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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Connect Group Plc | LSE:CNCT | 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 25.60 | 25.70 | 25.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCNCT
RNS Number : 7687M
Connect Group PLC
18 October 2016
Connect Group PLC
('Connect Group' or 'the Group')
Preliminary Results Announcement for the year ended 31 August 2016
Solid performance with good progress on operational priorities
Connect Group, a leading specialist distributor operating in four divisions: News & Media, Parcel Freight, Education & Care and Books, is pleased to announce its preliminary results for the year ended 31 August 2016.
Adjusted results FY2016 FY2015 Change (1) Revenue GBP1,906.5m GBP1,875.1m +1.7% Profit before tax GBP60.7m GBP56.5m +7.4% Earnings per share 19.8p 19.7p +0.5% Statutory results Revenue GBP1,906.5m GBP1,875.1m +1.7% Profit before tax GBP41.9m GBP29.0m +44.5% Earnings per share 13.7p 9.3p +47.3% Dividend per share 9.5p 9.2p +3.3% Free cash flow (2) GBP49.6m GBP39.8m +24.6% Net debt (4) GBP141.7m GBP153.4m +7.6% -------------------- ------------ ------------ -------
HIGHLIGHTS:
Solid financial performance in line with expectations
-- Total revenue of GBP1.9bn, up 1.7%. Revenue in Smiths News was down 2.4%, slightly better than expected
-- Adjusted profit before tax of GBP60.7m up 7.4%, benefitting from a full year of Tuffnells, and underpinned by solid performances from both the News & Media and Education & Care divisions
-- Another year of strong cash generation, with free cash flow of GBP49.6m, up 24.6% -- Final dividend of 6.5p up 3.2%, making a full year dividend of 9.5p, up 3.3%
Good progress on strategic and operational priorities
-- Continued strong performance of Tuffnells -- Growing scale and capability in Pass My Parcel -- Delivered GBP7m of business efficiencies across the Group, including GBP5m in Smiths News -- Invested in operational capability and capacity, particularly in Pass My Parcel and Tuffnells -- Closer collaboration between Smiths News and Tuffnells
Mark Cashmore, Group Chief Executive, commented:
"This has been a year of both strategic and operational progress for Connect Group. Tuffnells has delivered another strong performance, underpinning solid financial results for the Group. In addition, our confidence in the opportunity for us to succeed in the Click & Collect market has been reinforced by the growing scale and capability of Pass My Parcel.
In 2017, a particular focus will be on accelerating the collaboration between Smiths News and Tuffnells, whilst investing in our organic initiatives to support long-term sustainable profit growth."
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 'Exceptionals' 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:
The Group results include the Parcel Freight division, Tuffnells, results for FY2016 for a full 12 months and 36 weeks results post acquisition for FY2015.
Adjusted operating profit: is defined as operating profit including the operating profit of businesses from the date of acquisition and excludes Exceptionals and operating profit of businesses disposed of.
Adjusted profit before tax: is defined as adjusted operating profit less finance costs attributable to adjusted operating profit and before Exceptionals; including amortisation of intangibles and network and reorganisation costs.
Adjusted earnings per share: is defined as adjusted profit before tax, less taxation attributable to adjusted profit before tax and including any adjustment for minority interest to result in adjusted profit after tax attributable to shareholders divided by the basic weighted average number of shares in issue.
Exceptionals: 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, legal provisions 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 Exceptionals.
(3) 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.
(4) Net debt: is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases.
(5) Rebased earnings per share and rebased dividends per share adjust last year reported figures by the rights issue bonus factor adjustment of 0.9015 following the 2 for 7 rights issue in December 2014.
(6) Like for like revenues exclude the impact of gains and losses (including contracts, new business and acquisitions) reported in the current or prior year total revenues.
(7) FY2016 refers to the full year ended 31 August 2016, FY2015 refers to the full year ended 31 August 2015.
Enquiries:
Connect Group PLC Mark Cashmore, Group Chief Executive Today: 020 7466 5000 David Bauernfeind, Chief Financial Thereafter: 01793 Officer 563641 www.connectgroupplc.com Buchanan Sophie McNulty / Richard Oldworth connect@buchanan.uk.com 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 18 October 2016 commencing at 9.30am. Connect Group PLC's Preliminary Results 2016 are available at www.connectgroupplc.com
An audio webcast will be available on:
http://vm.buchanan.uk.com/2016/connectgroup181016/registration.htm
About Connect Group
Connect Group PLC is a leading specialist distributor operating in large and diverse markets. The Group has four separate 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 newspaper and magazine wholesaling business with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the majority of the major national publishers as well as a large number of regional publishers serving approximately 30,000 customers across England and Wales on a daily basis, including large general retailers as well as smaller independent newsagents with approximately 40 million newspapers supplied weekly; Dawson Media Direct is an international media direct business supplying newspapers, magazines and inflight entertainment technology and content to over 80 airlines in 50 countries. Pass My Parcel, a wholly-owned 'click and collect' delivery service, operated by the Smiths News business, has a network of over 3,000 parcel shops and clients which include Amazon and ASOS.
-- Connect Parcel Freight - Tuffnells is a leading provider of next-day B2B delivery 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 offers distribution coverage throughout the UK through a network of 37 depots and operates a largely depot-to-depot operational model, delivering over 13 million consignments per annum, through a wide range of services to over 4,500 customers focusing on SMEs.
-- 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 currently holds an approximate 5 per cent. market share of the estimated addressable market, and serves over 30,000 customers with an extensive range of over 40,000 products across a branded, own-brand and value range, including stationery, arts and craft and cleaning.
-- Connect Books - Combining a number of recognised brands in print and digital bookselling, including Bertrams, Dawson Books and Wordery. A leading distributor of printed and digital books, the division supplies a mix of traditional and online booksellers, academic and public libraries and direct to consumer through Wordery.
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 taxation; industrial disputes; war and terrorism. For a more detailed description of these risks, uncertainties and other factors, please see the section titled "Risks and Uncertainties". 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 preliminary announcement for the full-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.
OPERATING REVIEW
INTRODUCTION
Connect Group has delivered another solid performance, increasing profit in line with expectations and making progress on all key financial metrics. Total revenue of GBP1,907m is up 1.7% with Adjusted profit before tax of GBP60.7m up 7.4%, benefitting from a full year contribution from Tuffnells, and underpinned by solid performances from both News & Media and Education & Care.
Adjusted earnings per share at 19.8p is marginally up after taking the increased shares from the December 2014 rights issue into account. It is also a continuing strength of the Group that it generates significant cash, with free cash flow of GBP49.6m up 24.6% on FY2015.
This performance supports the Group's commitment to growing shareholder returns, with the final dividend of 6.5p up 3.2%, giving a full year dividend of 9.5p, up 3.3%.
In addition, the Group has made good progress with its operational priorities. The continued growth of Tuffnells has driven the Group's progress and the Board continues to be pleased with its performance since acquisition. Furthermore, the targeted business efficiencies of GBP7m have been achieved in full, GBP5m of which were delivered in Smiths News. These efficiencies have been achieved in parallel with investment in operational capability and capacity which will support future growth, particularly within Pass My Parcel and Tuffnells. Finally, collaboration between Smiths News and Tuffnells is increasing, which is key to leveraging the Group's capabilities.
CONNECT NEWS & MEDIA
The News & Media division had a solid year, within the context of a structurally declining market, with continued resilience in core sales and profits.
Revenue of GBP1,471.4m was down 2.2% and Adjusted operating profit of GBP42.4m was down 3.0% after the impact of increased losses in Pass My Parcel.
During the year, Smiths News renewed its contracts with Northern & Shell (publisher of, amongst others, The Express and Daily Star newspapers and OK! magazine) and Topps Direct (a leading producer of stickers and collectables). The two contracts represent the last major publishers to formalise agreements with the division in the current cycle of contract renewals, meaning that Smiths News now has contracts encompassing 94% of publisher revenues at current levels secured to at least 2019 and 70% secured through to 2021. These contracts not only provide relative predictability of revenues, they also confirm the territorial footprint required for the coming years, allowing the effective planning of future network and process efficiencies with confidence.
Total sales in Smiths News were down 2.4% and down 3.4% on a like for like basis, slightly better than management's medium term forecasts and with the impact of volume declines being broadly offset by ongoing cover price inflation. Smiths News has delivered the targeted GBP5m of efficiencies this year, bringing the total saved over the last five years to over GBP25m. Plans are in place to maintain this momentum and management is confident of achieving an additional GBP10m of efficiencies over the next two years.
In a continuation of previous trends, newspapers have benefitted from cover price inflation which has been stronger in the second half. Magazines have continued to slow their rate of decline year on year with an improved performance from monthly titles, although in this case the second half has been softer. This year the division also benefitted from the sale of European football championships sticker albums, which boosted sales by GBP9m, contributing GBP1.9m to profit.
Jack's Beans, the Group's vended coffee offer, has expanded to over 400 stores and with revenue of GBP1.3m from coffee sales and rental income, it is now having a modest but positive impact on operating cash flows.
DMD, the Group's specialist supplier of printed and digital media to airports, airlines and travel points had a good year. Sales of GBP27.6m are up by 8.9% and 1.6% on a like for like basis through a number of new contract wins. Adjusted operating profit of GBP2.4m is up by 3.5%. The business benefited from new and extended contracts in both print and digital including News UK (publisher of The Sun and The Times newspapers), Virgin and Eurostar amongst others.
Pass My Parcel
The progress and experience in Pass My Parcel ("PMP") this year reinforces the Board's confidence in the opportunity for the Group in the Click & Collect market. Demand for Click & Collect services continues to grow in response to consumer demand for more convenient deliveries and simple returns processes. It is now the fastest growing sector of the parcels market, forecast to grow from GBP3bn in 2013 to GBP6.5bn in 2018, a compound annual growth rate of 16%. In certain sectors, such as clothing, consumers have come to regard speedy local delivery and easy returns as a standard offering and as a result, retailers are having to develop new solutions to meet this growing expectation.
In the last 12 months, the Group has proven and grown its operational capability in this fast-moving environment. Serving a network of over 3,000 parcel shops, PMP has delivered half a million parcels, achieving some of the fastest turnaround times for online consumers. They, in turn, rate the service as excellent. The vast majority of customers report that they are extremely satisfied and would recommend PMP to others. In a survey which the Group conducted with Amazon recently, 92% of customers said they intend to use PMP again, achieving an upper quartile Net Promoter Score of over 60%.All of this confirms that the Group is delivering a high quality service.
In April 2016, PMP launched a returns service in partnership with ASOS (the online clothes retailer), and this Autumn will extend its agreement with Amazon to include returns ahead of the seasonal peak. This is an important step as consumer habits mean more returns are made via parcel shops than deliveries.
Finally, by utilising Tuffnells' infrastructure as well as Smiths News, PMP has increased its territorial reach and can now offer retailers a complete solution of deliveries and returns across the whole of mainland UK.
Looking ahead to the current financial year, PMP is aiming to increase the number of retail clients as well as launch an online portal that will open up PMP's network to thousands of small businesses selling on marketplace sites such as eBay. These initiatives will support the plan to grow volumes in FY2017 to 3m parcels, a sixfold increase from FY2016 that would establish PMP as a scale operator.
The loss on PMP in FY2016 was GBP4m. To support business growth in FY2017, the plan is for total costs to increase, however, the anticipated uplift in volume and revenue will reduce the loss to circa GBP2.5m. The additional costs invested will be focused on technology to ease the integration of new retail clients and brand marketing to improve consumer awareness.
CONNECT PARCEL FREIGHT
Parcel Freight had another strong year of sales growth, building on the progress of FY2015. Revenue of GBP174.4m is up 7.3% (on a 52 week basis) and Adjusted operating profit of GBP15.0m is up 4.9% (on a 52 week basis). Top-line growth has been driven by improved service and increased capacity, with profit growth rate lower due to the investments being made to upgrade and professionalise the Tuffnells infrastructure in order to support sustainable future growth.
Looking at the market in which the division operates, demand for Irregular Dimension and Weight ("IDW") freight has remained buoyant. Tuffnells continues to win market share and attract new customers, helped by a number of the other parcel carriers de-prioritising what is a complex sector that requires specialist expertise.
Tuffnells is investing to grow its network and further strengthen its position in the market. This year, the Group opened two new depots in Leicester and Norwich. We have plans for a further four new depots, as well as one regional hub and 10 relocations which will upgrade our capabilities over the next three years. As a result, in FY2017, approximately GBP15m will be invested to support maintenance and future growth across the Tuffnells estate.
