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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Smiths News Plc | LSE:SNWS | London | Ordinary Share | GB00B17WCR61 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.80 | -1.49% | 52.80 | 52.40 | 52.60 | 54.20 | 52.40 | 53.00 | 422,376 | 16:35:02 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Books & Newspapers-wholesale | 1.09B | 25.1M | 0.1013 | 5.17 | 129.79M |
From Apr 2019 to Apr 2024
TIDMCNCT
RNS Number : 1857D
Connect Group PLC
25 April 2017
Connect Group PLC
("Connect Group" or "the Group")
Unaudited Interim Results for the six months ended 28 February 2017
Resilient H1 performance in more challenging market conditions, no change to outlook
Connect Group, a leading specialist distributor operating in four divisions; News & Media, Parcel Freight, Books and Education & Care, announces its interim results for the six months ended 28 February 2017.
Hot Features
Premium
Continuing Adjusted Six months Six months Change
results(1) to to
28 Feb 2017 29 Feb 2016
Revenue GBP911.8m GBP916.8m -0.6%
Operating profit GBP26.6m GBP27.8m -4.4%
Profit before tax GBP23.3m GBP24.5m -4.8%
Earnings per share 7.6p 8.0p -5.3%
Statutory results
Revenue GBP940.5m GBP948.4m -0.8%
Operating profit GBP28.3m GBP30.6m -7.5%
Profit before tax GBP18.1m GBP19.2m -5.3%
Earnings per share 5.9p 6.3p -6.3%
Interim dividend
per share 3.1p 3.0p 3.3%
Free cash flow GBP12.4m GBP18.0m -31.2%
Net debt GBP149.9m GBP160.9m
--------------------- ------------- ------------- -------
Highlights:
-- Proposed sale of Education & Care, a significant milestone in the Group's strategy -- Robust continuing Adjusted profit, driven by a resilient performance in News distribution -- News distribution, on track to achieve GBP10m of efficiencies by FY2018
-- Pass My Parcel - new returns services with Amazon and French Connection, and a contract with UK Mail for returns and 'failed household deliveries', expected to go live in the second half
-- Parcel Freight revenue growth of 5.1%, helping support GBP1.5m of planned investment -- Good free cash flow generation after allowing for increased capital expenditure
-- Leverage reduced to 1.8x with a further reduction to circa 1.2x on completion of the sale of Education & Care
-- Interim dividend of 3.1p reflects confidence in the ongoing strength of the Group -- No change in management expectations for the full year performance
Mark Cashmore, Group Chief Executive, commented:
"In line with our plans to focus the Group's investment on the two larger divisions, the proposed sale of Education & Care is an important milestone in our strategy. The resilience of News & Media and revenue growth in Tuffnells has underpinned our overall performance, allowing for continued investments to drive growth opportunities."
The Group uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'net debt', 'free cash flow', 'Adjusted revenue', 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted earnings per share' 'Adjusted EBITDA' and 'Exceptional items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies.
(1) The following are the key non-IFRS measures identified by the Group in the consolidated financial statements as Adjusted results:
Continuing Adjusted revenue - is defined as revenue including the revenue of businesses from the date of acquisition and excludes revenue of businesses disposed of in the prior year or held for sale.
Continuing Adjusted operating profit - is defined as operating profit including the operating profit of businesses from the date of acquisition and excludes exceptional items and operating profit of businesses disposed of in the prior year or held for sale.
Continuing Adjusted profit before tax - is defined as Continuing Adjusted operating profit less finance costs attributable to Continuing Adjusted operating profit and before exceptional items; including amortisation of intangibles and network and reorganisation costs.
Continuing Adjusted earnings per share - is defined as continuing adjusted PBT, less taxation attributable to adjusted PBT and including any adjustment for minority interest to result in adjusted PAT attributable to shareholders; divided by the basic weighted average number of shares in issue.
Exceptional items - are material items of income or expense excluded in arriving at Adjusted operating profit to enable a more representative view of underlying performance. These include certain Mergers & Acquisitions related costs, amortisation of intangibles, integration costs, business restructuring costs and network re-organisation costs including those relating to strategy changes which are not normal operating costs of the underlying business. They are disclosed and described separately in the accounts where necessary to provide further understanding of the financial performance of the Group.
(2) Free cash flow - is defined as cash flow excluding the following: payment of the dividend, acquisitions and disposals, the proceeds on the disposal of freehold properties, payments of obligations under finance leases, the repayment of bank loans, EBT share purchase and cash flows relating to exceptional items.
(3) Operating cash flow is defined as operating profit adding back non-cash items amortisation, depreciation, share based payments, share of profits of jointly controlled entities, and non cash pension costs, adjusting the increase/ decrease in working capital then deducting pension contributions and tax payments in accordance with presentation in note 10.
(4) Adjusted EBITDA - is calculated as Adjusted operating profit before depreciation and amortisation. In line with loan agreements Adjusted Bank EBITDA used for covenant calculations is calculated as Adjusted operating profit before depreciation, amortisation, exceptional items and share based payments charge but after adjusting for the last 12 months of profits for any acquisitions or disposals made in the year.
(5) Net debt - is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases.
(6) HY2017 - refers to the half year ended 28 February 2017. HY2016 refers to the half year ended 29 February 2016 and FY2016 refers to the full year ended 31 August 2016.
(7) In accordance with IFRS5 'Non-Current Assets Held for Sale and Discontinued Operations', the Education & Care division has been classified as 'held for sale' in the period and prior periods have been restated on a consistent basis. The Interim results have been prepared and presented on a continuing operations basis.
Enquiries:
Connect Group PLC Mark Cashmore, Group Chief Today: 020 7466 5000 Executive Thereafter: 01793 563641 David Bauernfeind, Chief Financial Officer www.connectgroupplc.com Buchanan Richard Oldworth / Jamie Hooper / Madeleine Seacombe / Sophie McNulty www.buchanan.uk.com 020 7466 5000
A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 25 April 2017 commencing at 9.30am. Connect Group PLC's Interim Results 2017 are available at www.connectgroupplc.com
An audio webcast will be available on:
http://vm.buchanan.uk.com/2017/connect250417/registration.htm
About Connect Group PLC:
Connect Group PLC is a leading specialist distributor operating in large and diverse markets. The Group has four divisions, connecting suppliers to customers in an efficient, knowledgeable and service oriented way:
-- Connect News & Media- Encompassing Smiths News, Dawson Media Direct and Pass My Parcel. Smiths News is the UK's largest news wholesaling business with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the major national and regional publishers serving over 30,000 customers across England and Wales on a daily basis. Pass My Parcel, is a 'click and collect' delivery service; it is operated by the Smiths News business and has a network of over 3,500 parcelshops, with clients that include Amazon, ASOS and French Connection. Dawson Media Direct supplies newspapers, magazines, and digital technology and content, to over 80 airlines in 50 countries.
-- Connect Parcel Freight- Encompassing Tuffnells, a leading distributor of mixed parcel freight consignments, specialising in items of irregular dimension and weight ("IDW"), examples of which include bulky furnishings, building materials and automotive parts. Tuffnells delivers over 13 million consignments a year to over 4,700 customers, the majority of which are SMEs. Distribution coverage of the UK is provided by a network of 37 depots.
-- Connect Books- Combining a number of recognised brands in print and digital bookselling, including Bertrams, Dawson Books and Wordery. The division supplies a mix of traditional and online booksellers, academic and public libraries, as well as selling direct to consumers through Wordery.
-- Connect Education & Care- A leading independent supplier of consumable products to the Education and Care markets through The Consortium and West Mercia Supplies. The division supplies more than 30,000 customers with a range of over 40,000 products, including stationery, arts and craft and cleaning.
Notes to Editors
This document contains certain forward-looking statements with respect to Connect Group PLC's financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as 'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of Connect Group PLC's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Connect Group PLC undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise. Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Connect Group PLC. For more detailed information, please see the interim announcement for the half-year ended 28 February 2017 and the Report and Accounts for the year ended 31 August 2016 which can be found on the Investor Relations section of the Connect Group PLC website - www.connectgroupplc.com. However, the contents of Connect Group PLC's website are not incorporated into and do not form part of this document.
INTERIM MANAGEMENT REPORT
OPERATING REVIEW
INTRODUCTION
The Group has delivered a resilient performance in more challenging market conditions. While trading across the divisions has been mixed, each made progress with their strategic and operational priorities.
Announced in February 2017, the proposed sale of the Education & Care division for an enterprise value of GBP64.4m is a major milestone in the Group's strategy. The sale will reduce net debt and enable the Group to focus on opportunities and synergies in its two larger divisions, prioritising the capabilities of these businesses, in pursuit of operational efficiency and organic growth.
Performance headlines from continuing operations (7) include:
-- News & Media is on track to deliver GBP5m of sustainable efficiencies in FY2017 and a further GBP5m in FY2018.
-- Pass My Parcel has grown the volume of outbound and returns, implemented new services with Amazon and French Connection (encompassing returns) and secured a new contract with UK Mail for returns and failed deliveries.
-- Parcel Freight has maintained gross margins above 30% while increasing revenue from a combination of price increases and new customer growth.
-- lnvestments in Smiths News' Hemel Hempstead depot, Pass My Parcel, and improvements to facilities and operating processes in Parcel Freight.
-- Books revenue benefited from strong sales in UK Wholesale and Wordery. We have continued our investment in automation to deliver future efficiencies.
CONNECT NEWS & MEDIA
Total revenue for the division was GBP706.7m compared to GBP730.9m prior year and Adjusted Operating Profit was GBP20.7m compared to GBP20.9m in the prior year.
News distribution's revenue of GBP692.5m compares to GBP717.7m prior year, the reduction in core sales of 3.5% remains within the Group's strategic forecast and reflects the long-term trend in printed media. Adjusted Operating Profit of GBP19.6m compares to GBP19.9m prior year. The net impact of the new National Living Wage was a cost of GBP0.1m and the investment in Pass My Parcel was GBP2.4m compared to GBP2.1m cost in the prior year.
Newspaper revenue has shown continued resilience with price rises helping to offset volume declines. Magazines sales have been more challenging, declining 7.8%, with weeklies performing better than monthlies.
Operationally, Smiths News continues to deliver a high quality service in parallel to consolidating the network and improving process efficiency. Our largest ever regional hub in Hemel Hempstead is now open and when fully operational it will deliver substantial efficiencies to our operations across London and the Thames Valley. Taking all our efficiency plans together, the business is on track to deliver the expected GBP10m of cumulative savings over this year and next. Meanwhile, we continue to explore and target further opportunities to support the business' medium term requirements.
Pass My Parcel has increased the volume of deliveries and returns in the period to 0.38m units from 0.27m in the prior year. This level of growth is lower than was expected, a consequence of weaker than predicted outbound volumes, delays to securing contracts for new services and lower initial volumes from new clients. Despite this, by managing the increase in investment in the proposition carefully, the net cost of supporting the operation over the period has been contained to GBP2.4m compared to GBP2.1m in the prior year. Given that progress has been slower than anticipated, we no longer expect to achieve our ambitious volume target of three million for this year.
Feedback from end consumers remains positive, from independently managed customer feedback channels but the service offering and overall customer awareness is taking longer than we expected to develop at scale.
More recently, new services have been launched that we expect to deliver additional volumes in the second half. These include:
-- A returns service for Amazon (launched, February 2017) and French Connection (launched, March 2017).
-- A consumer to consumer delivery service ('S') aimed at EBay and Marketplace users (also launched in March 2017).
In the period, we have agreed a nationwide contract with UK Mail, encompassing returns and a new service, under which UK Mail's 'failed household deliveries' will be sent to Pass My Parcel outlets for collection. The implementation of the contract is planned to commence in the second half.
On the client side, we continue to see high levels of retailer interest in Pass My Parcel services with an extensive pipeline of online sellers, which we expect will increase the number of retailers on the platform in the second half of the year.
DMD, the division's media business supplying international airlines and travel points, has benefited from new contracts secured last year; revenue of GBP14.2m compares to GBP13.2m and Adjusted Operating Profit of GBP1.1m compares to GBP1.0m in the prior year. The recent withdrawal by two major airlines from supplying on-board newspapers will, however, impact revenue in the second half. In order to mitigate this loss of business, we are pursuing new geographic markets, as well as continuing to develop alternative revenue streams through digital services and delivering cost efficiencies in our operations network and processes.
CONNECT PARCEL FREIGHT
Revenue for the division of GBP86.6m compares to GBP82.4m prior year, while Adjusted Operating Profit of GBP4.3m compares to GBP5.0m prior year.
