REG - WH Smith PLC - Preliminary Results
10/11/2022 07:00
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RNS Number : 9079F WH Smith PLC 10 November 2022
10 November 2022
WH SMITH PLC
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 AUGUST 2022
Group now in its strongest ever position as a global travel retailer;
Dividend reinstated
· Significant recovery in Group performance with Group revenue of
£1,400m (2021: £886m)
· Strong performance from Travel; momentum continuing into new
financial year; total Travel revenue in 10 week period to 5 November 2022 at
148% of 2019
· Final dividend of 9.1p per share reflecting confidence in future and
strong current trading
· New store pipeline of 150 stores won and yet to open in Travel,
including 70 in North America, with over 125 stores due to open this financial
year
· Headline profit before tax and non-underlying items* of £73m (2021:
loss of £55m)
· Total Travel trading profit* of £89m (2021: loss of £39m)
· High Street trading profit* of £33m (2021: £19m)
· Investing for growth with capex in the current financial year
expected to be around £150m
· Strong balance sheet with leverage now at 2x with further
strengthening expected
Carl Cowling, Group Chief Executive, commented:
"2022 has been a successful year for WHSmith and we enter the new financial
year with the Group in its strongest ever position as a global travel retailer
with multiple growth opportunities across the world.
"We have opened 98 new stores in the year and we have a pipeline of 150 new
stores yet to open across 16 countries and in airports as varied as Los
Angeles, Salt Lake City, Brussels, Oslo and Melbourne.
"We continue to grow our North America business at pace and we have a very
strong pipeline of new store openings. In the current financial year, our
North America business is set to become larger, in profit terms, than our UK
High Street business and we see significant opportunities to grow this
business further.
"Our InMotion technology stores have had a very good year. We now have over
150 InMotion stores open, including 36 outside of the US. Our recently opened
stores in the UK are trading ahead of our initial expectations and we have
received excellent feedback from customers and landlords. We see significant
scope to grow the brand globally.
"Our High Street division, including our online businesses, delivered another
resilient and profitable performance. These businesses continue to generate
strong cash flow allowing us to invest across the Group.
"The achievements of the last year are due to the tremendous efforts of the
entire team around the world for which I am sincerely grateful.
"The resumption of the dividend announced today reflects our strong current
trading and the Board's confidence in the future prospects of the Group.
"We have started the year well and, while there is economic uncertainty,
travel patterns globally continue to improve and this, combined with the
strength of the Group's growth opportunities, means that we are well
positioned for a year of significant progress in 2023."
* Pre-IFRS 16
Group financial summary:
Headline
IFRS 16 pre-IFRS 16(2)
Aug 2022 Aug 2021 Aug 2022 Aug 2021
Travel UK trading profit/(loss)(1) £60m £(29)m £54m £(32)m
North America ('NA') trading profit(1) £33m £2m £31m £6m
Rest of the World ('ROW') trading profit/(loss)(1) £3m £(17)m £4m £(13)m
Total Travel trading profit/(loss)(1) £96m £(44)m £89m £(39)m
High Street trading profit(1) £45m £36m £33m £19m
Group profit/(loss) from trading operations(1) £141m £(8)m £122m £(20)m
Group profit/(loss) before tax and non-underlying items(1) £83m £(51)m £73m £(55)m
Diluted earnings/(loss) per share before non-underlying items(1) 47.7p (22.1)p 41.7p (23.7)p
Non-underlying items(1) £(20)m £(65)m £(12)m £(49)m
Group profit/(loss) before tax £63m £(116)m £61m £(104)m
Basic earnings/(loss) per share 36.2p (62.6)p 35.4p (54.2)p
Diluted earnings/(loss) per share 35.6p (62.6)p 34.8p (54.2)p
Revenue performance:
Total % change vs Aug 2021
£m
Travel UK 521 167%
North America 288 73%
Rest of the World 118 195%
Total Travel 927 131%
High Street 473 (2)%
Group 1,400 58%
(1) Alternative Performance Measure (APM) defined and explained in the
Glossary on page 47.
(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 2022 and 31 August 2021 have been
presented on both an IFRS 16 and a pre-IFRS 16 basis.
Measures described as 'Headline' are presented pre-IFRS 16.
For the purposes of narrative commentary on the Group's performance and
financial position, both pre-IFRS 16 and IFRS 16 measures are provided.
Reconciliations from pre-IFRS 16 measures to IFRS 16 measures are provided in
the Glossary on page 47. 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 2022 are available at whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
GROUP OVERVIEW
The Group has had a strong year and is now trading ahead of 2019 levels. We
continue to capitalise on multiple growth opportunities by utilising our broad
suite of brands, new store opening programme and continuing to win new stores
throughout the world. The Group is now in its strongest ever position as a
global travel retailer.
We have had another very successful year in winning new business. Across North
America, Rest of the World and the UK we won 99 stores in the year and now
have 150 stores won and due to open, with over 125 stores scheduled to open in
the current financial year.
Despite some disruption from Covid-19 in the first half, it has been a year of
substantial progress supported by the key pillars of our strategy and our
ongoing forensic approach to retailing across each of our businesses. These
include:
· Space growth:
o Opening new stores;
o Winning new business;
o New, better quality space;
o Extending contracts;
o Developing formats and brands
· ATV growth:
o Space management;
o Refitting stores;
o Range development
· Category development:
o One-stop-shop travel essentials format;
o Developing the InMotion brand;
o Improving ranges, e.g. health and beauty, food to go, and tech
· Cost and cash management:
o Flexible rent model;
o Investing for growth (capex in the current financial year expected to be
around £150m);
o Productivity and efficiencies
· Maintain profitability of UK High Street business and grow our
digital businesses
· Disciplined capital allocation, supporting investment in growth and
shareholder returns
Group summary
The Group saw a strong recovery during the year which has continued into the
current financial year. Total Group revenue as a percentage of 2019 total
revenue by quarter has been:
% of 2019 Revenue(3)
FY 2022 FY 2023
Q1 Q2 Q3 Q4 10 weeks to 5 November 2022
Travel UK 69% 72% 102% 113% 118%
North America(4) 91% 91% 110% 116% 117%
Rest of the World(5) 41% 48% 87% 116% 131%
Total Travel(6) 83% 81% 122% 135% 148%(8)
High Street(7) 87% 84% 79% 81% 87%
Group 85% 83% 106% 117% 125%
Second half revenue for the Group was 113% of 2019 on a total basis and 89% on
a like-for-like(1) ('LFL') basis as shown in the table below. LFL revenue in
Travel was 92% of 2019.
FY 2022 H2
% of 2019 Revenue(3)
Total LFL(1)
Travel UK 109% 94%
North America(4) 113% 94%
Rest of the World(5) 103% 82%
Total Travel(6) 130% 92%
High Street(7) 82% 83%
Group 113% 89%
Total Group revenue at £1,400m (2021: £886m) was up 58% compared to the
prior year and slightly ahead of 2019. It was the highest annual revenue
generated by the Group since its creation in its current form in 2006.
In Travel, while the first half was impacted by the Omicron variant from
December 2021 to February 2022, we saw thereafter a robust recovery across all
our travel markets and a strong rebound in profitability. Travel revenue for
the second half was at 130% (6) of 2019 (92% on a LFL(1) basis) and over the
key summer trading period from June to August, Travel revenue was at 135% of
2019 (96% on a LFL(1) basis).
In the 10 week period to 5 November 2022, Travel revenue has been 148% (8) of
2019 which demonstrates the intrinsic strength of our business and the markets
in which we operate.
We saw a consistently good performance in High Street throughout the year with
the important December 2021 trading period at 90% of 2019.
Total Travel delivered a substantial increase in trading profit(1) to £89m
(2021: loss of £39m) and High Street a trading profit(1) of £33m (2021:
£19m).
Headline Group profit from trading operations(1) for the year was £122m
(2021: loss of £20m) with Headline Group profit before tax and non-underlying
items(1) at £73m (2021: loss of £55m). Including non-underlying items, the
Headline Group profit before tax(1) was £61m (2021: loss of £104m).
(3) Equivalent month in 2019
(4) Pro forma, constant currency
(5) Constant currency
(6) As reported (excludes pro forma North America adjustment)
(7) Includes internet businesses
(8) 141% on constant currency basis
The Group profit before tax, including non-underlying items and on an IFRS 16
basis, was £63m (2021: loss of £116m).
The Group has a strong balance sheet, is very cash generative and has
substantial liquidity. In addition to £327m of convertible bonds which mature
in 2026 and £133m of term loan with a maturity in 2025, the Group has an
undrawn £250m Revolving Credit Facility ('RCF') which matures in 2025.
The Group has the following cash, committed facilities and drawn debt as at 31
August 2022:
31 August 2022 Maturity
Cash and cash equivalents(9) £132m
Revolving Credit Facility(10) £250m April 2025
Term loan £133m April 2025
Convertible bonds £327m May 2026
(9) Cash and cash equivalents comprises cash on deposit of £101m and cash in
transit of £31m
(10) Undrawn as at 31 August 2022 and 9 November 2022
As at 31 August 2022, Headline net debt(1) was £296m (2021: £291m) with
access to over £350m of liquidity (£101m cash on deposit and £250m undrawn
RCF). We have a clear focus on cash generation. Group free cash flow(1) was an
inflow of £41m (2021: £14m), reflecting the strong trading performance as
well as our investment in growth opportunities with capital investment in the
year of £83m (2021: £44m).
The Group pays a fixed coupon at 1.625% on the convertible bonds and the term
loan is interest bearing at a margin over SONIA. As a consequence, around 70%
of our debt is at fixed interest rates. The Group places surplus cash in
overnight interest bearing accounts, ensuring immediate liquidity. As at 31
August 2022, the Group had £101m placed in interest bearing deposit accounts.
On 8 August 2022, the Group announced that the Trustee of the WHSmith Pension
Trust, (the 'Trust'), had purchased a bulk annuity insurance policy from
Standard Life, insuring all liabilities to pay all future defined benefit
pensions to the Trust's 12,950 members and any eligible dependants. The
insurance policy was purchased using most of the existing assets held within
the Trust, without the need for the Group to make any additional cash
contributions. As a result of this comprehensive risk removal, the Group will
not be required to make any future cash contributions into the Trust regarding
defined benefit liabilities.
The Board today announces that it will be reinstating the dividend and is
proposing a final dividend of 9.1p per share in respect of the financial year
ending 31 August 2022 which is payable on 26 January 2023. This reflects our
strong start to the year and our confidence in the future prospects of the
Group. Assuming a 1/3:2/3 split between interim and final dividends, this
implies a cover ratio of 3 times earnings for the full year. Our intention is
to return, in time, to a cover ratio of around 2.5 times normalised earnings
paid on an interim and final basis on a 1/3:2/3 split.
The Group's disciplined approach to capital allocation remains unchanged:
· investing in our existing business and in new opportunities where we
see rates of return ahead of the cost of capital;
· paying a dividend to our shareholders;
· undertaking attractive value-creating acquisitions in strong and
growing markets;
· returning surplus cash to shareholders.
Leverage at 31 August 2022 was 2.0x Headline EBITDA(1). We have a leverage
target of between 0.75x and 1.25x Headline EBITDA(1) and we anticipate
achieving this level within the next 12 to 18 months, including this year's
significant investment programme.