The business continues to win in its chosen space, growing its customer base by over 11% at the same time as implementing a rate rise that was absorbed with virtually no loss of business. As a further example of progress, in August 2016, Tuffnells signed its largest ever contract, an exclusive five year deal with Blackcircles.com, the online tyre distributor. The agreement is a great example of the growing demand for high service, specialist distribution contributing to future increased revenues for the division.
It is nearly two years since the Group acquired Tuffnells and the post-acquisition reviews confirm that it has been an excellent fit for the Group. The synergy and integration plan is on track and across a range of areas there is an evolving opportunity to leverage the combined skills and competencies of Tuffnells and Smiths News, as well as driving benefits from the increased scale of the Group. For example, after running successful proof of concept trials, Smiths News is now partnering with Tuffnells at three locations, providing drivers and vehicles to deliver early morning parcels outside of the newspaper and magazine delivery windows. This arrangement allows the Group to flex capacity at low cost and can be scaled up in the run-up to Tuffnells' peak trading period which occurs in the Spring.
Mirroring this sharing of capacity, Tuffnells is now making deliveries for PMP. Currently operating from 11 depots, the partnership gives PMP national reach and delivers a flexible and cost effective solution to reaching those areas beyond the Smiths News territorial footprint.
CONNECT EDUCATION & CARE
Despite challenging markets, Education & Care achieved a good performance relative to the wider sector maintaining Adjusted operating profit at GBP7.8m on total revenue down 1.6% at GBP64.8m and down 2.4% on a like for like basis. Overall, the market is estimated to be down by around 6% this year, impacted by an increase in teacher pension and National Insurance costs that had to be absorbed by school budgets. In this context, the business has responded well, outperforming its competitors, growing share and developing its customer channels to support further gains as the market returns to growth in the medium term. This performance was also underpinned by taking early action in response to the market downturn, with an organisation review and tight cost management helping to offset the impact of the tougher conditions.
The continued progress of Early Years confirms the division's strength in this sector, securing a fourth consecutive year of growth and representing an overall CAGR of 12% since its acquisition in 2012.
The strategy to win new business by developing the leading e-commerce platform for schools is on track. Customer adoption of the new websites is growing, with more than 35% of school orders now placed online. The division is now targeting 50% of all orders being placed online by the end of FY2017.
These positive developments flowed through into a good summer peak trading period which was managed more efficiently following improvements to the warehouse and operations last year.
CONNECT BOOKS
Having stabilised the Books division, in FY2015, it faced another challenging year, with the benefits of progress in Wordery and a good recovery in UK wholesale was offset by challenges in the library markets and cost pressures that could not be fully mitigated in the period. As a result, total revenue of GBP195.9m was up 3.1% and Adjusted operating profit of GBP2.5m was down 3.8% on FY2015.
In terms of progress, the UK consumer market for books has returned to growth and supported by better operational service, sales to high street and online retailers are up by 9%. Wordery has also continued its strong growth with sales of GBP49m up 26%. In addition, direct sales through Wordery.com now represent 23% of Wordery's revenue and investment is continuing to drive future growth.
However, the UK library markets have continued to be extremely tough, with an adverse effect on the division's overall margin. In response to these ongoing pressures, the library servicing operation has been restructured, which will improve efficiency and underpin business stability.
Whilst the UK wholesale market has seen an increase in revenue, the staff profile of the division's warehouse operation also means the introduction of the National Living Wage has had a disproportionate impact on the Books division. Management continues to work hard to mitigate this effect but inevitably it will add to cost pressure in the medium term. More broadly, operational performance has been strong as a result of improvements in the warehouse and to the quality of deliveries.
Looking ahead, the Group will continue to invest in Wordery and capitalise on the return to growth of the UK consumer market.
HEALTH AND SAFETY
The Group is committed to ensuring our staff work at all times across all divisions in a safe environment with clear processes, regular and appropriate training and a culture of attention to safety in all that we do. Across the Group, we work round the clock to manage the movement of goods and vehicles, often under extreme time pressure. In these conditions, the safety of our workforce must be paramount.
This year, following the acquisition of Tuffnells, we have invested heavily in training, our facilities and our vehicles in order to reduce hazards and accidents. It was therefore deeply distressing that in January 2016 a fatal accident took place at Tuffnells' Brierley Hill depot. Since the incident we have been assisting the Health & Safety Executive in its investigation, which is ongoing. We are also making every effort to learn from the circumstances and root causes of this tragic event and our thoughts have been with the family affected and we have worked to support affected colleagues too.
In the event that the Parcel Freight division is charged and subsequently found guilty of a Health and Safety offence, then a fine and associated costs will be incurred, for which we are not insured. In the opinion of the Board and its advisers, there is significant uncertainty over the potential outcome and timing of this process. Having considered these uncertainties and having regard for the circumstances surrounding this incident, the Board considers it appropriate to make a provision of GBP1.5m for any potential fine and associated legal costs in this matter as an Exceptional item. We will provide an update as further information becomes available.
GROUP STRATEGY
The Group is a specialist distributor, managing a portfolio of businesses to achieve long term, sustainable profit growth and strong cash generation. This in turn supports the balance of dividend, deleverage and re-investment for further growth, both in the existing businesses or through new acquisitions.
The experience this year reinforces the Board's view that there are increasing opportunities to leverage the Group's capabilities, driven by an acceleration of the collaboration between Smiths News and Tuffnells.
In News & Media, Smiths News will continue to focus on strong cash generation, achieved by a combination of relatively predictable revenues and a clear focus on the need for sustainable efficiencies. Complementing the core news wholesale business is the investment in organic growth, primarily in the Click & Collect market.
Parcel Freight is an important element of growth and continued investment will help to give it the capacity and capability to capitalise on its position as the leading IDW specialist. In parallel, closer cooperation with Smiths News will leverage the combined strengths of the Group's two largest businesses.
In Education & Care the plan remains to drive market share and profit growth through the e-commerce strategy, while maintaining the division's strong cash contribution to the Group. In Books, the focus is on delivering further growth in Wordery, which, together with tight cost management, will underpin stability and continued cash generation.
BOARD CHANGES
As announced in July 2016, David Bauernfeind, Chief Financial Officer, joined Connect Group in August 2016 and subsequently joined the Board on 1 October 2016. At the same time, Nick Gresham, stepped down from the Board but will remain with the Group until later in the calendar year to ensure a thorough and smooth handover to David. A chartered accountant, David was previously Chief Financial Officer and Executive Director at Xchanging PLC, a position he held from 2011 until its takeover and delisting in June 2016. Before joining Xchanging PLC in 2001, David held management roles in BAE Systems PLC and Johnson Matthey PLC.
SUMMARY AND OUTLOOK
The Group has achieved a solid financial performance in FY2016 against a backdrop of the challenging conditions in some of its markets. Despite this, it has made further progress in delivering its key operational priorities, whether the continued realisation of cost efficiencies or the development of its growth strategy. In addition, the opportunities to leverage the Group's capabilities, most notably between Smiths News and Tuffnells, are moving ahead.
Despite challenging markets and increased investment in our business, we are confident of delivering a robust performance in FY2017 and are confident in our longer term prospects.
FINANCIAL REVIEW
GROUP
Adjusted results (1) GBPm 2016 2015 Change --------------------------- -------- -------- -------- Revenue 1,906.5 1,875.1 1.7% Gross profit 256.4 236.9 8.2% Operating costs (188.7) (173.1) (9.0)% --------------------------- -------- -------- -------- Operating profit 67.7 63.8 6.2% Net finance costs (7.0) (7.3) 3.7% --------------------------- -------- -------- -------- Profit before tax 60.7 56.5 7.4% Taxation (12.4) (11.1) (11.1)% --------------------------- -------- -------- -------- Tax rate 20.4% 19.7% --------------------------- -------- -------- -------- Profit after tax 48.3 45.4 6.4% --------------------------- -------- -------- --------
Total Group operating profit for the year was GBP67.7m, up 6.2% on the prior year (FY2015: GBP63.8m), benefitting from a full year of Tuffnells, and underpinned by solid performances from both the News & Media and Education & Care divisions.
After net finance charges of GBP7.0m, total Group Profit before Tax was GBP60.7m, up 7.4% on last year.
Taxation of GBP12.4m resulted in an effective tax rate of 20.4%, which was in line with expectations and slightly lower than in the first half.
EPS AND DIVID
Hot Features
Premium
Adjusted (1) Statutory
--------------------------------- --------------- --------------
2016 2015 2016 2015
--------------------------------- ------- ------ ------ ------
Earnings attributable to
ordinary shareholders (GBPm) 48.3 45.5 33.4 21.5
Basic weighted average number
of shares (millions) 243.4 230.9 243.4 230.9
Basic EPS 19.8p 19.7p 13.7p 9.3p
Diluted weighted number
of shares (millions) 247.2 238.5 247.2 238.5
Diluted EPS 19.5p 19.0p 13.5p 9.0p
Dividend per share (paid
& proposed) 9.5p 9.2p 9.5p 9.2p
Dividend per share (recognised) 9.3p 8.9p 9.3p 8.9p
--------------------------------- ------- ------ ------ ------
Earnings attributable to shareholders on an adjusted basis of GBP48.3m resulted in an adjusted EPS of 19.8p, an increase of 0.5% year on year. The increased profitability in the year has been offset by the continued increase in the weighted average basic shares from 230.9m last year to 243.4m for the period, as a result of the December 2014 Rights Issue.
The fully diluted number of shares was 247.2m (FY2015: 238.5m). Fully diluted shares includes 2.3m shares for employee incentive schemes (FY2015: 4.1m) and 1.5m shares (FY2015: 3.5m) for the deferred consideration arising out of the Tuffnells acquisition.
Including Exceptional items, statutory earnings attributable to shareholders of GBP33.4m resulted in an EPS of 13.7p, up 47.3% on FY2015.
The Board is proposing a final dividend of 6.5p, taking the full year dividend to 9.5p, an increase of 0.3p or 3.3% (FY2015: 9.2p). The proposed final dividend for the year ended 31 August 2016 of 6.5p is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these accounts. The proposed dividend, if approved, will be paid on 10 February 2017 to shareholders on the register at close of business on 13 January 2017.
NEWS DISTRIBUTION
Adjusted figures (1) - 2016 2015 Change LFL (6) GBPm ------------------------ -------- -------- ------- -------- Revenue 1,443.8 1,479.3 (2.4%) (3.4%) Gross profit 120.0 120.7 (0.5%) Operating costs (80.0) (79.3) (0.9%) ------------------------ -------- -------- ------- -------- Operating profit 40.0 41.4 (3.4%) ------------------------ -------- -------- ------- -------- Gross margin 8.3% 8.2% 0.1% Cost ratio (5.5%) (5.4%) (0.1%) Operating margin 2.8% 2.8% - ------------------------ -------- -------- ------- --------
News Distribution revenues of GBP1,443.8m represented a 2.4% decrease on FY2015 and like for like revenues were down 3.4% which remains comfortably within the Group's medium term forecast range of between -3.0% and -5.0% per annum.
Gross margin was broadly in line with the prior year up 0.1%.
The cost ratio was in line with prior year, as a result of a total cost saving of GBP5m. Network savings and continued operational efficiencies combined to deliver our targeted cost savings for the year, being partly offset by ongoing investments, predominantly in Pass My Parcel, which incurred GBP4m loss in the period.
Adjusted operating profit of GBP40.0m decreased 3.4% on the prior year, which includes the impact of the increased losses in Pass My Parcel. Operating margin of 2.8% remained flat on prior year.
MEDIA
Adjusted figures (1) - 2016 2015 Change LFL (6) GBPm ------------------------ -------- -------- -------- -------- Revenue 27.6 25.4 8.9% 1.6% Gross profit 14.2 12.5 13.5% Operating costs (11.8) (10.2) (16.1%) ------------------------ -------- -------- -------- -------- Operating profit 2.4 2.3 3.5% ------------------------ -------- -------- -------- -------- Gross margin 51.5% 49.2% 2.3% Cost ratio (42.8%) (40.2%) (2.6%) Operating margin 8.6% 9.1% (0.5%) ------------------------ -------- -------- -------- --------
Media revenues of GBP27.6m were up 8.9% on prior year, as a result of a number of new contract wins in both print and digital media.
Gross margin was 51.5%, up 2.3% on prior year.
Adjusted operating profit of GBP2.4m was 3.5% up on the prior year and resulted in an operating margin of 8.6%, down 0.5% on prior year.