The division maintained gross margins of over 30% with price increases offsetting cost pressures from fuel increases and the National Living Wage. We have seen competitors seeking to increase volumes by price discounting to win business; however, net new customers grew by 220 (5%), building on the 258 net customer wins in the prior year period.
Despite uncertainty in the wider economy, our customer demand has held up well - consignment volumes were similar to last year and revenue per consignment has increased although the trend of lighter weight per consignment has continued. Service KPIs have also remained strong, supporting price increases that were implemented towards the end of the period. As the impact of January 2017 price increases come through, we expect the division to deliver a greater proportion of its annual profitability in the second half, compared to last year's weighting.
Our previously stated plans include addressing a range of legacy weaknesses in management, process and infrastructure that we believe would otherwise hinder sustainable growth. In practical terms, this means the division is working to transform the quality and consistency of operating procedures, while also pursuing new growth opportunities. While Health & Safety is a driving factor, it is intrinsically linked to the consistency and quality of processes across the network. Increased costs in pursuit of these goals amount to GBP1.5m in the period, including a review of pay frameworks for general managers and other key roles, standardisation of operating procedures, health & safety improvements and additional resources in each of training, sales, marketing and leadership. This investment in the overhead base, together with increases in capital expenditure, while impacting near term profitability and cash flow, will enhance our long term capability. Since acquisition in December 2014, we continue to leverage procurement synergies from being part of a larger group.
The division's network strategy encompasses ongoing investment to improve the quality, efficiency and capacity of operations. This combines improvement to existing facilities, the replacement of depots where required, and the commissioning of new depots in response to demand. Given lower than anticipated consignment growth we have been able to rebalance our network plan towards the improvement of existing facilities, reducing capex requirements in the first half to less than our planned investment. Nonetheless, in the period we invested GBP4.0m (up GBP2m compared to prior year) in upgrading existing facilities, including a major project to relocate the Sheffield operation, due for completion in FY2018.
CONNECT BOOKS
Divisional revenue of GBP118.5m compares to GBP103.5m in the prior period, driven by increased sales in UK Wholesale and Wordery. Adjusted Operating Profit of GBP1.6m compares to GBP1.9m in the prior period, a consequence of weaker margin mix and increases in external carriage costs. The net impact of the new National Living Wage was GBP0.3m.
Performance across segments of the books market remains mixed. Revenue from UK Wholesale was up 18%, helped by continued improvement in stock availability and customer service, with a strong performance over peak and growing market share. Wordery revenues grew by 27%. Academic and public library sales were down by 7.4% as a consequence of continued austerity and our further withdrawal from unprofitable public library contracts, mitigated by Dawson Books benefiting from the contract signed last year to supply a new library in the UAE.
While the Group is prioritising investment in its two larger divisions, we continue to support the Books business in operating as efficiently as possible. The installation of automated 'pick and pack' machinery in the second half of the year will provide greater capacity, especially over peak, while helping to mitigate the impact of the National Living Wage by reducing the cost of processing orders.
CONNECT EDUCATION & CARE- discontinued operation
The proposed sale of Education & Care announced in February 2017 for a GBP64.4m enterprise value is proceeding in line with our expectations. Shareholders of RM PLC gave their approval to the transaction on 22 March 2017 and the transaction is now being reviewed by the Competition & Markets Authority (CMA) following the parties voluntary notification. The transaction will complete following approval from the CMA.
In accordance with IFRS5 'Non-Current Assets Held for Sale and Discontinued Operations' the Education & Care division has been classified as 'held for sale' in the period and the results have been separately disclosed as 'discontinued operations'. The assets and liabilities of the division have been separately disclosed on the balance sheet.
In what was a particularly challenging period, revenue for the full six months, was GBP28.7m, compared to GBP31.6m in the prior year. Adjusted operating profit of GBP1.7m compared to GBP2.8m in the prior year.
The result for the period reflects a tightening of school budgets and has also been influenced by what was a complicated and lengthy sale process, which drew heavily on management time and impacted on priorities.
Following the announcement of the proposed sale we have recently secured a contract to be one of two companies supplying exercise books and classroom stationery into Northern Ireland schools. The division's E-Commerce offer continues to make progress with the launch of a portal for teachers to share ideas, experience and expertise. Over 45% of schools orders are now placed online compared to 35% in the prior year.
BOARD CHANGES
Colin Child, non-executive director and Chairman of the Audit Committee resigned from the Board on 21 March 2017. The Company has started the process to appoint his successor. Until this concludes, Gary Kennedy, Group Chairman, will act as interim Chairman of the Audit Committee given his relevant and recent financial and business planning experience. We would like to take this opportunity to thank Colin for his contribution during his time on the Board.
SUMMARY AND OUTLOOK
The proposed sale of Education & Care achieves an important strategic goal, allowing the Group to focus its priorities on the opportunities in its two largest divisions. Financially, the overall performance demonstrates the resilience of the Group in more challenging market conditions, while maintaining investment to support future growth.
Looking ahead, we are focusing our resources and investment on the News & Media and Parcel Freight divisions, developing the capabilities of these businesses to secure further efficiencies and generate organic growth opportunities. The proceeds from the disposal of Education & Care will materially reduce the Group's debt, providing greater flexibility in the pursuit of these goals.
The Group remains committed to providing strong returns for shareholders and the interim dividend of 3.1p reflects our confidence in the ongoing prospects of the Group.
There is no change in management expectations for the full year performance.
FINANCIAL REVIEW
GROUP INCOME STATEMENT EXTRACTS - CONTINUING ADJUSTED
Continuing
GBPm -restated
6 months 6 months
to to Change
Feb 2017 Feb 2016
-------------------- ---------- ----------- ---------
Revenue 911.8 916.8 -0.6%
Gross profit 111.2 111.8 -0.5%
Operating costs (84.6) (84.0) -0.7%
--------------------- ---------- ----------- ---------
Adjusted operating
profit 26.6 27.8 -4.4%
Net finance costs (3.3) (3.3) 1.5%
--------------------- ---------- ----------- ---------
Adjusted profit
before tax 23.3 24.5 -4.8%
Taxation (4.8) (5.1) 6.6%
Tax rate 20.6% 21% 1.9%
--------------------- ---------- ----------- ---------
Adjusted profit
after tax 18.5 19.4 -4.3%
--------------------- ---------- ----------- ---------
Continuing revenue of GBP911.8m was down by 0.6%, with News & Media revenue declining by GBP24.2m, (3.3%) in line with expectations, partially offset by revenue growth of GBP4.2m (5.1%) in Parcel Freight and GBP15.0m (14.4%) in Books.
Gross profit of GBP111.2m was down by GBP0.6m, (0.5%), while gross margin remained flat at 12.2%.
Operating costs of GBP84.6m were up GBP0.6m on the prior year, as a result of increased costs in the Parcel Freight and Books divisions, offset by savings in News & Media. Savings of GBP4m compared to the prior year in News & Media result from ongoing efficiency projects and annualised benefits of the previous years' network restructuring programme. Cost increases of GBP1.5m at Parcel Freight included planned increases to wages and headcount, standardisation of the operating model including Health & Safety, and increased resources in sales, marketing and leadership. The increase of GBP2.3m at Books results from increased volumes, the impact of the National Living Wage, and additional increases in the price of external carriage costs. Across all the divisions the impact of the National Living Wage in the period was GBP0.5m, in line with our expectations.
Adjusted operating profit of GBP26.6m was down by GBP1.2m (4.4%) on the prior year. A resilient performance in News & Media saw Adjusted operating profits down only GBP0.2m (1.3%) and in line with expectations. Parcel Freight was down GBP0.7m as a consequence of tougher trading and continuing investment in the cost base of the business to build longer-term capability. Books was down GBP0.3m with increased revenue but a mix of lower margin sales.
Net finance costs of GBP3.3m were in line with prior year. Interest cost on borrowings incurred in the period was GBP2.3m compared to GBP2.4m for the prior year period. Other finance costs include finance lease interest and the interest cost on pension obligations of GBP0.7m (Feb 2016: GBP0.6m) and amortisation of banking arrangement fees of GBP0.3m (Feb 2016: GBP0.3m).
Adjusted profit before tax was down by 4.8% to GBP23.3m.
The tax charge for the period of GBP4.8m was GBP0.3m down on prior year, reflecting an effective tax rate of 20.6% (Feb 2016: 21.0%). This was in line with the reduction in the UK Corporation Tax rate.
Consequently, Adjusted profit after tax of GBP18.5m was GBP0.9m (4.3%) down on prior year.
EPS AND DIVID
Adjusted Statutory
------------------------- --------------------------- ------------------------
Continuing
Continuing - restated
6 months 6 months 6 months 6 months
to to to to
Feb 2017 Feb 2016 Feb 2017 Feb 2016
------------------------- ------------- ------------ ----------- -----------
Profit after tax (GBPm) 18.5 19.4 14.3 15.3
Basic number of shares
(millions) 245.0 242.6 245.0 242.6
Basic EPS 7.6p 8.0p 5.9p 6.3p
Diluted number of
shares (millions) 248.6 249.1 248.6 249.1
Diluted EPS 7.4p 7.8p 5.8p 6.1p
------------------------- ------------- ------------ ----------- -----------
Dividend per share 3.1p 3.0p 3.1p 3.0p
On an Adjusted continuing basis, profit after tax of GBP18.5m resulted in a basic EPS of 7.6p, a decrease of 5.3% on the prior year. Including exceptional items and discontinued operations, statutory profit after tax of GBP14.3m was attributable to equity shareholders. This resulted in a basic statutory EPS of 5.9p, a decrease of 0.4p on the prior year.
The weighted average number of shares has increased by 2.4m to 245.0m reflecting the issue of shares to meet the deferred consideration obligations in relation to the acquisition of Tuffnells.
Dilutive shares increased the basic number of shares at 28 February 2017 by 3.6m to 248.6m. This resulted in a diluted adjusted EPS of 7.4p, a decrease of 5% on the prior year.
The calculation of diluted EPS includes the potential dilutive effect of employee incentive schemes of 2.1m shares (Feb 2016: 2.1m) and the weighted impact of 1.5m shares (Feb 2016: 4.4m) expected to be issued relating to the deferred consideration for the acquisition of Tuffnells.
The Board has approved an interim dividend of 3.1p, up 3.3% on last year.
The interim dividend will be paid on 7 July 2017 to shareholders on the register at the close of business on 9 June 2017.
CONNECT NEWS & MEDIA - NEWS DISTRIBUTION INCOME STATEMENT
GBPm
6 months to 6 months to
Feb 2017 Feb 2016 Change
--------------------------- ------------ ------------ ---------
Revenue 692.5 717.7 (3.5%)
Gross profit 55.9 60.2 (7.1%)
Operating costs (36.3) (40.3) 9.9%
---------------------------- ------------ ------------ ---------
Adjusted operating profit 19.6 19.9 (1.7%)
Gross margin 8.1% 8.4% (30 bps)
Cost ratio (5.1%) (5.6%) 50 bps
Operating margin 3.0% 2.8% 20 bps
---------------------------- ------------ ------------ ---------
News distribution's revenue of GBP692.5m declined 3.5% on the prior year. The period saw resilience in the newspaper market; revenue was down by 0.8% with cover price inflation mitigating volume declines. Magazine revenue was down by 7.8% with weekly titles performing more strongly than higher priced monthlies.
Gross profit of GBP55.9m was down GBP4.3m (7.1%) compared to the prior year, as a result of lower volumes of higher margin weekly and monthly magazines.
Operating costs of GBP36.3m were GBP4.0m favourable to the prior year. The cost ratio of 5.1% improved by 50bps reflecting GBP3.1m of network and operational process savings. The impact of the National Living Wage was GBP0.1m in period.
Pass My Parcel incurred a loss of GBP2.4m (Feb 2016: GBP2.1m) in the period with volumes increasing to 0.38m from 0.27m in the prior year. This volume growth was lower than expected as a consequence of weaker than predicted uplifts in outbound volumes, lower initial volumes from new clients, and delays to securing contracts for new services.
News distribution's Adjusted operating profit of GBP19.6m was GBP0.3m lower than the prior year. Excluding the impact of increased costs in Pass My Parcel the business's Adjusted operating profit was flat.
