2) 2 (1) 102 33
Total Travel 49 15 47 10 593 338
In Travel, we continue to focus on initiatives that position us well for
future growth:
· Space growth - Business development and winning new business
Through building and managing relationships with all our landlord partners, we
look to win new space, improve the quality and amount of space, develop new
formats and extend contracts. During the half we opened 62 stores, and so far
this year we have won 60 additional stores. We now have a store pipeline of
over 120 stores, which are due to open over the next three years. Going
forward, we expect to win, on average, over 50 stores each year.
· ATV growth and spend per passenger
We aim to grow ATV through our forensic analysis of the return on our space,
cross-category promotions, merchandising, store layouts and store refits.
During the period, we have continued to focus on re-engineering our ranges and
we continue to see good ATV growth, compared to 2019, across all our channels.
· Category development
We do this by developing adjacent product categories relevant for our
customers, such as health and beauty and tech accessories ranges, and
expanding existing categories such as premium food. Throughout the half, we
have focused on identifying further opportunities where we can reposition our
traditional news, books and convenience ('NBC') format to a one-stop-shop
travel essentials format. The results from our one-stop-shop travel essentials
format have been positive.
· Cost and cash management
We remain focused on cost efficiency and productivity, for example, by
investing in more energy efficient chillers in-store and increasing the number
of self scan tills, particularly in North America.
Passenger numbers have recovered strongly, albeit they are still below 2019
levels. In addition, we are very well positioned to further capitalise on the
significant space growth opportunities across our markets.
TRAVEL UK
Travel UK, our largest division, has excellent growth prospects. Air passenger
numbers are still around 15% below pre-pandemic levels and we are therefore
confident that, as passenger numbers continue to recover, this division will
see an ongoing improvement in profitability. All our channels in Travel UK
have performed strongly in the period with total revenue growth of 66% versus
last year and 19% versus 2019(3). The second half has also started strongly
with total sales up 24% on 2019(3) for the first seven weeks.
Our analysis shows that passenger demand for travel in summer 2023 is strong
and, in line with most industry commentators, we remain optimistic that
passenger numbers will fully recover during 2024.
Revenue Revenue 7 weeks to 15 April 2023(8)
6 months to Feb 2023 6 months to Feb 2023
Total LFL(1) Total LFL(1) Total
vs 2022 vs 2022 vs 2019(3) vs 2019(3) vs 2019(3)
Air 124% 89% 35% 4% 38%
Hospitals 34% 30% 21% 9% 32%
Rail 25% 28% (13)% (8)% (8)%
Total Travel UK 66% 52% 19% 2% 24%
Total revenue in the period was £314m (2022: £189m) which, together with
improved margins, resulted in a Headline trading profit1 of £31m (2022:
£3m).
Across all our channels, we continue to focus on our key growth drivers: space
growth, increasing ATV and spend per passenger, driving EBIT margins and the
recovery in passenger numbers. We are seeing good results, with revenue
growing ahead of passenger numbers.
We are investing in our UK store portfolio while also identifying new and
better quality space opportunities across each of our channels. During the
half, we have made good progress opening 7 new stores, including 1 airport, 4
hospitals and our first standalone M&S Food store in Rail at Glasgow Queen
Street station. We are on track to open a further 11 stores in the second half
of the financial year.
In 2019, we developed the one-stop-shop format in our larger stores at London
Gatwick and London Heathrow airports. Both of these stores are trading very
well. This summer, we will begin the refit of our largest store at Birmingham
airport into this new format, combining an extensive range of pharmacy and
health and beauty products with the traditional WHSmith offer under one roof.
Using the same format in Rail, we opened a store at London Euston station last
year, which is also performing very strongly.
In addition to the larger one-stop-shop format, we continue to see further
opportunities to expand this format into our smaller stores by better
utilising our space, extending our categories and improving our ranges. We
have successfully achieved this across a number of stores in our Air and our
Hospital channels and we are now using this format in 8 major Network Rail
locations.
By extending our categories such as health and beauty, tech, food to go and
pharmacy products, we are able to provide time-pressed customers with all
their travel essentials under one roof with a fast and convenient shopping
experience. This enables us to expose both new and existing customers to a
broader range of categories, which has resulted in an increase in sales per
square metre, a higher ATV and spend per passenger. This delivers good returns
with improved margins and attractive economics for our landlords.
During the half, we have also made excellent progress developing our food
offer. By introducing new premium third party brands, such as Yo! Sushi,
Crussh and M&S, and by adding more chiller space in Air and Rail, we are
delivering a significant uplift in sales from this category with food sales up
54% versus 2019.
Looking ahead, we will continue to focus on expanding our proposition and
identifying opportunities where we can reposition our traditional news, books
and convenience format to a unique one-stop-shop for travel essentials.
Our Rail channel has performed creditably, despite the impact of industrial
action. Without strikes LFL(1) revenue in this channel would have been close
to 2019 levels, showing the strength of the recovery in Rail.
Our InMotion stores across UK airports continue to deliver a strong
performance and are trading materially ahead of our initial expectations. We
now believe the brand can deliver annual revenue of c.£90m. 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. These InMotion airport stores are increasingly becoming a
launchpad for the latest tech product launches and, as a result, they are
delivering a strong performance.
As at 28 February 2023, Travel UK had 585 stores. Over the next three years,
we expect to win and open an additional 10 to 15 stores each year in UK
Travel, with the majority of the new stores in the Hospital channel.
NORTH AMERICA
We saw a strong performance from North America in the first half of the
financial year. Total revenue for the half was £177m (2022: £116m), an
increase of 53%, of which 20% was due to changes in exchange rates. Headline
trading profit(1) was £14m (2022: £8m), reflecting the strong recovery in
passenger numbers, improved margins and a small benefit from foreign exchange.
In the current financial year, we are expecting to generate over £50m of
trading profit(1) from this division despite the disruption caused by the
pandemic, which is double the pro forma profits at the time of acquisition.
TSA data for the first half showed passenger numbers were 4% below 2019 levels
with international passengers recovering strongly in the half.
The second half has started well with total sales in North America, 33%(4)
ahead of 2019(3).
Our North America business has become an increasingly significant part of the
Group and at the end of this financial year will be our second largest
division in profit terms, after Travel UK. The growth prospects are
substantial and we are excited by the significant opportunities to grow this
business further.
The US is the largest travel retail market in the world with annual sales,
pre-pandemic, at $3.2bn. Our analysis of the North American market shows that
there were a total of approximately 2,000 news and gift and specialty retail
stores in the top 70 airports, giving our North America business a market
share of c.13%(12). With our continued 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 significantly grow our North
America market share.
We have applied our forensic approach to retailing from the UK to the US
market and are seeing good results. This includes, space management, category
development to higher margin products such as health and beauty and tech,
enhanced promotional activity and increased operational efficiencies, for
example self-scan tills which we started to introduce earlier this financial
year.