PARCEL FREIGHT
Adjusted figures 2016 52 week Change LFL 36 weeks (1) - GBPm 2015 2015 ------------------ -------- -------- ------- ----- --------- Revenue 174.4 162.6 7.3% 7.3% 114.4 Gross profit 57.6 40.3 Operating costs (42.6) (30.6) ------------------ -------- -------- ------- ----- --------- Operating profit 15.0 14.3 4.9% 9.7 ------------------ -------- -------- ------- ----- --------- Gross margin 33.0% 35.2% Cost ratio (24.4%) (26.8%) Operating margin 8.6% 8.8% 8.5% ------------------ -------- -------- ------- ----- ---------
Parcel Freight revenues of GBP174.4m were up 7.3% on the equivalent 12 month period to 31 August 2015. Strong revenue performance has been driven by improved service, increased capacity and a number of new client wins leading to an 11% growth in overall customers.
Gross margin was 33.0%, 2.2% down on the 36 week period in the prior year since acquisition.
Adjusted operating profit of GBP15.0m increased 4.9% on an equivalent 52 week period, as the division continued to invest in modernising and expanding the network to support sustainable growth for the future. This resulted in an operating margin of 8.6% down 0.2% on the 52 week period.
EDUCATION & CARE
Adjusted figures (1) - 2016 2015 Change LFL (6) GBPm ------------------------ -------- -------- ------- -------- Revenue 64.8 65.9 (1.6%) (2.4%) Gross profit 28.7 28.0 2.3% Operating costs (20.9) (20.2) (3.2%) ------------------------ -------- -------- ------- -------- Operating profit 7.8 7.8 (0.1%) ------------------------ -------- -------- ------- -------- Gross margin 44.2% 42.5% 1.7% Cost ratio (32.2%) (30.7%) (1.5%) Operating margin 12.0% 11.8% 0.2% ------------------------ -------- -------- ------- --------
Education & Care revenues of GBP64.8m were down 1.6% on the prior year and down 2.4% on a like for like basis. Core revenues in Education, Care and Early Years decreased 2.2% impacted by an increase in teacher pension and National Insurance costs that had to be absorbed by school budgets. The continued progress of Early Years confirms our relative strength in this sector, securing a fourth consecutive year of growth and an overall CAGR of 12% since our acquisition in 2012.
Gross margin was 44.2%, up 1.7% on prior year driven by a continued focus on more profitable sales in core markets and a stronger own brand mix. The cost ratio of 32.2% declined 1.5% on prior year.
Adjusted operating profit of GBP7.8m was broadly flat on the prior year, down 0.1% and resulted in an operating margin of 12.0% up 0.2% on prior year.
BOOKS
Adjusted figures (1) - 2016 2015 Change LFL (6) GBPm ------------------------ -------- -------- ------- -------- Revenues 195.9 190.1 3.1% 7.4% Gross profit 37.2 36.4 2.2% Operating costs (34.7) (33.8) (2.6%) ------------------------ -------- -------- ------- -------- Operating profit 2.5 2.6 (3.8%) ------------------------ -------- -------- ------- -------- Gross margin 19.0% 19.2% (0.2%) Cost ratio (17.7%) (17.8%) 0.1% Operating margin 1.3% 1.4% (0.1%) ------------------------ -------- -------- ------- --------
Books revenue of GBP195.9m was 3.1% up on the prior period, as the continued strong progress in Wordery, up 26%, and a good recovery in UK wholesale business up 9%, were largely offset by challenges in the library markets and cost pressures that could not be fully mitigated in the period.
Gross margin was 19.0% down 0.2% on prior year despite a continued focus of exiting or renegotiating low margin contracts. The cost ratio was 17.7% which decreased 0.1% on the prior year.
Adjusted operating profit of GBP2.5m was down 3.8% on prior year, which was adversely affected by the challenging conditions in the libraries market and cost headwinds, including the impact of National Living Wage. This resulted in an operating margin of 1.3% down 0.1% on the prior year.
EXCEPTIONAL ITEMS (1)
GBPm 2016 2015 ----------------------------------------- ------- ------- Network and re-organisation costs (4.4) (4.5) Acquisition and disposal costs (3.8) (15.1) Pension credit 1.1 - Amortisation of acquired intangibles (10.2) (7.9) Legal provision - potential health (1.5) - and safety offences Total before finance costs and taxation (18.8) (27.5) ----------------------------------------- ------- ------- Taxation 3.9 3.5 ----------------------------------------- ------- ------- Total after taxation (14.9) (24.0) ----------------------------------------- ------- -------
The statutory profit impact of these in the year was GBP18.8m before tax (FY2015: GBP27.5m).
Network and reorganisation costs of GBP4.4m are predominantly property and staff rationalisation costs to drive efficiency savings in Smiths News of GBP2.5m. They also include costs to support the strategic review and reorganisation of the Books division and one off costs for the back office re-organisation in Education & Care and planned leadership changes at Parcel Freight.
Acquisition and disposal costs of GBP3.8m include GBP1.9m of anticipated deferred consideration for Tuffnells and Wordery. There is a maximum of GBP3.6m future deferred consideration to expense in future years. There was also GBP1.9m incurred on external fees relating to acquisition and disposal activity in the period.
The GBP1.1m pension credit relates to Education & Care adjustments to reduce discretionary increases on the Consortium scheme.
The largest item in the year, at GBP10.2m, was the non cash amortisation of intangibles resulting from previous acquisitions. The net book value of the acquired intangibles of GBP55.2m will continue to be amortised over future years.
As a result of the continuing investigation by the Health & Safety Executive into the fatality at Parcel Freight's Brierley Hill depot in January 2016 a provision of GBP1.5m has been charged as an exceptional item in respect of any potential fine and legal costs. See provisions note for further details.
The total cash impact of exceptional items, including relating to prior periods, was GBP10.8m. This comprised of GBP5.1m deferred consideration relating to Tuffnells, with the remainder being network reorganisation and other restructuring costs.
FREE CASH FLOW (2)
GBPm 2016 2015 ----------------------------- ------- ------ Adjusted operating profit 67.7 63.8 Depreciation & amortisation 13.4 11.6 ----------------------------- ------- ------ Adjusted EBITDA 81.1 75.4 Working capital movements - (8.0) Capital expenditure (13.9) (9.2) Net interest and fees (4.9) (5.8) Taxation (8.5) (8.7) Pension funding (5.3) (5.4) Other 1.1 1.5 ----------------------------- ------- ------ Free cash flow 49.6 39.8 ----------------------------- ------- ------
Free cash flow generation remains one of the Group's key strengths, delivering a strong cash performance in the period, generating GBP49.6m in free cash flow, an increase of 24.6% on prior year.
Net interest and fees of GBP4.9m is lower than the prior year which included re financing fees relating to the acquisition of Tuffnells in December 2014.
The cash tax and pension funding remain in line with our expectations.
NET DEBT (4)
GBPm 2016 2015 ---------------------------------- -------- -------- Opening net debt (153.4) (93.0) Free cash flow 49.6 39.8 Dividend paid (22.7) (21.4) Exceptional items (10.8) (8.2) Net acquisition financing - (67.0) Finance lease payments and other (4.4) (3.6) Closing net debt (141.7) (153.4) ---------------------------------- -------- --------
Net Debt closed the period at GBP141.7m, which was in line with our expectations.
Net Debt at GBP141.7m improved on prior year and our Net Debt/EBITDA ratio of 1.7x, down from 1.9x improved year on year as a result of strong free cash flow generation, even after exceptional items. This has enabled a GBP11.7m reduction in net debt while delivering GBP22.7m in dividend payments.
We remain comfortably within our Bank facilities of GBP250m, available through to November 2018 and also within our covenant ratios. We will, in line with the normal cycle, renew our facilities in the coming financial year and are already planning this process with our lenders.
Although we will be increasing our capital investment in the business, in particular in Parcel Freight, we remain committed to our stated aim to continue to reduce Net Debt and our medium term plans support this.
The total cash impact of exceptional items, including relating to prior periods, was GBP10.8m. This comprised GBP5.1m deferred consideration payments relating to Tuffnells, with the remainder being network reorganisation and other restructuring costs.
PENSION
The Group operates four defined benefit schemes, all closed to new entrants and two closed to future accrual.
The Smiths News section of the WH Smith pension trust has assets of GBP641.5m and an actuarial deficit of GBP23.0m as at June 2013. As at 31 August 2016 the IAS19 surplus of GBP151.3m (FY2015: GBP135.6m) was not recognised in the accounts as the amount available on a reduction of future contributions is GBPnil.
The Group recognises the present value of the agreed schedule of future contributions as a pension liability of GBP10.3m on the balance sheet (FY2015 GBP13.8m).
The two Consortium defined benefit schemes have combined assets of GBP17.7m and a combined actuarial deficit of GBP1.5m as at December 2013. As at 31 August 2016 the combined IAS19 deficit was GBP7.9m.
The Tuffnells defined benefit scheme has assets of GBP12.7m and an actuarial deficit of GBP2.5m as at 1 April 2013. As at 31 August 2016 the IAS19 deficit was GBP3.0m.
The total cash contribution of defined benefit schemes and expenses in the cash flow statement for FY2016 was GBP5.3m (FY2015: GBP5.4m).
FUTURE ASSUMPTIONS
Key inputs for modelling include:
We will be increasing our investment in Pass My Parcel, however, as revenues rise we expect to see a reduction in losses to GBP2.5m in FY2017 in comparison with the GBP4m loss in FY2016.
Employee related costs include an estimate of National Living Wage increases, which will continue to rise over the next two years. We expect the gross cost increase in FY2017 to be approximately GBP2m, and as wages rise towards the stated Government ambition of GBP9.00 per hour by 2020, we expect an ongoing gross increase of GBP5m per annum over the medium term. This impact is before we take any mitigating actions, which will include accelerating cost efficiencies and some pricing flexibility outside of Smiths News' long term contracts. At the profit after tax level, two future reductions in the UK corporation tax rate will further mitigate the impact on earnings. We will continue to provide updates as the Group addresses each of these matters.
Capital expenditure in FY2017 is expected to be GBP25m up GBP11m on FY2016, before reducing in FY2018.
We expect free cash flow generation in FY2017 to be approximately GBP40m. This is broadly flat on FY2016, after allowing for the increased capital investment in FY2017.
Net debt in FY2017 is expected to be consistent with FY2016. We then expect to see net debt reducing in 2018.
GOING CONCERN
Despite the uncertain economic environment the directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly they continue to adopt the going concern basis in preparing the condensed financial statements.
RISKS AND UNCERTAINTIES
The Group has robust risk management processes in place including the identification and review of its principal risks, an annual risk appetite assessment and robust monitoring and reporting of its internal control environment.
The director's assessment of the Group's principal risks are aligned to the strategic business planning process, the outputs from the annual risk appetite exercise and the business/ divisions internal risk committees. Risks are mapped for impact and likelihood, ownership assigned, and reviewed quarterly by the Group Executive and Audit Committee including the appropriateness of mitigating actions.
The Group's principal risks are detailed below.
Principal Risks Potential Impact Mitigating actions and
assurance
------------------------ ----------------------------- --------------------------------
Development Sales decline A consistent pattern
of new technologies in newspapers and clear view of market
and demographics and magazines volumes ensures more
drives change are worse than accurate forecasting
in customer expected (forecasted and combines with an
behaviour and expectation of expectation of continued
supply chain a -3% to -5% range) declines for newspapers
dynamics resulting and/or the Books and magazines. Management
in structural market is impacted, continues to identify
market changes each resulting efficiencies to compensate
being deeper in lower profit for market declines.
and quicker and negative market The Parcel Freight division
than predicted, sentiment related is a significant financial
including migration to printed media. contributor toward the
from print Group's overall results,
to digital. 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.
------------------------ ----------------------------- --------------------------------
Change in Government Reductions in Annual budgets and quarterly
policy, including discretionary forecasts take into
the uncertainty spending may impact account potential macro
of the impact sales of newspapers, market and competitive
of Brexit, magazines or books impacts when setting
economic conditions and/or see a reduction expectations internally
and/or competitive in parcel volumes. and externally, allowing
environment Reductions in for or changing objectives
could adversely Government spending to meet short and medium
impact current may also be seen, term financial targets.
and/or projected potentially reducing Management has a track
business performance consumables budgets record of delivering
above that in schools. Uncertainty revenues and efficiencies
included in from Brexit may to compensate for market
the business affect the Group impacts.
planning and in both the short
review process. and medium term
on trade arrangements,
future capital
investment strategies,
resourcing costs,
availability and
government strategy
on public services/schools.
