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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Smiths News Plc | AQSE:SNWS.GB | Aquis Stock Exchange | Ordinary Share | GB00B17WCR61 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 64.50 | 62.00 | 67.00 | 64.50 | 64.50 | 64.50 | 0.00 | 06:42:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Dec 2021 to Dec 2024
TIDMSNWS
RNS Number : 7522F
Smiths News PLC
09 November 2022
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Audited Financial Results for the 52 weeks ended 27 August 2022
Performance ahead of expectations with material debt reduction and increased dividend
Headlines
-- Performance ahead of full year market expectations -- Core sales remaining resilient and benefiting from a favourable margin mix -- Successful mitigation of inflation in line with expectations -- Free cash flow of GBP48.2m benefitting from GBP22m of expected one-off inflows
-- Significant reduction in bank net debt to GBP14.2m, representing 0.3x EBITDA (ex. IFRS16 leases)
-- Final dividend of 2.75p proposed, making a full year dividend of 4.15p, a total payment of GBP10m
Hot Features
Premium
-- Contracts for 35% of our newspaper and magazine revenues re-secured until 2029
-- New financial year has started well with trading in line with expectations
FY2022 FY2021 % Change
Adjusted continuing results
Revenue GBP1,089.3m GBP1,109.6m -1.8%
EBITDA (ex. IFRS16 leases) GBP40.7m GBP42.6m -4.5%
Operating profit GBP38.1m GBP39.6m -3.8%
Profit before tax GBP31.1m GBP30.9m +0.6%
Earnings per share 10.8p 10.8p -0.0%
Cash flow and net debt
Free cash flow GBP48.2m GBP24.0m +100.8%
Bank Net Debt GBP14.2m GBP53.2m -73.3%
Average Bank Net Debt GBP49.9m GBP82.6m -39.6%
Statutory continuing
results
Revenue GBP1,089.3m GBP1,109.6m -1.8%
Operating profit GBP32.4m GBP35.8m -9.5%
Profit before tax GBP27.9m GBP30.6m -8.8%
Earnings per share 9.8p 10.8p -9.3%
Statutory Net debt GBP39.4m GBP81.2m -51.5%
Dividend per share 4.15p 1.65p +151.5%
----------------------------- ------------ ------------ ---------
A strong performance in challenging times
Close management of the business essentials, together with an agile approach to tactical opportunities, has delivered a strong performance in what are challenging conditions in the wider UK economy. Newspaper and magazine sales proved resilient, with year on year performance benefitting from the removal of COVID-19 restrictions in the first half before returning to historic trends as the year progressed. Strong sales of one shots and stickers which benefited our margin mix were sustained across the year. In addition to cost savings, the pursuit of ancillary revenues and reduction in interest payments have made a marked contribution to offsetting inflationary pressures which, though further challenged by the war in Ukraine, are broadly in line with our forecasts. As a consequence, Adjusted EBITDA (ex. IFRS16), Net Debt and Cash generation are all ahead of market expectations, supporting an increase in the dividend payment to GBP10m for the full year (FY2021: GBP6m). As previously announced, the Company's statutory results are impacted by the provisioning of GBP4.4m to cover bad debt risk following the administration of McColls Retail Group in May 2022.
Outlook
The new financial year has started well. Trading to date is in line with expectations, and in October 2022, contracts representing 35% of newspaper and magazine sales revenues, were renewed until 2029. Despite recent economic volatility, inflationary pressures continue to be consistent with planning assumptions and the combination of sustained margin mix and close cost control give us confidence in maintaining performance in FY2023.
Jonathan Bunting, CEO, said:
'Our performance this year speaks to the strength of our business model and culture. Despite clear and obvious pressures in the wider economy we have maintained our focus, delivering results ahead of expectations. In doing so, we have further strengthened the foundations of our finances and the prospects of the business. The increased dividend is in line with our goal of meeting the interests of all stakeholders and reflects our confidence in our markets and the determined capability of our people'.
Enquiries: Smiths News plc Via Buchanan below Jonathan Bunting, Chief Executive Officer Paul Baker, Chief Financial Officer Investor.relations@smithsnews.co.uk www.smithsnews.co.uk Buchanan Richard Oldworth/Jamie Hooper/Toto Berger smithsnews@buchanan.com www.buchanan.uk.com 020 7466 5000
Smiths News plc's Preliminary Results 2022 are available at www.smithsnews.co.uk
A recording of the presentation for analysts will be made available on the Investor Relations section of the Company's website. See www.smithsnews.co.uk/investors .
Notes
The Company uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'Bank Net Debt', 'free cash flow', 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted earnings per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies.
(1) The following are key non-IFRS measures identified by the
Company in the consolidated financial statements as Adjusted
results:
a. Continuing Adjusted operating profit - is defined as operating
profit including the operating profit of the businesses
from the date of acquisition and excludes Adjusted items
and operating profit of businesses disposed of in the year
or treated as held for sale.
b. Continuing Adjusted profit before tax (PBT) - is defined
as Continuing Adjusted operating profit less finance costs
and including finance income attributable to Continuing
Adjusted operating profit and before Adjusted items.
c. Continuing Adjusted earnings per share - is defined as
Continuing Adjusted PBT, less taxation attributable to
Adjusted PBT and including any adjustment for minority
interest to result in adjusted profit after tax attributable
to shareholders; divided by the basic weighted average
number of shares in issue.
d. Adjusted items - Adjusting items of income or expense are
excluded in arriving at Adjusted operating profit to present
a further measure of the Company's performance. Each adjusting
item is considered to be significant in nature and/or quantum,
non-recurring in nature and/or considered to be unrelated
to the Company's ordinary activities or are consistent
with items treated as adjusting in prior periods. Excluding
these items from profit metrics provides readers with helpful
additional information on the performance of the business
across periods because it is consistent with how the business
performance is planned by, and reported to, the Board and
the Executive Team. They are disclosed and described separately
in Note 4 of the Consolidated Financial Statements to provide
further understanding of the financial performance of the
Company. A reconciliation of adjusted profit to statutory
profit is presented on the income statement.
(2) Free cash flow - is defined as cash flow excluding the following:
payment of the dividend, the repayment of bank loans and EBT
share purchases.
(3) Adjusted EBITDA (ex IFRS16) - is calculated as Adjusted operating
profit before depreciation and amortisation, excluding the
impact of IFRS16 changes to leases. In line with loan agreements
Adjusted Bank EBITDA used for covenant calculations is calculated
as Adjusted operating profit before depreciation, amortisation,
Adjusted items and share based payments charge but after adjusting
for the last 12 months of profits/(losses) for any acquisitions
or disposals made in the year.
(4) Bank Net Debt - represents the net position drawn under the
Company's banking facilities and is calculated as total debt
less cash and cash equivalents. Total debt includes loans
and borrowings and overdrafts but excludes unamortised arrangement
fees and excludes IFRS16 lease liabilities.
(5) FY2022 refers to the 52 week period ending 27 August 2022
and FY2021 refers to the 52 week period ended 28 August 2021.
(6) The Consolidated Results have been prepared and presented
on a Continuing Operations basis after adjusting for the Discontinued
Operations of the Tuffnells business, which was sold in May
2020.
Cautionary Statement
This document contains certain forward-looking statements with respect to Smiths News 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 Smiths News plc's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war, pandemic and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Smiths News 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 Smiths News plc. For more detailed information, please see the Preliminary Financial Results and/or the Annual Report and Accounts, each for the 52 week period ended 27 August 2022 which can be found on the Investor Zone section of the Smiths News plc website - www.smithsnews.co.uk. However, the contents of Smiths News plc's website are not incorporated into and do not form part of this document.
OPERATING REVIEW
Overview - Continued Progress Driven by Focus and Flexibility
During the year, we have delivered a strong financial result ahead of market expectations by remaining focused on service and efficiency, while being flexible in our pursuit of our overall goals. In addition to profit performance, our key objectives of material debt reduction, continued cash generation, the restoration of the dividend and the maintenance of service and efficiency have all been met. In achieving these goals we have demonstrated the continuing strength of our core business model and established a platform for future opportunity.
Historically, Smiths News has sought to offset the margin impact of a relatively predictable decline in core sales by securing sustainable efficiencies across the network. This year, while still pursuing that objective, the bridge to our profitability required us to address additional challenges arising from the COVID-19 pandemic and growing inflationary pressures. In this respect, the early actions we took to address warehouse and driver shortages played a key role in our ability to maintain service with consequent minimisation of waste and rectification costs.
The net impact of inflation was in line with our forecasts for the year, despite the ramifications of the war in Ukraine which added further pressure in the second half. In addition to close cost control we have benefited from improved sales mix, cover price rises and ongoing network efficiencies. Our performance was also aided by lower interest payments from the significant reduction in average debt and by capitalising on a number of ancillary opportunities.
Having made headway with our strategy to first strengthen the core business, we have increased efforts to explore adjacent markets that can leverage our network, daily deliveries and trading relationships. This year, we have successfully trialled initiatives that include retailer waste collections and partnering in parcel deliveries. These, together with other local actions, have grown our ancillary revenues, making a modest and sustainable contribution to profitability, but also suggesting there are encouraging early opportunities to develop and scale these initiatives.
As anticipated, our core business has returned to historic sales trends and the relative predictability this entails. Together with recent contract renewals, this positions the business well given the current challenges and uncertainty in the wider economy. Looking ahead, we will continue to focus on containing the impact of inflation, but without damage or compromise to our service and capabilities. We expect the combination of cost control, improved margin and new revenues to continue to mitigate the impact of reduced newspaper and magazine volumes, underpinning another successful year for the business and its stakeholders.
Adoption of New Financial Metrics
The Board has reviewed the Company's key financial metrics and concluded that the performance of the business would be better monitored by the adoption of revised headline measures. Going forward, the Company will focus on Adjusted Operating Profit as its primary measure of overall financial performance, a measure that continues to be disclosed on the Company's Income Statement.
Financial Performance
Adjusted Operating Profit of GBP38.1m was down by 3.8% (FY2021: GBP39.6m) from Revenue of GBP1,089.3m that was down by 1.8%. Adjusted Profit before tax of GBP31.1m was GBP0.2m better than last year (FY2021 GBP30.9m) as the reduction in Adjusted Operating Profit was offset by the benefit of lower interest charges from the reduction in the Company's debt. Free cash flow, of GBP48.2m is up by 100% (FY2021: GBP24.0m) and includes the expected inflows arising from the return of a pensions cash surplus (GBP8.1m) and settlement of Tuffnells deferred consideration (GBP14m). Adjusted EPS of 10.8p was consistent with last year.
The underlying factors in driving this performance were:
-- Relatively stronger sales patterns as the restrictions of the pandemic resulted in softer year on year comparators in H1, while strong price rises helped sales in H2.
-- Beneficial margin mix from the continued good performance of higher margin one shots as schools returned and sticker collections and trading cards flourished.
-- Ancillary revenue gains from new initiatives and improved performance of DMD, Instore and Rascal.
-- The net impact of sustained inflation on both distribution and other costs, including the national minimum wage.
-- Lower interest charges from reduced debt and the new financing agreements agreed in December 2021.
Statutory profit before tax of GBP27.9m is down by 8.8% (FY2021: GBP30.6m), impacted by the administration of McColl's Retail Group in May 2022, for which the Company has provisioned a bad debt risk of GBP4.4m as previously announced.
Sales and Markets
The newspaper and magazine market showed resilience this year, with both categories returning a lower year on year decline than typical historical trends. Combined sales of newspapers, magazines and one shots were down by 2.3%. This was in part driven by softer comparators from the previous year (particularly in H1), however the sustained growth of one shots in a financial year without a major football tournament, was an encouraging development. Strong price rises in the second half reflect the sometimes counter-cyclical nature of the market as publishers compensate for higher production costs - typically these price rises tend to bunch before evening out over time.
Looking ahead, we expect core sales patterns to continue in line with historic trends in FY2023. The impact of the pandemic restrictions has now washed through and it is pleasing to note that the total number of retail customers is broadly flat. The sale of McColl's Retail Group to Morrisons has secured the continued trading of over 90% of its business with Smiths News and while the administration of the former has required a material provision for bad debt, the ongoing service and availability of supplies to consumers has been protected.
Managing Inflationary Pressures
Our experience in securing efficiencies, together with the actions we took to address driver shortages has limited the net impact of inflation to GBP2.1m in the year, in line with the guidance we gave in the autumn of 2022. This has been achieved through a combination of distribution efficiencies, tight management of ongoing costs and growing ancillary revenues. As expected, there will be some carry over into FY2023 as the key cost pressures on fuel, national minimum wage and energy are annualised. The business is well placed to meet this challenge and mitigating the impacts of inflation without undermining customer service will remain operational priority in the months ahead.
Ancillary Revenues
Our primary focus for the last two years has been to enhance the core newspaper and magazine wholesaling business. Managing through a period of unprecedented disruption we have worked to maintain service and enhance our capabilities while strengthening the balance sheet and delivering growing returns to shareholders. Against all these goals we have made good progress. As the pandemic receded and our improvements embedded, we have increased our attention to the potential for ancillary revenues and adjacent opportunities.
During the year we have taken advantage of smaller tactical initiatives, benefitting revenue by GBP0.9m from measures such as renting spare depot space, while also trialling opportunities that have greater potential to be replicated across the network. We are currently exploring the logistics and long term potential returns of two initiatives: the collection of retailer waste; and the expansion of our partnership with a national courier to provide sortation and distribution services at our local depots. Both these opportunities can be developed with limited capital investment and without distraction to our core service.
Our two established ancillary businesses, DMD and Instore, were disproportionately impacted by the COVID-19 pandemic, which brought much international travel to standstill and reduced the demand for instore merchandising as retailers prioritised social distancing and basic services. This year, we have seen some recovery in both markets and the businesses are once again making a positive if more limited contribution to overall profit. We will continue to support them on the recovery journey, believing they add value to our role in the supply chain and enhance our skills and capabilities to enter adjacent markets.
Contract Renewals
In October 2022 we announced the signing of new agreements with Frontline, Seymour and Associated Newspapers. Together these represent circa 35% of current newspaper and magazine revenues, and over 50% of the magazine market through to 2029. Similar discussions with the other major publishers will follow in due course and we are well placed to reach agreements that will benefit all parties. The securing of long term contracts help not only to improve the forecasting of future cash flows, it also assists our joint efforts in seeking network efficiency, improved sustainability and future supply chain development.
Net Debt
Bank Net Debt of GBP14.2m represents 0.3 x Adjusted EDITDA, benefitting from one-off receipts of GBP22.1m resulting from the pension surplus (GBP8.1m) and the settlement of Tuffnells deferred consideration (GBP14.0m), both of which were used to pay down debt under the terms of the Company's banking agreements. Average Net Debt reduced by 40% to GBP49.9m (FY2021: GBP82.6m). Looking ahead, we expect to be able to continue paying down debt supported by stable underlying cash flows.
Dividend
In December 2021 the Company favourably extended and amended its current banking agreements, increasing the cap on dividends and distributions from GBP6m to GBP10m for each financial year throughout the term of the facilities. Subject to performance and meeting the investment needs of the business, the Board intends to utilise the full extent of these distribution limits for the return of cash to shareholders. Consequently, the Board has proposed a final dividend of 2.75p, making a total dividend for the year of 4.15p (FY2021: 1.65p). The final dividend will be paid on 9 February 2023 to all shareholders who are on the register at the close of business on 13 January 2023; the ex-dividend date will be 12 January 2023.