We continue to grow our North America business at pace. During the half, we
have opened some significant new stores at Kansas City, Nashville and Newark
airports. Following the opening of our stores at LaGuardia in 2021, we have
steadily grown our presence in the New York region and, during the period, we
opened 7 of the 13 stores in Newark which are part of a 15 year contract in
this significant East Coast airport. These stores operate under a number of
different brands, showcasing the location of the airport and have a uniquely
curated localised product offering. Early results are good, and customer and
landlord feedback has been positive.
We still have a very strong pipeline of new store openings. So far this year,
we have won an additional 28 stores, including 11 stores in Canada, across
Calgary and Edmonton airports, as well as further stores in Oakland, Palm
Springs, Washington Reagan and Las Vegas airports.
Including the 29 store openings in the first half, we now have 222 stores in
Air (including 120 InMotion stores) and 97 stores in Resorts.
REST OF THE WORLD
Total revenue for the half in ROW was £102m (2022: £33m) as passenger
numbers recovered and we opened more stores. Headline trading profit(1) was
£2m (2022: loss of £1m).
Revenue in the first 7 weeks of the second half was 46%(5), ahead of 2019(3).
Our strategy for this division is clear: to enter key countries, build our
presence from a small base, better understand the market, create efficiencies
(such as our EU distribution hub), and build global supplier relationships,
while delivering good returns. We are now present in 28 countries with
significant market share opportunities across multiple territories including
Australia, Scandinavia and Germany.
(12) Based on store numbers; including stores won and yet to open
Our compelling proposition, combined with our current low market share, means
there is significant opportunity to grow this business in new and existing
territories through our traditional NBC retail proposition and with technology
tenders under the InMotion brand. We will continue to use our three operating
models of directly run, joint venture and franchise, in order to create value
and win new business.
During the half, we opened 26 new stores, including stores in Australia,
Spain, Belgium and Malaysia. All of these stores were delivered and opened to
plan and they are trading well. In the balance of this financial year, we
anticipate opening a further 33 new stores.
By localising our store designs and product ranges, as we do in North America,
we have had another very successful half in winning new stores, particularly
in Europe. Utilising this expertise, we have won a further 15 new stores in
the period.
We also continue to see good opportunities to win new business in the tech
accessories market under our InMotion brand. During the period, we have won 3
InMotion stores in Rome. We have won a total of 13 InMotion stores outside of
the UK and North America, of which 5 are open. We remain well positioned to
benefit from further opportunities, as more space becomes available.
We now have 321 stores open and a further 59 won and yet to open. Of the 321
stores open, 48% are directly-run, 9% are joint venture and 43% are franchise.
Region Number of stores
Europe 116
Middle East and India 87
Asia Pacific 118
Total Travel stores
During the half, we opened 62 stores in Travel. As at 28 February 2023, our
global Travel business operated from 1,226 units (31 August 2022: 1,196
units). As at 28 February 2023, we are present in over 120 airports and 31
countries with 320 stores in North America, 116 in Europe, 87 in the Middle
East and India and 118 in Asia Pacific. As part of our strategy to improve the
quality of our space, we closed 32 stores in the period, largely in marginal
locations. Excluding franchise units, Travel occupies 1.1m square feet.
HIGH STREET
During the half, High Street delivered a good performance with Headline
trading profit(1) of £24m (2022: £26m), as expected, and revenue of £266m
(2022: £270m). We managed the business tightly, keeping focused on costs and
cash generation. We delivered a good performance in Books, supported by Prince
Harry's autobiography 'Spare' and we saw a good performance from Mother's Day
across our stores and digital channels.
The strategy we have in place in our High Street business remains as relevant
today as it has ever been and focuses on delivering robust and sustainable
cashflows and profits.
Driving efficiencies remains a core part of that strategy and we continue to
focus on all areas of cost in the business. During the first half, we have
delivered savings of £7m and we are on track to deliver savings of £13m in
the current year. These savings come from right across the business, including
rent savings at lease renewal (on average over 50%) which continue to be a
significant proportion, marketing efficiencies and productivity gains from our
distribution centres.
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 where rents are falling. The average lease length in our High
Street business, including where we are currently holding over at lease end,
is under 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 over 150 where we are holding
over and in negotiation with the landlord. The store closure process is cash
neutral.
As at 28 February 2023, the High Street business operated from 523 stores (31
August 2022: 527) which occupy 2.5m square feet (31 August 2022: 2.5m square
feet). 4 stores were closed in the period (31 August 2022: 17).
Funkypigeon.com delivered total revenue of £17m (2022: £21m) and Headline
EBITDA(1) of £1m (2022: £4m). We continue to see opportunities to grow the
platform further and grow revenue and profits over the medium-term.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE ('ESG')
We have excellent sustainability credentials, and we continue to make good
progress. We are the top performing specialty retailer in Morningstar's
Sustainalytics ESG Benchmark and were included, once again, in the Dow Jones
World Sustainability Index. More recently, we have also been awarded an A
rating in Carbon Disclosure Project's annual climate leadership survey and
recognised for our work on supplier engagement.
We have set our target to achieve net zero and we are now engaging with our
supply chain to work with us to reduce emissions across our value chain.
Twenty of our suppliers, covering approximately a quarter of our supply chain
emissions, have carbon reduction plans in place.
The need for literacy support for disadvantaged children is as important as
ever and we continue to invest in our partnership with the National Literacy
Trust.
We have made excellent progress in the period to further support our
colleagues' journeys. We have increased the pay award to support with the cost
of living pressures and for store colleagues we have also expedited their pay
award.
Our Diversity, Equity and Inclusion activities continue to advance. We now
have a Board led by a female Chair and, for the first time, more women than
men on the Board. We also continue to improve gender representation at Senior
Executive level. Our gender and LGBTQ+ networks have been strengthened, and
during the period we launched a reciprocal mentoring scheme for Executive Team
members with under-represented groups. We have also launched a mentoring
scheme specifically targeting female talent within our organisation.
FINANCIAL REVIEW
The Group generated a Headline profit before tax and non-underlying items(1)
of £45m (2022: £14m) and, after non-underlying items and IFRS 16, a Group
profit before tax also of £45m (2022: £18m).
Headline
IFRS pre-IFRS 16(1)
£m 6 months to 6 months to 6 months to 6 months to
Feb 2023 Feb 2022 Feb 2023 Feb 2022
Travel UK trading profit(1) 31 9 31 3
North America trading profit(1) 16 8 14 8
Rest of the World trading profit/(loss)(1) 2 (2) 2 (1)
Total Travel trading profit(1) 49 15 47 10
High Street trading profit(1) 32 35 24 26
Group profit from trading operations(1) 81 50 71 36
Unallocated central costs(1) (13) (10) (13) (10)
Group operating profit before non-underlying items(1) 68 40 58 26
Net finance costs (21) (16) (13) (12)
Group profit before tax and non-underlying items(1) 47 24 45 14
Non-underlying items(1) (2) (6) (2) (3)
Group profit before tax 45 18 43 11
( )
Unallocated central costs increased in the period due to higher share-based
payment charges and further investment as the business recovers.