------------------------ ----------------------------- --------------------------------
Major supplier Impact on supply In News & Media, publishers
or customer of product or typically award five
loss / consolidation route to market year contracts supporting
or dominance may erode margin the market structure.
changes the and/or increase The Books, Education
trading relationship, cost to serve. & Care and Parcel Freight
impacting current divisions operate in
and projected very fragmented markets
business performance. with fewer key significant
suppliers or customers.
Strong relationships
across the supply chain
help the Group to understand
and demonstrate its
strengths for the benefit
of its suppliers and
customers.
------------------------ ----------------------------- --------------------------------
Failure to Sales and/or profit Financial and operational
deliver business expected from metrics are considered
plans and/or acquisitions / along with risk assessments
financial returns organic growth and impact on management
on recent acquisitions may not be met before decisions are
or new initiatives and/or the Group's made. Performance to
or a failure reputation and plans are reviewed monthly
to identify support for future with post investment
new organic acquisitions are analysis producing a
growth opportunities challenged. Cultural more thorough review
or acquisitions change for diversification of each acquisition
impacts external results in reduced within 12 months after
confidence performance and completion. Detailed
and shareholder financial returns. integration process,
perception, Uncertainty from governance and support
bringing into Brexit may affect framework ensures effective
question the the Group in both and timely adoption
future strategic the short and of standards and process
direction of medium term on into acquisitions.
the Group and trade arrangements,
confidence future capital
in its delivery. investment strategies,
resourcing costs
and availability
and government
strategy on public
services/schools.
------------------------ ----------------------------- --------------------------------
Legislative Increased number Self-employed delivery
changes or of employees or contractors have clearly
interpretation cost per employee articulated agreements
impacting the increases the defining tasks they
engagement cost base and are contracted to provide
of employees potentially creates to News & Media with
and delivery greater redundancy annually set commercial
contractors liabilities from terms. The introduction
result in an future efficiency of the National Living
increase in programmes. Brexit Wage (and future anticipated
the number uncertainty over increases) impacts only
of employees the continued a limited proportion
and/or costs, availability of of employees, when assessed
including the EU workforce and/or across the Group as
uncertainty treatment of current a whole. The associated
of the impact EU workers in knock-on impact of the
of Brexit. the UK could result National Living Wage
in the short and to maintain wage differentials
medium term shortage across grades will continue
of labour and/or to be monitored. Regular
increased labour checks are carried out
costs. by Internal Audit across
the Group network ensuring
understanding and compliance.
------------------------ ----------------------------- --------------------------------
Breach of airside Costs could increase External security advice
security at through additional supports internal staff
DMD exposes security requirements to review DMD's exposure,
the business and/or penalties, measure effectiveness
to penalties with severe reputational of controls and recommend
and/or reputational damage potentially new controls if required.
impact, leading causing the loss In addition, insurance
to increased of contracts for is taken out to cover
costs and potentially our media business. the Group from major
loss of contracts. risks.
------------------------ ----------------------------- --------------------------------
Major business Trading capability, Investment is made to
disruption customer experience provide disaster recovery
incurred through and sales/margin capability across the
operational performance impacted Group for all essential
events (e.g. through inability systems. Expertise is
contractor to operate due used to provide guidance
/ employee to systems outages, and the Group operates
disputes, increasing location access an external disaster
reliance on or employee/contractor recovery facility. In
centralised strikes. addition, a programme
system solutions led centrally ensures
and complex business continuity
operations, planning procedures
including single and standards are embedded
sites) are across the divisions.
not supported
by robust Business
Continuity
Planning and
Disaster Recovery
solutions to
prevent disruption
outside of
expected tolerances.
------------------------ ----------------------------- --------------------------------
Loss of key Loss of key skills Performance and capability
executives and leadership management processes
and subsequent impacts the capability are in place, reviewed
loss of knowledge of the Group to by the Remuneration
and skills deliver its strategic Committee and Group
impacts current goals. Executive. Succession
and future planning for critical
business performance. roles and development
plans for key individuals
is also reviewed by
the Nominations Committee.
------------------------ ----------------------------- --------------------------------
3 year strategic Inability of warehousing The annual business
business plan / operational and strategic planning
is jeopardised / IT and support process ensures appropriate
by constraints systems to meet investment is budgeted
on capacity growth expectations to ensure growth targets
and/or increasing of the Group, are achieved.
costs of divisional creates poor customer
premises and experience, increased
equipment/systems investment costs
to meet growth and reduced profitability.
plans.
------------------------ ----------------------------- --------------------------------
Effort required Management's focus Organisational and cultural
for organisational on current business change is a key imperative,
change in new operations and leading to investment
and established performance is in resources and skills
organisations distracted by that are required to
is increased organisational deliver the successful
due to lack change and new integration and development
of appropriate initiatives. Management of new businesses and
skills. Creates become overstretched business critical initiatives,
excessive demands and demotivated including investment
on new and by demands of in expert skills in
existing staff. the Group and change management and
Results in exit, taking valuable project management.
loss of key skills and knowledge
people, lack with them.
of engagement
and loss of
in-depth knowledge
and specialist
skills impacting
both current
and future
business performance.
------------------------ ----------------------------- --------------------------------
Failure to Health and safety Group oversight is led
embed and promote practices are by the Group Head of
health and not embedded within Health & Safety to ensure
safety standards the Group resulting good practice standards
in current in serious incidents, are embedded across
and recently reputational impact the divisions as standard
acquired businesses, and/or loss of operating practices.
results in regulatory licences Current strategies exist
serious injury (e.g. operator's for divisions to manage/train
to employees licence). health and safety standards,
and/or the with dedicated roles
public. Reputational assigned. The Parcel
impact and Freight division continue
breach in regulatory to focus on execution
standards leads of key deliverables
to loss of and areas identified
operating license, for further improvement,
significant with clear action plans
financial and and dedicated resources
personal penalties. allocated. Significant
continued investment
is budgeted for health
and safety improvements
across the estate in
FY2017.
------------------------ ----------------------------- --------------------------------
DIRECTORS' RESPONSIBILITIES STATEMENT
The responsibility statement has been prepared in connection to the Company's full Annual Report for the year ended 31 August 2016. Certain parts of the Annual Report are not included in this announcement, as described in note 1.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;
-- the Operating Review and Financial Review includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
This responsibility statement was approved by the board of directors on 18 October 2016 and is signed on its behalf by:
Mark Cashmore David Bauernfeind Group Chief Executive Chief Financial Officer
Connect Group PLC
Group Income Statement for the year ended 31 August 2016
GBPm 2016 2015
------------------------ ---- ------------------------------- -------------------------------
Note Adjusted* Adjustments Total Adjusted* Adjustments Total
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Revenue 2 1,906.5 - 1,906.5 1,875.1 - 1,875.1
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Operating profit 2,3 67.7 (18.8) 48.9 63.8 (27.5) 36.3
Finance costs 6 (7.0) - (7.0) (7.3) - (7.3)
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Profit before
tax 60.7 (18.8) 41.9 56.5 (27.5) 29.0
Income tax
expense 7 (12.4) 3.9 (8.5) (11.1) 3.5 (7.6)
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Profit for
the year 48.3 (14.9) 33.4 45.4 (24.0) 21.4
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Profit attributable
to equity shareholders 48.3 (14.9) 33.4 45.5 (24.0) 21.5
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Loss attributable
to non-controlling
interest - - - (0.1) - (0.1)
------------------------ ---- --------- ----------- ------- --------- ----------- -------
48.3 (14.9) 33.4 45.4 (24.0) 21.4
------------------------ ---- --------- ----------- ------- --------- ----------- -------
Earnings per
share
Basic 919.8p 13.7p 19.7p 9.3p
Diluted 919.5p 13.5p 19.0p 9.0p
Equity dividends
per share (paid
and proposed) 8 9.5p 9.2p
----------------- ----- ----- ----- ----
* Adjusted before Exceptional items.
All amounts are derived from continuing operations.
Group Statement of Comprehensive Income for the year ended 31 August 2016
GBPm Note 2016 2015
------------------------------------- ---- ----- ------
Items that will not be reclassified
to the Group Income Statement
Actuarial (loss)/gain on defined
benefit pension scheme 5 (2.0) 53.5
Impact of IFRIC 14 on defined
benefit pension scheme 5 (6.5) (52.8)
Tax relating to components
of other comprehensive income
that will not be reclassified 7 1.7 (0.1)
------------------------------------- ---- ----- ------
(6.8) 0.6
Items that may be subsequently
reclassified to the Group Income
Statement
Loss on cash flow hedges 17 (1.2) (0.6)
Currency translation differences 0.6 (0.1)
Tax relating to components
of other comprehensive income
that may be reclassified 7 (0.3) -
------------------------------------- ---- ----- ------
(0.9) (0.7)
Other comprehensive income
for the year (7.7) (0.1)
Profit for the year 33.4 21.4
------------------------------------- ---- ----- ------
Total comprehensive income
for the year 25.7 21.3
Total comprehensive income
attributable to equity shareholders 25.7 21.4
Total comprehensive income
attributable to non-controlling
interest - (0.1)
------------------------------------- ---- ----- ------
Group Balance Sheet at 31 August 2016
GBPm Note 2016 2015
--------------------------------- ---- ------- -------
Non-current assets
Intangible assets 10 164.8 174.8
Property, plant and equipment 50.3 44.6
Interest in jointly controlled
entities 4.1 4.5
Retirement benefit assets 5 0.3 0.4
Deferred tax assets 7.7 7.5
227.2 231.8
--------------------------------- ---- ------- -------
Current assets
Inventories 42.3 42.0
Trade and other receivables 139.2 147.3
Derivative financial instruments 0.1 -
Cash and cash equivalents 11 9.1 10.9
190.7 200.2
--------------------------------- ---- ------- -------
Total assets 417.9 432.0
--------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (198.8) (203.5)
Current tax liabilities (6.9) (5.4)
Bank loans and other borrowings 11 (61.0) (56.5)
Obligations under finance leases 12 (3.0) (2.9)
Retirement benefit obligations 5 (4.1) (3.3)
Provisions 13 (8.5) (10.4)
(282.3) (282.0)
--------------------------------- ---- ------- -------
Non-current liabilities
Retirement benefit obligations 5 (17.4) (15.2)
Bank loans and other borrowings 11 (79.1) (98.4)
Obligations under finance leases 12 (7.7) (6.5)
Derivative financial instruments (1.5) (0.2)
Other non-current liabilities (1.1) (1.0)
Deferred tax liabilities (10.9) (13.5)
Non-current provisions 13 (4.9) (6.0)
--------------------------------- ---- ------- -------
(122.6) (140.8)
--------------------------------- ---- ------- -------
Total liabilities (404.9) (422.8)
--------------------------------- ---- ------- -------
Total net assets 13.0 9.2
--------------------------------- ---- ------- -------
GBPm Note 2016 2015
------------------------------ ----- ------- -------
Equity
Called up share capital 16(a) 12.3 12.2
Share premium account 16(c) 59.2 55.2
Demerger reserve 17(a) (280.1) (280.1)
Own shares reserve 17(b) (3.5) (4.1)
Hedging & translation reserve 17(c) (1.1) (0.5)
Retained earnings 226.2 226.5
------------------------------ ----- ------- -------
Total shareholders' equity 13.0 9.2
------------------------------ ----- ------- -------
The accounts were approved by the Board of Directors and authorised for issue on 18 October 2016 and were signed on its behalf by:
Registered number - 05195191
Mark Cashmore David Bauernfeind
Group Chief Executive Chief Financial Officer
Group Statement of Changes in Equity for the year ended 31 August 2016
