REG - WH Smith PLC - Preliminary Results
11/11/2021 07:00
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RNS Number : 0194S WH Smith PLC 11 November 2021
11 November 2021
WH SMITH PLC
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 AUGUST 2021
Improving trends in Travel; well positioned for the recovery;
successfully won all technology stores in UK airports
· Good start to new financial year; well positioned to return to
meaningful profit in 2022
· Improving trends in Travel over recent months with total Travel
revenue at 84% of October 2019
· Focused plan on customer conversion, increasing average transaction
value (ATV), category development and cost management continues to drive
performance
· Strong position to benefit from growth opportunities with over 100
new stores won and planned to open in Travel over the next three years with 58
in North America
· Successfully won all 30 technology stores across UK airports;
InMotion brand is now the global leader in this category in travel locations
with further growth opportunities
· Good recovery in North America. Trading profit(*) of £6m and
significant new business wins at major US airports
· High Street trading profit(*) of £19m with good cash generation;
record performance from funkypigeon.com
· Headline loss before tax and non-underlying items(*) of £55m,
reflecting global travel restrictions
· Strong balance sheet following refinancing announced in April 2021;
free cash generation of £14m; access to over £350m of liquidity as at 31
August 2021
Carl Cowling, Group Chief Executive, commented:
"The Group has delivered a good performance in the evolving trading
environment. Thanks to the outstanding efforts of all our colleagues across
the business, we have continued to adapt successfully to the changing
environment and we are now in a strong position to grow our business as our
markets continue to recover, returning to meaningful profitability in the
current financial year.
"In Travel UK, we are delighted to have won all 30 of the technology stores
across UK airports. This is a significant win for the Group and we look
forward to showcasing the very best of our US brand, InMotion, in these
locations. These latest wins mean InMotion is now the largest technology
retailer in travel locations in the world, and we see plenty more opportunity
to grow the brand globally.
"In addition to the InMotion stores in the UK, we have a very strong pipeline
of new store openings with over 100 stores already won and due to open in
Travel over the next three years - the majority of these in North America. We
expect more space to become available as our markets recover and we are very
well positioned to benefit from these opportunities.
"Despite the challenges of the UK high street, more generally, our High Street
business has delivered a resilient and profitable performance. Our online
businesses have delivered strong growth in the year, including a record
performance from funkypigeon.com.
"I would like to take this opportunity to thank the entire team for their
outstanding contribution in another challenging year. We have made excellent
progress and none of this would be possible without their hard work and
commitment.
"We are a financially strong and resilient Group with significant
opportunities to grow. While we continue to plan with caution, the Group is
well positioned to capitalise on the recovery in our key markets and take
advantage of the many exciting opportunities ahead."
* Pre-IFRS 16
Group financial summary:
Headline
IFRS 16 pre-IFRS 16(2)
Aug 2021 Aug 2020 Aug 2021 Aug 2020
Travel UK trading loss(1) £(29)m £(1)m £(32)m £(1)m
North America trading profit/(loss)(1) £2m £(14)m £6m £(18)m
Rest of the World trading loss(1) £(17)m £(12)m £(13)m £(14)m
Total Travel trading loss(1) £(44)m £(27)m £(39)m £(33)m
High Street trading profit/(loss)(1) £36m £(4)m £19m £(10)m
Group loss from trading operations(1) £(8)m £(31)m £(20)m £(43)m
Group loss before tax and non-underlying items(1) £(51)m £(68)m £(55)m £(69)m
Loss per share before non-underlying items(1) (22.1)p (43.3)p (23.7)p (44.2)p
Non-underlying items(1) £(65)m £(212)m £(49)m £(157)m
Group loss before tax £(116)m £(280)m £(104)m £(226)m
Basic loss per share (62.6)p (199.2)p (54.2)p (160.0)p
Diluted loss per share (62.6)p (199.2)p (54.2)p (160.0)p
Revenue performance:
Total % change vs Aug 2020
£m
Travel UK 195 (43)%
North America 166 43%
Rest of the World 40 (57)%
Total Travel 401 (27)%
High Street 485 4%
Group 886 (13)%
(1) Alternative Performance Measure (APM) defined and explained in the
Glossary on page 51.
(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 years ended 31 August 2021 and 31 August 2020 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 51. 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 Preliminary Results 2021 are available at whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
GROUP OVERVIEW
Impact of Covid-19 pandemic:
Covid-19 continues to have a significant impact on the performance of the
Group. Over the last year, we have worked hard throughout the world to
navigate our way through the changing government restrictions in each country.
The imposition and subsequent easing of lockdowns and restrictions has meant
we have developed a flexible and dynamic approach to operating our stores,
opening up when we had sufficient customer traffic to generate incremental
cash or, in line with government guidelines, remaining open to provide
essential products and services to our customers.
As at 31 October 2021, we had 1,540 stores open around the world out of a
total portfolio of 1,711 stores.
Our overriding priority during the year has been the health and wellbeing of
all our colleagues and customers. All stores, distribution centres and head
offices had appropriate safety measures in place in line with the relevant
government guidance, including social distancing measures, PPE for colleagues'
use, protective screens and guidelines to limit the number of customers in
store. In addition, all head office staff, having initially worked at home,
are now operating a hybrid model, combining home and office working.
Strategic Initiatives
Throughout the year, the trading environment remained impacted by Covid-19
with extensive restrictions in place. We focused on initiatives within our
control that have supported us in the immediate term and put us in a good
position to emerge operationally stronger as our markets continue to recover.
These key areas of focus are:
· Securing our financial position through the new banking arrangements
and convertible bond issuance announced in April 2021. This gives us a strong
balance sheet, extends maturity dates to 2025 and increases our revolving
credit facility to £250m
· Driving ATV and sales per passenger
· Extending our categories and ranges to reflect the specific needs of
our customers in each location where we operate. For example, health and
beauty products across our Travel stores and working from home and electrical
accessories ranges across our High Street stores
· Working with landlords, building on our strong relationships to
create opportunities for winning new business, extending categories, renewing
key contracts and improving the quality and location of the space where we
operate. The expansion of InMotion into the UK through the winning of every
technology store in UK airports is a good example of this in practice,
reflecting the combination of our core travel retail expertise, strong brand
and landlord relationships, and builds on the learnings from operating
InMotion in the US
· Investing capex in strategically important projects which set us up
well for the future, such as our refitted stores at London Heathrow Terminal 5
and our stores at the new terminal at Manchester Airport
· Building our internet proposition by extending ranges, investing in
the websites, marketing, fulfilment and building customer engagement through
social media
· Forensic focus on costs and cash, minimising discretionary spend and
managing our cash burn resulting in cash on deposit of £107m and access to
£357m of liquidity as at the end of October 2021
Group Summary
Total Group revenue as a percentage of 2019 total revenue has been:
% of 2019 Revenue(3)
FY 2021 FY 2022
Q1 Q2 Q3 Q4 9 weeks to 30 October 2021
High Street 88% 83% 86% 87% 88%
Travel 39% 35% 45% 63% 79%
Group 59% 58% 61% 71% 82%
(3) Equivalent month in 2019
Covid-19 continued to have a significant impact on the Group. Total Group
revenue at £886m (2020: £1,021m) was down 13% compared to last year (which
included six months pre-pandemic) and was 62% of 2019(3). Travel remained
impacted by the government enforced travel restrictions throughout the year.
However, we saw an improved performance across all channels in the second half
as restrictions were eased in most countries where we operate and which has
continued into Q1 of the current financial year. We saw a consistently robust
performance in High Street throughout the year, despite footfall declines,
with the important December trading period at 92% of 2019. Our internet
businesses have continued to perform strongly.
The Headline Group loss from trading operations(1) for the year was £20m
(2020: loss of £43m) with Headline Group loss before tax and non-underlying
items(1) at £55m (2020: loss of £69m). This includes a second half
performance over £110m better than the prior year. Including non-underlying
items, the Headline Group loss before tax(1) was £104m (2020: loss of
£226m).
The Group loss before tax, after non-underlying items and including IFRS 16,
was £116m (2020: loss of £280m).
On 28 April 2021, the Group announced new financing arrangements which
included a £250m Revolving Credit Facility (RCF) (increased from £200m) with
maturity extended to 2025. At the same time, the Group launched an offering of
convertible bonds which mature in 2026. The bonds raised £327m, of which
£50m was retained by the Group to fund new and existing growth opportunities,
with over 100 stores won and yet to open in Travel, including the InMotion
stores won in the UK. The remaining £267m was used to pay down a significant
proportion of the Group's term debt with its commercial banks, which now
stands at £133m with a maturity in 2025.
The Group has the following cash, committed facilities and drawn debt as at 31
August 2021:
31 August 2021 Maturity
Cash and cash equivalents £130m
Revolving Credit Facility(4) £250m April 2025
Term Loan £133m April 2025
Convertible bond £327m April 2026
(4 )Undrawn as at 10 November 2021
As at 31 August 2021, Headline net debt(1) was £291m (2020: £301m). We
continued to focus on cash. Group free cash flow(1) was an inflow of £14m
(2020: outflow of £41m).
As at 31 October 2021, access to liquidity was £357m being cash on deposit of
£107m and the undrawn RCF.
The Board has announced that it will not be paying a dividend in respect of
the financial year ending 31 August 2021.
The Group's approach to capital allocation remains unchanged:
· investing in our existing business and in new opportunities where we
see attractive rates of return ahead of the cost of capital;
· re-establishing a dividend for our shareholders;
· undertaking attractive value-creating acquisitions in strong and
growing markets;
· returning surplus capital to shareholders by way of share buybacks.
In normalised conditions, we have a leverage target of between 0.75X and 1.25X
EBITDA.
Outlook
The Group has responded quickly to the changing trading environment despite
the challenges and uncertainties faced during the year. We have managed our
cash position well, refinanced our debt, and have sufficient liquidity to
capitalise on the significant growth opportunities that have become available
as a result of the pandemic.
We continue to make good progress in winning new space in Travel both in the
UK, North America and the Rest of the World. In UK Air, we have now won 30
technology stores. These stores will trade under the brand InMotion, further
strengthening our presence in this category in Travel. As well as the 117
stores in North America, these 30 InMotion stores in the UK, including at
London Heathrow, London Gatwick and London Stansted airports, will make
InMotion the leading technology retailer in travel locations. In addition, we
are delighted to have been awarded preferred bidder status for a further two
InMotion stores at Dublin Airport.
We have also made good progress investing in our existing stores, opening new
formats and winning new business. We anticipate further growth opportunities
across all our markets. All this puts us in a robust position to continue to
recover and emerge operationally stronger from the pandemic.
We are financially strong and are an important retail partner for our travel
landlords. As a result, we are well positioned to benefit from further
opportunities, including extending our user clauses to drive spend per
passenger.
Our High Street business has delivered a robust performance and is well placed
to continue to generate cash from its portfolio of well-located stores and
growing internet businesses. Across our digital channels over the medium-term
we expect to see strong growth, particularly from funkypigeon.com, and we are
well positioned to grow this platform further.
Subject to uncertainties in our markets, which continue to be impacted by
government actions, we are optimistic that we will be able to achieve 2019
sales levels in the current financial year(5).
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America (NA) and Rest
of the World (ROW). Going forward we will split Travel into these three
segments when reporting our results.
Covid-19 continued to significantly impact the business across all our
markets. This has resulted in a Total Travel Headline trading loss(1) in the
year of £39m (2020: loss of £33m). Total revenue was £401m (2020: £553m),
down 27% compared to the previous year.
£m Trading (loss)/profit(1) Headline trading (loss)/profit(1)
(IFRS 16) (pre-IFRS 16) Revenue
2021 2020 2021 2020 2021 2020
Travel UK (29) (1) (32) (1) 195 344
North America 2 (14) 6 (18) 166 116
Rest of the World (17) (12) (13) (14) 40 93
Total Travel (44) (27) (39) (33) 401 553
In all our markets, we have focused on initiatives within our control which
support us in the immediate term and put us in a good position to emerge
operationally stronger as our markets recover:
· Business development and winning new business
We do this through building and managing relationships with all our landlord
partners to win new space, improve the quality and amount of space, develop
new formats and extend contracts. As at 31 October 2021, we had over 100
stores won and yet to open across our global Travel business, including 22
InMotion stores in UK Air.
(5) Includes acquisitions and new wins
· ATV growth and spend per passenger
We do this through our forensic attention to space, cross category promotions,
merchandising, store layouts and store refits.
· Category development
We do this by developing adjacent product categories relevant for our
customers, such as health and beauty and electrical accessories ranges; and
expanding existing categories, e.g. premium food ranges.
· Minimising costs
We remain focused on cost control and minimising our cost base to reflect the
level of sales in each channel and country whilst retaining our ability to
trade as recovery occurs.
As restrictions have eased, we have seen a gradual improvement in passenger
numbers, led first by domestic travel and then short-haul. We expect long-haul
travel to return last. Consensus of industry forecasts including the Airports
Council International (ACI) expect passenger numbers to return to 2019 levels
by 2024, although the speed and shape of the recovery remains unclear and
variable. We concur with this view of the recovery.
As at 31 August 2021, our global Travel business, including MRG and InMotion,
operated from 1,166 units (31 August 2020: 1,174 units). Of these, 996 were
open as at 31 October 2021. Outside of the UK, as at 31 August 2021 we are
present in over 100 airports and 30 countries with 291 stores in North
America, 84 stores in Europe, 98 in the Middle East and India and 122 in Asia
Pacific. Excluding franchise units, Travel occupies 1.0m square feet.
TRAVEL UK
Our Travel UK business continued to be impacted by a significant decline in
passenger numbers as a result of government-imposed travel restrictions in
place throughout the financial year. Total revenue in the year was £195m,
(2020: £344m), down 43% on the previous year. Compared to 2019(3), revenue in
Air was 17%, our Hospital channel was 76%, and Rail was 32%. This resulted in
a Headline trading loss(1) of £32m (2020: loss of £1m).
While first half trading in Travel UK was impacted by lockdown restrictions,
quarantine measures and resultant reduced passengers on public transport, we
saw encouraging signs of recovery across all our channels in the second half
as restrictions were progressively eased. This improved performance has
continued into the new financial year. Revenue in September 2021 was 60% of
2019 revenue. In October 2021, revenue was 71% of 2019, with Air at 59%,
Hospitals at 92% and Rail at 74%.
In Air, we saw a significant improvement in passenger numbers in the second
half as restrictions eased and more countries were added to the UK
Government's green list. We saw an improvement in our hospital performance,
with higher levels of visitors, as hospitals returned to more general medical
care with more elective surgeries. Similarly, we saw an improved performance
in our Rail business as restrictions eased over the summer months and commuter
traffic increased. Since the beginning of the new financial year, we have seen
a notable shift in rail passenger numbers with strong performances
particularly over weekends and an improving weekday performance albeit still
below pre-pandemic levels.
We have worked hard across all our channels to deliver against our plan,
focusing on key priorities within our control. All three channels saw a double
digit increase in ATV during the year.
As at 31 August 2021, Travel UK operated from 571 stores of which 518 were
open as at 31 October 2021. Over the next three years, we expect to open, on
average, an additional 10 to 15 stores each year.
Air
In Air, where leisure passengers have been the most important customer segment
before and during the pandemic, we have continued to build on our strong
position in this channel, including successfully winning all the technology
stores across UK airports, including London Heathrow, London Gatwick and
London Stansted airports. These business wins comprise 30 stores and will
trade under the InMotion brand. Combining the learnings and expertise from our
InMotion stores in the US, these stores will provide a first-class customer
service experience and showcase a range of premium brands, such as Apple, Bose
and Samsung, as well as an extensive range of tech accessories.