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 costs in the period relate to the non-cash amortisation of
acquired intangible assets associated with MRG and InMotion brands (£2m;
2022: £2m). Other prior year non-underlying items related to non-cash
impairment charges of £1m on a pre-IFRS 16 basis, and £4m on an IFRS 16
basis.
The cash spend on non-underlying items in the first half of 2023 was £1m and
mainly related to activity previously announced in 2020 and 2021.
Net finance costs
Headline
IFRS pre-IFRS 16(1)
£m 6 months to 6 months to 6 months to 6 months to
Feb 2023 Feb 2022 Feb 2023 Feb 2022
Interest payable on bank loans and overdrafts 5 4 5 4
Interest on convertible bonds 7 7 7 7
Unwind of discount on onerous lease provisions (pre-IFRS 16) - - 1 1
Interest on lease liabilities 9 5 - -
Net finance costs 21 16 13 12
Pre-IFRS 16 net finance costs for the half were £13m (2022: £12m). This
includes cash costs of £7m.
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 £9m arises on lease liabilities recognised under IFRS 16,
bringing the total net finance costs under IFRS 16 to £21m (2022: £16m).
Tax
The effective tax rate(1) was 23% on the profit for the half (2022: 22%).
Corporation tax payments in the period were £10m (2022: £3m) after using all
possible loss relief. Based on current legislation, we expect the effective
tax rate in the full year to be around 23%.
Fixed charges cover(1)
pre-IFRS 16(1)
£m 6 months to Feb 2023 6 months to Feb 2022
Headline net finance costs(1) 13 12
Net operating lease rentals (pre-IFRS 16) (Note A12) 151 96
Total fixed charges 164 108
Headline profit before tax and non-underlying items(1) 45 14
Headline profit before tax, non-underlying items and fixed charges 209 122
Fixed charges cover - times 1.3x 1.1x
Fixed charges, comprising property operating lease charges and net finance
costs, were covered 1.3 times (2022: 1.1 times) by Headline profit before tax,
non-underlying items and fixed charges.
Cash flow
Free cash flow(1) reconciliation
pre-IFRS 16(1)
£m 6 months to Feb 2023 6 months to Feb 2022
Headline Group operating profit before non-underlying items(1) 58 26
Depreciation, amortisation and impairment (pre-IFRS 16)(13) 26 24
Non-cash items 6 5
Operating cash flow(1, 13) 90 55
Capital expenditure (60) (38)
Working capital (pre-IFRS 16)(13) (79) (36)
Net tax paid (10) (3)
Net finance costs paid (pre-IFRS 16) (7) (7)
Free cash flow (1) (66) (29)
(13) Excludes cash flow impact of non-underlying items
The free cash outflow(1) for the period was £66m (2022: £29m). Operating
cash inflow increased by £35m to £90m reflecting the increased profitability
of the business and demonstrating the cash generative nature of the Group.
We had a working capital outflow of £79m in the period (2022: £36m). Of this
outflow, c.£40m results from the usual working capital cadence in the Group,
where there has always been a large working capital outflow in the first half,
due to the seasonality in the Travel business. The balance mainly relates to
the investment in new stores and the recovering Travel business.
For the full year, we expect to generate a free cash inflow, reflecting the
normal working capital cadence of the Group and the substantial level of
operating cash flows generated by the Group during the second half.
Net corporation tax payments in the period were £10m (2022: £3m).
Capital expenditure in the half was £60m (2022: £38m) which includes the
spend from opening 62 stores around the world. We anticipate the full year
capex spend to be around £150m which includes the additional spend from
opening a further c.50 stores in the second half.
£m 6 months to Feb 2023 6 months to Feb 2022
New stores and store development 34 20
Refurbished stores 5 4
Systems 12 6
Other 9 8
Total capital expenditure 60 38
Reconciliation of Headline net debt(1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See Note 10 of the
Financial statements for net debt on an IFRS 16 basis.
As at 28 February 2023, the Group had Headline net debt(1) of £378m
comprising convertible bonds of £296m, term loans of £126m (net of fees),
£2m of finance lease liabilities and net cash of £46m (31 August 2022:
£296m, convertible bonds of £292m, term loans of £132m (net of fees), £4m
of finance lease liabilities and net cash of £132m).
Headline
pre-IFRS 16(1)
6 months to Year ended
£m Feb 2023 Feb 2022 Aug 2022
Opening Headline net debt(1) (296) (291) (291)
Movement in period
Free cash flow(1) (66) (29) 41
Pensions - (1) (2)
Non-underlying items(1) (1) (8) (16)
Net purchase of own shares for employee share schemes - (2) (7)
Dividends paid (12) - -
Non-cash movements relating to convertible bond (4) (4) (9)
Other 1 (1) (12)
Closing Headline net debt(1) (378) (336) (296)
Cash 46 88 132
Term loans (net of fees) (126) (132) (132)
Convertible bond (net of fees) (296) (288) (292)
Finance leases (pre-IFRS 16) (2) (4) (4)
(378) (336) (296)
In addition to the free cash outflow of £66m there were non-trading outflows
of £16m of which the largest item was the 2022 final dividend of £12m.
We anticipate full year Headline net debt(1) to be in the region of
£325m-£335m.
On an IFRS 16 basis, net debt was £978m, which includes an additional £600m
of lease liabilities.
Balance sheet
Headline
IFRS pre-IFRS 16(1)
£m Feb 2023 Aug 2022 Feb 2022 Feb 2023 Aug 2022 Feb 2022
Goodwill and other intangible assets 527 543 483 528 544 484
Property, plant and equipment 245 219 189 237 211 182
Right-of-use assets 483 446 330 - - -
Investments in joint ventures 2 2 2 2 2 2
1,257 1,210 1,004 767 757 668
Inventories 182 198 153 182 198 153
Payables less receivables (180) (269) (195) (187) (284) (216)
Working capital 2 (71) (42) (5) (86) (63)
Derivative financial asset 1 1 - 1 1 -
Net current and deferred tax asset 55 54 55 55 54 45
Provisions (14) (14) (14) (26) (26) (28)
Operating assets employed 1,301 1,180 1,003 792 700 622
Net debt (978) (869) (793) (378) (296) (336)
Net assets excluding pension liability 323 311 210 414 404 286
Pension liability - - (2) - - (2)
Total net assets 323 311 208 414 404 284
The Group had Headline net assets of £414m, £10m higher than at 31 August
2022 reflecting the investment in store openings and exchange differences on
translation of goodwill. Under IFRS the Group had net assets of £323m.
TRADING UPDATE
The Group will issue its next trading update on 31 May 2023.
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
The Group's Annual Report and Accounts 2022, a copy of which is available on
the Group's website at www.whsmithplc.co.uk, sets out the principal and
emerging 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 2022 pages 57 to 62).
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;
· cyber risk and data security;
· treasury, financial and credit risk management; and
· environment and sustainability.