GBPm Note Share Share Demerger Own Hedging Retained Non- Total
capital premium reserve shares & earnings controlling
account reserve translation interests
reserve in equity
------------------ ----- --------- --------- --------- --------- ------------ ---------- ------------ -------
Balance at
31 August
2014 9.5 5.3 (280.1) (5.2) (0.3) 228.5 0.2 (42.1)
Profit/(loss)
for the year - - - - - 21.5 (0.1) 21.4
Loss on cash
flow hedges - - - - (0.6) - - (0.6)
Actuarial
gain on defined
benefit pension
scheme - - - - - 53.5 - 53.5
Impact of
IFRIC 14
on defined
benefit pension
scheme - - - - - (52.8) - (52.8)
Currency
translation
differences - - - - (0.1) - - (0.1)
Tax relating
to components
of other
comprehensive
income - - - - - (0.1) - (0.1)
------------------ ----- --------- --------- --------- --------- ------------ ---------- ------------ -------
Total
comprehensive
income for
the year - - - - (0.7) 22.1 (0.1) 21.3
Issue of
share capital 16 2.7 49.9 - - - - - 52.6
Reclassification
between reserves - - - - 0.5 (0.5) - -
Purchase
of own shares - - - (4.2) - - - (4.2)
Dividends
paid 8 - - - - - (21.4) - (21.4)
Employee
share schemes - - - 5.3 - (5.3) - -
Adjustment
arising from
change in
NCI - - - - - (5.1) (0.1) (5.2)
Recognition
of share
based payments
net of tax - - - - - 8.2 - 8.2
Balance at
31 August
2015 16, 12.2 55.2 (280.1) (4.1) (0.5) 226.5 - 9.2
17
------------------ ----- --------- --------- --------- --------- ------------ ---------- ------------ -------
Profit for
the year - - - - - 33.4 - 33.4
Loss on cash
flow hedges - - - - (1.2) - - (1.2)
Actuarial
loss on defined
benefit pension
scheme - - - - - (2.0) - (2.0)
Impact of
IFRIC 14
on defined
benefit pension
scheme - - - - - (6.5) - (6.5)
Currency
translation
differences - - - - 0.6 - - 0.6
Tax relating
to components
of other
comprehensive
income - - - - - 1.4 - 1.4
------------------ ----- --------- --------- --------- --------- ------------ ---------- ------------ -------
Total
comprehensive
income for
the year - - - - (0.6) 26.3 - 25.7
Issue of
share capital 16 0.1 4.0 - - - - - 4.1
Purchase
of own shares - - - (1.1) - - - (1.1)
Dividends
paid 8 - - - - - (22.7) - (22.7)
Employee
share schemes - - - 1.7 - (1.7) - -
Recognition
of share
based payments
net of tax - - - - - (2.2) - (2.2)
Balance at
31 August
2016 16, 12.3 59.2 (280.1) (3.5) (1.1) 226.2 - 13.0
17
------------------ ----- --------- --------- --------- --------- ------------ ---------- ------------ -------
Group Cash Flow Statement for the year ended 31 August 2016
GBPm Note 2016 2015
-------------------------------------- ---- ------ -------
Net cash inflow from operating
activities 15 58.2 46.5
-------------------------------------- ---- ------ -------
Investing activities
Dividends received from associates 0.7 0.2
Acquisitions - (105.7)
Purchase of property, plant
and equipment (9.1) (4.7)
Purchase of intangible assets (4.8) (4.5)
Net cash used in investing
activities (13.2) (114.7)
-------------------------------------- ---- ------ -------
Financing activities
Interest paid (4.9) (5.8)
Dividend paid 8 (22.7) (21.4)
Purchase of equity in subsidiary - (5.1)
Repayments of obligations under
finance leases (3.5) (2.9)
Proceeds on issue of shares 0.4 52.6
Net outflow on purchase of
shares for Employee Benefit
Trust (1.1) (4.2)
New bank loans raised - 50.0
Decrease in borrowings (15.5) (4.4)
Net cash(used in)/from financing
activities (47.3) 58.8
-------------------------------------- ---- ------ -------
Net decrease in cash and cash
equivalents (2.3) (9.4)
Effect of foreign exchange
rate changes 0.5 (0.1)
-------------------------------------- ---- ------ -------
(1.8) (9.5)
Opening net cash and cash equivalents 10.9 20.4
Closing net cash and cash equivalents 11 9.1 10.9
-------------------------------------- ---- ------ -------
Analysis of net debt
GBPm Note 2016 2015 -------------------------- ---- ------- ------- Cash and cash equivalents 11 9.1 10.9 Current borrowings 11 (61.0) (56.5) Non-current borrowings 11 (79.1) (98.4) -------------------------- ---- ------- ------- Net borrowings (131.0) (144.0) Finance lease liabilities 12 (10.7) (9.4) Net debt (141.7) (153.4) -------------------------- ---- ------- -------
The year on year movement in net borrowings includes GBP0.7m amortisation of bank fees.
Notes to the accounts
1. Basis of preparation
The Results are based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union (EU) and therefore comply with Article 4 of the EU IAS legislation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS.
There have been no significant changes in accounting policies from those set out in the accounting policies set out in the accounting policies section of the Connect Group PLC Annual Report and Accounts 2016. The accounting policies have been applied consistently throughout the years ended 31 August 2016 and 31 August 2015.
The following Standards have been adopted without any significant impact on the amounts reported in these financial statements:
-- IAS19 (amended) 'Defined Benefit Plans: Employee Contributions' (effective February 2015)
The financial information set out in these results does not constitute the Group's statutory accounts for the years ended 31 August 2016 and 31 August 2015 but is derived from those accounts. Statutory accounts for Connect Group PLC for the year ended 31 August 2015 have been delivered to the Registrar of Companies and those for the year ended 31 August 2016 will be delivered following the Company's Annual General Meeting. The auditor's reports on the 2015 and the 2016 accounts were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The Company intends to publish the Annual Report and Accounts that comply with IFRSs. The Annual Report and Accounts will be available for shareholders in December 2016 at www.connectgroupplc.com.
These results were approved by the Board of Directors on 18 October 2016.
2. Segmental analysis
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
(also referred 30,000 retailers across England
to as Smiths News) and Wales from 42 distribution
centres.
-------------------------- --------------------------------------
Connect News & A supplier of newspaper and magazines
Media: Media to airlines and a provider of
(also referred inflight services.
to as DMD)
-------------------------- --------------------------------------
Connect Parcel A leading provider of next day
Freight B2B delivery of mixed parcel
(also referred freight consignments.
to as Tuffnells)
-------------------------- --------------------------------------
Connect Education A leading distributor of education
and Care and care consumable products
(also referred servicing 30,000 customers across
to as The Consortium) the UK.
-------------------------- --------------------------------------
Connect Books A leading UK distributor of physical
(also referred and digital books to high street
to as Bertrams, and on-line retailers, public
Dawson Books and libraries, academic institutions
Wordery) and direct to consumers with
a strong international presence,
supplying 100 countries.
-------------------------- --------------------------------------
The following is an analysis of the Group's revenue and results by reportable segment:
Revenue
------------------------ ------------------
GBPm 2016 2015
------------------------ -------- --------
Connect News & Media:
News Distribution 1,443.8 1,479.3
Connect News & Media:
Media 27.6 25.4
Connect Parcel Freight 174.4 114.4
Connect Education and
Care 64.8 65.9
Connect Books 195.9 190.1
Total Group 1,906.5 1,875.1
------------------------- -------- --------
2016 2015
-------------------- -------------------------------------- --------------------------------------
GBPm Adjusted Exceptional Statutory Adjusted Exceptional Statutory
operating items operating operating items operating
profit profit profit profit
-------------------- ----------- ------------ ----------- ----------- ------------ -----------
Connect News
& Media:
News Distribution 40.0 (5.9) 34.1 41.4 (18.2) 23.2
Connect News
& Media:
Media 2.4 (0.4) 2.0 2.3 (0.4) 1.9 Connect Parcel Freight 15.0 (8.9) 6.1 9.7 (4.6) 5.1 Connect Education and Care 7.8 (1.1) 6.7 7.8 (2.1) 5.7 Connect Books 2.5 (2.5) - 2.6 (2.2) 0.4 Total group 67.7 (18.8) 48.9 63.8 (27.5) 36.3 --------------------- ----------- ------------ ----------- ----------- ------------ ----------- Net finance expense (7.0) (7.3) --------------------- ----------- ------------ ----------- ----------- ------------ ----------- Profit before taxation 41.9 29.0 --------------------- ----------- ------------ ----------- ----------- ------------ -----------
Information about major customers
Included in revenues arising from newspaper and magazine wholesaling are revenues of approximately GBP156.8m
(2015: GBP155.1m) which arose from sales to the Group's largest customer. No other single customer contributed 8% or more of the Group's revenue in either 2016 or 2015.
Segment assets and liabilities
Assets Liabilities Net assets/(liabilities)
----------------------------------- -------------- ------------------ ---------------------------
GBPm 2016 2015 2016 2015 2016 2015
----------------------------------- ------ ------ -------- -------- ------------- ------------
Connect News &
Media: News 89.4 93.1 (280.4) (293.0) (191.0) (199.9)
Connect News &
Media: Media 20.5 18.9 (7.6) (7.2) 12.9 11.7
Connect Parcel
Freight 175.9 176.5 (49.0) (40.5) 126.9 136.0
Connect Education
and Care 57.4 63.6 (20.4) (18.9) 37.0 44.7
Connect Books 74.7 79.9 (47.5) (63.2) 27.2 16.7
Consolidated assets/(liabilities) 417.9 432.0 (404.9) (422.8) 13.0 9.2
----------------------------------- ------ ------ -------- -------- ------------- ------------
Segment depreciation, amortisation and non-current asset additions
Depreciation Amortisation Additions
to non-current
assets
-------------------- --------------- --------------- ------------------
GBPm 2016 2015 2016 2015 2016 2015
-------------------- ------- ------ ------- ------ -------- --------
Connect News &
Media: News (4.5) (4.2) (2.3) (1.8) 5.2 8.0
Connect News &
Media: Media (0.1) (0.1) (0.4) (0.4) 0.3 0.2
Connect Parcel
Freight (3.3) (1.8) (7.1) (4.7) 11.1 131.8
Connect Education
and Care (0.4) (0.5) (2.2) (2.0) 1.5 1.8
Connect Books (0.6) (0.7) (2.7) (2.5) 1.2 1.9
Consolidated total (8.9) (7.3) (14.7) (11.4) 19.3 143.7
------------------- ------- ------ ------- ------ -------- --------
Additions to non-current assets includes intangible assets and property, plant and equipment.
Geographical analysis
GBPm Revenue by destination Non-current assets
by location of
operation
2016 2015 2016 2015
-------------------- ------------ ----------- ---------- ---------
United Kingdom 1,823.6 1,791.9 218.9 223.7
Europe 47.5 48.8 0.3 0.2
Rest of World 35.4 34.4 - -
--------------------- ------------ ----------- ---------- ---------
Consolidated total 1,906.5 1,875.1 219.2 223.9
--------------------- ------------ ----------- ---------- ---------
Non-current assets in the table above exclude retirement benefit assets, deferred tax assets and derivative financial instruments.
3. Operating profit
The Group's results are analysed as follows:
GBPm 2016 2015
Note Adjusted Exceptional Total Adjusted Exceptional Total
items items
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Revenue 1,906.5 - 1,906.5 1,875.1 - 1,875.1
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Cost of inventories
recognised
as an expense (1,531.5) - (1,531.5) (1,562.1) - (1,562.1)
Write down
of inventories
recognised
as an expense (0.1) - (0.1) (0.1) - (0.1)
Other cost
of sales (118.5) - (118.5) (76.0) - (76.0)
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Cost of sales (1,650.1) - (1,650.1) (1,638.2) - (1,638.2)
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Gross profit 256.4 - 256.4 236.9 - 236.9
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Distribution
costs (106.5) - (106.5) (92.3) - (92.3)
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Administrative
expenses (76.3) (8.6) (84.9) (76.3) (12.9) (89.2)
Share-based
payment expense (1.7) - (1.7) (1.3) (6.7) (8.0)
Amortisation
of intangibles 10 (4.5) (10.2) (14.7) (3.5) (7.9) (11.4)
Administrative
expenses (82.5) (18.8) (101.3) (81.1) (27.5) (108.6)
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Share of profits
from jointly
controlled
entities 0.3 - 0.3 0.3 - 0.3
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
Operating profit 67.7 (18.8) 48.9 63.8 (27.5) 36.3
-------------------- ---- --------- ----------- --------- --------- ----------- ---------
The operating profit is stated after charging/(crediting):
GBPm Note 2016 2015
----------------------------------------- ----- ------ ------
Depreciation on property,
plant & equipment 8.9 7.3
Amortisation of intangible
assets 10 14.7 11.4
Operating lease charges
* occupied land and buildings 11.0 9.3
* equipment and vehicles 19.4 12.1
Operating lease rental income
- land and buildings (0.4) (0.1)
Loss on disposal of fixed
assets - 0.2
Staff costs 153.7 136.5
----------------------------------------- ----- ------ ------
Included in administrative expenses are amounts payable to Deloitte LLP and their associates by the Company and its subsidiary undertakings in respect of audit and non-audit services which are as follows:
GBPm 2016 2015 ------------------------------- ----- ----- Fees payable to the Company's auditor for the audit of the Company's annual accounts 0.2 0.2 Fees payable to the Company's auditor for the audit of the Company's subsidiaries 0.2 0.2 ------------------------------- ----- ----- Total audit fees 0.4 0.4 Other services - 0.2 ------------------------------- ----- ----- Total non-audit fees - 0.2 ------------------------------- ----- ----- Total fees 0.4 0.6 ------------------------------- ----- -----
In the prior year the Group incurred GBP0.2m of non-audit fees with Deloitte relating to acquisition/transaction support, remuneration advice and other advisory services.