CONNECT NEWS & MEDIA - MEDIA INCOME STATEMENT
GBPm
6 months 6 months
to to Change
Feb 2017 Feb 2016
-------------------- ---------- ---------- ---------
Revenue 14.2 13.2 6.9%
Gross profit 7.3 6.7 8.7%
Operating costs (6.2) (5.7) (11.8%)
--------------------- ---------- ---------- ---------
Adjusted operating
profit 1.1 1.0 5.9%
Gross margin 51.3% 50.6% 70 bps
Cost ratio (43.8%) (43.0%) (80 bps)
Operating margin 7.5% 7.6% (10 bps)
--------------------- ---------- ---------- ---------
Media revenue of GBP14.2m was up by GBP1.0m (6.9%) on the prior year.
This was driven by a combination of higher UK volumes, increases to the range of titles handled, and growing digital revenues from new customers. It should be noted, however, that late in the period, two major airlines have materially curtailed the provision of newspaper and magazines on flights - this will impact revenue in the second half, and while mitigating action is being taken it is unlikely to offset the full impact.
Gross profit of GBP7.3m is up GBP0.6m on the prior year; gross margin of 51.3% has increased 70bps.
Operating costs of GBP6.2m are up GBP0.5m including costs for establishing the DMD commercial offering in further overseas markets.
Adjusted operating profit of GBP1.1m is up by GBP0.1m on prior year and operating margin of 7.5% is down 10bps versus prior year.
CONNECT PARCEL FREIGHT INCOME STATEMENT
GBPm
6 months 6 months
to to Change
Feb 2017 Feb 2016
-------------------- ---------- ---------- ---------
Revenue 86.6 82.4 5.1%
Gross profit 26.6 25.8 3.0%
Operating costs (22.3) (20.8) (7.2%)
--------------------- ---------- ---------- ---------
Adjusted operating
profit 4.3 5.0 (13.9%)
Gross margin 30.6% 31.3% (70bps)
Cost ratio (25.7%) (25.3%) (40bps)
Operating margin 4.9% 6.0% (110bps)
--------------------- ---------- ---------- ---------
Parcel Freight revenue was GBP86.6m, up GBP4.2m (5%) on the prior year, supported by price rises late in the period and the net acquisition of 220 new customers (prior year 258 net new customers), despite competitive pressures in the market. Consignment volume was broadly flat although the picture differs regionally, with softer growth in the West region offsetting progress in the other regions.
Gross profit of GBP26.6m was up GBP0.8m (3%) driven by revenue growth. Gross margin was down 70bps compared to the prior year, but remains above 30%, as price increases offset increased fuels costs and the absorption of increased net National Living Wage costs of GBP0.1m. Strong service KPIs meant revenue per consignment improved although a trend towards lighter weight per consignment continued.
Operating costs of GBP22.3m were up GBP1.5m (7.2%) on the prior year. The primary factors were incremental costs of GBP0.6m in operations including a review of the pay framework and standardisation of operating procedures; annualised incremental costs of GBP0.6m in the sales & marketing, HR and Executive teams to lead transformational change and build the new business pipeline; and an increase in depreciation costs of GBP0.4m from higher annualised capex investment.
Adjusted operating profit was GBP4.3m, down 13.9% on the prior year, due to continuing investment in the service proposition and operational capability impacting overheads. Operating performance varied significantly across the regions, hence our efforts and investments are focussed on achieving a more consistently improved performance across all areas of the UK.
Capex spend of GBP4.0m was up GBP2m on prior year, but lower than expectations. We have continued to invest in upgrading the quality and capacity of facilities, however, with consignment volumes broadly flat we have not needed to expand the network at the pace originally planned.
CONNECT BOOKS INCOME STATEMENT
GBPm
6 months 6 months
to to Change
Feb 2017 Feb 2016
-------------------- ---------- ---------- ---------
Revenue 118.5 103.5 14.4%
Gross profit 21.9 19.9 10.0%
Operating costs (20.3) (18.0) (12.7%)
--------------------- ---------- ---------- ---------
Adjusted operating
profit 1.6 1.9 (13.5%)
Gross margin 18.5% 19.2% (70 bps)
Cost ratio (17.1%) (17.4%) 30 bps
Operating margin 1.4% 1.8% (40 bps)
--------------------- ---------- ---------- ---------
Books revenue of GBP118.5m was up 14.4% on prior year as a result of strong growth in UK wholesale and Wordery. In contrast, the UK libraries markets remain challenging with revenue below last year.
Wholesale revenue of GBP56.8m was up 18% driven by higher volumes from a continued improvement in stock availability and customer service. A strong trading performance over peak and a healthy new business pipeline has resulted in a growing market share. Wordery revenue grew to GBP31.8m, up 26.9% on the prior year. This strong growth was driven by continued expansion of its presence as a seller on 'market place' sites, and further growth in sales from the Wordery.com web presence in the UK and internationally.
Gross margin was down 70bps to 18.5% due to a change in the weighting towards wholesale and Wordery and away from higher margin libraries.
Operating costs of GBP20.3m were up GBP2.3m (12.7%) on prior year. The cost ratio of 17.1% improved 30bps. Transport and packaging costs were higher by GBP1.2m driven by volume and price increases, direct labour costs were up by GBP0.5m (of which the net impact of the National Living Wage was GBP0.3m). Other operational costs increased by GBP0.6m. Capital investment is being made to further automate the 'pick and pack' of books, which will improve service levels and raise productivity.
Overall, the adjusted operating profit of GBP1.6m was down GBP0.3m (13.5%) on prior year.
CONNECT EDUCATION AND CARE INCOME STATEMENT - DISCONTINUED OPERATIONS
GBPm
6 months 6 months
to to Change
Feb 2017 Feb 2016
-------------------- ---------- ---------- ---------
Revenue 28.7 31.6 (9.1%)
Gross profit 12.7 13.7 (7.6%)
Operating costs (11.0) (10.9) (0.9%)
--------------------- ---------- ---------- ---------
Adjusted operating
profit 1.7 2.8 (38.8%)
Gross margin 44.1% 43.5% 60 bps
(340
Cost ratio (38.2%) (34.8%) bps)
(280
Operating margin 5.9% 8.7% bps)
--------------------- ---------- ---------- ---------
Education & Care revenue of GBP28.7m was down GBP2.9m (9.1%) on the prior year.
The division has faced a challenging competitive environment, combined with a tightening of expenditure in the education sector as a whole. Core sales in Education, Care and Early Years decreased 9.2%, primarily as a result of the budgetary pressures in Primary and Secondary schools.
Gross profit of GBP12.7m was down GBP1.0m driven by the decline in revenue, but gross margins were up 60bps to 44.1% as the mix of sales favoured higher margin products in our core markets.
Operating costs of GBP11.0m were up GBP0.1m (0.9%) on prior year. The cost ratio of 38.2% increased by 340bps, as a consequence of the decline in revenue. There was no net impact from the National Living Wage.
Adjusted operating profit of GBP1.7m was down GBP1.1m on the prior year, which resulted in an operating margin of 5.9% down 280bps driven by the decline in trading in the period.
EXCEPTIONAL ITEMS
GBPm
6 months to 6 months to
Feb 2017 Feb 2016
-------------------------------------- ------------ ------------
Network and reorganisation costs (1.4) (0.5)
Acquisition and disposal costs (0.9) (1.8)
Pension past service credit 0.7 -
Amortisation of acquired intangibles (4.1) (4.4)
Total loss before tax- continuing (5.7) (6.7)
Total loss before tax- discontinued (1.2) (1.3)
--------------------------------------- ------------ ------------
Total loss before tax (6.9) (8.0)
--------------------------------------- ------------ ------------
Taxation - continued 1.2 1.4
Taxation - discontinued 0.2 0.4
--------------------------------------- ------------ ------------
Taxation 1.4 1.8
--------------------------------------- ------------ ------------
Total loss after tax - continued (4.5) (5.3)
Total loss after tax - discontinued (1.0) (0.9)
--------------------------------------- ------------ ------------
Total loss after tax (5.5) (6.2)
--------------------------------------- ------------ ------------
Total continuing exceptional items were GBP4.5m after tax, compared to GBP5.3m in the prior year.
Total exceptional items including discontinued were GBP5.5m after tax, compared to GBP6.2m in the prior year.
Amortisation of continuing intangibles for acquisitions, for which there is no associated cash cost, was GBP4.1m compared to GBP4.4m in the prior year.
Continuing network and reorganisation costs of GBP1.4m includes GBP0.4m for the News distribution network rationalisation programme, predominantly directed at the commissioning of a new depot in Hemel Hempstead which, when fully operational, will serve 8000 customers and become the regional 'hub' for London and the Thames Valley; corporate restructuring of GBP0.5m relating to FMD Limited (one of the Group's joint ventures); and back-office re-organisation costs of GBP0.3m which were incurred in the period.
Continuing acquisition and disposal costs of GBP0.9m includes deferred consideration of GBP0.7m, compared to GBP1.8m in the prior year, in relation to Parcel Freight and Wordery. Professional fees relating to corporate development activities GBP0.2m compared to prior year of GBPnil.
An exceptional past service pension credit of GBP0.7m was incurred in the period from a commutation of 330 Smiths News scheme members in the WH Smiths Pension Trust.
The total cash impact of exceptional items for the period, including those from prior periods, was GBP4.2m compared to the prior year figure of GBP6.9m.
FREE CASH FLOW
GBPm
Continuing and discontinued operations 6 months to 6 months to
Feb 2017 Feb 2016
------------------------------------------ ------------ ------------
Adjusted Operating profit - continuing 26.6 27.8
Adjusted Operating profit - discontinued 1.7 2.8
-------------------------------------------- ------------ ------------
Adjusted profit before interest and tax 28.3 30.6
Depreciation & amortisation 6.9 6.6
-------------------------------------------- ------------ ------------
Adjusted EBITDA 35.2 37.2
Working capital (4.1) (6.1)
Capital expenditure (9.4) (5.7)
Net interest paid (2.3) (2.5)
Taxation (5.3) (3.1)
Pension funding (2.6) (2.6)
Other movements 0.9 0.8
-------------------------------------------- ------------ ------------
Free cash flow 12.4 18.0
-------------------------------------------- ------------ ------------
Exceptional items (4.2) (6.9)
-------------------------------------------- ------------ ------------
Free cash flow after Exceptional items 8.2 11.1
-------------------------------------------- ------------ ------------
The Group generated free cash flow of GBP12.4m in the period, a decrease of GBP5.6m or 31.2% on the prior year. Working capital in the period was GBP2.0m lower than the prior period, despite being adversely impacted by two fewer regular weekly direct debit runs compared to the same period last year. The prior year included the stock build up in News distribution for sticker albums ahead of the UEFA European Football Championship in the summer of 2016.
Adjusted EBITDA of GBP35.2m was down GBP2.0m on trading performance.
Capital expenditure of GBP9.4m is up GBP3.7m year on year as a result of increased investment in Parcel Freight of GBP2.0m. News distribution increased capex of GBP1.7m including Pass My Parcel investment of GBP0.9m and the Hemel Hempstead hub of GBP0.6m.
Net interest of GBP2.3m is down GBP0.2m on prior year, as net debt continues to reduce despite the payment of increasing dividends.
Tax paid of GBP5.3m compared to GBP3.1m in the prior year, a consequence of the annualised impact of Tuffnells cash tax payments, and the prior year including a one-off GBP0.9m refund of overpaid tax.
Pension paid of GBP2.6m, in respect of News distribution, Parcel Freight and the Consortium's CARE scheme, payment consistent with prior year.
Free cash flow from continuing operations was GBP9.4m and discontinued operations GBP3.0m.
NET DEBT AND BANK FACILITIES
GBPm
As at As at As at
Feb 2017 Feb 2016 Aug 2016
---------------------------------------- ---------- ---------- ----------
Opening net debt (141.7) (153.4) (153.4)
---------------------------------------- ---------- ---------- ----------
Free cash flow after Exceptional items 8.2 11.1 38.8
Dividend paid (15.9) (15.3) (22.7)
Other (0.5) (3.3) (4.4)
---------------------------------------- ---------- ---------- ----------
Closing net debt (149.9) (160.9) (141.7)
---------------------------------------- ---------- ---------- ----------
Net debt at the end of the period was GBP149.9m compared to GBP141.7m at August 2016 and GBP160.9m at February 2016. Debt at the end of the first half year is usually higher than the year end position given the weighting of free cash generation in the second half and a higher dividend payment in the first half of the year.
Other items include the net movement in the finance lease creditor of GBP1.2m offset by proceeds from issue of shares of GBP0.6m.