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 2023
6 months to 28 Feb 2023 6 months to 28 Feb 2022 12 months to 31 Aug 2022
(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 2 859 - 859 608 - 608 1,400 - 1,400
Group operating profit 2 68 (2) 66 40 (6) 34 117 (20) 97
Finance costs 5 (21) - (21) (16) - (16) (34) - (34)
Profit before tax 47 (2) 45 24 (6) 18 83 (20) 63
Income tax (expense) / credit 6 (11) 1 (10) (5) 1 (4) (14) 4 (10)
Profit for the period 36 (1) 35 19 (5) 14 69 (16) 53
Attributable to equity holders of the parent 33 (1) 32 17 (5) 12 63 (16) 47
Attributable to non-controlling interests 3 - 3 2 - 2 6 - 6
36 (1) 35 19 (5) 14 69 (16) 53
Earnings per share
Basic 8 24.6p 9.2p 36.2p
Diluted 8 24.1p 9.2p 35.6p
( )
(1) Alternative Performance Measure. The Group has defined and explained
the purpose of its alternative performance measures in the Glossary on page
37.
(2) See Note 3 for an analysis of Non-underlying items. See Glossary
on page 37 for definition of alternative performance measures.
WH Smith PLC
Condensed Group Statement of Comprehensive Income
For the 6 months to 28 February 2023
£m Note 6 months to 28 Feb 2023 6 months to 28 Feb 2022 12 months to
(unaudited) (unaudited) 31 Aug 2022
(audited)
Profit for the period 35 14 53
Other comprehensive income / (loss):
Items that will not be reclassified subsequently to the income statement:
Actuarial gains / (losses) on defined benefit pension schemes 1 (1) -
1 (1) -
Items that may be reclassified subsequently to the income statement:
(Losses) / gains on cash flow hedges
- Net fair value (losses) / gains (2) - 3
Exchange differences on translation of foreign operations (16) 11 71
(18) 11 74
Other comprehensive (loss) / income for the period, net of tax (17) 10 74
Total comprehensive income for the period 18 24 127
Attributable to equity holders of the parent 15 22 120
Attributable to non-controlling interests 3 2 7
18 24 127
WH Smith
PLC
Condensed Group Balance Sheet
As at 28 February 2023
At At At
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
Note (unaudited) (unaudited) (audited)
Non-current assets
Goodwill 9 456 416 471
Other intangible assets 9 71 67 72
Property, plant and equipment 9 245 189 219
Right-of-use assets 9 483 330 446
Investments in joint ventures 2 2 2
Deferred tax assets 50 54 55
Trade and other receivables 8 6 9
1,315 1,064 1,274
Current assets
Inventories 182 153 198
Trade and other receivables 90 48 87
Derivative financial assets 1 - 1
Current tax receivable 5 1 -
Cash and cash equivalents 10 46 88 132
324 290 418
Total assets 1,639 1,354 1,692
Current liabilities
Trade and other payables (278) (249) (365)
Bank loans and other borrowings 10 (27) - (20)
Retirement benefit obligations 4 - (1) -
Lease liabilities 10 (138) (105) (131)
Current tax liability - - (1)
Short-term provisions - (2) -
(443) (357) (517)
Non-current liabilities
Retirement benefit obligations 4 - (1) -
Bank loans and other borrowings 10 (395) (420) (404)
Long-term provisions (14) (12) (14)
Lease liabilities 10 (464) (356) (446)
(873) (789) (864)
Total liabilities (1,316) (1,146) (1,381)
Total net assets 323 208 311
Shareholders' equity
Called up share capital 12 29 29 29
Share premium 316 316 316
Capital redemption reserve 13 13 13
Translation reserve 27 (16) 43
Other reserves (246) (242) (244)
Retained earnings 165 97 138
Total equity attributable to equity holders of the parent 304 197 295
Non-controlling interests 19 11 16
Total equity 323 208 311
WH Smith PLC
Condensed Group Cash Flow Statement
For the 6 months to 28 February 2023
6 months to 12 months to
£m Note 28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited) (unaudited) (audited)
Operating activities
Cash generated from operating activities 11 76 58 219
Interest paid(1) (15) (12) (26)
Income taxes paid (10) (3) (6)
Net cash inflow from operating activities 51 43 187
Investing activities
Purchase of property, plant and equipment (52) (33) (70)
Purchase of intangible assets (8) (5) (13)
Net cash outflow from investing activities (60) (38) (83)
Financing activities
Distributions to non-controlling interests - (1) (1)
Dividends paid 7 (12) - -
Purchase of own shares for employee share schemes - (2) (7)
Repayment of borrowings 10 (6) - -
Capital repayments of obligations under leases 10 (58) (44) (96)
Net cash outflow from financing activities (76) (47) (104)
Net decrease in cash and cash equivalents in the period (85) (42) -
Opening cash and cash equivalents 132 130 130
Effect of movements in foreign exchange rates (1) - 2
Closing cash and cash equivalents 46 88 132
(1) Includes interest payments of £8m on lease liabilities (28 February 2022:
£5m)
WH Smith PLC
Condensed Group Statement of Changes in Equity
For the 6 months to 28 February 2023
£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 2022 345 13 43 (244) 138 295 16 311
Profit for the period - - - - 32 32 3 35
Other comprehensive (loss) / income:
Actuarial gains on defined benefit pension schemes - - - - 1 1 - 1
Cash flow hedges - - - (2) - (2) - (2)
Exchange differences on translation of foreign operations - - (16) - - (16) - (16)
Total comprehensive (loss) / income for the period - - (16) (2) 33 15 3 18
Recognition of share-based payments - - - - 5 5 - 5
Deferred tax on share-based payments - - - - 1 1 - 1
Dividend paid - - - - (12) (12) - (12)
Balance at 28 February 2023 (unaudited) 345 13 27 (246) 165 304 19 323
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 2021 345 13 (27) (240) 82 173 10 183
Profit for the year - - - - 47 47 6 53
Other comprehensive income:
Cash flow hedges - - - 3 - 3 - 3
Exchange differences on translation of foreign operations - - 70 - - 70 1 71
Total comprehensive income for the year - - 70 3 47 120 7 127
Employee share schemes - - - (7) 9 2 - 2
Non-controlling interest distributions - - - - - - (1) (1)
Balance at 31 August 2022 (audited) 345 13 43 (244) 138 295 16 311
(1) Other reserve includes Revaluation reserve of £2m (August 2022: £2m),
ESOP reserve of £(8)m (August 2022: (£(9)m), hedging reserve of £1m (August
2022: £3m), convertible bond reserve of £40m (August 2022: £40m) and Other
reserves of £(281)m (August 2022: £(280)m). The 'Other' reserve includes
reserves created in relation to the historical capital reorganisation and pro
forma restatement of £(238)m (August 2022: £(238)m), the demerger from
Smiths News PLC in 2006 of £69m (August 2022: £69m) and cumulative amounts
relating to employee share schemes of £(112)m (August 2022: £(111)m).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
1. Basis of preparation, Accounting policies and Approval of Interim Statement
These Condensed Interim Financial Statements for the 6 months ended 28
February 2023 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.