4. Exceptional items GBPm 2016 2015 ----------------------------- ----- ------- ------- Network and re-organisation costs (a) (4.4) (4.5) Acquisition and disposal costs (b) (3.8) (15.1) Pension credit (c) 1.1 - Amortisation of acquired intangibles (d) (10.2) (7.9) Legal provision - potential (e) (1.5) - health and safety offences Total before taxation (18.8) (27.5) ------------------------------------- ------- ------- Income tax expense 3.9 3.5 ------------------------------------- ------- ------- Total after taxation (14.9) (24.0) ------------------------------------- ------- -------
The Group incurred a total of GBP14.9m (2015: GBP24.0m) in exceptional items, after tax.
This comprises:
(a) Network re-organisation costs
Network and re-organisation costs of GBP4.4m are predominantly rationalisation costs to drive efficiency savings in Smiths News. They also include costs incurred in the reorganisation of the Books international divisions and of operations within Education & Care.
(b) Acquisition and disposal costs
Acquisition costs include GBP1.9m in relation to deferred contingent consideration payable conditional on the financial performance and on continued employment of former owners of Tuffnells GBP1.1m and the acquisition of Wordery GBP0.8m. The remaining GBP1.9m related to professional fees on acquisition and disposal activity.
In the prior year acquisition related costs for the Tuffnells acquisition included GBP3.5m for deal expenses and cost of integration plus GBP11.6m of deferred contingent consideration payable conditional on the financial performance and on continued employment of former owners. A further GBP3.1m of equity raise expenses were charged directly to reserves.
(c) Pension credit
The pension credit is associated with the impact of the Trustees decision to cease payment of discretionary increases on pre 97 pension rights within The Consortium Care scheme which results in a past service credit.
(d) Amortisation of acquired intangibles
Amortisation of acquired intangibles of GBP10.2m (FY2015: GBP7.9m) has been incurred relating to acquisitions amortised over their expected economic lives for which there is no ongoing cash impact. The amortisation charge has increased compared to the prior year due to the acquisition of Tuffnells. The net book value of acquired intangibles of GBP55.2m will be amortised over future years.
(e) Legal provision - potential health and safety offences
Potential fine and legal costs arising from the outcome of the HSE investigation into the fatality at Parcel Freight's Brierley Hill depot in January 2016. See note 13 for further details.
5. Retirement benefit obligation
Defined benefit pension schemes
The Group operates four defined benefit schemes, of which the WH Smith Pension Trust (the 'Pension Trust') represents 92% of the total obligation at 31 August 2016. As part of the 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 Group's defined benefit pension plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members' length of service and their salary in the final years leading up to retirement. Benefits are paid to members from trustee-administered funds. The trustees are responsible for ensuring that the plan is sufficiently funded to meet current and future benefit payments. If investment experience is worse than expected, the Group's obligations are increased.
The trustees must agree a funding plan with the sponsoring company such that any funding shortfall is expected to be met by additional contributions and investment performance. In order to assess the level of contributions required, triennial valuations are carried out with plan's obligations measured using prudent assumptions (relative to those used to measure accounting liabilities). The trustees' other duties include managing the investment of plan assets, administration of plan benefits and exercising of discretionary powers.
The amounts recognised in the balance sheet are as follows:
GBPm WH Consortium Platinum Tuffnells 2016 WH Consortium Platinum Tuffnells 2015
Smith CARE Parcels Smith CARE Parcels
Pension Express Pension Express
Trust Trust
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
Present
value of
defined
benefit
obligation (490.2) (24.0) (1.6) (15.7) (531.5) (401.2) (18.7) (0.8) (11.3) (432.0)
Fair value
of assets 641.5 15.8 1.9 12.7 671.9 536.8 14.7 1.2 10.6 563.3
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
Net surplus/
(loss) 151.3 (8.2) 0.3 (3.0) 140.4 135.6 (4.0) 0.4 (0.7) 131.3
Amounts
not
recognised
due to
asset limit (151.3) - - - (151.3) (135.6) - - - (135.6)
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
- (8.2) 0.3 (3.0) (10.9) - (4.0) 0.4 (0.7) (4.3)
Additional
liability
recognised
due to
minimum
funding
requirements (10.3) - - - (10.3) (13.8) - - - (13.8)
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
Pension
liability (10.3) (8.2) - (3.0) (21.5) (13.8) (4.0) - (0.7) (18.5)
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
Pension
asset - - 0.3 - 0.3 - - 0.4 - 0.4
-------------- -------- ---------- -------- --------- ------- -------- ---------- -------- --------- -------
The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of GBP151.3m at 31 August 2016 (2015: GBP135.6m surplus) which the Group does not recognise in the accounts as the investment policy being used means that the amount available on a reduction of future contributions is expected to be GBPnil (2015: GBPnil). The valuation of the defined benefit schemes for the IAS 19 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.
WH Smith Pension Trust
The actuarial valuation of the Smiths News section of the WH Smith Pension Trust, at June 2013 was a deficit of GBP23.0m.
Future cash contributions by the Group to the pension trustees and investment manager total GBP4.1m per annum through to March 2019. The Group recognises the present value of these agreed contributions as a pension liability of GBP10.3m (2015: GBP13.8m).
Other defined benefit schemes
For the Consortium CARE and Platinum schemes, the Group contributed GBP0.8m in 2016. The funding valuation of the Consortium CARE scheme as at 31 December 2013 was a 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 2013 was an agreed liability of GBP2.5m. Guaranteed Minimum Pension ("GMP") equalisation is expected to lead to an increase in scheme liabilities at some future date on the Consortium Care and the Tuffnells Parcels Express scheme.
The weighted average duration of the schemes is 17 years for the Pension Trust, 20 years for the Consortium Care scheme, 29 years for the Platinum scheme and 21 years for the Tuffnells Parcels Express scheme.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:
% p.a. 2016 2015 --------------------------- -------------- -------------- Discount rate 2.0 3.8 Inflation assumptions - CPI 2.0 2.2 Inflation assumptions - RPI 3.0 3.2 Demographic assumptions for WH Smith pension trust: Life expectancy at age Male Female Male Female 65 Member currently aged 65 21.5 23.5 21.7 23.7 Member currently aged 45 22.8 25.0 23.0 25.2 --------------------------- ----- ------- ----- -------
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 obligation 14 on
scheme defined
assets benefit
pension
schemes
-------------------------------- -------- ------------ ---------- --------
At 31 August 2014 522.7 (450.7) (93.0) (21.0)
-------------------------------- -------- ------------ ---------- --------
Current service cost (0.5) - - (0.5)
Net interest cost 20.0 (17.2) (3.6) (0.8)
Total amount recognised
in income statement 19.5 (17.2) (3.6) (1.3)
-------------------------------- -------- ------------ ---------- --------
Actual less expected
return on scheme assets 28.7 - - 28.7
Actuarial gains arising
from experience - 25.1 - 25.1
Actuarial loss arising
from changes in financial
assumptions - (2.2) - (2.2)
Actuarial gains arising
from changes in demographic
assumptions - 1.9 - 1.9
Change in surplus not
recognised - - (52.8) (52.8)
Amount recognised in other
comprehensive income 28.7 24.8 (52.8) 0.7
Employer contributions 5.3 0.1 - 5.4
Employee contributions 0.1 (0.1) - -
-------------------------------- -------- ------------ ---------- --------
Benefit payments (23.6) 23.6 - -
-------------------------------- -------- ------------ ---------- --------
Amounts included in cash
flow statement (18.2) 23.6 - 5.4
-------------------------------- -------- ------------ ---------- --------
Acquisition of subsidiary 10.6 (12.5) - (1.9)
-------------------------------- -------- ------------ ---------- --------
At 31 August 2015 563.3 (432.0) (149.4) (18.1)
-------------------------------- -------- ------------ ---------- --------
Current service cost - (0.3) - (0.3)
Net interest cost 20.9 (15.8) (5.7) (0.6)
Administration expenses (0.1) - - (0.1)
Past service credits - 1.1 1.1
-------------------------------- -------- ------------ ---------- --------
Total amount recognised
in income statement 20.8 (15.0) (5.7) 0.1
-------------------------------- -------- ------------ ---------- --------
Actual less expected
return on scheme assets 115.4 - - 115.4
Actuarial gains arising
from experience - 7.5 - 7.5
Actuarial loss arising
from changes in financial
assumptions - (128.3) - (128.3)
Actuarial gains arising
from changes in demographic
assumptions - 3.4 - 3.4
Change in surplus not
recognised - - (6.5) (6.5)
Amount recognised in other
comprehensive income 115.4 (117.4) (6.5) (8.5)
Employer contributions 5.3 - - 5.3
Employee contributions 0.1 (0.1) - -
Benefit payments (33.0) 33.0 - -
-------------------------------- -------- ------------ ---------- --------
Amounts included in cash
flow statement (27.6) 32.9 - 5.3
-------------------------------- -------- ------------ ---------- --------
At 31 August 2016 671.9 (531.5) (161.6) (21.2)
-------------------------------- -------- ------------ ---------- --------
Included within Non-current
assets 0.3
Included within Current
liabilities (4.1)
Included within Non-current
liabilities (17.4)
-------------------------------- -------- ------------ ---------- --------
The charge for the current service cost is included within administrative expenses. 'Net interest costs' are calculated by applying a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income and expense.
An analysis of the assets at the balance sheet date is detailed below:
GBPm 2016 2015
-------------------------------- ---------- ------ ------
Swap financing
portfolio Unquoted 388.0 431.9
Interest rate
and inflation
swaps Unquoted 226.7 79.5
Loan fund Unquoted 26.7 25.4
Equities (CARE,Tuffnells) Unquoted 24.1 21.0
Bonds (CARE,Platinum) Unquoted 6.1 5.0
Cash (CARE,Platinum,Tuffnells) 0.3 0.5
-------------------------------------------- ------ ------
671.9 563.3
------------------------------------------- ------ ------
The assets held in the swap financing portfolio provide a swap-based hedge against the change in value of a proportion of the Trust's liabilities for changes in long-term interest rates and inflation expectations.
The actual return on scheme assets during 2016 was a gain of GBP136.2m (2015: a gain of GBP48.7m).
The value of the assets held by the trust in Connect Group PLC issued financial instruments is GBPnil (2015: GBPnil).
Sensitivity of results to changes in the main assumptions:
Assumption Change in assumption Impact on IAS
19 liabilities
------------------ --------------------- --------------------
Discount rate +/- 0.5% -GBP42.5m/+GBP45.9m
Rate of inflation +/- 0.5% +GBP42.5m/-GBP39.4m
Life expectancy +/- 1 year +GBP18.9m/-GBP18.9m
------------------ --------------------- --------------------
The sensitivity analysis for each significant actuarial assumption has been determined based on reasonably possible changes to the assumptions at the end of the reporting period. It is based on a change in the key assumption while holding all other assumptions constant. The effect of a change in more than one assumption will be different to the sum of the individual changes. When calculating the sensitivities, the same methodology used to calculate the liability recognised in the balance sheet has been applied. The methodology and types of assumptions used in preparing the sensitivity analysis is consistent with the previous period.
The history of experience adjustments is as follows:
GBPm 2016 2015 2014 2013 2012 ---------------------------- -------- -------- -------- -------- -------- Present value of defined benefit obligation (531.5) (432.0) (450.7) (419.2) (395.3) Fair value of assets 671.9 563.3 522.7 469.6 433.1 Impact of IFRIC 14 on defined benefit pension schemes (161.6) (149.4) (93.0) (73.5) (73.8) ---------------------------- -------- -------- -------- -------- -------- Net deficit in the schemes (21.2) (18.1) (21.0) (23.1) (36.0) ---------------------------- -------- -------- -------- -------- -------- Experience adjustments on scheme liabilities (117.4) 25.1 0.8 (1.4) (1.0) ---------------------------- Experience adjustments on scheme assets 115.4 28.7 44.6 27.9 34.0 ---------------------------- -------- -------- -------- -------- --------
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption of IFRS is a loss of GBP29.2m (2015: a loss of GBP20.7m).