Net debt: EBITDA at the end of February 2017 was 1.8x versus 1.7x at August 2016 and 2.0x at February 2016. This remains comfortably within our main covenant ratio of 2.75x. The disposal of Education & Care is expected to generate gross cash proceeds of GBP56.5m which will be applied to reduce net debt.
The Group has a banking facility through a syndicate of five banks. The original committed facilities of GBP250m provided funding for over three and a half years to November 2018 and comprises a term loan, with limited amortisation, and a revolving credit facility with margin and covenants favourable to the previous facility. The first term loan repayment of GBP10m was made in February 2017 and the overall facility reduced to GBP240m. Under the terms of the agreement, the facility will reduce further with the disposal of the Education & Care business. As previously announced, we expect to renew our facility prior to the preliminary announcement of full year results in October 2017.
PENSION
The Group operates a combination of defined benefit schemes, the most significant of which is closed to new members and future accrual, as well as defined contribution schemes.
The largest scheme across the Group is the Smiths News defined benefit pension scheme (the Trust) which as at 28 February 2017 had an IAS 19 surplus of GBP139.6m (Aug 2016: GBP151.3m). However, as the pension scheme is closed to future accrual, this IAS 19 surplus is not available as a reduction of future contributions or through a funding holiday, and as a result the Group has not recognised this surplus on the balance sheet.
The Smiths News section of the WH Smith Pension Trust completed the actuarial triennial valuation as at 31 March 2015 and had an actuarial deficit of GBP17.5m. Smiths News has agreed with the Trust an unchanged schedule of contributions of GBP4.1m to March 2018, then a reduction thereafter to GBP3.3m to March 2020.
The Group continues to recognise the present value of the agreed deficit repair contributions as a pension liability of GBP10.6m (31 August 2016: GBP10.3m).
The Education & Care CARE and Platinum Pension defined benefit schemes had a combined IAS19 deficit at 28 February 2017 of GBP7.2m (Aug 2016: GBP7.9m). On completion of the disposal of the division, the actuarial liability will transfer to the acquirer.
The Tuffnells defined benefit scheme deficit at 28 February 2017 was GBP2.3m (Aug 2016: GBP3.0m).
RISKS AND UNCERTAINTIES
The Group has a clear framework in place to continuously identify and review its principal risks. This includes, amongst others, an annual risk appetite review performed by the Board, self-assessments performed by functional directors in each division and regular reporting to and robust challenge from the Audit Committee.
The directors' assessment of the Group's principal risks is aligned to the strategic business planning process. Across the Group, each division holds a quarterly Internal Risk Committee which is responsible for identifying, assessing and monitoring its own risks. Key risks are plotted on risk maps with descriptions, owners and mitigating actions, with each division reporting against a level of materiality consistent with its size.
Divisional risk maps are consolidated and calibrated to produce the Group's principal risk map which is reviewed and challenged quarterly by the Group Executive and Audit Committee, including the appropriateness of mitigating actions. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercise.
As part of the Board's ongoing assessment of the principal risks affecting the Group, the Board has considered the performance of the Group, its markets, the changing regulatory landscape and the Group's future strategic plans. Principal risks previously reported have been reviewed in detail and they have been refined and made more specific. Compared to the principal risks reported in the Annual Report 2016 the risk relating to Non-Adherence to Operator Licence Conditions is new, and the risk relating to a breach of airside security within the Media business has been removed as it is no longer considered to be a principal risk. This risk is still subject to ongoing monitoring and appropriate mitigation.
The table below profiles those risks that the Board believes to be most significant, together with the activity which we undertake to mitigate them.
Principal risks Potential impact Mitigating actions and assurance
-------------------------------------- -------------------------------------- --------------------------------------
Health & Safety - The risk of failing The impact of a Health and Safety Safety is a key priority of the
to provide employees with appropriate failure negatively impacts Group. Health and Safety performance
training and a operations, profitability and/or is reviewed at Board
safe environment results in serious Company reputation. Meetings, Audit Committee, Group
injury to employees and/or the Executive and Divisional Operating
public. Combined with the Board level.
risk that the Group fails to comply
with relevant Health and Safety Dedicated Health and Safety teams
legislation. exist throughout the business, who
are executing improvement
programs and promoting a safety
culture. Significant continued
investment in Health and Safety
improvements ongoing across the Group
in FY2017.
-------------------------------------- -------------------------------------- --------------------------------------
Non-Adherence to Operator Licence The impact of poor adherence to The Group maintains a comprehensive
Conditions - The risk of failing to Operator licence conditions results governance framework. Dedicated
adhere to external laws in sanctions which curtail Transport Compliance teams
and regulations by employees, our ability to operate and/or exist within the divisions
sub-contractors and third parties increase operating costs. specifically focused on transport
resulting in a breach of our related compliance. The Group
Operator Licence conditions. also executes improvement programs to
ensure continued legal compliance,
operational efficiencies
and to minimise mistakes. Applicable
legislation is diligently tracked and
monitored and any
changes reflected in policies and
controls within required timeframes.
-------------------------------------- -------------------------------------- --------------------------------------
Changing Consumer Behaviour - The Sales decline in newspapers and Historic price increases in
risk of new technologies and magazines are worse than expected newspapers and magazines have
demographics drive change in (forecasted expectation consistently offset a large part
customer behaviour and/or supply of a -3% to -5% range) and there may of the impact of falling volumes.
chain dynamics that result in be a 'tipping point' where some Major publishers continue to commit
structural market changes being titles cease to publish to print distribution,
deeper and quicker than predicted, rather than slowly decline. given the superior advertising
including migration from print to The Books market is impacted revenue from print over digital (lack
digital, reducing demand resulting in lower profit and of intermediaries) and
for our services. negative market sentiment related the slow take up of digital paid
to printed media. subscriptions. Management continues
to identify efficiencies
to compensate for market declines.
The Parcel Freight division is a
significant financial contributor
toward the Group's overall
results, mitigating market declines
for newspapers, magazines and books.
The Group's organic
strategy, including Pass My Parcel,
seeks to further protect the Group
from over exposure
to individual market risks, and
diversify the Group's service
offerings.
-------------------------------------- -------------------------------------- --------------------------------------
Optimising Contract Renewals and Impact on supply of product or route In News & Media, publishers typically
Tendering - The risk of failing to to market may erode margin and/or award five year contracts supporting
retain major contracts increase cost to serve. the market structure.
at acceptable rates and /or win new The Books, Education & Care and
contracts in competitive markets Parcel Freight divisions operate in
affected by aggressive fragmented markets with
pricing strategies impacts current fewer key significant suppliers or
and projected business performance. customers. Strong relationships
across the supply chain
help the Group to understand and
demonstrate its strengths for the
benefit of its suppliers
and customers.
-------------------------------------- -------------------------------------- --------------------------------------
Increased Labour Costs - The risk of In the event of any legal claim as to The Group puts appropriate
legislative changes or interpretation worker status by consultants, contractual and operational
impact the engagement sub-contractors or agency arrangements in place.
of employees and delivery contractors workers the Group could be liable for
resulting in an increase in the increased costs (national insurance Self-employed delivery contractors
number of employees contributions) and have clearly articulated agreements
and/or liabilities and cost. liabilities (such as employee defining tasks they
rights). The inability to pass on are contracted to provide to News &
such statutory increases to Media with annually set commercial
our customers could impact terms. The introduction
profitability, and affect the cost of of the National Living Wage (and
future efficiency programmes. future anticipated increases) impacts
only a limited proportion
of employees, when assessed across
the Group as a whole.
The Group continues to monitor legal
developments to ensure that it
maintains compliance with
legislation and best practice.
-------------------------------------- -------------------------------------- --------------------------------------
Network and IT Robustness - The risk Any material failure resulting from Disaster recovery and Business
of Network and IT disruptions in key systems outages, location access or Continuity plans exist and are
infrastructure facilities employee/contractor reviewed periodically. Investment
leads to an inability to deliver disputes may lead to an adverse is made to provide disaster recovery
according to customer expectations impact on operations, financial capability across the Group for all
and contractual obligations. performance and reputational essential systems.
impact. Protections are in place to defend IT
systems against attacks.
-------------------------------------- -------------------------------------- --------------------------------------
Failure to execute strategy - The Sales and/or profit expected from Financial and operational metrics are
risk of failing to deliver business acquisitions / organic growth may not considered along with risk
plans and/or financial be met and/or the assessments and impact on
returns in line with the planned Group's reputation and support for management before decisions are made.
strategic evolution of the group, future acquisitions are challenged. Performance to plans are reviewed
impacts external confidence Cultural change required monthly with post
and shareholder perception, bringing for diversification / restructuring investment analysis producing a more
into question the future strategic results in reduced performance and thorough review of each acquisition
direction of the Group financial returns. within 12 months
and confidence in its delivery. after deal completion. Detailed
integration process, governance and
support framework ensures
effective and timely adoption of
standards and process into
acquisitions and restructuring
activity.
-------------------------------------- -------------------------------------- --------------------------------------
Failure to execute restructuring or The impact of the inability of The annual business and strategic
other change management programmes - warehousing / operational / IT and planning process ensures appropriate
The risk of failing support systems to meet investment is budgeted
to re-engineer the business to create growth expectations of the Group, to ensure growth targets are
a platform for future growth combined creates poor customer experience, achieved. Organisational and cultural
with excessive increased investment costs change is a key imperative,
demands on new and existing staff and reduced profitability. leading to investment in resources
results in loss of key people, lack and skills that are required to
of engagement and loss Management's focus on current deliver the successful
of in-depth knowledge and specialist business operations and performance integration and development of new
skills impacting both current and is distracted by organisational businesses and business critical
future business prospects. change and new initiatives. initiatives, including
Management leave the Group taking investment in expert skills in change
valuable skills and knowledge management and project management.
with them.
-------------------------------------- -------------------------------------- --------------------------------------
Deterioration of the Macro Economic Reductions in discretionary spending Annual budgets and quarterly
Environment - The risk of volatility may impact sales of newspapers, forecasts take into account potential
and/or prolonged magazines or books and/or macro market and competitive
economic downturn causing a decline see a reduction in parcel volumes. impacts when setting expectations
in demand for our services including Uncertainty from Brexit may affect internally and externally, allowing
the uncertainty associated the Group in both the for or changing objectives
with Brexit, impacts current and/or short and medium term on trade to meet short and medium term
projected business performance above arrangements, future capital financial targets.
that included in investment strategies and resourcing
the business planning and review costs.
process.
-------------------------------------- -------------------------------------- --------------------------------------
Connect Group PLC
Condensed Consolidated Income Statement (Unaudited)
For the 6 months to 28 February 2017
GBPm Note 6 months to Restated 6 Restated 12
Feb 2017 months to Feb months to Aug
2016 2016
-------------- ----- ------------------------------- ------------------------------- ---------------------------------
Adjusted Adjustments Total Adjusted Adjustments Total Adjusted Adjustments Total
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Continuing
operations
Revenue 3 911.8 - 911.8 916.8 - 916.8 1,841.7 - 1,841.7
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Operating
profit 3 26.6 (5.7) 20.9 27.8 (6.7) 21.1 59.9 (17.7) 42.2
Finance costs (3.3) - (3.3) (3.3) - (3.3) (6.9) - (6.9)
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Profit before
tax 3 23.3 (5.7) 17.6 24.5 (6.7) 17.8 53.0 (17.7) 35.3
Income tax
expense 6 (4.8) 1.2 (3.6) (5.1) 1.4 (3.7) (10.9) 3.7 (7.2)
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Profit for
the period
from
continuing
operations 18.5 (4.5) 14.0 19.4 (5.3) 14.1 42.1 (14.0) 28.1
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Discontinued
operations
Profit for
the period
from
discontinued
operations 9 1.3 (1.0) 0.3 2.1 (0.9) 1.2 6.2 (0.9) 5.3
Profit
attributable
to equity
shareholders
continuing
and
discontinued
operations 19.8 (5.5) 14.3 21.5 (6.2) 15.3 48.3 (14.9) 33.4
-------------- ----- --------- ------------ ------ --------- ------------ ------ --------- ------------ --------
Earnings per share
from continuing
operations
Basic 8 7.6p 5.7p 8.0p 5.8p 17.3p 11.5p
Diluted 8 7.4p 5.6p 7.8p 5.7p 17.0p 11.4p
Earnings per share
from continuing
and discontinued
operations
Basic 8 8.1p 5.9p 8.9p 6.3p 19.8p 13.7p
Diluted 8 8.0p 5.8p 8.6p 6.1p 19.5p 13.5p
Equity
dividends
per share 7 3.1p 3.0p 9.5p
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 6 months to 28 February 2017
GBPm 6 months 6 months 12 months
Note to to to
Feb 2017 Feb 2016 Aug 2016
---------------------------------- ------- ---------- ---------- ----------
Items that will not be
reclassified to the Group
Income Statement:
Actuarial (losses) /gains
on defined benefit pension
scheme 5 (14.9) 0.8 (2.0)
Effect of asset limit on
defined benefit pension
scheme 5 13.0 0.4 (6.5)
Tax relating to components
of other comprehensive
income that will not be
reclassified 0.1 - 1.7
---------------------------------- ------- ---------- ---------- ----------
(1.8) 1.2 (6.8)
Items that may be reclassified
to the Group Income Statement:
Gain/ (loss) on cash flow
hedges 0.4 (0.9) (1.2)
Currency translation differences - 0.3 0.6
Tax relating to components
of other comprehensive
income (0.2) (0.1) (0.3)
---------------------------------- ------- ---------- ---------- ----------
Other comprehensive income 0.2 (0.7) (0.9)
Other comprehensive income
for the period (1.6) 0.5 (7.7)
Profit for the period 14.3 15.3 33.4
Total comprehensive income
for the period 12.7 15.8 25.7
Total comprehensive income
for the period attributable
to shareholders:
Continuing 12.1 14.0 24.9
Discontinued 0.6 1.8 0.8
Total comprehensive income for the period was fully attributable to the equity holders of the parent company.