Outlook
The new financial year has started well. Trading to date is in line with expectations, and in October 2022, contracts representing 35% newspaper and magazine sales revenues, were renewed until 2029. Despite recent economic volatility, inflationary pressures continue to be consistent with planning assumptions and the combination of sustained margin mix and close cost control give us confidence in maintaining performance in FY2023.
FINANCIAL REVIEW
Overview
The Company continues to generate good underlying profit and free cash flow, which, together with the benefit of one-off cash items, has reduced period end net debt to GBP14.2m (FY2021: GBP53.2m) and enables dividends of GBP10m to be proposed for the period.
Revenue was down 1.8% at GBP1,089.3m, a better performance than the historic trend of 3-5%, buoyed by improved one shot and magazine sales, both of which benefitted profitability through stronger margin mix. The impact of inflation was managed in line with guidance given during the period, with the net impact of GBP2.1m largely flowing to adjusted operating profit which was down GBP1.5m at GBP38.1m.
Adjusted profit before tax, however, increased by GBP0.2m to GBP31.1m, due to a GBP1.7m reduction in interest charges, a consequence of lower average net debt. Adjusted EPS was stable at 10.8p, the same as FY2021.
Cash flow and net debt both benefitted from the return of the pension surplus (GBP8.1m) and the settlement of Tuffnells deferred consideration (GBP14m) as well as GBP26.1m of underlying cash generation.
On a statutory basis, operating profit decreased by GBP3.4m to GBP32.4m (FY2021: GBP35.8m). The reduction was driven by the write down of GBP4.4m debt following the administration of McColl's Retail Group, partially offset by lower other adjusting items.
Statutory profit after tax of GBP23.4m was GBP2.9m lower than FY2021 (GBP26.3m) reflecting the above factors and a higher effective rate of tax, the prior period having benefitted from the use of Tuffnells losses. As a result, statutory EPS reduced by 0.9p to 9.3p (FY2021: 10.2p).
A final dividend of 2.75p (GBP6.7m) has been proposed, taking the full period FY2022 dividend to 4.15p or GBP10m (FY2021: GBP4m), an increase of GBP6m.
These financial results confirm the continuing success of the Company in meeting its stated goals of maintaining the broad profitability and cash flows of its core operation, materially reducing net debt and meeting the needs of all stakeholders. Looking ahead, this strengthened financial position will allow for greater flexibility in our delivery of further value for shareholders.
Continuing Adjusted Results
GBPm 2022 2021 Change ---------------------- ------- -------- ------- Revenue 1089.3 1,109.6 -1.8% EBITDA (ex. IFRS16)* 40.7 42.6 -4.5% EBITDA 48.6 50.3 -3.4% Operating profit 38.1 39.6 -3.8% Net finance costs (7.0) (8.7) +19.5% ---------------------- ------- -------- ------- Profit before tax 31.1 30.9 +0.6% Taxation (5.4) (4.6) -17.4% ---------------------- ------- -------- ------- Effective tax rate 17.4% 14.9% -16.8% ---------------------- ------- -------- ------- Profit after tax 25.7 26.3 -2.3% ---------------------- ------- -------- -------
* The Company gave guidance and set incentive targets using Adjusted EBITDA (ex IFRS16) during FY2022. From FY2023 Adjusted operating profit will be used.
Revenue of GBP1,089.3m (FY2021: GBP1,109.6m) was down 1.8% on the prior period, a better performance compared to the pre-COVID-19 (2015-2020) trend of c3%-5%. Underpinning this performance was the success of one shot releases (+43% increase in revenue period on period), with particularly strong showings of Premier League football and Pokémon trading cards. Daily newspapers (-2%), weekly (-3%) and monthly (-2%) magazines also performed better than historic trends, offset by lower revenue from Sunday newspapers (-9%).
Daily newspapers, unlike the Sundays, benefitted from cover price increases in the second half of the period. Magazines recovered further against a comparative still impacted by COVID-19 and were also helped by increased summer travel.
DMD also benefitted from increased travel. Revenue of GBP4.2m was a 27% increase on FY2021 (GBP3.3m) and there was positive news towards the end of the period with additional newspaper and magazine supply to Emirates and Thai Airways who increased volumes on flights and in lounges.
At a profit level, continuing adjusted operating profit of GBP38.1m was a decrease of GBP1.5m (-3.8%) on the prior period (FY2021: GBP39.6m) with inflationary pressures having an impact on the delivery and warehouse cost base.
The decrease can be attributed to the net impact of:
-- Inflationary pressures (net impact GBP2.1m) affecting delivery and warehouse processing costs, with increases to agency usage and contractor rates offset by cost savings and higher rates for sale of waste paper.
-- The benefit of product mix moving towards magazines and one shots on wholesale margin (GBP1.4m).
-- The benefit of ancillary revenue streams (GBP0.9m) including leasing of spare warehouse space and improvement in performance of Rascal joint venture.
-- Net impact of other items in depot costs and overheads (GBP1.7m) including strategic planning support costs, an increase to the accrual for unused annual leave, redundancy provisions, increased depot repair costs and the impact of inflation on the dilapidations provision. Utility costs were flat period on period with fixed price contracts in place until 2024.
Net finance charges of GBP7.0m (FY2021: GBP8.7m) were lower than the prior period by GBP1.7m due to lower bank interest charges (GBP1.5m) and lower loan arrangement fee amortisation (GBP0.2m).
Adjusted profit before tax was GBP31.1m, up 0.6% on last period. Taxation of GBP5.4m indicates a higher effective tax rate of 17.4% compared to the prior period (FY2021: 14.9%) the prior period having benefitted from the use of Tuffnells losses.
Statutory Results
GBPm 2022 2021 Change Revenue 1,089.3 1,109.6 -1.8% Operating profit 32.4 35.8 -9.5% Net finance costs (4.5) (5.2) +13.5% --------------------------------------- -------- -------- --------- Profit before tax 27.9 30.6 -8.8% Taxation (4.5) (4.3) -4.7% --------------------------------------- -------- -------- --------- Effective tax rate 16.1% 14.1% -14.2% --------------------------------------- -------- -------- --------- Profit after tax 23.4 26.3 -11.0% Discontinued Operations GBPm --------------------------------------- -------- -------- --------- Loss for the period from Discontinued Operations - (0.1) --------------------------------------- -------- -------- --------- Profit/(loss) attributable to equity shareholders 23.4 26.2 -10.7% --------------------------------------- -------- -------- ---------
Statutory continuing profit before tax of GBP27.9m was a GBP2.7m decrease on the prior period (FY2021: GBP30.6m). The decrease was driven by the GBP2.9m of additional adjusting items which included the GBP4.4m McColl's write down.
The effective statutory income tax rate for the Continuing Operations was 16.1% (FY2021: 14.1%), the prior period having benefitted from the use of Tuffnells losses.
The Company has net liabilities of GBP32.0m on its balance sheet (FY2021: GBP57.7). The period on period reduction of GBP35.7m was driven by GBP23.4m of statutory profit, the GBP10m net pension credit in other comprehensive income, offset by GBP6.1m of dividends. Net liabilities have arisen largely as the result of impairments relating to the Tuffnells business prior to its sale in May 2020.
The Company-entity balance sheet continues to have distributable reserves of GBP118.7m (FY2021: GBP124.9m) to allow for future dividend payments.
Earnings Per Share
Continuing Adjusted Continuing Statutory
----------------------------------- ---------------------- -----------------------
2022 2021 2022 2021
----------------------------------- ---------- ---------- ----------- ----------
Earnings attributable to ordinary
shareholders (GBPm) 25.7 26.3 23.4 26.3
Basic weighted average number of
shares (millions) 238.5 243.5 238.5 243.5
Basic Earnings per share 10.8p 10.8p 9.8p 10.8p
Diluted weighted number of shares
(millions) 252.0 254.8 252.0 254.8
Diluted Earnings per share 10.2p 10.2p 9.3p 10.2p
----------------------------------- ---------- ---------- ----------- ----------
Earnings attributable to shareholders on a continuing adjusted basis of GBP25.7m resulted in an adjusted EPS of 10.8p, the same as FY2021. The impact of lower profit as described above was offset by a lower basic weighted average number of shares.
Statutory continuing earnings per share is down 0.9p to 9.3p (FY2021: 10.2p per share), the result of a GBP2.9m lower profit, also offset by a higher diluted weighted number of shares.
The fully diluted weighted number of shares was 252.0m (FY2021: 254.8m). Fully diluted shares include a 13.5m diluted share adjustment for employee incentive schemes (FY2021: 11.3m) due to purchases made during the period.
Dividend
2022 2021
-------------------------------------- ------ ------
Dividend per share (paid & proposed) 4.15p 1.65p
Dividend per share (recognised) 2.55p 0.50p
-------------------------------------- ------ ------
The Board is proposing a final dividend of 2.75p, taking the full period dividend to 4.15p (FY2021: 1.65p). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 24 January 2023 and has not been included as a liability in these accounts. The dividend recommendation represents the maximum permissible sum that can be paid under the distribution cap limits within our banking arrangements (GBP10m per annum) and is based on the forecast number of shares in issue at the record date. The proposed dividend, if approved, will be paid on 9 February 2023 to shareholders on the register at close of business on 13 January 2022. The ex-dividend date will be 12 January 2022.
Adjusted Items
Adjusted items before tax of GBP3.2m (cost) relating to Continuing Operations were a GBP2.9m increase from the prior period (FY2021: GBP0.3m cost). The major contributing factors to the increased cost were the impairment of receivables (GBP4.4m increased costs) which was offset by GBP1m lower finance income. Impairment of receivables is a provision resulting from McColl's going into administration in May 2022.
Adjusted items are defined in the accounting policies in Note 1 of the Group Financial Statements and present a further measure of our performance. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team. Alternative Performance Measures (APMs) should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
The tables below and commentary provide a summary of the adjusting items impacting Continuing Operations. Full details of these and those impacting discontinued items can be found in Note 4 of the Group Financial Statements.
GBPm 2022 2021 ---------------------------------------- ------ ------ Impairment of receivables (4.4) - Pensions (1.8) (1.0) Transformation programme planning costs (0.9) (1.1) Asset impairment reversal/(impairment) 1.2 (1.6) Network and re-organisation costs 0.2 0.1 Share of profits from joint ventures - (0.3) Other - 0.1 ---------------------------------------- ------ ------ Total before tax and interest (5.7) (3.8) Finance income - unwind of deferred consideration 2.5 3.5 ---------------------------------------- ------ ------ Total before tax (3.2) (0.3) Taxation 0.9 0.3 ---------------------------------------- ------ ------ Total after taxation (2.3) -
Adjusted items from Continuing Operations before tax was a cost of GBP3.2m (FY2021: GBP0.3m cost).
During the period, the Company provided for GBP4.4m impairment loss on receivables as a result of McColl's going into administration. This represents 80% of the total receivables of GBP5.5m due from McColl's at the point of administration and is in line with the administrator's estimated expected payment to unsecured creditors. Having reviewed the nature of the bad debt, the treatment in the past of material items, and the relevance to users of the future predictability of the performance of the business, the GBP4.4m provision is presented as an adjusting item, within the Company's existing alternative performance measure.
Pension costs in the current and prior periods related to the buy-out of the Company's defined benefit pension scheme, as discussed further below.
During the period, the Company incurred professional fees in relation to transformation programme planning of GBP0.9m (FY2021: GBP1.1m).
An asset impairment reversal of GBP1.2m was recognised in the period (FY2021: impairment costs GBP1.6m) in respect of the joint venture investment in Rascal Solutions Limited ("Rascal"). An impairment was booked in the prior period driven by increased market competition and increased risk of contractor non-renewal. The business proved to be resilient having secured significant contract extensions during the period resulting in a reversal of impairment.
Network and re-organisation costs were a credit of GBP0.2m (FY2021: GBP0.1m) owing to an overprovision of costs in the prior periods.
In the prior period, Rascal fully impaired an intangible asset in its annual accounts because it is considered to no longer have future economic value. The net book value of this asset was GBP0.6m of which 50% (GBP0.3m) of the write off is attributed to Smiths News.
A finance income credit of GBP2.5m (FY2021: GBP3.5m) arose on unwind of the discount on the Tuffnells deferred consideration.
The tax credit on continuing adjusted items was GBP0.9 (FY2021: GBP0.3m).
Adjusted items before tax for Discontinued Operations -GBP0.1m (FY2021: GBP0.2m) related to residual costs on the disposed Tuffnells business and, in prior period, a VAT refund.
Free Cash Flow
Free cash flow generation remains one of the Company's key strengths. Free cash flow includes lease payments, Adjusted items, interest and tax.
GBPm 2022 2021 ------------------------------------------------- ------ ------ Operating profit continuing (including Adjusted items) 32.4 35.8 Adjusting items 5.7 3.8 Depreciation & amortisation 10.5 10.7 ------------------------------------------------- ------ ------ Adjusted EBITDA 48.6 50.3 Working capital movements (0.6) 1.0 Capital expenditure (1.9) (2.4) Lease payments (6.4) (5.9) Net interest and fees (8.0) (9.5) Taxation (5.3) (6.3) Other 1.2 0.8 ------------------------------------------------- ------ ------ Free cash flow (excluding adjusted items) 27.6 28.0 ------------------------------------------------- ------ ------ Adjusted items (cash effect) - return of 8.1 - pension surplus Adjusted items (cash effect) - receipt of 14.0 - deferred consideration Adjusted items (cash effect) - Other (1.5) (4.0) Continuing Free cash flow 48.2 24.0 ------------------------------------------------- ------ ------
The Company generated GBP48.2m of free cash flow which was GBP24.2m higher than FY2021 (GBP24.0) due to the GBP8.1m receipt of pension surplus and GBP14m deferred consideration received from Tuffnells and lower levels of cash adjusting items.
The decrease in working capital in the period was GBP0.6m (FY2021: increase GBP1.0m). Working capital is affected by the billing cycles of both publishers and retailers and leads to intra-month working capital movements of up to GBP40m. Those cycles were largely consistent at the FY2022 and FY2021 period end cut-off points, resulting in only a GBP0.6m movement.
With management focused on inflationary pressures in the first half of the period, cash spent on capital programmes in the period reduced by GBP0.5m to GBP1.9m (FY2021: GBP2.4m). In the last quarter of FY2022, the depot refurbishment programme has regained momentum with GBP1.3m of orders and capital creditors on the balance sheet at period end.
Lease payments increased to GBP6.4m (FY2021: GBP5.9m) due to lease renewals and rent reviews completed during the period.
Net interest and fees of GBP8.0m (FY2021: GBP9.5m) has decreased by GBP1.5m, due to the lower levels of net debt. Both the current and the prior period included the payment of arrangement fees in relation to the Company's refinancing of its banking facilities (FY2022: GBP2.9m, FY2021: GBP2.8m).
Cash tax outflow of GBP5.3m was a GBP1.0m decrease on the prior period (FY2021: GBP6.3m outflow) as the write down of McColl's reduced the final quarter payment.
The wind-up of the Company's defined benefit pension scheme (detailed further below) resulted in the receipt of GBP8.1m in respect of the pension surplus in December 2021.
FY2022 cash flow also benefitted from the receipt of GBP14m of deferred consideration from Tuffnells, comprising the first instalment in November 2021 (GBP6.5m) and the final settlement of GBP7.5m in April 2022.