As at 31 October 2021, we have 8 InMotion stores trading in UK airports. These
include a combined WH Smith and InMotion store at London Stansted airport
which forms part of a format trial, combining under one roof a news, books and
convenience offer by WH Smith with a technology range from InMotion. Similar
to our flagship store at London Heathrow Terminal 2, this store boasts a large
digital fascia which complements further digital signage instore, creating an
attractive look and feel while also promoting key offers and products. While
it is still early days, there is scope to further develop this new combined
format across our existing large airport stores going forward. In addition, we
will launch a new reserve and collect service later this year in our new
InMotion stores to provide our customers with another quick and convenient way
to shop.
Technology and accessories is a strong growth market and in a fully recovered
travel market we would anticipate that these stores will deliver c.£80m of
incremental sales per year. Investment in capex and working capital relating
to these stores in the year ending 31 August 2022 will be c.£18m. We expect
most of the remaining stores to open by the end of the first half of the
current financial year.
We have also continued to invest in our stores, develop new formats and win
new business in this channel. This has included: major refits across London
Heathrow Terminal 5 to our 'store of the future' format during the year, the
opening of three stores in the new terminal at Manchester airport in October
2021, our first shared space store with M&S Food at Liverpool Airport, the
opening of a new standalone Bookshop at Heathrow Terminal 2, and, under a
franchise agreement, new Costa Coffee stores in Aberdeen and Southampton
airports.
Our ongoing investment in format development puts us in a stronger position to
win more new business while benefitting from higher levels of customer
penetration, delivering a greater return on our space. Going forward, we
expect more space to become available.
Category development remains a key part of the strategy and we have made good
progress in the year, extending our ranges into new categories such as health
and beauty, tech accessories, premium souvenirs and premium food trials. The
premium food trials include YO! Sushi and Crussh which have delivered a 25%
increase in ATV and have been rolled out to further stores.
As expected, we have seen a faster return of leisure passengers over the year.
We saw another step change in sales over the half-term holiday in October,
with sales at 70% of the comparable period in 2019.
During the year, we have also successfully extended a number of key contracts.
Hospitals
The Hospitals channel is an important channel for us and, pre-Covid, was our
second largest channel by revenue in Travel UK. While sales were clearly
impacted in the first half of the financial year, with no hospital visitors
and elective surgeries cancelled, we saw an improvement in the second half as
restrictions eased and these stores performed well. This strength in
performance has extended to the new financial year with sales in October at
92% of 2019(3) levels.
The hospital market continues to grow with additional government investment.
We are well placed to service the increased demand for retail services in
hospitals resulting from the extended operating times to compensate for
department backlogs as part of the government's commitment to additional
investment in health spend. In addition, there are considerable space
opportunities for us to improve the retail offer across UK hospitals.
As at 31 August 2021, we operate from 138 stores in 100 hospitals and we
believe there is scope for around 300 hospitals in the UK that are able to
support at least one of our three store formats (a WH Smith format, a M&S
Food and a Costa Coffee).
This channel is a good example of how we continue to innovate with a strong
proposition tailored to each location, and a broad suite of formats and
brands, including most recently, our first WH Smith format with a Post Office
in Travel.
As at 31 August 2021, we operate 49 M&S standalone or shared space stores
across Hospitals, including a recently opened M&S Café at St Thomas'
hospital in London.
Looking ahead, we would expect to return to opening on average c.10 new stores
each year in this channel over the medium term.
Rail
Rail remains an attractive channel. According to the Department for Transport,
pre-pandemic rail had approximately 1.7bn passenger journeys with leisure
passengers accounting for around 40% of these journeys.
During the year, we have seen a gradual improvement in sales as restrictions
have eased. Concourse data for October suggested passenger numbers in October
were 66% of 2019 levels. Revenue in Rail in October was at 74% of 2019 levels.
As we have done across all our channels, we continue to focus on driving ATV
and we have seen some good results with a double-digit increase from expanding
categories (such as premium food as we have in air) and changing store
layouts.
We also continue to invest and develop new formats in this channel. We have
recently opened our first shared space store in Rail with M&S at Bristol
Templemeads Station. While it is still early days, both customer and landlord
feedback has been positive.
In addition, we will be launching a new 'blended essentials' store at Euston
Station in London in December 2021. This store will combine our traditional
news, books and convenience offer with electrical accessories, health and
beauty products and a pharmacy.
NORTH AMERICA
We saw a strong performance from North America, where there was a steady
recovery in passenger numbers and also visitors to Las Vegas over the spring
and summer months. Total revenue for the year in NA was £166m (2020: £116m),
with a Headline trading profit(1) of £6m (2020: loss of £18m). The Headline
trading profit(1) of £6m reflects the recovery in passenger numbers and tight
cost control including the benefits from merging the MRG and InMotion head
offices into Las Vegas.
The growth opportunities in North America are substantial. The US is the
largest travel retail market in the world with annual sales, pre-pandemic, at
$3.2bn. Approximately 85% of passengers are domestic, with leisure passengers
the biggest segment. TSA (Transportation Security Administration) data
continues to show the gradual recovery in passenger numbers week on week, with
passenger numbers at the end of October 2021 at 84% of 2019 levels.
MRG has a strong track record of winning new business and we have 58 new
stores (including InMotion) won and due to open in North America over the next
three years with 17 stores won this financial year, including significant wins
at major US airports. During the year, MRG opened 8 airport stores, including
stores at La Guardia and San Francisco airports. InMotion has an excellent
store portfolio with 117 stores located across 41 airports in North America
and three stores in Resorts. During the year, InMotion opened seven units,
including three InMotion stores in Resort locations.
Differentiated from its competitors by its strategy of developing highly
customised retail experiences tailored to local customers and landlords, which
we also now use in tenders around the world, MRG has a highly successful and
proven business model. The combination of WH Smith, MRG and InMotion now
enables the Group to participate in the entire North American airport
specialty retail market. We expect a substantial amount of retail space to be
offered for tender over the next ten years.
Outside of the airport business, the Resorts channel continues to be
resilient. MRG is a leading player in this channel in Las Vegas with very
longstanding relationships and a significant amount of expertise. The Resorts
channel has similar dynamics to our Travel business with a high number of
short stay visitors who tend to stay around the Las Vegas Strip and Fremont
Street areas, where most of our stores are located. This market has proven
resilient as a leisure location over the summer with occupancy levels,
according to the Las Vegas Convention and Visitors Authority, at 87% of 2019
over July and August. Whilst many people drive to Las Vegas, we are also
seeing an increase in passenger numbers at McCarran International Airport.
Our sales performance has reflected these trends with overall sales in North
America at 90%(6) of 2019 levels in October. We are currently trading from 264
stores (151 MRG and 113 InMotion).
We continue to invest in digital technology to enhance the customer experience
in our stores and we will be opening our first frictionless, checkout-free
store in the coming weeks. The WH Smith branded store will provide US
customers with a quick and easy way to shop using Amazon's Just Walk Out
technology.
REST OF THE WORLD
Total revenue for the year in ROW was £40m (2020: £93m), down 57% versus the
previous year. The Headline trading loss(1) for the year was £13m (2020: loss
of £14m).The ROW has seen broadly similar trends to the UK, with passenger
numbers significantly down year on year. The pace of recovery has varied by
geography, as expected, with Europe and the Middle East the best performing
regions in the second half. As we have done in Travel UK, we remain focused on
areas within our control, including increasing ATV.
As this market recovers, we expect to see more space become available. Our
very low market share of the News Books and Convenience market outside of the
UK and NA means there is significant opportunity to grow this business
further. We also see good opportunities to win new business in the technology
market under our InMotion brand. We are delighted to have been awarded
preferred bidder status for two InMotion stores at Dublin Airport. This win in
a significant European airport will bring the total number of InMotion stores
in ROW to 10.
As at 31 October 2021, we had 214 stores trading (c.70% of the total).
During the year we opened 17 new stores. In addition, we won 21 new stores,
including significant tenders at Adelaide Airport, Melbourne Airport Terminal
1 and Bali Airport. In total, as at 31 August 2021, we operate 304 stores
(2020: 307). 40% are directly run, 52% are franchised with the balance being
joint ventures. We will continue to use these three economic models flexibly
in order to create value and win new business.
HIGH STREET
Our High Street business comprises our store portfolio on UK high streets and
includes our websites whsmith.co.uk, cultpens.com and our personalised
greeting cards and gifts business, funkypigeon.com. During the year, High
Street delivered a resilient performance with Headline trading profit(1) of
£19m (2020: loss of £10m) on revenue of £485m, 4% higher than 2020. We
managed the business tightly in an uncertain trading environment, keeping
focused on costs and cash generation.
The market has changed significantly during the pandemic, resulting in a shift
in consumer behaviour over the past 18 months. High street footfall is down
25% versus 2019(3) levels with internet retailing growing. The speed of this
change has accelerated during the pandemic. As a consequence, we have acted
quickly to this changing market in a number of ways:
· We have reviewed our categories and extended them where appropriate
to ensure we have greater relevance in this market and where competitors have
closed. New categories include working from home ranges and tech accessories,
and we have increased our ranges of cards where competition has weakened.
· We have invested in our whsmith.co.uk, funkypigeon.com and
cultpens.com websites where we are seeing significant growth.
(6) Includes proforma MRG for 2019
· We restructured the cost base to reduce costs and also to increase
the level of flexibility in our business model, for example labour costs in
stores, head offices and the distribution centres, and in occupancy costs
reducing rent and keeping leases short and flexible.
· We closed 24 stores over the last 12 months where leases had
become uneconomic and now have a closure process where the costs of closure
are largely cash neutral. While closing stores is not an easy decision to make
for our colleagues or the communities we serve, it is vital we retain a strong
and cash generative high street portfolio going forward.
The strategy we have in place in our High Street business remains as relevant
today as it has ever been: space and category management, increasing margins
and reducing costs. Our stores are well located with 95% in prime pitch
locations.
We consider retail space as a strategic asset and we utilise our space to
maximise return in the current year, in ways that are sustainable for future
years. We have extensive and detailed space and range elasticity data for
every store, built up over many years and we utilise our space to maximise the
return on every metre drop of display space in every store. This approach
remains as appropriate today.
Driving efficiencies remains a core part of our strategy and we continue to
focus on all areas of cost in the business. We achieved cost savings of £30m
in the 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, government business rates holiday, marketing
efficiencies and productivity gains from our distribution centres. An
additional £45m of cost savings have been identified over the next three
years of which £35m are planned for 2022.
Over the years, we have actively looked to put as much flexibility into our
store leases as we can, and this leaves us well positioned in the current
environment. The average lease length in our High Street business, including
where we are currently holding over at lease end, is under 2.5 years. We only
renew a lease where we are confident of delivering economic value over the
life of that lease. We have c.430 leases due for renewal over the next three
years, including 150 where we are holding over and in negotiation with our
landlord.
As at 31 August 2021, the High Street business operated from 544 WH Smith
stores (2020: 568) which occupy 2.6m square feet (2020: 2.7m square feet). 24
WH Smith stores were closed in the year (2020: eight).
Specialist websites
During the year, we have increased our investment and focus on whsmith.co.uk
and have seen rapid growth through investing in the site. This has included
improving customer conversion and product presentation; broadening our
approach to marketing; and investing in fulfilment using our Swindon
distribution centre. This enables us to have a credible multi-channel offer
which is complementary for our customers. Our specialist pen website, c
(http://www.cultpens.com) ultpens.com (http://www.cultpens.com) , has
continued to perform well. During the year, we have invested further in the
site, adding international functionality to build on our existing
international sales, and we have extended our fulfilment centre to meet
demand. In addition, we have continued to focus on our luxury pen ranges with
increased marketing investment in ranges such as Montblanc.
Funkypigeon.com delivered a record performance in the year. Total revenue was
£54m with Headline EBITDA(1) of £14m for the year.
The market for greetings cards in the UK is substantial and estimated at
£1.6bn(7) with online penetration estimated at c.15%(7) with OC&C
forecasting online growth of single cards over the next three years, taking
penetration to c.20%(7) of the card market by 2024. The UK greetings card
market has been stable with adults sending on average 20(7) greetings cards
per person each year. We therefore see significant growth opportunities with
funkypigeon.com.
(7 )Company estimates / OC&C 2019
We continue to invest in the site. During the year, we have developed the
funkypigeon.com app to improve customer conversion, and invested in platform
enhancements, including improving our customer relationship management
capability. We have further extended the fulfilment capability to meet demand,
supporting the significant increase in new customers over the past 18 months,
with a new production facility in Swindon and leveraging the Group's existing
assets. In addition, we have strengthened the management team, with a new
Managing Director.
We have also recently launched a new next day delivery service, operational
seven days a week to further enhance our customer proposition. Orders placed
before 9:30pm will be fulfilled the following day. This has received very
positive customer feedback.
Whilst the current year will see a lower sales and Headline EBITDA(1) as we
anniversary the lockdowns, we believe there are substantial opportunities to
grow the platform further and significantly grow sales and profits.
Environmental, Social and Corporate Governance ('ESG')
During the first half of the financial year, we launched our new
sustainability strategy, 'Our journey to a better business', and we have
continued to focus on our ESG performance.
During the year, we have met our target to reach carbon neutrality for our UK
operations, reducing our energy consumption by over 60% since 2007, switching
to 100% renewable electricity and investing in tree planting projects to
neutralise residual emissions.
Over the next few years, we intend to extend this approach to our
international operations and encourage our supply chain to join us on the
pathway to net zero. We will be seeking independent assessment and approval of
our carbon targets from the Science Based Target Initiative in the next year.
We continue to focus on more environmentally responsible sourcing practices
and we have removed plastic glitter from all our own-brand ranges. This is in
addition to our work to redesign and remove plastic packaging from our
seasonal ranges wherever possible.
One of the greatest impacts of the pandemic has been the increasing gap in
children's literacy levels. We are therefore proud to continue our partnership
with the National Literacy Trust at such an important time.
We are committed to continuing to play our part to address some of the key
challenges facing society and the environment over the years ahead.
GROUP
The Group generated a Headline loss before tax and non-underlying items(1) of
£55m (2020: £69m) and, after non-underlying items and IFRS 16, a Group loss
before tax of £116m (2020: £280m). During the year, the Group received a
total of £11m from the UK Government's Job Retention Scheme and similar
schemes in other countries. The Group also benefited from the business rates
holiday implemented by the UK Government which was worth £40m in the year.
Headline
IFRS pre-IFRS 16
£m 2021 2020 2021 2020
Travel UK trading loss(1) (29) (1) (32) (1)
North America trading profit / (loss)(1) 2 (14) 6 (18)
Rest of the Wold trading loss(1) (17) (12) (13) (14)
Total Travel trading loss(1) (44) (27) (39) (33)
High Street trading profit / (loss)(1) 36 (4) 19 (10)
Group loss from trading operations(1) (8) (31) (20) (43)
Unallocated costs(1) (19) (17) (19) (17)
Group operating loss before non-underlying items(1) (27) (48) (39) (60)
Net finance costs (24) (20) (16) (9)
Group loss before tax and non-underlying items(1) (51) (68) (55) (69)
Non-underlying items(1) (65) (212) (49) (157)
Group loss before tax (116) (280) (104) (226)
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
and incidence, are treated as non-underlying items and disclosed separately.
As in 2020, most non-underlying items are directly attributable to Covid-19,
and are detailed in the table below. Most do not impact cash.
