REG - WH Smith PLC - Preliminary Results
09/11/2023 07:00
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RNS Number : 8637S WH Smith PLC 09 November 2023
9 November
2023
WH SMITH PLC
The global travel retailer
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 AUGUST 2023
A year of strong growth
Strong start to the new financial year with Total Travel revenue* up 16%
· Strong performance with Group revenue up 28% to £1,793m (2022:
£1,400m)
o Total revenue in Travel UK up 36%; North America up 32%; Rest of the World
('ROW') up 99%
· Headline profit before tax and non-underlying items(†) up 96% to
£143m (2022: £73m)
o Total Travel trading profit(†) of £164m (2022: £89m)
o High Street trading profit(†) of £32m (2022: £33m)
· Headline diluted EPS before non-underlying items(†) up 93% to 80.3p
· New store pipeline of over 110 stores(‡) won and yet to open in
Travel, including over 60 in North America
· Investing for growth with capex in the current financial year
expected to be around £140m
· Proposed final dividend of 20.8p per share making full year dividend
of 28.9p per share, reflecting strong trading and cash generation combined
with confidence in future prospects
· Strong balance sheet with leverage now at 1.4x with further
strengthening expected
· Strong start to the new financial year with continued momentum across
our Travel markets. Total revenue in the first 9 weeks to 4 November 2023 up
13% in Travel UK; up 15%* in North America and up 27%* in ROW
Carl Cowling, Group Chief Executive, commented:
"This has been another year of significant progress for the Group. Our Travel
divisions have all seen strong growth with Travel UK total revenue up 36%,
North America up 32% and ROW up 99%, and I am very pleased with the start to
the new financial year.
"Our global travel business is growing in all our key markets. It is highly
scalable with multiple medium and long term growth opportunities and we are
seeing great results from sharing our expertise and innovation across our
different geographies. Our North American business is benefitting from our
forensic approach to space management which has always been a key feature of
our UK Travel operations. In the same way, the ability of our North American
business to provide bespoke retail formats is now being successfully harnessed
outside of the US.
"WHSmith is a highly cash generative business. In 2024, we expect to invest a
further £140m which will drive further growth and at the same time we expect
our leverage to fall within our target range.
"These results would not be possible without the extraordinary efforts of our
entire team across the globe, and I would like to offer my sincere thanks for
their support.
"The Board's decision to propose an increase to the final dividend to 20.8p
per share, making a full year dividend of 28.9p per share, reflects the good
performance, the Group's cash generation and our confidence in the future
given the multiple growth opportunities that exist for WHSmith.
"We have started the new financial year well with total revenue in Travel UK
up 13%, North America up 15%, and ROW up 27%. With good trading and very
positive prospects, despite the uncertainty in the economic environment, we
are confident in the Group's outlook for the new financial year."
* On a constant currency basis
† Pre-IFRS 16
‡ Pipeline as at 31 August 2023
Group financial summary:
Headline
IFRS 16 pre-IFRS 16(2)
Aug 2023 Aug 2022 Aug 2023 Aug 2022
Travel UK trading profit(1) £101m £60m £102m £54m
North America ('NA') trading profit(1) £52m £33m £49m £31m
Rest of the World ('ROW') trading profit(1) £13m £3m £13m £4m
Total Travel trading profit(1) £166m £96m £164m £89m
High Street trading profit(1) £43m £45m £32m £33m
Group profit from trading operations(1) £209m £141m £196m £122m
Group profit before tax and non-underlying items(1) £137m £83m £143m £73m
Diluted earnings per share before non-underlying items(1) 76.5p 47.7p 80.3p 41.7p
Non-underlying items(1) £(27)m £(20)m £(15)m £(12)m
Group profit before tax £110m £63m £128m £61m
Basic earnings per share 60.8p 36.2p 71.5p 35.4p
Diluted earnings per share 59.8p 35.6p 70.5p 34.8p
Revenue performance:
Aug 2023 Aug 2022 % change
£m £m
Travel UK 709 521 36%
North America 380 288 32%
Rest of the World 235 118 99%
Total Travel 1,324 927 43%
High Street 469 473 (1)%
Group 1,793 1,400 28%
(1) Alternative Performance Measure (APM) defined and explained in the
Glossary on page 44.
(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 2023 and 31 August 2022 have been
presented on both an IFRS 16 and a pre-IFRS 16 basis.
Measures described as 'Headline' are presented pre-IFRS 16.
For the purposes of narrative commentary on the Group's performance and
financial position, both pre-IFRS 16 and IFRS 16 measures are provided.
Reconciliations from pre-IFRS 16 measures to IFRS 16 measures are provided in
the Glossary on page 44. 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 2023 are available at whsmithplc.co.uk
(http://www.whsmithplc.co.uk) .
GROUP OVERVIEW
The Group has had another very successful year with Total Travel generating
Headline trading profit(1) of £164m (2022: £89m), Headline Group profit
before tax and non-underlying items(1) up 96% to £143m (2022: £73m) and
Headline diluted EPS before non-underlying items(1) up 93% to 80.3p (2022:
41.7p). The new financial year has started well with good momentum across all
our Travel markets.
The pace of winning new business in Travel remains strong. Across the UK,
North America and Rest of the World we won 92 stores in the year and now have
over 110 stores won and due to open, of which we expect over 100 to open this
financial year whilst closing 22 stores as we focus on better quality space.
Travel is well positioned to continue to create value through the structurally
advantaged markets in which it operates and the considerable opportunities to
win and open additional stores. Analysis from the International Air Transport
Association ('IATA') suggests that passenger numbers will return to 2019
levels during calendar year 2024 and will continue to grow in low single
digits each year thereafter in the medium term.
We utilise our forensic approach to retailing to drive average transaction
value (''ATV') growth and space management to increase the spend per passenger
in our stores. This, combined with scalability in the significant
opportunities to win and open new stores, gives us the confidence to continue
to grow revenue, profit, cash generation, and through operational gearing,
grow our EBIT margins.
We have made substantial progress and saw significant growth in the year,
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 Internationalising 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 £140m);
o Productivity and efficiencies
· Disciplined capital allocation, supporting investment in growth and
shareholder returns
In the year, Travel was approximately 75% of Group revenue and 85% of Headline
Group profit from trading operations. Both of these measures will increase as
we continue to grow Travel which reinforces that we are now a global travel
retailer.
Group revenue
Revenue (% change)
Year to 31 August 2023
Total LFL(1,3)
vs 2022 vs 2022
Travel UK 36% 30%
North America 32% 11%
Rest of the World 99% 53%
Total Travel 43% 27%
High Street(4) (1)% 1%
Group 28% 18%
(3) Constant currency
(4) Includes internet businesses
Total Group revenue at £1,793m (2022: £1,400m) was up 28% compared to the
prior year.
In Travel, we saw a strong performance across all our markets with Total
Travel revenue up 43% and up 27% on a like-for-like(1) ('LFL') basis. This was
driven by strong performances in all three Travel divisions, with Travel UK up
36% on a total basis, North America up 32%, and ROW up 99%.
We saw a consistently good performance in High Street throughout the year,
with the Christmas trading period flat year on year on a LFL basis.
Passenger numbers have recovered strongly during the year and momentum has
continued into the new financial year.
Group profit
Total Travel delivered a Headline trading profit(1) in the year of £164m
(2022: £89m) with all three divisions growing significantly: Travel UK
increased by £48m to £102m; North America increased by £18m to £49m; and
ROW increased by £9m to £13m.
High Street delivered a Headline trading profit(1) of £32m (2022: £33m), in
line with expectations.
Headline Group profit from trading operations(1) for the year was £196m
(2022: £122m) with Headline Group profit before tax and non-underlying
items(1) up 96% to £143m (2022: £73m).
The Group profit before tax, including non-underlying items and on an IFRS 16
basis, was £110m (2022: £63m) in the year.
Group balance sheet
The Group has a strong balance sheet, is highly cash generative and has
substantial liquidity.
The Group has the following cash and committed facilities as at 31 August
2023:
31 August 2023 Maturity
Cash and cash equivalents(5) £56m
Revolving Credit Facility(6) £400m June 2028
Convertible bonds £327m May 2026
(5) Cash and cash equivalents comprises cash on deposit of £34m and cash in
transit of £22m
(6) Draw down of £84m as at 31 August 2023
In June 2023, we completed the refinancing of the Group's borrowing facilities
with a new 5 year sustainability-linked revolving credit facility ('RCF').
The Group also has a £327m convertible bond with a maturity of 7 May 2026
which has a fixed coupon of 1.625%.
As at 31 August 2023, Headline net debt(1) was £330m (2022: £296m) and the
Group has access to c.£350m of liquidity. Leverage at the year end was 1.4x
Headline EBITDA(1). We expect to be within our leverage envelope of between
0.75x and 1.25x Headline EBITDA(1) by the end of this financial year.
Group cash flow
The Group generated an operating cash flow(1) of £235m in the year (2022:
£155m) demonstrating the cash generative nature of the business. Capex was
£122m (2022: £83m) as we continued to invest in new stores, IT, energy
efficient chillers and other store equipment. As expected, we had a working
capital outflow of £64m in the year (2022: £10m). This mainly relates to
investment in new stores, the recovering Travel business and some timing. Most
of the outflow was in the first half. This year, we expect a much smaller
outflow mainly relating to opening new stores. In total, there was a free cash
inflow in the year of £20m (2022: £41m). This year we would expect, subject
to investment opportunities, an increase in free cash generation, and net debt
to be around £310m.
Capital allocation policy
The cash generative nature of the Group is complemented by our disciplined
approach to capital allocation. This has been in place for many years and
continues to drive our decision making for utilising our cash:
· investing in our existing business and in new opportunities where
rates of return are ahead of the cost of capital; this year, we expect capex
of c.£140m
· paying a dividend. We have a progressive dividend policy with a
target dividend cover, over time, of 2.5x; the Board is proposing a full year
dividend of 28.9p per share
· undertaking attractive value-creating acquisitions in strong and
growing markets; and
· returning surplus cash to shareholders via share buy backs.