The total net cash impact of other adjusted items was a GBP1.5m outflow (FY2021: GBP4.0m outflow). This comprised: GBP1.3m (FY2021: GBP1.2m) of Transformation programme planning costs and GBP0.2m (FY 2022: GBP0.6m) of Pension related costs. The prior period included GBP2.2m of network and reorganisation costs (FY2022: GBPnil).
A reconciliation of free cash flow to the net movement in cash and cash equivalents is given in the Glossary.
Net Debt
GBPm 2022 2021 --------------------------------------------- ------- ------- Opening Bank Net Debt (53.2) (79.7) Continuing Operations Free cash flow 48.2 24.0 Discontinued Operations Free cash flow (0.5) (0.4) --------------------------------------------- ------- ------- Free cash flow 47.7 23.6 Other movement - - Dividend paid (6.1) (1.2) Purchase of own shares for employee share schemes (2.6) (2.6) Discontinued Operations - Tuffnells working capital loan - 6.7 Bank Net Debt (14.2) (53.2) --------------------------------------------- ------- -------
Bank net debt closed the period at GBP14.2m compared to GBP53.2m in August 2021, a decrease of GBP39m.
The reduction in net debt was driven by free cash flow from Continuing Operations of GBP48.2m as described above. These inflows were offset by the payment of the FY2021 final dividend of GBP2.8m in February 2022, the FY2022 interim dividend of GBP3.3m and a GBP2.6m purchase of own shares.
The Company's bank net debt/ EBITDA ratio decreased to 0.3x (H1 2022: 0.9x, FY2021: 1.2x). The period end fell just before major publisher payments of c.GBP25m were made, which benefitted reported bank net debt. Bank Net Debt rose to GBP34.5m on 31 August 2022 after the period end (GBP69.3m on 1 September 2021).
The publisher payments are part of the Company's normal working capital cash flow cycle which generates a routine and predictable cash swing of up to GBP40m within each period.
Our average daily bank net debt during FY2022 was GBP49.9m (FY2021: 82.6m) a decrease of 39.5% for the full period. Since the settlement of the Tuffnells deferred consideration (GBP7.5m) in April 2022, average net debt has been GBP36.7m (FY2021: GBP75.3m).
Discontinued items cash flow in the current and prior period relates to insurance settlements for incidents which occurred during the Company's ownership of Tuffnells prior to 2 May 2020.
The bank net debt to EBITDA covenant of 0.3x is comfortably within our main leverage covenant ratio of 2.0x (reducing to 1.75x in February 2023) and we remain well within all our other bank covenant tests at period end.
A reconciliation of bank net debt (which excludes the IFRS16 lease creditor and unamortised arrangement fees) to the balance sheet is provided in the Glossary.
Going Concern
Having considered the Company's banking facility, the ongoing inflationary pressures within the macro economy and the funding requirements of the Company, the directors are confident that headroom under our bank facility remains adequate, future covenant tests can be met and there is a reasonable expectation that the business can meet its liabilities as they fall due for a period of greater than 12 months (being an assessment period of 16 months) from the date of approval of the Group Financial Statements. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements and no material uncertainty has been identified.
Pension Schemes
In December 2021, the Company received the sum of GBP8.1m in respect of the net cash surplus held by the Trustee from the finalisation of the buy-out of the defined benefit liabilities in the News Section of the WH Smiths Pension Scheme. As agreed with the Trustee of the Scheme, the return of surplus preceded the formal winding up steps of the News Section - the winding up of the News Section being formally completed on 25 February 2022 through the purchase of insurance run-off cover and the payment of taxes owed to HMRC, which were settled by the Trustee.
As part of the wind up, GBP1.3m was paid to an escrow account for the Trustee to purchase indemnity insurance and to cover future claims from members owed amounts following the Lloyds ruling in November 2020, and GBP0.2m was paid for insurance run-off cover. The Company incurred GBP0.4m (FY2021: GBP0.6m) in pension administrative expenses and other professional fees as a result of the winding up process.
PRINCIPAL AND EMERGING RISKS
The Company has a clear framework in place to continuously identify and review both the principal and emerging risks it faces. This includes, amongst others, a detailed assessment of business and functional teams' principal risks and regular reporting to and robust challenge from both the Executive Team and Audit Committee. The directors' assessment of these principal risks is aligned to the strategic business planning process.
Specifically, key risks are plotted on risk maps with descriptions, owners, and mitigating actions, reporting against a level of materiality (principally relating to impact and likelihood) consistent with its size. These risk maps are reviewed and challenged by the Executive Team and Audit Committee and reconciled against the Company's risk appetite. As part of the regular principal risk process, a review of emerging risks (internal and external) is also conducted, and a list of emerging risks is maintained and rolled-forward to future discussions by the Executive Team and Audit Committee. Where appropriate, these emerging risks may be brought into the principal risk registers. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercises.
As part of the Board's ongoing assessment of the principal and emerging risks, the Board has considered the performance of the business, its markets, the changing regulatory landscape, the Company's future strategic direction and ambition as well as the growing climate-related risk environment . The directors have carried out a robust assessment of the Group's emerging and principal risks, including those that could threaten its business model, future performance, solvency or liquidity. Following those assessments three emerging risks have been elevated to principal risks in our risk register. They are: (i) changes to our retail customers' commercial model, (ii) execution risk in implementing our growth and diversification ambitions and (iii) sustainability and climate-related change environment.
Risks are still subject to ongoing monitoring and appropriate mitigation.
The table below details each principal business risk, those aspects that would be impacted were the risk to materialise , our assessment of the current status of the risk and how each is mitigated.
Principal risks and potential impact Mitigations Strategic link/ Change
Macroeconomic uncertainty
Deterioration in the macro-economic Annual budgets and forecasts take into Strategic Link:
environment results in supply side cost account the current macro-economic Cost and efficiencies, Operations
inflation. environment to set
expectations internally and Change:
The Company is presented with cost externally, allowing for or changing Increasing
challenges in a number of areas which objectives to meet short
are being driven and medium term financial targets.
by increased competition in the Weekly cost monitoring enables
distribution labour market and rises in oversight and action on a timely
fuel and utility prices. basis.
These cost increases present a risk Predictable level of volume decline
when they cannot be fully mitigated within the core business enables cost
through increased optimisation planning.
prices or other productivity gains. Use of fixed term contracts as a hedge
against rapidly rising prices e.g.
This results in deterioration in the energy costs .
level of profitability in both the The Company continues to be
short and medium term significantly cash generating to
and impacts on the Company's ability to support its strategic priorities.
execute its strategies, including level
of debt and
liquidity objectives.
--------------------------------------- -----------------------------------
Acquisition and retention of labour
Due to the current competition in the We seek to offer market competitive Strategic Link:
distribution labour market the Company terms to ensure talent remains People first,
is facing an engaged. Culture and values,
increased risk of being unable to We offer long-term contracts with our Costs and efficiencies
recruit and retain warehouse colleagues sub-contracted delivery partners.
and support staff. We use a variety of platforms to Change:
recruit employees and contractors. Stable
The same pressures are also being felt The level of vacancies across
in sourcing and retaining delivery warehouse and delivery contractors are
sub-contractors monitored daily.
as well as filling in-house roles We undertake workforce planning;
within our central support functions. performance, talent and succession
initiatives; learning
A failure to maintain an appropriate and development programs; and promote
level of resourcing could result in the Company's culture and core values.
increased costs, Retention plans are reviewed to
employee disengagement and/or loss of address key risk areas, and attrition
management focus and underpins the across the business
ability to address is regularly monitored.
the strategic priorities and to deliver Regular surveys are undertaken to
the forecast performance. monitor the engagement of colleagues.
--------------------------------------- -----------------------------------
IT infrastructure and c yber s ecurity
To meet the needs of our stakeholders, Defined risked based approach to the Strategic Link:
our IT infrastructure needs to be information security roadmap and Technology
flexible, reliable technology strategy
and secure. which is aligned to the strategic Change:
plans. Stable
Secure infrastructure prevents external Regular tracking of key programmes
cyber-attack, insider threat or against spend targets and delivery
supplier breach could dates.
cause service interruption and/or the The Company assesses cyber risk on a
loss of company and customer data. day to day basis, using proactive and
reactive information
Cyber incidents could lead to major security controls to mitigate common
adverse customer, financial, threats.
reputational and regulatory Dedicated information security
impacts. investments and access to third-party
cyber security specialists.
Flexible and reliable IT infrastructure The Company encourages a cyber aware
means the Company is able to meet its culture by undertaking exercises such
strategic goals as computer-based
and react quickly to changing events. training and more regular
The lack of this could lead to the communications about specific cyber
Company being unable threats.
to execute its strategic goals. We continue to pursue Cyber Essentials
and Cyber Essential Plus
accreditations.
--------------------------------------- -----------------------------------
Legal and regulatory compliance
The Company is required to be Changes in laws and regulations are Strategic link:
compliant with all applicable laws monitored with policies and procedures Technology,
and regulations. Failure being updated as Sustainability,
to adhere to these could result in required. Operations
financial penalties and/or Business-wide mandatory training
reputational damage. programmes for higher-risk regulatory Change:
areas. Stable
Key areas of legal and regulatory External experts are used where
compliance include: applicable.
* GDPR All major policies are reviewed by the
Board or Audit Committee on an annual
basis.
* Health and Safety Operational auditing and monitoring
systems for higher risk areas.
* Tax compliance
* Environmental legislation
* Employment law
--------------------------------------- -----------------------------------
Changes to retailers' commercial model
Our largest retailers (e.g. grocers and Our EPOS-based returns Strategic link:
symbol group members) remain under (EBR) solution has been Cost and efficiencies
significant pressure introduced instore with our
to maximise sales and profitability by largest retailers, Change:
channel within their retail stores and improving staff efficiency New
at associated in managing the magazine
sale outlets, such as at petrol category, thereby reducing
forecourt stores. This could result at cost to the
any time in a category retailer.
review of the newspaper and magazine
channel, leading to a significant Longer term potential to
reduction in newspapers' extend EBR to newspapers in
and/or magazines' selling space instore order to broaden
in favour of other higher margin efficiency-benefits
products and/or the to retailers.
delisting of all/particular titles of
newspapers and/or magazines. Form stronger partnerships
with emerging retailers to
A reduction in sales space and/or full stock
delisting of newspapers and/or magazines and newspapers.
magazines by our largest
retailers could materially reduce the
Company's revenue, profitability and
cash flow.
--------------------------------------- -----------------------------------
Growth and diversification
A successful growth and diversification Strong project management Strategic link:
strategy is essential to the long-term and governance in place to Cost and efficiencies
success of sign-off growth initiatives
the Company. At the same time, and oversee Change:
maintaining the Company's outstanding their implementation. New
and sector-leading standards
of service in newspaper and magazine A Growth Delivery
wholesaling is paramount to help fund Operations Steering
growth and diversification Committee has been
opportunities and support publisher established to monitor the
contract renewals, each of which impact
deliver shareholder value. of new business
opportunities on core
Implementing new business growth operations.
opportunities without detrimentally
impacting the Company's Pilots and trials of new
core newspaper and magazine wholesaling business opportunities have
carries an execution risk to both the been deployed to assess
new initiative both the potential
and ensuring the Company remains able economic benefit of such
to deliver sector-leading support to opportunity and its likely
publisher clients. impact on maintaining the
Company's outstanding
and sector-leading
standards of service in
newspaper and magazine
wholesaling.
Executive Team balanced
scorecard of key
performance indicators
ensures sub-optimal
performance
is tracked and monitored on
a regular basis and allows
appropriate interventions
to be made.
--------------------------------------- -----------------------------------
Sustainability and climate change
Climate change is a widely acknowledged Sustainability Steering Strategic link:
global emergency. In the UK, government Committee established Cost and efficiencies,
and regulatory (chaired by the Chief Operations,
changes in response to a drive to 'net Financial Officer) to Sustainability
zero' carbon emissions and increasingly coordinate the Company's
stringent air action on climate change. Change:
quality targets for UK towns and cities New
could make it more difficult and costly Emissions and air quality
for the Company targets in UK towns and
to undertake newspaper and magazine cities are monitored by a
wholesaling activities within the UK or central team in
particular towns the Operations function
and cities. In addition to these which ensures the Company
transitional risks associated with can fulfil its obligations
moving to a low carbon to customers
future, there are also a range of and remain compliant with
ongoing physical risks. These include legal requirements.
an increase in the
frequency of extreme weather events Operational sites are
which may result in power outages, reviewed for their
disruption to our service resilience to extreme
operations and/or impact our ability to weather events such as
serve our customers in an efficient and floodings,
cost-effective with upgrades and
manner. interventions made where
these are cost-effective.
In common with all major organisations,
there is a risk of reputational damage Depots are relocated to new
and/or loss sites ( e.g. during lease
of revenue if the Company fails to meet break windows) where this
stakeholder expectations for action on represents
climate change. a better option than
adapting an existing
location.
Working with suppliers to
ensure they share the
Company's vision to act on
climate change.
--------------------------------------- -----------------------------------
GROUP FINANCIAL STATEMENTS
Group Income Statement for the 52 week period ended 27 August 2022
GBPm 2022 2021
---------------------------- ---- ------------------------------ ------------------------------
Note Adjusted* Adjusted Total Adjusted* Adjusted Total
items items
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Revenue 2 1,089.3 - 1,089.3 1,109.6 - 1,109.6
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of Sales 3 (1,016.6) - (1,016.6) (1,036.2) - (1,036.2)
Gross profit 3 72.7 - 72.7 73.4 - 73.4
Administrative
expenses 3 (35.0) (2.5) (37.5) (33.9) (1.9) (35.8)
Net impairment
loss on trade
receivables 4 - (4.4) (4.4) - - -
Other income 0.1 - 0.1 - - -
Income from joint
ventures 13 0.3 - 0.3 0.1 (0.3) (0.2)
Impairment of
joint venture
investment 13 - 1.2 1.2 - (1.6) (1.6)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Operating profit 2,3 38.1 (5.7) 32.4 39.6 (3.8) 35.8
Finance costs 7 (7.0) - (7.0) (8.8) - (8.8)
Finance income 7 - 2.5 2.5 0.1 3.5 3.6
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
before tax 31.1 (3.2) 27.9 30.9 (0.3) 30.6
Income tax credit/(expense) 8 (5.4) 0.9 (4.5) (4.6) 0.3 (4.3)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
for the year from
continuing operations 25.7 (2.3) 23.4 26.3 - 26.3
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Discontinued
operations
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Loss for the year
from discontinued
operations 4 - - - - (0.1) (0.1)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
attributable to
equity shareholders
continuing and
discontinued operations 25.7 (2.3) 23.4 26.3 (0.1) 26.2
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Earnings/(Loss) per
share from continuing
operations
Basic 10 10.8 9.8 10.8 10.8
Diluted 10 10.2 9.3 10.2 10.2
Earnings per share
total
Basic 10 10.8 9.8 10.8 10.8
Diluted 10 10.2 9.3 10.2 10.2
Equity dividends
per share (paid
and proposed) 9 4.15 4.15 1.65 1.65
--------------------- ------- ------ ----- -------- ------------------
* This measure is described in Note 1(4) of the accounting policies and the Glossary to the Accounts. Adjusted items are set out in Note 4 to the Group Financial Statements .