Condensed Consolidated Balance Sheet (Unaudited)
As at 28 February 2017
GBPm As at As at As at
Note Feb 2017 Feb 2016 Aug 2016
---------------------------------- ------- ---------- ---------- ----------
Non-current assets
Intangible assets 12 133.0 168.8 164.8
Property, plant and equipment 44.7 45.1 50.3
Interest in joint venture
and associate 4.4 4.5 4.1
Retirement benefit assets 5 - 0.4 0.3
Deferred tax assets 5.9 7.1 7.7
188.0 225.9 227.2
---------------------------------- ------- ---------- ---------- ----------
Current assets
Inventories 42.8 41.9 42.3
Trade and other receivables 153.7 135.3 139.2
Derivative financial instruments 14 - 0.1 0.1
Cash and cash equivalents 13 10.3 4.6 9.1
Assets classified as held
for sale 9 55.4 - -
---------------------------------- ------- ---------- ---------- ----------
262.2 181.9 190.7
---------------------------------- ------- ---------- ---------- ----------
Total assets 450.2 407.8 417.9
---------------------------------- ------- ---------- ---------- ----------
Current liabilities
Trade and other payables (212.5) (183.9) (198.8)
Current tax liabilities (5.9) (7.2) (6.9)
Obligations under finance
leases (1.8) (2.6) (3.0)
Bank overdrafts and other
borrowings 13 (87.0) (66.6) (61.0)
Derivative financial instruments 14 (0.3) - -
Provisions 15 (6.3) (5.2) (4.1)
Retirement benefits obligation 5 (4.1) (4.1) (8.5)
Liabilities classified as
held for sale 9 (17.1) - -
(335.0) (269.6) (282.3)
Non-current liabilities
Bank loans and other borrowings 13 (69.4) (88.7) (79.1)
Retirement benefit obligation 5 (8.8) (11.1) (17.4)
Deferred tax liabilities (9.3) (12.2) (10.9)
Non current provisions 15 (6.6) (6.0) (4.9)
Obligations under finance
leases (7.7) (7.6) (7.7)
Derivative financial instruments 14 (0.8) (1.3) (1.5)
Other non-current liabilities (1.0) (0.9) (1.1)
---------------------------------- ------- ---------- ---------- ----------
(103.6) (127.8) (122.6)
---------------------------------- ------- ---------- ---------- ----------
Total liabilities (438.6) (397.4) (404.9)
---------------------------------- ------- ---------- ---------- ----------
Total net assets 11.6 10.4 13.0
---------------------------------- ------- ---------- ---------- ----------
Equity
Called up share capital 16 12.4 12.3 12.3
Share premium account 16 60.4 59.1 59.2
Other reserves (283.7) (285.1) (284.7)
Retained earnings 222.5 224.1 226.2
---------------------------- --- -------- -------- --------
Total shareholders' equity 11.6 10.4 13.0
---------------------------- --- -------- -------- --------
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 6 months to 28 February 2017
GBPm Share Other Retained Total
Note Share Premium Reserves Earnings equity
Capital Account
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Balance at 31 August
2015 12.2 55.2 (284.7) 226.5 9.2
Profit for the period - - - 15.3 15.3
Loss on cash flow hedges - - (0.9) - (0.9)
Currency translation
differences - - 0.3 - 0.3
Actuarial gain on defined
benefit pension scheme - - - 0.8 0.8
Impact of IFRIC 14
on defined benefit
pension scheme - - - 0.4 0.4
Tax relating to components
of other comprehensive
income - - - (0.1) (0.1)
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Total comprehensive
income for the period - - (0.6) 16.4 15.8
Issue of share capital 16 0.1 3.9 - - 4.0
Dividends paid - - - (15.4) (15.4)
Purchase of own shares - - (1.3) - (1.3)
Employee share schemes - - 1.5 (1.5) -
Recognition of share
based payments - - - (1.9) (1.9)
Balance at 28 February
2016 12.3 59.1 (285.1) 224.1 10.4
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Profit for the period - - - 18.1 18.1
Loss on cash flow hedges - - (0.3) - (0.3)
Actuarial gain on defined
benefit pension scheme - - - (2.8) (2.8)
Impact of IFRIC 14
on defined benefit
pension scheme - - - (6.9) (6.9)
Currency translation
differences - - 0.3 - 0.3
Tax relating to components
of other comprehensive
income - - - 1.5 1.5
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Total comprehensive
income for the period - - - 9.9 9.9
Issue of share capital - 0.1 - - 0.1
Purchase of own shares - - 0.2 - 0.2
Dividends paid - - - (7.3) (7.3)
Employee share schemes - - 0.2 (0.2) -
Recognition of share
based payments net
of tax - - - (0.3) (0.3)
Balance at 31 August
2016 12.3 59.2 (284.7) 226.2 13.0
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Profit for the period - - - 14.3 14.3
Gain on cash flow hedges - - 0.4 - 0.4
Actuarial loss on defined
benefit pension scheme - - - (14.9) (14.9)
Impact of IFRIC 14
on defined benefit
pension scheme - - - 13.0 13.0
Tax relating to components
of other comprehensive
income - - - (0.1) (0.1)
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Total comprehensive
income for the period - - 0.4 12.3 12.7
Issue of share capital 16 0.1 1.2 - - 1.3
Dividends paid 7 - - (15.9) (15.9)
Employee share schemes - - 0.6 (0.6) -
Recognition of share
based payments 0.5 0.5
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Balance at 28 February
2017 12.4 60.4 (283.7) 222.5 11.6
---------------------------- ------- ---------- --------- ---------- ---------- ---------
Condensed Consolidated Group Cash Flow Statement (Unaudited)
For the 6 months to 28 February 2017
GBPm Note 6 months 6 months 12 months
to to to
Feb 2017 Feb 2016 Aug 2016
------------------------------------ ------ ---------- ---------- ----------
Net cash from operating activities 10 19.8 19.7 58.2
Investing activities
Dividends from associates 0.1 - 0.7
Purchase of property, plant
and equipment (7.0) (4.9) (9.1)
Purchase of intangible assets (2.4) (0.8) (4.8)
Net cash used in investing
activities (9.3) (5.7) (13.2)
------------------------------------ ------ ---------- ---------- ----------
Financing activities
Interest paid (2.3) (2.5) (4.9)
Dividends paid 7 (15.9) (15.3) (22.7)
Repayments of obligations
under finance leases (2.2) (1.7) (3.5)
Proceeds on issue of shares 0.6 0.3 0.4
Purchase of shares for Employee
Benefit Trust - (1.3) (1.1)
Increase/ (decrease) in short
term borrowings 16.0 - (15.5)
------------------------------------ ------ ---------- ---------- ----------
Net cash from financing activities (3.8) (20.5) (47.3)
------------------------------------ ------ ---------- ---------- ----------
Net decrease in cash and
cash equivalents 6.7 (6.5) (2.3)
Effect of foreign exchange
rate changes 0.2 0.2 0.5
------------------------------------ ------ ---------- ---------- ----------
6.9 (6.3) (1.8)
Opening net cash and cash
equivalents 9.1 10.9 10.9
------------------------------------ ------ ---------- ---------- ----------
Closing net cash and cash
equivalents 16.0 4.6 9.1
------------------------------------ ------ ---------- ---------- ----------
Analysis of net debt
As at As at As at
GBPm Note Feb 2017 Feb 2016 Aug 2016
---------------------------- ---- -------- -------- --------
Cash and cash equivalents 13 16.0 4.6 9.1
Current borrowings 13 (87.0) (66.6) (61.0)
Non-current borrowings 13 (69.4) (88.7) (79.1)
Finance lease liabilities (9.5) (10.2) (10.7)
---------------------------- ---- -------- -------- --------
Net debt (149.9) (160.9) (141.7)
---------------------------- ---- -------- -------- --------
The movement in net debt includes GBP0.3m loan fee amortisation. Loan fees incurred in respect of the Group's borrowing facilities which expire in November 2018 are amortised over a 3.5 year period. The value of unamortised fees outstanding at 28 February 2017 was GBP0.6m.
Notes to the Condensed Unaudited Interim Financial Statements
For the 6 months to 28 February 2017
1 General Information
As in past years, these Interim Financial Statements are unaudited and not reviewed.
The information for the year ended 31 August 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
Going Concern
The Group meets its day to day working capital requirements through its committed bank facility of GBP240m which runs until November 2018.
The Group's forecasts, taking into account the Board's future expectations of the Group's performance, indicate that there is substantial headroom within these bank facilities and the Group will continue to operate within the covenants attaching to those facilities. Those bank facilities together with renewed long term contracts within News distribution with a number of publishers mean that the Group is well placed to manage its business risks successfully.
As a result, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.
The Group's principal areas of estimation and judgement remain unchanged since the year end and are set out in note 1 (c) on page 75 of the Annual Report for the year ended 31 August 2016.
2 Significant Accounting Policies
The unaudited condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in these unaudited condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 August 2016.
3 Segmental Analysis of Results
In accordance with IFRS 8 'Operating Segments', Group management has identified its operating segments. The performance of these operating segments is reviewed on a monthly basis by the Board. The Board monitors the tangible, intangible and financial assets attributable to each segment to determine the allocation of resources and the performance of each segment.
These operating segments are:
Connect News & The UK market leading distributor
Media: News distribution of newspapers and magazines to
(referred to as 30,000 retailers across England
Smiths News) and Wales.
-------------------------- --------------------------------------
Connect News & A supplier of newspaper and magazines
Media: Media to airlines and an emerging player
(referred to as in inflight entertainment.
DMD)
-------------------------- --------------------------------------
Connect Books A leading UK distributor of physical
(referred to as and digital books to high street
Bertrams, Dawson and on-line retailers, public
Books and Wordery) libraries, academic institutions
and direct to consumers with a
strong international presence,
supplying 101 countries.
-------------------------- --------------------------------------
Connect Parcel A leading provider of next day
Freight B2B delivery of mixed parcel freight
(referred to as consignments.
Tuffnells)
-------------------------- --------------------------------------
As explained in note 9 Connect Education & Care, a leading distributor of education and care consumable products is held for sale with completion of the proposed transaction to be concluded following expected approval of the transaction from the Competition & Markets Authority. The division is presented as a discontinued operation and has been included below where necessary for the purpose of reconciliation.