The Board has proposed a final dividend of 20.8p per share in respect of the
financial year ended 31 August 2023, which together with the interim dividend,
gives a full year dividend of 28.9p per share. This reflects the cash
generative nature of the business and our confidence in the future prospects
of the Group. Subject to shareholder approval, the dividend will be paid on 1
February 2024 to shareholders registered at the close of business on 12
January 2024.
TOTAL TRAVEL
Total Travel revenue was £1,324m (2022: £927m), up 43% compared to the
previous year, generating a Total Travel Headline trading profit(1) in the
year of £164m (2022: £89m).
£m Trading profit(1) Headline trading profit(1)
(IFRS 16) (pre-IFRS 16) Revenue
2023 2022 2023 2022 2023 2022
Travel UK 101 60 102 54 709 521
North America 52 33 49 31 380 288
Rest of the World 13 3 13 4 235 118
Total Travel 166 96 164 89 1,324 927
In Travel, our initiatives position us well for future growth:
· Space growth - Business development and winning new business
Through building and managing relationships with all our landlord partners, we
look to win new space, improve the quality and amount of space, develop new
formats and extend contracts. During the year, we opened 118 stores and we now
have a store pipeline of over 110 stores. Going forward, we expect to win, on
average, around 50 to 60 stores a year. There are significant space growth
opportunities across all our Travel markets.
· ATV growth
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 good 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 such as premium food ranges. Throughout the year, we have continued
to focus on identifying further opportunities where we can reposition our
traditional news, books and convenience ('NBC') format to a one-stop-shop
travel essentials format. The results from our one-stop-shop stores have been
positive.
· Cost and cash management
We remain focused on cost efficiency and productivity, for example, by
investing in more energy efficient chillers in-store and increasing the number
of self scan tills, particularly in North America.
TRAVEL UK
Travel UK, our largest division, has delivered a year of significant growth
and we continue to have good opportunities to grow this division further.
Air passenger numbers still remain below pre-pandemic levels and we are
confident that, as passenger numbers continue to recover, this division will
see an ongoing improvement in profitability as we leverage our fixed cost
base. All our channels in Travel UK have performed strongly during the year
with total revenue growth of 36% versus last year. We have started the new
financial year strongly with all three channels delivering good growth.
Revenue (% change)
Year to 31 August 2023
Total LFL(1)
vs 2022 vs 2022
Air 48% 37%
Hospitals 32% 26%
Rail 15% 19%
Total Travel UK 36% 30%
Total revenue in the year was £709m (2022: £521m) which, together with
improved margins, resulted in a Headline trading profit(1) of £102m (2022:
£54m).
Across all our channels, we continue to focus on our key growth drivers: space
growth, increasing ATV and spend per passenger, driving EBIT margins and
benefitting from the growth in passenger numbers. Momentum is strong and we
are seeing good results, with revenue growing ahead of passenger numbers.
We are investing in our UK store portfolio while also identifying new and
better quality space opportunities across each of our channels. During the
year, we have made excellent progress opening 20 new stores, including 6 at
airports, 8 in hospitals and 3 in rail. We see this annual space growth of
around 15 new stores in Travel UK extending into the medium term. We closed 19
small and less well located stores in the year. This year, we expect to open
over 15 new stores in the UK, of which 12 are already contracted, and close 4
stores.
Air
Air, which is the biggest channel in Travel UK, delivered a strong performance
with total revenue up 48% and LFL revenue up 37% on the prior year.
We continually develop our retail formats to better address the changing
requirements of airport landlords and customers.
Our one-stop-shop for travel essentials format continues to generate
significant opportunities across all channels and improve profitability. We
have a very strong customer proposition which is tailored to each location and
channel. Next week, we will open our largest UK Travel store. This is a 6,000
sq ft flagship one-stop-shop for travel essentials store at Birmingham
International airport, further developing this format. This new store will be
tailored to the requirements of the landlord and provides passengers with a
bespoke, localised customer experience by drawing on our experience from North
America. The store will offer everything you would expect from a WHSmith, as
well as a broader product range, large health and beauty and tech zones, and
coffee.
By extending our categories such as health and beauty, tech and food to go, we
are able to provide time-pressed customers with all their travel essentials
under one roof with a fast and convenient shopping experience. This enables us
to expose both new and existing customers to a broader range of categories,
which has resulted in an increase in sales per square foot, a higher ATV and
spend per passenger. This delivers superior returns with improved margins and
attractive economics for our landlords.
Hospitals
The hospital channel, our second largest channel in Travel UK by revenue,
continued its very strong growth with total revenue up 32% and LFL revenue up
26% in the year.
This is a growing channel for us with significant opportunities to continue to
increase our space and improve the retail proposition using our broad suite of
brands. During the year, we opened 8 new stores, including Royal Liverpool and
Royal Sussex hospitals. Looking ahead, we have a good pipeline of
opportunities in this channel, where we see scope for at least one of our four
formats (WHSmith, Marks & Spencer Simply Food, Costa Coffee, and our
proprietary coffee brands) in up to 200 further hospitals.
We are excited by the opportunity to grow our coffee offer. By using our
expertise in localisation from our North American business, we have recently
won two new stores in Sheffield hospitals under a new coffee concept. Working
with local artists and roasteries, we have designed a bespoke store with a
local coffee offer.
Rail
Our Rail channel is our smallest channel in Travel UK representing around 15%
of revenue. It is an attractive market and has proven to be resilient,
delivering a good performance in the year despite the ongoing impact of
industrial action.
We have seen a very encouraging return of passengers with leisure and weekend
passengers recovering the fastest. We know from our segmentation and return on
space analysis that leisure is our most valuable customer segment.
We continue to invest in Rail in new formats and in new opportunities to meet
landlord and customer needs. During the year, we successfully completed the
refit of our London Paddington store to a one-stop-shop format, extending our
health and beauty ranges from 1 metre of space to 8 metres of space and
allocating more space to tech. This has been very well received by customers
and driven strong sales.
curi.o.city
In line with our strategy to develop our retail formats, we have recently
launched a new premium souvenir and gifting brand, curi.o.city. This new
concept demonstrates how we are able to adapt, innovate and create a bespoke,
localised brand and product offer. In addition to providing a new shopping
experience for travellers, this format also offers an incremental sales
opportunity in locations where we already have a WHSmith store by selling high
margin categories such as souvenirs and fashion stationery, freeing up space
in our traditional news, books and convenience stores. We now have 6 stores
open at London Gatwick airport, Bristol airport, St Pancras station and
Selfridges in Birmingham and Manchester.
It is still early days, but we also see opportunities outside the UK with 2
curi.o.city stores also due to open in Dubai later this year.
As at 31 August 2023, Travel UK had 588 stores (2022: 587).
NORTH AMERICA
In North America we also saw a good performance as passenger numbers continued
to recover. We opened a further 43 stores and closed 14 stores increasing
market share and improving the quality of our space. Total revenue was up 32%
for the year and up 17% in the second half.
This performance was driven by our core MRG airport business (which is now
approximately 50% of the revenue of our North American division) which
performed strongly across the year and continues to do so. We are seeing
passenger number growth and strong demand for our travel essentials
categories.
In our smaller businesses we saw a lack of new launches in the electricals
market in the second half which impacted InMotion (and this has continued into
this financial year) and in our Las Vegas resorts business we were up against
a strong 2022 summer performance when there was an exceptional number of
vacationing visitors.
Overall, our North American business is trading well with total revenue in the
first 9 weeks of the financial year up 15%(3) and is as such well placed for
growth this year and beyond.
Headline trading profit(1) was £49m (2022: £31m), reflecting the strong
recovery in passenger numbers, improved margins and a small beneficial impact
of currency. The Group is exposed to movements in the GBP:USD exchange rate. A
5 cent move in this rate results in a c.£2m to £3m movement in annual
Headline trading profit(1). Current company compiled consensus suggests an
average exchange rate of GBP:USD of 1.25.
Our North America business has become an increasingly significant part of the
Group and is now our second largest division in profit terms, after Travel UK.
The growth prospects are substantial and we are excited by the significant
opportunities to grow this business further. Over the last two years, we have
won an additional 62 new stores.
The US is the largest travel retail market in the world with annual revenue of
c.$3.8bn(7). Our analysis of the North American market shows that there were a
total of approximately 2,000 news and gift and specialty retail stores across
the top 70 airports, giving our North America business a market share of
c.13%(8). During the year, we have improved our rate of winning new tenders
and anticipate a large amount of space to come onto the market over the medium
term. As a consequence, we are in a strong position to significantly grow our
North America market share to around 20% over the next five years.
We have applied our forensic approach to retailing from the UK to the North
American market and are seeing good results. This includes, space management,
category development to change the mix to higher margin products such as food
to go, enhanced promotional activity and increased operational efficiencies,
for example, self-scan tills which we are rolling out across the estate.
We continue to grow our North American business at pace, opening 43 stores in
the year at Newark, Phoenix, Orlando, Nashville, Washington Ronald Reagan,
Jacksonville, Kansas City, Salt Lake City and Los Angeles airports. In Kansas
City airport, we have won 85% of the retail space comprising 8 stores, all of
which are open. We are seeing strong returns.
We still have a very strong pipeline of new store openings. In the year ending
31 August 2023, we won 40 stores, including stores at Salt Lake City, Boston,
San Diego, Portland, Oakland and Las Vegas airports, as well as 11 stores in
Canada, across Calgary and Edmonton airports. We expect to open over 50 stores
in this financial year and close 6.
Including the 43 store openings in the year, we now have 231 stores in Air
(including 123 InMotion stores), 95 stores in Resorts, and 1 in Rail.
REST OF THE WORLD
We saw a good recovery in the year from the ROW division with total revenue up
99% and LFL revenue up 53% on the prior year.