The cash spend relating to non-underlying items in the 2021 financial year was
£38m and mainly related to activity announced in 2020.
IFRS pre-IFRS 16 IFRS pre-IFRS 16
£m Ref. 2021 2021 2020 2020
Items directly attributable to Covid-19
Impairment (1) 42 18 135 55
Onerous leases (2) - 5 - 13
Stock provisions, write-offs and other costs (3) 3 6 15 15
Restructuring (4) 9 9 25 25
Other property costs (2) - - - 12
Costs associated with refinancing activity (5) 6 6 - -
Other non-underlying items
Transaction costs (6) - - 11 11
Integration costs (6) 2 2 9 9
Amortisation (7) 3 3 3 3
Pension past service cost (8) - - 14 14
65 49 212 157
Items 1-5 in the above table have arisen as a direct consequence of Covid-19,
and reflect the impact of lost revenues as a result of store closures, and
downward revisions to budgeted revenues based on expectations of the rate of
return to pre-pandemic levels of footfall and passenger numbers.
(1) Impairment of Property, plant and equipment and Right-of-use assets
The impact on the Group's operations of Covid-19 is expected to continue
during the next year and beyond. As a result, the Group has carried out a
review for potential impairment across the entire store portfolio. The
impairment review compared the value-in-use of individual store
cash-generating units, based on managements' assumptions regarding likely
future trading performance taking into account the effect of Covid-19 to the
carrying values at 31 August 2021. Following this review, a charge of £18m
(2020: £55m) was recorded for impairment of retail store assets on a pre-IFRS
16 basis, and £42m (2020: £135m) on an IFRS 16 basis which includes an
impairment of right-of-use assets of £28m (2020: £95m).
(2) Onerous leases and other property costs
As a result of the impact of Covid-19, the Group has carried out a review of
leases where the obligations of those leases exceed the potential economic
benefits expected to be received under them. This resulted in a charge for the
year of £5m (2020: £13m). This concept relates to pre-IFRS 16 numbers only
and does not exist under IFRS 16.
Other property costs of £12m (pre-IFRS 16) in the prior year relate to
reinstatement liabilities for stores where the long-term viability has been
impacted by Covid-19. Under IFRS 16 these costs are included in right-of-use
assets and are therefore included within the impairment figure of £95m.
(3) Stock provisions, write-offs and other
During the year, non-underlying provisions of £5m have been recorded against
inventory, and relates to dated and perishable stock and stock subject to
obsolescence where the sell through rate has significantly reduced due to
store closures and lower footfall. Other costs relate to international
franchisees, and under IFRS 16 only, the derecognition of lease liabilities
relating to the disposal of WH Smith France.
(4) Restructuring costs
The charge of £9m (2020: £25m) is principally attributable to redundancies
and restructuring costs following a review of store operations across our High
Street business, as a result of the impact of Covid-19 on footfall on the UK
high street. These costs are presented as a non-underlying item as they are
part of a Board-agreed restructuring programme, and are considered material
and one-off in nature.
(5) Costs associated with refinancing activity
Costs associated with refinancing include £1m of non-cash charges relating to
unamortised fees connected with extinguished liabilities, £3m of fees
incurred in relation to amendment and extension of the Group's previous
financing arrangements incurred in March 2021 prior to the issuance of the
convertible bond, and £2m of professional fees relating to refinancing and
debt structuring activity required as a result of Covid-19. Other fees
incurred relating to refinancing activity have been recognised in underlying
finance costs or recognised as a deduction from the value of liabilities
recognised, and will be amortised over the period of the arrangement through
underlying finance costs.
(6) Integration costs
During the year, the Group incurred further costs of £2m in relation to the
integration of MRG into the Group, and the merging of the InMotion and MRG
corporate offices into Las Vegas, which has now been completed. In the prior
year, transaction and integration costs of £20m were incurred in relation to
the acquisition of MRG.
(7) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and
InMotion brands.
(8) Pension past service cost
Past service cost of £14m was recognised in the prior year. This related to
the equalisation of pension benefits between men and women for the period from
1 April 1992 to 29 July 1993 ('Barber equalisation').
A tax credit of £12m (2020: £25m) has been recognised in relation to the
above items (£9m pre-IFRS 16 (2020: £18m)).
Net Finance Costs
Headline
IFRS pre-IFRS 16
£m 2021 2020 2021 2020
Interest payable on bank loans and overdrafts 10 9 10 9
Interest on convertible bonds 4 - 4 -
Unwind of discount on onerous lease provisions (pre-IFRS 16) - - 2 -
Interest on lease liabilities 10 11 - -
Net finance costs 24 20 16 9
Pre-IFRS 16 net finance costs for the year were £16m (2020: £9m) with the
year on year increase reflecting the refinancing activity during the year.
The interest on the convertible bonds includes the accrued coupon and c.£2m
of the non-cash debt accretion charge. Looking forward, in the current
financial year ending 31 August 2022, net finance costs will include the
coupon on the convertible bonds and c.£8m of non-cash debt accretion charges.
The £2m non-cash unwind of discount on onerous lease provisions relates to
onerous lease provisions recognised in the current and prior year as a result
of Covid-19. This relates to pre-IFRS 16 only and does not exist under IFRS
16.
Lease interest of £10m arises on lease liabilities recognised under IFRS 16,
bringing the total net finance costs under IFRS 16 to £24m (2020: £20m).
We expect finance costs on a pre-IFRS 16 basis to be approximately £25m in
the current year, with cash finance costs approximately £10m lower than
this. These costs are considerably lower than had the April refinancing not
occurred.
Tax
The effective tax rate(1) was 47% (2020: 23%) on the loss incurred in the
year. The effective tax rate is higher than the prior year rate due to the
profile of losses incurred in the UK and overseas, and includes a credit of
£8m arising on the substantive enactment of a change in UK tax rate from 19
to 25 per cent. This new law was substantively enacted on 24 May 2021. The tax
rate on the IFRS 16 Group statutory loss was 31 per cent (2020: 15 per cent).
During the year, the Group received a corporation tax refund of £10m
following the carry back of 2020 losses against prior year profits.
Fixed Charges Cover(1)
pre-IFRS 16
£m 2021 2020
Headline net finance charges(1) 16 9
Net operating lease rentals (pre-IFRS 16)(1) 151 210
Total fixed charges 167 219
Headline (loss)/profit before tax and non-underlying items(1) (55) (69)
Headline profit before tax, non-underlying items and fixed charges 112 150
Fixed charges cover - times 0.7x 0.7x
Fixed charges, comprising property operating lease rentals and net finance
charges, were covered 0.7 times (2020: 0.7 times) by Headline loss/profit
before tax, non-underlying items and fixed charges.
Cash Flow
Free cash flow(1) reconciliation
pre-IFRS 16
£m 2021 2020
Headline Group operating loss before non-underlying items(1) (39) (60)
Depreciation, amortisation and impairment (pre-IFRS 16)(8) 50 60
Non-cash items 8 3
19 3
Capital expenditure (44) (79)
Working capital (pre-IFRS 16)(8) 37 40
Net tax refunded / (paid) 10 5
Net interest paid (pre-IFRS 16) (8) (7)
Other - (3)
Free cash flow(1) 14 (41)
(8 )Excludes cash( )flow impact of non-underlying items
The free cash inflow(1) for the year was £14m. The operating cash inflow was
£19m (2020: £3m) driven by a good trading performance from High Street. We
continued to focus on managing our working capital, making appropriate buying
decisions for stores we have open, and generated an inflow of £37m in the
year, which also includes the working capital benefit from the improved
trading over the summer.
Net corporation tax refunded in the year was £10m (2020: £5m) following the
carry back of 2020 losses against prior year profits.
Capital expenditure was £44m (2020: £79m). We continue to invest in
strategically important projects, such as London Heathrow Airport Terminal 5
and the new terminal at Manchester Airport, as well as opening stores around
the world. We expect capex spend for the current financial year to be around
£100m.
£m 2021 2020
New stores and store development 17 34
Refurbished stores 17 17
Systems 9 14
Other 1 14
Total capital expenditure 44 79
Reconciliation of Headline net debt(1)
Headline net debt is presented on a pre-IFRS 16 basis. See Note 9 of the
Financial statements for the impact of IFRS 16 on net debt.
As at 31 August 2021 the Group had Headline net debt(1) of £291m comprising
convertible bonds of £283m, term loans of £132m (net of fees), £6m of
finance lease liabilities and net cash of £130m (2020: £301m, comprising
term loan of £400m relating to the acquisition of InMotion and MRG, £9m of
finance lease liabilities and net cash of £108m).
Headline
pre-IFRS 16
£m 2021 2020
Opening Headline net debt(1) (301) (180)
Movement in year
Free cash flow 14 (41)
Dividends - (47)
Pensions (3) (3)
Non-underlying items (38) (20)
Net purchase of own shares for employee share schemes (2) (2)
Acquisition of businesses, net of cash acquired - MRG/InMotion 1 (316)
Net proceeds from placings - 312
Equity component of convertible bond 41 -
Other (3) (4)
Closing Headline net debt(1) (291) (301)
Cash 130 108
Term Loans (net of fees) (132) (400)
Convertible bond (283) -
Finance leases (pre-IFRS 16) (6) (9)
(291) (301)
The Group had closing Headline net debt(1) of £291m at the year end. In
addition to the free cash flow, the Group paid defined benefit pension funding
of £3m (see Note 16 on pensions); and £38m of non-underlying items which
mainly relate to restructuring following the review of store and head office
operations, as previously reported and charged to the income statement in the
prior year. In addition, there were costs associated with integration of the
US businesses and the refinancing in April.
As part of the Group's refinancing in April 2021, the Group issued convertible
bonds maturing in 2026. The convertible bonds raised £327m which was used to
partially pay down the existing £400m of term loans from both the MRG and
InMotion acquisitions. The convertible bond is a compound financial
instrument, which includes an equity option. As a consequence, the debt is
bifurcated into an equity component, reported in equity, and a debt component.
The debt component accretes up to par over the life of the bond, so for each
12 month period we will have c.£8m non-cash debt accretion in finance costs.
In addition, the Group increased the RCF from £200m to £250m and extended
its tenor to April 2025.
On an IFRS 16 basis, net debt was £755m, which includes an additional £464m
of lease liabilities.
Balance sheet
Headline
IFRS pre-IFRS 16
£m 2021 2020 2021 2020
Goodwill and other intangible assets 473 493 474 495
Property, plant and equipment 174 192 167 190
Right of use assets 328 413 - -
Investments in joint ventures 2 2 2 2
977 1,100 643 687
Inventories 135 150 135 150
Payables less receivables (214) (183) (237) (226)
Working capital (79) (33) (102) (76)
Derivative financial asset - - - -
Net current and deferred tax asset 56 28 46 17
Provisions (14) (14) (28) (27)
Operating assets employed 940 1,081 559 601
Net debt (755) (851) (291) (301)
Net assets excluding pension liability 185 230 268 300
Pension liability (3) (4) (3) (4)
Deferred tax asset on pension liability 1 1 1 1
Total net assets 183 227 266 297
The Group had Headline net assets of £268m before pension liabilities and
associated deferred tax assets, £32m lower than last year end reflecting the
lower level of capex and the impact of impairment reviews as a result of
Covid-19. Headline net assets after the pension liability and associated
deferred tax asset were £266m compared to £297m at 31 August 2020. Under
IFRS the Group had net assets of £183m.
Pensions
The latest actuarial revaluation of the main defined benefit pension scheme,
the WH Smith Pension Trust, was at 31 March 2020 at which point the deficit
was £9m (31 March 2017 actuarial revaluation deficit of £11m). The Group has
agreed a continuation of the annual funding schedule with the Trustees from
March 2020 for the next five years, which includes the deficit recovery
contributions and other running costs, of just under £3m per annum. During
the year ended 31 August 2021, the Group made a contribution of £3m to the
scheme.
The scheme has been closed to new members since 1996 and closed to defined
benefit service accrual since 2007. The Liability Driven Investment (LDI)
policy adopted by the scheme continues to perform well with 100% of the
inflation and interest rate risks hedged.
As at 31 August 2021, the Group has an IFRIC 14 minimum funding requirement in
respect of the WH Smith Pension Trust of £2m (2020: £3m) and an associated
deferred tax asset of £1m (2020: £1m) based on the latest schedule of
contributions agreed with the Trustees. As at 31 August 2021, the scheme had
an IAS 19 surplus of £284m (2020: surplus of £268m) which the Group has
continued not to recognise. There is an actuarial deficit due to the different
assumptions and calculation methodologies used compared to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined benefit pension
scheme was £1m (2020: £1m).
Principal and Emerging Risks and Uncertainties
The Board has undertaken a robust assessment of the principal and emerging
risks and uncertainties facing the Group, including those that would threaten
its business model, future performance, solvency or liquidity. The Board has
assessed the ongoing impact of Covid-19 as a significant risk facing the
Group, due to uncertainty around the timing and extent of recovery on our
ability to operate our Travel and High Street stores, both in the UK and
Internationally, and its impact upon the levels of global and domestic travel.
The Group has deployed a framework of operational procedures, mitigating
actions and business continuity plans as outlined in this announcement and
will continue to adapt these plans as the situation evolves.
Changes to the risk profile due to Covid-19
Where the consequences of the Covid-19 pandemic may impact the business, we
have incorporated these considerations into our assessment in relation to each
of our principal risk headings. The grid below explains where the potential
risk implications of the pandemic link with, and impact upon, our other
principal risks.
A full disclosure of the Group's principal and emerging risks and
uncertainties including the factors which mitigate them will be set out within
the Strategic report of the 2021 Annual Report and Accounts.
Relevant Principal Risk Covid-19 Impact
Economic, political, competitive & market risks The Group may fail to effectively respond to the pressures of an increasingly
changing retail environment, where Covid-19 materially changes consumer
spending patterns and habits, such as shifting from physical to online
shopping, and from any longer-term damage to the travel industry and
reductions in the level of international travel.
Brand and reputation The reputation of the brand may be impacted in the event that customers were
to perceive that our store environments are insufficiently safe and secure in
response to the continuing experience of the virus.
Key suppliers and supply chain management Given that large elements of our sourcing rely on factories and shipment from
the Far East, these supply chains and principal product flows could be
negatively impacted by any interruptions due to any further shutdown of
factories and supply routes or international outbreaks.
Store portfolio The Group's performance is reliant upon trading from our wide portfolio of
premium shopping locations, where our performance may be negatively impacted
in the event of further store closures, constraints on trading and travel
restrictions, or further extensions in the scale and nature of local
lockdowns.
Business interruption The business could be negatively impacted by any concentration of illness in a
particular location such as Head Office, distribution centres or particular
stores, should these need to close temporarily, and large numbers of staff
were required to self-isolate.
Reliance on key personnel The business could be negatively impacted in the event that any of the senior
leadership team were to fall ill or be personally impacted by the virus.
International expansion The business continues to grow outside of the UK. Such ongoing growth could
therefore be negatively impacted by further enforced store closures,
constraints on trading and the longer-term continuation of international
travel restrictions or curtailment in passenger numbers.
Treasury, financial and credit risk management Significantly reduced trading over an extended period from further outbreaks
of new Covid strains and the inability for effective vaccines to be
distributed and keep pace with newly identified variants could cause further
negative impact on the Group's financial position in the longer term.
Cyber risk, Data Security and GDPR compliance Further risks from significant increases in industry wide phishing activity
and cyber threats could pose additional risks of potential systems
interruption.