Group Statement of Comprehensive Income for the 52 week period ended 27 August 2022
GBPm
Continuing Note 2022 2021
-------------------------------------------------- ---- ----- -----
Items that will not be reclassified
to the Group Income Statement
Reassessment as to recoverability of
retirement benefit scheme surplus 6 14.8 (0.4)
Impact of IFRIC 14 on defined benefit
pension scheme 6 - 0.8
Tax relating to components of other comprehensive
income that will not be reclassified 8 (5.1) 0.2
-------------------------------------------------- ---- ----- -----
9.7 0.6
Items that may be subsequently reclassified
to the Group Income Statement
Currency translation differences - -
Other comprehensive result for the year
- continuing 9.7 0.6
Profit for the year - continuing 23.4 26.3
-------------------------------------------------- ---- ----- -----
Total comprehensive income for the year
- continuing 33.1 26.9
Other comprehensive income for the period - -
discontinued
(Loss) for the year - discontinued - (0.1)
-------------------------------------------------- ---- ----- -----
Total comprehensive (expense) for the
year - discontinued - (0.1)
-------------------------------------------------- ---- ----- -----
Total comprehensive income/(expense)
for the year 33.1 26.8
-------------------------------------------------- ---- ----- -----
Group Balance Sheet as at 27 August 2022
GBPm Note 2022 2021
-------------------------------- ---- ------- -------
Non-current assets
Intangible assets 11 1.7 2.3
Property, plant and equipment 12 8.6 9.4
Right of use assets 19 26.3 28.4
Interest in joint ventures 13 4.2 2.9
Other receivables 15 - 2.3
Deferred tax assets 20 1.1 1.8
41.9 47.1
-------------------------------- ---- ------- -------
Current assets
Inventories 14 15.6 13.2
Trade and other receivables 15 95.7 106.6
Cash and bank deposits 17 35.3 19.3
Corporation tax receivable 0.9 -
147.5 139.1
-------------------------------- ---- ------- -------
Total assets 189.4 186.2
-------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 16 (140.3) (136.5)
Current tax liabilities - (0.3)
Bank loans and other borrowings 17 (8.0) (21.2)
Lease liabilities 19 (5.9) (5.9)
Provisions 21 (3.0) (3.6)
(157.2) (167.5)
-------------------------------- ---- ------- -------
Non-current liabilities
Bank loans and other borrowings 17 (39.1) (50.1)
Lease liabilities 19 (21.7) (23.3)
Non-current provisions 21 (3.4) (3.0)
-------------------------------- ---- ------- -------
(64.2) (76.4)
-------------------------------- ---- ------- -------
Total liabilities (221.4) (243.9)
-------------------------------- ---- ------- -------
Total net liabilities (32.0) (57.7)
-------------------------------- ---- ------- -------
Equity
Called up share capital 25(a) 12.4 12.4
Share premium account 25(c) 60.5 60.5
Demerger reserve 26(a) (280.1) (280.1)
Own shares reserve 26(b) (4.6) (3.9)
Translation reserve 26(c) 0.4 0.4
Retained earnings 27 179.4 153.0
---------------------------- ----- ------- -------
Total shareholders' deficit (32.0) (57.7)
---------------------------- ----- ------- -------
The accounts were approved by the Board of Directors and authorised for issue on 8 November 2022 and were signed on its behalf by:
Jonathan Bunting Paul Baker Chief Executive Officer Chief Financial Officer Registered number - 05195191
Group Statement of Changes in Equity for the 52 week period ended 27 August 2022
GBPm Note Share Share Demerger Own Hedging *Retained *Total
capital premium reserve shares & translation earnings
account reserve reserve
------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Balance at
30 August 2020 12.4 60.5 (280.1) (1.8) 0.4 127.0 (81.6)
Profit for the
year - - - - - 26.2 26.2
Actuarial gain
on defined benefit
pension scheme 6 - - - - - (0.4) (0.4)
Impact of IFRIC
14 on defined
benefit pension
scheme 6 - - - - - 0.8 0.8
Tax relating
to components
of other comprehensive
income - - - - - 0.2 0.2
Total comprehensive
expense/income
for the year - - - - - 26.8 26.8
Dividends paid 9 - - - - - (1.2) (1.2)
Employee share
schemes purchases - - - (2.7) - - (2.7)
Employee share
scheme awards - - - 0.6 - (0.6) -
Recognition
of share based
payments net
of tax - - - - - 1.0 1.0
Balance at
28 August 2021 12.4 60.5 (280.1) (3.9) 0.4 153.0 (57.7)
------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Profit for the
year - - - - - 23.4 23.4
Actuarial gain
on defined benefit
pension scheme 6 - - - - - 14.8 14.8
Tax relating
to components
of other comprehensive
income - - - - - (5.1) (5.1)
------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Total comprehensive
expense/income
for the year - - - - - 33.1 33.1
Dividends paid 9 - - - - - (6.1) (6.1)
Employee share
schemes purchases - - - (2.2) - - (2.2)
Employee share
scheme awards - - - 1.5 - (1.5) -
Recognition
of share based
payments net
of tax - - - - - 1.2 1.2
Current tax
recognised in
equity - - - - - (0.1) (0.1)
Deferred tax
recognised in
equity - - - - - (0.2) (0.2)
------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Balance at
27 August 2022 12.4 60.5 (280.1) (4.6) 0.4 179.4 (32.0)
------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Group Cash Flow Statement for the 52 week period ended 27 August 2022
GBPm Note 2022 2021 ------------------------------------------ ---- ------ ------ Net cash inflow from operating activities 24 49.8 41.4 ------------------------------------------ ---- ------ ------ Investing activities Dividends received from joint ventures 0.2 0.2 Purchase of property, plant and equipment (1.3) (2.4) Purchase of intangible assets (0.7) - Net proceeds on sale of property, plant and equipment 0.1 - Interest received - 0.1 Loan repayment received - 6.5 Deferred consideration receipts 14.0 - ------------------------------------------ ---- ------ ------ Net cash generated from investing activities 12.3 4.4 ------------------------------------------ ---- ------ ------ Financing activities
Interest paid (5.1) (6.8)
Arrangement fees paid (2.9) (2.7)
Dividend paid 9 (6.1) (1.2)
Repayments of lease principal (6.4) (5.9)
Repayment of term loan (83.0) (57.5)
New loans issued 60.0 80.0
Net decrease in revolving credit
facility and overdrafts - (80.2)
Purchase of shares for employee
benefit trust (2.6) (2.6)
Net cash (used in)/generated financing
activities (46.1) (76.9)
------------------------------------------ ---- ------ ------
Net (decrease)/increase in cash
and cash equivalents 16.0 (31.1)
Effect of foreign exchange rate
changes - (0.2)
------------------------------------------ ---- ------ ------
16.0 (31.3)
Opening net cash and cash equivalents 19.3 50.6
Closing net cash and cash equivalents 17 35.3 19.3
------------------------------------------ ---- ------ ------
Notes to the Accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc ('the Company') is a company incorporated in England UK under Companies Act 2006. The Group accounts for the 52 week period ended 27 August 2022 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interests in joint ventures and associates. Subsidiary undertakings are included in the Group Accounts from the date on which control is obtained. They are deconsolidated from the date on which control ceases. All significant subsidiary accounts are made up to 27 August 2022 and are included in the Group Accounts.
Unless otherwise noted references to 2021 and 2022 relate to a 52 week period ended 28 August 2021 and 27 August 2022 as opposed to calendar year.
The Accounts were authorised for issue by the directors on 8 November 2022.
(2) Accounting basis of preparation
The financial information contained within this preliminary announcement for the 52 weeks to 27 August 2022 and the 52 weeks to 28 August 2021 does not comprise statutory financial statements for the purpose of the Companies Act 2006, but is derived from those statements. The statutory accounts for Smiths News PLC for the 52 weeks to 28 August 2021 have been filed with the Registrar of Companies and those for the 52 weeks to 27 August 2022 will be filed following the Company's annual general meeting. The auditor's reports on the accounts for both the 52 weeks to 27 August 2022 and the 52 weeks to 28 August 2021 were unqualified, did not draw attention to any matters by way of emphasis, and did not include a statement under Section 498 (2) or (3) of the Companies Act 2006. The Annual Report and Accounts will be available for shareholders in December 2022.
The Accounts are prepared on the historical cost basis with the exception of certain financial instruments and are presented in Pound Sterling and rounded to GBP0.1m, except where otherwise indicated.
The Group Accounts have been prepared in accordance with UK-adopted International Accounting Standards (IAS) in conformity with the requirements of the Companies Act 2006.
Intra-group balances and unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing Group Accounts. Unrealised gains and losses arising from transactions with the joint ventures are eliminated to the extent of the Group's interest in the entities.
(3) Going concern
The Group accounts have been prepared on a going concern basis.
When assessing the going concern of the Group, the directors have reviewed the year to date financial actuals, as well as detailed financial forecasts for the period up to 29 February 2024, the going concern period.
The Group currently has a net liability position of GBP32.0m as at 27 August 2022. All bank covenant tests were met at the year end. The key bank net debt: EBITDA (ex IFRS16) ratio of 0.34x, was below the covenant test threshold of 2.0x. The threshold reduces to 1.75x from 25 February 2023.
The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing of up to GBP40m. This results in a predictable fluctuation of bank net debt during the course of the month compared to the closing net debt position. Our average net borrowings during 2022 were GBP49.8m (2021: GBP82.6m). The Company utilises the Revolving Credit Facility (RCF) to manage the cash swing. At the year end, GBP30.0m of the RCF was available and the Company had GBP35.3m of cash on hand giving headroom of GBP64m.
3i) Bank facility
The Group has a facility of GBP79.5 million at the balance sheet date, comprising a GBP49.5 million amortising term loan and a revolving credit facility (RCF) with a limit of GBP30.0m. The Group's banking facility was amended and extended in December 2021 and has a final maturity date of 31 August 2025. The new facility comprises an initial GBP60 million amortising term loan, of which the Group has since repaid GBP10.5 million as at the balance sheet date. The available facility was GBP27.65m at year end due to GBP2.35m of letters of credit (see note 17). The agreement is with a syndicate of banks comprising HSBC, Barclays, Santander and Clydesdale.
The facility's current margin is 4% per annum over SONIA.
Consistent with the Company's stated strategic priorities to reduce net debt, the terms of the facility agreement include: an amortisation schedule of GBP6m in the first year and GBP10m per annum thereafter for the repayment of the term loan; a reduction in the RCF of GBP5m per year after the first year; and capped dividend payments at GBP10m per year.
The final maturity date of the facility is 31 August 2025.
3ii) Reverse stress testing
The directors have prepared their base case forecast which represents their best estimate of cash flows over the going concern period, which is up to 29 February 2024 and in accordance with FRC guidance have prepared a reverse stress test that would create a covenant break scenario which could lead to the facilities being repayable on demand.
The break scenario would occur in February 2024 if EBITDA (ex IFRS 16) was 48% below the board approved three year plan. Facility headroom of GBP11m would still exist at this point. The directors consider the likelihood of this level of downturn to be remote based on:
-- current trading which is in line with expectations
-- year-on-year declines in revenues would have to be significantly greater than historical trends
-- the contracts are secured with publishers until at least 2024; and -- the Company continues to trade with adequate profit to service its debt covenants.
3iii) Mitigating actions
In the event the break environment scenario went from being remote to possible then management would seek to take mitigating actions to maintain liquidity and compliance with the bank facility covenants. The options within the control of management would be to:
-- Optimise liquidity by working capital management of the peak-to-trough intra-month movement of up to GBP40m. Utilising existing vendor management finance arrangements with retailers and optimising contractual payment cycles to suppliers which would improve liquidity headroom,
-- Not pay planned dividend, -- Delay non-essential capex projects, -- Cancel discretionary annual bonus payments; and -- Identify other overhead and depot savings.
More extreme mitigating actions would also be available if the scenario arose.
*The Company has vendor finance arrangements in place where it has the ability to request early payment of invoices at a small discount, the payments are non-recourse and the invoices are considered settled from both sides once payment is received. The Company has not made use of this facility in FY2022 nor FY2021 or since the Balance Sheet date.
3iv) Assessment
Having considered the above and the funding requirements of the Group and Company, the directors are confident that headroom under the bank facility remains adequate, future covenant tests can be met and there is a reasonable expectation that the business can meet its liabilities as they fall due for a period of greater than 12 months (being an assessment period of 16 months) from the date of approval of the Group Financial Statements. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements and no material uncertainty has been identified.
(4) Alternate performance measures
In reporting financial information, the Group presents alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS.
The Group believes that these APMs (listed in the glossary, are not considered to be a substitute for, or superior to, IFRS measures but provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board and Executive Team.
The APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of newspapers and magazines. The Group is considered to be the principal based on the following indicators of control over its inventory: discretion to establish prices; it holds some of the risk of obsolescence once in control of the inventory; and has the responsibility of fulfilling the performance obligation on delivery of inventory to its customers. If the Group were considered to be the agent, revenue and cost of sales would reduce by GBP921.3m (2021: GBP945.2m).
Determining lease terms
In determining lease terms, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
For leases of distribution centres and equipment, the following factors are the most relevant:
-- The Company continually considers the optimal network structure in its judgement over lease terms;
-- If there are significant penalties to terminate (or not extend), the Company is typically reasonably certain to extend (or not terminate);
-- If any leasehold improvements are expected to have a significant remaining value, the Company is typically reasonably certain to extend (or not terminate); and
-- Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options in vehicles leases have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.
Adjusting items
Adjusting items of income or expense are excluded in arriving at Adjusted operating profit to present a further measure of the Group's performance. Each adjusting item is considered to be significant in nature and/or quantum, non-recurring in nature and/or are considered to be unrelated to the Group's ordinary activities or are consistent with items treated as adjusting in prior periods. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team.
The classification of adjusting items requires significant management judgement after considering the nature and intentions of a transaction. Adjusted measures are defined with other APM's in the glossary.
Based on the nature of the transactions, Adjusting items after tax including a GBP4.4m net loss on trade receivables in respect of the Group's outstanding trade receivable with McColl's Retail Group, totalled GBP2.3m (2021: GBP0.1m) and a breakdown is included within Note 4.
Retirement benefits
During the year, the Trustee reached the position where it was advised that it could legally distribute the pension cash surplus to the employer as it had completed activities to trace former members of the Trust impacted by the GMP ruling. This gave the Company an unconditional right to the surplus asset and as such the IAS 19 pre-tax surplus of GBP14.8m has been recognised through other comprehensive income in the year and the IFRIC14 ceiling eliminated. Subsequently, the Company received the sum of GBP8.1m, the value of the surplus net of tax and costs on 3 December 2021.
As agreed with the Trustee, the return of the surplus preceded the formal winding up steps of the News Section of the pension scheme, with the winding up of the scheme formally being completed on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC by the Trustee.
As part of the closure of the scheme the Company agreed to deposit GBP1.3m of the pension surplus into an escrow account to fund the insurance costs for the Trustee and the outstanding liability to former
members in respect of the Lloyds GMP ruling in November 2020. The funds held in escrow are not considered an asset of the Company and are not recognised on the balance sheet. The cost of the insurances have been recognised through administration expenses in the income statement and treated as an Adjusted item.
The Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at GBP6.5m over the next 60 years. This potential liability is considered a contingent liability at the period end and reported as such.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The key assumption concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined using value in use calculations. The value in use method requires the Company to determine appropriate assumptions in relation to the cash flow projections over the three-year plan period (which is a key source of estimation uncertainty), the terminal growth rate to be applied beyond this three-year period and the risk-adjusted post-tax discount rate used to discount the assumed cash flows to present value. The assumption that cash flows continue into perpetuity is a source of significant estimation uncertainty.