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America and Rest of
the World.
Total revenue was £927m (2021: £401m), up 131% compared to the previous year
generating a Total Travel Headline trading profit(1) in the period of £89m
(2021: loss of £39m).
£m Trading profit/(loss)(1) Headline trading profit/(loss)(1)
(IFRS 16) (pre-IFRS 16) Revenue
2022 2021 2022 2021 2022 2021
Travel UK 60 (29) 54 (32) 521 195
North America 33 2 31 6 288 166
Rest of the World 3 (17) 4 (13) 118 40
Total Travel 96 (44) 89 (39) 927 401
In Travel, we have continued to focus on initiatives that position us well for
future growth:
· Business development and winning new business
Through building and managing relationships with all our landlord partners, we
look to win new space, improve the quality and amount of space, develop new
formats and extend contracts. During the year, we have opened 98 stores and
now have a store pipeline of 150 stores which are due to open over the next
three years. Going forward, we expect to win around 50 to 60 new stores a
year.
· ATV growth and spend per passenger
We aim to grow ATV through our forensic analysis of the return on our space,
cross-category promotions, merchandising, store layouts and store refits.
During the year, we have continued to focus on re-engineering our ranges and
we continue to see double digit ATV growth across all our channels.
· Category development
We do this by developing adjacent product categories relevant for our
customers, such as health and beauty and tech ranges, and expanding existing
categories, e.g. premium food ranges. Throughout the year, we have focused on
identifying opportunities where we can reposition our traditional news, books
and convenience ('NBC') format to a one-stop-shop travel essentials format.
· Minimising costs
We remain focused on cost efficiency and productivity, and making value
creating investments.
The strong momentum that we saw in Q4 has continued into the new financial
year with the Group now in its strongest position ever as a global travel
retailer. Passenger numbers have recovered strongly, albeit with further
recovery to go, and we are very well positioned to capitalise on the
significant space growth opportunities across each of our markets.
TRAVEL UK
All our channels in Travel UK have seen a sustained and strong recovery across
the year with the division delivering sales of 113% of 2019 in Q4 and 118% in
the first 10 weeks of the current financial year.
Total revenue in the year was £521m which, together with improved margins,
resulted in a Headline trading profit(1) of £54m (2021: loss of £32m). We
have seen a consistent double digit increase in ATV versus 2019 across our
Air, Hospital and Rail channels during the period as a result of our work to
broaden our categories and extend our ranges.
% of 2019 Revenue(3)
Air Hospitals Rail Total
H1 FY22 60% 90% 70% 71%
Q3 FY22 111% 102% 87% 102%
Q4 FY22 124% 110% 90% 113%
Year to 31 August 2022 93% 98% 79% 90%
10 weeks to 5 November 2022 132% 114% 92% 118%
As at 31 August 2022, Travel UK had 587 stores. In addition, over the next
three years, we expect to win and open an additional 10 to 15 stores each year
in UK Travel, with the majority of the new stores in the Hospital channel.
Air
In Air, we saw a significant step up in revenue over the key summer trading
period, with sales in July and August 2022 at 121% and 126% respectively of
the comparable months in 2019. This was during a period of disruption and
passenger caps at some UK airports which limited the number of passengers
travelling.
As was the case pre-pandemic, leisure passengers are our most important
customer segment. We continue to focus on expanding our proposition and
identifying opportunities where we can reposition our traditional NBC format
to a unique one-stop-shop for travel essentials. By extending our categories
such as health and beauty, tech, food to go and pharmacy products, we are able
to provide time-pressed travelling customers with a fast and convenient
shopping experience, under one roof. This enables us to expose customers to a
broader range of categories which has resulted in an increase in sales per
square metre, a higher ATV and spend per passenger. This delivers good returns
for us with improved margins and attractive economics for our landlords.
Customer and landlord feedback has been very positive.
We have now opened all 30 of the InMotion stores that we recently won in UK
Air, positioning us as the market-leading technology retailer in travel
locations globally. We are pleased with the performance of our new InMotion
stores in UK Air, which are trading above our initial expectations. Combining
the learnings and expertise from our InMotion stores in the US, as well as the
results of extensive customer research in the UK, these stores provide a
first-class customer service experience and showcase a range of premium
brands, such as Apple, Bose, Sony and Samsung, as well as an extensive range
of tech accessories.
Hospitals
The Hospital channel is an important channel for us and is our second largest
channel currently by revenue in Travel UK. During the year, we have seen a
consistent improvement in revenue as restrictions eased.
Our Hospital channel is a good example of how we continue to innovate with a
strong proposition tailored to each location. We are able to offer hospital
trusts a broad suite of formats and brands including WHSmith, M&S Simply
Food, Costa Coffee and the Post Office. We now have 49 M&S Simply Food or
shared space stores across our hospital estate, 11 Costa Coffee shops and 3
Post Offices.
In addition, there are considerable opportunities for us to open new space in
hospitals. As at 31 August 2022, we operated from 136 stores in around 100
hospitals and we believe there are a further 200 hospitals which could support
at least one of our four store formats. The government continues to invest in
both infrastructure and staff numbers in the health sector as the sector
emerges from Covid.
Over the medium-term, we would expect to open on average eight to ten new
stores each year in the Hospital channel.
Rail
Rail remains an attractive channel with opportunities to grow. According to
the Department for Transport, pre-pandemic rail had approximately 1.7bn
passenger journeys per year with leisure passengers accounting for around 40%
of these journeys.
During the year, we have seen a steady improvement in revenue as travel
restrictions eased and this momentum has continued into the new financial
year, despite the disruption caused by the recent rail strikes. Passenger
numbers are now at 80% of 2019 levels with leisure and weekend passenger
numbers recovering the fastest. We know from our segmentation and return on
space analysis in Rail that this customer segment is the most valuable to us.
As with our other channels in Travel, we continue to invest in re-engineering
our ranges and broadening our categories to meet customer and landlord needs.
In the first half of the year, we opened our first one-stop-shop format in
Rail at London's Euston Station. This store combines our traditional news,
books and convenience offer with tech, health and beauty products and a
pharmacy. We have received positive feedback from customers and the store is
performing strongly. During the current financial year, we will be trialling
our one-stop-shop for travel essentials format in Rail across a further eight
major Network Rail locations, including London Paddington, London Victoria and
London Liverpool Street stations. Across these stores, we will be investing in
new store layouts and enhancing the space afforded to categories such as
health and beauty.
In addition, we have opened a new standalone bookshop at Edinburgh Waverley
Station and our first Rail store with a combined M&S food offer at Bristol
Temple Meads Station. Early customer and landlord reaction has been positive.
NORTH AMERICA
We saw a strong performance from North America. Given its domestic focus, the
North American market recovered the fastest from the pandemic. Transportation
Security Administration ('TSA') data and visitor numbers in Las Vegas have
continued to improve during the year. Total revenue for the year in NA was
£288m (2021: £166m), an increase of 73% of which 10% was due to changes in
exchange rates. Headline trading profit(1) was £31m (2021: £6m), reflecting
the recovery in passenger numbers and improved margins. In the current
financial year, we expect our North America business to become an increasingly
significant part of the Group and the second largest in profit terms, after
Travel UK. The Group is exposed to movements in the GBP:USD exchange rate. A
10 cent move in this rate results in a c.£3m movement in annual profit.
Current consensus suggests an average exchange rate of GBP:USD of 1.30.
The growth opportunities in North America are substantial. The US is the
largest travel retail market in the world with annual sales, pre-pandemic, at
$3.2bn. Approximately 85% of passengers are domestic, with leisure passengers
being the largest segment. TSA data continues to show the gradual recovery in
passenger numbers week on week, with passenger numbers at the end of October
2022 at 95% of 2019 levels.
Given the similar customer dynamic and high footfall environments to our
Travel UK business, we have applied our forensic approach to retailing from
the UK to the US market and we are seeing some good results. This includes,
space management, category development to higher margin products such as
health and beauty and tech, enhanced promotional activity and increased
operational efficiencies, for example self-scan tills which we introduced in
September 2022.
Including the 22 store openings in the year, MRG now have 78 and InMotion 118
stores trading in airports. We continue to grow our North America business at
pace and we have a very strong pipeline of new store openings, including some
significant tender wins at Los Angeles and Salt Lake City airports. During the
year, we have won an additional 22 stores and we expect to open 49 in the
current financial year.
So far this financial year, we have won a further 5 stores including
Jacksonville and Boston airports. Our analysis of the North American market
pre-pandemic shows that there were a total of 2,004 news and gift and
specialty retail stores in the top 70 airports, giving our North America
business a market share of c.12%(11). With our continued success rate of
winning new tenders and our expectation of the amount of space likely to come
to the market for tender over the medium-term, we are well placed to grow our
North America business.
Outside of the airport business, the Resorts channel continues to be
attractive. MRG is a leading player in this channel in Las Vegas with stores
located at key visitor locations of the Strip and Fremont Street. MRG has very
longstanding relationships with resort landlords and a significant amount of
expertise built up over an extended period. The Resorts channel has similar
dynamics to our Travel UK business with a high number of short stay visitors
who tend to remain close to their hotel. Visitors to Las Vegas were
approximately 3.4m in the month of September 2022, c.4% below 2019.
In addition, we have won and opened our first store in Rail in North America.
This store opened in February 2022 at Moynihan Train Hall, New York. While it
is still early days, this store is performing well and in line with our
expectations. We have also won a further store at neighbouring Penn Station.
Our revenue performance in the current financial year has reflected these
trends with overall revenue in North America at 130%(12) of 2019 levels for
the 10 weeks to 5 November 2022 (of which 13% relates to currency movements,
giving growth of 117% at constant currencies).
REST OF THE WORLD
Total revenue for the year in ROW was £118m (2021: £40m). Headline trading
profit(1) was £4m (2021: loss of £13m). As anticipated, the pace of recovery
has varied by geography with the strongest recovery in Europe and, more
recently, notable improvements in Australia and Asia. As we have done in
Travel UK, we have remained focused on areas within our control, including
increasing ATV. Revenue in the first 10 weeks of the current financial year
was at 131% of 2019(5) levels reflecting the ongoing recovery and opening of
new stores.
As this market continues to recover, we expect to see more space become
available. Our strong and compelling proposition and our very low market share
currently means there is significant opportunity to grow this business in new
and existing territories through our traditional NBC retail proposition and
with technology tenders under the InMotion brand. We continue to use our three
operating models of directly run, joint venture and franchise in order to
create value and win new business.
We made good progress in the year opening 38 new stores and we have won a
further 64 stores, with significant tender wins in Spain, Belgium, Italy,
Sweden, Norway and Australia. Utilising our experience from our North America
business, we have created a localised store design concept for each airport,
drawing on local landmarks and popular cultural references. This has been very
well received by landlords and gives us confidence in winning more stores in
new territories as space becomes available.
In addition, we continue to build on areas where we already have stores, for
example in Spain, which is one of the most popular destinations for the UK
leisure traveller. In the first half, we won an additional 31 stores across
Spanish airports, of which we have opened 23 to date. These stores are
performing well and we know from our prior experience of operating in the
country that our brand and offer resonates well. We successfully executed this
store opening programme at pace to ensure over half the stores were trading
throughout the peak summer period.