Our strategy for this division is clear: to continue to enter new countries,
better understand the market, build our presence from a small base, build
global supplier relationships and drive operational leverage to deliver higher
returns. The scalability of the Group's retail formats is now evident having
entered 28 new countries since we opened our first international stores in
2008 and we see significant market share opportunities for the division.
Utilising our expertise from our North America division to localise our retail
offer, combined with our current low market share, means there is significant
opportunity to grow this business in new and existing territories through our
traditional NBC retail proposition and with technology tenders under the
InMotion brand. We will continue to use our three operating models of directly
run, joint venture and franchise, in order to maximise value and win new
business.
We have also had another very successful year in winning new stores with 30
new stores won across the division.
During the year, we opened 55 new stores, including stores in Belgium, Italy,
Malaysia, Norway, Spain and Sweden. We closed 28 mainly small, franchised
stores.
(7) 2019 ACI Factbook, increased by CPI
(8) Based on store numbers; including stores won and yet to open
Outside of the NBC market, we continue to see good opportunities to win new
business in the tech accessories market under our InMotion brand. InMotion is
now a globally recognised brand with interest coming from all over the world.
During the year, we have won 3 InMotion stores in Italy. We have won a total
of 13 InMotion stores outside of the UK and North America, of which 10 are
open. We remain well positioned to benefit from further opportunities as more
space becomes available.
We now have 338 stores of which 50% are directly-run, 9% are joint venture and
41% are franchise. During the current financial year, we expect to open 40
stores and close 12 stores.
Total Travel stores
During the year, we opened 118 stores in Travel. As at 31 August 2023, our
global Travel business operated from 1,253 stores (2022: 1,196). As part of
our strategy to improve the quality of our space, we closed 61 stores in the
year, largely smaller, less well located stores. Excluding franchise stores,
Travel occupies 1.1m square feet. See page 15 for analysis of store numbers by
region.
No. of stores At 31 Opened Closed At 31
August 2022 August 2023
Travel UK 587 20 (19) 588
North America 298 43 (14) 327
Rest of the World 311 55 (28) 338
Total Travel 1,196 118 (61) 1,253
( )
HIGH STREET
During the year, High Street delivered a good performance with Headline
trading profit(1) of £32m, in line with expectations (2022: £33m), and
revenue of £469m (2022: £473m). We managed the business tightly, keeping
focused on costs and cash generation.
The strategy we have in place in our High Street business is as relevant today
as it has ever been with a focus on delivering robust and sustainable cash
flows and profits.
We utilise our space to maximise returns in ways that are sustainable over the
longer-term. We have extensive and detailed space and range elasticity data
for every store which we use to allocate space in categories.
Driving efficiencies remains a core part of that strategy and we continue to
focus on all areas of cost in the business. During the year, we have delivered
savings of £15m and we are on track to deliver savings of £21m over the next
3 years, of which £10m are planned in the current financial year. These
savings come from right across the business, including rent savings at lease
renewal (on average 50% over the last 12 months) which continue to be a
significant proportion, marketing efficiencies and productivity gains from our
supply chain.
Over the years, we have actively looked to put as much flexibility into our
store leases as we can, and this leaves us well positioned in the current
environment where rents are falling. The average lease length in our High
Street business, including where we are currently holding over at lease end,
is under 2 years. We only renew a lease where we are confident of delivering
economic value over the life of that lease. We have c.480 leases due for
renewal over the next 3 years, including over 100 where we are holding over
and in negotiation with the landlord. The store closure process is cash
neutral.
As at 31 August 2023, the High Street business operated from 514 stores (2022:
527) which occupy 2.5m square feet (2022: 2.5m square feet). 13 stores were
closed in the year (2022: 17).
Funkypigeon.com delivered, as expected, total revenue of £32m (2022: £35m)
and Headline EBITDA(1) of £5m (2022: £8m). We continue to see opportunities
to grow the platform further, growing revenue and profits over the medium
term.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE ('ESG')
We have excellent sustainability credentials and we continue to make good
progress. We are one of the top performing specialty retailers in
Morningstar's Sustainalytics ESG Benchmark and, during the year, we were
awarded an AA from MSCI ESG ratings. In addition, we were included, once
again, in the Dow Jones World Sustainability Index, awarded an A rating in
CDP's annual climate leadership survey as well as being rated as Prime by ISS.
We have set our target to achieve net zero by 2050 and are working with our
supply chain to help reduce emissions across our value chain.
The need for literacy support is as important as ever and we continue to
invest in our partnership with the National Literacy Trust. Over the course of
the next year, we will be sponsoring a new reading hub in Swindon as part of
their Early Years Matter campaign.
We have made excellent progress in the year to further support our colleagues'
journeys. We now have 5 employee networks focusing on Pride, gender, parents
and carers, disability, and race and culture. All of these networks are
sponsored by members of our Executive team and are encouraging an open and
honest forum for colleagues to drive positive change within the business.
In addition, we have launched a new mentoring scheme in the year focused on
fostering female talent within our organisation.
FINANCIAL REVIEW
The Group generated a Headline profit before tax and non-underlying items(1)
of £143m (2022: £73m) and, after non-underlying items and IFRS 16, a Group
profit before tax of £110m (2022: £63m).
Headline
IFRS pre-IFRS 16(1)
£m 2023 2022 2023 2022
Travel UK trading profit(1) 101 60 102 54
North America trading profit(1) 52 33 49 31
Rest of the World trading profit(1) 13 3 13 4
Total Travel trading profit(1) 166 96 164 89
High Street trading profit(1) 43 45 32 33
Group profit from trading operations(1) 209 141 196 122
Unallocated central costs (27) (24) (27) (24)
Group operating profit before non-underlying items(1) 182 117 169 98
Net finance costs(9) (45) (34) (26) (25)
Group profit before tax and non-underlying items(1) 137 83 143 73
Non-underlying items(1, 9) (26) (20) (13) (12)
Non-underlying items - Finance costs(1) (1) - (2) -
Group profit before tax 110 63 128 61
(9) Excluding non-underlying Finance costs disclosed below
( )
Unallocated central costs increased in the year reflecting higher share-based
payment charges and investing as the business recovers.
Headline net finance costs before non-underlying items(1) (pre-IFRS 16) for
the year were £26m (2022: £25m).
Cash spend in relation to finance costs were £10m lower at £16m.
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.
Lease interest of £19m arises on lease liabilities recognised under IFRS 16,
bringing the total net finance costs before non-underlying items under IFRS 16
to £45m (2022: £34m).
IFRS
£m 2023 2022 2023 2022
Interest payable on bank loans and overdrafts 12 9 12 9
Interest on convertible bonds 14 14 14 14
Unwind of discount on onerous contract provisions - - - 2
Interest on lease liabilities 19 11 - -
Net finance costs before non-underlying items 45 34 26 25
Tax
The effective tax rate(1) was 19% (2022: 17%) on the profit for the year. Net
corporation tax payments in the year were £13m (2022: £6m). Based on current
legislation, we expect the tax rate in the current year to be 25%.
Earnings per share
Calculation of Headline earnings per share
Headline
pre-IFRS 16(1)
2023 2022
Headline profit before tax(10) (£m) 143 73
Income tax expense(10) (£m) (28) (12)
Headline profit for the year(10) (£m) 115 61
Attributable to non-controlling interests (£m) (9) (6)
Headline profit for the year attributable to equity holders of 106 55
WH Smith PLC(10) (£m)
Weighted average shares in issue (diluted) (no. of shares - millions) 132 132
Headline diluted EPS(10) (p) 80.3p 41.7p
(10) Before non-underlying items
The above measures are calculated on a pre-IFRS 16 basis.
EPS calculated on an IFRS 16 basis is provided in Note 8 to the financial
statements, and a reconciliation between the IFRS 16 and pre-IFRS 16 earnings
per share is provided in Note A4 to the Glossary on page 44.
The diluted weighted average number of shares in issue used in the calculation
of Headline diluted EPS(1) assumes that the convertible bond is not dilutive.
Profit attributable to non-controlling interests primarily represents the
joint venture partner share of profit in relation to airport contracts in the
US. As at 31 August 2023 the profit attributable to non-controlling interests
of £9m (2022: £6m), is c.18% (2022: 19%) of North America Headline trading
profit(1).
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. Most do not
impact cash.
IFRS Headline
pre-IFRS 16(1)
£m Ref. 2023 2022 2023 2022
Impairment of Property, plant and equipment and Right-of-use assets ('ROU') (1) 19 13 4 5
Provisions for onerous contracts (2) 3 - 5 -
Finance costs - discount unwind on provisions for onerous contracts (2) - - 1 -
Other (3) 5 7 5 7
27 20 15 12
(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.
The impairment review compared the value-in-use of cash-generating units,
based on managements' assumptions regarding likely future trading performance,
to the carrying values at 31 August 2023. As a result of this exercise, a
non-cash charge of £4m (2022: £5m) was recorded for impairment of retail
store assets on a pre-IFRS 16 basis, and £19m (2022: £13m) on an IFRS 16
basis which includes an impairment of ROU assets of £15m (2022: £8m). This
non-cash impairment to the ROU asset primarily results from the difference
between the Incremental Borrowing Rate ('IBR') used to establish the ROU asset
and the WACC rate used to discount the future cash flows of certain stores in
Spain.
(2) Provisions for onerous contracts
A charge of £3m (on an IFRS 16 basis) has been recognised in the income
statement in non-underlying items to provide for the unavoidable costs of
continuing to service a non-cancellable contract, in certain locations where
revenue recovery to pre-Covid-19 levels has not been observed. On a pre-IFRS
16 basis this charge is £5m.
Finance costs relating to the discount unwind on previously recognised
provisions for onerous contracts has also been recognised in non-underlying
items.