During the period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated to arise in the prior period, have not materialised with the successful renewal of contracts previously considered to be at risk. The Company has therefore chosen to reverse the impairment previously booked by GBP1.2m. In the prior period, it was assessed that certain challenges may arise from increasing market competition, resulting in an impairment loss of GBP1.6m being recognised. A value in use of GBP4.2m has been calculated based on future cash flows of the business and have been discounted at a rate of 13% and a terminal growth rate applied of 0%. The result is a reversal of impairment of GBP1.2m. Refer to Note 13, for further details.
Property provision
The Group holds a property provision which estimates the future liabilities to restore leased premises to an agreed standard at the date the lease is terminated. The provision is calculated based on key assumptions including the length of time properties will be occupied, the future costs of restoration and the condition of the property at the future exit date.
The property provision represents the estimated future cost of the Group's potential dilapidation costs on non-trading properties across the Group. As the current economic outlook is for increased inflation, the Group has assessed the effect of inflation as material on the provisions in the current year. The provisions have therefore been adjusted for the effect of inflation in the current year. These provisions have been discounted to present value and this discount will be unwound over the life of the leases.
A change in any of these assumptions could materially impact the provision balance. Refer to Note 21 for further details on the sensitivity of the assumptions used to calculate the property provision. The property provisions carrying value at the year end is GBP4.4m (2021: GBP3.8m).
Net impairment loss on trade receivables
On 9 May 2022 ("the administration date"), McColl's Retail Group went into administration. A statement of claim form was filed with the Administrators for an amount of GBP5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive between 20-40% of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and issuance of this report and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore recognised a net impairment loss of GBP4.4m, representing 80% of the total balance of GBP5.5m in the current financial period. If the Company had considered 40% of the total balance of GBP5.5m to be recoverable in line with the upper range of the administrators estimate, the provision recognised would have been GBP3.3m. The net impairment loss of GBP4.4m does not have an impact on the Group's assessment of its expected credit losses in respect of its remaining trade receivables and therefore remains negligible. For this reason, the provision for the McColl's net impairment loss of GBP4.4m has been disclosed separately as a specific provision for doubtful debts, with the net impairment loss expense presented in adjusting items.
(6) Discontinued operations
On 2 May 2020, the Company completed the sale of Tuffnells and assumed liability to settle certain pre-disposal insurance and legal claims relating to employer's liability, public liability, motor accident claims and legal claims, held as provisions. The Company continues to present the cash outflows from these provisions for comparative purposes.
In accordance with IFRS 5 'Non-current assets held for sale and Discontinued operations', the net results of discontinued operations have been presented separately in the comparative Group Income statement and the assets and liabilities of operations are presented separately in the Group balance sheet if they meet the held for sale criteria at the balance sheet date or were disposed of during the year.
A cash generating unit would meet the classification of a discontinued operation when considered a material to the Group's overall results.
(7) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of the products has transferred, that is, when the products are delivered to the retailer and there is no unfulfilled obligation that could affect the retailer's acceptance of the products, the risks of obsolescence and loss have been transferred to the retailer. Goods are sold to retailers on a sale or return basis.
Distribution income
Distribution income is recognised when the products such as newspapers and magazines are delivered to the retailer and there are no unfulfilled obligations that could affect the retailer's acceptance of the products.
Voucher income
Voucher income represents the margin income received from managing the process of collecting voucher payments from retailers and passing them on to voucher processing centres. The Group is primarily responsible for fulfilling the service.
Sales and marketing
The Group supplies marketing services to both retailers and suppliers. This includes services such as shelf stacking, stock checking and merchandising. The Group is primarily responsible for fulfilling the services.
Sale of waste
Income from the sale of waste represents the amount received per tonne of newspapers and magazines returns sold on for recycling. The Group has primary responsibility for fulfilling the service.
Return Reserve
Newspapers and Magazines sales are made on a sale or return basis, therefore the Group is required to estimate a value relating to expected returns from retailers. Likewise as the publishers are required to provide the Group with credit for any purchase returns, so a purchase returns reserve is also required. The key estimates used in calculating the period end reserve are rates of returns (based on historical tends), average shelf life of the product types and average price of each product type. These estimates are similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net of the value of any returns. Newspapers and magazines are often sold with retrospective volume discounts based on aggregate sales. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discount and returns', using the expected value method and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A returns reserve accrual and discount accrual (included in trade and other payables) is recognised for expected volume discounts and refunds payable to customers in relation to sales made until the end of the reporting period. A right to the returned goods (included in other debtors) are recognised for the products expected to be returned. Newspapers and Magazines are made on a sale or return basis, therefore the Group is required to estimate a value relating to expected returns from retailers. Likewise as the publishers are required to provide the Group with credit for any purchase returns a purchase returns reserve is also required No element of financing is deemed present, because the sales are made with short credit terms, which is consistent with market practice.
A receivable is recognised when the goods are delivered, since this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
(8) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of inventories recognised as an expense and distribution costs as these are considered to represent for the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of sales.
(9) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent it relates to items recognised in other comprehensive income or directly in equity. Current tax is the expected tax payable based on the taxable profit for the year, using tax rates enacted, or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is calculated using tax rates enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary differences can be utilised.
(10) Dividends
Interim and final dividends are recorded in the financial statements in the period in which they are paid.
(11) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group is able to demonstrate all of the following: the technical feasibility of the resulting asset; the ability (and intention) to complete the development and use it; how the asset will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use the software are available; and the ability to measure reliably the expenditure attributable to the asset during its development. Software costs are also capitalised if they can be hosted on another server, are portable and the Group has sole rights to the software. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
(12) Joint ventures
The Group Accounts include the Group's share of the total recognised gains and losses in its joint ventures on an equity accounted basis.
Investments in joint ventures are carried in the balance sheet at cost adjusted by post-acquisition changes in the Group's share of the net assets of the joint ventures, less any impairment losses. The carrying values of investments in joint ventures include acquired goodwill. Losses in joint ventures that are in excess of the Group's interest in the joint venture are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.
(13) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued, liabilities incurred or assumed at the date of exchange. Acquisition related costs are recognised in profit or loss as incurred. Any deferred or contingent purchase consideration is recognised at fair value over the period of entitlement. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for in equity. Any deferred or contingent payment deemed to be remuneration as opposed to purchase consideration in nature is recognised in profit or loss as incurred, and excluded from the acquisition method of accounting for business combinations. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The non-controlling interest is measured, initially, at the non-controlling interest's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill arising on all acquisitions is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.
The carrying value is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . Intangible assets arising under a business combination (acquired intangibles) are capitalised at fair value as determined at the date of exchange and are stated at fair value less accumulated amortisation and impairment losses. Amortisation of acquired intangibles is charged to the income statement on a straight-line basis over the estimated useful lives as follows:
Customer relationships - 2.5 to 7.5 years Trade name - 5 to 10 years Software and development costs - 3 to 7 years
Computer software and internally generated development costs which are not integral to the related hardware are capitalised separately as an intangible asset and stated at cost less accumulated amortisation and impairment losses.
Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. All intangible assets are reviewed for impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may be higher than its recoverable value. The recoverable value used is the value in use. The value in use is determined by estimating the future cash inflows and outflows to be derived from continuous use of the asset and applying the appropriate discount rate to those future cash flows. Where the carrying value is higher than the calculated value in use, an impairment loss will be recognised.
(14) Property, plant and equipment
Property, plant and equipment assets are stated at cost less accumulated depreciation and any recognised impairment losses. No depreciation has been charged on freehold land. Other assets are depreciated, to a residual value, on a straight-line over their estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease period and the estimated remaining economic life
Fixtures and fittings - 3 to 15 years Equipment - 5 to 12 years Computer equipment - up to 5 years Vehicles - up to 5 years
Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. All property, plant and equipment is reviewed for impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may not be recoverable.
(15) Leasing
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-- variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
-- where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
-- uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing; and
-- Makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date less any lease incentives received;
-- any initial direct costs; and -- Restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.
(16) Inventories
Inventories comprise goods held for resale and are stated at the lower of cost or net realisable value. Inventories are valued using a weighted average cost method. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition.
(17) Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises financial assets and liabilities only when the contractual rights and obligations are transferred, discharged or expire.
Financial assets comprise trade and other receivables and cash and cash equivalents. Financial liabilities comprise trade payables, financing liabilities, bank borrowings.
(18) Financial assets
The group classifies its financial assets in the following measurement categories:
-- those to be measured subsequently at fair value (either through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.
Trade receivables
Trade receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and then adjusted to reflect expectations about future credit losses. The Group does not have any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method. Details about the Group's impairment policies and the calculation of the loss allowance are provided in Note 15.
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
Other receivables
Other receivables are recognised on trade date, being the date on which the Group has the right to the asset. Other receivables are derecognised when the rights to receive cash flows from the other receivables have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership.
At initial recognition, the Group measures other receivable at their fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Subsequent measurement of other receivables depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. The group classifies its other receivables at amortised cost.
Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/ (losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in Note 3.
The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:
-- the asset is held within a business model whose objective is to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are solely payments of principal and interest.
The Group applies the general approach to impairment under IFRS 9 based on significant increases in credit risk rather than the simplified approach for trade receivables using lifetime ECL.
(19) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.
(20) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. BACS and next day payments are recognised at the settlement date, rather than when they are initiated, to more appropriately reflect the nature of these transactions. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and bank overdrafts which form part of the groups cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued are recorded at the proceeds received, net of direct issue costs.
Bank borrowings Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and are subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is extinguishment of the original financial liability and recognition of a new financial liability. Equally, modification of the terms of existing financial liability is accounted for as an extinguishment of the original financial liability and recognition of a new financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.
(21) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the directors' best estimate of the expenditure required to settle the present obligation at the balance sheet date and if this amount is capable of being reliably estimated. If such an obligation is not capable of being reliably estimated, no provision is recognised and the item is disclosed as a contingent liability where material. Where the effect is material, the provision is determined by discounting the expected future cash flows.
(22) Retirement benefit costs
Defined contribution schemes
The Group operates a number of defined contribution schemes for the benefit of its employees. Payments to the Group's schemes are recognised as an expense in the income statement as incurred.
Defined benefit scheme
Following the disposal of Tuffnells, the Group previously operated one defined benefit pension scheme, the news section of The WH Smith Pension Trust. On 3 December 2021, the Group received the sum of GBP8.1m in respect of the net cash surplus held by the Trustee following finalisation of the buy-out of the defined benefit liabilities in the News Section of the Trust. As agreed with the Trustee, the return of surplus preceded the formal winding up steps of the News Section of the Trust, the winding up of the News Section of the Trust being formally completed on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC. The IAS 19 pre-tax surplus of GBP14.8m has been recognised through other comprehensive income in the current financial period after the Trustee confirmed its intention to return the surplus cash to the employer giving the Company an unconditional right to the surplus.
Prior to the winding up of the News Section of the Trust, actuarial gains and losses were calculated by independent actuaries and recognised in full in the period in which they occur in the Group statement of comprehensive income. As at 28 August 2021, there were a small proportion of liabilities within the Trust relating to amounts owed to former members of the Trust. As these liabilities were not long-term in nature, actuarial assumptions at 28 August 2021 were not required. The Group did not previously recognise any surplus unless there was an unconditional right to do so.
(23) Employee Benefit Trust
Smiths News Employee Benefit Trust
Where any Group company purchases the Company's shares, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity as 'own shares reserve' until those shares are either cancelled or reissued.
The shares held by the Smiths News Employee Benefit Trust are valued at the historical cost of the shares acquired. This value is deducted in arriving at shareholders' funds and presented as the own share reserve in line with IAS 32 'Financial Instruments: Disclosure and Presentation'.
(24) Share schemes
Share based payments
The Group operates several share-based payment schemes, being the Sharesave Scheme, the Executive Share Option Scheme, the LTIP and the Deferred Bonus Plan. Details of these are provided in the Directors' Remuneration report and in Note 28.
Equity-settled share-based schemes are measured at fair value at the date of grant. The fair value is expensed with a corresponding increase in equity on a straight-line basis over the period during which employees become unconditionally entitled to the options. The fair values are calculated using an appropriate option pricing model. The income statement charge is then adjusted to reflect expected and actual levels of vesting based on non-market performance related criteria.
Administrative expenses and distribution and marketing expenses include the cost of the share-based payment schemes.
(25) Changes in accounting policies
The Group's accounting policy has been changed to recognise BACS and next day payments at the settlement date, rather than when they are initiated, to more appropriately reflect the nature of these transactions. The comparative amounts have not been restated as the prior period is unaffected by this change in accounting policy.
The Group has applied the following standards and amendments for the first time for the annual reporting period commencing 29 August 2021:
-- Proceeds before intended use - Amendments to IAS 16; -- Onerous contracts - Amendments to IAS 37; -- Definition of Material - Amendments to IAS 1 and IAS 8; -- Definition of a Business - Amendments to IFRS3; -- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7; -- Revised Conceptual Framework for Financial Reporting; -- Annual Improvements to IFRS Standards 2018-2020 Cycle; and -- Where applicable, Covid-19-Related Rent Concessions - Amendments to IFRS.
None of the other amendments listed above did have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
New Standards and Interpretations not yet applied.
At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group and which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the UK):
-- Classification of Liabilities as Current or Non-current - Amendments to IAS 1; -- Definition of Accounting Estimates - Amendments to IAS 8;
-- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement ; and
-- Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has identified its operating segments based wholly on the overall activities of the Group. The Group has therefore determined that it has only one reportable operating segment under IFRS 8, which is that of a 'UK market leading distributor of newspapers and magazines', referred to as 'Smiths News'. The performance of Smiths News is reviewed, on a monthly basis, by the Board. The Board primarily uses a measure of Adjusted operating profit before tax to assess its performance. The Board also receives information about the segments' revenue.
The Smiths News continuing operating segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to approximately 24,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to airlines and travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths News.
The Company derives revenue from the transfer of goods and services in the following major product line and geographical regions:
Revenue
------------------------------ ---------------- ---------------
GBPm 2022 2021
------------------------------ ---------- ---------- ---------
Smiths News 1,089.3 1,109.6
Total revenue from contracts
with customers 1,089.3 1,109.6
------------------------------------------ ---------- ---------
The Company's revenue by geographical location is UK 99.9% (2021: 99.9%) and Rest of World 0.1% (2021: 0.1%).
Information about major customers
Included in revenues arising from Smiths News are revenues of approximately GBP102.5m (2021: GBP121.9m) which arose from sales to the Group's largest customer. Three other customers contributed 13.3% or more of the Group's revenue in 2022 (2021: 6.0%).
The accounting policies of the reportable segments are the same as the Group's accounting policies described in Note 1.