Environment and sustainability Continued uncertainty and business interruption from the Covid-19 pandemic
could provide further challenges to the delivery of our ongoing sustainability
programme.
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
Group Income Statement
For the year ended 31 August 2021
2021 2020
£m Note Before non-underlying items(1) Non-underlying items(2) Total Before non-underlying items(1) Non-underlying items(2) Total
Revenue 2 886 - 886 1,021 - 1,021
Group operating loss 2, 3 (27) (65) (92) (48) (212) (260)
Finance costs 5 (24) - (24) (20) - (20)
Loss before tax (51) (65) (116) (68) (212) (280)
Income tax credit 6 24 12 36 16 25 41
Loss for the year (27) (53) (80) (52) (187) (239)
Attributable to equity holders of the parent (29) (53) (82) (52) (187) (239)
Attributable to non-controlling interests 2 - 2 - - -
(27) (53) (80) (52) (187) (239)
Earnings per share
Basic 7 (62.6)p (199.2)p
Diluted 7 (62.6)p (199.2)p
(1) Alternative Performance Measure. The Group has defined and explained the
purpose of its alternative performance measures in the Glossary on page 51.
(2) See Note 4 for an analysis of Non-underlying items. See Glossary on page
51 for a definition of Alternative Performance Measures.
WH Smith PLC
Group Statement of Comprehensive Income
For the year ended 31 August 2021
£m Note 2021 2020
Loss for the year (80) (239)
Other comprehensive loss:
Items that will not be reclassified subsequently to the income statement:
Actuarial (losses) / gains on defined benefit pension schemes 16 (1) 11
(1) 11
Items that may be reclassified subsequently to the income statement:
(Losses) / gains on cash flow hedges
- Net fair value losses - (8)
- Reclassified and recognised in inventories - (1)
- Reclassified and recognised in goodwill - 8
- Reclassified and reported in the income statement - (1)
Exchange differences on translation of foreign operations (13) (22)
(13) (24)
Other comprehensive loss for the year, net of tax (14) (13)
Total comprehensive loss for the year (94) (252)
Attributable to equity holders of the parent (96) (252)
Attributable to non-controlling interests 2 -
(94) (252)
WH Smith PLC
Group Balance Sheet
As at 31 August 2021
£m Note 2021 2020
Non-current assets
Goodwill 11 406 418
Other intangible assets 11 67 75
Property, plant and equipment 12 174 192
Right-of-use assets 13 328 413
Investments in joint ventures 2 2
Deferred tax assets 57 23
Trade and other receivables 6 9
1,040 1,132
Current assets
Inventories 135 150
Trade and other receivables 45 49
Current tax receivable - 8
Cash and cash equivalents 9 130 108
310 315
Total assets 1,350 1,447
Current liabilities
Trade and other payables (265) (241)
Retirement benefit obligations 16 (1) (1)
Lease liabilities 14 (108) (130)
Short-term provisions (2) (5)
(376) (377)
Non-current liabilities
Retirement benefit obligations 16 (2) (3)
Bank overdrafts and other borrowings 9 (415) (400)
Long-term provisions (12) (9)
Lease liabilities 14 (362) (429)
Deferred tax liabilities - (2)
(791) (843)
Total liabilities (1,167) (1,220)
Total net assets 183 227
Shareholders' equity
Called up share capital 29 29
Share premium 316 315
Capital redemption reserve 13 13
Translation reserve (27) (14)
Other reserves (240) (279)
Retained earnings 82 158
Total equity attributable to equity holders of the parent 173 222
Non-controlling interest 10 5
Total equity 183 227
( )
WH Smith PLC
Group Cash Flow Statement
For the year ended 31 August 2021
£m Note 2021 2020
Operating activities
Cash generated from operating activities 10 113 94
Interest paid(1) (13) (13)
Net cash inflow from operating activities 100 81
Investing activities
Purchase of property, plant and equipment (37) (67)
Purchase of intangible assets (7) (12)
Acquisition of subsidiaries, net of cash acquired 1 (316)
Net cash outflow from investing activities (43) (395)
Financing activities
Dividend paid 8 - (47)
Distributions to non-controlling interests - 1
Proceeds from share placings - 312
Issue of new shares for employee share schemes 1 -
Purchase of own shares for employee share schemes (2) (2)
Proceeds from issuance of convertible bonds 9 327 -
Proceeds from borrowings 9 - 200
Repayment of borrowings 9 (267) (15)
Financing arrangement fees (8) (3)
Repayments of obligations under leases 9 (86) (72)
Net cash (outflow) / inflow from financing activities (35) 374
Net increase in cash and cash equivalents in the year 22 60
Opening cash and cash equivalents 108 49
Effect of movements in foreign exchange rates - (1)
Closing cash and cash equivalents 130 108
(1) Includes interest payments of £5m on lease liabilities (2020: £6m).
WH Smith PLC
Group Cash Flow Statement (continued)
For the year ended 31 August 2021
Reconciliation of net cash flow to movement in net debt(1)
£m Note 2021 2020
Net debt at beginning of the year (851) (180)
Net increase in cash and cash equivalents 22 60
Impact of adoption of IFRS 16 - (479)
Lease liability acquired through business combinations - (106)
Increase in borrowings 9 (15) (185)
Net decrease in lease liability 84 32
Effect of movements in foreign exchange rates 5 7
Net debt at end of the year 9 (755) (851)
(1) Net debt is an Alternative Performance Measure defined and explained in
the Glossary on page 51. Further information on the items in the above
reconciliation are provided in Note 9.
WH Smith PLC
Group Statement of Changes in Equity
For the year ended 31 August 2021
£m Called up share capital and share premium Translation reserves Other reserves Retained earnings Total equity attributable to equity holders of the parent Non-controlling interests Total equity
Capital redemption reserve
Balance at 1 September 2020 344 13 (14) (279) 158 222 5 227
Loss for the year - - - - (82) (82) 2 (80)
Other comprehensive loss:
Actuarial losses on defined benefit pension schemes (Note 16) - - - - (1) (1) - (1)
Exchange differences on translation of foreign operations - - (13) - - (13) - (13)
Total comprehensive loss for the year - - (13) - (83) (96) 2 (94)
Issue of new shares 1 - - - - 1 - 1
Issue of convertible bonds - value of conversion rights (Note 9) - - - 40 - 40 - 40
Deferred tax on share-based payments - - - - 1 1 - 1
Employee share schemes - - - (1) 6 5 - 5
Non cash movement on non-controlling interests - - - - - - 3 3
Balance at 31 August 2021 345 13 (27) (240) 82 173 10 183
Balance at 31 August 2019 33 13 8 (274) 455 235 2 237
Impact of adoption of IFRS 16 - - - - (22) (22) - (22)
Adjusted balance at 1 September 2019 33 13 8 (274) 433 213 2 215
Loss for the year - - - - (239) (239) - (239)
Other comprehensive income / (loss):
Actuarial gains on defined benefit pension schemes (Note 16) - - - - 11 11 - 11
Cash flow hedges - - - (2) - (2) - (2)
Exchange differences on translation of foreign operations - - (22) - - (22) - (22)
Total comprehensive loss for the year - - (22) (2) (228) (252) - (252)
Issue of shares 311 - - - - 311 - 311
Dividends paid (Note 8) - - - - (47) (47) - (47)
Net cash flows from non-controlling interests - - - - - - 1 1
Employee share schemes - - - (3) - (3) - (3)
Non-controlling interest arising on acquisition (Note 17) - - - - - - 2 2
Balance at 31 August 2020 344 13 (14) (279) 158 222 5 227
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation
Whilst the information included in the consolidated financial statements has
been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and in accordance
with international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union, this
announcement does not itself contain sufficient information to comply with
IFRSs. The financial information in this full year results statement does not
constitute statutory accounts within the meaning of Section 434 of the
Companies Act 2006.
Statutory accounts for the year ending 31 August 2020 have been delivered to
the Registrar of Companies and those for 2021 will be delivered following the
Company's Annual General Meeting. The Annual Report for the year ending 31
August 2021 and this full year results statement were approved by the Board on
11 November 2021. The auditors have reported on the Annual Report for the
years ended on 31 August 2021 and 2020 and neither report was qualified and
neither contained a statement under Section 498(2) or (3) of the Companies Act
2006.
The consolidated financial information for the year ended 31 August 2021 have
been prepared on a consistent basis with the financial accounting policies set
out in the Accounting Policies section of the WH Smith PLC Annual Report and
Accounts 2020 except as described below. The Group has adopted the following
standards and interpretations which became mandatory for the first time during
the year ended 31 August 2021. The Group has considered the below new
standards and amendments and has concluded that, with the exception of the
Amendments to IFRS 16, they are either not relevant to the Group or they do
not have a significant impact on the Group's consolidated financial
statements.
Amendments to references to Conceptual Framework in IFRS standards
Amendments to IFRS 16 Covid-19 related rent concessions
Amendment to IFRS 9, IAS 39 and IFRS 7 Interest rate benchmark reform - Phase 1
Amendments to IFRS 3 Definition of a business
Amendments to IAS 1 and IAS 8 Definition of material
The impact of the amendment to IFRS 16 is described in Note 14.
At the Group balance sheet date, the following standards and interpretations,
which have not been applied in these condensed financial statements, were in
issue but not yet effective:
IFRS 17 Insurance Contracts
Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IFRS 9, IAS 39 and IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2
Amendments to IAS 1 Presentation of financial statements on classification of liabilities
Amendments to IAS 16 Proceeds before intended use
Amendments to IAS 37 Onerous contracts - cost of fulfilling a contract
Amendments to IAS 12 and IFRS 1 Deferred tax related to assets and liabilities arising from a single
transaction
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Annual improvements to IFRS Standards 2018-2020
Amendments to IAS 1 Disclosure of accounting policies
Amendments to IAS 8 Definition of accounting estimate
The directors anticipate that the adoption of these standards and
interpretations in future years will have no material impact on the Group's
condensed financial statements.
Alternative Performance Measures
The Group has identified certain Alternative Performance Measures ("APMs")
that it believes will assist the understanding of the performance of the
business. These APMs are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for, or superior to, IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The APMs are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs.
The key APMs that the Group uses include: measures before non-underlying
items, Headline profit before tax, Headline earnings per share, trading
profit, Headline trading profit, Headline Group profit from trading
operations, like-for-like revenue, gross margin, fixed charges cover, EBITDA,
Net debt/funds and Headline net debt/funds and free cash flow. These APMs are
set out in the Glossary on page 51 including explanations of how they are
calculated and how they are reconciled to a statutory measure where relevant.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (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 may exclude the
financial effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, costs relating to business combinations, impairment charges
and other property costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax effect of
these items. In addition, non-underlying 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 4.
Going concern
The consolidated financial statements have been prepared on a going concern
basis. The directors are required to assess whether the Group can continue to
operate for the 12 months from the date of approval of these financial
statements, and to prepare the financial statements on a going concern basis.
The directors report that they have undertaken a rigorous assessment of
current performance and forecasts, including expenditure commitments, capital
expenditure and borrowing facilities, and have concluded that the Group is
able to adequately manage its financing and principal risks, and that the
Group will be able to operate within the level of its facilities and meet the
required covenants for the period to February 2023. Based on this assessment,
which is outlined below, it is appropriate to adopt the going concern basis of
accounting in preparing these financial statements.
The Strategic report describes the Group's financial position, cash flows and
borrowing facilities and also highlights the principal risks and uncertainties
facing the Group. As a result of the Group's refinancing, announced on 28
April 2021, the balance sheet has been significantly strengthened.
The refinancing arrangements included a £250m multi-currency revolving credit
facility ('RCF') increased from £200m with an extended maturity from December
2023 to April 2025 and provided by an expanded syndicate of lending banks. As
at 31 October 2021, the Group is not drawn down on the RCF and has £107m cash
on deposit.
As part of the refinancing, the Group also raised £327m from the issue of
convertible bonds, of which £50m was retained by the Group to fund the
opening of c.100 new Travel stores won and yet to open over the next three
years, including thirty new InMotion stores in UK Travel. The remainder of the
proceeds, net of costs, were used to partially pay down the term loans from
both the Marshall Retail Group ('MRG') and InMotion acquisitions, leaving the
Group with £133m of term loans. The maturity of the remaining term loan has
also been extended from 2023 to 2025 in line with the RCF.
In making the going concern assessment, the directors have modelled a number
of scenarios for the period to February 2023. The base case scenario is
consistent with the Board approved 2022 Budget and the three year plan. Under
this scenario the Group has significant liquidity and comfortably complies
with all covenant tests to February 2023.
A severe but plausible scenario has also been modelled which assumes a further
three-month lockdown over the period December 2021 to February 2022 across the
group, with High Street store sales down over 40 per cent across December to
February versus the equivalent months in the year ending August 2019. Sales
are assumed to recover gradually from March 2022 at around 35 per cent below
the equivalent month in the year ending August 2019 to down 30 per cent at
February 2023. In Travel UK we have also assumed a lockdown over the December
2021 to February 2022 period, with sales down 76 per cent versus the
equivalent months in the year ending August 2019. We then assume a gradual
recovery, reflecting our experience of the post-lockdown recovery period from
2020 and earlier in the year, to a position in February 2023 where Travel UK
sales are forecast to be down between zero and 12 per cent, depending on the
channel, versus February 2019. In the US we have assumed a lockdown over the
December 2021 to February 2022 period followed by a gradual recovery,
reflecting our experience of the post-lockdown period from earlier in the
year. The severe but plausible scenario does not assume any further government
financial support despite the continuation of lockdowns. However, the severe
but plausible scenario includes a number of mitigating actions including
savings in store and head office payrolls and rent relief in Travel UK, to
mitigate the impact of lockdown with lower sales.
In both the base case and severe but plausible scenarios the Group would
continue to have sufficient liquidity headroom on its existing facilities, as
described above.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
The covenants on the above facilities are tested half-yearly. The covenant
tests at 31 August 2021, 28 February 2022 and 31 August 2022 are based on
minimum liquidity and under the base case and severe but plausible scenarios
the Group would meet these covenant tests. The covenant test as at 28 February
2023 is based on fixed charges cover and net borrowings. Under both the base
case and the severe but plausible scenarios, the Group would meet these
covenant tests. In addition, we have received excellent support from our banks
who have granted covenant waivers throughout the pandemic. The Group Overview
also sets out the Group's business activities together with the factors that
are likely to affect its future developments, performance and position.
As a result of the above analysis, the directors believe that the Group has
sufficient financial resources to continue in operation and meet its
obligations as they fall due for the 12 months from the date of approval of
these financial statements.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make judgements, estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates and any subsequent changes are accounted for with an
effect on income at the time such updated information becomes available.
The most critical accounting judgements and sources of estimation uncertainty
in determining the financial condition and results of the Group are those
requiring the greatest degree of subjective or complex judgement. These relate
to the classification of items as non-underlying, assessment of lease
substitution rights, determination of the lease term, determination of the
incremental borrowing rate, valuation of retirement benefit obligations,
determination of operating segments and allocation of goodwill, valuation of
other non-current assets and inventory valuation.
Critical accounting judgements
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures may exclude the
financial effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, amortisation of acquired intangibles assets, 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. The Group
believes that they provide additional useful information to users of the
financial statements to enable a better understanding of the Group's
underlying financial performance. The classification of items as
non-underlying requires significant management judgement. The definition of
non-underlying items has been applied consistently year on year. Further
details of non-underlying items are provided in Note 4.