We also continue to see good opportunities to win new business in the tech
market under our InMotion brand. During the year, we have won 8 InMotion
stores in Dublin, Milan and Stockholm and Gothenburg. We now have a total of
11 InMotion stores outside of the UK and North America of which 6 are open. We
remain well positioned to benefit from further opportunities as more space
becomes available.
(11) Based on store numbers; including stores won and yet to open
(12) Includes pro forma MRG for 2019
We now have 311 stores and a further 76 won and yet to open. Of the 311 stores
open, 45% are directly-run, 8% are joint venture and 47% are franchise.
Region Number of stores
Europe 109
Middle East and India 84
Asia Pacific 118
Total Travel stores
During the year, we opened 98 stores in Travel. As at 31 August 2022, our
global Travel business operated from 1,196 units (31 August 2021: 1,166
units). As at 31 August 2022, we are present in over 100 airports and 30
countries with 298 stores in North America, 109 in Europe, 84 in the Middle
East and India and 118 in Asia Pacific. As part of our strategy to improve the
quality of our space, we closed 68 stores in the period, largely in marginal
locations. Excluding franchise units, Travel occupies 1.0m square feet.
HIGH STREET
During the year, High Street delivered a resilient performance with Headline
trading profit(1) of £33m, as expected (2021: £19m - which included £30m of
UK Government support on rates), with revenue of £473m (2021: £485m). We
managed the business tightly, keeping focused on costs and cash generation. We
are pleased with the start to the new financial year with LFL(1) revenue up 2%
on the prior year for the 10 weeks to 5 November 2022.
The strategy we have in place in our High Street business remains as relevant
today as it has ever been and ensures that the cash flow and profits of this
business are robust and sustainable.
We consider retail space as a strategic asset and we utilise our space to
maximise returns in the current year, in ways that are sustainable over the
longer-term. 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.
Driving efficiencies remains a core part of our strategy and we continue to
focus on all areas of cost in the business. During the year, we have delivered
savings of £42m and we are on track to deliver savings of £24m over the next
3 years, of which £12m are planned in the current financial year. These
savings come from right across the business, including rent savings at lease
renewal (on average 53%) which continue to be a significant proportion,
marketing efficiencies and productivity gains from our distribution centres.
We have, for many years, actively fixed our energy costs in stores well in
advance of consuming the energy. Our energy costs are currently fixed to
August 2023 at rates that were put in place 12 months ago.
Over the years, we have actively looked to put as much flexibility into our
store leases as we can, and this leaves us well positioned in the current
environment. The average lease length in our High Street business, including
where we are currently holding over at lease end, is under 2 years. We only
renew a lease where we are confident of delivering economic value over the
life of that lease. We have c.450 leases due for renewal over the next three
years, including over 150 where we are holding over and in negotiation with
our landlord. The store closure process is cash neutral.
As at 31 August 2022, the High Street business operated from 527 stores (2021:
544) which occupy 2.5m square feet (2021: 2.6m square feet). 17 stores were
closed in the period (2021: 24).
Specialist websites
Funkypigeon.com delivered, as expected, total revenue of £35m (2021: £54m)
and Headline EBITDA(1) of £8m (2021: £14m) reflecting the cyber incident in
April. Funkypigeon.com is recovering well and we are confident of the
substantial opportunities to grow the platform further, and significantly grow
revenue and profits over the medium-term.
The market for greeting cards in the UK is substantial and estimated at
£1.6bn(13) with online penetration continuing to grow. The UK greeting card
market has been stable with adults sending on average 20(13) greeting cards
per person each year.
(13) Company estimates / OC&C 2019
We have redeveloped the funkypigeon.com app to improve customer conversion and
we have also launched a next day delivery service which operates seven days a
week to further enhance our customer proposition. This has received very
positive customer feedback.
During the year, we increased our investment and focus on whsmith.co.uk. This
has included focusing on customer conversion, product presentation and
broadening our approach to marketing. Our specialist pen website, c
(http://www.cultpens.com) ultpens.com (http://www.cultpens.com) , has
continued to outperform the UK market with growing sales internationally. We
have extended our ranges to broaden our customer offer and, during the year,
we launched product personalisation to further develop the gifting category.
This includes laser engraving of pens and notebook embossing. We are seeing
good results.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE ('ESG')
We have excellent sustainability credentials and we have made good progress
over the past 12 months. We were the top performing specialty retailer in
Morningstar's Sustainalytics ESG Benchmark in the year, and were included,
once again, in the Dow Jones World Sustainability Index.
We have set our target to achieve net zero. As a first step to this long-term
goal, we have set near term targets to help track our performance against our
overall climate target over time, and these have been validated by the Science
Based Targets Initiative. We have continued to invest in energy saving
measures, such as LED and chiller replacements, and have reduced Scope 1 and 2
emissions by around 60% since 2007.
The need for literacy support for disadvantaged children continues and we
continue to invest in our partnership with the National Literacy Trust. During
the year, we have been delighted to see a resurgence in children's books, with
a particularly strong World Book Day.
In addition, we have enhanced our sustainability governance, introducing an
ESG Committee of the Board, and we have included ESG measures into our senior
executive short and long-term incentive plans.
FINANCIAL REVIEW
The Group generated a Headline profit before tax and non-underlying items(1)
of £73m (2021: loss of £55m) and, after non-underlying items and IFRS 16, a
Group profit before tax of £63m (2021: loss of £116m).
Headline
IFRS pre-IFRS 16(1)
£m 2022 2021 2022 2021
Travel UK trading profit/(loss)(1) 60 (29) 54 (32)
North America trading profit(1) 33 2 31 6
Rest of the World trading profit/(loss)(1) 3 (17) 4 (13)
Total Travel trading profit/(loss)(1) 96 (44) 89 (39)
High Street trading profit(1) 45 36 33 19
Group profit/(loss) from trading operations(1) 141 (8) 122 (20)
Unallocated central costs(1) (24) (19) (24) (19)
Group operating profit/(loss) before non-underlying items(1) 117 (27) 98 (39)
Net finance costs (34) (24) (25) (16)
Group profit/(loss) before tax and non-underlying items(1) 83 (51) 73 (55)
Non-underlying items(1) (20) (65) (12) (49)
Group profit/(loss) before tax 63 (116) 61 (104)
( )
Unallocated central costs increased in the year due to higher share-based
payment charges and £2m of costs in relation to a new payroll system which
previously would have been treated as capex and now is treated as opex under
the new accounting guidelines for software as a service.
Non-underlying items(1)
Items which are not considered part of the normal operating costs of the
business, are non-recurring and are exceptional because of their size, nature
or incidence, are treated as non-underlying items and disclosed separately.
Non-underlying items in the year are detailed in the table below, and most do
not impact cash.
The cash spend relating to non-underlying items in the 2022 financial year was
£16m and mainly related to activity announced in 2020 and 2021.
IFRS Headline IFRS Headline
pre-IFRS 16(1)
pre-IFRS 16(1)
£m Ref. 2022 2022 2021 2021
Impairment of Property, plant and equipment and Right-of-use assets (1) 13 5 42 18
Amortisation of acquired intangible assets (2) 3 3 3 3
Costs related to cyber incident (3) 4 4 - -
Onerous leases - - - 5
Stock provisions, write-offs and other costs - - 3 6
Restructuring costs - - 9 9
Costs associated with refinancing - - 6 6
Cost relating to business combinations - - 2 2
20 12 65 49
(1) Impairment of Property, plant and equipment and Right-of-use assets
The Group has carried out an assessment for indicators of impairment across
the store portfolio. This assessment has identified a number of stores where
experience and expectations of the longer-term impact of Covid-19 is more
negative than previously assumed, primarily driven by the impact of Covid-19
on consumer shopping patterns.
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 2022. Following this review, a non-cash charge of
£5m (2021: £18m) was recorded for impairment of retail store assets on a
pre-IFRS 16 basis, and £13m (2021: £42m) on an IFRS 16 basis which includes
an impairment of right-of-use assets of £8m (2021: £28m).
(2) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and
InMotion brands. This is a non-cash charge.
(3) Costs related to cyber incident
Costs of £4m were incurred in relation to the funkypigeon.com cyber security
incident and include impairment of software assets, third party consultancy
support and legal and other costs.
Other non-underlying items in the prior year included stock provisioning and
impairment relating to the impact of Covid-19, restructuring costs following a
review of store operations across our High Street business, costs associated
with the refinancing activity in April 2021 and further integration costs in
relation to the acquisition of MRG which completed in December 2019.
A tax credit of £4m (2021: £12m) has been recognised in relation to the
above items (£3m pre-IFRS 16 (2021: £9m)).
Net finance costs
Headline
IFRS pre-IFRS 16(1)
£m 2022 2021 2022 2021
Interest payable on bank loans and overdrafts 9 10 9 10
Interest on convertible bonds 14 4 14 4
Unwind of discount on onerous lease provisions (pre-IFRS 16) - - 2 2
Interest on lease liabilities 11 10 - -
Net finance costs 34 24 25 16
Pre-IFRS 16 net finance costs for the year were £25m (2021: £16m) with the
year on year increase reflecting the refinancing undertaken in the prior year.
Cash costs in relation to this financing cost were £10m lower at £15m.
The interest on the convertible bonds includes the accrued coupon (a fixed
coupon of 1.625%) and c.£8m of the non-cash debt accretion charge.
The £2m non-cash unwind of discount on onerous lease provisions relates to
onerous lease provisions recognised in the 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 £11m arises on lease liabilities recognised under IFRS 16,
bringing the total net finance costs under IFRS 16 to £34m (2021: £24m).
Tax
The effective tax rate(1) was 17% (2021: 47%) on the profit for the year.
Corporation tax payments in the year were £6m after all possible loss relief
for the current year has been used (2021: refunds of £10m following the carry
back of 2021 losses against prior year profits). Based on current legislation,
we expect the tax rate in the current year to be 23%.
Fixed charges cover(1)
pre-IFRS 16(1)
£m 2022 2021
Headline net finance costs(1) 25 16
Net operating lease charges (pre-IFRS 16)(1) 241 151
Total fixed charges 266 167
Headline profit/(loss) before tax and non-underlying items(1) 73 (55)
Headline profit before tax, non-underlying items and fixed charges 339 112
Fixed charges cover - times 1.3x 0.7x
Fixed charges, comprising property operating lease charges and net finance
costs, were covered 1.3 times (2021: 0.7 times) by Headline profit/loss before
tax, non-underlying items and fixed charges.
Cash flow
Free cash flow(1) reconciliation
pre-IFRS 16(1)
£m 2022 2021
Headline Group operating profit / (loss) before non-underlying items(1) 98 (39)
Depreciation, amortisation and impairment (pre-IFRS 16)(14) 49 50
Non-cash items 8 8
Operating cash flow(1, 14) 155 19
Capital expenditure (83) (44)
Working capital (pre-IFRS 16)(14) (10) 37
Net tax (paid)/refunded (6) 10
Net finance costs paid (pre-IFRS 16) (15) (8)
Free cash flow (1) 41 14
The free cash inflow(1) for the year was £41m. This mainly reflects the
return to profit of the business with the operating cash inflow increasing by
£136m to £155m and continued investment in the Group as we recover from the
impact of the pandemic and open new stores.