3. Operating profit
The Group's results are analysed as follows:
GBPm 2022 2021 Continuing Note Adjusted Adjusted Total Adjusted Adjusted Total operations items items ----------------------------- ---- ----------- -------- --------- --------- -------- --------- Revenue 1,089.3 - 1,089.3 1,109.6 - 1,109.6 ----------------------------- ---- ----------- -------- --------- --------- -------- --------- Cost of inventories recognised as an expense (921.3) - (921.3) (945.2) - (945.2) Distribution costs (95.3) - (95.3) (91.0) - (91.0) ----------------------------- ---- ----------- -------- --------- --------- -------- --------- Cost of sales (1,016.6) - (1,016.6) (1,036.2) - (1,036.2) ----------------------------- ---- Gross profit 72.7 - 72.7 73.4 - 73.4 ----------------------------- ---- ----------- -------- --------- --------- -------- --------- Other administrative expenses (23.3) (2.5) (25.8) (22.1) (1.9) (24.0) Share-based payment expense 28 (1.2) - (1.2) (1.0) - (1.0) Net impairment loss on trade receivables - (4.4) (4.4) - - - Impairment reversal/(charge) of joint venture Investment - 1.2 1.2 - (1.6) (1.6) Impairment - - - (0.1) - (0.1) Other income 0.1 - 0.1 - - - Share of profits from joint ventures 13 0.3 - 0.3 0.1 (0.3) (0.2) ----------------------------- ---- ----------- -------- --------- --------- -------- --------- EBITDA 48.6 (5.7) 42.9 50.3 (3.8) 46.5 Depreciation on property, plant & equipment 12 (2.3) - (2.3) (2.4) - (2.4) Depreciation on right use assets 19 (6.9) - (6.9) (6.4) - (6.4) Amortisation of intangibles 11 (1.3) - (1.3) (1.9) - (1.9) Operating profit 38.1 (5.7) 32.4 39.6 (3.8) 35.8 ----------------------------- ---- ----------- -------- --------- --------- -------- ---------
The operating profit is stated after charging/ (crediting):
GBPm Note 2022 2021
----------------------------------------- ----- ----------------------------- -----------
Total Total
Depreciation
on property,
plant & equipment 12 2.3 2.4
Amortisation
of intangible
assets 11 1.3 1.9
Depreciation
on right use
assets 19 6.9 6.4
Short term and
low value lease
charges
* occupied land and buildings - 0.1
* equipment and vehicles 0.3 0.4
Lease rental
income - land
and buildings (0.4) (0.2)
(Loss)/gain on
disposal of non-current
assets - 0.2
Staff costs (excluding
share based payments) 5 43.7 43.8
Included in administrative expenses are amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services which are as follows:
GBPm 2022 2021 ---------------------------------------------- ----- ----- Fees payable to the Company's auditor for the audit of the Company's annual accounts - BDO LLP 0.2 0.2 Fees payable to the Company's auditor for the audit of the Company's subsidiaries - BDO LLP 0.4 0.2 ---------------------------------------------- ----- ----- Total non-audit fees 0.1 0.1 ---------------------------------------------- ----- ----- Total fees 0.7 0.5 ---------------------------------------------- ----- -----
Details of the Company's policy on the use of auditors for non-audit services and how the auditor's independence and objectivity was safeguarded are set out in the Audit Committee report.
4. Adjusted items
GBPm 2022 2021
---------------------------------------- ------ -------------------------------------- ----------------------------
Continuing Discontinued Total Continuing Discontinued Total
--------------------------------------- ------------- ------------- -------- ------------- ------------- ------
Transformation programme
planning costs. (a) (0.9) - (0.9) (1.1) - (1.1)
Pension (b) (1.8) - (1.8) (1.0) - (1.0)
Other - - - 0.1 - 0.1
Network and re-organisation
costs (c) 0.2 - 0.2 0.1 - 0.1
Administrative expenses (2.5) - (2.5) (1.9) - (1.9)
Net impairment loss on trade
receivables (d) (4.4) - (4.4) - - -
Share of profits from joint
ventures (e) - - - (0.3) - (0.3)
Asset impairment
reversal/(charge) (f) 1.2 - 1.2 (1.6) - (1.6)
VAT refund (g) - - - - 0.4 0.4
Review and sale of Tuffnells (h) - - - - (0.6) (0.6)
Total before tax and interest (5.7) - (5.7) (3.8) (0.2) (4.0)
Finance income - unwind of
deferred consideration (i) 2.5 - 2.5 3.5 - 3.5
------------------------------- ------- ------------- ------------- -------- ------------- ------------- ------
Total before tax (3.2) - (3.2) (0.3) (0.2) (0.5)
Taxation 0.9 - 0.9 0.3 0.1 0.4
---------------------------------------- ------------- ------------- -------- ------------- ------------- ------
Total after taxation from continuing
operations (2.3) - (2.3) - - -
---------------------------------------- ------------- ------------- -------- ------------- ------------- ------
Total loss from discontinued operations - - - - (0.1) (0.1)
---------------------------------------- ------------- ------------- -------- ------------- ------------- ------
Total for the year from both continuing
and discontinued operations (2.3) - (2.3) - (0.1) (0.1)
The Group incurred a total of GBP3.2m (2021: GBP0.5m) of Adjusted items before tax and after tax GBP2.3m (2021: GBP0.1m) respectively.
Adjusted items are defined in the accounting policies in Note 1 and in the glossary in the directors' opinion the impact of removing these items, from the adjusted profit provide a relevant analysis of the trading results of the Group because it is consistent with how the business performance is planned by, and reported to the Board and Executive Team. However, these additional measures are not intended to be a substitute for, or superior to, IFRS measures.
They comprise:
Continuing operations - Administrative expenses GBP2.5m (2021: GBP1.9m)
(a) Transformation programme planning costs: GBP0.9m (2021: GBP1.1m)
During the financial period, the Company incurred professional fees in relation to transformation programme planning projects. These projects were concluded in the current period.
These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are considered to be non-underlying items.
The total impact on net cash inflow from operating activities was a GBP1.3m outflow (2021: GBP0.7m), see note 24.
(b) Pensions: GBP1.8m (2021: GBP1.0m)
The Trust completed the wind-up of the news section of the WH Smiths Pension Trust (the Company's defined benefit pension scheme), with a Deed of Termination signed by the Company and the Trustee on 25 February 2022.
As part of the wind up, GBP1.3m was paid to an escrow account in December 2021 for the Trustee to purchase indemnity insurance and to cover future claims from members owed amounts following the Lloyds ruling in November 2020. This amount has been accounted for as an adjusted item through the income statement.
The winding up of the News Section was formally completed on 25 February 2022 through the purchase of insurance run-off cover, plus other associated professional fees at a total cost of GBP0.6m. GBP0.3m of these costs was funded from the total pre-tax pension surplus received of GBP14.8m, see Note 6 for further details. A refund of GBP0.1m due to the Company in relation to the total amount previously held in escrow, has been credited against these costs. In the prior period, the Company incurred GBP1.0m in pension administrative expenses and other professional fees as a result of the winding up process.
These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are unrelated to the Group's ordinary activities.
The total impact on net cash inflow from operating activities was an GBP7.9m inflow (2021: GBP0.6m outflow). An GBP8.1m inflow was received from the return of the pension surplus, less a net GBP0.2m outflow in respect of the insurance run-off cover, see note 24.
(c) Network and re-organisation: GBP0.2m credit (2021: GBP0.1m credit)
The disposal of the Tuffnells business in 2020 and lockdowns associated with the COVID-19 pandemic led to the Company restructuring its support functions and a reorganisation provision was put in place. The Company released GBP0.2m of this provision in the current period (2021: GBP0.1m) and the release was reported as an adjusting item.
Continuing operations - Net impairment loss on trade receivables GBP4.4m (2021: GBPnil)
(d) Net impairment loss on trade receivables
On 9 May 2022 ("the administration date"), McColl's Retail Group went into administration. A statement of claim form was filed with the Administrators for an amount of GBP5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive between 20-40% of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and issuance of this report and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore recognised a net impairment loss of GBP4.4m, representing 80% of the total balance of GBP5.5m in the current financial period.
Simultaneously on the administration date, Wm Morrison Supermarkets Ltd ("Morrisons") agreed terms with the administrator to acquire McColl's in a pre-packaged insolvency agreement. The Company continues to trade with McColl's under the new ownership structure. The Company's bad debt exposure relates solely to the outstanding trade receivable balance as at the administration date.
This cost is reported as an adjusting item on the basis that they are significant in nature and quantum, are considered non-underlying items, outside the normal course of activity and aid comparability from one period to the next. The bad debt from McColl's has limited predictive value given the historic low level of bad debts incurred in the ordinary course of business.
Continuing operations - Share of profits from Joint Ventures GBPnil (2021: GBP0.3m)
(e) Share of profits from Joint Ventures: GBPnil (2021: GBP0.3m)
In the prior financial period, Rascal Solution Limited, one of the Group's joint ventures, has impaired an intangible asset. The Company's share of the impairment was GBP0.3m.
These costs are reported as adjusting items on the basis that they are significant to the investment in Rascal, are considered non-underlying items, outside the normal course of activity and aid comparability from one period to the next regarding the performance of the Joint Venture.
Continuing operations - Asset impairments - impairment reversal GBP1.2m (2021: impairment loss GBP1.6m)
(f) Asset impairments: impairment reversal GBP1.2m (2021: impairment charge GBP1.6m)
During the period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated to arise in the prior period, have not materialised with the successful renewal of contracts previously considered to be at risk. The Company has therefore chosen to reverse the impairment previously booked by GBP1.2m. In the prior period, it was assessed that certain challenges may arise from increasing market competition, resulting in an impairment loss of GBP1.6m being recognised.
The Group considers the impact of the above to be adjusting given the impairment charges are being significant in both quantum and nature to the results of the Group.
Total discontinued operations before tax and interest GBPnil (2021: GBP0.2m)
(g) VAT refund: GBPnil (2021: GBP0.4m credit)
During the prior period the Company received a refund of VAT previously considered as non-recoverable on prior disposals of businesses previously owned by the Group.
This income was considered to be adjusting given its quantum and is unrelated to the Group's ordinary activities.
(h) Review and sale of Tuffnells: GBPnil (2021: GBP0.6m expense)
During the prior period, as part of the sale of Tuffnells in 2020, the Company assumed a liability to settle certain pre-disposal insurance and legal claims related to: employer's liability, public liability, motor accident claims and legal claims. In the prior period, GBP0.6m of costs were recognised due to clarification of the likely settlement costs of existing claims.
Continuing operations - Finance income GBP2.5m credit (2021: GBP3.5m credit)
(i) Finance Income - Deferred consideration GBP2.5m credit (2021: GBP3.5m credit)
During the year, GBP2.5m has been recognised in Finance income, GBP3.5m (2021: GBP3.5m) as the unwind of discount on the original total deferred consideration due of GBP15.0m. This is offset by the GBP1.0m agreed reduction in deferred consideration due, see note 15 for further details. The deferred consideration relates to the disposal of Tuffnells that took place in 2020 and for that reason has been classified as adjusting because it does not relate to the Group's ordinary activities.
5. Staff costs and employees (a) Staff costs
The aggregate remuneration of employees (including executive directors) was:
GBPm Continuing Note 2022 2021 ---------------------- ----- ----- ----- Wages and salaries 39.2 39.2 Social security 3.4 3.4 Pension costs 6 1.1 1.2 Share-based payments expense 1.2 1.0 ---------------------- ----- ----- ----- Total 44.9 44.8 ---------------------- ----- ----- -----
Pension costs shown above exclude charges and credits for pension scheme financing and actuarial gains and losses arising on the pension schemes.
(b) Employee numbers
The average total monthly number of employees relating to operations (including directors) was:
Number 2022 2021 ----------------------- ------ ------ Continuing operations Operations 1,425 1,536 Support functions 149 154 Total 1,574 1,690 ----------------------- ------ ------ 6. Retirement benefit obligation
Defined benefit pension schemes
During the current and prior period, the Group operated one defined benefit scheme, the news section of the WH Smith Pension Trust (the 'Pension Trust').
The amounts recognised in the balance sheet are as follows:
GBPm 2022 2021 ------------------------- ----- ------ Present value of defined benefit obligation (0.1) (0.1) Fair value of assets 14.9 14.9 ------------------------- ----- ------ Net surplus 14.8 14.8 Amounts not recognised due to asset limit - (14.8) Administrative expenses (1.6) - Tax paid (5.1) - Refund of surplus to Company (8.1) - ------------------------- ----- ------ Pension liability - - ------------------------- ----- ------
Return of the surplus and formal winding up of the Pension Trust during the current period
The IAS 19 pre-tax surplus of GBP14.8m has been recognised through other comprehensive income in the current financial period after the Trustee confirmed its intention to return the surplus cash to the employer giving the Company an unconditional right to the surplus. The asset was not previously recognised as the Company did not have an unconditional right to the surplus and, therefore, the net surplus in the scheme was restricted with an IFRIC 14 asset ceiling, which has now been reversed. On 3 December 2021, the Company received the sum of GBP8.1m in respect of the net cash surplus held by the Trustee following finalisation of the buy-out of the defined benefit liabilities in the News Section of the Trust. As agreed with the Trustee, the return of surplus preceded the formal winding up steps of the News Section, the winding up of the News Section being formally completed on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC. The pension surplus of GBP8.1m (net of tax and costs) received was recognised as cash on the balance sheet and in accordance with the requirements of the banking agreement, this cash has been used to repay existing debt. The tax charge which represents 35% of the surplus (GBP5.1m) has been treated in accordance with the recognition of the surplus and recognised through other comprehensive income. The liability was extinguished in January 2022 when the Trustee paid the outstanding tax balance on behalf of the Company. The Company had agreed to deposit GBP1.3m of the pension surplus into an escrow account to fund the insurance costs for the Trustee and the outstanding liability to former members in respect of the Lloyds GMP equalisation ruling in November 2020. The funds held in escrow are not considered an asset of the Company and are not recognised on the balance sheet. The cost of the insurances has been recognised through administration expenses in the income statement and treated as an Adjusted item. During the period GBP0.3m of administration expenses were incurred by the Trustee to obtain legal and consulting advice before the surplus of GBP8.1m could be refunded. These administration costs have been recognised in the income statement as an Adjusted item.
Information relating to the prior period
Prior to the winding up of the scheme, the valuation of the defined benefit schemes for the IAS 19 (revised) disclosures were carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective scheme, adjusted as appropriate for membership experience and changes in the actuarial assumptions.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes up to the disposal date are:
% p.a. 2022 2021 -------------------------------- ------------------------ ------------ Discount rate N/a 1.95 Inflation assumptions - CPI N/a 2.8 Inflation assumptions - RPI N/a 3.4 Demographic assumptions for WH 2022 2021 Smith Pension Trust: Life expectancy at age 65 Male Female Male Female Member currently aged 65 N/a N/a 21.7 23.7 Member currently aged 45 N/a N/a 22.8 24.9 -------------------------------- -------- --------- -------- -------
Inflation assumptions
Pension increases in deferment in both Schemes are granted in line with CPI for all deferred members. RPI inflation is used to determine the increases for pensions currently in payment, subject to any annual caps and floors.