(3) Other
Other non-underlying items include: non-cash amortisation of acquired
intangible assets of £3m (2022: £3m) primarily related to the MRG and
InMotion brands; costs associated with pensions £1m related to the pension
scheme's purchase of a bulk annuity insurance policy as described in Note 16;
and finance costs associated with refinancing £1m to derecognise the carrying
value of unamortised fees in respect of the extinguished term loan and
revolving credit facility. Other non-underlying items in the prior year also
included costs of £4m incurred due to a cyber security incident in relation
to one of the Group's websites. This included impairment of software assets of
£1m, third party consultancy support and legal and other costs.
A tax credit of £5m (2022: £4m) has been recognised in relation to the above
items (£2m pre-IFRS 16 (2022: £3m)).
The cash spend relating to non-underlying items in the 2023 financial year was
£9m and mainly related to activity announced in 2020 and 2021.
Cash flow
Free cash flow(1) reconciliation
pre-IFRS 16(1)
£m 2023 2022
Headline Group operating profit before non-underlying items(1) 169 98
Depreciation, amortisation and impairment (pre-IFRS 16)(11) 52 49
Non-cash items 14 8
Operating cash flow(1, 11) 235 155
Capital expenditure (122) (83)
Working capital (pre-IFRS 16)(11) (64) (10)
Net tax paid (13) (6)
Net finance costs paid (pre-IFRS 16) (16) (15)
Free cash flow(1) 20 41
(11) Excludes cash flow impact of non-underlying items
The Group generated an operating cash flow(1) of £235m in the year (2022:
£155m) demonstrating the cash generative nature of the business. Capex was
£122m (2022: £83m) as we continued to invest in new stores, IT and energy
efficient chillers and other store equipment. As expected we had a working
capital outflow of £64m in the year (2022: £10m). This mainly relates to
investment in new stores, the recovering Travel business and some timing. Most
of the outflow was in the first half. This year we expect a much smaller
outflow mainly relating to opening new stores. In total, there was a free cash
inflow in the year of £20m (2022: £41m). This year we would expect, subject
to investment opportunities, an increase in free cash generation.
Net corporation tax payments in the period were £13m (2022: £6m).
Capex was £122m (2022: £83m) which includes the additional spend from
opening 118 stores around the world.
£m 2023 2022
New stores and store development 58 37
Refurbished stores 20 22
Systems 19 13
Other 25 11
Total capital expenditure 122 83
Reconciliation of Headline net debt(1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See Note 9 of the
Financial statements for the impact of IFRS 16 on net debt.
As at 31 August 2023, the Group had Headline net debt(1) of £330m comprising
convertible bonds of £301m, £1m of finance lease liabilities and net
overdrafts of £28m (2022: £296m, convertible bonds of £292m, term loans of
£132m (net of fees), £4m of finance lease liabilities and net cash of
£132m).
Headline(1)
pre-IFRS 16
£m 2023 2022
Opening Headline net debt(1) (296) (291)
Free cash flow(1) 20 41
Dividends paid (22) -
Pension contributions - (2)
Non-underlying items(1) (9) (16)
Net purchase of own shares for employee share schemes (8) (7)
Other (15) (21)
Closing Headline net debt(1) (330) (296)
Net (overdraft)/cash (28) 132
Term loans (net of fees) - (132)
Convertible bond (301) (292)
Finance leases (pre-IFRS 16) (1) (4)
Headline net debt(1) (330) (296)
In addition to the free cash flow, the Group paid £9m 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. The other outflows related to the dividend £22m
(2022: £nil) being the final dividend from 2022 and the interim dividend from
2023. In addition, we spent £8m (2022: £7m) on own shares for the Group's
share schemes. Other includes non-cash accretion on the convertible bond, and
payments to non-controlling interests.
On an IFRS 16 basis, net debt was £895m (2022: £869m), which includes an
additional £565m (2022: £573m) of lease liabilities.
Fixed charges cover(1)
pre-IFRS 16(1)
£m 2023 2022
Headline net finance costs(1) 26 25
Net operating lease charges (pre-IFRS 16)(1) 326 241
Total fixed charges 352 266
Headline profit before tax and non-underlying items(1) 143 73
Headline profit before tax, non-underlying items and fixed charges 495 339
Fixed charges cover - times 1.4x 1.3x
Fixed charges, comprising property operating lease charges and net finance
costs, were covered 1.4 times (2022: 1.3 times) by Headline profit before tax,
non-underlying items and fixed charges.
Balance sheet
Headline(1)
IFRS pre-IFRS 16
£m 2023 2022 2023 2022
Goodwill and other intangible assets 505 543 506 544
Property, plant and equipment 270 219 263 211
Right-of-use assets 444 446 - -
Investments in joint ventures 2 2 2 2
1,221 1,210 771 757
Inventories 205 198 205 198
Payables less receivables (219) (269) (216) (284)
Working capital (14) (71) (11) (86)
Net derivative financial asset - 1 - 1
Net current and deferred tax assets 45 54 45 54
Provisions (17) (14) (26) (26)
Operating assets employed 1,235 1,180 779 700
Net debt (895) (869) (330) (296)
Total net assets 340 311 449 404
The Group had Headline net assets of £449m, £45m higher than last year end
reflecting the investment in new store openings and exchange differences on
translation of goodwill. Under IFRS the Group had net assets of £340m.
Total Travel stores by region
No. of stores At 31
August 2023
Travel UK 588
North America
Air 231
Resorts / Rail 96
Total North America 327
Rest of the World
Europe 125
Middle East and India 91
Asia Pacific 122
Total Rest of the World 338
Total Travel 1,253
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
2022. 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 have also
recognised that the ongoing global conflicts have created further uncertainty
in the macro economy. A summary of the principal risks has been provided
below:
Risk and change in risk level 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 revenue, changing demographics and customer shopping patterns,
and raw material costs could impact on profit performance.
The Group may also be impacted by political developments both in the UK and
internationally, such as regulatory & tax changes, increasing scrutiny by
competition authorities and other changes in the general condition of retail
and travel markets or impacts from further geopolitical threats or escalation
in global conflict.
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 offer in travel locations
introducing a wider range of products, associated risks include compliance
with food hygiene and health and safety procedures, product and service
quality, environmental or ethical sourcing, and associated legislative and
regulatory requirements.
Key suppliers and supply chain management - increased The Group has agreements with key suppliers in the UK, Europe and Asia 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.
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.
Most Travel stores are held under concession agreements, on average for five
to ten years, although there is no guarantee that concessions will be renewed
or that Travel will be able to bid successfully for new contracts. 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.
Business interruption - increased An act of terrorism or war, or an outbreak of a 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 particularly 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 three 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, data security and GDPR compliance - 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 revenue.
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 21 on page 155 of
the Annual Report and Accounts 2022.
The Group also has credit risk in relation to its trade, other receivables and
sale or return contracts with suppliers.
Environment and Social 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 effectively respond and influence our value chain and
wider stakeholders to decarbonise could damage our reputation and introduce
higher costs. Delivery against our sustainability targets and meeting
regulatory obligations is vital.
We have identified several climate related risks, including;
- Increases in the cost of energy and fuel from carbon pricing and
changing market dynamics;
- Disruption to supply of goods caused by acute and chronic changes in
weather patterns.
Although the impact is limited over our outlook period, these risks are
potentially significant over the longer term.
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 2023
2023 2022
£m Note Before non-underlying items(1) Non-underlying items(2) Total Before non-underlying items(1) Non-underlying items(2) Total
Revenue 2 1,793 - 1,793 1,400 - 1,400
Group operating profit/(loss) 2, 3 182 (26) 156 117 (20) 97
Finance costs 5 (45) (1) (46) (34) - (34)
Profit/(loss) before tax 137 (27) 110 83 (20) 63
Income tax (expense)/credit 6 (27) 5 (22) (14) 4 (10)
Profit/(loss) for the year 110 (22) 88 69 (16) 53
Attributable to equity holders of the parent 101 (22) 79 63 (16) 47
Attributable to non-controlling interests 9 - 9 6 - 6
110 (22) 88 69 (16) 53
Earnings per share
Basic 8 60.8p 36.2p
Diluted 8 59.8p 35.6p
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 44.
(2) See Note 4 for an analysis of non-underlying items. See Glossary on page
44 for a definition of Alternative Performance Measures.
WH Smith PLC
Group Statement of Comprehensive Income
For the year ended 31 August 2023
£m Note 2023 2022
Profit for the year 88 53
Other comprehensive (loss)/income:
Items that will not be reclassified subsequently to the income statement:
Actuarial gains on defined benefit pension schemes 1 -
1 -
Items that may be reclassified subsequently to the income statement:
(Losses)/gains on cash flow hedges
- Net fair value (losses)/ gains (3) 3
Exchange differences on translation of foreign operations (40) 71
(43) 74
Other comprehensive (loss)/income for the year, net of tax (42) 74
Total comprehensive income for the year 46 127
Attributable to equity holders of the parent 39 120
Attributable to non-controlling interests 7 7
46 127
WH Smith PLC
Group Balance Sheet
As at 31 August 2023
£m Note 2023 2022
Non-current assets
Goodwill 11 436 471
Other intangible assets 11 69 72
Property, plant and equipment 12 270 219
Right-of-use assets 13 444 446
Investments in joint ventures 2 2
Deferred tax assets 43 55
Trade and other receivables 9 9
1,273 1,274
Current assets
Inventories 205 198
Trade and other receivables 112 87
Derivative financial assets 1 1
Current tax receivable 3 -
Cash and cash equivalents 9 56 132
377 418
Total assets 1,650 1,692
Current liabilities
Trade and other payables (340) (365)
Bank overdrafts and other borrowings 9 (84) (20)
Lease liabilities 14 (116) (131)
Derivative financial liabilities (1) -
Current tax liability (1) (1)
Short-term provisions (1) -
(543) (517)
Non-current liabilities
Bank loans and other borrowings 9 (301) (404)
Long-term provisions (16) (14)
Lease liabilities 14 (450) (446)
(767) (864)
Total liabilities (1,310) (1,381)
Total net assets 340 311
Shareholders' equity
Called up share capital 29 29
Share premium 316 316
Capital redemption reserve 13 13
Translation reserve 5 43
Other reserves (255) (244)
Retained earnings 209 138
Total equity attributable to equity holders of the parent 317 295
Non-controlling interests 23 16
Total equity 340 311
( )
WH Smith PLC
Group Cash Flow Statement
For the year ended 31 August 2023
£m Note 2023 2022
Operating activities
Cash generated from operating activities 10 302 219
Interest paid(1) (35) (26)
Financing arrangement fees (3) -
Income taxes paid (15) (6)
Income taxes refunded 2 -
Net cash inflow from operating activities 251 187
Investing activities
Purchase of property, plant and equipment (106) (70)
Purchase of intangible assets (16) (13)
Net cash outflow from investing activities (122) (83)
Financing activities
Dividends paid (22) -
Purchase of own shares for employee share schemes (8) (7)
Distributions to non-controlling interests (6) (1)
Repayment of term loans 9 (133) -
Net drawdown on short term borrowings 9 84 -
Capital repayments of obligations under leases 9 (118) (96)
Net cash outflow from financing activities (203) (104)
Net decrease in cash and cash equivalents in the year (74) -
Opening cash and cash equivalents 132 130
Effect of movements in foreign exchange rates (2) 2
Closing cash and cash equivalents 9 56 132
(1) Includes interest payments of £19m on lease liabilities (2022: £11m).