IFRS 16 Lease accounting
Substantive substitution rights
Judgement is required in determining whether a contract meets the definition
of a lease under IFRS 16. Management has determined that certain retail
concession contracts give the landlord substantive substitution rights because
the contract gives the landlord rights to relocate the retail space occupied
by the Group. In such cases, management has concluded that there is not an
identified asset and therefore such contracts are outside the scope of IFRS
16. For these contracts, the Group recognises the payments as an operating
expense on a straight-line basis over the term of the contract unless another
systematic basis is more representative of the time pattern in which economic
benefits from the underlying contract are consumed.
Determination of lease term
In determining the lease term for contracts that have options to extend or
terminate early, management has applied judgement in determining the
likelihood of whether such options will be exercised. This is based on the
length of time remaining before the option is exercisable, performance of the
individual store and the trading forecasts.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
Critical accounting judgements (continued)
Initial recognition of convertible bond
On initial recognition of the convertible bond, judgement is required in
respect of the accounting treatment of embedded derivatives. The fixed
principal amount of each bond is convertible into a fixed number of shares and
as a result management has determined that the conversion feature meets the
fixed-for-fixed criterion for equity classification. The bonds include
anti-dilution provisions to ensure that the holder's potential interest in the
equity of the Company is not diluted in specified circumstances. If these
provisions are triggered, the number of shares that will be delivered to the
holder is adjusted. Management considers that the provisions are anti-dilutive
and exist to ensure that the holder's potential interest in the equity of the
Company is not diluted under each of these circumstances. These provisions are
not deemed to breach the fixed-for-fixed criterion therefore the conversion
feature is accounted for as equity.
Determination of operating segments
During the year the Group has reviewed its assessment of its operating
segments, as a result of internal reorganisation and changes to the
composition of information used by the Board to monitor the performance of the
Group. This review has resulted in a change to the reportable segments
identified, and prior year comparatives have been restated. There is no change
to the total revenue or Group profit from trading operations.
Further information in respect of the Group's operating segments is included
in Note 2.
Sources of estimation uncertainty
Retirement benefit obligation
The Group recognises and discloses its retirement benefit obligation in
accordance with the measurement and presentational requirement of IAS 19
'Retirement Benefit Obligations'. The calculations include a number of
judgements and estimations in respect of the discount rate, inflation
assumptions, the rate of increase in salaries, and life expectancy, among
others. Changes in these assumptions can have a significant effect on the
value of the retirement benefit obligation. Further information and
sensitivity analysis in respect of the Group's retirement benefit obligation
is included in Note 16.
Valuation of goodwill
As a result of the change to the Group's identified operating segments
described above, the goodwill previously allocated to the Travel operating
segment has been allocated to the new operating segments using a relative
value approach. This method of allocation requires the determination of
value-in-use of each of the new segments. The key assumptions in the
value-in-use calculations include growth rates of revenue and expenses, and
discount rates.
A sensitivity analysis of the goodwill impairment calculation has shown that
no reasonably possibly change in assumptions would lead to an impairment of
goodwill in the next financial year. Further to this sensitivity analysis, an
assessment of the goodwill allocation was performed which showed that an
impairment assessment under the previous allocation of goodwill to the Travel
operating segment, or under any other reasonable split of the goodwill
balance, would not have resulted in an impairment of goodwill.
Intangible assets, property, plant and equipment and right-of-use asset
impairment reviews
Property, plant and equipment, right-of-use assets and intangible assets are
reviewed for impairment if events or changes in circumstances indicate that
the carrying amount may not be recoverable. When a review for impairment is
conducted, the recoverable amount of an asset or a cash-generating unit is
determined based on value-in-use calculations prepared on the basis of
management's assumptions and estimates.
The key assumptions in the value-in-use calculations include growth rates of
revenue and expenses, discount rates and likelihood of lease renewal. Due to
the ongoing Covid-19 global pandemic, there is an increased level of
uncertainty in all of the above assumptions such that a reasonably possible
change in these assumptions could lead to a material change in the carrying
value of assets.
Further information in respect of the Group's property, plant and equipment
and right-of-use assets is included in Notes 12 and 13 respectively.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
Inventory valuation
Inventory is carried at the lower of cost and net realisable value which
requires the estimation of sell through rates, and the eventual sales price of
goods to customers in the future. Any difference between the expected and the
actual sales price achieved will be accounted for in the period in which the
sale is made. A sensitivity analysis has been carried out on the calculation
of inventory provisions, including consideration of the uncertainties arising
from Covid-19. The key assumption driving the stock provision calculation is
forecast revenue. A 10 per cent change in the revenue assumptions applied in
the provision calculation, representing a reasonably possible outcome, would
reduce the net realisable value of inventories by £2m.
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same basis as that
used by the Chief Operating Decision Maker for assessing performance and
allocating resources. The Group's operating segments are based on the reports
reviewed by the Board of Directors who are collectively considered to be the
chief operating decision maker.
During the year the Group has reviewed its assessment of its operating
segments, as a result of internal reorganisation and changes to the
composition of information used by the Board to monitor the performance of the
Group. This review has resulted in a change to the reportable segments
identified, and prior year comparatives have been restated. There is no change
to the total revenue or Group profit from trading operations.
For management and financial reporting purposes, the Group is organised into
two operating divisions and which comprise four reportable segments - Travel
UK, North America, Rest of the World within the Travel division, and High
Street. The North America operating segment includes both MRG and InMotion
from the dates of acquisition. For further information in relation to the
acquisition of MRG in the prior year, see Note 17.
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 51 (Note A2).
a) Group revenue
£m 2021 2020
Travel UK 195 344
North America 166 116
Rest of the World(1) 40 93
Total Travel 401 553
High Street 485 468
Group revenue 886 1,021
(1) Rest of the World revenue includes revenue from Australia of £20m
(2020: £38m). No other country has individually material revenue.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
2. Segmental analysis of results (continued)
b) Group results
2021 2020
£m Headline(1) Headline Non-underlying items(1) IFRS 16 Total Headline(1) Headline IFRS 16 Total
(Pre-IFRS 16) (Pre-IFRS16) (Pre-IFRS 16) Non-underlying items(1)
(Pre-IFRS16)
Travel UK trading (loss) / profit (32) - 3 (29) (1) - - (1)
North America trading profit / (loss) 6 - (4) 2 (18) - 4 (14)
Rest of the World trading (loss) / profit (13) - (4) (17) (14) - 2 (12)
Total Travel trading (loss)/ profit (39) - (5) (44) (33) - 6 (27)
High Street trading profit / (loss) 19 - 17 36 (10) - 6 (4)
Group (loss) / profit from trading operations (20) - 12 (8) (43) - 12 (31)
Unallocated central costs (19) - - (19) (17) - - (17)
Group operating (loss) / profit before non-underlying items (39) - 12 (27) (60) - 12 (48)
Non-underlying items (Note 4) - (49) (16) (65) - (157) (55) (212)
Group operating loss (39) (49) (4) (92) (60) (157) (43) (260)
Finance costs (16) - (8) (24) (9) - (11) (20)
Loss before tax (55) (49) (12) (116) (69) (157) (54) (280)
Income tax credit 26 9 1 36 16 18 7 41
Loss for the period (29) (40) (11) (80) (53) (139) (47) (239)
(1) Presented on a pre-IFRS 16 basis. Alternative Performance Measures are
defined and explained in the Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
2. Segmental analysis of results (continued)
c) Other segmental items
2021
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 11 (14) - - -
North America 15 (10) - - -
Rest of the World 2 (3) - - -
Total Travel 28 (27) - - -
High Street 16 (17) (2) - -
Unallocated - (4) - - -
Headline, before non-underlying items 44 (48) (2) - -
Headline non-underlying items (pre-IFRS 16) - (3) (18) - -
Headline, after non-underlying items 44 (51) (20) - -
Impact of IFRS 16 - 1 - (84) -
Non-underlying items (IFRS 16) - - 4 - (28)
Group 44 (51) (16) (84) (28)
2020
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 18 (16) - - -
North America 26 (10) - - -
Rest of the World 4 (6) - - -
Total Travel 48 (32) - - -
High Street 24 (23) - - -
Unallocated - (5) - - -
Headline, before non-underlying items 72 (60) - - -
Headline non-underlying items (pre-IFRS 16) - (3) (55) - -
Headline, after non-underlying items 72 (63) (55) - -
Impact of IFRS 16 - 8 - (110) -
Non-underlying items (IFRS 16) - - 15 - (95)
Group 72 (55) (40) (110) (95)
(1) Non-current assets including property, plant and equipment and
intangible assets, but excluding right-of-use assets.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
3. Group operating profit
2021 2020
£m Note Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
Revenue 886 - 886 1,021 - 1,021
Cost of sales (358) - (358) (441) - (441)
Gross profit 528 - 528 580 - 580
Distribution costs(1) (419) - (419) (538) - (538)
Administrative expenses (140) - (140) (92) - (92)
Other income(2) 4 - 4 2 - 2
Non-underlying items 4 - (65) (65) - (212) (212)
Group operating loss (27) (65) (92) (48) (212) (260)
(1 )During the year there was an impairment charge of £2m (2020: £nil)
for property, plant and equipment and other intangible assets included in
distribution costs. Impairment charges related to Covid-19 are included in
non-underlying items. See Note 4.
(2 )Other income relates to profit on disposal and remeasurement of
right-of-use assets, and profit attributable to property.
£m 2021 2020
Cost of inventories recognised as an expense 358 441
Write-down of inventories in the year(3) 7 14
Depreciation of property, plant and equipment 36 43
Depreciation of right-of-use assets
- land and buildings 80 105
- other 4 5
Amortisation of intangible assets 14 12
Impairment of property, plant and equipment 16 39
Impairment of right-of-use assets 28 95
Impairment of Intangibles - 1
(Income) / expenses relating to leasing:
- expense relating to short-term leases 14 22
- expense relating to variable lease payments not included in the measurement 27 12
of the lease liability
- Income relating to Covid-19 rent reductions (23) (15)
Other occupancy costs 27 49
Staff costs 232 217
Government grant income (11) (22)
(3 )Write-down of inventories in the year are included within the amounts
disclosed as Cost of inventories recognised as an expense, and recognised in
Cost of sales.
( )
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
4. 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 and incidence, are treated as non-underlying items and disclosed
separately. Further details of the non-underlying items are included in Note
1, and in the Group Overview on page 12.
£m 2021 2020
Costs relating to business combinations
- Transaction costs - 11
- Integration costs 2 9
Amortisation of acquired intangible assets 3 3
Pension past service cost - 14
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment 14 39
- Impairment of intangible assets - 1
- Impairment of right-of-use assets 28 95
- Write-down of inventories 5 14
- Restructuring costs 9 25
- Costs associated with refinancing 6 -
- Other (2) 1
Non-underlying items, before tax 65 212
Tax credit on non-underlying items (12) (25)
Non-underlying items, after tax 53 187
Non-underlying items recognised in the year are as follows:
Costs relating to business combinations
During the year, the Group incurred further integration costs of £2m in
relation to the acquisition of Marshall Retail Group ('MRG'), which completed
on 20 December 2019. In the prior year transaction and integration costs of
£20m were incurred in relation to the acquisition of MRG.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and
InMotion brands (see Note 11).
Costs directly attributable to Covid-19
As described in the Strategic report the Covid-19 pandemic continues to have a
substantial impact on the Group's operations. As a result, the Group continues
to incur significant costs which have been separately recognised in
non-underlying items, in accordance with the Group's accounting policy. The
charges have arisen as a direct consequence of Covid-19, and reflect the
impact of lost revenues as a result of ongoing store closures and travel
restrictions, and downward revisions to budgeted revenues based on
expectations of the rate of return to pre-pandemic levels of footfall and
passenger numbers.
Impairment of property, plant and equipment and right-of-use assets
The impact on the Group's operations of Covid-19 is expected to continue
during the next year and beyond. As a result, the Group has carried out a
review for potential impairment across the entire store portfolio. The
impairment review compared the value-in-use of individual store
cash-generating units, based on management's assumptions regarding likely
future trading performance (taking into account the effect of Covid-19) to the
carrying values at 31 August 2021. Following this review, a charge of £42m
(2020: £135m) was recorded within non-underlying items for impairment of
retail store assets, of which £14m (2020: £39m) relates to property, plant
and equipment, £nil (2020: £1m) relates to intangible assets and £28m
(2020: £95m) relates to right-of-use assets. Refer to Note 12 for details of
impairment of store cash-generating units. The impairment recognised on a
pre-IFRS 16 basis is provided in the Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
4. Non-underlying items (continued)
Write-down of inventories
The Group assesses the recoverability of the carrying value of inventories at
every reporting period and, where the expected recoverable amount is lower
than the carrying value, a provision is recorded. During the year
non-underlying provisions of £5m have been recorded against inventory, in
addition to underlying provisions held of £13m, which relate to dated and
perishable stock and stock subject to obsolescence where the sell through rate
has significantly reduced due to store closures and lower footfall. The Group
has recognised these charges as non-underlying as they meet the Group's
definition of non-underlying.
Restructuring costs
The charge of £9m (2020: £21m) is principally attributable to redundancies
and restructuring costs following a review of store operations across our High
Street business, as a result of the impact of Covid-19 on footfall on the UK
high street. These costs are presented as a non-underlying item as they are
part of a Board-agreed restructuring programme, and are considered material
and one-off in nature. In addition, in the prior year the Group incurred costs
of £4m relating to exiting the Paris bookshop and the Brazil joint venture.
Costs associated with refinancing
Costs associated with refinancing include £1m of non-cash charges relating to
unamortised fees connected with extinguished liabilities, £3m of fees
incurred in relation to amendment and extension of the Group's previous
financing arrangements incurred in March 2021 prior to the issuance of the
convertible bond, and £2m of professional fees relating to refinancing and
debt structuring activity required as a result of Covid-19. Other fees
incurred relating to refinancing activity have been recognised in underlying
finance costs or recognised as a deduction from the value of liabilities
recognised, and will be amortised over the period of the arrangement through
underlying finance costs.
Other prior year non-underlying items
Pension past service cost
Past service cost of £14m was recognised in the year ended 31 August 2020.
This relates to equalisation of pension benefits between men and women over
the period from 1 April 1992 to 29 July 1993 ('Barber equalisation'). The
WHSmith Pension Trust has historically been administered assuming gender
equalisation was achieved on 1 April 1992, and thus a Barber equalisation
window of 17 May 1990 to 1 April 1992 applied. A new Trust Deed and Rules
reflecting the equalisation of normal retirement ages at 65 was executed on 29
July 1993. It has since been determined that Barber equalisation was not
effective until 29 July 1993. Accordingly, this past service cost is the
expected cost of providing these benefits based on a normal retirement age of
60 rather than 65 for the period between 1 April 1992 and 29 July 1993. See
Note 16.
A tax credit of £12m (2020: £25m) has been recognised in relation to the
above items.
5. Finance costs
£m 2021 2020
Interest payable on bank loans and overdrafts 10 9
Interest of convertible bonds 4 -
Interest on lease liabilities 10 11
Net interest cost on the defined benefit pension liabilities - -
24 20
( )
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
( )
6. Income tax
£m 2021 2020
Tax on loss - (5)
Adjustment in respect of prior years (1) (6)
Total current tax credit (1) (11)
Deferred tax - current year (11) (7)
Deferred tax - prior year (4) 2
Deferred tax - adjustment in respect of change in tax rates (8) -
Tax on loss before non-underlying items (24) (16)
Tax on non-underlying items - current tax - (9)
Tax on non-underlying items - deferred tax (12) (16)
Total tax on loss (36) (41)
Reconciliation of the taxation credit
£m 2021 2020
Tax on loss at standard rate of UK corporation tax 19.00% (2020: 19.00%) (22) (53)
Tax effect of items that are not deductible or not taxable in determining 1 15
taxable loss
Unrecognised tax losses (1) 4
Differences in overseas tax rates (1) (3)
Adjustment in respect of prior years (5) (4)
Adjustment in respect of change in tax rates (8) -
Total income tax credit (36) (41)
The effective tax rate, before non-underlying items, was 47 per cent (2020: 23
per cent).