The group's defined benefit pension plans have a number of areas of risk, the most significant of which and they ways in which the Group has sought to manage them are set out below:
Risk Description
---------------- -------------------------------------------
Changes in Falling bond yields tend to increase
bond yields the funding and accounting liabilities.
The assets held in the swap financing
portfolio of the WH Smith PensionTrust
provide a swap-based hedge against
the change in value of a proportion
of the Trust's liabilities for changes
in long-term interest rates and inflation
expectations, reducing the exposure
to changes in bond yields.
The Care, Platinum and Tuffnells
schemes both hold investments in
corporate and government bonds which
offer a degree of matching, i.e.
the movement in assets arising from
changes in bond yields partially
matches the movement in the funding
or accounting liabilities. In this
way, the exposure to movements in
bond yields is reduced.
---------------- -------------------------------------------
Inflation The plans' benefit obligations are
risk linked to inflation and higher inflation
will lead to higher liabilities (although
in most cases caps on the level of
inflationary increases are in place
to protect the plan against extreme
inflation).
The assets held in the swap financing
portfolio of the WH Smith Pension
Trust provide a swap-based hedge
against the change in value of a
proportion of the Trust's liabilities
for changes in long-term interest
rates and inflation expectations,
reducing the exposure to inflation.
For the Care, Platinum and Tuffnells
schemes the majority of the assets
are either unaffected by inflation
(fixed interest bonds) or loosely
correlated with inflation (equities),
meaning that an increase in inflation
will also increase the deficit.
---------------- -------------------------------------------
Life expectancy The majority of the plans' obligations
are to provide a pension for the
life of the member, so increases
in life expectancy will result in
an increase in the plans' liabilities.
---------------- -------------------------------------------
Defined contribution schemes
The Group operates a number of defined contribution schemes. For the year ended 31 August 2016, company contributions totalled GBP3.0m (2015: GBP3.0m) which is included in the Income Statement.
A defined contribution plan is a pension plan under which the group pays contributions to an independently administered fund - such contributions are based upon a fixed percentage of employees' pay. The group has no legal or constructive obligations to pay further contributions to the fund once the contributions have been paid. Members' benefits are determined by the amount of contributions paid by the Company and the member, together with investment returns earned on the contributions arising from the performance of each individual's chosen investments and the type of pension the member chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk (that assets invested in will not perform in line with expectations) fall on the employee.
6. Finance costs
GBPm Note 2016 2015
---------------------------- ----- ----- -----
Interest on bank overdrafts
and loans (5.5) (5.8)
Net interest expense on
defined benefit obligation 5 (0.6) (0.8)
Interest payable on finance
leases (0.7) (0.4)
Net change in fair value
of derivative assets - (0.2)
Unwinding of discount on
provisions - trading 13 (0.2) (0.1)
---------------------------- ----- ----- -----
Finance costs (7.0) (7.3)
---------------------------- ----- ----- -----
7. Income tax expense
GBPm 2016 2015
Adjusted Exceptional Total Adjusted Exceptional Total
items items
---------------------- --------- ------------ ------ --------- ------------ ------
Current tax 13.1 (1.4) 11.7 12.4 (2.3) 10.1
Adjustment in
respect of prior
year UK corporation
tax (0.8) (0.1) (0.9) (1.1) (0.9) (2.0)
Total current
tax charge 12.3 (1.5) 10.8 11.3 (3.2) 8.1
Deferred tax -
current year (0.3) (1.5) (1.8) (0.2) (0.3) (0.5)
Deferred tax -
prior year (0.1) (0.1) (0.2) - - -
Deferred tax -
impact of rate
change 0.5 (0.8) (0.3) - - -
---------------------- --------- ------------ ------ --------- ------------ ------
Total tax on profit 12.4 (3.9) 8.5 11.1 (3.5) 7.6
---------------------- --------- ------------ ------ --------- ------------ ------
Effective tax
rate 20.4% 20.3% 19.7% 26.3%
---------------------- --------- ------------ ------ --------- ------------ ------
The effective adjusted income tax rate for the year was 20.4% (2015: 19.7%). After adjusting for the impact of Exceptional items of GBP3.9m (2015: GBP3.5m), the effective statutory income tax rate was 20.3% (2015: 26.3%).
The tax rates used in the 2016 and 2015 reconciliations of the tax charge are the main rates of UK corporation tax, those being 20.0% (2015: 20.6%).
Reconciliation of the tax charge
GBPm 2016 2015 ----------------------------------- ------ ------ Profit before tax 41.9 29.0 ----------------------------------- ------ ------ Tax on profit at the standard rate of UK corporation tax 20.0% (2015: 20.6%) 8.4 5.9 Permanent differences 1.4 3.5 Adjustment in respect of prior year UK corporation tax (1.1) (2.0) Impact of change in UK tax rate (0.3) - Impact of overseas tax rates 0.1 0.2 Total tax charge 8.5 7.6 ----------------------------------- ------ ------
Tax charges to other comprehensive income and directly in equity
GBPm 2016 2015 ------------------------------------- ------ ------ Current tax relating to the defined benefit pension scheme (0.8) (0.8) Current tax relating to share based payments (0.1) (0.6) Deferred tax relating to impact 0.4 - of change in tax rate Deferred tax relating to derivative (0.3) - financial instruments Deferred tax relating to share based payments 0.3 0.6 Deferred tax relating to retirement benefit obligations (0.9) 0.9 Tax (credit)/ charge to other comprehensive income and directly in equity (1.4) 0.1 ------------------------------------- ------ ------ 8. Dividends
Amounts paid & proposed as distributions to equity shareholders in the years:
Paid & proposed dividends 2016 2015 2016 2015
for the year
Per share Per share GBPm GBPm
--------------------------- ---------- ---------- ----- -----
Interim dividend -
paid 3.0p 2.9p 7.3 7.0
Final dividend - proposed 6.5p 6.3p 15.9 15.4
9.5p 9.2p 23.2 22.4
--------------------------- ---------- ---------- ----- -----
Recognised dividends
for the year
Final dividend - prior
year 6.3p 6.0p 15.4 14.4
Interim dividend -
current year 3.0p 2.9p 7.3 7.0
--------------------------- ---------- ---------- ----- -----
9.3p 8.9p 22.7 21.4
--------------------------- ---------- ---------- ----- -----
The proposed final dividend for the year ended 31 August 2016 of 6.5p is subject to approval by shareholders at the Annual General Meeting on 26 January 2017 and in line with IAS10 - 'Events after the reporting period', this dividend has not been included as a liability in these accounts. The proposed dividend, if approved, will be paid on 10 February 2017 to shareholders on the register at close of business on 13 January 2017.
9. Earnings per share
2016 2015
GBPm Pence GBPm Pence
Earnings Weighted per Earnings Weighted per
average share average share
number number
of shares of shares
million million
-------------------------------- --------- ----------- ------- --------- ----------- -------
Weighted average number
of shares in issue 245.9 233.9
Shares held by the
ESOP (weighted) (2.5) (3.0)
Basic earnings per
share (EPS)
-------------------------------- --------- ----------- ------- --------- ----------- -------
Adjusted earnings attributable
to ordinary shareholders 48.3 243.4 19.8p 45.5 230.9 19.7p
-------------------------------- --------- ----------- ------- --------- ----------- -------
Exceptional and other
items (14.9) (24.0)
Earnings attributable
to ordinary shareholders 33.4 243.4 13.7p 21.5 230.9 9.3p
-------------------------------- --------- ----------- ------- --------- ----------- -------
Diluted earnings per
share (EPS)
Effect of dilutive
share options 3.8 7.6
Diluted adjusted EPS 48.3 247.2 19.5p 45.5 238.5 19.0p
-------------------------------- --------- ----------- ------- --------- ----------- -------
Diluted EPS 34.9 247.2 13.5p 21.5 238.5 9.0p
-------------------------------- --------- ----------- ------- --------- ----------- -------
Dilutive shares increase the basic number of shares at 31 August 2016 by 3.8m to 247.2m (31 August 2015: 238.5m).
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 2.3m dilutive shares (31 August 2015: 4.1m) and a weighted 1.5m shares (31 August 2015: 3.5m) being the time apportioned share capital relating to the deferred consideration for the acquisition of The Big Green Parcel Holding Company Limited.
10. Intangible assets
Acquired Intangibles Internally Computer
generated software
development costs
costs
---------------------------------- ------------- ----------
GBPm Goodwill Customer Trade Software Total
relationships name
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Cost:
At 1 September
2015 96.3 48.8 33.5 1.5 9.1 13.8 203.0
Additions - - - - 2.1 2.6 4.7
Transfers - - - - - - -
between asset
classes
Disposals - - - - - (0.2) (0.2)
At 31 August
2016 96.3 48.8 33.5 1.5 11.2 16.2 207.5
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Accumulated
amortisation:
At 1 September
2015 - 13.6 4.0 0.8 5.4 4.4 28.2
Amortisation
charge - 6.4 3.5 0.3 1.8 2.7 14.7
Transfers - - - - - - -
between asset
classes
Disposal - - - - - (0.2) (0.2)
At 31 August
2016 - 20.0 7.5 1.1 7.2 6.9 42.7
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Net book
value at
31 August
2016 96.3 28.8 26.0 0.4 4.0 9.3 164.8
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Cost:
At 1 September
2014 44.2 22.0 3.0 0.7 6.0 6.8 82.7
Additions - - - - 1.6 3.6 5.2
Acquisition
of subsidiary 52.1 26.8 30.5 0.8 - - 110.2
Transfers
between asset
classes - - - - 2.3 5.1 7.4
Disposals - - - - (0.8) (1.7) (2.5)
At 31 August
2015 96.3 48.8 33.5 1.5 9.1 13.8 203.0
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Accumulated
amortisation:
At 1 September
2014 - 8.5 1.4 0.6 3.9 2.6 17.0
Amortisation
charge - 5.1 2.6 0.2 1.6 1.9 11.4
Transfers
between asset
classes - - - - 0.7 1.6 2.3
Disposal - - - - (0.8) (1.7) (2.5)
At 31 August
2015 - 13.6 4.0 0.8 5.4 4.4 28.2
---------------- --------- --------------- ------ --------- ------------- ---------- ------
Net book
value at
31 August
2015 96.3 35.2 29.5 0.7 3.7 9.4 174.8
---------------- --------- --------------- ------ --------- ------------- ---------- ------
The Group leases software under various finance lease arrangements. The net book value of finance leases contained within the software balance above is GBP0.4m (2015: GBP0.7m).
Goodwill and Intangibles by CGU
Goodwill of GBP4.1m and acquired intangibles totalling GBP5.1m arose from the acquisition of the business and assets of Bertrams on 20 March 2009 have been allocated to the Connect Books combined cash generating unit (CGU).
The acquisition of Dawson Holdings PLC on 23 August 2011, resulted in goodwill of GBP18.1m and acquired intangibles of GBP7.8m. These were allocated to the two remaining individual CGU's identified at the time of the acquisition; Connect Books and Connect Media.
On the acquisition of Hedgelane Limited on 23 April 2012, the Group recognised goodwill of GBP20.9m and acquired intangibles of GBP10.4m which were attributed to the Education and Care CGU.
The acquisition of 100% of the issued share capital of Houtschild Internationale Boekhandel B.V. on 13 June 2012 produced a further GBP0.3m of goodwill which were attributed to Connect Books CGU.
The acquisition of Erasmus on 17 January 2013 generated GBP0.8m of goodwill and GBP0.3m of acquired intangible assets which were attributed to Connect Books CGU.
The acquisition of certain Blackwell contracts on 20 May 2013 generated GBP2.0m of acquired intangibles, attributed to Connect Books CGU.
The acquisition of trade and assets of Martin Lavell acquired on 1 September 2013 generated acquired intangibles of GBP0.3m, attributable to News CGU.
The acquisition of Tuffnells on 19 December 2014 generated GBP52.1m of goodwill and GBP58.1m of intangible assets which were attributed to Connect Parcel Freight CGU.