We had a working capital outflow of £10m in the year reflecting the launch of
InMotion in the UK and investment to support the recovery of trading in
Travel.
Net corporation tax payments in the period were £6m, compared to refunds of
£10m last year.
Capital expenditure was £83m (2021: £44m) which includes the additional
spend from opening 98 stores around the world.
£m 2022 2021
New stores and store development 37 17
Refurbished stores 22 17
Systems 13 9
Other 11 1
Total capital expenditure 83 44
(14) Excludes cash flow impact of non-underlying items
Reconciliation of Headline net debt(1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See Note 8 of the
Financial statements for the impact of IFRS 16 on net debt.
As at 31 August 2022, the Group had Headline net debt(1) of £296m comprising
convertible bonds of £292m, term loans of £132m (net of fees), £4m of
finance lease liabilities and net cash of £132m (2021: £291m, convertible
bonds of £283m, term loans of £132m (net of fees), £6m of finance lease
liabilities and net cash of £130m).
Headline(1)
pre-IFRS 16
£m 2022 2021
Opening Headline net debt(1) (291) (301)
Movement in year
Free cash flow(1) 41 14
Pensions (2) (3)
Non-underlying items(1) (16) (38)
Net purchase of own shares for employee share schemes (7) (2)
Equity component of convertible bond - 41
Other (21) (2)
Closing Headline net debt(1) (296) (291)
Cash 132 130
Term loans (net of fees) (132) (132)
Convertible bond (292) (283)
Finance leases (pre-IFRS 16) (4) (6)
(296) (291)
The Group had closing Headline net debt(1) of £296m at the year end. In
addition to the free cash flow, the Group paid defined benefit pension funding
of £2m (see Note 15 on pensions) and £16m 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
prior years.
On an IFRS 16 basis, net debt was £869m, which includes an additional £573m
of lease liabilities.
Balance sheet
Headline(1)
IFRS pre-IFRS 16
£m 2022 2021 2022 2021
Goodwill and other intangible assets 543 473 544 474
Property, plant and equipment 219 174 211 167
Right-of-use assets 446 328 - -
Investments in joint ventures 2 2 2 2
1,210 977 757 643
Inventories 198 135 198 135
Payables less receivables (269) (214) (284) (237)
Working capital (71) (79) (86) (102)
Derivative financial assets 1 - 1 -
Net current and deferred tax assets 54 56 54 46
Provisions (14) (14) (26) (28)
Operating assets employed 1,180 940 700 559
Net debt (869) (755) (296) (291)
Net assets excluding pension liability 311 185 404 268
Pension liability - (3) - (3)
Deferred tax asset on pension liability - 1 - 1
Total net assets 311 183 404 266
The Group had Headline net assets of £404m, £138m higher than last year end
reflecting the investment in store openings and exchange differences on
translation of goodwill. Under IFRS the Group had net assets of £311m.
Pensions
In August 2022, the main defined benefit pension scheme, the WHSmith Pension
Trust, purchased a bulk annuity insurance policy from Standard Life, part of
Phoenix Group, insuring all liabilities to pay all future defined benefit
pensions to the Trust's 12,950 members and any eligible dependants.
The insurance policy was purchased using most of the existing assets held
within the Trust, without the need for the Group to make any additional cash
contributions. The bulk annuity policy matches the Trust's cash flow benefit
obligations to its members, removing longevity and other demographic risks as
well as investment, interest rate and inflation risks. As a result of this
comprehensive risk-removal, the Group will not be required to make any future
cash contributions into the Trust regarding defined benefit liabilities,
therefore the previously recognised minimum funding liability (£2m as at 31
August 2021) has been derecognised. During the year ended 31 August 2022,
prior to the completion of the buy-in transaction, the Group made a
contribution of £2m to the scheme (2021: £3m).
As at 31 August 2022, the scheme had an IAS 19 surplus of £120m (2021:
surplus of £284m), representing the remaining assets of the scheme after the
bulk annuity policy purchase above. The Group has continued not to recognise
this surplus under the requirements of IFRS 14.
The IAS 19 pension deficit on the relatively small UNS defined benefit pension
scheme was £nil (2021: £1m).
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
The Board regularly reviews and monitors the risks and uncertainties that
could have a material effect on the Group's financial results. The principal
risks and uncertainties that could lead to a material impact have not
significantly changed from those listed in the Annual Report and Accounts
2021. No new principal risks were identified in the year, however there were
five risks where the potential impact had increased over the year, with the
remaining risks having no change in their overall impact. We believe that the
overall level of risk of Covid-19 has reduced. We have also recognised that
the ongoing conflict in Ukraine has created further uncertainty in the macro
economy. A summary of the principal risks has been provided below:
Risk Impact
Economic, political, competitive and market risks - increased The Group operates in highly competitive markets and in the event of failing
to compete effectively with travel, convenience and other similar product
category retailers, this may affect revenues obtained through our stores.
Failure to keep abreast of market developments, including the use of new
technology, could threaten our competitive position. Factors such as the
economic climate, levels of household disposable income, seasonality of sales,
changing demographics and customer shopping patterns, and raw material costs
could impact on profit performance. The Group may also be impacted in the UK
and internationally, by any future pandemics, escalation of global conflict,
political developments such as regulatory and tax changes, increasing scrutiny
by competition authorities, and other changes in the general condition of
retail and travel markets.
Brand and reputation - no change The WHSmith brand is an important asset and failure to protect it from
unfavourable publicity could materially damage its standing and the wider
reputation of the business, adversely affecting revenues. As the Group
continues to expand its convenience food offer in travel locations, associated
risks include compliance with food hygiene and health and safety procedures,
product and service quality, environmental and ethical sourcing and associated
legislative and regulatory requirements, including the latest allergen and
calorie labelling regulations.
Key suppliers and supply chain management - increased The Group has agreements with key suppliers in the UK, Europe and the Far East
and other countries in which it operates. The interruption or loss of supply
of core category products from these suppliers to our stores may affect our
ability to trade. Quality of supply issues may also impact the Group's
reputation and impact our ability to trade. Further escalation of
geo-political risks may cause disruption to the supply chain which may
necessitate the diversification of sourcing own brand products from the Far
East.
Store portfolio - no change The quality and location of the Group's store portfolio are key contributors
to the Group's strategy. Retailing from a portfolio of good quality real
estate in prime retail areas and key travel hubs at commercially reasonable
rates remains critical to the performance of the Group. All of High Street's
stores are held under operating leases, and consequently the Group is exposed,
to the extent that any store becomes unviable as a result of rental costs.
Most Travel stores are held under concession agreements, on average for 5 to
10 years, although there is no guarantee that concessions will be renewed or
that Travel will be able to bid successfully for new contracts.
Business interruption - increased An act of terrorism or war, or an outbreak of a further pandemic disease,
could reduce the number of customers visiting WHSmith outlets, causing a
decline in revenue and profit. In the past, our Travel business has been
impacted by geopolitical events such as major terrorist attacks, which have
led to reductions in customer traffic. Closure of travel routes both planned
and unplanned, such as the disruption caused by natural disasters or
weather-related events, may also have a material effect on business. The Group
operates from a number of distribution centres and the closure of any one of
them may cause disruption to the business. In common with most retail
businesses, the Group also relies on a number of important IT systems, where
any system performance problems, cyber risks or other breaches in data
security could affect our ability to trade.
Reliance on key personnel - no change The performance of the Group depends on its ability to continue to attract,
motivate and retain key head office and store staff. The retail sector is very
competitive and the Group's personnel are frequently targeted by other
companies for recruitment.
International expansion - increased The Group continues to expand internationally. In each country in which the
Group operates, the Group may be impacted by political or regulatory
developments, or changes in the economic climate or the general condition of
the travel market.
Cyber risk and data security - increased The Group is subject to the risk of systems breach or data loss from various
sources including external hackers or the infiltration of computer viruses.
Theft or loss of Company or customer data or potential damage to any systems
from viruses, ransomware or other malware, or non-compliance with data
protection legislation, could result in fines and reputational damage to the
business that could negatively impact our sales.
Treasury, financial and credit risk management - no change The Group's exposure to and management of capital, liquidity, credit, interest
rate and foreign currency risk are analysed further in Note 22 on page 137 of
the Annual Report and Accounts 2021. The Group also has credit risk in
relation to its trade, other receivables and sale or return contracts with
suppliers. The Group is exposed to interest rate changes and movements in
foreign currencies.
Environment and sustainability - no change Our investors, customers and colleagues expect us to conduct our business in a
responsible and sustainable way. Climate change is now recognised as a global
emergency. Failure to deliver our stated sustainability commitments could
damage our reputation and introduce higher costs and impact our ability to
meet strategic objectives.
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 2022
2022 2021
£m Note Before non-underlying items(1) Non-underlying items(2) Total Before non-underlying items(1) Non-underlying items(2) Total
Revenue 2 1,400 - 1,400 886 - 886
Group operating profit/(loss) 2, 3 117 (20) 97 (27) (65) (92)
Finance costs 5 (34) - (34) (24) - (24)
Profit/(loss) before tax 83 (20) 63 (51) (65) (116)
Income tax (expense)/credit 6 (14) 4 (10) 24 12 36
Profit/(loss) for the year 69 (16) 53 (27) (53) (80)
Attributable to equity holders of the parent 63 (16) 47 (29) (53) (82)
Attributable to non-controlling interests 6 - 6 2 - 2
69 (16) 53 (27) (53) (80)
Earnings/(loss) per share
Basic 7 36.2p (62.6)p
Diluted 7 35.6p (62.6)p
All results relate to continuing operations of the Group.
(1) Alternative performance measure. The Group has defined and explained the
purpose of its alternative performance measures in the Glossary on page 47.
(2) See Note 4 for an analysis of non-underlying items. See Glossary on page
47 for a definition of Alternative Performance Measures.