WH Smith PLC
Group Statement of Changes in Equity
For the year ended 31 August 2023
£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 2022 345 13 43 (244) 138 295 16 311
Profit for the year - - - - 79 79 9 88
Other comprehensive (loss)/income:
Cash flow hedges - - - (3) - (3) - (3)
Actuarial gains on defined benefit pension schemes - - - - 1 1 - 1
Exchange differences on translation of foreign operations - - (38) - - (38) (2) (40)
Total comprehensive (loss)/income for the year - - (38) (3) 80 39 7 46
Employee share schemes - - - (8) 12 4 - 4
Dividends paid (Note 7) - - - - (22) (22) - (22)
Deferred tax on share-based payments - - - - 1 1 - 1
Distributions to non-controlling interest - - - - - - (6) (6)
Non-cash movement on non-controlling interests - - - - - - 6 6
Balance at 31 August 2023 345 13 5 (255) 209 317 23 340
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
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
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 2022 have been delivered to
the Registrar of Companies and those for 2023 will be delivered following the
Company's Annual General Meeting. The Annual Report for the year ending 31
August 2023 and this full year results statement were approved by the Board on
9 November 2023. The auditors have reported on the Annual Report for the years
ended on 31 August 2023 and 2022 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 2023 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 2022 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 2023. 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.
Amendments to IFRS 3 Business combinations
Amendment to IAS 16 Property, plant and equipment
Amendment to IAS 37 Provisions, contingent liabilities and contingent assets
Annual Improvements 2018-2020 Amendments to IFRS 1, IFRS 9 and IFRS 16
At the Group balance sheet date, the following standards and interpretations,
which have not been applied in these condensed financial statements, were in
issue but not yet effective:
IFRS 17 Insurance contracts
Amendment to IAS 12 Taxation
Amendment to IAS 8 Accounting policies, Changes in Accounting Estimates
and Errors
Amendments to IAS 1 Presentation of financial statements
Amendments to IFRS 16 Leases
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
The directors anticipate that the adoption of these standards and
interpretations 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 and Headline net debt and free cash flow. These APMs are set
out in the Glossary on page 44 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 2023
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 and transformation 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.
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.
In making the going concern assessment, the directors have undertaken a
rigorous assessment of current performance and forecasts for the 12-month
period to November 2024, including expenditure commitments, capital
expenditure and available borrowing facilities. The Group's borrowing
facilities are described in the Group overview on page 4. The covenants on
these facilities are tested half-yearly and are based on fixed charges cover
and net borrowings. The directors have also considered the existence of
factors beyond the going concern period that could indicate that the going
concern basis is not appropriate.
The directors have modelled a base case scenario consistent with the latest
Board approved forecasts, which include management's best estimates of market
conditions and include a number of assumptions including passenger numbers,
sales growth and cost inflation. Under this scenario the Group has significant
liquidity and complies with all covenant tests throughout the assessment
period.
As a result of uncertainty and challenges in the macroeconomic environment,
this base case scenario has been stress-tested by applying severe, but
plausible, downside assumptions of a magnitude and profile in line with
previous experience of economic downturns. These assumptions include
reductions to revenue assumptions of between 5 and 10 per cent versus the base
case as appropriate by division; additional inflation in labour costs beyond
that included in the base case; and margin pressures. Apart from an equal
reduction in turnover-based rents in our Travel businesses, this scenario does
not assume a decrease in other variable costs, and is therefore considered
severe. Under this downside scenario the Group would continue to have
significant liquidity headroom on its existing facilities and complies with
all covenant tests throughout the assessment period.
Based on the above analysis, the directors have concluded that the Group is
able to adequately manage its financing and principal risks, and that the
Group will be able to continue to meet its obligations as they fall due and
operate within the level of its facilities for at least 12 months from the
date of approval of these financial statements.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
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, impairment reviews of
other non-current assets and inventory valuation.
Critical accounting judgements
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share
which excludes certain items that are considered non-underlying and
exceptional due to their size, nature or incidence, and are not considered to
be part of the normal operations of the Group. These measures exclude the
financial effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring and transformation costs
linked to a Board agreed programme, amortisation of acquired intangibles
assets, costs relating to business combinations, impairment charges and other
property costs, significant items relating to pension schemes, and impairment
charges and items meeting the definition of non-underlying specifically
related to the Covid-19 pandemic, and the related tax effect of these items.
The Group believes that they provide additional useful information to users of
the financial statements to enable a better understanding of the Group's
underlying financial performance.
The classification of items as non-underlying requires 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 at the Group's discretion, 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. Further information in respect of the
Group's intangible assets, property, plant and equipment and right-of-use
assets is included in Notes 11, 12 and 13 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 year in which the
sale is made. A sensitivity analysis has been carried out on the calculation
of inventory provisions. 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 carrying value of inventories by £2m
(2022: £2m).
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same basis as that
used by the Chief Operating Decision Maker for assessing performance and
allocating resources. The Group's operating segments are based on the reports
reviewed by the Board of Directors who are collectively considered to be the
chief operating decision maker.
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 44 (Note A2).
a) Revenue
£m 2023 2022
Travel UK 709 521
North America 380 288
Rest of the World 235 118
Total Travel 1,324 927
High Street 469 473
Group revenue 1,793 1,400
Rest of the World revenue includes revenue from Australia of £82m (2022:
£40m), Ireland £47m (2022: £30m) and Spain £46m (2022: £21m). No other
country has individually material revenue.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
2. Segmental analysis of results (continued)
b) Group results
2023 2022
£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) 102 - (1) 101 54 - 6 60
North America trading profit 49 - 3 52 31 - 2 33
Rest of the World trading profit/(loss) 13 - - 13 4 - (1) 3
Total Travel trading profit 164 - 2 166 89 - 7 96
High Street trading profit 32 - 11 43 33 - 12 45
Group profit from trading operations 196 - 13 209 122 - 19 141
Unallocated central costs (27) - - (27) (24) - - (24)
Group operating profit before non-underlying items 169 - 13 182 98 - 19 117
Non-underlying items (Note 4) - (13) (13) (26) - (12) (8) (20)
Group operating profit/(loss) 169 (13) - 156 98 (12) 11 97
Finance costs (26) - (19) (45) (25) - (9) (34)
Non-underlying finance costs (Note 4) - (2) 1 (1) - - - -
Profit/(loss) before tax 143 (15) (18) 110 73 (12) 2 63
Income tax (expense)/credit (28) 2 4 (22) (12) 3 (1) (10)
Profit/(loss) for the year 115 (13) (14) 88 61 (9) 1 53
(1) Presented on a pre-IFRS 16 basis. Alternative Performance Measures are
defined and explained in the Glossary on page 44.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
2. Segmental analysis of results (continued)
c) Other segmental items
2023
Non-current assets(1) Right-of-use assets
£m Capital additions Depreciation and amortisation Impairment Depreciation Impairment
Travel UK 30 (17) - - -
North America 47 (13) - - -
Rest of the World 17 (6) - - -
Total Travel 94 (36) - - -
High Street 28 (15) - - -
Unallocated - (2) - - -
Headline, before non-underlying items (pre-IFRS 16) 122 (53) - - -
Headline non-underlying items (pre-IFRS 16) - (3) (4) - -
Headline, after non-underlying items (pre-IFRS 16) 122 (56) (4) - -
Impact of IFRS 16 - - - (104) -
Non-underlying items (IFRS 16)(2) - - - - (15)
Group 122 (56) (4) (104) (15)
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)
(1) Non-current assets including property, plant and equipment and
intangible assets, but excluding right-of-use assets.
(2) The impairment under IFRS 16 mostly relates to the Rest of the World
segment
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
3. Group operating profit
2023 2022
£m Note Before non-underlying items Non-underlying items Total Before non-underlying items Non-underlying items Total
Revenue 1,793 - 1,793 1,400 - 1,400
Cost of sales (682) - (682) (538) - (538)
Gross profit 1,111 - 1,111 862 - 862
Distribution costs(1) (746) - (746) (588) - (588)
Administrative expenses (197) - (197) (161) - (161)
Other income(2) 14 - 14 4 - 4
Non-underlying items 4 - (26) (26) - (20) (20)
Group operating profit 182 (26) 156 117 (20) 97
(1 ) During the year there was an underlying impairment charge of £nil
(2022: £2m) for property, plant and equipment and other intangible assets
included in distribution costs. Other impairment charges are included in
non-underlying items. See Note 4.
(2 ) Other income includes remeasurement of right-of-use assets, insurance
recoveries and other property related income.