The UK corporation tax rate is 19 per cent effective from 1 April 2017. In the
Spring Budget 2020, the UK Government announced that from 1 April 2023 the
corporation tax rate will increase to 25 per cent. This new law was
substantively enacted on 24 May 2021, and the main impact of this change is an
increase to the deferred tax assets and an increase in the current year tax
income statement credit of approximately £8m.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
7. Loss per share
a) Loss / earnings
£m 2021 2020
Loss for the year, attributable to equity holders of the parent (82) (239)
Non-underlying items (Note 4) 53 187
Loss for the year before non-underlying items, attributable to equity holders of the parent (29) (52)
( )
b) Weighted average share capital
Millions 2021 2020
Weighted average ordinary shares in issue 131 120
Less weighted average ordinary shares held in ESOP Trust - -
Weighted average shares in issue for loss per share 131 120
Add weighted average number of ordinary shares under option - -
Weighted average ordinary shares for diluted loss per share 131 120
( )
c) Basic and diluted loss per share
Pence 2021 2020
Basic loss per share (62.6) (199.2)
Adjustments for non-underlying items 40.5 155.9
Basic loss per share before non-underlying items (22.1) (43.3)
Diluted loss per share (62.6) (199.2)
Adjustments for non-underlying items 40.5 155.9
Diluted loss per share before non-underlying items (22.1) (43.3)
Diluted loss 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. As the Group has incurred a loss in the
years ending 31 August 2021 and 31 August 2020, the impact of its potential
dilutive ordinary shares have been excluded as they would be anti-dilutive.
At 31 August 2021 the convertible bond has no dilutive effect as the inclusion
of these potentially dilutive shares would improve loss per share.
The calculation of EPS on a pre-IFRS 16 basis is provided in the Glossary on
page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
8. Dividends
Amounts paid and recognised as distributions to shareholders in the period are
as follows:
£m 2021 2020
Dividends
Final dividend for the year ended 31 August 2019 of 41.0p per ordinary share - 47
- 47
The Board of Directors have not declared an interim dividend and do not
propose a final dividend in respect of the year ending 31 August 2021.
9. Analysis of net debt
Movement in net debt can be analysed as follows:
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Cash and cash equivalents Net debt
Liabilities from financing activities
At 1 September 2020 (400) - - (559) (959) 108 (851)
Proceeds from borrowings - (327) - - (327) 327 -
Repayments of borrowings 267 - - - 267 (267) -
Bifurcation of convertible bond - 41 - - 41 - 41
Other non-cash movements - (2) - (7) (9) - (9)
Other cash movements 1 5 - 91 97 (38) 59
Currency translation - - - 5 5 - 5
At 31 August 2021 (132) (283) - (470) (885) 130 (755)
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Liabilities from financing activities Cash and cash equivalents Net debt
At 1 September 2019 (200) - (15) (14) (229) 49 (180)
Recognised on adoption of IFRS 16 - - - (479) (479) - (479)
Movement on acquisition of subsidiaries (115) - - (106) (221) 1 (220)
Proceeds from borrowings (200) - - - (200) 200 -
Repayments of borrowings - - 15 - 15 (15) -
Other non-cash movements 115 - - (46) 69 - 69
Other cash movements - - - 78 78 (126) (48)
Currency translation - - - 8 8 (1) 7
At 31 August 2020 (400) - - (559) (959) 108 (851)
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
9. Analysis of net debt (continued)
An explanation of Alternative Performance Measures, including Net debt on a
pre-IFRS 16 basis, is provided in the Glossary on page 51.
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 year.
Term loans and revolving credit facilities
On 28 April the Group announced new financing arrangements. These included the
issuance of £327m of convertible bonds, the repayment of the existing £400m
term loans and replacement with a new £133m term loan, and an increased
revolving credit facility of £250m.
At 31 August 2021 the Group has in place a five-year committed multi-currency
revolving credit facility of £250m with Santander UK PLC, BNP Paribas, HSBC
UK Bank PLC, JP Morgan Securities PLC and Barclays Bank PLC. The revolving
credit facility is due to mature on 28 April 2025. The utilisation is interest
bearing at a margin over SONIA. As at 31 August 2021, the Group has drawn down
£nil on this facility (2020: £nil drawn down on previous facility).
As part of the new financing arrangements the additional multi-currency
revolving credit facility of £120m, which was undrawn and due to expire in
November 2021, was cancelled.
The Group has a four-year committed £133m term loan with Banco Santander
S.A., London Branch, Barclays Bank PLC, BNP Paribas and HSBC UK Bank PLC, that
was drawn down at the time of the refinancing in April 2021. This loan is
interest bearing at a margin over SONIA and is due to mature on 28 April 2025.
Transaction costs of £1m relating to the term loan are amortised to the
Income statement through the effective interest rate method. Transaction costs
of £1m relating to the RCF have been capitalised and are amortised to the
Income statement on a straight-line basis.
Convertible bonds
On 28 April 2021, the Group announced the launch of an offering of £327m of
guaranteed senior unsecured convertible bonds due in 2026. Settlement and
delivery of convertible bonds took place on 7 May 2021. The total bond
offering of £327m covers a five-year term beginning on 7 May 2021 with a
1.625% per annum coupon payable semi-annually in arrears in equal instalments.
The bonds are convertible into new and/or existing ordinary shares of WH Smith
PLC. The initial conversion price was set at £24.99 representing a premium of
40% above the reference share price on 28 April 2021 (£17.85). If not
previously converted, redeemed or purchased and cancelled, the Bonds will be
redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument, consisting of a
financial liability component and an equity component, representing the value
of the conversion rights. The initial fair value of the liability portion of
the convertible bond is determined using a market interest rate for an
equivalent non-convertible bond at the issue date. The liability is
subsequently recognised on an amortised cost basis using the effective
interest rate method until extinguished on conversion or maturity of the
bonds. The remainder of the proceeds is allocated to the conversion option and
recognised in equity (Other reserves), and not subsequently remeasured. As a
result, £286m was initially recognised as a liability in the balance sheet on
issue and the remainder of the proceeds of £41m, which represents the option
component, was recognised in equity.
Transaction costs of £6m were allocated between the two components and the
element relating to the debt component of £5m is being amortised through the
effective interest rate method. The issue costs apportioned to the equity
component of £1m have been deducted from equity.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
10. Cash generated from operating activities
£m 2021 2020
Group operating loss (92) (260)
Depreciation of property, plant and equipment 36 43
Impairment of property, plant and equipment 16 39
Amortisation of intangible assets 14 12
Impairment of intangible assets - 1
Depreciation of right-of-use assets 84 110
Impairment of right-of-use assets 28 95
Non-cash change in lease liabilities (23) (15)
Non-cash movement in pension - 14
Share-based payments 6 -
Gain on disposal and remeasurement of leases (3) -
Other non-cash items (2) 2
Decrease in inventories 14 35
Decrease in receivables 4 27
Increase/(decrease) in payables 24 (10)
Pension funding (3) (3)
Income taxes paid - (32)
Income taxes refunded 10 37
Movement on provisions (through utilisation or income statement) - (1)
Cash generated from operating activities 113 94
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
11. Intangible assets
£m Goodwill Brands and franchise contracts Tenancy rights Software Total
Cost:
At 1 September 2020 418 43 13 96 570
Acquisitions (Note 17) (1) - - - (1)
Additions - - - 7 7
Disposals - - - (1) (1)
Foreign exchange (11) (1) - - (12)
At 31 August 2021 406 42 13 102 563
Accumulated amortisation:
At 1 September 2020 - 4 8 65 77
Amortisation charge - 3 - 11 14
Disposals - - - (1) (1)
At 31 August 2021 - 7 8 75 90
Net book value at 31 August 2021 406 35 5 27 473
Cost:
At 1 September 2019 176 16 13 109 314
Additions - - - 11 11
Acquisitions (Note 17) 258 29 - 1 288
Disposals - - - (25) (25)
Foreign exchange (16) (2) - - (18)
At 31 August 2020 418 43 13 96 570
Accumulated amortisation:
At 1 September 2019 - 1 8 80 89
Amortisation charge - 3 - 9 12
Impairment charge - - - 1 1
Disposals - - - (25) (25)
Foreign exchange - - - - -
At 31 August 2020 - 4 8 65 77
Net book value at 31 August 2020 418 39 5 31 493
Adjustments to goodwill include an adjustment of £1m to the consideration
paid in relation to the acquisition of Marshall Retail Group (MRG). Additions
to goodwill in the prior year relate to the acquisition of MRG. See Note 17
for further information. Goodwill of USD $77m (£56m) relating to the
acquisition of InMotion in 2018 is expected to be deductible for tax purposes
in the future.
As a result of changes to the Group's reportable segments (as discussed in
Note 2), goodwill previously attributable to the Travel operating segment has
been reallocated to the new operating segments based on a relative value
approach.
The carrying value of goodwill is allocated to the segmental businesses as
follows:
£m 2021 2020
Travel UK 253
North America 113
Rest of World 25
Total Travel 391 403
High Street 15 15
406 418
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
11. Intangible assets (continued)
Included within Tenancy rights are certain assets that are considered to have
an indefinite life of £4m (2020: £4m), representing certain rights under
tenancy agreements, which include the right to renew leases, therefore no
amortisation has been charged. Management has determined that the useful
economic life of these assets is indefinite because the Company can continue
to occupy and trade from certain premises for an indefinite period. These
assets are reviewed annually for indicators of impairment.
Impairment of goodwill and intangible assets
The Group tests goodwill for impairment annually or where there is an
indication that goodwill might be impaired. For impairment testing purposes,
the Group has determined that each store is a separate CGU, and goodwill is
allocated to groups of CGUs in a manner that is consistent with our operating
segments, as this reflects the lowest level at which goodwill is monitored.
All goodwill has arisen on acquisitions of groups of retail stores. These
acquisitions are then integrated into the Group's operating segments as
appropriate. Acquired brands are considered together with goodwill for
impairment testing purposes, and are therefore considered annually for
impairment.
Goodwill and acquired brands have been tested for impairment by comparing the
carrying amount of each group of CGUs, including goodwill and acquired brands,
with the recoverable amount determined from value-in-use calculations. The
value-in-use of each group of CGUs has been calculated using cash flows
derived from the Group's latest Board-approved budget and three year plan,
initially extrapolated to five years and taking into account the projected
impact of Covid-19. The forecasts reflect knowledge of the current market,
together with the Group's expectations on the future achievable growth and
committed store openings. Cash flows beyond the initial forecast period are
extrapolated using estimated long-term growth rates. Forecasts have taken into
account the immediately quantifiable impacts of climate change, with no
material impact on cash flows. Forecasts beyond the initial forecast period do
not include a quantitative assessment of the impact of climate change on cash
flows.
For certain groups of CGUs, additional adjustments to cash flows have been
made during the extrapolation process for an extended period of up to 15 years
before calculating a terminal value. This extended period of time is required
to establish a normalised cash flow base on which a terminal value calculation
can be appropriately calculated. The main reasons for cash flow adjustments
include the need to forecast lease renewals under IFRS 16, and the unwinding
of certain cash flow benefits arising from acquisitions in North America.
The key assumptions on which forecast three-year cash flows of the CGUs are
based include revenue growth, product mix and operating costs, long-term
growth rates and the pre-tax discount rate:
· The values assigned to each of the revenue growth, product mix
and operating cost assumptions were determined based on the extrapolation of
historical trends within the Group and external information on expected future
trends in the travel and high street retail sectors.
· The pre-tax discount rates are derived from the Group's weighted
average cost of capital, which has been calculated using the capital asset
pricing model, the inputs of which include a country risk-free rate, equity
risk premium, Group size premium and a risk adjustment (beta). The pre-tax
discount rate used in the calculation was 10.4%.
· The long-term growth rate assumptions are between 0% and 2%.
The value-in-use estimates indicated that the recoverable amount of goodwill
exceeded the carrying value for the groups of CGUs. As a result, no impairment
has been recognised in respect of the carrying value of goodwill in the year
(2020: £nil).
As disclosed in Note 1, Accounting policies, the forecast cash flows used
within the impairment model are based on assumptions which are sources of
estimation uncertainty and it is possible that significant changes to these
assumptions could lead to an impairment of goodwill and acquired brands. Given
the significant uncertainty surrounding the impact of Covid-19 on the Group's
operations and on the global economy, management have considered a range of
sensitivities on each of the key assumptions, with other variables held
constant. The sensitivities include applying increases in the discount rate by
1 per cent and reductions in the long-term growth rates to 0 per cent. Under
these severe scenarios, the estimated recoverable amount of goodwill and
acquired brands still exceeded the carrying value.
The sensitivity analysis showed that no reasonably possible change in
assumptions would lead to an impairment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
12. Property, plant and equipment
£m Freehold Properties Leasehold improvements Fixtures and fittings Equipment and vehicles Total
Cost or valuation:
At 1 September 2020 15 272 198 108 593
Additions 3 12 15 7 37
Acquisitions (Note 17) - (1) - - (1)
Disposals - (5) (5) (2) (12)
Reclassifications - 14 (11) (3) -
Foreign exchange - (2) (1) - (3)
At 31 August 2021 18 290 196 110 614
Accumulated depreciation:
At 1 September 2020 10 185 127 79 401
Depreciation Charge - 17 12 7 36
Impairment Charge - 9 5 2 16
Disposals - (5) (5) (2) (12)
Reclassifications - - 2 (2) -
Foreign Exchange - - (1) - (1)
At 31 August 2021 10 206 140 84 440
Net book value at 31 August 2021 8 84 56 26 174
Cost or valuation:
At 31 August 2019 15 236 168 120 539
Adjustment on initial application of IFRS 16 - (3) (5) (22) (30)
At 1 September 2019 15 233 163 98 509
Additions - 28 23 10 61
Acquisitions (Note 17) - 18 14 2 34
Disposals - (5) (1) (1) (7)
Foreign exchange - (2) (1) (1) (4)
At 31 August 2020 15 272 198 108 593
Accumulated depreciation:
At 31 August 2019 10 147 103 78 338
Adjustment on initial application of IFRS 16 - 1 (1) (12) (12)
At 1 September 2019 10 148 102 66 326
Depreciation Charge - 22 12 9 43
Impairment Charge - 20 14 5 39
Disposals - (5) (1) (1) (7)
At 31 August 2020 10 185 127 79 401
Net book value at 31 August 2020 5 87 71 29 192
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a
separate CGU. Each CGU is tested for impairment at the balance sheet date if
any indicators of impairment have been identified. The significant disruption
to trading as a result of the Covid-19 pandemic has been identified as an
indicator of impairment, and therefore all CGUs have been tested for
impairment as at the balance sheet date.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
12. Property, plant and equipment (continued)
Impairment of property, plant and equipment (continued)
Property, plant and equipment and right-of-use assets have been tested for
impairment by comparing the carrying amount of each CGU with its recoverable
amount determined from value-in-use calculations. It was determined that value
in use was higher than fair value less costs to sell as a result of the
significant impact on fair values as a result of Covid-19. The value-in-use of
each CGU has been calculated using discounted cash flows derived from the
Group's latest Board-approved budget and three-year plan, taking into account
the projected impact of Covid-19, and reflects historic performance and
knowledge of the current market, together with the Group's views on the future
achievable growth. Cash flows beyond this three-year 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 key assumptions on which the forecast three-year cash flows of the CGUs
are based include revenue and the pre-tax discount rate. Other assumptions in
the model relate to gross margin, cost inflation and longer-term growth rates.