WH Smith PLC
Group Statement of Comprehensive Income
For the year ended 31 August 2022
£m Note 2022 2021
Profit/(loss) for the year 53 (80)
Other comprehensive income/(loss):
Items that will not be reclassified subsequently to the income statement:
Actuarial losses on defined benefit pension schemes 15 - (1)
- (1)
Items that may be reclassified subsequently to the income statement:
Gains on cash flow hedges
- Net fair value gains 3 -
Exchange differences on translation of foreign operations 71 (13)
74 (13)
Other comprehensive income/(loss) for the year, net of tax 74 (14)
Total comprehensive income/(loss) for the year 127 (94)
Attributable to equity holders of the parent 120 (96)
Attributable to non-controlling interests 7 2
127 (94)
WH Smith PLC
Group Balance Sheet
As at 31 August 2022
£m Note 2022 2021
Non-current assets
Goodwill 10 471 406
Other intangible assets 10 72 67
Property, plant and equipment 11 219 174
Right-of-use assets 12 446 328
Investments in joint ventures 2 2
Deferred tax assets 55 57
Trade and other receivables 9 6
1,274 1,040
Current assets
Inventories 198 135
Trade and other receivables 87 45
Derivative financial assets 1 -
Cash and cash equivalents 8 132 130
418 310
Total assets 1,692 1,350
Current liabilities
Trade and other payables (365) (265)
Bank overdrafts and other borrowings 8 (20) -
Retirement benefit obligations 15 - (1)
Lease liabilities 13 (131) (108)
Current tax liability (1) -
Short-term provisions - (2)
(517) (376)
Non-current liabilities
Retirement benefit obligations 15 - (2)
Bank loans and other borrowings 8 (404) (415)
Long-term provisions (14) (12)
Lease liabilities 13 (446) (362)
(864) (791)
Total liabilities (1,381) (1,167)
Total net assets 311 183
Shareholders' equity
Called up share capital 29 29
Share premium 316 316
Capital redemption reserve 13 13
Translation reserve 43 (27)
Other reserves (244) (240)
Retained earnings 138 82
Total equity attributable to equity holders of the parent 295 173
Non-controlling interests 16 10
Total equity 311 183
( )
WH Smith PLC
Group Cash Flow Statement
For the year ended 31 August 2022
£m Note 2022 2021
Operating activities
Cash generated from operating activities 9 213 113
Interest paid(1) (26) (13)
Net cash inflow from operating activities 187 100
Investing activities
Purchase of property, plant and equipment (70) (37)
Purchase of intangible assets (13) (7)
Acquisition of subsidiaries, net of cash acquired - 1
Net cash outflow from investing activities (83) (43)
Financing activities
Distributions to non-controlling interests (1) -
Issue of new shares for employee share schemes - 1
Purchase of own shares for employee share schemes (7) (2)
Proceeds from issuance of convertible bonds 8 - 327
Repayment of borrowings 8 - (267)
Financing arrangement fees - (8)
Capital repayments of obligations under leases 8 (96) (86)
Net cash outflow from financing activities (104) (35)
Net increase in cash and cash equivalents in the year - 22
Opening cash and cash equivalents 130 108
Effect of movements in foreign exchange rates 2 -
Closing cash and cash equivalents 132 130
(1) Includes interest payments of £11m on lease liabilities (2021: £5m).
WH Smith PLC
Group Statement of Changes in Equity
For the year ended 31 August 2022
£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 2021 345 13 (27) (240) 82 173 10 183
Profit for the year - - - - 47 47 6 53
Other comprehensive income:
Cash flow hedges - - - 3 - 3 - 3
Exchange differences on translation of foreign operations - - 70 - - 70 1 71
Total comprehensive income for the year - - 70 3 47 120 7 127
Employee share schemes - - - (7) 9 2 - 2
Non cash movement on non-controlling interests - - - - - - (1) (1)
Balance at 31 August 2022 345 13 43 (244) 138 295 16 311
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 15) - - - - (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 8) - - - 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
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
1. Basis of preparation
Whilst the information included in the consolidated financial statements has
been prepared in accordance with UK-adopted International Accounting Standards
in conformity with the requirements of the Companies Act 2006, 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 2021 have been delivered to
the Registrar of Companies and those for 2022 will be delivered following the
Company's Annual General Meeting. The Annual Report for the year ending 31
August 2022 and this full year results statement were approved by the Board on
10 November 2022. The auditors have reported on the Annual Report for the
years ended on 31 August 2022 and 2021 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 2022 has
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 2021 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 2022. The Group has considered the below new
standards and amendments and has concluded that they are either not relevant
to the Group or they do not have a significant impact on the Group's
consolidated financial statements.
Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest rate benchmark reform - Phase 2
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:
Amendments to IAS 16 Proceeds before intended use
Amendments to IAS 37 Onerous contracts - cost of fulfilling a contract
Narrow scope amendments to IAS 1 and IAS 8
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 (APM's)
The Group has identified certain measures that it believes will assist the
understanding of the performance of the business. These APMs are not defined
or specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for, or superior to, IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The APMs are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs.
The key APMs that the Group uses include: measures before non-underlying
items, Headline profit before tax, Headline earnings per share, trading
profit, Headline trading profit, Headline Group profit from trading
operations, like-for-like revenue, gross margin, fixed charges cover, Headline
EBITDA, Net debt/funds and Headline net debt/funds and free cash flow. These
APMs are set out in the Glossary on page 47 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 2022
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 exclude the
financial effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, costs relating to business combinations, impairment charges
and other property costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax effect of
these items. In addition, these measures exclude the income statement impact
of amortisation of intangible assets acquired in business combinations, which
are recognised separately from goodwill. This amortisation is not considered
to be part of the underlying operating costs of the business and has no
associated cash flows.
The Group believes that the separate disclosure of these items provides
additional useful information to users of the financial statements to enable a
better understanding of the Group's underlying financial performance.
Further details of the non-underlying items are provided in Note 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 Group overview describes the Group's financial position, cash flows and
borrowing facilities and also highlights the principal risks and uncertainties
facing the Group. 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.
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 2024. Based on this assessment, which is
outlined below, it is appropriate to adopt the going concern basis of
accounting in preparing these financial statements.
In making the going concern assessment, the directors have modelled a number
of scenarios for the period to February 2024. The base case scenario is
consistent with the Board approved 2023 Budget and the three year plan. Under
this scenario the Group has significant liquidity and comfortably complies
with all covenant tests to February 2024.
As a result of inherent uncertainties due to the impact of Covid-19 and
challenges in the macroeconomic
environment, a severe but plausible scenario has also been modelled which
assumes a 10 per cent reduction in revenue versus base case across all our
businesses (Travel UK, North America, Rest of the World and High Street). We
have also assumed a 5 per cent increase in labour costs against base case and
a 50 per cent increase in energy costs against base case where energy costs
have not been fixed. Apart from an equal reduction in turnover rents in our
Travel businesses, we have not assumed any decrease in other variable costs.
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.
The covenants on the above facilities are tested half-yearly. The covenant
test at 31 August 2022 is based on minimum liquidity. The covenant tests as at
28 February 2023, 31 August 2023 and 28 February 2024 are 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.
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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
1. Basis of preparation (continued)
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, and other non-current
assets and inventory valuation.
Critical accounting judgements
Non-underlying items
The definition of non-underlying items is shown on page 25. The classification
of items as non-underlying requires 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.
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 the pre-tax discount rate. Due to the effects of the 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 11 and 12 respectively.
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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same basis as that
used by the Chief Operating Decision Maker for assessing performance and
allocating resources. The Group's operating segments are based on the reports
reviewed by the Board of Directors who are collectively considered to be the
chief operating decision maker.
For management and financial reporting purposes, the Group is organised into
two operating divisions which comprise four reportable segments - Travel UK,
North America, Rest of the World within the Travel division, and High Street.
The information presented to the Board is prepared in accordance with the
Group's IFRS accounting policies, with the exception of IFRS 16, and is shown
below as Headline information in Section b). A reconciliation to statutory
measures is provided below in accordance with IFRS 8, and in the Glossary on
page 47 (Note A2).
a) Revenue
£m 2022 2021
Travel UK 521 195
North America 288 166
Rest of the World(1) 118 40
Total Travel 927 401
High Street 473 485
Group revenue 1,400 886
(1) Rest of the World revenue includes revenue from Australia of £40m
(2021: £20m). No other country has individually material revenue.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
2. Segmental analysis of results (continued)
b) Group results
2022 2021
£m Headline before non-underlying items(1) Headline non-underlying items(1) IFRS 16 Total Headline before non-underlying items(1) Headline IFRS 16 Total
(pre-IFRS 16) (pre-IFRS16) (pre-IFRS 16) non-underlying items(1)
(pre-IFRS16)
Travel UK trading profit/(loss) 54 - 6 60 (32) - 3 (29)
North America trading profit/(loss) 31 - 2 33 6 - (4) 2
Rest of the World trading profit/(loss) 4 - (1) 3 (13) - (4) (17)
Total Travel trading profit/(loss) 89 - 7 96 (39) - (5) (44)
High Street trading profit 33 - 12 45 19 - 17 36
Group profit/(loss) from trading operations 122 - 19 141 (20) - 12 (8)
Unallocated central costs (24) - - (24) (19) - - (19)
Group operating profit/(loss) before non-underlying items 98 - 19 117 (39) - 12 (27)
Non-underlying items (Note 4) - (12) (8) (20) - (49) (16) (65)
Group operating profit/(loss) 98 (12) 11 97 (39) (49) (4) (92)
Finance costs (25) - (9) (34) (16) - (8) (24)
Profit/(loss) before tax 73 (12) 2 63 (55) (49) (12) (116)
Income tax (expense)/credit (12) 3 (1) (10) 26 9 1 36
Profit/(loss) for the year 61 (9) 1 53 (29) (40) (11) (80)
(1) Presented on a pre-IFRS 16 basis. Alternative Performance Measures are
defined and explained in the Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
2. Segmental analysis of results (continued)
c) Other segmental items
2022
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 30 (16) - - -
North America 22 (11) - - -
Rest of the World 13 (2) - - -
Total Travel 65 (29) - - -
High Street 25 (15) (2) - -
Unallocated - (3) - - -
Headline, before non-underlying items (pre-IFRS 16) 90 (47) (2) - -
Headline non-underlying items (pre-IFRS 16) - (3) (6) - -
Headline, after non-underlying items (pre-IFRS 16) 90 (50) (8) - -
Impact of IFRS 16 - - - (81) -
Non-underlying items (IFRS 16) - - - - (8)
Group 90 (50) (8) (81) (8)
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 (pre-IFRS 16) 44 (48) (2) - -
Headline non-underlying items (pre-IFRS 16) - (3) (18) - -
Headline, after non-underlying items (pre-IFRS 16) 44 (51) (20) - -
Impact of IFRS 16 - 1 - (84) -
Non-underlying items (IFRS 16) - - 4 - (28)
Group 44 (50) (16) (84) (28)
(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 2022
3. Group operating profit
2022 2021
£m Note Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
Revenue 1,400 - 1,400 886 - 886
Cost of sales (538) - (538) (358) - (358)
Gross profit 862 - 862 528 - 528
Distribution costs(1) (588) - (588) (419) - (419)
Administrative expenses (161) - (161) (140) - (140)
Other income(2) 4 - 4 4 - 4
Non-underlying items 4 - (20) (20) - (65) (65)
Group operating profit 117 (20) 97 (27) (65) (92)
(1 ) During the year there was an underlying impairment charge of £2m
(2021: £2m) for property, plant and equipment and other intangible assets
included in distribution costs. Other impairment charges related to Covid-19
are included in non-underlying items. See Note 4.
(2 ) Other income relates to remeasurement of right-of-use assets, and
profit attributable to property.
£m 2022 2021
Cost of inventories recognised as an expense 538 358
Write-down of inventories in the year(3) 2 7
Depreciation of property, plant and equipment 37 36
Depreciation of right-of-use assets
- land and buildings 78 80
- other 3 4
Amortisation of intangible assets 13 14
Impairment of property, plant and equipment 7 16
Impairment of right-of-use assets 8 28
Impairment of intangibles 1 -
(Income)/expenses relating to leasing:
- expense relating to short-term leases 17 14
- expense relating to variable lease payments not included in the measurement 29 27
of the lease liability
- income relating to Covid-19 rent reductions (5) (23)
Other occupancy costs 59 27
Staff costs 293 232
Government grant income - (11)
(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 2022
4. Non-underlying items
Items which are not considered part of the normal operating costs of the
business, are non-recurring or are considered exceptional because of their
size, nature or incidence, are treated as non-underlying items and disclosed
separately. Further details of the non-underlying items are included in Note
1, and in the Financial Review on page 12.