The interim financial statements do 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
2022, which has been prepared in accordance with UK-adopted international
accounting standards and the requirements of the Companies Act 2006, 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 2022 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 2022 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 2023, 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 3 Business combinations
Amendment to IAS 16 Property, plant and equipment
Amendment to IAS 37 Provisions, contingent liabilities and contingent assets
Annual Improvements 2018-2020 Amendments to IFRS 1, IFRS 9 and IFRS 16
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
Amendment to IAS 12 Taxation
Amendment to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors
Amendments to IAS 1 Presentation of financial statements
Amendments to IFRS 16 Leases
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
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 (APM's)
The Group has identified certain measures 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, Headline
EBITDA, Net debt/funds and Headline net debt/funds and free cash flow. These
APMs are set out in the Glossary on page 37 including explanations of how they
are calculated and how they are reconciled to a statutory measure where
relevant.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
1. Basis of preparation, Accounting policies and Approval of Interim Statement
(continued)
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 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, these measures 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, 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 2022, as set out on pages
130 to 132 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
Note 9.
Going concern
The condensed interim financial statements have been prepared on a going
concern basis.
In order to continue to adopt the going concern basis of accounting the
directors are required to assess whether the Group can continue to operate for
at least 12 months from the date of approval of these financial statements.
In making the going concern assessment, the directors have undertaken a
rigorous assessment of current performance and forecasts for the 12 month
period to April 2024, including expenditure commitments, capital expenditure
and available borrowing facilities. The Group's borrowing facilities are
described in the Group Overview on page 5. The covenants on these facilities
are tested half-yearly and are based on fixed charges cover and net
borrowings. The directors have also considered the existence of factors beyond
the going concern period that could indicate that the going concern basis is
not appropriate.
The directors have modelled a base case scenario consistent with the latest
Board approved forecasts, which include management's best estimates of market
conditions and include a number of assumptions including passenger numbers,
sales growth and cost inflation. Under this scenario the Group has significant
liquidity and complies with all covenant tests throughout the assessment
period.
As a result of uncertainty and challenges in the macroeconomic environment,
this base case scenario has been stress-tested by applying severe, but
plausible, downside assumptions of a magnitude and profile in line with
previous experience of economic downturns. These assumptions, include
reductions to revenue assumptions of between 5 and 10 per cent versus the base
case as appropriate by division; additional inflation in labour and energy
costs beyond that included in the base case; and margin pressures. Apart from
an equal reduction in turnover-based rents in our Travel businesses, this
scenario does not assume a decrease in other variable costs, and is therefore
considered severe. Under this downside scenario the Group would continue to
have significant liquidity headroom on its existing facilities and complies
with all covenant tests throughout the assessment period.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
1. Basis of preparation, Accounting policies and Approval of Interim Statement
(continued)
Going concern (continued)
Based on the above analysis, the directors have concluded that the Group is
able to adequately manage its financing and principal risks, and that the
Group will be able to continue to meet its obligations as they fall due and
operate within the level of its facilities for at least 12 months from the
date of approval of these financial statements.
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.
For management and financial reporting purposes, the Group is organised into
two operating divisions which comprise four reportable segments - Travel UK,
North America, Rest of the World within the Travel division, and High Street.
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 37 (Note A2).
a) Group revenue
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited)
(unaudited)
(audited)
Travel UK 314 189 521
North America 177 116 288
Rest of the World(1) 102 33 118
Total Travel 593 338 927
High Street 266 270 473
Group revenue 859 608 1,400
( )
(1) Rest of the World revenue includes revenue from Australia of £40m (28
February 2022: £11m). 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.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
2. Segmental analysis of results (continued)
b) Group results
6 months to 28 Feb 2023 (unaudited) 6 months to 28 Feb 2022 (unaudited)
£m Headline (pre-IFRS16)(1) Headline non-underlying items (pre-IFRS 16) (1) IFRS 16 Total Headline (pre-IFRS16)(1) Headline non-underlying items (pre-IFRS 16) (1) IFRS 16 Total
Travel UK trading profit 31 - - 31 3 - 6 9
North America trading profit 14 - 2 16 8 - - 8
Rest of the World trading profit / (loss) 2 - - 2 (1) - (1) (2)
Total Travel trading profit 47 - 2 49 10 - 5 15
High Street trading profit 24 - 8 32 26 - 9 35
Group profit from trading operations 71 - 10 81 36 - 14 50
Unallocated central costs (13) - - (13) (10) - - (10)
Group operating profit before non-underlying items 58 - 10 68 26 - 14 40
Non-underlying items (Note 3) - (2) - (2) - (3) (3) (6)
Group operating profit 58 (2) 10 66 26 (3) 11 34
Finance costs (13) - (8) (21) (12) - (4) (16)
Group profit before tax 45 (2) 2 45 14 (3) 7 18
Income tax (expense) / credit (11) 1 - (10) (3) 1 (2) (4)
Profit for the period 34 (1) 2 35 11 (2) 5 14
(1) Presented on a pre-IFRS 16 basis. Alternative Performance Measures are
defined and explained in the Glossary on page 37.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
2. Segmental analysis of results (continued)
c) Other segmental items
6 months to 28 Feb 2023
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 13 (7) - - (1)
North America 22 (7) - - -
Rest of the World 9 (3) - - -
Total Travel 44 (17) - - (1)
High Street 14 (7) (1) - -
Unallocated - (1) - - -
Headline, before non-underlying items 58 (25) (1) - (1)
Headline non-underlying items (pre-IFRS 16) - (2) - - -
Headline, after non-underlying items 58 (27) (1) - (1)
Impact of IFRS 16 - - - (52) -
Group 58 (27) (1) (52) (1)
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)
(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 2023
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.
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
(audited)
(unaudited) (unaudited)
Amortisation of acquired intangible assets 2 2 3
Costs related to cyber incident - - 4
Store impairments
- property, plant and equipment - 1 5
- right-of-use assets - 3 8
Non-underlying items, before tax 2 6 20
Tax credit on non-underlying items (1) (1) (4)
Non-underlying items, after tax 1 5 16
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.
Prior period non-underlying items
Costs related to cyber incident
In the prior period, costs of £4m incurred due to a cyber security incident
in relation to one of the Group's websites include impairment of software
assets of £1m, third party consultancy support and legal and other costs.
Impairment of property, plant and equipment and right-of-use assets
In the prior period, 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. This review resulted in an impairment
charge of £13m being recognised for the year ended 31 August 2022 and £4m
for the 6 months ended 28 February 2022.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
4. Retirement benefit obligations
The retirement benefit obligations recognised in the balance sheet at the
relevant reporting dates were:
£m At At At
28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited) (unaudited) (audited)
Retirement benefit obligation - (2) -
Recognised as:
Current liabilities - (1) -
Non-current liabilities - (1) -
In August 2022 the WH Smith Pension Trust purchased a bulk annuity insurance
policy from Standard Life, part of Phoenix Group, insuring all liabilities to
pay all future defined benefit pensions to the Trust's 12,950 members and any
eligible dependants.