A summary of the movements in the net balance sheet asset/ (liability) and amounts recognised in the Group Income Statement and Other Comprehensive Income are as follows:
GBPm Fair Defined Impact Total
value benefit of IFRIC
of scheme obligation 14 on defined
assets benefit
pension
schemes
------------------------------------- ----------- ------------ --------------- ------
At 29 August 2020 496.4 (481.2) (15.2) -
------------------------------------- ----------- ------------ --------------- ------
Net interest cost 4.4 (4.2) (0.2) -
Administration expenses (0.4) - - (0.4)
Total amount recognised in
income statement 4.0 (4.2) (0.2) (0.4)
------------------------------------- ----------- ------------ --------------- ------
Actual return on scheme assets
(excluding amounts included
in net interest expense) (8.7) - - (8.7)
Actuarial gains arising from
changes in financial assumptions - 2.4 - 2.4
Actuarial gains arising from
changes in demographic assumptions - 6.1 - 6.1
Change in surplus not recognised - - 0.6 0.6
Amount recognised in other
comprehensive income (8.7) 8.5 0.6 0.4
------------------------------------- ----------- ------------ --------------- ------ Benefit payments (14.5) 14.5 - - ------------------------------------- ----------- ------------ --------------- ------ Amounts included in cash flow statement (14.5) 14.5 - - ------------------------------------- ----------- ------------ --------------- ------ Settlement (462.3) 462.3 - - ------------------------------------- ----------- ------------ --------------- ------ At 28 August 2021 14.9 (0.1) (14.8) - ------------------------------------- ----------- ------------ --------------- ------ Purchase of indemnity insurance (1.3) - - (1.3) Other administration expenses (0.3) - - (0.3) Total amount recognised in income statement (1.6) - - (1.6) ------------------------------------- ----------- ------------ --------------- ------ Change in surplus not previously recognised (0.1) 0.1 14.8 14.8 Tax relating to the repayment of pension surpluses - - (5.1) (5.1) Amount recognised in other comprehensive income (0.1) 0.1 9.7 9.7 ------------------------------------- ----------- ------------ --------------- ------ Tax paid (5.1) - 5.1 - Refund of surplus to Company (8.1) - - (8.1) ------------------------------------- ----------- ------------ --------------- ------ Amounts included in cash flow statement (13.2) - 5.1 (8.1) ------------------------------------- ----------- ------------ --------------- ------ At 28 August 2022 - - - - ------------------------------------- ----------- ------------ --------------- ------ Included within Current liabilities - ------------------------------------- ----------- ------------ --------------- ------
The charge in the prior period for the current service cost is included within administrative expenses. 'Net interest costs' were calculated by applying a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income and expense in the prior period.
An analysis of the assets at the balance sheet date is detailed below:
GBPm 2022 2021
--------------------------- --------------------- ------ -----
Gilts and swaps portfolio Quoted and Unquoted N/a 11.4
Corporate bonds Quoted and Unquoted N/a -
Equity funds Unquoted N/a -
Insurance policy Unquoted N/a -
Cash and other Unquoted N/a 3.5
N/a 14.9
-------------------------------------------------------- -----
The return on scheme assets during 2022 was a loss of GBP0.4m (2021: GBP8.7m).
The value of the assets held by the Trust in Smiths News Plc (formerly Connect Group PLC) issued financial instruments is GBPnil (2021: GBPnil).
The Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at GBP6.5m over the next 60 years.
Defined contribution schemes
The Group operates two defined contribution schemes. For the 52 weeks ended 27 August 2022, contributions from the respective employing company for continuing operations totalled GBP1.1m (2021: GBP1.1m) 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.
7. Finance costs
GBPm Note 2022 2021
------------------------------------------ ----- ----- -----
Continuing operations
Interest on bank overdrafts and loans (3.5) (5.0)
Amortisation of loan arrangement fees (1.7) (2.0)
Interest payable on leases (1.6) (1.6)
------------------------------------------ ----- ----- -----
Total interest cost on financial
liabilities at amortised cost (6.8) (8.6)
Unwinding of discount on provisions
- trading 21 (0.2) (0.2)
Finance costs - continuing operations (7.0) (8.8)
Interest income on loans and deferred
consideration 2.5 3.6
------------------------------------------ ----- ----- -----
Net Finance costs - continuing operations (4.5) (5.2)
Interest payable on leases - -
Unwinding of discount on provisions
- trading 21 - -
------------------------------------------ ----- ----- -----
Net Finance costs - discontinued - -
operations
------------------------------------------ ----- ----- -----
Net Finance costs - continuing and
discontinued operations (4.5) (5.2)
------------------------------------------ ----- ----- -----
8. Income tax expense
GBPm 2022 2021
Continuing operations Adjusted Adjusted Total Adjusted Adjusted Total
items items
---------------------------- --------- --------- ------ --------- --------- ------
Current tax 5.7 (0.9) 4.8 6.3 (0.3) 6.0
Adjustment in respect
of prior year (0.8) - (0.8) (0.9) - (0.9)
Total current tax
charge/(credit) 4.9 (0.9) 4.0 5.4 (0.3) 5.1
Deferred tax - current
year (0.3) - (0.3) (0.4) - (0.4)
Deferred tax - prior
year 0.6 - 0.6 (0.1) - (0.1)
Deferred tax - impact
of rate change 0.2 - 0.2 (0.3) - (0.3)
---------------------------- --------- --------- ------ --------- --------- ------
Total tax charge/(credit)
- continuing operations 5.4 (0.9) 4.5 4.6 (0.3) 4.3
---------------------------- --------- --------- ------ --------- --------- ------
Effective tax rate 17.4% 16.1% 14.9% 14.1%
---------------------------- --------- --------- ------ --------- --------- ------
Tax (credit)/charge
- discontinued operations - - - - (0.1) (0.1)
---------------------------- --------- --------- ------ --------- --------- ------
Tax charge/(credit)
- continuing and
discontinued operations 5.4 (0.9) 4.5 4.6 (0.4) 4.2
---------------------------- --------- --------- ------ --------- --------- ------
The effective adjusted income tax rate for continuing operations in the year was 17.4% (2021: 14.9%). After the impact of Adjusted items of GBP0.9m (2021: GBP0.3m), the effective statutory income tax rate for continuing operations was 16.1% (2021: 14.1%).
Corporation tax is calculated at the main rates of UK corporation tax, those being 19.0% (2021: 19.0%). The UK Finance Act 2021 has been substantively enacted, increasing the corporate tax rate to 25% effective from 1 April 2023. Since this change has been substantively enacted, the Group has assessed its deferred tax positions using the higher enacted rate of 25%. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The tax charge for the year can be reconciled to the profit in the income statement as follows:
GBPm 2022 2021 ------------------------------------------ ------ ------ Continuing Profit before tax 27.9 30.6 ------------------------------------------ ------ ------ Tax on profit at the standard rate of UK corporation tax 19.0% (2021: 19.0%) 5.3 5.9 Income not subject to tax (1.0) (0.7) Expenses not deductible for tax purposes 0.2 0.4 Adjustment in respect of prior years (0.2) (1.0) Impact of change in UK tax rate 0.2 (0.3) Tax charge 4.5 4.3 ------------------------------------------ ------ ------
Income not subject to tax comprised mainly of the tax effect of the Tuffnells discount unwind.
Amounts recognised directly in equity
GBPm 2022 2021 ----------------------------------------------------------- -------- ------ Aggregate current tax and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly (charged)/credited to equity: Current tax: share-based payments (0.1) - Deferred tax assets: share-based payments (0.2) 0.2 ----------------------------------------------------------- -------- ------ 9. Dividends
Amounts paid and proposed as distributions to equity shareholders in the years:
2022 2021 2022 2021
Paid & proposed dividends Per share Per share GBPm GBPm
for the year
---------------------------- ---------- ---------- ----- -----
Interim dividend - paid 1.40p 0.50p 3.3 1.2
Final dividend - proposed 2.75p 1.15p 6.7 2.4
4.15p 1.65p 10.0 3.6
---------------------------- ---------- ---------- ----- -----
Recognised dividends for
the year
Final dividend - prior
year 1.15p - 2.8 -
Interim dividend - current
year 1.40p 0.50p 3.3 1.2
---------------------------- ---------- ---------- ----- -----
2.55p 0.50p 6.1 1.2
---------------------------- ---------- ---------- ----- -----
A final 2.75p dividend per share is proposed for the 52 weeks ended 27 August 2022 (2021: 1.15p), which is expected to be paid on 9 February 2023 to all shareholders who are on the register of members at close of business on 13 January 2023. The ex-dividend date will be 12 January 2023.
10. Earnings per share
2022 2021
---------------------------- ------------------------------- ----------------------------------
GBPm Million Pence GBPm Million Pence
Earnings Weighted per Earnings Weighted per
average share average share
number number
of shares of shares
---------------------------- --------- ----------- ------- ------------ ----------- -------
Weighted average
number of shares
in issue 247.7 247.7
Shares held by the
ESOP (weighted) (9.2) (4.2)
---------------------------- --------- ----------- ------- ------------ ----------- -------
Basic earnings per
share (EPS)
---------------------------- --------- ----------- ------- ------------ ----------- -------
Continuing operations
---------------------------- --------- ----------- ------- ------------ ----------- -------
Adjusted earnings
attributable to ordinary
shareholders 25.7 238.5 10.8 26.3 243.5 10.8
---------------------------- --------- ----------- ------- ------------ ----------- -------
Adjusted items (2.3) - - - - -
---------------------------- --------- ----------- ------- ------------ ----------- -------
Earnings attributable
to ordinary shareholders 23.4 238.5 9.8 26.3 243.5 10.8
---------------------------- --------- ----------- ------- ------------ ----------- -------
Discontinued operations
Adjusted profit/(loss) - - - - 243.5 -
attributable to ordinary
shareholders
Adjusted items - - - (0.1) - -
Loss/(profit) attributable
to ordinary shareholders - - - (0.1) 243.5 -
Total - Continuing
and discontinued
operations
Adjusted earnings
attributable to ordinary
shareholders 25.7 238.5 10.8 26.3 243.5 10.8
Adjusted items (2.3) - - (0.1) - -
---------------------------- --------- ----------- ------- ------------ ----------- -------
Earnings attributable
to ordinary shareholders 23.4 238.5 9.8 26.2 243.5 10.8
---------------------------- --------- ----------- ------- ------------ ----------- -------
Diluted earnings
per share (EPS)
------------------------------- ----- ------ ----- ------ ------ -----
Effect of dilutive
share options - continuing
operations 13.5 13.5
Effect of dilutive
share options - adjusting
continuing 13.5 13.5
Effect of dilutive - -
share options - discontinued
operations
Effect of dilutive
share options - total 13.5 13.5
------------------------------- ----- ------ ----- ------ ------ -----
Continuing operations
------------------------------- ----- ------ ----- ------ ------ -----
Diluted adjusted
EPS 25.7 252.0 10.2 26.3 257.0 10.2
------------------------------- ----- ------ ----- ------ ------ -----
Diluted EPS 23.4 252.0 9.3 26.3 257.0 10.2
------------------------------- ----- ------ ----- ------ ------ -----
Discontinued operations
- Diluted EPS
------------------------------- ----- ------ ----- ------ ------ -----
Diluted adjusted - - - - 257.0 -
EPS
------------------------------- ----- ------ ----- ------ ------ -----
Diluted EPS - - - (0.1) 257.0 -
------------------------------- ----- ------ ----- ------ ------ -----
Total - Continuing
and discontinued
operations
------------------------------- ----- ------ ----- ------ ------ -----
Diluted adjusted
EPS* 25.7 252.0 10.2 26.3 257.0 10.2
------------------------------- ----- ------ ----- ------ ------ -----
Diluted EPS* 23.4 252.0 9.3 26.2 257.0 10.2
------------------------------- ----- ------ ----- ------ ------ -----
Dilutive shares increase the basic number of shares at 27 August 2022 by 12.7m to 251.2m (28 August 2021: 257.0m).
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 12.7m dilutive shares (28 August 2021: 13.5m).
*The prior period number of dilutive share options was amended from 11.3m to 13.5m. The effect of which decreased both the diluted adjusted EPS and diluted EPS from 10.3p to 10.2p.
11. Intangible assets
Acquired Intangibles Internally Computer
generated software
development costs
costs
---------------------------------- ------------- ----------
GBPm Goodwill Customer Trade Software Total
relationships name
------------------- --------- --------------- ------ --------- ------------- ---------- -------
Cost:
At 29 August
2021 5.7 2.4 0.2 - 2.7 7.2 18.2
Additions - - - - 0.5 0.2 0.7
Disposal - - - - - - -
At 27 August
2022 5.7 2.4 0.2 - 3.2 7.4 18.9
------------------- --------- --------------- ------ --------- ------------- ---------- -------
Accumulated
amortisation
and impairment:
At 29 August
2021 (5.7) (2.4) (0.2) - (1.8) (5.8) (15.9)
Amortisation
charge - - - - (0.3) (1.0) (1.3)
Disposals - - - - - - -
At 27 August
2022 (5.7) (2.4) (0.2) - (2.1) (6.8) (17.2)
------------------- --------- --------------- ------ --------- ------------- ---------- -------
Net book value
at 27 August
2022 - - - - 1.1 0.6 1.7
------------------- --------- --------------- ------ --------- ------------- ---------- -------
Cost:
At 30 August
2020 5.7 2.4 0.2 - 2.9 7.5 18.7
Additions - - - - 0.4 - 0.4
Disposals - - - - (0.6) (0.3) (0.9)
At 28 August
2021 5.7 2.4 0.2 - 2.7 7.2 18.2
------------------- --------- --------------- ------ --------- ------------- ---------- ------- Accumulated amortisation and impairment: At 30 August 2020 (5.7) (2.4) (0.2) - (1.9) (4.5) (14.7) Amortisation charge - - - - (0.4) (1.5) (1.9) Disposals - - - - 0.5 0.2 0.7 At 28 August 2021 (5.7) (2.4) (0.2) - (1.8) (5.8) (15.9) ------------------- --------- --------------- ------ --------- ------------- ---------- ------- Net book value at 28 August 2021 - - - - 0.9 1.4 2.3 ------------------- --------- --------------- ------ --------- ------------- ---------- -------
Impairment tests goodwill
Goodwill is not amortised but has been tested annually for impairment. As a result of these reviews goodwill is fully impaired at the end of FY2022 and FY2021.
12. Property, plant and equipment
GBPm Land & Buildings
Long term Short term Fixtures Equipment Total
leasehold leasehold & fittings & vehicles
improvements improvements
Cost:
At 29 August 2021 0.2 10.2 2.9 22.1 35.4
Additions - 0.3 0.1 1.2 1.6
Disposals - - - (0.3) (0.3)
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
--------------------------- -------------- ------------ ------------ --------------- --------------
Accumulated depreciation:
At 29 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
Depreciation charge - (0.5) (0.2) (1.6) (2.3)
Disposals - - - 0.2 0.2
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
--------------------------- -------------- ------------ ------------ --------------- --------------
Net book value
at 27 August 2022 - 1.8 1.2 5.6 8.6
--------------------------- -------------- ------------ ------------ --------------- --------------
Cost:
At 30 August 2020 0.2 10.1 2.7 22.4 35.4
Additions 0.6 0.4 1.8 2.8
Disposals - (0.5) (0.2) (2.1) (2.8)
At 28 August 2021 0.2 10.2 2.9 22.1 35.4
--------------------------- -------------- ------------ ------------ --------------- --------------
Accumulated depreciation:
At 30 August 2020 (0.2) (8.2) (1.7) (15.9) (26.0)
Depreciation charge - (0.5) (0.2) (1.7) (2.4)
Disposals - 0.5 0.3 1.6 2.4
At 28 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
--------------------------- -------------- ------------ ------------ --------------- --------------
Net book value
at 28 August 2021 - 2.0 1.3 6.1 9.4
--------------------------- -------------- ------------ ------------ --------------- --------------
13. Interests in joint ventures
GBPm 2022 2021 ------------------------------ ----- ----- At 29/30 August 2.9 4.9 Share of profit/(loss) 0.3 (0.2) Impairments reversal/(charge) 1.2 (1.6) Dividends received (0.2) (0.2) ------------------------------ ----- ----- At 27/28 August 4.2 2.9 ------------------------------ ----- -----
The Joint venture listed below has share capital consisting solely of ordinary shares, which are held directly by the Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group Registered address Measurement
(number) % method
Fresh On The Go Ordinary 30% 61 Bridge Street, Equity method
Limited Shares Kington, HR5 3DJ
08775703
------------ ------ ------------------------ --------------
Bluebox Systems Ordinary 36.1% Estantia House, Equity method
Group Limited SC544863 A Shares Pitreavie Drive,
Pitreavie Business
Park, Dunfermline,
Fife KY11 8US
------------ ------ ------------------------ --------------
Rascal Solutions Ordinary 50% Silbury Court, Equity method
Limited A Shares 420 Silbury Boulevard,
05191277 Milton Keynes
MK9 2AF
------------ ------ ------------------------ --------------
The Group owns 50% of the ordinary shares of Rascal Solutions Limited, a company incorporated in England, which in turn owns 100% of the ordinary shares of Open-Projects Limited. The latest statutory accounts of Rascal Solutions Limited were drawn up to 31 August 2022. Rascal Solutions Limited provides retail support services and is a strategic partnership for the Group to provide additional services to its existing customers.