£m 2022 2021
Amortisation of acquired intangible assets 3 3
Costs related to cyber incident 4 -
Store impairments
- property, plant and equipment 5 14
- right-of-use assets 8 28
Write-down of inventories - 5
Restructuring costs - 9
Costs associated with refinancing - 6
Costs associated business combinations - 2
Other - (2)
Non-underlying items, before tax 20 65
Tax credit on non-underlying items (4) (12)
Non-underlying items, after tax 16 53
Non-underlying items recognised in the year are as follows:
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and
InMotion brands (see Note 10).
Costs related to cyber incident
Costs of £4m incurred due to a cyber security incident in relation to one of
the Group's websites include impairment of
software assets of £1m, third party consultancy support and legal and other
costs.
Impairment of property, plant and equipment and right-of-use assets
The Group has carried out an assessment for indicators of impairment across
the store portfolio. This assessment has identified a number of stores where
experience and expectations of the longer-term impact of Covid-19 is more
negative than previously assumed, primarily driven by the ongoing impact of
Covid-19 on consumer shopping patterns.
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 latest view of the
recovery from Covid-19, to the carrying values at 31 August 2022. As a result
of this exercise, a charge of £13m (2021: £42m) was recorded within
non-underlying items for impairment of retail store assets, of which £5m
(2021: £14m) relates to property, plant and equipment and £8m (2021: £28m)
relates to right-of-use assets. Refer to Note 11 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 47.
A tax credit of £4m (2021: £12m) has been recognised in relation to
non-underlying items.
Other prior year non-underlying items
Other non-underlying items in the prior year included stock provisioning and
impairment relating to the impact of Covid-19, restructuring costs following a
review of store operations across our High Street business, costs associated
with the refinancing activity in April 2021 and further integration costs in
relation to the acquisition of MRG which completed in December 2019.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
5. Finance costs
£m 2022 2021
Interest payable on bank loans and overdrafts 9 10
Interest on convertible bonds 14 4
Interest on lease liabilities 11 10
34 24
( )
6. Income tax
£m 2022 2021
Tax on profit/loss 6 -
Standard rate of UK corporation tax 19% (2021: 19%)
Adjustment in respect of prior years - (1)
Total current tax expense/(credit) 6 (1)
Deferred tax - current year 8 (11)
Deferred tax - prior year - (4)
Deferred tax - adjustment in respect of change in tax rates - (8)
Tax expense/(credit) on profit/loss before non-underlying items 14 (24)
Tax on non-underlying items - current tax - -
Tax on non-underlying items - deferred tax (4) (12)
Total tax expense/(credit) on profit/loss 10 (36)
Reconciliation of the taxation charge/(credit)
£m 2022 2021
Tax on profit/loss at standard rate of UK corporation tax 19% (2021: 19%) 12 (22)
Tax effect of items that are not deductible or not taxable in determining - 1
taxable loss
Unrecognised tax losses (1) (1)
Differences in overseas tax rates (1) (1)
Adjustment in respect of prior years - (5)
Adjustment in respect of change in tax rates - (8)
Total income tax expense/(credit) 10 (36)
The effective tax rate, before non-underlying items, is 17 per cent (2021: 47
per cent). The effective tax rate is lower than the prior year rate and the UK
corporation tax rate of 19 per cent primarily due to the recognition of
brought forward previously unrecognised tax losses and the prior year
effective tax rate included a credit arising on the UK tax rate change which
was substantively enacted on the 24 May 2021 from 19 to 25 per cent.
The UK corporation tax rate is 19 per cent. In the Spring Budget 2021, 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 has been factored into 31 August 2021 year end
financial statements.
The OECD has published a framework for the introduction of a global minimum
effective tax rate of 15 per cent, applicable to large multinational groups.
On 20 July 2022, HM Treasury released draft legislation to implement these
'Pillar 2' rules with effect for accounting periods beginning on or after 31
December 2023. The Group is reviewing these draft rules to determine any
potential impact.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
7. Earnings per share
a) Earnings/(loss)
£m 2022 2021
Profit/(loss) for the year, attributable to equity holders of the parent 47 (82)
Non-underlying items (Note 4) 16 53
Profit/(loss) for the year before non-underlying items, attributable to equity holders of the parent 63 (29)
( )
b) Weighted average share capital
Millions 2022 2021
Weighted average ordinary shares in issue 130 131
Less weighted average ordinary shares held in ESOP Trust - -
Weighted average shares in issue for earnings per share 130 131
Add weighted average number of ordinary shares under option 2 -
Weighted average ordinary shares for diluted earnings per share 132 131
( )
c) Basic and diluted earnings/(loss) per share
Pence 2022 2021
Basic earnings/(loss) per share 36.2 (62.6)
Adjustment for non-underlying items 12.3 40.5
Basic earnings/(loss) per share before non-underlying items 48.5 (22.1)
Diluted earnings/(loss) per share 35.6 (62.6)
Adjustment for non-underlying items 12.1 40.5
Diluted earnings/(loss) per share before non-underlying items 47.7 (22.1)
Diluted earnings per share takes into account various share awards and share
options including SAYE schemes, which are expected to vest, and for which a
sum below fair value will be paid. As the Group incurred a loss in the year
ended 31 August 2021, the impact of its potential dilutive ordinary shares was
excluded as they would have been anti-dilutive.
As at 31 August 2022 the convertible bond has no dilutive effect as the
inclusion of these potentially dilutive shares would improve earnings per
share (31 August 2021: improve loss per share).
The calculation of earnings per share on a pre-IFRS 16 basis is provided in
the Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
8. Analysis of net debt
Movement in net debt can be analysed as follows:
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Cash and cash equivalents Net debt
Liabilities from financing activities
At 1 September 2021 (132) (283) - (470) (885) 130 (755)
Other non-cash movements - (9) - (184) (193) - (193)
Other cash movements - - - 107 107 - 107
Currency translation - - - (30) (30) 2 (28)
At 31 August 2022 (132) (292) - (577) (1,001) 132 (869)
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Liabilities from financing activities Cash and cash equivalents Net debt
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)
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
8. 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 47.
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
In the prior year, 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.
The Group has in place a four year committed multi-currency revolving credit
facility of £250m with Santander UK PLC, BNP Paribas, HSBC UK Bank PLC, JP
Morgan Securities PLC and Barclays Bank PLC. The revolving credit facility is
due to mature on 28 April 2025. The utilisation is interest bearing at a
margin over SONIA. As at 31 August 2022, the Group has drawn down £nil on
this facility (2021: £nil).
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.
Instalments due within the next 12 months are recorded in current liabilities.
Transaction costs of £1m (2021: £1m) relating to the term loan are amortised
to the Income statement through the effective interest rate method.
Transaction costs of £1m (2021: £1m) relating to the RCF were capitalised in
the previous financial year and are amortised to the Income statement on a
straight-line basis.
Convertible bonds
In the prior year, the Group issued £327m of guaranteed senior unsecured
convertible bonds due in 2026. The bond of £327m covers a five-year term
beginning on 7 May 2021 with a 1.625 per cent 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 per cent above the
reference share price on 28 April 2021 (£17.85). If not previously converted,
redeemed or purchased and cancelled, the bonds will be redeemed at par on 7
May 2026.
The convertible bond is a compound financial instrument, consisting of a
financial liability component and an equity component, representing the value
of the conversion rights. The initial fair value of the liability portion of
the convertible bond was determined using a market interest rate for an
equivalent non-convertible bond at the issue date. The liability is
subsequently recognised on an amortised cost basis using the effective
interest rate method until extinguished on conversion or maturity of the
bonds. The remainder of the proceeds was 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 2022
9. Cash generated from operating activities
£m 2022 2021
Group operating profit/(loss) 97 (92)
Depreciation of property, plant and equipment 37 36
Impairment of property, plant and equipment 7 16
Amortisation of intangible assets 13 14
Impairment of intangible assets 1 -
Depreciation of right-of-use assets 81 84
Impairment of right-of-use assets 8 28
Non-cash change in lease liabilities (5) (23)
Share-based payments 9 6
Gain on remeasurement of leases (4) (3)
Other non-cash items (incl. foreign exchange) (12) (2)
(Increase)/decrease in inventories (56) 14
(Increase)/decrease in receivables (42) 4
Increase in payables 88 24
Pension funding (2) (3)
Income taxes paid (6) -
Income taxes refunded - 10
Movement on provisions (through utilisation or income statement) (1) -
Cash generated from operating activities 213 113
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
10. Intangible assets
£m Goodwill Brands and franchise contracts Tenancy rights Software Total
Cost:
At 1 September 2021 406 42 13 102 563
Additions - - - 13 13
Disposals - - - (2) (2)
Foreign exchange 65 8 - 1 74
At 31 August 2022 471 50 13 114 648
Accumulated amortisation:
At 1 September 2021 - 7 8 75 90
Amortisation charge - 3 - 10 13
Impairment charge - - - 1 1
Disposals - - - (2) (2)
Foreign exchange - 2 - 1 3
At 31 August 2022 - 12 8 85 105
Net book value at 31 August 2022 471 38 5 29 543
Cost:
At 1 September 2020 418 43 13 96 570
Acquisitions (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
Goodwill of USD $70m (£60m) relating to the acquisition of InMotion in 2018
is expected to be deductible for tax purposes in the future.
The carrying value of goodwill is allocated to the segmental businesses as
follows:
£m 2022 2021
Travel UK 295 253
North America 132 113
Rest of the World 29 25
Total Travel 456 391
High Street 15 15
471 406
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
10. Intangible assets (continued)
Included within Tenancy rights are certain assets that are considered to have
an indefinite life of £4m (2021: £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 Group 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. 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.
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 11.9 per cent (2021: 10.4 per cent).
· The long-term growth rate assumptions are between 0 per cent and
2 per cent.
The immediately quantifiable impacts of climate change and costs expected to
be incurred in connection with our net zero commitments, are included within
the Group's budget and three year plan which have been used to support the
impairment reviews, with no material impact on cash flows.
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
(2021: £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 inherent uncertainties due to challenges in the macroeconomic environment
and the continued recovery from Covid-19, 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.
Furthermore, outputs of quantitative climate change scenario analysis have
also been taken into consideration in the sensitivity analysis, and has shown
that climate change is not considered to be a key driver in determining the
outcome.
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 2022
11. Property, plant and equipment
Land and buildings
£m Freehold Properties Leasehold improvements Fixtures and fittings Equipment and vehicles Total
Cost or valuation:
At 1 September 2021 18 290 196 110 614
Additions - 32 29 16 77
Disposals - (3) (1) (1) (5)
Foreign exchange - 10 8 2 20
At 31 August 2022 18 329 232 127 706
Accumulated depreciation:
At 1 September 2021 10 206 140 84 440
Depreciation charge - 19 11 7 37
Impairment charge - 4 2 1 7
Disposals - (3) (1) (1) (5)
Foreign exchange - 4 3 1 8
At 31 August 2022 10 230 155 92 487
Net book value at 31 August 2022 8 99 77 35 219
Cost or valuation:
At 1 September 2020 15 272 198 108 593
Additions 3 12 15 7 37
Acquisitions - (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
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a
separate CGU. CGU's are tested for impairment at the balance sheet date if any
indicators of impairment have been identified. The identified indicators
include loss-making stores, stores earmarked for closure, and
under-performance of individual stores versus forecast as a result of slower
than expected recovery from Covid-19.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
11. Property, plant and equipment (continued)
Impairment of property, plant and equipment (continued)
For those CGUs where an indicator of impairment has been identified, property,
plant and equipment and right-of-use assets have been tested for impairment by
comparing the carrying amount of the CGU with its recoverable amount
determined from value-in-use calculations. It was determined that value-in-use
was higher than fair value less costs to sell.