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue Operating profit
----------------------- ----------------------------- -----------------------------
GBPm 6 months 6 months 12 months 6 months 6 months 12 months
to Feb to Feb to Aug to Feb to Feb to Aug
2017 2016 2016 2017 2016 2016
----------------------- -------- -------- --------- -------- -------- ---------
Connect News
& Media: News
distribution 692.5 717.7 1,443.8 19.6 19.9 40.0
Connect News
& Media: Media 14.2 13.2 27.6 1.1 1.0 2.4
Connect Books 118.5 103.5 195.9 1.6 1.9 2.5
Connect Parcel
Freight 86.6 82.4 174.4 4.3 5.0 15.0
------------------------ -------- -------- --------- -------- -------- ---------
Continuing
operations
- adjusted 911.8 916.8 1,841.7 26.6 27.8 59.9
------------------------ -------- -------- --------- -------- -------- ---------
Revenue - Discontinued
operations 28.7 31.6 64.8
------------------------ -------- -------- --------- -------- -------- ---------
Revenue - continuing
and discontinued
operations 940.5 948.4 1,906.5
------------------------ -------- -------- --------- -------- -------- ---------
Continuing
operations
-Exceptional
items - (5.7) (6.7) (17.7)
------------------------ -------- -------- --------- -------- -------- ---------
Total continuing
operations 20.9 21.1 42.2
------------------------ -------- -------- --------- -------- -------- ---------
Net finance
expense (3.3) (3.3) (6.9)
Profit before
taxation -
continuing
operations 17.6 17.8 35.3
------------------------ -------- -------- --------- -------- -------- ---------
Profit before
taxation -
discontinued
operations 0.5 1.4 6.6
------------------------ -------- -------- --------- -------- -------- ---------
Profit before
taxation -
continuing
operations
and discontinued
operations 18.1 19.2 41.9
------------------------ -------- -------- --------- -------- -------- ---------
Segment assets and liabilities
Assets Liabilities Net (liabilities)
/assets
----------------------- ------------------- ------------------------- -------------------------
GBPm HY HY FY HY HY FY HY HY FY
2017 2016 2016 2017 2016 2016 2017 2016 2016
----------------------- ----- ----- ----- ------- ------- ------- ------- ------- -------
Connect News
& Media: News
distribution 122.0 79.3 89.4 (317.7) (265.6) (280.4) (195.7) (186.3) (191.0)
Connect News
& Media: Media 20.6 22.4 20.5 (7.2) (9.8) (7.6) 13.4 12.6 12.9
Connect Books 78.6 82.8 74.7 (50.6) (65.7) (47.5) 28.0 17.1 27.2
Connect Parcel
Freight 173.6 165.8 175.9 (46.0) (39.1) (49.0) 127.6 126.7 126.9
Discontinued
operations 55.4 57.5 57.4 (17.1) (17.2) (20.4) 38.3 40.3 37.0
----------------------- ----- ----- ----- ------- ------- ------- ------- ------- -------
Consolidated
assets/ (liabilities) 450.2 407.8 417.9 (438.6) (397.4) (404.9) 11.6 10.4 13.0
----------------------- ----- ----- ----- ------- ------- ------- ------- ------- -------
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation Additions to
non-current
assets
------------------- ------------------- -------------------- -------------------
GBPm HY HY FY HY HY FY HY HY FY
2017 2016 2016 2017 2016 2016 2017 2016 2016
------------------- ----- ----- ----- ----- ----- ------ ----- ----- -----
Connect News
& Media: News
distribution (2.1) (2.2) (4.5) (1.3) (1.1) (2.3) 3.6 1.8 5.2
Connect News
& Media: Media (0.1) (0.1) (0.1) (0.2) (0.2) (0.4) 3.3 0.1 0.3
Connect Books (0.3) (0.3) (3.3) (1.1) (1.3) (7.1) 0.6 0.6 11.1
Connect Parcel
Freight (1.9) (1.5) (0.6) (3.5) (3.5) (2.7) 2.1 2.0 1.2
------------------- ----- ----- ----- ----- ----- ------ ----- ----- -----
Total - continuing
operations (4.4) (4.1) (8.5) (6.1) (6.1) (12.5) 9.6 4.5 17.8
------------------- ----- ----- ----- ----- ----- ------ ----- ----- -----
Discontinued
operations (0.2) (0.3) (0.4) (1.0) (1.1) (2.2) - 0.3 1.5
------------------- ----- ----- ----- ----- ----- ------ ----- ----- -----
Consolidated
total (4.6) (4.4) (8.9) (7.1) (7.2) (14.7) 9.6 4.8 19.3
------------------- ----- ----- ----- ----- ----- ------ ----- ----- -----
Geographical analysis
Revenue by destination Non-current assets
by
location of operation
-------------------- ----------------------------- -----------------------------
GBPm 6 months 6 months 12 months 6 months 6 months 12 months
to Feb to Feb to Aug to Feb to Feb to Aug
2017 2016 2016 2017 2016 2016
-------------------- -------- -------- --------- -------- -------- ---------
United Kingdom 857.5 874.4 1,759.8 181.8 184.3 185.3
Europe 32.3 26.6 47.4 0.3 0.4 0.3
Rest of World 22.0 15.8 34.5 - - -
-------------------- -------- -------- --------- -------- -------- ---------
Consolidated
total - continuing
operations 911.8 916.8 1,841.7 182.1 184.7 185.6
-------------------- -------- -------- --------- -------- -------- ---------
Discontinued
operations 28.7 31.6 64.8 - 33.7 33.6
-------------------- -------- -------- --------- -------- -------- ---------
Total continuing
and discontinued
operations 940.5 948.4 1,906.5 182.1 218.4 219.2
-------------------- -------- -------- --------- -------- -------- ---------
4 Exceptional Items
GBPm 6 months 6 months 12 months
to Feb to Feb to Aug
2017 2016 2016
----------------------------- --------- --------- ----------
Continuing operations
Network and re-organisation
costs (1.4) (0.5) (3.7)
Acquisition and
disposal costs (0.9) (1.8) (3.8)
Amortisation of
acquired intangibles (4.1) (4.4) (8.7)
Pension 0.7 - -
Legal provision - - (1.5)
Total before tax (5.7) (6.7) (17.7)
------------------------------ --------- --------- ----------
Taxation 1.2 1.4 3.7
------------------------------ --------- --------- ----------
Total after taxation (4.5) (5.3) (14.0)
------------------------------ --------- --------- ----------
Discontinued operations
Acquisition and (0.6) - -
disposal costs
Network and re-organisation
costs - (0.6) (0.7)
Pension - - 1.1
Amortisation of
acquired intangibles (0.6) (0.7) (1.5)
------------------------------ --------- --------- ----------
Total before tax (1.2) (1.3) (1.1)
------------------------------ --------- --------- ----------
Taxation 0.2 0.4 0.2
------------------------------ --------- --------- ----------
Total after taxation (1.0) (0.9) (0.9)
------------------------------ --------- --------- ----------
Continuing and discontinued
operations
Total before tax (6.9) (8.0) (18.8)
Taxation 1.4 1.8 3.9
------------------------------ --------- --------- ----------
Total after taxation (5.5) (6.2) (14.9)
------------------------------ --------- --------- ----------
Exceptional items on a continuing basis for the period totalled GBP4.5m after tax for the period, compared to GBP5.3m in the prior year.
Network and re-organisation costs
Continuing network and reorganisation costs of GBP1.4m includes GBP0.4m for the News distribution network rationalisation programme, predominantly directed at the commissioning of a new depot in Hemel Hempstead which, when fully operational, will serve 8,000 customers and become the regional 'hub' for London and the Thames Valley; corporate restructuring of GBP0.5m relating of FMD Limited (one of the Group's joint ventures), and back-office re-organisation costs of GBP0.3m.
Acquisition and disposal costs
Continuing acquisition and disposal costs of GBP0.9m includes deferred consideration of GBP0.7m compared to GBP1.8m in the prior year in relation to Parcel Freight and Wordery. Professional fees relating to corporate development activities GBP0.2m compared to prior year of GBPnil.
Amortisation of acquired intangibles
Amortisation of continuing intangibles for acquisitions, for which there is no associated cash cost, was GBP4.1m.
Pension
An exceptional past service pension credit of GBP0.7m was incurred in the period from a commutation of 330 Smiths News pension scheme members.
5 Retirement Benefit Obligation
Defined benefit pension schemes
The Group operates four defined benefit schemes, of which the WH Smith Pension Trust represents 93% of the total obligation at 28 February 2017 (29 February 2016: 93%). On acquisition of the Consortium, the Group acquired the assets and liabilities in respect of two other defined benefit schemes (the 'Consortium CARE' and 'Platinum' schemes). The Group acquired the assets and liabilities of Tuffnells Parcels Express Pension Scheme on its acquisition of The Big Green Parcel Holding Company Limited on 19 December 2014.
The amounts recognised in the balance sheet are as follows:
GBPm As at Feb As at Feb As at Aug
2017 2016 2016
------------------------------- ---------- ---------- ----------
Present value of defined
benefit obligation (509.7) (403.8) (531.5)
Fair value of assets 639.8 540.8 671.9
------------------------------- ---------- ---------- ----------
Net surplus 130.1 137.0 140.4
Amounts not recognised
due to asset limit (139.6) (139.9) (151.3)
Additional liability
recognised due to
minimum funding requirements (10.6) (11.9) (10.3)
Held for sale 7.2 - -
------------------------------- ---------- ---------- ----------
Pension liability (12.9) (15.2) (21.5)
------------------------------- ---------- ---------- ----------
Pension asset - 0.4 0.3
------------------------------- ---------- ---------- ----------
The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of GBP139.6m at 28 February 2017 (FY2016: GBP151.3m surplus) which the Group does not recognise in the accounts as the investment policy adopted means that the amount available on a reduction of future contributions is expected to be GBPnil (FY2016: GBPnil). The valuation of the defined benefit schemes for the IAS 19 (revised) disclosures have been carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for membership experience and changes in the actuarial assumptions.
The actuarial valuation for funding purposes produces a scheme deficit due to different assumptions and calculation methodologies used compared to those under IAS 19, most notably the use of a discount rate that reflects the actual investment strategy, rather than corporate bond yields as required under IAS 19.
The triennial valuation as at 31 March 2015 was completed in November 2016. The actuarial valuation of the Smiths News section of the WH Smith Pension Trust at 31 March 2015 was a deficit of GBP17.5m. Future cash contributions by the Group to address the deficit will be GBP4.1m per annum to March 2018 and thereafter at GBP3.3m per annum until March 2020. The Group recognises the present value of these agreed contributions as a pension liability of GBP10.6m (FY2016: GBP10.3m).