As a result of this comprehensive risk-removal, WH Smith will not be required
to make any future cash contributions into the WHSmith Trust regarding defined
benefit liabilities, therefore the previously recognised minimum funding
liability (£2m as at 28 February 2022) has been derecognised. The liability
related to the recognition of the schedule of contributions as a liability in
accordance with the requirements of IFRIC 14.
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 £119m (28 February 2022: £357m; 31
August 2022: £120m) available on a reduction of future contributions is £nil
(2022: £nil). As a result, the Group has not recognised this IAS 19 surplus
on the balance sheet.
5. Finance costs
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited) (unaudited) (audited)
Interest payable on bank loans and overdrafts 5 4 9
Interest on convertible bonds 7 7 14
Interest on lease liabilities 9 5 11
21 16 34
( )
Interest on convertible bonds includes £3m (28 February 2022: £3m) accrued
coupon and £4m (28 February 2022: £4m) non-cash debt accretion charge.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
6. Income tax expense
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited) (unaudited) (audited)
Tax on profit 4 2 6
Adjustment in respect of prior periods - - -
Total current tax expense 4 2 6
Deferred tax - current period 7 4 8
Deferred tax - prior period - (1) -
Deferred tax - adjustment in respect of change in tax rates - - -
Tax on Headline profit 11 5 14
Tax on non-underlying items - deferred tax (1) (1) (4)
Total tax on (profit 10 4 10
The effective tax rate, before non-underlying items, was a charge of 23 per
cent (28 February 2022: charge of 22 per cent).
The UK corporation tax rate is 19 per cent. From 1st April 2023 the
corporation tax rate increased to 25 per cent.
During 2021, the OECD published a framework for the introduction of a global
minimum effective tax rate of 15 per cent, applicable to large multinational
groups. In July 2022, HM Treasury released draft legislation to implement
these 'Pillar Two' rules which have not been substantively enacted at the
balance sheet date. The Group is reviewing these draft rules, the IASB's
initial amendments published in April 2023 and any additional updates to IAS
12, to understand any potential impacts.
7. Dividends
Amounts paid and recognised as distributions to shareholders in the period are
as follows:
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 (unaudited) 31 Aug 2022 (audited)
(unaudited)
Dividends
2022 Final dividend of 9.1p per ordinary share 12 - -
12 - -
The directors have declared an interim dividend in respect of the period
ending 28 February 2023 of 8.1p per ordinary share. This will be paid on 3
August 2023 to shareholders registered at the close of business on 14 July
2023.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
( )
8. Earnings per share
a) Earnings
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022
(unaudited) (unaudited) (audited)
Profit for the period attributable to equity holders of the parent 32 12 47
Non-underlying items (Note 3) 1 5 16
Profit for the period before non-underlying items attributable to equity holders of the parent 33 17 63
( )
b) Weighted average share capital
6 months to 12 months to
Millions 28 Feb 2023 28 Feb 2022 31 Aug 2022 (audited)
(unaudited) (unaudited)
Weighted average ordinary shares in issue 131 131 130
Less weighted average ordinary shares held in ESOP Trust (1) - -
Weighted average ordinary shares for basic earnings per share 130 131 130
Add weighted average number of ordinary shares under option 3 - 2
Weighted average ordinary shares for diluted earnings per share 133 131 132
( )
c) Basic and diluted earnings per share
6 months to 12 months to
Pence 28 Feb 2023 28 Feb 2022 31 Aug 2022 (audited)
(unaudited) (unaudited)
Basic earnings per share 24.6 9.2 36.2
Adjustments for non-underlying items 0.8 3.8 12.3
Basic earnings per share before non-underlying items 25.4 13.0 48.5
Diluted earnings per share 24.1 9.2 35.6
Adjustments for non-underlying items 0.7 3.8 12.1
Diluted earnings per share before non-underlying items 24.8 13.0 47.7
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 2023 the convertible bond has no dilutive effect as the
inclusion of these potentially dilutive shares would improve earnings per
share (28 February 2022 and 31 August 2022: No dilutive effect).
The calculation of EPS on a pre-IFRS 16 basis is provided in the Glossary on
page 37.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
( )
9. Non-current assets
During the 6 months to 28 February 2023, there were additions to property,
plant and equipment of £50m (28 February 2022: £34m). There were no material
disposals of tangible assets during the period (28 February 2022: £nil).
During the 6 months to 28 February 2023, there were additions right of use
assets of £94m (28 February 2022: £39m) through signing of new leases and
lease modifications.
Capital expenditure in respect of intangible assets totalled £8m (28 February
2022: £5m) in the period. There were no material disposals of intangible
assets during the period (28 February 2022: £nil).
Goodwill decreased by £15m in the period, as a result of movements in
exchange rates (28 February 2022: increase of £10m, 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. CGU's are tested for impairment at the balance sheet date if any
indicators of impairment have been identified. The identified indicators
include loss-making stores, stores earmarked for closure, and
under-performance of individual stores versus forecast as a result of slower
than expected recovery from Covid-19.
For those CGUs where an indicator of impairment has been identified, property,
plant and equipment and right-of-use assets have been tested for impairment by
comparing the carrying amount of the CGU with its recoverable amount
determined from value-in-use calculations. It was determined that value-in-use
was higher than fair value less costs to sell.
The value-in-use of each relevant CGU has been calculated using discounted
cash flows derived from the Group's latest Board-approved forecast and three
year plan, 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 immediately quantifiable impacts of climate change and costs expected to
be incurred in connection with our net zero commitments, are included within
the Group's forecasts which have been used to support the impairment reviews,
with no material impact on cash flows. The useful economic lives of store
assets are short in the context of climate change scenario models therefore no
medium to long-term effects have been considered. The discount rate applied to
future cash flows was 13.9% (31 August 2022: 11.9%).
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 £1m to property,
plant and equipment (28 February 2022: £3m) and £1m to right-of-use assets
(28 February 2022: £3m) as a result of impairment testing. Impairments of
£nil (28 February 2022: £4m) have been presented as non-underlying items in
the current period (see Note 3), and impairments of £2m (28 February 2022:
£2m) have been included in underlying results.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
10. 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 2022 (132) (292) - (577) (1,001) 132 (869)
Other non-cash movements - (4) - (90) (94) - (94)
Other cash movements 6 - - 58 64 (85) (21)
Currency translation - - - 7 7 (1) 6
At 28 February 2023 (126) (296) - (602) (1,024) 46 (978)
£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)
An explanation of Alternative performance measures, including Net debt on a
pre-IFRS 16 basis is provided in the Glossary on page 37.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
10. 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
Non-cash movements in lease liabilities mainly relate to new leases,
modifications and remeasurements in the period.
Term loans and revolving credit facilities
The Group has in place a four-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 2023, the Group has drawn down £nil on
this facility (2022: £nil).
The Group has a four-year committed £126m term loan with Banco Santander
S.A., London Branch, Barclays Bank PLC, BNP Paribas and HSBC UK Bank PLC. This
loan is interest bearing at a margin over SONIA and is due to mature on 28
April 2025. Instalments due within the next 12 months are recorded in current
liabilities.