The value-in-use of CGUs is calculated using discounted cash flows derived
from the Group's latest Board-approved budget and three-year plan, taking into
account the projected recovery from Covid-19, and reflects historic
performance and knowledge of the current market, together with the Group's
views on the future achievable growth for these specific stores. Cash flows
beyond the forecast period are extrapolated using growth rates and inflation
rates appropriate to each store's location. Cash flows have been included for
the remaining lease life for the specific store. These growth rates do not
exceed the long-term growth rate for the Group's retail businesses in the
relevant territory. Where stores have a relatively short remaining lease life,
an extension to the lease has been assumed where management consider it likely
that an extension will be granted. The immediately quantifiable impacts of
climate change and costs expected to be incurred in connection with our net
zero commitments, are included within the Group's budget and three year plan
which have been used to support the impairment reviews, with no material
impact on cash flows. The useful economic lives of store assets are short in
the context of climate change scenario models therefore no medium to long-term
effects have been considered.
The 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 recovery 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 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 11.9 per cent (2021: 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 £18m,
which is their carrying value at year end. The Group has recognised an
impairment charge of £7m (2021: £16m) to property, plant and equipment, £1m
(2021: £nil) to software and £8m (2021: £28m) right-of-use assets.
Impairments of £14m (2021: £42m) have been presented as non-underlying items
in the current year (see Note 4), and impairments of £2m (2021: £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 the continued recovery from 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 charge of changes in key assumptions. The most
significant assumption is the revenue assumption. The impact of a 10 per cent
reduction in revenue in the relevant CGUs, with no change to subsequent
forecast revenue growth rate assumptions, has been modelled. This would result
in a £15m increase in the impairment charge of retail store assets in the
year ended 31 August 2022.
Other changes in assumptions, including an increase or decrease of 1 per cent
in the discount rate, have been modelled and have shown that any reasonably
possible changes would not lead to a significant impact on the impairment
charge.
The impairment assessment has also been performed on a pre-IFRS 16 basis. See
Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
12. Right-of-use assets
£m Land and buildings Equipment Total
At 1 September 2021 319 9 328
Additions 160 - 160
Modifications and remeasurements 25 - 25
Disposals (2) - (2)
Depreciation charge (78) (3) (81)
Impairment charge (8) - (8)
Effect of movements in foreign exchange rates 24 - 24
Net book value at 31 August 2022 440 6 446
£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
Impairment of right-of-use assets
Right-of-use assets of £8m (2021: £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 11, Property, plant and equipment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
13. Lease liabilities
£m Land and buildings Equipment Total
At 1 September 2021 463 7 470
Additions 159 - 159
Modifications and remeasurements 18 - 18
Disposals (4) - (4)
Interest 11 - 11
Payments (103) (4) (107)
Effect of movements in foreign exchange rates 30 - 30
At 31 August 2022 574 3 577
£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 2022 2021
Analysis of total lease liabilities:
Non-current 446 362
Current 131 108
Total 577 470
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, 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 2022
13. 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 £5m for
the year ended 31 August 2022 (2021: £23m).
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 12. Interest expense incurred on lease liabilities is
presented in Note 5.
The total cash outflow for leases in the financial year was £150m (2021:
£123m). This includes cash outflow for short-term leases of £16m (2021:
£14m) and variable lease payments (not included in the measurement of lease
liability) of £28m (2021: £18m). The total future income from sub-leasing
the right-of-use assets is £1m (2021: £1m).
14. Contingent liabilities and capital commitments
£m 2022 2021
Bank guarantees and guarantees in respect of lease agreements 51 31
Contracts placed for future capital expenditure approved by the directors but
not provided for in these financial statements amount to £30m (2021: £26m).
£m 2022 2021
Commitments in respect of property, plant and equipment 28 25
Commitments in respect of other intangible assets 2 1
30 26
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. 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 benefit scheme, WHSmith Pension Trust and a defined
contribution scheme, WH Smith Retirement Savings Plan. 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 2022 2021
WHSmith Pension Trust - (2)
United News Shops Retirement Benefits Scheme - (1)
Retirement benefit obligation recognised in the balance sheet - (3)
Recognised as:
Current liabilities - (1)
Non-current liabilities - (2)
WHSmith Pension Trust
In August 2022 the WH Smith Pension Trust purchased a bulk annuity insurance
policy from Standard Life, part of
Phoenix Group, insuring all liabilities to pay all future defined benefit
pensions to the Trust's 12,950 members and any
eligible dependants.
The insurance policy was purchased using most of the existing assets held
within the Trust, without the need for the
Group to make any additional cash contributions. The bulk annuity policy
matches the Trust's cash flow benefit obligations to its members, removing
longevity and other demographic risks as well as investment, interest rate and
inflation risks. As the purchase price of the annuity of £1.1bn was greater
than the IAS 19 accounting value of the corresponding liabilities, an asset
remeasurement loss of £508m has been recorded in other comprehensive income.
This has been offset by actuarial gains on the liabilities due to changes in
financial assumptions and experience of £337m, and gains relating to changes
in amounts not recognised due to the effect of the asset ceiling of £169m.
As a result of this comprehensive risk-removal, WH Smith will not be required
to make any future cash contributions into the Trust regarding defined benefit
liabilities, therefore the previously recognised minimum funding liability
(£2m as at 31 August 2021) has been derecognised. The prior year liability of
£2m relates to the recognition of the schedule of contributions as a
liability in accordance with the requirements of IFRIC 14. During the year
ended 31 August 2022, prior to the completion of the buy-in transaction, the
Group made a contribution of £2m to the scheme (2021: £3m) in accordance
with the agreed funding schedule.
The amounts recognised in the balance sheet under IAS 19 in relation to this
plan are as follows:
£m 2022 2021
Present value of the obligations (813) (1,172)
Fair value of plan assets 933 1,456
Surplus before consideration of asset ceiling 120 284
Amounts not recognised due to effect of asset ceiling (120) (284)
Additional liability recognised due to minimum funding requirements - (2)
Retirement benefit obligation recognised in the balance sheet - (2)
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 £120m (2021: £284m) available as a
reduction of future contributions is £nil (2021: £nil). As a result, the
Group has not recognised this IAS 19 surplus on the balance sheet.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. Retirement benefit obligations (continued)
Income statement
The amounts recognised in the income statement were as follows:
£m 2022 2021
Net interest cost on the defined benefit liability - -
Past service cost - -
- -
The net interest cost has been included in finance costs. Actuarial gains and
losses have been reported in the statement of comprehensive income.
Statement of comprehensive income
Total (expense) / income recognised in the statement of comprehensive income
("SOCI"):
£m 2022 2021
Asset remeasurement (losses)/gains arising during the year (508) 58
Actuarial (loss)/gain on defined benefit obligations arising from experience (13) 5
Actuarial gain/(loss) on defined benefit obligations arising from changes in 350 (56)
financial assumptions
Actuarial gain on defined benefit obligations arising from changes in - 1
demographic assumptions
Total actuarial (loss)/gain before consideration of asset ceiling (171) 8
Gain/(loss) resulting from changes in amounts not recognised due to effect of 169 (11)
asset ceiling excluding amounts recognised in net interest cost
Gain resulting from changes in additional liability due to minimum funding 2 1
requirements excluding amounts recognised in net interest cost
Total actuarial loss recognised in other comprehensive income relating to the - (2)
WH Smith Pension Trust
Actuarial gain recognised in other comprehensive income relating to the UNS - 1
scheme
Balance sheet
Movement in net retirement benefit liability during the period:
£m 2022 2021
At beginning of year (2) (3)
Contributions from the sponsoring companies 2 3
Actuarial losses on defined benefit pension schemes - (2)
At end of year - (2)
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. Retirement benefit obligations (continued)
The principal long-term assumptions used in the IAS 19 valuation were:
% 2022 2021
Rate of increase in pension payments 3.30 3.35
Rate of increase in deferred pensions 3.30 2.55
Discount rate 4.20 1.75
RPI Inflation assumption 3.70 3.45
CPI Inflation assumption 3.30 2.55
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
Alternative performance measures
In reporting financial information, the Group presents alternative performance
measures, 'APMs', which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a
substitute for or superior to IFRS measures, provide stakeholders with
additional useful information on the underlying trends, performance and
position of the Group and are consistent with how business performance is
measured internally. The alternative performance measures are not defined by
IFRS and therefore may not be directly comparable with other companies'
alternative performance measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items, that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures exclude the
financial effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked to a Board
agreed programme, costs relating to business combinations, impairment charges
and other property costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax effect of
these items. In addition, these measures exclude the income statement impact
of amortisation of intangible assets acquired in business combinations, which
are recognised separately from goodwill. This amortisation is not considered
to be part of the underlying operating costs of the business and has no
associated cash flows.
The Group believes that separate disclosure of these items 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 year ended 31 August 2020. IFRS 16 superseded
the lease guidance under IAS 17 and the related interpretations. IFRS 16 sets
out the principles for the recognition, measurement, presentation and
disclosure of leases and requires lessees to account for all leases under a
single on-balance sheet model as the distinction between operating and finance
leases is removed. The only exceptions are short-term and low-value leases. At
the commencement date of a lease, a lessee will recognise a lease liability
for the future lease payments and an asset (right-of-use asset) representing
the right to use the underlying asset during the lease term. Lessees are
required to separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Management have chosen to exclude the effects of IFRS 16 for the purposes of
narrative commentary on the Group's performance and financial position in the
Group Overview. The effect of IFRS 16 on the Group income statement is to
front-load total lease expenses, being higher at the beginning of a lease
contract, and lower towards the end of a contract, and this is further
influenced by timing of renewals and contract wins, and lengths of contracts.
As a result of these complexities, IFRS 16 measures of profit and EBITDA (used
as a proxy for cash generation) do not provide meaningful KPIs or measures for
the purposes of assessing performance, concession quality or for trend
analysis, therefore management continue to use pre-IFRS 16 measures
internally.
The impact of the implementation of IFRS 16 on the Income statement and
Segmental information is provided in Notes A1 and A2 below. There is no impact
on cash flows, although the classification of cash flows has changed, with an
increase in net cash flows from operating activities being offset by a
decrease in net cash flows from financing activities, as set out in Note A9
below. The balance sheet as at 31 August 2022 both including and excluding the
impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value determined at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
These assets are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, over the term of the relevant lease.
Lease payments are apportioned between finance charges and a reduction of the
lease obligations so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognised directly in
the income statement.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term. The Group
has a number of lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are accrued in
line with revenues generated.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures issued by the
European Securities and Markets Authority ('ESMA'), we have provided
additional information on the APMs used by the Group below, including full
reconciliations back to the closest equivalent statutory measure.