Other defined benefit schemes
The actuarial valuation for funding purposes of the Consortium CARE scheme as at 31 December 2013 was a scheme deficit of GBP1.5m. The Platinum scheme's 31 December 2013 funding valuation showed no deficit. The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2015 was a scheme deficit of GBP4.1m. Guaranteed Minimum Pension ("GMP") equalisation is expected to lead to an increase in scheme liabilities at some future date for the Consortium Care and Tuffnells Parcels Express Schemes.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:
% p.a. 6 months 6 months 12 months
to Feb to Feb to Aug
2017 2016 2016
----------------------- --------- --------- ----------
Discount rate 2.60% 3.80% 2.00%
Inflation assumptions
- CPI 2.50% 2.00% 2.00%
Inflation assumptions
- RPI 3.50% 3.00% 3.00%
----------------------- --------- --------- ----------
A summary of the movements in the net balance sheet asset /(liability) and amounts recognised in the Group Income Statement and Other Comprehensive Income are as follows:
GBPm Fair Defined Impact Total
value benefit of IFRIC
of scheme obligation 14 on defined
assets benefit
pension
schemes
----------------------------- ----------- ------------ --------------- --------
At 31 August 2015 563.3 (432.0) (149.4) (18.1)
Current service cost (0.1) (0.1) - (0.2)
Interest cost 10.5 (8.0) (2.8) (0.3)
----------------------------- ----------- ------------ --------------- --------
Total amount recognised
in income statement 10.4 (8.1) (2.8) (0.5)
----------------------------- ----------- ------------ --------------- --------
Return on plan assets
excluding amounts included
in net interest (14.1) - - (14.1)
Actuarial gains on scheme
liabilities - 14.9 - 14.9
Change in surplus not
recognised - - 0.4 0.4
----------------------------- ----------- ------------ --------------- --------
Amount recognised in
other comprehensive income (14.1) 14.9 0.4 1.2
----------------------------- ----------- ------------ --------------- --------
Employer contributions 2.6 - - 2.6
Employee contributions - - - -
Benefit payments (21.4) 21.4 - -
----------------------------- ----------- ------------ --------------- --------
Amounts included in cash
flow statement (18.8) 21.4 - 2.6
----------------------------- ----------- ------------ --------------- --------
At 29 February 2016 540.8 (403.8) (151.8) (14.8)
----------------------------- ----------- ------------ --------------- --------
Current service cost 0.1 (0.2) (0.1)
Interest cost 10.4 (7.8) (2.9) (0.3)
Administration expenses (0.1) - - (0.1)
Past service credits - 1.1 - 1.1
----------------------------- ----------- ------------ --------------- --------
Total amount recognised
in income statement 10.4 (6.9) (2.9) 0.6
----------------------------- ----------- ------------ --------------- --------
Return on plan assets
excluding amounts included
in net interest 129.5 - - 129.5
Actuarial losses on scheme
liabilities - (132.3) - (132.3)
Change in surplus not
recognised excluding
amounts recognised in
net interest - - (6.9) (6.9)
----------------------------- ----------- ------------ --------------- --------
Amount recognised in
other comprehensive income 129.5 (132.3) (6.9) (9.7)
----------------------------- ----------- ------------ --------------- --------
Employer contributions 2.7 - - 2.7
Employee contributions 0.1 (0.1) - -
Benefit payments (11.6) 11.6 - -
----------------------------- ----------- ------------ --------------- --------
Amounts included in cash
flow statement (8.8) 11.5 - 2.7
----------------------------- ----------- ------------ --------------- --------
At 31 August 2016 671.9 (531.5) (161.6) (21.2)
----------------------------- ----------- ------------ --------------- --------
GBPm Fair Defined Surplus Total
value benefit not recognised
of scheme obligation
assets
At 31 August 2016 671.9 (531.5) (161.6) (21.2)
Current service cost (0.1) - (0.1)
Interest cost 6.5 (5.1) (1.6) (0.2)
Administrative expenses (0.1) - (0.1)
Past service cost/(credit) (3.4) 4.2 - 0.8
Total amount recognised
in income statement 3.1 (1.1) (1.6) 0.4
----------------------------- ----------- ------------ ---------------- -------
Return on plan assets
excluding amounts included
in net interest (24.1) - - (24.1)
Actuarial gains on scheme
liabilities - 9.2 - 9.2
Change in surplus not
recognised - - 13.0 13.0
----------------------------- ----------- ------------ ---------------- -------
Amount recognised in
other comprehensive
income (24.1) 9.2 13.0 (1.9)
----------------------------- ----------- ------------ ---------------- -------
Employer contributions 2.5 0.1 - 2.6
Benefit payments (13.6) 13.6 - -
----------------------------- ----------- ------------ ---------------- -------
Amounts included in
cash flow statement (11.1) 13.7 - 2.6
----------------------------- ----------- ------------ ---------------- -------
Reclassified as held
for sale (17.6) 24.8 - 7.2
At 28 February 2017 622.2 (484.9) (150.2) (12.9)
Included within Current
liabilities (4.1)
Included within Non-current
liabilities (8.8)
----------------------------- ----------- ------------ ---------------- -------
The pension asset / liability at 28 February 2017 in respect of the Education & Care division is presented within assets / liabilities held for sale in the balance sheet in accordance with IFRS 5 "Non Current Assets Held for Sale and Discontinued Operations" (see note 9).
6 Income Tax Expense
6 months to 6 months to 12 months to
GBPm Feb 2017 Feb 2016 Aug 2016
Continuing Adjusted Exceptional Total Adjusted Exceptional Total Adjusted Exceptional Total
operations items items items
----------------- -------- ----------- ----- -------- ----------- ----- -------- ----------- -----
Current tax 4.8 (0.5) 4.3 5.3 (0.2) 5.1 11.6 (1.2) 10.4
Adjustment
in respect
of prior years - - - (0.2) - (0.2) (0.6) (0.1) (0.7)
Total current
tax charge 4.8 (0.5) 4.3 5.1 (0.2) 4.9 11.0 (1.3) 9.7
Deferred tax
- current
period - (0.6) (0.6) (0.2) (0.6) (0.8) (0.3) (1.5) (1.8)
Deferred tax
- prior year - - - - - - (0.1) (0.1) (0.2)
Deferred tax
- impact of
rate change - (0.1) (0.1) 0.2 (0.6) (0.4) 0.3 (0.8) (0.5)
Total deferred
tax charge - (0.7) (0.7) - (1.2) (1.2) (0.1) (2.4) (2.5)
Total tax
charge relating
to continuing
operations 4.8 (1.2) 3.6 5.1 (1.4) 3.7 10.9 (3.7) 7.2
----------------- -------- ----------- ----- -------- ----------- ----- -------- ----------- -----
Effective
tax rate 20.6% 20.6% 21.0% 20.8% 20.5% 20.7%
----------------- -------- ----------- ----- -------- ----------- ----- -------- ----------- -----
The effective income tax rate on adjusted profit before tax relating to continuing operations for the period was 20.6% (Feb 2016: 21.0%).
The effective income tax rate on statutory profit before tax relating to continuing operations for the period was 20.6% (Feb 2016: 20.8%).
Reconciliation of the tax charge
GBPm 6 months 6 months 12 months
to Feb to Feb to Aug
2017 2016 2016
----------------------------------- --------- --------- ----------
Profit before tax - continuing
operations 17.6 17.8 35.4
----------------------------------- --------- --------- ----------
Tax on profit at the standard
rate of UK corporation tax 19.6%
(Aug 2016: 20.0%, Feb 2016:
20.0%) 3.5 3.8 7.1
Effect of non-tax deductible
expenses 0.2 0.6 1.4
Effect of change in deferred
tax rate (0.1) (0.4) (0.5)
Effect of higher/(lower) overseas
tax rates - 0.1 0.1
Adjustment in respect of prior
years - (0.2) (0.9)
Total tax charge recognised
in the income statement relating
to continuing operations 3.6 3.7 7.2
----------------------------------- --------- --------- ----------
Tax charge/ (credit) to other comprehensive income
GBPm 6 months 6 months 12 months
Continuing operations to Feb to Feb to Aug
2017 2016 2016
------------------------------------- --------- --------- ----------
Current tax relating to the
defined benefit pension scheme (0.2) (0.4) (0.8)
Current tax relating to share
based payments - - (0.1)
Deferred tax relating to impact
of change in tax rate 0.2 - 0.4
Deferred tax relating to derivative
financial instruments - - (0.3)
Deferred tax relating to share
based payments - 0.1 0.3
Deferred tax related to retirement
benefit obligations - 0.4 0.2
------------------------------------- --------- --------- ----------
Tax charge/(credit) recognised
in other comprehensive income
and directly in equity relating
to continuing operations - 0.1 (0.3)
------------------------------------- --------- --------- ----------
7 Dividends
Proposed dividends 6 months 6 months 12 months 6 months 6 months 12 months
for the period to Feb to Feb to Aug to Feb to Feb to Aug
2017 2016 2016 2017 2016 2016
Per Per Per GBPm GBPm GBPm
share share share
---------------------- --------- --------- ---------- --------- --------- ----------
Final dividend - - 6.5p - - 15.9
Interim dividend 3.1p 3.0p 3.0p 7.6 7.3 7.3
---------------------- --------- --------- ---------- --------- --------- ----------
3.1p 3.0p 9.5p 7.6 7.3 23.2
---------------------- --------- --------- ---------- --------- --------- ----------
Recognised dividends
for the period
Per Per Per GBPm GBPm GBPm
share share share
---------------------- --------- --------- ---------- --------- --------- ----------
Final dividend -
prior year 6.5p 6.3p 6.3p 15.9 15.4 15.4
Interim dividend
- current year - - 3.0p - - 7.3
---------------------- --------- --------- ---------- --------- --------- ----------
6.5p 6.3p 9.3p 15.9 15.4 22.7
---------------------- --------- --------- ---------- --------- --------- ----------
During the six month period to 28 February 2017, the final dividend for the year ended 31 August 2016 of 6.5p (Feb 2016: 6.3p) per ordinary share was paid to shareholders. In addition the directors have approved an interim dividend in respect of the period ended 28 February 2017 of 3.1p per ordinary share (Feb 2016: 3.0p). This has not been included as a liability in these condensed financial statements. This will be paid on 7 July 2017 to shareholders on the Register at the close of business on 9 June 2017.
8 Earnings per share
6 months to 6 months to 12 months to
Feb 2017 Feb 2016 Aug 2016
Earnings Weighted Pence Earnings Weighted Pence Earnings Weighted Pence
(GBPm) average per (GBPm) average per (GBPm) average per
number share number share number share
of of of
shares shares shares
million million million
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Weighted
average
number of
shares in
issue 247.2 245.2 245.9
Shares held
by the ESOP
(weighted) (2.2) (2.6) (2.5)
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Basic earnings
per share
(EPS) 245.0 242.6 243.4
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Continuing
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Adjusted
earnings
attributable
to ordinary
shareholders 18.5 245.0 7.6p 19.4 242.6 8.0p 42.1 243.4 17.3p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Exceptional
items (4.5) (5.3) (14.0)
Earnings
attributable
to ordinary
shareholders 14.0 245.0 5.7p 14.1 242.6 5.8p 28.1 243.4 11.5p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Total -
continuing
and discontinued
operations
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Adjusted
earnings
attributable
to ordinary
shareholders 19.8 245.0 8.1p 21.5 242.6 8.9p 48.3 243.4 19.8p
Exceptional
items (5.5) (6.2) (14.9)
Earnings
attributable
to ordinary
shareholders 14.3 245.0 5.9p 15.3 242.6 6.3p 33.4 243.4 13.7p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Diluted
earnings
per share
(EPS)
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Effect of
dilutive
securities 3.6 6.5 3.8
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Continuing
Diluted
adjusted
EPS 18.5 248.6 7.4p 19.4 249.1 7.8p 42.1 247.2 17.0p
Diluted
EPS 14.0 248.6 5.6p 14.1 249.1 5.7p 28.1 247.2 11.4p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Total -
continuing
and discontinued
operations
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Diluted
adjusted
EPS 19.8 248.6 8.0p 21.5 249.1 8.6p 48.3 247.2 19.5p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Diluted
EPS 14.3 248.6 5.8p 15.3 249.1 6.1p 33.4 247.2 13.5p
------------------ -------- -------- ------ -------- -------- ------- -------- -------- -------
Dilutive shares increased the basic number of shares at February 2017 by 3.6m to 248.6m (Feb 2016: 249.1m) and resulted in a diluted adjusted EPS of 7.4p, a decrease of 0.4p or 5.1% on prior year.
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 2.1m dilutive shares (Feb 2016: 2.1m) and a weighted 1.5m shares being the time apportioned share capital relating to the deferred consideration for the acquisition of The Big Green Parcel Holding Company Limited.
9 Discontinued Operations
In February 2017 the Group entered into an agreement in principle to sell the Connect Education & Care division with completion subject to approval by the Competition & Markets Authority. Consequently, the activities of the division have been disclosed as discontinued in accordance with IFRS 5 "Non Current Assets Held for Sale and Discontinued Operations".
The results of discontinued operations, which have been included within the consolidated income statement are as follows:
GBPm 6 months to 6 months to Feb 12 months to
Feb 2017 2016 Aug 2016
-------------- -------------------------------- -------------------------------- --------------------------------
Adjusted Adjustments Total Adjusted Adjustments Total Adjusted Adjustments Total
-------------- --------- ------------ ------- --------- ------------ ------- --------- ------------ -------
Revenue 28.7 - 28.7 31.6 - 31.6 64.8 - 64.8
Expenses (27.0) (1.2) (28.2) (28.8) (1.3) (30.1) (57.0) (1.1) (58.1)
--------------- --------- ------------ ------- --------- ------------ ------- --------- ------------ -------
Operating
profit 1.7 (1.2) 0.5 2.8 (1.3) 1.5 7.8 (1.1) 6.7
Finance
costs - - - (0.1) - (0.1) (0.1) - (0.1)
--------------- --------- ------------ ------- --------- ------------ ------- --------- ------------ -------
Profit
before
tax 1.7 (1.2) 0.5 2.7 (1.3) 1.4 7.7 (1.1) 6.6
Income
tax expense (0.4) 0.2 (0.2) (0.6) 0.4 (0.2) (1.5) 0.2 (1.3)
--------------- --------- ------------ ------- --------- ------------ ------- --------- ------------ -------
Profit
from
discontinued
operations 1.3 (1.0) 0.3 2.1 (0.9) 1.2 6.2 (0.9) 5.3
--------------- --------- ------------ ------- --------- ------------ ------- --------- ------------ -------
During the period, discontinued operations contributed GBP3.4m (Feb 2016: GBP1.9m) (Aug 2016: GBP4.0m) to the Group's net operating cash flows.