Transaction costs 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
The Group issued a £327m convertible bond 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 was 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 were allocated to the conversion option
and recognised in equity (Other reserves), and not subsequently remeasured. As
a result, £41m of the initial proceeds of £327m was recognised in equity
representing the option component.
Issue costs of £4m (2022: £5m) allocated to the debt component is being
amortised through the effective interest rate method. Issue costs apportioned
to the equity component of £1m were deducted from equity on the date of
issue.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
11. Cash generated from operating activities
6 months to 12 months to
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022 (audited)
(unaudited) (unaudited)
Group operating profit 66 34 97
Depreciation of property, plant and equipment 20 18 37
Impairment of property, plant and equipment 1 3 7
Amortisation of intangible assets 7 6 13
Impairment of intangible assets - - 1
Depreciation of right-of-use assets 52 36 81
Impairment of right-of-use assets 1 3 8
Non-cash change in lease liabilities - (5) (5)
Share-based payments 5 4 9
Gain on remeasurement of leases (4) (2) (4)
Other non-cash items (incl. foreign exchange) 2 - (12)
Decrease / (increase) in inventories 15 (17) (56)
Increase in receivables (6) (1) (42)
(Decrease) / increase in payables (83) (20) 88
Pension funding - (1) (2)
Movement on provisions - - (1)
Cash generated from operating activities 76 58 219
12. Called Up Share Capital
28 Feb 2023 28 Feb 2022 (unaudited) 31 Aug 2022
(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 2023
13. Contingent liabilities and capital commitments
£m 28 Feb 2023 28 Feb 2022 31 Aug 2022 (audited)
(unaudited) (unaudited)
Bank guarantees and guarantees in respect of contractual arrangements 55 32 51
At 28 February 2023, contracts placed for future capital expenditure approved
by the directors but not provided for amounted to £27m (28 February 2022:
£22m).
14. Related Parties
Other than directors' remuneration, there have been no material related party
transactions during the interim period under review.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2023
Statement of Directors' Responsibilities
The directors confirm that these condensed interim financial statements 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 and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the
first six months 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
• material related-party transactions in the first six months and
any material changes in the related-party transactions escribed in the last
annual report.
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
20 April 2023
Independent review report to WH Smith Plc
Report on the condensed 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 2023
(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 2023;
· 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.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
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. In preparing the Interim
Results Announcement, including the interim financial statements, the
directors are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Independent review report to WH Smith Plc (continued)
Report on the condensed consolidated Interim Financial Statements (continued)
Responsibilities for the interim financial statements and the review
(continued)
Our responsibilities and those of the directors (continued)
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Results Announcement based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. 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
20 April 2023
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 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, these measures 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.
IFRS 16
The Group adopted IFRS 16 in the 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.
Management have chosen to exclude the effects of IFRS 16 for the purposes of
narrative commentary on the Group's performance and financial position in the
Strategic report. The effect of IFRS 16 on the Group income statement is to
frontload total lease expenses, being higher at the beginning of a lease
contract, and lower towards the end of a contract, and this is further
influenced by timing of renewals and contract wins, and lengths of contracts.
As a result of these complexities, IFRS 16 measures of profit and EBITDA (used
as a proxy for cash generation) do not provide meaningful KPIs or measures for
the purposes of assessing performance, concession quality or for trend
analysis, therefore management continue to use pre-IFRS 16 measures
internally.
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 flows from operating activities being offset by a
decrease in net cash flows from financing activities, as set out in Note A9
below. The balance sheet as at 28 February 2023 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-A12 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 before tax and non-underlying items Group profit before tax See Group income statement and Note A1 Group profit before tax and non-underlying items excludes the impact of
non-underlying items as described below. A reconciliation from Group profit
before tax and non-underlying items to Group profit before tax is provided on
the Group income statement on page 15, and on a Headline (pre-IFRS 16) basis
in Note A1.
Group profit from trading operations and segment trading profit Group operating profit See Note 2 and Note A2 Group profit from trading operations and segment trading profit 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 and Group
profit 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 per share before non-underlying items Earnings per share Non-underlying items, see Note 8 and Note A4 Profit for the period 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 interim period. A reconciliation is provided on an IFRS 16
basis in Note 8 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline EBITDA Group operating profit Refer to definition Headline EBITDA is Headline Group operating profit before non-underlying items
adjusted for pre-IFRS 16 depreciation, amortisation and impairment.
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 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 Headline 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 condensed 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. See A11.
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 12, as part of the Group Overview.
Operating cash flow Net cash inflow from operating activities See Group Overview Operating cash flow is defined as Headline profit before tax and
non-underlying items, excluding Headline depreciation, amortisation,
impairment and other non-cash items. The components of Operating cash flow are
shown on page 12, 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 2023
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 859 - 859 - 859
Cost of sales (341) - (341) - (341)
Gross profit 518 - 518 - 518
Distribution costs (364) - (364) 7 (357)
Administrative expenses (96) - (96) (1) (97)
Other income - - - 4 4
Non-underlying items - (2) (2) - (2)
Group operating profit 58 (2) 56 10 66
Finance costs (13) - (13) (8) (21)
Profit before tax 45 (2) 43 2 45
Income tax (charge) / credit (11) 1 (10) - (10)
Profit for the period 34 (1) 33 2 35
Attributable to:
Equity holders of the parent 31 (1) 30 2 32
Non-controlling interests 3 - 3 - 3
34 (1) 33 2 35