£m 2023 2022
Cost of inventories recognised as an expense 682 538
Write-down of inventories in the year(3) 3 2
Depreciation of property, plant and equipment 42 37
Depreciation of right-of-use assets
- land and buildings 101 78
- other 3 3
Amortisation of intangible assets 14 13
Impairment of property, plant and equipment 4 7
Impairment of right-of-use assets 15 8
Impairment of intangibles - 1
(Income)/expenses relating to leasing:
- expense relating to short-term leases 22 17
- expense relating to variable lease payments not included in the measurement 29 29
of the lease liability
- income relating to Covid-19 rent reductions - (5)
Other occupancy costs 49 59
Staff costs 367 293
(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 2023
4. Non-underlying items
Items which are not considered part of the normal operations 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 11.
£m 2023 2022
Amortisation of acquired intangible assets 3 3
Impairment of assets
- property, plant and equipment 4 5
- right-of-use assets 15 8
Provisions for onerous contracts 3 -
Costs associated with pensions 1 -
Costs related to cyber incident - 4
Non-underlying items, included in operating profit 26 20
Finance costs associated with refinancing 1 -
Non-underlying items, before tax 27 20
Tax credit on non-underlying items (5) (4)
Non-underlying items, after tax 22 16
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 11).
Impairment of property, plant and equipment and right-of-use assets and
provisions for onerous contracts
The Group has carried out an assessment for indicators of impairment across
the store portfolio. Where an indicator of impairment has been identified, an
impairment review has been performed to compare the value-in-use of store cash
generating units, based on management's assumptions regarding likely future
trading performance, to the carrying value of the cash-generating unit as at
31 August 2023. As a result of this exercise, a charge of £19m (2022: £13m)
was recorded within non-underlying items for impairment of retail store
assets, of which £4m (2022: £5m) relates to property, plant and equipment
and £15m (2022: £8m) relates to right-of-use assets. The majority of the
impairment of right-of-use assets relates to the difference between the
incremental borrowing rate used to establish the right-of-use assets and the
WACC rate used to discount the future cash flows of certain stores in Spain.
Refer to Note 12 for details of impairment of store cash-generating units.
The impairment recognised on a pre-IFRS 16 basis is provided in the Glossary
on page 44.
A charge of £3m has been recognised in the income statement to provide for
the unavoidable costs of continuing to service a non-cancellable contract.
This provision will be utilised over the next three financial years.
Costs associated with pensions
Professional fees of £1m (2022: £nil) have been incurred related to the
pension scheme's purchase of a bulk annuity
insurance policy as described in Note 16.
Costs associated with refinancing
A charge of £1m (2022: £nil) has been included in non-underlying items to
derecognise the carrying value of unamortised fees in respect of the
extinguished term loan and revolving credit facility. See Note 9.
Other prior year non-underlying items
Other non-underlying items in the prior year included costs of £4m incurred
due to a cyber security incident in relation to one of the Group's websites.
This includes impairment of software assets of £1m, third party consultancy
support and legal and other costs.
A tax credit of £5m (2022: £4m) has been recognised in relation to
non-underlying items.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
5. Finance costs
£m 2023 2022
Interest payable on bank loans and overdrafts 12 9
Interest on convertible bonds 14 14
Interest on lease liabilities 19 11
Cost associated with refinancing 1 -
46 34
( )
Costs associated with refinancing are included in non-underlying items (see
Note 4).
( )
6. Income tax expense
£m 2023 2022
Tax on profit 13 6
Blended standard rate of UK corporation tax 21.5% (2022: 19.0%)
Adjustment in respect of prior years (2) -
Total current tax expense 11 6
Deferred tax - current year 19 8
Deferred tax - prior year (3) -
Tax on profit before non-underlying items 27 14
Tax on non-underlying items - deferred tax (5) (4)
Total tax on profit 22 10
Reconciliation of the taxation charge
£m 2023 2022
Tax on profit at blended standard rate of UK corporation tax 21.5% (2022: 24 12
19.0%)
Tax effect of items that are not deductible or not taxable in determining (3) -
taxable profit
Derecognition / (recognition) of deferred tax balances 7 (1)
Differences in overseas tax rates (1) (1)
Adjustment in respect of prior years - current tax (2) -
Adjustment in respect of prior years - deferred tax (3) -
Total income tax charge 22 10
The effective tax rate, before non-underlying items, is 19 per cent (2022: 17
per cent).
The UK corporation tax rate is 25 per cent. Up to the 1 April 2023 the
corporation tax rate was 19 per cent.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting years starting on or after 31 December 2023. The Group has applied
the exemption under IAS 12 to recognising and disclosing information about
deferred tax assets and liabilities related to top-up income taxes. This will
be applicable for the year ending 31 August 2025.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
7. Dividends
Amounts paid and recognised as distributions to shareholders in the year are
as follows:
£m 2023 2022
Dividends
Final dividend for the year ended 31 August 2022 of 9.1p per ordinary share 12 -
(2022: nil)
Interim dividend for the year ended 31 August 2023 of 8.1p per ordinary share 10 -
(2022: nil)
22 -
The Board has proposed a final dividend of 20.8p per share, amounting to a
final dividend of £27m, which is not included as a liability in these
financial statements and, subject to shareholder approval, will be paid on 1
February 2024 to shareholders registered at the close of business on 12
January 2024.
8. Earnings per share
a) Earnings
£m 2023 2022
Profit for the year, attributable to equity holders of the parent 79 47
Non-underlying items, after tax (Note 4) 22 16
Profit for the year before non-underlying items, attributable to equity holders of the parent 101 63
( )
b) Weighted average share capital
Millions 2023 2022
Weighted average ordinary shares in issue 130 130
Less weighted average ordinary shares held in ESOP Trust - -
Weighted average shares in issue for earnings per share 130 130
Add weighted average number of ordinary shares under option 2 2
Weighted average ordinary shares for diluted earnings per share 132 132
( )
c) Basic and diluted earnings per share
Pence 2023 2022
Basic earnings per share 60.8 36.2
Adjustment for non-underlying items 16.9 12.3
Basic earnings per share before non-underlying items 77.7 48.5
Diluted earnings per share 59.8 35.6
Adjustment for non-underlying items 16.7 12.1
Diluted earnings per share before non-underlying items 76.5 47.7
Diluted earnings per share takes into account various share awards and share
options including SAYE schemes, which are expected to vest, and for which a
sum below fair value will be paid.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
8. Earnings per share (continued)
As at 31 August 2023 the convertible bond has no dilutive effect as the
inclusion of these potentially dilutive shares would improve earnings per
share (31 August 2022: improve earnings per share).
The calculation of earnings per share on a pre-IFRS 16 basis is provided in
the Glossary on page 44.
9. Analysis of net debt
Movement in net debt can be analysed as follows:
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Cash and cash equivalents Net debt
Liabilities from financing activities
At 1 September 2022 (132) (292) - (577) (1,001) 132 (869)
Other non-cash movements (1) (9) - (148) (158) - (158)
Other cash movements 133 - (84) 137 186 (74) 112
Currency translation - - - 22 22 (2) 20
At 31 August 2023 - (301) (84) (566) (951) 56 (895)
£m Term loans Convertible bonds Revolving credit facility Leases Sub-total Liabilities from financing activities Cash and cash equivalents Net debt
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)
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
9. Analysis of net debt (continued)
An explanation of Alternative Performance Measures, including Net debt on a
pre-IFRS 16 basis, is provided in the Glossary on page 44.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank
deposits with an original maturity of three months or less. The carrying
amount of these assets approximates to their fair value.
Lease liabilities
Non-cash movements in lease liabilities mainly relate to new leases,
modifications and remeasurements in the year.
Term loans and revolving credit facilities
On 14 June 2023 the Group announced new financing arrangements. The Group's
existing lending facilities, comprising a £250m revolving credit facility
('RCF') and a term loan were cancelled and repaid. The Group's four-year
committed £133m term loan with Santander UK PLC, Barclays Bank PLC, BNP
Paribas, J.P. Morgan Securities PLC and HSBC UK Bank PLC, was repaid as part
of the above refinancing. Instalments of £20m were paid prior to the
repayment.
This repayment was funded by drawings under new facilities consisting of a
£400m RCF (the 'New RCF'). The New RCF is for a five-year term due to mature
on 13 June 2028, with two uncommitted extension options of one year each,
which would, subject to lender approval, extend the tenor to six or seven
years if exercised. The New RCF is provided by a syndicate of banks: Barclays
Bank PLC, BNP Paribas, Citibank N.A. London Branch, Fifth Third Bank National
Association, HSBC UK Bank PLC, JP Morgan Securities PLC, PNC Capital Markets
LLC, Banco Santander SA London Branch and Skandinaviska Enskilda Banken AB
(PUBL). Utilisation is interest bearing at a margin over SONIA. As at 31
August 2023, the Group has drawn down £84m on the New RCF (2022: £nil, on
the RCF).
Transaction costs of £4m relating to the New RCF have been capitalised and
are amortised to the Income statement on a straight-line basis.