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income statement measures
Headline measures Various See Notes A1-A11 Headline measures exclude the impact of IFRS 16 (applying the principles of
IAS 17). Reconciliations of all Headline measures are provided in Notes A1 to
A11.
Group profit/(loss) before tax and non-underlying items Group profit/(loss) before tax See Group income statement and Note A1 Group profit/(loss) before tax and non-underlying items excludes the impact of
non-underlying items as described below. A reconciliation from Group
profit/(loss) before tax and non-underlying items to Group (loss)/profit
before tax is provided on the Group income statement on page 19, and on a
Headline (pre-IFRS 16) basis in Note A1.
Group profit/(loss) from trading operations and segment trading profit/(loss) Group operating profit/(loss) See Note 2 and Note A2 Group profit/(loss) from trading operations and segment trading profit/(loss)
are stated after directly attributable share-based payment and pension service
charges and before non-underlying items, unallocated costs, finance costs and
income tax expense.
A reconciliation from the above measures to Group operating profit/(loss) and
Group profit/(loss) before tax on an IFRS 16 basis is provided in Note 2 to
the 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.
Earnings/(loss) per share before non-underlying items Earnings/(loss) per share Non-underlying items, see Note 7 and Note A4 Profit/(loss) for the year attributable to the equity holders of the parent
before non-underlying items divided by the weighted average number of ordinary
shares in issue during the financial year. A reconciliation is provided on an
IFRS 16 basis in Note 7 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline EBITDA Group operating profit/(loss) Refer to definition Headline EBITDA is Headline Group operating profit/(loss) before
non-underlying items adjusted for pre-IFRS 16 depreciation, amortisation and
impairment.
Effective tax rate None Non-underlying items Total income tax charge/credit excluding the tax impact of non-underlying
items divided by Group Headline profit/(loss) before tax and non-underlying
items. See Note 6 on an IFRS 16 basis, and Notes A3 and A6 on a pre-IFRS 16
basis.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income statement measures (continued)
Fixed charges cover None Refer to definition This performance measure calculates the number of times Profit before tax
covers the total fixed charges included in calculating profit or loss. Fixed
charges included in this measure are net finance charges (excluding finance
charges from IFRS 16 leases) and net operating lease rentals stated on a
pre-IFRS 16 basis.
The calculation of this measure is outlined in Note A5.
Gross Gross profit margin Not applicable Where referred to throughout the 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.
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 Note A7 and 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 14, as part of the Financial Review.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A1. Reconciliation of Headline to Statutory Group operating profit and Group
profit before tax
2022
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments Total
Revenue 1,400 - 1,400 - 1,400
Cost of sales (538) - (538) - (538)
Gross profit 862 - 862 - 862
Distribution costs (604) - (604) 16 (588)
Administrative expenses (160) - (160) (1) (161)
Other income - - - 4 4
Non-underlying items - (12) (12) (8) (20)
Group operating profit 98 (12) 86 11 97
Finance costs (25) - (25) (9) (34)
Profit before tax 73 (12) 61 2 63
Income tax (charge)/credit (12) 3 (9) (1) (10)
Profit for the year 61 (9) 52 1 53
Attributable to:
Equity holders of the parent 55 (9) 46 1 47
Non-controlling interests 6 - 6 - 6
61 (9) 52 1 53
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 year (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)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A2. Reconciliation of Headline to Statutory Segmental trading profit/(loss)
and Group profit/(loss) from trading operations
2022
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 profit 54 - 54 6 60
North America trading profit 31 - 31 2 33
Rest of the World trading profit/(loss) 4 - 4 (1) 3
Total Travel trading profit 89 - 89 7 96
High Street trading profit 33 - 33 12 45
Group profit from trading operations 122 - 122 19 141
Unallocated central costs (24) - (24) - (24)
Group operating profit before non-underlying items 98 - 98 19 117
Non-underlying items - (12) (12) (8) (20)
Group operating profit/(loss) 98 (12) 86 11 97
( )
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 central costs (19) - (19) - (19)
Group operating (loss)/profit before non-underlying items (39) - (39) 12 (27)
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A3. Reconciliation of Headline to Statutory tax expense/(credit)
2022 2021
£m Headline (pre-IFRS 16) IFRS 16 Total Headline (pre-IFRS 16) IFRS 16 adjustments Total
adjustments
Profit/(loss) before tax and non-underlying items 73 10 83 (55) 4 (51)
Tax on profit 5 1 6 - - -
Standard rate of UK corporation tax 19.00% (2021: 19.00%)
Adjustment in respect of prior years - - - (1) - (1)
Total current tax charge/(credit) 5 1 6 (1) - (1)
Deferred tax - current year 7 1 8 (13) 2 (11)
Deferred tax - prior year - - - (4) - (4)
Deferred tax - adjustment in respect of change in tax rates - - - (8) - (8)
Tax charge/(credit) on Headline profit/loss 12 2 14 (26) 2 (24)
Tax on non-underlying items - current tax - - - - - -
Tax on non-underlying items - deferred tax (3) (1) (4) (9) (3) (12)
Total tax charge/(credit) on profit/loss 9 1 10 (35) (1) (36)
A4. Calculation of Headline and Statutory earnings per share
2022 2021
millions Basic EPS Diluted EPS Basic EPS Diluted EPS
Weighted average shares in issue 130 132 131 131
2022 2021
Profit for the year attributable to equity holders of the parent Basic EPS Diluted EPS Profit for the year attributable to equity holders of the parent Basic EPS Diluted EPS
£m pence pence £m pence pence
Headline (pre-IFRS-16 basis)
- Before non-underlying items 55 42.3 41.7 (31) (23.7) (23.7)
- Non-underlying items (9) (6.9) (6.9) (40) (30.5) (30.5)
Total 46 35.4 34.8 (71) (54.2) (54.2)
IFRS 16 adjustments
- Before non-underlying items 8 6.2 6.0 2 1.6 1.6
- Non-underlying items (7) (5.4) (5.2) (13) (10.0) (10.0)
Total 1 0.8 0.8 (11) (8.4) (8.4)
IFRS 16 basis
- Before non-underlying items 63 48.5 47.7 (29) (22.1) (22.1)
- Non-underlying items (16) (12.3) (12.1) (53) (40.5) (40.5)
Total 47 36.2 35.6 (82) (62.6) (62.6)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A5. Fixed charges cover
£m Note 2022 2021
Headline net finance costs (pre-IFRS 16) A1 25 16
Net operating lease charges (pre-IFRS 16) A11 241 151
Total fixed charges 266 167
Headline profit before tax and non-underlying items A1 73 (55)
Headline profit before tax, non-underlying items and fixed charges 339 112
Fixed charges cover - times 1.3x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
2022 2021
£m Headline (pre-IFRS16) IFRS 16 Headline IFRS 16
(pre-IFRS16)
Amortisation of acquired intangible assets 3 3 3 3
Costs related to cyber incident 4 4 - -
Impairment
- property, plant and equipment 5 5 18 14
- right-of-use assets - 8 - 28
Other property costs - - 5 -
Write-down of inventories - - 5 5
Restructuring costs - - 9 9
Costs associated with refinancing - - 6 6
Costs associated with business combinations - - 2 2
Other - - 1 (2)
Non-underlying items, before tax 12 20 49 65
Tax credit on non-underlying items (3) (4) (9) (12)
Non-underlying items, after tax 9 16 40 53
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 £4m (2021: £12m) has been recognised in relation to the
above items (£3m pre-IFRS 16 (2021: £9m)).
Impairment of property, plant and equipment and right-of-use assets
The impairment charge recognised on a pre-IFRS 16 basis differs from that
recognised under IFRS 16. This is mainly due to a lower asset base pre-IFRS
16, coupled with lower expected store cash flows, with rental expenses being
included in the forecast cash flows (treated as financing costs under IFRS
16), and a higher discount rate. The calculation of the Group's weighted
average cost of capital differs under IFRS 16 versus pre-IFRS 16. The pre-tax
discount rate used in the IFRS 16 calculation was 11.9 per cent (2021: 10.4
per cent) and the pre-tax discount rate used in the pre-IFRS 16 calculation
was 14.4 per cent (2021: 13.9 per cent).
Right-of-use assets are not recognised on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
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. In the prior year, as a result of
the impact of Covid-19, the Group included a charge of £5m for stores where
we anticipate that 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 2022 2021
Cash generated from operating activities 9 213 113
Interest paid (26) (13)
Net cash inflow from operating activities 187 100
Cash flow impact of IFRS 16 A9 (93) (83)
Add back:
- Cash impact of non-underlying items 16 38
- Pension funding 2 3
- Other non-cash items 12 -
Deduct:
- Purchase of property, plant and equipment (70) (37)
- Purchase of intangible assets (13) (7)
Free cash flow 41 14
A8. Headline net debt
£m Note 2022 2021
Borrowings
- Revolving credit facility - -
- Convertible bonds (292) (283)
- Bank loans (132) (132)
- Lease liabilities 13 (577) (470)
Liabilities from financing activities (1,001) (885)
Cash and cash equivalents 132 130
Net debt (IFRS 16) 8 (869) (755)
- Add back lease liabilities recognised under IFRS 16(1) 573 464
Headline net debt (pre-IFRS 16) (296) (291)
( )
(1)Excludes lease liabilities previously recognised as finance leases on a
pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
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 flows from operating
activities being offset by a decrease in net cash flows from financing
activities.
2022 2021
£m Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
Net cash inflows from operating activities 94 93 187 17 83 100
Net cash outflows from investing activities (83) - (83) (43) - (43)
Net cash (outflows)/inflows from financing activities (11) (93) (104) 48 (83) (35)
Net increase in cash in the period - - - 22 - 22
A10. Balance sheet impact of IFRS 16
The balance sheet including and excluding the impact of IFRS 16 is shown
below:
2022 2021
Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
£m
Goodwill and other intangible assets 544 (1) 543 474 (1) 473
Property, plant and equipment 211 8 219 167 7 174
Right-of-use assets - 446 446 - 328 328
Investments in joint ventures 2 - 2 2 - 2
757 453 1,210 643 334 977
Inventories 198 - 198 135 - 135
Payables less receivables (284) 15 (269) (237) 23 (214)
Working capital (86) 15 (71) (102) 23 (79)
Derivative financial asset 1 - 1 - - -
Net current and deferred tax assets 54 - 54 46 10 56
Provisions (26) 12 (14) (28) 14 (14)
Operating assets employed 700 480 1,180 559 381 940
Net debt (296) (573) (869) (291) (464) (755)
Net assets excluding pension liability 404 (93) 311 268 (83) 185
Pension liability - - - (3) - (3)
Deferred tax asset on pension liability - - - 1 - 1
Total net assets 404 (93) 311 266 (83) 183
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis
are as follows:
£m 2022 2021
Net operating lease charges 241 151
In the year ended 31 August 2020, the Group adopted IFRS 16. IFRS 16 requires
lessees to account for all leases under a single on-balance sheet model as the
distinction between operating and finance leases is removed. In order to
provide comparable information, the Group has chosen to present Headline
measures of operating profit/(loss) and profit/(loss) before tax, as explained
in Note 2 Segmental analysis.
The table above presents the pre-IFRS 16 net operating lease charges, applying
the principles of IAS 17, and Group accounting policies as applicable prior to
1 September 2019, as described in the Glossary on page 47.
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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