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 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 26 (3) 23 11 34
Finance costs (12) - (12) (4) (16)
Profit before tax 14 (3) 11 7 18
Income tax (expense) / credit (3) 1 (2) (2) (4)
Profit 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
A2. Reconciliation of Headline to Statutory Segmental trading profit and
Profit for the period
6 months to 6 months to
28 Feb 2023 28 Feb 2022
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 31 - 31 - 31 3 - 3 6 9
North America trading profit 14 - 14 2 16 8 - 8 - 8
Rest of the World trading profit / (loss) 2 - 2 - 2 (1) - (1) (1) (2)
Total Travel trading profit 47 - 47 2 49 10 - 10 5 15
High street trading profit 24 - 24 8 32 26 - 26 9 35
Group profit from trading operations 71 - 71 10 81 36 - 36 14 50
Unallocated costs (13) - (13) - (13) (10) - (10) - (10)
Headline Group operating profit 58 - 58 10 68 26 - 26 14 40
Non-underlying items - (2) (2) - (2) - (3) (3) (3) (6)
Group operating profit 58 (2) 56 10 66 26 (3) 23 11 34
Finance costs (13) - (13) (8) (21) (12) - (12) (4) (16)
Profit before tax 45 (2) 43 2 45 14 (3) 11 7 18
Income tax (expense) / credit (11) 1 (10) - (10) (3) 1 (2) (2) (4)
Profit for the period 34 (1) 33 2 35 11 (2) 9 5 14
Attributable to:
Equity holders of the parent 31 (1) 30 2 32 9 (2) 7 5 12
Non-controlling interests 3 - 3 - 3 2 - 2 - 2
34 (1) 33 2 35 11 (2) 9 5 14
WH Smith PLC
Glossary (unaudited)
A3. Reconciliation of Headline to Statutory tax expense
6 months to 6 months to
28 Feb 2023 28 Feb 2022
£m IAS 17 IFRS 16 adjustments IFRS 16 IAS 17 IFRS 16 adjustments IFRS 16
Profit before tax and non-underlying items 45 2 47 14 10 24
Tax on profit 4 - 4 1 1 2
Adjustment in respect of prior period UK corporation tax - - - - - -
Total current tax charge 4 - 4 1 1 2
Deferred tax - current period 7 - 7 3 1 4
Deferred tax - prior period - - - (1) - (1)
Tax on Headline profit 11 - 11 3 2 5
Tax on non-underlying items (1) - (1) (1) - (1)
Total tax on profit 10 - 10 2 2 4
A4. Calculation of Headline and Statutory earnings per share
6 months to 6 months to
28 Feb 2023
28 Feb 2022
millions Basic EPS Diluted EPS Basic EPS Diluted EPS
Weighted average shares in issue 130 133 131 131
6 months to 6 months to
28 Feb 2023 28 Feb 2022
Profit for the period attributable to equity holders of the parent Basic EPS Diluted EPS Profit for the period attributable to equity holders of the parent Basic EPS Diluted EPS
£m pence pence £m pence pence
Headline (pre-IFRS-16 basis)
- Before non-underlying items 31 23.8 23.3 9 6.9 6.9
- Non-underlying items (1) (0.7) (0.7) (2) (1.6) (1.6)
Total 30 23.1 22.6 7 5.3 5.3
IFRS 16 adjustments
- Before non-underlying items 2 1.6 1.5 8 6.1 6.1
- Non-underlying items - (0.1) - (3) (2.2) (2.2)
Total 2 1.5 1.5 5 3.9 3.9
IFRS 16 basis
- Before non-underlying items 33 25.4 24.8 17 13.0 13.0
- Non-underlying items (1) (0.8) (0.7) (5) (3.8) (3.8)
Total 32 24.6 24.1 12 9.2 9.2
WH Smith PLC
Glossary (unaudited)
A5. Fixed charges cover
£m 6 months to 6 months to
28 Feb 2023 28 Feb 2022
Net finance costs (pre-IFRS 16) 13 12
Net operating lease rentals (pre-IFRS 16) 151 96
Total fixed charges 164 108
Headline profit before tax and non-underlying items 45 14
Headline profit before tax, non-underlying items and fixed charges 209 122
Fixed charges cover - times 1.3x 1.1x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
6 months to 6 months to
28 Feb 2022
28 Feb 2023
£m IAS 17 IFRS 16 IAS 17 IFRS 16
Amortisation of acquired intangible assets 2 2 2 2
Store impairments
- Impairment of property, plant and equipment - - 1 1
- Impairment of right-of-use assets - - - 3
Non-underlying items, before tax 2 2 3 6
Tax credit on non-underlying items (1) (1) (1) (1)
Non-underlying items, after tax 1 1 2 5
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.
Prior period non-underlying 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 11.9 per cent and the
pre-tax discount rate used in the pre-IFRS 16 calculation was 14.4 per cent.
Right-of-use assets are not recognised on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
A7. Free cash flow
£m Note 6 months to 6 months to
28 Feb 2023 28 Feb 2022
Cash generated from operating activities 11 76 58
Interest paid (15) (12)
Income taxes paid (10) (3)
Net cash inflow from operating activities 51 43
Impact of IFRS 16 (Note A9) (57) (43)
Add back:
- Cash impact of non-underlying items 1 8
- Pension funding - 1
- Non-cash items (1) -
Deduct:
- Purchase of property, plant and equipment (52) (33)
- Purchase of intangible assets (8) (5)
Free cash flow (66) (29)
A8. Headline Net debt
£m Note At At
28 Feb 2023
28 Feb 2022
Borrowings
- Revolving credit facility - -
- Convertible bonds (296) (288)
- Bank loans (126) (132)
- Lease liabilities (602) (461)
Liabilities from financing activities (1,024) (881)
Cash and cash equivalents 46 88
Net debt (IFRS 16) 10 (978) (793)
- Add back lease liabilities recognised under IFRS 16(1) 600 457
Net debt (IAS 17) (378) (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 2023 6 months to 28 Feb 2022
£m Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
Net cash (outflow) / inflow from operating activities (6) 57 51 - 43 43
Net cash outflow from investing activities (60) - (60) (38) - (38)
Net cash outflow from financing activities (19) (57) (76) (4) (43) (47)
Net decrease in cash in the period (85) - (85) (42) - (42)
A10. Balance sheet impact of IFRS 16
The balance sheet as at 28 February 2023 including and excluding the impact of
IFRS 16 is shown below:
At 28 Feb 2023 At 28 Feb 2022
Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
£m
Goodwill and other intangible assets 528 (1) 527 484 (1) 483
Property, plant and equipment 237 8 245 182 7 189
Right-of-use assets - 483 483 - 330 330
Investments in joint ventures 2 - 2 2 - 2
767 490 1,257 668 336 1,004
Inventories 182 - 182 153 - 153
Payables less receivables (187) 7 (180) (216) 21 (195)
Working capital (5) 7 2 (63) 21 (42)
Derivative financial asset 1 - 1 - - -
Net current and deferred tax asset 55 - 55 45 10 55
Provisions (26) 12 (14) (28) 14 (14)
Operating assets employed 792 509 1,301 622 381 1,003
Net debt (378) (600) (978) (336) (457) (793)
Net assets excluding pension liability 414 (91) 323 286 (76) 210
Pension liability - - - (2) - (2)
Deferred tax asset on pension liability - - - - - -
Total net assets 414 (91) 323 284 (76) 208
A11. Like-for-like revenue reconciliation
The reconciling items between like-for-like revenue change and total revenue
change are shown below:
£m Travel UK Rest of the World Travel Total Group
North America High Street
Like-for-like revenue change 52% 22% 122% 48% -% 27%
Net space change impact 14% 11% 72% 18% (1%) 9%
Foreign exchange -% 20% 15% 9% -% 5%
Total revenue change 66% 53% 209% 75% (1%) 41%
WH Smith PLC
Glossary (unaudited)
A12. 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 2023 6 months to 28 Feb 2022
Net operating lease charges 151 96
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 and profit 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 37.
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 (February
2022: 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.
A13. Analysis of retail stores and selling space
Number of High Street stores(1)
1 Sept 2022 Opened Closed 28 Feb 2023
Total 527 - (4) 523
(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 2022 Opened Closed 28 Feb 2023
Non franchise units 912 34 (18) 928
Joint Venture and Franchise units(2) 284 28 (14) 298
Total 1,196 62 (32) 1,226
(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 2022 Opened Closed 28 Feb 2023
High Street 2,543 - (11) 2,532
Travel 1,032 49 (14) 1,067
Total 3,575 49 (25) 3,599
Total Retail selling square feet does not include franchise units.
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