Convertible bonds
The Group has issued £327m (2022: £327m) guaranteed senior unsecured
convertible bonds due in 2026. The bond 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). The conversion price at 31 August 2023 was
£24.7032. 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 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 2023
10. Cash generated from operating activities
£m 2023 2022
Group operating profit 156 97
Depreciation of property, plant and equipment 42 37
Impairment of property, plant and equipment 4 7
Amortisation of intangible assets 14 13
Impairment of intangible assets - 1
Depreciation of right-of-use assets 104 81
Impairment of right-of-use assets 15 8
Non-cash change in lease liabilities - (5)
Share-based payments 12 9
Gain on remeasurement of leases (5) (4)
Other non-cash items (incl. foreign exchange) 7 (12)
Increase in inventories (12) (56)
Increase in receivables (22) (42)
(Decrease)/increase in payables (15) 88
Pension funding - (2)
Movement on provisions (through utilisation or income statement) 2 (1)
Cash generated from operating activities 302 219
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
11. Intangible assets
£m Goodwill Brands and franchise contracts Tenancy rights Software Total
Cost:
At 1 September 2022 471 50 13 114 648
Additions - - - 16 16
Foreign exchange (35) (4) - (2) (41)
At 31 August 2023 436 46 13 128 623
Accumulated amortisation:
At 1 September 2022 - 12 8 85 105
Amortisation charge - 3 - 11 14
Foreign exchange - (1) - - (1)
At 31 August 2023 - 14 8 96 118
Net book value at 31 August 2023 436 32 5 32 505
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
Goodwill of US$64m (£50m) (2022: US$70m / £60m) relating to the acquisition
of the InMotion Entertainment Group of companies 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 2023 2022
Travel UK 272 295
North America 122 132
Rest of the World 27 29
Total Travel 421 456
High Street 15 15
436 471
Included within Tenancy rights are certain assets that are considered to have
an indefinite life of £4m (2022: £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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
11. Intangible assets (continued)
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,
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 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 values assigned to each of the revenue, 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 risk-free rate, equity risk
premium, Group size premium and a risk adjustment (beta). Country-specific
discount rates were not considered to be materially different to the Group
rate. The pre-tax discount rate used in the calculations was 13.2 per cent
(2022: 11.9 per cent).
· The long-term growth rate assumptions are between 0 per cent and
2 per cent (2022: 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 each group of CGUs. As a result, no impairment
has been recognised in respect of the carrying value of goodwill in the year
(2022: £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, 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 2 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 the 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 2023
12. 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 2022 18 329 232 127 706
Additions - 63 24 19 106
Reclassifications - - 5 (5) -
Foreign exchange - (7) (7) (1) (15)
At 31 August 2023 18 385 254 140 797
Accumulated depreciation:
At 1 September 2022 10 230 155 92 487
Depreciation charge - 20 15 7 42
Impairment charge - 3 - 1 4
Reclassifications - 1 (1) - -
Foreign exchange - (2) (3) (1) (6)
At 31 August 2023 10 252 166 99 527
Net book value at 31 August 2023 8 133 88 41 270
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
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a
separate CGU or in some cases a group of stores is considered to be a CGU
where the stores do not generate largely independent cash inflows. CGUs 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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
12. 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, 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 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.
In developing these forecasts, management have used available information,
including historical knowledge of the store level cash flows.
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). Country-specific discount rates
were not considered to be materially different to the Group rate. The pre-tax
discount rate used in the calculations was 13.2 per cent (2022: 11.9 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 £34m,
which is their carrying value at year end. The Group has recognised an
impairment charge of £4m (2022: £7m) to property, plant and equipment, no
impairment to software (2022: £1m) and £15m (2022: £8m) to right-of-use
assets. The majority of the impairment of right-of-use assets relates to the
difference between the incremental borrowing rate used to establish the
right-of-use assets and the WACC rate used to discount the future cash flows
of certain stores in Spain. Impairments of £19m (2022: £14m) have been
presented as non-underlying items in the current year (see Note 4).
As disclosed in Note 1, Basis of preparation, 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. As a result, the Group has applied certain
sensitivities in isolation to demonstrate the impact on the impairment charge
of changes in key assumptions. An increase of 1 per cent in the discount rate
has been modelled and would have resulted in an increase in the impairment
charge of £1m across intangible assets, property, plant and equipment and
right of use assets.
The impairment assessment has also been performed on a pre-IFRS 16 basis. See
Glossary on page 44.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
13. Right-of-use assets
£m Land and buildings Equipment Total
At 1 September 2022 440 6 446
Additions 93 - 93
Modifications and remeasurements 41 1 42
Depreciation charge (101) (3) (104)
Impairment charge (15) - (15)
Effect of movements in foreign exchange rates (18) - (18)
Net book value at 31 August 2023 440 4 444
£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
Impairment of right-of-use assets
Right-of-use assets of £15m (2022: £8m) have been impaired in the year. This
impairment charge has been presented in non-underlying items (see Note 4). The
approach to impairment testing is described in detail in Note 12, Property,
plant and equipment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
14. Lease liabilities
£m Land and buildings Equipment Total
At 1 September 2022 574 3 577
Additions 91 - 91
Modifications and remeasurements 39 1 40
Disposals (2) - (2)
Interest 19 - 19
Payments (135) (2) (137)
Effect of movements in foreign exchange rates (22) - (22)
At 31 August 2023 564 2 566
£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 2023 2022
Analysis of total lease liabilities:
Non-current 450 446
Current 116 131
Total 566 577
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 2023
14. Lease liabilities (continued)
In response to the Covid-19 pandemic, an amendment was issued to IFRS 16 in
June 2020 and further extended in March 2021. This amendment (practical
expedient) allows the impact on the lease liability of temporary rent
reductions/waivers affecting rent payments due on or before June 2022, to be
recognised in the Income statement in the period they are received, rather
than as lease modifications, which would require the remeasurement of the
lease liability using a revised discount rate with a corresponding adjustment
to the right-of-use asset. The Group has applied this practical expedient to
all Covid-19 rent reductions/waivers that meet the requirements of the
amendment. This resulted in a credit to the Income statement of £5m for the
year ended 31 August 2022.
Details of Income statement charges for leases are set out in Note 3. The
right-of-use asset categories on which depreciation is incurred are presented
in Note 13. Interest expense incurred on lease liabilities is presented in
Note 5.
The total cash outflow for leases in the financial year was £181m (2022:
£150m). This includes cash outflow for short-term leases of £19m (2022:
£16m) and variable lease payments (not included in the measurement of lease
liability) of £25m (2022: £28m).
15. Contingent liabilities and capital commitments
£m 2023 2022
Bank guarantees and guarantees in respect of lease agreements 61 51
Bank guarantees are principally in favour of landlords and could be drawn down
on by landlords in the event that the Group does not settle its contractual
obligations under lease or other agreements.
Contracts placed for future capital expenditure approved by the directors but
not provided for in these financial statements amount to £27m (2022: £30m).
£m 2023 2022
Commitments in respect of property, plant and equipment 25 28
Commitments in respect of other intangible assets 2 2
27 30
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2023
16. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit and defined contribution
pension plans. The main pension arrangements for employees are operated
through a defined benefit scheme, WHSmith Pension Trust, and a defined
contribution scheme, WHSmith Retirement Savings Plan.
WHSmith Pension Trust
The WHSmith Pension Trust Final Salary Section is a funded final salary
defined benefit scheme; it was closed to defined benefit service accrual on 2
April 2007 and has been closed to new members since 1996. Benefits are based
on service and salary at the date of closure or leaving service, with
increases currently based on CPI inflation in deferment and RPI inflation in
payment.
The WHSmith Pension Trust is independent of the Group and is administered by a
Trustee. The Trustee is responsible for the administration and management of
the scheme on behalf of the members in accordance with the Trust Deed and
relevant legislation. An Investment Committee of the Trustees to the scheme
meets regularly to review the performance of the investment managers and the
scheme as a whole. The Group is represented on this Committee.
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 a result of this comprehensive risk-removal, WH Smith PLC is no longer
required to make any future cash contributions into the Trust regarding
defined benefit liabilities. During the prior year ended 31 August 2022, prior
to the completion of the buy-in transaction, the Group made a contribution of
£2m to the scheme in accordance with the agreed funding schedule.
The Group does not have an unconditional right to derive economic benefit from
any surplus in the scheme, as the Trustees retain the right to enhance
benefits under the Trust deed, and therefore the present value of the economic
benefits of any IAS 19 surplus in the pension scheme available on a reduction
of future contributions is £nil (2022: £nil). Accordingly, no balance sheet
asset or liability exists in relation to this scheme. The income statement
impact of this scheme is limited to administrative costs only.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
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 and transformation 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 2023 both including and excluding the
impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at
their fair value determined at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
These assets are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, over the term of the relevant lease.
Lease payments are apportioned between finance charges and a reduction of the
lease obligations so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognised directly in
the income statement.
Rentals payable and receivable under operating leases are charged to the
income statement on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term. The Group
has a number of lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are accrued in
line with revenues generated.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
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
A12.
Group profit before tax and non-underlying items Group profit before tax See Group income statement and Note A1 Group profit before tax and non-underlying items excludes the impact of
non-underlying items as described below. A reconciliation from Group profit
before tax and non-underlying items to Group profit before tax is provided on
the Group income statement on page 18, and on a Headline (pre-IFRS 16) basis
in Note A1.
Group profit from trading operations and segment trading profit Group operating profit See Note 2 and Note A2 Group profit from trading operations and segment trading profit are stated
after directly attributable share-based payment and pension service charges
and before non-underlying items, unallocated costs, finance costs and income
tax expense.
A reconciliation from the above measures to Group operating profit and Group
profit before tax on an IFRS 16 basis is provided in Note 2 to the 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 per share before non-underlying items Earnings per share Non-underlying items, see Note 7 and Note A4 Profit for the year attributable to the equity holders of the parent before
non-underlying items divided by the weighted average number of ordinary shares
in issue during the financial year. A reconciliation is provided on an IFRS 16
basis in Note 7 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline diluted earnings per share Earnings per share Non-underlying items, see Note 7 and Note A4 Earnings per share before non-underlying items (defined above) on a pre-IFRS
16 basis and assuming no dilutive impact of the convertible bond. In the year
ended 31 August 2023, on a statutory basis, the bond is also not dilutive.
Headline EBITDA Group operating profit Refer to definition Headline EBITDA is Headline Group operating profit before non-underlying items
adjusted for pre-IFRS 16 depreciation, amortisation and impairment.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
APM Closest equivalent IFRS measure Reconciling items to IFRS measure Definition and purpose
Income statement measures (continued)
Effective tax rate None Non-underlying items Total income tax charge excluding the tax impact of non-underlying items
divided by Group Headline profit before tax and non-underlying items. See Note
6 on an IFRS 16 basis, and Notes A3 and A6 on a pre-IFRS 16 basis.