The forecasts used in the impairment review are based on management's best
estimate of revenue reductions versus a 'pre-Covid' base, and the recovery in
revenue over the forecast period. In developing these forecasts, management
have used available information, including historical knowledge of the store
level cash flows, and knowledge gained during the pandemic up to the year end
date.
The forecasts for the year for our High Street business assume that store
like-for-like sales will be lower by around 20 per cent during the year ended
31 August 2022. In Travel UK, revenue is assumed to be initially down around
50 per cent recovering to around 5 per cent down by the end of that year. This
is an average across all formats, with Hospitals recovering more quickly than
Air. Our International locations outside of North America assume that
like-for-like sales will be lower by around 75 per cent initially, and
recovering to down around 25 per cent by the end of August 2022.
In North America, revenue is assumed to be down around 25 per cent in the
early part of the next financial year, improving to around 2019 levels by the
end of the August 2022 financial year. This is an average across all formats,
with Resorts recovering more quickly than Air. The second and third years of
the three year plan include further gradual recoveries across all locations
The pre-tax discount rates are derived from the Group's weighted average cost
of capital, which has been calculated using the capital asset pricing model,
the inputs of which include the risk-free rate, equity risk premium, Group
size premium and a risk adjustment (beta). The pre-tax discount rate used in
the calculation was 10.4 per cent.
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. These stores were impaired to their recoverable amount of £56m,
which is their carrying value at year end. The Group has recognised an
impairment charge of £16m to property, plant and equipment and £28m to
right-of-use assets as a result of impairment testing. Impairments of £42m
have been presented as non-underlying items in the current year (see Note 4),
and impairments of £2m have been included in underlying results.
As disclosed in Note 1, Accounting policies, the forecast cash flows used
within the impairment model are based on assumptions which are sources of
estimation uncertainty and changes to these assumptions could lead to further
impairments to assets. Given the significant uncertainty regarding the impact
of Covid-19 on the Group's operations and on the global economy, management
have considered sensitivities to the impairment charge as a result of changes
to the estimate of future revenues achieved by the stores.
The Group has applied certain sensitivities in isolation to demonstrate the
impact on the impairment of changes in key assumptions. The most significant
assumption is the revenue assumption. The impact of a potential slower
recovery from the pandemic has been modelled by incorporating a further 10%
reduction in revenue in High Street stores and a delay in recovery of one year
in Travel UK and North America, with no change to subsequent forecast revenue
growth rate assumptions. This would result in a £21m increase in the
impairment charge of retail store assets in the year ended 31 August 2021. An
increase or decrease of 1 per cent in the discount rate would result in an
increase or decrease in the impairment charge of around £2m.
Other changes in assumptions have been modelled and have shown that any
reasonably possible changes would not lead to a significant impact on the
impairment charge. Other modelled assumption changes include margin reductions
and long-term growth rate reductions across all formats.
The impairment assessment has also been performed on a pre-IFRS 16 basis. See
Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
13. Right-of-use assets
£m Land and buildings Equipment Total
At 1 September 2020 400 13 413
Additions 45 - 45
Modifications and remeasurements (13) - (13)
Disposals (1) - (1)
Depreciation charge (80) (4) (84)
Impairment charge (28) - (28)
Effect of movements in foreign exchange rates (4) - (4)
Net book value at 31 August 2021 319 9 328
£m Land and buildings Equipment Total
At 1 September 2019 439 18 457
Additions 98 - 98
Acquisitions (Note 17) 108 - 108
Modifications and remeasurements (35) - (35)
Disposals (2) - (2)
Depreciation charge (105) (5) (110)
Impairment charge (95) - (95)
Effect of movements in foreign exchange rates (8) - (8)
Net book value at 31 August 2020 400 13 413
Impairment of right-of-use assets
Right-of-use assets of £28m have been impaired in the year as a result of the
impact of Covid-19. This impairment charge has been presented in
non-underlying items (see Note 4). The approach to impairment testing is
described in detail in Note 12, Property, plant and equipment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
14. Lease liabilities
£m Land and buildings Equipment Total
At 1 September 2020 548 11 559
Additions 41 - 41
Modifications and remeasurements (37) - (37)
Disposals (7) - (7)
Interest 10 - 10
Payments (87) (4) (91)
Effect of movements in foreign exchange rates (5) - (5)
At 31 August 2021 463 7 470
£m Land and buildings Equipment Total
At 31 August 2019 - 14 14
Adjustment on initial application of IFRS 16 476 3 479
At 1 September 2019 476 17 493
Additions 87 - 87
Acquisitions (Note 17) 106 - 106
Interest 11 - 11
Payments (72) (6) (78)
Modifications and remeasurements (50) - (50)
Disposals (2) - (2)
Effect of movements in foreign exchange rates (8) - (8)
At 31 August 2020 548 11 559
£m 2021 2020
Analysis of total lease liabilities:
Non-current 362 429
Current 108 130
Total 470 559
The Group leases land and buildings for its retail stores, distribution
centres, storage locations and office property. These leases have an average
remaining lease term of 4 years. Some leases include an option to break before
the end of the contract term or an option to renew the lease for an additional
term after the end of the term. Management assess the lease term at inception
based on the facts and circumstances applicable to each property.
Other leases are mainly forklift trucks for the retail stores and distribution
centres, office equipment and vehicles. These leases have an average remaining
lease term of 3 years.
The Group reviews the retail lease portfolio on an ongoing basis, taking into
account retail performance and future trading expectations. The Group may
exercise extension options or negotiate lease extensions or modifications. In
other instances, the Group may exercise break options, negotiate lease
reductions or decide not to negotiate a lease extension at the end of the
lease term. Certain property leases contain rent review terms that require
rent to be adjusted on a periodic basis which may be subject to market rent or
increases in inflation measurements.
Many of the Group's property leases, particularly in Travel locations, also
incur payments based on a percentage of revenue (variable lease payments)
achieved at the location. In line with IFRS 16, variable lease payments which
are not based on an index or rate are not included in the lease liability. See
Note 3 for the expense charged to the Income statement relating to variable
lease payments not included in the measurement of the lease liability.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
14. Lease liabilities (continued)
In response to the Covid-19 pandemic, an amendment was issued to IFRS 16 in
June 2020 and further extended in March 2021. This amendment (practical
expedient) allows the impact on the lease liability of temporary rent
reductions/waivers affecting rent payments due on or before June 2022, to be
recognised in the Income statement in the period they are received, rather
than as lease modifications, which would require the remeasurement of the
lease liability using a revised discount rate with a corresponding adjustment
to the right-of-use asset. The Group has applied this practical expedient to
all Covid-19 rent reductions/waivers that meet the requirements of the
amendment. This has resulted in a credit to the Income statement of £23m for
the year ended 31 August 2021.
Details of Income statement charges and income for leases are set out in Note
3. The right-of-use asset categories on which depreciation is incurred are
presented in Note 13. Interest expense incurred on lease liabilities is
presented in Note 5.
The total cash outflow for leases in the financial year was £123m. This
includes cash outflow for short-term leases of £14m and variable lease
payments (not included in the measurement of lease liability) of £18m. The
total future income from sub-leasing the right-of-use assets is £1m.
15. Contingent liabilities and capital commitments
£m 2021 2020
Bank guarantees and guarantees in respect of lease agreements 31 31
Other potential liabilities that could crystallise are in respect of previous
assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement with
Connect Group PLC (formerly Smiths News PLC), any such contingent liability
which becomes an actual liability, will be apportioned between the Group and
Connect Group PLC in the ratio 65:35 (provided that the actual liability of
Connect Group PLC in any 12 month period does not exceed £5m). The Group's
65 per cent share of these leases has an estimated future rental commitment at
31 August 2021 of £1m (2020: £1m). The movement in the future rental
commitment is due to the crystallisation of lease liabilities, lease expiries
and the effluxion of time.
Contracts placed for future capital expenditure approved by the directors but
not provided for amount to £26m (2020: £18m).
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
16. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit schemes (which are
closed to new entrants and future service accrual) and defined contribution
pension schemes. The main pension arrangements for employees are operated
through a defined contribution scheme, WH Smith Retirement Savings Plan, and a
defined benefit scheme, WHSmith Pension Trust. The most significant scheme is
the defined benefit WHSmith Pension Trust.
The retirement benefit obligations recognised in the balance sheet for the
respective schemes at the relevant reporting dates were:
£m 2021 2020
WHSmith Pension Trust (2) (3)
United News Shops Retirement Benefits Scheme (1) (1)
Retirement benefit obligation recognised in the balance sheet (3) (4)
Recognised as:
Current liabilities (1) (1)
Non-current liabilities (2) (3)
WHSmith Pension Trust
The amounts recognised in the balance sheet under IAS 19 in relation to this
plan are as follows:
£m 2021 2020
Present value of the obligations (1,172) (1,144)
Fair value of plan assets 1,456 1,412
Surplus before consideration of asset ceiling 284 268
Amounts not recognised due to effect of asset ceiling (284) (268)
Additional liability recognised due to minimum funding requirements (2) (3)
Retirement benefit obligation recognised in the balance sheet (2) (3)
In accordance with the requirements of IFRIC 14 we have recognised the
schedule of contributions as a liability of £2m (2020: £3m). The defined
benefit pension schemes are closed to further accrual. The Group does not have
an unconditional right to derive economic benefit from any surplus, as the
Trustees retain the right to enhance benefits under the Trust deed, and
therefore the present value of the economic benefits of the IAS 19 surplus in
the pension scheme of £284m (2020: £268m) available as a reduction of future
contributions is £nil (2020: £nil). As a result, the Group has not
recognised this IAS 19 surplus on the balance sheet. There is an ongoing
actuarial deficit primarily due to the different assumptions and calculation
methodologies used compared to those on interpretation of IAS 19.
Income Statement
The amounts recognised in the income statement were as follows:
£m 2021 2020
Net interest cost on the defined benefit liability - -
Past service cost - (14)
- (14)
The net interest cost has been included in finance costs (Note 5). Actuarial
gains and losses have been reported in the statement of comprehensive income.
In the prior year, past service costs of £14m were recognised in relation to
equalisation of pension benefits relating to a period between 1 April 1992 and
29 July 1993 ('Barber equalisation'). This past service cost was disclosed
within non-underlying items, in accordance with the accounting policy in Note
1.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
16. Retirement benefit obligations (continued)
Statement of comprehensive income
Total (expense) / income recognised in the Statement of Comprehensive Income
("SOCI"):
£m 2021 2020
Total actuarial loss before consideration of asset ceiling (50) (43)
Return on plan assets excluding amounts included in net interest cost 58 (38)
(Loss) / gain resulting from changes in amounts not recognised due to effect (11) 92
of asset ceiling excluding amounts recognised in net interest cost
Gain resulting from changes in additional liability due to minimum funding 1 -
requirements excluding amounts recognised in net interest cost
Total actuarial gain / (loss) recognised in other comprehensive income (2) 11
Actuarial gains recognised in the statement of comprehensive income on the
United News Shops Retirement Benefits Scheme were £1m in the year to 31
August 2021 (2020: £nil).
Balance sheet
Movement in net retirement benefit liability during the period:
£m 2021 2020
At beginning of period (3) (3)
Current service cost - -
Past service cost - (14)
Contributions from the sponsoring companies 3 3
Actuarial gains / (losses) on defined benefit pension schemes (2) 11
At end of period (2) (3)
A full actuarial valuation of the Scheme is carried out every three years with
interim reviews in the intervening years. The latest full actuarial valuation
of the Pension Trust was carried out as at 31 March 2020 by independent
actuaries using the projected unit credit method and has been completed. At 31
March 2020 the deficit was £9m. The Group has agreed a continuation of the
annual funding schedule with the Trustees from March 2020 for the following 5
years, which includes the deficit recovery contributions and other running
costs of just under £3m.
During the year, the Group made a contribution of £3m to the WHSmith Pension
Trust (2020: £3m) in accordance with the agreed pension deficit funding
schedule, being £1m of deficit funding payable to the Trustee and £2m in
relation to investment management costs.
The principal long-term assumptions used in the IAS 19 valuation were:
% 2021 2020
Rate of increase in pension payments 3.35 3.04
Rate of increase in deferred pensions 2.55 2.30
Discount rate 1.75 1.75
RPI Inflation assumption 3.45 3.10
CPI Inflation assumption 2.55 2.30
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
17. Acquisitions
Prior year acquisitions
On 20 December 2019, the Group acquired the entire issued share capital of
Marshall Retail Group ('MRG'), for a total cash payment of USD $402m (£317m)
comprising $243m enterprise value, $146m repayment of loans, $12m working
capital, and $1m cash and restricted cash. During the year ended 31 August
2021, the Group received £1m as an adjustment to the consideration paid.
MRG is an independent travel retailer operating in high footfall airport and
tourist locations in the United States. The acquisition builds further on the
acquisition of InMotion in November 2018 and significantly strengthens the
Group's offering in the United States, the world's largest travel retail
market.
Included within the fair value of the net identifiable assets on acquisition
is an intangible asset of £29m (US$37m) representing the MRG brand. The Board
believes that the excess of consideration paid over the net assets on
acquisition of £257m is best considered as goodwill on acquisition
representing future operating synergies. This amount is not tax deductible.
The provisional goodwill calculation included significant estimates that may
be refined for a period of 12 months from the acquisition date. During the
year ended 31 August 2021, final fair value adjustments were recognised of
£1m to property, plant and equipment and £1m to goodwill.
Transaction and integration costs totalling £20m were incurred in the year to
31 August 2020 in respect of the acquisition. A further £2m integration costs
have been incurred in the year ended 31 August 2021.
WH Smith PLC
Glossary (unaudited)
Alternative Performance Measures
In reporting financial information, the Group presents Alternative Performance
Measures, 'APMs', which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for or superior to IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The Alternative Performance Measures are not defined by
IFRS and therefore may not be directly comparable with other companies'
alternative performance measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures may exclude the
financial effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, amortisation of acquired intangibles assets, 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. The Group
believes that they provide additional useful information to users of the
financial statements to enable a better understanding of the Group's
underlying financial performance.
IFRS 16
The Group adopted IFRS 16 in the prior year. IFRS 16 superseded the lease
guidance under IAS 17 and the related interpretations. IFRS 16 sets out the
principles for the recognition, measurement, presentation and disclosure of
leases and requires lessees to account for all leases under a single
on-balance sheet model as the distinction between operating and finance leases
is removed. The only exceptions are short-term and low-value leases. At the
commencement date of a lease, a lessee will recognise a lease liability for
the future lease payments and an asset (right-of-use asset) representing the
right to use the underlying asset during the lease term. Lessees are required
to separately recognise the interest expense on the lease liability and the
depreciation expense on the right-of-use asset.