Goodwill is not amortised, but tested annually for impairment or more frequently if there are indications that goodwill might be impaired with the recoverable amount being determined from value in use calculations. The recoverable amounts of the combined cash generating units are determined from the value in use calculations. The Group prepares cash flow forecasts derived from the most recent budgets and forecasts for the following 3 years as approved by the Board and extrapolates these cash flows on an estimated growth rate of 1% into perpetuity. The rate used to discount the forecast cash flows range from 12.0% to 14.2%, being the Group's risk adjusted pre-tax WACC, specific for each cash generating unit. Pre-tax discount rates are derived from the Group's post-tax WACC of 8% risk adjusted by 2% to 3%. The calculation of value in use is sensitive to the discount rate and growth rates used.
The Group has conducted sensitivity analysis on the impairment test of each CGU. The sensitised value in use exceeds the carrying value for all the CGUs, except the Books CGU. The Books CGU has headroom on its carrying value of GBP2.6m prior to any sensitivities. An increase in the risk adjusted post tax WACC from 11% to 12% 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 2016 2015 On acquisition 2016 2015 On 2016 2015 On acquisition
acquisition
----------------- ----- ----- --------------- ----- ----- ------------- ------ ------ ---------------
Connect
Books 17.6 17.6 17.6 2.9 4.2 12.7 20.5 21.8 30.3
Connect
Media 5.7 5.7 5.7 0.8 1.2 2.6 6.5 6.9 8.3
Connect
News - - - 0.1 0.2 0.3 0.1 0.2 0.3
Connect
Education
and Care 20.9 20.9 20.9 4.7 6.2 10.4 25.6 27.1 31.3
Connect
Parcel Freight 52.1 52.1 52.1 46.7 53.6 58.1 98.8 105.7 110.2
96.3 96.3 96.3 55.2 65.4 84.1 151.5 161.7 180.4
----------------- ----- ----- --------------- ----- ----- ------------- ------ ------ ---------------
The individual material intangible assets relate to the customer relationships and brand acquired on the acquisition of Tuffnells. The carrying value of these assets at 31 August 2015 is GBP20.9m and GBP25.4m respectively with a remaining amortisation period of 6 and 8.5 years respectively.
11. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
GBPm Sterling Euro US Other Total 2015
Dollar 2016
---------------------------- --------- ----- -------- ------ ------- -------
Cash and cash equivalents 3.0 4.3 1.3 0.5 9.1 10.9
---------------------------- --------- ----- -------- ------ ------- -------
Term loan - disclosed
within current liabilities (20.0) - - - (20.0) -
Term loan - disclosed
within non-current
liabilities (79.1) - - - (79.1) (98.4)
Revolving credit
facility (41.0) - - - (41.0) (56.5)
Total borrowings (140.1) - - - (140.1) (154.9)
---------------------------- --------- ----- -------- ------ ------- -------
Net borrowings (137.1) 4.3 1.3 0.5 (131.0) (144.0)
---------------------------- --------- ----- -------- ------ ------- -------
Total borrowings
---------------------------- --------- ----- -------- ------ ------- -------
Amount due for settlement
within 12 months (61.0) - - - (61.0) (56.5)
Amount due for settlement
after 12 months (79.1) - - - (79.1) (98.4)
---------------------------- --------- ----- -------- ------ ------- -------
(140.1) - - - (140.1) (154.9)
---------------------------- --------- ----- -------- ------ ------- -------
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 31 August 2016, the Group had GBP109.0m (2015: GBP95.1m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. Interest payable under the current facility is calculated as the cost of one month LIBOR plus an interest margin of between 1.35% and 2.35% dependent on the net debt/ adjusted EBITDA covenant ratio.
12. Obligations under finance leases
GBPm 2016 2015
---------------------- ---------------------------------------------
Minimum lease payments Present value of Minimum lease payments Present value of
minimum lease minimum lease
payments payments
Amount payable under
finance leases:
Within one year 3.8 3.0 3.3 2.9
In the second to fifth
years inclusive 8.8 7.7 7.0 6.5
Total 12.6 10.7 10.3 9.4
Less: future finance
charges (1.9) - (0.9) -
Present value of lease
obligations 10.7 10.7 9.4 9.4
Less: amount due for
settlement within 12
months (shown under
current liabilities) (3.0) (2.9)
Amount due for
settlement after 12
months 7.7 6.5
Group policy is to acquire certain items of its fixtures, equipment and software under finance leases. The average lease term is 4 years. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The fair value of the Group's lease obligations approximates to their carrying amount.
13. Provisions
GBPm Reorganisation Insurance and legal Deferred contingent Property provisions Total
provisions provision consideration
Gross provision:
At 1 September 2015 1.0 2.8 5.2 7.9 16.9
Additions 1.3 1.9 1.9 0.8 5.9
Released (0.1) (0.2) - (1.3) (1.6)
Utilised in year (1.6) (0.2) (5.1) (0.6) (7.5)
At 31 August 2016 0.6 4.3 2.0 6.8 13.7
Discount:
At 1 September 2015 - - - (0.5) (0.5)
Unwinding of discount
utilisation - - - 0.2 0.2
At 31 August 2016 - - - (0.3) (0.3)
Net book value at 31
August 2016 0.6 4.3 2.0 6.5 13.4
Gross provision:
At 1 September 2014 0.7 1.4 - 3.6 5.7
Additions 2.3 0.1 5.2 1.0 8.6
Acquisition of
business - 1.3 - 4.1 5.4
Released (0.2) - - (0.2) (0.4)
Utilised in year (1.8) - - (0.6) (2.4)
At 31 August 2015 1.0 2.8 5.2 7.9 16.9
Discount:
At 1 September 2014 - - - (0.4) (0.4)
Acquisition of
business - - - (0.1) (0.1)
At 31 August 2015 - - - (0.5) (0.5)
Net book value at 31
August 2015 1.0 2.8 5.2 7.4 16.4
GBPm 2016 2015
Included within
current liabilities 8.5 10.4
Included within
non-current
liabilities 4.9 6.0
Total 13.4 16.4
Reorganisation provisions include amounts for programmes which consist primarily redundancy costs, that have been announced prior to the year end and are all expected to be utilised during the following financial year.
Insurance & legal provisions represent the expected future costs of employer's liability, public liability, 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 incident, 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 has not yet completed its investigation and our Parcel Freight division has, to date, not been formally charged.
In the event that the Parcel Freight division is charged and subsequently found guilty of a Health and Safety offence, the Board expects that a fine and associated legal costs will be incurred, for which we are not insured. In the opinion of the Board and its advisers, there is significant uncertainty over the potential outcome and timing of this process. Having considered these uncertainties and having regard for the circumstances surrounding this incident, the Board considers it appropriate to make a provision of GBP1.5m for any potential fine and associated legal costs.
The Board will keep this provision under review as the HSE investigation proceeds and the current uncertainties are resolved. It is currently expected that any charges brought against our Parcel Freight division are likely to conclude within 24 months of the balance sheet date.
This provision has been charged as an Exceptional item (see Note 4) and is referred to in the Health & Safety section of the Operating Review.
The property provision represents the estimated future cost of the Group's onerous and reversionary leases in non-trading properties based on known and estimated rental sub-leases and for dilapidations on certain properties. The provision has been discounted at a risk adjusted rate and this discount will be unwound over the life of the leases. The provision is expected to be utilised over the period to 2026, when all of the leases provisions will have expired.
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.
14. Operating lease commitments
The group as lessee:
Minimum lease payments under non-cancellable operating leases are as follows:
2016 2015
GBPm Land & buildings Equipment & Total Land & buildings Equipment & vehicles Total
vehicles
Within one year 10.7 14.1 24.8 10.2 12.4 22.6
In the second to
fifth years
inclusive 29.8 23.6 53.4 30.3 19.9 50.2
In more than five
years 20.7 - 20.7 23.3 - 23.3
61.2 37.7 98.9 63.8 32.3 96.1
The Group leases various distribution properties and plant and equipment under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.
The group as lessor:
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
GBPm 2016 2015
Within one year 0.3 0.1
In the second to fifth years inclusive 0.2 0.1
0.5 0.2
Property rental income earned during the year was GBP0.3m (2015: GBP0.1m).
15. Net cash inflow from operating activities
GBPm 2016 2015
Operating profit 48.9 36.3
Losses on disposal of assets - 0.2
Share of profits of jointly controlled entities (0.3) (0.3)
Adjustment for pension funding (5.3) (5.4)
Depreciation of property, plant and equipment 8.9 7.3
Amortisation and impairment of intangible assets 14.7 11.4
Share based payments 1.6 8.0
(Increase)/ decrease in inventories (0.3) 3.8
Decrease/(Increase) in receivables 9.7 (7.5)
(Decrease) in payables (7.2) (4.9)
Non cash pension costs (0.6) 0.5
Income tax paid (8.5) (8.7)
(Decrease)/ increase in provisions (3.4) 5.8
Net cash inflow from operating activities 58.2 46.5
Net cash inflow from operating activities is stated after the following Exceptional cash items:
Payment of deferred contingent consideration (5.1) -
Re-organisation and restructuring costs (5.7) (4.3)
Acquisition expenses - (3.9)
Total Exceptional cash items (10.8) (8.2)
16. Share Capital
(a) Share capital
GBPm 2016 2015
-----
Issued and fully paid:
At 1 September 12.2 9.5
Shares issued during the year 0.1 2.7
-----
246.7m ordinary shares of 5p each (2015:244.1m) 12.3 12.2
-----
(b) Movement in share capital
Number (m) Ordinary shares of 5p each
31 August 2015 244.1
Shares issued during the year 2.6
At 31 August 2016 246.7
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 general meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
During the year to 31 August 2016, 2,606,751 ordinary 5p shares were issued. 2,164,181 were issued in relation to the satisfaction of deferred consideration to the former owners of The Big Green Parcel Holding Company Limited (Tuffnells).
The remainder was issued to satisfy share scheme exercises.
During the year to 31 August 2015, 54,855,669 ordinary 5p shares were issued for a consideration of GBP55,765,415 resulting in a share premium of GBP49,889,432 after accounting for equity issue related costs of GBP3.1m. 54,137,236 shares were issued as a result of the rights issue in December 2014.
(c) Share premium
GBPm 2016 2015
-----
Balance at 1 September 55.2 5.3
Premium arising on issue of equity shares 4.0 49.9
-----
Balance at 31 August 59.2 55.2
17. Reserves
(a) Demerger reserve
GBPm 2016 2015
At 1 September (280.1) (280.1)
At 31 August (280.1) (280.1)
This relates to reserves created following the capital re-organisation undertaken as part of the demerger of WH Smith PLC in 2006. The balance represented the difference between the share capital and reserves of the Group restated on a pro-forma basis as at 31 August 2004 and the previously reported share capital.
(b) Own shares reserve GBPm 2016 2015 Balance at 1 September (4.1) (5.2) Acquired in the period (1.5) (4.2) Disposed of on exercise of options 2.1 5.3 Balance at 31 August (3.5) (4.1)
The reserve represents the cost of shares in Connect Group PLC purchased in the market and held by the Smiths News Employee Benefit Trust to satisfy awards and options granted under the Group's Executive Share Schemes. The number of ordinary shares held by the Trust at 31 August 2016 was 2,313,644 (2015: 2,807,124).
(c) Hedging & translation reserve GBPm 2016 2015 ------------------------------------- ------ ------ Balance at 1 September (0.5) (0.3) Net movement in cash flow hedges (net of tax) (1.2) (0.6) Amounts previously recognised in the consolidated statement of comprehensive income - 0.5 Exchange differences on translating net assets of foreign operations 0.6 (0.1) ------------------------------------- ------ ------ Balance at 31 August (1.1) (0.5)
The hedging reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in the profit or loss only when the hedged transaction ceases to be effective.
18. Related party transactions
Transactions between businesses within this Group, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions with the Group's pension schemes are disclosed in Note 5.
Trading transactions
Sales to related parties Amounts owed by related parties
GBPm 2016 2015 2016 2015
Jointly controlled entities 2.9 3.2 0.8 0.6
Sales to related parties are for management fees, payment is due on the last day of the month following the date of invoice.
Non-trading transactions
Loans to related parties
GBPm 2016 2015
Jointly controlled entities 0.3 0.3
The loans to related parties have no set date for repayment and accrue interest at LIBOR + 2%.
Aggregate remuneration of key management personnel
The remuneration of the directors and the executive management team, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures.'
GBPm 2016 2015
Short-term employee benefits 4.5 4.1
Share based payments 0.8 0.8
5.3 4.9
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FFLEEWFMSEFS
(END) Dow Jones Newswires
October 18, 2016 02:00 ET (06:00 GMT)
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