Fixed charges cover None Refer to definition This performance measure calculates the number of times 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 13, as part of the Financial review.
Operating cash flow Net cash inflow from operating activities See Group overview Operating cash flow is defined as Headline profit before tax and
non-underlying items, excluding Headline depreciation,
amortisation, impairment and other non-cash items. The
components of Operating cash flow are shown on page 13, as
part of the Financial review.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A1. Reconciliation of Headline to Statutory Group operating profit and Group
profit before tax
2023
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments IFRS 16 Total
adjustments
non-underlying items
Revenue 1,793 - 1,793 - - 1,793
Cost of sales (682) - (682) - - (682)
Gross profit 1,111 - 1,111 - - 1,111
Distribution costs (756) - (756) 10 - (746)
Administrative expenses (196) - (196) (1) - (197)
Other income 10 - 10 4 - 14
Non-underlying items - (13) (13) - (13) (26)
Group operating profit/(loss) 169 (13) 156 13 (13) 156
Finance costs (26) (2) (28) (19) 1 (46)
Profit/(loss) before tax 143 (15) 128 (6) (12) 110
Income tax (charge)/credit (28) 2 (26) 1 3 (22)
Profit/(loss) for the year 115 (13) 102 (5) (9) 88
Attributable to:
Equity holders of the parent 106 (13) 93 (5) (9) 79
Non-controlling interests 9 - 9 - - 9
115 (13) 102 (5) (9) 88
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A1. Reconciliation of Headline to Statutory Group operating profit and Group
profit before tax (continued)
2022
pre-IFRS 16 basis IFRS 16 Basis
£m Headline, before non-underlying items Headline non-underlying items Headline IFRS 16 adjustments IFRS 16 Total
adjustments
non-underlying items
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/(loss) 98 (12) 86 19 (8) 97
Finance costs (25) - (25) (9) - (34)
Profit/(loss) before tax 73 (12) 61 10 (8) 63
Income tax (charge)/credit (12) 3 (9) (2) 1 (10)
Profit/(loss) for the year 61 (9) 52 8 (7) 53
Attributable to:
Equity holders of the parent 55 (9) 46 8 (7) 47
Non-controlling interests 6 - 6 - - 6
61 (9) 52 8 (7) 53
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A2. Reconciliation of Headline to Statutory Segmental trading profit/(loss)
and Group profit/(loss) from trading operations
2023
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/(loss) 102 - 102 (1) 101
North America trading profit 49 - 49 3 52
Rest of the World trading profit 13 - 13 - 13
Total Travel trading profit 164 - 164 2 166
High Street trading profit 32 - 32 11 43
Group profit from trading operations 196 - 196 13 209
Unallocated central costs (27) - (27) - (27)
Group operating profit before non-underlying items 169 - 169 13 182
Non-underlying items - (13) (13) (13) (26)
Group operating profit/(loss) 169 (13) 156 - 156
( )
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
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A3. Reconciliation of Headline to Statutory tax expense/(credit)
2023 2022
£m Headline (pre-IFRS 16) IFRS 16 Total Headline (pre-IFRS 16) IFRS 16 adjustments Total
adjustments
Profit before tax and non-underlying items 143 (6) 137 73 10 83
Tax on profit - Standard rate of UK corporation tax 21.5% (2022: 19.0%) 14 (1) 13 5 1 6
Adjustment in respect of prior years (2) - (2) - - -
Total current tax charge/(credit) 12 (1) 11 5 1 6
Deferred tax - current year 19 - 19 7 1 8
Deferred tax - prior year (3) - (3) - - -
Deferred tax - adjustment in respect of change in tax rates - - - - - -
Tax charge/(credit) on Headline profit 28 (1) 27 12 2 14
Tax on non-underlying items - current tax - - - - - -
Tax on non-underlying items - deferred tax (2) (3) (5) (3) (1) (4)
Total tax charge/(credit) on profit 26 (4) 22 9 1 10
A4. Calculation of Headline and Statutory earnings per share
2023 2022
millions Basic EPS Diluted EPS Basic EPS Diluted EPS
Weighted average shares in issue 130 132 130 132
2023 2022
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 106 81.5 80.3 55 42.3 41.7
- Non-underlying items (13) (10.0) (9.8) (9) (6.9) (6.9)
Total 93 71.5 70.5 46 35.4 34.8
IFRS 16 adjustments
- Before non-underlying items (5) (3.8) (3.8) 8 6.2 6.0
- Non-underlying items (9) (6.9) (6.9) (7) (5.4) (5.2)
Total (14) (10.7) (10.7) 1 0.8 0.8
IFRS 16 basis
- Before non-underlying items 101 77.7 76.5 63 48.5 47.7
- Non-underlying items (22) (16.9) (16.7) (16) (12.3) (12.1)
Total 79 60.8 59.8 47 36.2 35.6
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A5. Fixed charges cover
£m Note 2023 2022
Headline net finance costs (pre-IFRS 16) A1 26 25
Net operating lease charges (pre-IFRS 16) A11 326 241
Total fixed charges 352 266
Headline profit before tax and non-underlying items A1 143 73
Headline profit before tax, non-underlying items and fixed charges 495 339
Fixed charges cover - times 1.4x 1.3x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
2023 2022
£m Headline (pre-IFRS16) IFRS 16 Headline IFRS 16
(pre-IFRS16)
Amortisation of acquired intangible assets 3 3 3 3
Impairment of assets
- property, plant and equipment 4 4 5 5
- right-of-use assets - 15 - 8
Provisions for onerous contracts 5 3 - -
Costs associated with pensions 1 1 - -
Costs related to cyber incident - - 4 4
Non-underlying items, included in operating profit 13 26 12 20
Finance costs associated with refinancing 1 1 - -
Finance costs associated with onerous contracts 1 - - -
Non-underlying items, before tax 15 27 12 20
Tax credit on non-underlying items (2) (5) (3) (4)
Non-underlying items, after tax 13 22 9 16
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 £5m (2022: £4m) has been recognised in relation to the above
items (£2m pre-IFRS 16 (2022: £3m)).
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 13.2 per cent (2022: 11.9)
and the pre-tax discount rate used in the pre-IFRS 16 calculation was 13.2 per
cent (2022: 14.4).
Right-of-use assets are not recognised on a pre-IFRS 16 basis.
A charge of £5m has been recognised on a pre-IFRS 16 basis to provide for the
unavoidable costs of continuing to service a non-cancellable contract. This
provision will be utilised over the next three financial years.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases (continued)
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 2023 2022
Net cash inflow from operating activities 251 187
Cash flow impact of IFRS 16 A9 (116) (93)
Add back:
- Cash impact of non-underlying items 9 16
- Pension funding - 2
- Financing arrangement fees 3 -
- Other non-cash items (5) 12
Deduct:
- Purchase of property, plant and equipment (106) (70)
- Purchase of intangible assets (16) (13)
Free cash flow 20 41
A8. Headline net debt
The table below shows Headline net debt (pre-IFRS 16). This includes lease
liabilities that were previously presented as finance leases (applying the
principles of IAS 17), and Group accounting policies as applicable prior to 1
September 2019, described in the Glossary on page 44), but excludes additional
lease liabilities recognised on application of IFRS 16.
£m Note 2023 2022
Borrowings
- Revolving credit facility (84) -
- Convertible bonds (301) (292)
- Bank loans - (132)
- Lease liabilities 14 (566) (577)
Liabilities from financing activities (951) (1,001)
Cash and cash equivalents 56 132
Net debt (IFRS 16) 9 (895) (869)
Add back lease liabilities recognised under IFRS 16(1) 565 573
Headline net debt (pre-IFRS 16) (330) (296)
( )
(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 2023
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.
2023 2022
£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 135 116 251 94 93 187
Net cash outflows from investing activities (122) - (122) (83) - (83)
Net cash outflows from financing activities (87) (116) (203) (11) (93) (104)
Net decrease in cash in the period (74) - (74) - - -
A10. Balance sheet impact of IFRS 16
The balance sheet including and excluding the impact of IFRS 16 is shown
below:
2023 2022
Headline (pre-IFRS 16) IFRS 16 Headline (pre-IFRS 16) IFRS 16
IFRS 16 Adjustment IFRS 16 Adjustment
£m
Goodwill and other intangible assets 506 (1) 505 544 (1) 543
Property, plant and equipment 263 7 270 211 8 219
Right-of-use assets - 444 444 - 446 446
Investments in joint ventures 2 - 2 2 - 2
771 450 1,221 757 453 1,210
Inventories 205 - 205 198 - 198
Payables less receivables (216) (3) (219) (284) 15 (269)
Working capital (11) (3) (14) (86) 15 (71)
Net derivative financial asset - - - 1 - 1
Net current and deferred tax assets 45 - 45 54 - 54
Provisions (26) 9 (17) (26) 12 (14)
Operating assets employed 779 456 1,235 700 480 1,180
Net debt (330) (565) (895) (296) (573) (869)
Total net assets 449 (109) 340 404 (93) 311
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2023
A11. Like-for-like revenue reconciliation
The reconciling items between like-for-like revenue change and total revenue
change are shown below:
Travel UK North America Rest of the World Travel Total High Street Group
£m
Like-for-like revenue change 30% 11% 53% 27% 1% 18%
Net space impact 6% 14% 42% 14% (2)% 8%
Foreign exchange -% 7% 4% 2% -% 2%
Total revenue change 36% 32% 99% 43% (1)% 28%
A12. Operating lease expense
Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis
are as follows:
£m 2023 2022
Net operating lease charges 326 241
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 and profit before tax, as explained in Note 2
segmental analysis.
The table above presents the pre-IFRS 16 net operating lease charges, applying
the principles of IAS 17, and Group accounting policies as applicable prior to
1 September 2019, as described in the Glossary on page 44.
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 4 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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