For the purposes of narrative commentary on the Group's performance and
financial position in the Strategic report, the effects of IFRS 16 have been
excluded, in order to provide meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income statement and
Segmental information is provided in Notes A1 and A2 below. There is no impact
on cash flows, although the classification of cash flows has changed, with an
increase in net cash inflows from operating activities being offset by a
decrease in net cash inflows from financing activities, as set out in Note A9
below. The balance sheet as at 31 August 2021 both including and excluding the
impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value determined at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
These assets are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, over the term of the relevant lease.
Lease payments are apportioned between finance charges and a reduction of the
lease obligations so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognised directly in
the income statement.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term. The Group
has a number of lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are accrued in
line with revenues generated.
WH Smith PLC
Glossary (unaudited)
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures issued by the
European Securities and Markets Authority ('ESMA'), we have provided
additional information on the APMs used by the Group below, including full
reconciliations back to the closest equivalent statutory measure.
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income Statement Measures
Headline measures Various See Notes A1-A11 Headline measures exclude the impact of IFRS 16 (applying the principles of
IAS 17). Reconciliations of all Headline measures are provided in Notes A1 to
A11.
Group (loss)/profit before tax and non-underlying items Group (loss) / profit before tax See Note A1 Group (loss)/profit before tax and non-underlying items excludes the impact of
non-underlying items as described below. A reconciliation from Group
(loss)/profit before tax and non-underlying items to Group (loss)/profit
before tax is provided on the Group income statement on page 20, and on a
Headline (pre-IFRS 16) basis in Note A1.
Group (loss)/profit from trading operations and segment trading (loss)/ profit Group operating (loss)/profit See Note 2 and Note A2 Group (loss)/profit from trading operations and segment trading (loss)/ 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 (loss)/profit and
Group (loss)/profit before tax on an IFRS 16 basis is provided in Note 2 to
the financial statements and on a Headline (pre-IFRS 16) basis in Note A2.
Non-underlying items None Refer to definition and see Note 4 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 4 to the financial statements, and on a
Headline (pre-IFRS 16) basis in Note A6.
(Loss)/earnings per share before non-underlying items (Loss)/ earnings per share Non-underlying items, see Note 10 and Note A4 (Loss)/profit for the year attributable to the equity holders of the parent
before non-underlying items divided by the weighted average number of ordinary
shares in issue during the financial year. A reconciliation is provided on an
IFRS 16 basis in Note 10 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline EBITDA Group operating (loss)/profit Refer to definition Headline EBITDA is Headline Group operating (loss)/profit before
non-underlying items adjusted for pre-IFRS 16 depreciation, amortisation and
other non-cash items. See Group Overview on page 15.
Effective tax rate None Non-underlying items see Notes A3 and A6 Total income tax credit / charge excluding the tax impact of non-underlying
items divided by Group Headline (loss) / 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 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.
WH Smith PLC
Glossary (unaudited)
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income Statement Measures (continued)
Gross Gross profit margin Not applicable Where referred to throughout the Preliminary announcement statement, gross
margin is calculated as gross profit divided by revenue.
margin
Like-for-like revenue Movement in revenue per the income statement - Revenue change from non like-for-like stores Like-for-like revenue is the change in revenue from stores that have been open
for at least a year, with a similar selling space at a constant foreign
- Foreign exchange impact exchange rate. As a result of the Covid-19 pandemic, this measure has not been
utilised in the current year.
Balance Sheet Measures
Headline net debt Net debt Reconciliation of net debt Headline net debt is defined as cash and cash equivalents, less bank
overdrafts and other borrowings and both current and non-current obligations
under finance leases as defined on a pre-IFRS 16 basis. Lease liabilities
recognised as a result of IFRS 16 are excluded from this measure.
A reconciliation of Net debt on an IFRS 16 basis provided in Note A8.
Other measures
Free cash flow Net cash inflow from operating activities See Group Overview Free cash flow is defined as the net cash inflow from operating activities
before the cash flow effect of IFRS 16, non-underlying items and pension
funding, less net capital expenditure. The components of free cash flow are
shown in Note A7 and on page 15, as part of the Group Overview.
WH Smith PLC
Glossary (unaudited)
A1. Reconciliation of Headline to Statutory Group operating loss and Group
loss before tax
2021
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 886 - 886 - 886
Cost of sales (358) - (358) - (358)
Gross profit 528 - 528 - 528
Distribution costs (431) - (431) 12 (419)
Administrative expenses (136) - (136) (4) (140)
Other income - - - 4 4
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
Finance costs (16) - (16) (8) (24)
Loss before tax (55) (49) (104) (12) (116)
Income tax credit 26 9 35 1 36
Loss for the period (29) (40) (69) (11) (80)
Attributable to:
Equity holders of the parent (31) (40) (71) (11) (82)
Non-controlling interests 2 - 2 - 2
(29) (40) (69) (11) (80)
2020
pre-IFRS 16 basis
IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 1,021 - 1,021 - 1,021
Cost of sales (441) - (441) - (441)
Gross profit 580 - 580 - 580
Distribution costs (545) - (545) 7 (538)
Administrative expenses (97) - (97) 5 (92)
Other income 2 - 2 - 2
Non-underlying items - (157) (157) (55) (212)
Group operating loss (60) (157) (217) (43) (260)
Finance costs (9) - (9) (11) (20)
Loss before tax (69) (157) (226) (54) (280)
Income tax credit 16 18 34 7 41
Loss for the period (53) (139) (192) (47) (239)
Attributable to:
Equity holders of the parent (53) (139) (192) (47) (239)
Non-controlling interests - - - - -
(53) (139) (192) (47) (239)
WH Smith PLC
Glossary (unaudited)
A2. Reconciliation of Headline to Statutory Segmental trading (loss) /
profit and Group (loss) / profit from trading operations
2021
pre-IFRS 16 basis IFRS 16 basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Travel UK trading (loss) / profit (32) - (32) 3 (29)
North America trading profit / (loss) 6 - 6 (4) 2
Rest of the World trading loss (13) - (13) (4) (17)
Total Travel trading loss (39) - (39) (5) (44)
High Street trading profit 19 - 19 17 36
Group (loss) / profit from trading operations (20) - (20) 12 (8)
Unallocated costs (19) - (19) - (19)
Group operating (loss) / profit (39) - (39) 12 (27)
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
( )
2020
pre-IFRS 16 basis IFRS 16 basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Travel UK trading loss (1) - (1) - (1)
North America trading (loss) / profit (18) - (18) 4 (14)
Rest of the World trading (loss) / profit (14) - (14) 2 (12)
Total Travel trading (loss) / profit (33) - (33) 6 (27)
High Street trading (loss) / profit (10) - (10) 6 (4)
Group (loss) / profit from trading operations (43) - (43) 12 (31)
Unallocated costs (17) - (17) - (17)
Group operating (loss) / profit (60) - (60) 12 (48)
Non-underlying items - (157) (157) (55) (212)
Group operating loss (60) (157) (217) (43) (260)
WH Smith PLC
Glossary (unaudited)
A3. Reconciliation of Headline to Statutory tax (credit) / expense
2021 2020
£m Headline (pre-IFRS 16) IFRS 16 adjustments Total Headline (pre-IFRS 16) IFRS 16 adjustments Total
Loss before tax and non-underlying items (55) 4 (51) (69) 1 (68)
Tax on loss - - - (5) - (5)
Standard rate of UK corporation tax 19.00% (2020: 19.00%)
Adjustment in respect of prior year UK corporation tax (1) - (1) (6) - (6)
Total current tax credit (1) - (1) (11) - (11)
Deferred tax - current year (13) 2 (11) (7) - (7)
Deferred tax - prior year (4) - (4) 2 - 2
Deferred tax - adjustment in respect of change in tax rates (8) - (8) - - -
Tax on Headline (loss) / profit (26) 2 (24) (16) - (16)
Tax on non-underlying items - current tax - - - (5) (4) (9)
Tax on non-underlying items - deferred tax (9) (3) (12) (13) (3) (16)
Total tax on (loss) / profit (35) (1) (36) (34) (7) (41)
A4. Calculation of Headline and Statutory loss per share
2021
pre-IFRS 16 basis IFRS 16 basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Loss for the year, attributable to equity holders of the parent (31) (40) (71) (11) (82)
Weighted average shares in issue for basic earnings per share 131 131
Weighted average shares in issue for diluted earnings per share 131 131
Basic loss per share (pence) (23.7)p (30.5)p (54.2)p (8.4)p (62.6)p
Diluted loss per share (pence) (23.7)p (30.5)p (54.2)p (8.4)p (62.6)p
2020
pre-IFRS 16 basis IFRS 16 basis
£m Headline, before Headline non-underlying items Headline IFRS 16 adjustments Total
non-underlying items
Loss for the year, attributable to equity holders of the parent (53) (139) (192) (47) (239)
Weighted average shares in issue for basic earnings per share 120 120
Weighted average shares in issue for diluted earnings per share 120 120
Basic loss per share (pence) (44.2)p (115.8)p (160.0)p (39.2)p (199.2)p
Diluted loss per share (pence) (44.2)p (115.8)p (160.0)p (39.2)p (199.2)p
WH Smith PLC
Glossary (unaudited)
A5. Fixed charges cover
£m 2021 2020
Headline net finance costs (pre-IFRS 16) 16 9
Net operating lease rentals (pre-IFRS 16) 151 210
Total fixed charges 167 219
Headline loss before tax and non-underlying items (55) (69)
Headline profit before tax, non-underlying items and fixed charges 112 150
Fixed charges cover - times 0.7x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
2021 2020
£m Headline (pre-IFRS16) IFRS 16 Headline IFRS 16
(pre-IFRS16)
Costs relating to business combinations
- Transaction costs - - 11 11
- Integration costs 2 2 9 9
Amortisation of acquired intangible assets 3 3 3 3
Pension past service cost - - 14 14
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment 18 14 54 39
- Impairment of Intangible assets - - 1 1
- Impairment of right-of-use assets - 28 - 95
- Other property costs 5 - 25 -
- Write-down of inventories 5 5 14 14
- Restructuring costs 9 9 25 25
- Costs associated with refinancing 6 6 - -
- Other 1 (2) 1 1
Non-underlying items, before tax 49 65 157 212
Tax credit on non-underlying items (9) (12) (18) (25)
Non-underlying items, after tax 40 53 139 187
Non-underlying items on a pre-IFRS 16 basis are calculated on a consistent
basis with IFRS 16, with the exception of the below items.
A tax credit of £12m has been recognised in relation to the above items (£9m
under IAS 17).
Impairment of property, plant and equipment and right-of-use assets
The impairment charge recognised on a pre-IFRS 16 basis differs from that
recognised under IFRS 16. This is mainly due to a lower asset base pre-IFRS
16, coupled with lower expected store cash flows, with rental expenses being
included in the forecast cash flows (treated as financing costs under IFRS
16), and a higher discount rate. The calculation of the Group's weighted
average cost of capital differs under IFRS 16 versus pre-IFRS 16. The pre-tax
discount rate used in the IFRS 16 calculation was 10.4% and the pre-tax
discount rate used in the pre-IFRS 16 calculation was 13.9%.
Right-of-use assets are not recognised on a pre-IFRS 16 basis
WH Smith PLC
Glossary (unaudited)
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases (continued)
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions for onerous
lease contracts; on an IFRS 16 basis, onerous lease contracts are recognised
as an impairment of the right-of-use asset. As a result of the impact of
Covid-19, the Group has carried out a review of leases where the obligations
of those leases exceed the potential economic benefits expected to be received
under them. We anticipate that a number of stores will not fully recover to
pre-Covid-19 sales levels and have accelerated our internal forecasts for the
rate of sales decline in those locations. As a result, we have recognised
onerous provisions of £5m for stores where we now anticipate we will make a
cash loss over the remaining term of their leases.
The Group's pre-IFRS 16 property provisions represent the present value of
unavoidable future net lease obligations and related costs of leasehold
property (net of estimated sublease income and adjusted for certain risk
factors) where the space is vacant, loss-making or currently not planned to be
used for ongoing operations. The unwinding of the discount is treated as an
imputed interest charge. These provisions represent the best estimate of the
liability at the time of the balance sheet date, the actual liability being
dependent on future events such as economic environment and marketplace
demand. Expectations will be revised each period until the actual liability
arises, with any difference accounted for in the period in which the revision
is made.
A7. Free cash flow
£m Note 2021 2020
Cash generated from operating activities 10 113 94
Interest paid (13) (13)
Net cash inflow from operating activities 100 81
Cash flow impact of IFRS 16 A9 (83) (66)
Add back:
- Cash impact of non-underlying items 38 20
- Pension funding 3 3
Deduct:
- Purchase of property, plant and equipment (37) (67)
- Purchase of intangible assets (7) (12)
Free cash flow 14 (41)
A8. Headline Net debt
£m Note 2021 2020
Borrowings
- Revolving credit facility - -
- Convertible bonds (283) -
- Bank loans (132) (400)
- Lease liabilities 14 (470) (559)
Liabilities from financing activities (885) (959)
Cash and cash equivalents 130 108
Net debt (IFRS 16) 9 (755) (851)
- Add back lease liabilities recognised under IFRS 16(1) 464 550
Headline net debt (pre-IFRS 16) (291) (301)
(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 of IFRS 16 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.
2021 2020
£m Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
Net cash inflows from operating activities 17 83 100 15 66 81
Net cash outflows from investing activities (43) - (43) (395) - (395)
Net cash inflows/(outflows) from financing activities 48 (83) (35) 440 (66) 374
Net increase in cash in the period 22 - 22 60 - 60
A10. Balance sheet impact of IFRS 16
The balance sheet as at 31 August 2021 including and excluding the impact of
IFRS 16 is shows below:
2021 2020
Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
£m
Goodwill and other intangible assets 474 (1) 473 495 (2) 493
Property, plant and equipment 167 7 174 190 2 192
Right-of-use assets - 328 328 - 413 413
Investments in joint ventures 2 - 2 2 - 2
643 334 977 687 413 1,100
Inventories 135 - 135 150 - 150
Payables less receivables (237) 23 (214) (226) 43 (183)
Working capital (102) 23 (79) (76) 43 (33)
Derivative financial asset - - - - - -
Net current and deferred tax asset 46 10 56 17 11 28
Provisions (28) 14 (14) (27) 13 (14)
Operating assets employed 559 381 940 601 480 1,081
Net debt (291) (464) (755) (301) (550) (851)
Net assets excluding pension liability 268 (83) 185 300 (70) 230
Pension liability (3) - (3) (4) - (4)
Deferred tax asset on pension liability 1 - 1 1 - 1
Total net assets 266 (83) 183 297 (70) 227
WH Smith PLC
Glossary (unaudited)
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis
are as follows:
£m 2021 2020
Net operating lease charges 151 210
In the prior year, the Group adopted IFRS 16. IFRS 16 requires lessees to
account for all leases under a single on-balance sheet model as the
distinction between operating and finance leases is removed. In order to
provide comparable information, the Group has chosen to present Headline
measures of operating profit/(loss) and profit/(loss) before tax, as explained
in Note 2 Segmental analysis.
The table above presents the pre-IFRS 16 net operating lease charges, applying
the principles of IAS 17, and Group accounting policies as applicable prior to
1 September 2019, as described in the Glossary on page 51.
The Group leases various properties under non-cancellable operating lease
agreements. The leases have varying terms, escalation clauses and renewal
rights. The Group has a number of lease arrangements in which the rent payable
is contingent on revenue. Contingent rentals payable, based on store revenues,
are accrued in line with revenues generated.
The average remaining lease length across the Group is four years.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term.
Temporary rent reductions due to Covid-19, affecting rent payments due on or
before June 2022, have been recognised in the Income statement in the period
they are received.
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