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
Period ending
28 February
2017
Goodwill 20.9
Intangible assets 6.3
Property, plant and equipment 5.6
Pension asset 0.3
Inventories 7.2
Trade and other receivables 7.9
Cash and bank balances 5.7
Deferred tax asset 1.5
Total assets classified as
held for sale 55.4
Trade and other payables (8.7)
Current tax liabilities (0.2)
Deferred tax liabilities (0.7)
Pension liability (7.5)
-------------------------------- -------------
Total liabilities classified
as held for sale (17.1)
Net assets of disposal group 38.3
-------------------------------- -------------
10 Net Cash Inflow from Operating Activities
6 months 6 months 12 months
to to to
GBPm Feb 2017 Feb 2016 Aug 2016
-------------------------------- --------- --------- ----------
Adjusted continuing operating
profit 26.6 27.8 59.9
Adjusted discontinued
operating profit 1.7 2.8 7.8
Exceptional items before
tax (6.9) (8.0) (18.8)
Operating profit 21.4 22.6 48.9
Share of profits of jointly
controlled entities (0.2) (0.1) (0.3)
Pension funding (2.6) (2.6) (5.3)
Depreciation of property,
plant and equipment 4.6 4.4 8.9
Amortisation and impairment
of intangible assets 7.1 7.2 14.7
Share based payments 1.2 1.9 1.6
(Increase)/ decrease in
inventories (7.8) 0.2 (0.3)
(Increase)/ decrease in
receivables (23.1) 13.0 9.7
Increase/ (decrease) in
payables 25.6 (18.3) (7.2)
Non cash pension and admin
costs (0.6) - (0.6)
Income tax paid (5.3) (3.1) (8.5)
(Decrease) in provisions (0.5) (5.5) (3.4)
--------------------------------- --------- --------- ----------
Net cash inflow from operating
activities 19.8 19.7 58.2
--------------------------------- --------- --------- ----------
During the period, discontinued operations contributed GBP3.4m (Feb 2016: GBP1.9m) (Aug 2016: GBP4.0m) to the Group's net operating cash flows.
11 Contingent Liabilities
The Group has a potential liability that could crystallise in respect of previous assignments of leases where the liability could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC in 2006, any such contingent liability, which becomes an actual liability will be apportioned between Connect Group PLC and WH Smith PLC in the ratio 35:65 (the actual liability of Connect Group PLC in any 12 month period is limited to GBP5m). The Group's share of such liability has an estimated future cumulative gross rental commitment at 28 February 2017 of GBP2.4m (31 August 2016: GBP2.8m).
12 Intangible Assets
Acquired intangible assets are written off over their expected useful life. Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use calculations. The Group prepares cash flow forecasts derived from the most recent budgets and forecasts for the following 3 years and extrapolates these cash flows on an estimated growth rate of 1% into perpetuity. At 31 August 2016, the rate used to discount the forecast cash flows range from 12.0% to 16.5%, being the Group's risk Adjusted pre-tax WACC, specific for each cash generating unit. The calculation of value in use is sensitive to the discount rate and growth rates used. The Group conducted sensitivity analysis on the impairment test of each CGU. The sensitised value in use exceeded the carrying value for all the CGUs, except the Books CGU. The Books CGU had headroom on its carrying value of GBP2.6m prior to any sensitivities. An increase in the risk adjusted post tax WACC from 12% to 13% for the Books CGU or a reduction in operating profits by 5% would cause the carrying value to equal the recoverable amount.
Goodwill Acquired Intangibles Total
------------- --------------------------------- -------------------------------- ----------------------------------
GBPm On HY HY FY On HY HY FY On HY HY FY
acquisition 2017 2016 2016 acquisition 2017 2016 2016 acquisition 2017 2016 2016
------------- ----------- ------ ----- ----- ----------- ----- ----- ----- ------------ ------ ----- -----
Connect
Books 17.6 17.6 17.6 17.6 12.7 2.3 3.5 2.9 30.3 19.9 21.1 20.5
Connect
Media 5.7 5.7 5.7 5.7 2.6 0.6 1.0 0.8 8.3 6.3 6.7 6.5
Connect
News - - - - 0.2 0.1 0.2 0.1 0.2 0.1 0.2 0.1
Connect
Parcel
Freight 52.1 52.1 52.1 52.1 58.1 43.2 50.1 46.7 110.2 95.3 102.2 98.8
Connect
Education
and care 20.9 20.9 20.9 20.9 10.4 4.1 5.4 4.7 31.3 25.0 26.3 25.6
Reclassified
as held
for sale - (20.9) - - - (4.1) - - - (25.0) - -
Total 96.3 75.4 96.3 96.3 84.0 46.2 60.2 55.2 180.4 121.6 156.5 151.5
------------- ----------- ------ ----- ----- ----------- ----- ----- ----- ------------ ------ ----- -----
Other
intangibles 13.6 12.3 13.3
Reclassified
as held
for sale (2.2) - -
------------- ----------- ------ ----- ----- ----------- ----- ----- ----- ------------ ------ ----- -----
Total
Intangible
assets 133.0 168.8 164.8
------------- ----------- ------ ----- ----- ----------- ----- ----- ----- ------------ ------ ----- -----
13 Cash and Borrowings
Cash and borrowings by currency (sterling equivalent) are as follows:
GBPm Sterling Euro USD Other Total At At
28 29 31
Feb Feb Aug
2017 2016 2016
---------------------------- -------- ---- --- ----- ------- ------- -------
Cash and cash equivalents 7.8 5.3 2.6 0.3 16.0 4.6 9.1
---------------------------- -------- ---- --- ----- ------- ------- -------
Term loan - disclosed
within current liabilities (20.0) - - - (20.0) - (20.0)
Term loan - disclosed
within non-current
liabilities (69.4) - - - (69.4) (98.7) (79.1)
Revolving credit
facility (67.0) - - - (67.0) (56.6) (41.0)
Total borrowings (156.4) - - - (156.4) (155.3) (140.1)
---------------------------- -------- ---- --- ----- ------- ------- -------
Net borrowings (148.6) 5.3 2.6 0.3 (140.4) (150.7) (131.0)
---------------------------- -------- ---- --- ----- ------- ------- -------
Total borrowings
---------------------------- -------- ---- --- ----- ------- ------- -------
Amount due for settlement
within 12 months (87.0) - - - (87.0) (66.6) (61.0)
Amount due for settlement
after 12 months (69.4) - - - (69.4) (88.7) (79.1)
---------------------------- -------- ---- --- ----- ------- ------- -------
(156.4) - - - (156.4) (155.3) (140.1)
---------------------------- -------- ---- --- ----- ------- ------- -------
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 their fair value.
At 28 February 2017, the Group had GBP83.0m (29 February 2016: GBP94.7m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.
14 Financial Instruments
The fair value of interest rate swaps and forward currency contracts at the reporting date are based on market values of equivalent instruments at the balance sheet date and are disclosed below. All derivative financial instruments are classified as level 2 based upon the degree to which the fair value movements are observable. Level 2 fair value measurements are defined as those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (prices from third parties) or indirectly (derived from third party prices).
Current Non-current
---------------------- ----------------------
Feb Feb Aug Feb Feb Aug
2017 2016 2016 2017 2016 2016
-------------------------- ------ ------ ------ ------ ------ ------
Derivatives that are
being designated and
effective as hedging
instruments carried
at fair value
Interest rate swaps
- Liabilities (0.3) - - (0.8) (1.3) (1.5)
Forward foreign currency
contracts - Assets - 0.1 0.1 - - -
-------------------------- ------ ------ ------ ------ ------ ------
15 Provisions
GBPm Reorganisation Insurance Deferred Property Total
provisions and contingent provisions
legal consideration
provisions
------------------------- -------------- ----------- -------------- ----------- -----
At 1 September
2015 1.0 2.8 5.2 7.4 16.4
Additions 0.6 0.2 1.0 - 1.8
Release - (0.1) - (0.3) (0.4)
Utilised in period (1.3) - (5.2) (0.2) (6.7)
Unwinding of
discount utilisation - - - 0.1 0.1
At 29 February
2016 0.3 2.9 1.0 7.0 11.2
========================== ============== =========== ============== =========== =====
At 1 March 2016: 0.3 2.9 1.0 7.0 11.2
Additions 0.7 1.7 0.9 0.8 4.1
Release (0.1) (0.1) - (1.0) (1.2)
Utilised in period (0.3) (0.2) 0.1 (0.4) (0.8)
Unwinding of
discount utilisation - - - 0.1 0.1
-------------------------- -------------- ----------- -------------- ----------- -----
At 31 August
2016 0.6 4.3 2.0 6.5 13.4
========================== ============== =========== ============== =========== =====
At 1 September
2016 0.6 4.3 2.0 6.5 13.4
Additions - 0.3 0.7 0.3 1.3
Utilised in period (0.4) (0.1) (1.0) (0.4) (1.9)
Unwinding of
discount utilisation - - - 0.1 0.1
-------------------------- -------------- ----------- -------------- ----------- -----
At 28 February
2017 0.2 4.5 1.7 6.5 12.9
========================== ============== =========== ============== =========== =====
GBPm Feb 2017 Feb 2016 Aug
2016
------------------------- -------------- ----------- -------------- ----------- -----
Included within
current liabilities 6.3 5.2 8.5
Included within
non-current liabilities 6.6 6.0 4.9
-------------------------- -------------- ----------- -------------- ----------- -----
Total 12.9 11.2 13.4
-------------------------- -------------- ----------- -------------- ----------- -----
The property provision represents the estimated future cost of the Group's onerous leases on non-trading properties and for an estimate of dilapidations costs on certain properties. The provision has been discounted and this discount will be unwound over the life of the leases.
Insurance and legal provisions represent the expected future costs of employer's liability, public liability and motor accident claims and legal claims. In January 2016, an employee in our Parcel Freight division was fatally injured in an accident at our Brierley Hill depot. Since the accident we have been assisting the Health & Safety Executive ("HSE") in its investigation and gave evidence at a Coroner's inquest held in September 2016. The HSE recently notified the Group's legal advisers that it intends to charge Tuffnells Parcels Express Limited with an offence under section 2(1) of the Health and Safety at Work etc Act 1974 and the business now awaits the letter of summons. A provision of GBP1.5m (GBP1.5m August 2016) is held in respect of a potential fine and associated legal costs.
Deferred contingent consideration relates to amounts provided in relation to the acquisition of The Big Green Parcel Holding Company Limited (Tuffnells) on 19 December 2014 and Wordery on 27 August 2015, the cost being contingent upon achievement of profit targets and the future employment of the former owners of the businesses. The contingent consideration for Tuffnells will be satisfied by a mix of cash and shares with the maximum total remaining payable amounting to GBP3.3m. The maximum contingent consideration payable in respect of Wordery is GBP3.3m. In aggregate GBP4.2m is held on the balance sheet within provisions and share based payment reserves to satisfy contingent consideration payable.
16 Share Capital
(a) Share capital GBPm Feb 2017 Feb 2016 Aug 2016 -------------------------------- -------- -------- -------- Issued and fully paid ordinary shares of 5p each Opening balance at 1 September 12.3 12.2 12.2 Shares issued in the period/ year 0.1 0.1 0.1 -------------------------------- -------- -------- -------- Closing balance 12.4 12.3 12.3 -------------------------------- -------- -------- --------
During the period to 28 February 2017, 875,135 ordinary 5p shares were issued for a consideration of GBP1,270,770 resulting in a share premium of GBP1,227,013. Of these 394,007 shares related to the deferred consideration shares payable to the former owners of The Big Green Parcel Holding Company Limited following its acquisition in December 2014.
(b) Movement in share capital Number (m) Ordinary shares of 5p each ---------------------- --------------------------- At 1 September 2016 246.7 Issued in the period 0.9 ---------------------- --------------------------- At 28 February 2017 247.6 ---------------------- ---------------------------
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote per share at the meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
(c) Share premium
GBPm Feb Feb 2016 Aug
2017 2016
--------------------------------- ------ --------- ------
Opening balance at 1 September 59.2 55.2 55.2
Share issues during the period/
year 1.2 3.9 4.0
--------------------------------- ------ --------- ------
Closing balance 60.4 59.1 59.2
--------------------------------- ------ --------- ------
17 Related Party Transactions
No related party transactions had a material impact on the financial performance in the period or financial position of the Group at 28 February 2017. There have been no material changes to or material transactions with related parties as disclosed in Note 32 of the Annual Report and Accounts for the year ended 31 August 2016.
18 Responsibility Statement
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
- the interim management report includes a true and fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
- the interim management report includes a true and fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board.
Mark Cashmore David Bauernfeind Group Chief Executive Chief Financial Officer 25 April 2017 25 April 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KMGZDNDLGNZM
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April 25, 2017 02:00 ET (06:00 GMT)
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