Bluebox Systems Group Limited, is the holding company of Bluebox Aviation Systems Ltd, the principal activity of which is the sale of innovative in-flight entertainment systems. This business is a strategic partnership with DMD which also provides inflight media to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee vending and other related products.
All Joint ventures are private companies and there is no quoted market price available for their shares.
The Group has no commitments relating to its joint ventures
The results, assets and liabilities of joint ventures are as follows:
GBPm 2022 2021
------------------------- ------------------------------------------------ -------------------------------------
Rascal solutions Limited Other Total Rascal Solutions Limited Other Total
------------------------- ------------------------- ------- ------ --------------------------- ------ ------
Revenue 6.0 2.8 8.8 5.7 1.3 7.0
Depreciation - - - (1.6) (0.1) (1.7)
Tax (0.2) 0.3 0.1 0.1 - 0.1
Profit/(loss) after tax 0.6 (0.8) (0.2) (0.1) (0.6) (0.7)
------------------------- ------------------------- ------- ------ --------------------------- ------ ------
Non-current assets 2.2 - 2.2 2.3 0.6 2.9
Current assets 1.5 1.6 3.1 1.7 1.5 3.2
Cash 1.6 0.7 2.3 1.0 0.3 1.3
---------------------------------- ------ ------ ------ ------ ------ ------
Total assets 5.3 2.3 7.6 5.0 2.4 7.4
Current liabilities (1.7) (1.6) (3.3) (1.6) (0.9) (2.5)
Non-current liabilities - (1.4) (1.4) - (1.3) (1.3)
---------------------------------- ------ ------ ------ ------ ------ ------
Total liabilities (1.7) (3.0) (4.7) (1.6) (2.2) (3.8)
------ ------ ------ ------ ------ ------
Net assets/(liabilities) 3.6 (0.7) 2.9 3.4 0.2 3.6
---------------------------------- ------ ------ ------ ------ ------ ------
Share of net assets 1.8 - 1.8 1.7 - 1.7
Goodwill* 2.4 - 2.4 1.2 - 1.2
---------------------------------- ------ ------ ------ ------ ------ ------
Share of net assets and Goodwill 4.2 - 4.2 2.9 - 2.9
---------------------------------- ------ ------ ------ ------ ------ ------
*Goodwill represents the difference between the fair value of the share of the net assets acquired and the amount paid, and forms part of the investment in the joint venture.
Dividends of GBP0.2m (2021: GBP0.2m) were received in the 52 weeks to 27 August 2022 from joint ventures.
Rascal Solutions Limited investment
During the period Rascal Solutions Limited (Rascal) recorded a profit of GBP0.6m (FY2021: loss of GBP0.1m). The prior year result includes the full impairment (GBP0.6m) of a software development intangible fixed asset which was found to no longer be of economic value to Rascal. The Company's share of this impairment was 50% (GBP0.3m) and was reported as an adjusting item in income from joint ventures.
During the period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated to arise in the prior period, have not materialised with the successful renewal of contracts previously considered to be at risk. The Company has therefore chosen to reverse the impairment previously booked by GBP1.2m. In the prior period, it was assessed that certain challenges may arise from increasing market competition, resulting in an impairment loss of GBP1.6m being recognised. The current period impairment review was performed, resulting in a value in use of GBP4.2m being calculated based on future cash flows of the Rascal business. These cash flows were discounted at a post-tax discount rate of 13.0% (pre-tax discount rate of 15.2%) (2021: 15.4% post-tax discount rate and pre-tax discount rate of 18.5%) and a terminal growth rate applied of 0% (2021: 0%). The result was a reversal of the previous impairment loss recognised by GBP1.2m (2021: GBP1.6m impairment loss).
Sensitivities to assumptions
If the post-tax discount rate had been increased by 1.0%, the impairment reversal would have reduced by GBP0.3m and if the post-tax discount rate had been reduced by 1.0%, the impairment reversal would have increased by GBP0.4m.
14. Inventories
GBPm 2022 2021 ------------------------------ ---- ---- Goods held for resale 15.5 13.1 Raw materials and consumables 0.1 0.1 ------------------------------ ---- ---- Inventories 15.6 13.2 ------------------------------ ---- ----
15. Trade and other receivables
GBPm 2022 2021
----------------------------------------- ----- ------
Trade receivables 69.0 65.8
Specific provision for doubtful debts(1) (4.4) -
Provision for expected credit losses (0.1) (0.1)
----------------------------------------- ----- ------
64.5 65.7
Other debtors 28.6 29.1
Deferred consideration(2) - 9.2
Prepayments 1.0 1.2
Accrued income 1.6 1.4
Trade and other receivables 95.7 106.6
----------------------------------------- ----- ------
(1) Net impairment loss on trade receivables - McColls Retail Group
During the period, the Company received notice that McColl's Retail Group went into administration. A statement of claim was filed with the Administrators for an amount of GBP5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive between 20-40% of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and issuance of this report and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore recognised a net impairment loss of GBP4.4m, representing 80% of the total balance of GBP5.5m in the current financial period. For more information, see note 4.
The net impairment loss of GBP4.4m has been allocated to both the 61-91 days overdue and 91-120 days overdue ageing buckets, matching the ageing profile of the GBP5.5m total receivable due. GBP1.4m of the total impairment loss of GBP4.4m has been allocated to the 61-90 days overdue ageing bucket and GBP3.0m to the 91-120 days overdue ageing bucket.
If the Company had considered 40% of the total balance of GBP5.5m to be recoverable in line with the upper range of the administrators estimate, the provision recognised would have been GBP3.3m, GBP1.0m allocated to the 61-90 days overdue ageing bucket and GBP2.3m to the 91-120 days overdue ageing bucket.
Trade receivables
The average credit period taken on sale is 23 days (2021: 22 days). Trade receivables are generally non-interest bearing.
The following table provides information about the Group's exposure to credit risk and ECLs against customer balances as at 27 August 2022 under IFRS 9:
GBPm 2022 2021
-------------------- ---------- ------------------------------------------- ---------------------------------------
Gross Specific Loss Net Gross Loss allowance Net
carrying provision for allowance carrying carrying carrying
amount doubtful debts amount amount amount
Current (not
overdue) 63.0 - (0.1) 62.9 63.9 (0.1) 63.8
30-60 days overdue 0.2 - - 0.2 1.9 - 1.9
61-90 days overdue 2.0 (1.4) - 0.6 - - -
91-120 days overdue 3.8 (3.0) - 0.8 - - -
Over 120 days - - - - - - -
overdue
-------------------- ---------- ------------------ ----------- ---------- ---------- --------------- ----------
69.0 (4.4) (0.1) 64.5 65.8 (0.1) 65.7
-------------------- ---------- ------------------ ----------- ---------- ---------- --------------- ----------
The following table provides information about the Group's loss rates applied against customer balances as at 27 August 2022 under IFRS 9:
% 2022 2021 ----------------------- ----- ----- Current (not overdue) 0.1 0.1 30-60 days overdue - - 61-90 days overdue 1.2 0.9 91-120 days overdue 0.1 11.4 Over 120 days overdue 0.1 15.5
Of the trade receivables balance at the end of the year:
-- Two customers (2021: one) had individual balances that represented more than 10% of the total trade receivables balance. The total of these was GBP16.9m (2021: GBP9.7m); and
-- A further three customers (2021: five) had individual balances that represented more than 5% of the total trade receivables balance. The total of these was GBP15.6m (2021: GBP24.2m).
Movement in the allowance for doubtful debts:
GBPm 2022 2021 -------------------------------------- ----- ------ At 29/30 August 0.1 0.4 Impairment losses recognised 4.4 (0.2) Amounts written off as uncollectible - 0.1 Amounts recovered during the year - (0.2) Disposal of business - - At 27/28 August 4.5 0.1 -------------------------------------- ----- ------
The directors consider that the carrying amount of trade and other receivables approximates their fair value which is considered to be a level 2 methodology of valuing them. The inputs used to measure fair value are categorised into different levels of the fair value hierarchy (levels 1 to 3). The fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
The Group performed sensitivity analysis on the expected credit loss (excluding the McColls Retail Group net impairment loss) and should the default rate change from expected.
-- An increase in default rate by 2% would increase the expected credit loss by GBP1.2m and -- A decrease in default rate by 2% would result in no credit losses. -- An increase in default rate by 5% would increase the expected credit loss by GBP3.1m and -- A decrease in default rate would result in no credit losses.
Other debtors and prepayments
The largest items included within this balance are returns reserve asset of GBP18.3m (2021: GBP18.5m) (refer to Note 1 Accounting Policies, section 7) and GBP7.9m (2021: GBP6.5m) of publisher debtors.
Non-Current - other receivables
GBPm 2022 2020
--------------------------- ------ -----
Deferred consideration(2) - 2.3
Loans receivable - -
- 2.3
---------------------------------- -----
(2) Tuffnells Deferred Consideration
Previously included within other receivables were deferred consideration amounts relating to the disposal of the Tuffnells business unit on 2 May 2020.
The original unsecured consideration payable by Tuffnells Holdings Limited to the Group was GBP15.0m, payable in three tranches as follows:
-- GBP6.5m on the date 18 months following Completion; -- GBP4.25m on or prior to the date 27 months following Completion; and -- GBP4.25m on or prior to the date 36 months following Completion.
The first tranche of the unsecured consideration (GBP6.5m) was paid on 2 November 2021. Following this payment, Tuffnells Holdings Limited (formerly Palm Bidco Limited ("THL")) approached the Company regarding the outstanding deferred consideration due of GBP8.5m. Mindful of the current macro-economic climate and to extinguish any further liability or outstanding arrangements with THL, the Board agreed revised terms such that the Company would accept GBP7.5m in full and final settlement of the outstanding deferred consideration due. This amount was received in full during the current financial period. Previously, the Company had discounted the total consideration due at 30% and recognised GBP7.1m on Completion. At 28 August 2021, the Company recognised total discounted deferred consideration of GBP11.5m (GBP2.3m non-current and GBP9.2m current). On settlement of the outstanding deferred consideration, GBP2.5m has been recognised in adjusted items representing the effect of unwinding the total discount of GBP3.5m, less the GBP1.0m agreed reduction in settlement of the remaining deferred consideration. See Note 4 for further details.
16. Trade and other payables
GBPm 2022 2021
----------------- -------- --------
Trade payables (98.6) (94.9)
Other creditors (35.1) (33.8)
Accruals (6.5) (7.4)
Deferred income (0.1) (0.4)
----------------- -------- --------
(140.3) (136.5)
----------------- -------- --------
Included within other creditors is a balance of GBP21.6m (2021: GBP21.7m) relating to the returns reserve accrual. (Refer to Note 1 Accounting Policies, section 7).
Trade and other payables principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 31 days (2021: 27 days). No interest is charged on trade payables. The directors consider that the carrying amount of trade and other payables approximates to their fair value using a level 2 valuation.
17. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
GBPm Sterling Euro US Dollar Other Total 2021
2022
--------- ----- ---------- ------ -------
Cash and bank deposits 34.1 0.6 0.4 0.2 35.3 19.7
--------------------------------- --------- ----- ---------- ------ ------- -------
Overdrafts - included
in cash and cash equivalents - - - - - (0.4)
--------------------------------- --------- ----- ---------- ------ ------- -------
Net Cash and cash equivalents 34.1 0.6 0.4 0.2 35.3 19.3
Overdrafts - included - - - - - -
in borrowings
Revolving credit facility - - - - - -
- disclosed within current
liabilities
Term loan - disclosed
within current liabilities (8.0) - - - (8.0) (21.2)
Term loan - disclosed
within non-current liabilities (41.5) - - - (41.5) (51.3)
Unamortised arrangement
fees - disclosed within
non-current liabilities 2.4 - - - 2.4 1.2
Total borrowings (47.1) - - - (47.1) (71.3)
--------- ----- ---------- ------ -------
Net borrowings (13.0) 0.6 0.4 0.2 (11.8) (52.0)
--------------------------------- --------- ----- ---------- ------ ------- -------
Total borrowings
--------------------------------- --------- ----- ---------- ------ ------- -------
Amount due for settlement
within 12 months (8) - - - (8) (21.2)
Amount due for settlement
after 12 months (39.1) - - - (39.1) (50.1)
--------------------------------- --------- ----- ---------- ------ ------- -------
(47.1) - - - (47.1) (71.3)
--------------------------------- --------- ----- ---------- ------ ------- -------
Cash and bank deposits comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
In December 2021, an agreement was signed to extend and amend the existing financing arrangements. The original facility which was due to expire in November 2023 has been extended to August 2025. The new facility comprises an initial GBP60 million amortising term loan ('Facility A') and a GBP30 million revolving credit facility ('RCF'). Facility A is also repayable from any proceeds received from the deferred consideration as part of the sale of Tuffnells, and any disposal proceeds. The agreement is with a syndicate of banks comprising lenders HSBC, Barclays, Santander and Clydesdale Banks. The final maturity date of the facility is 31 August 2025.
The terms of the facility agreement include: agreed repayments against Facility A arising from funds received in relation to deferred consideration received following the sale of Tuffnells and any disposal proceeds plus GBP8m in FY2023 and then GBP10m in FY2024 and FY2025 respectively for the repayment of Facility A and a final bullet payment; and capped dividend payments of up to GBP10m in respect of any financial year. At the year end, the Term Loan had reduced to GBP49.5m. The RCF, which remained GBP30m at year end, will reduce by GBP5m in November 2022 and then by GBP2.5m every 6 months from February 2023 onwards. As part of the terms of the financing, the Company and its principal trading subsidiaries have agreed to provide security over their assets to the lenders.
The current rate on the facility is 4.00% per annum over SONIA (in respect of Facility A and the RCF).
At 27 August 2022, the Company had GBP30.0m (28 August 2021: GBP40.0m) of undrawn committed borrowing and cash facilities in respect of which all conditions precedent had been met.
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.
Financing New Other
GBPm Note 29/08/2021 cash flows leases Disposals changes 27/08/2022
------------ ----- ----------- ------------ -------- ---------- --------- -----------
Term Loan* 18 71.3 (29.4) - - 5.2 47.1
Revolving 18 - - - - - -
credit
facility
Overdrafts 18 0.4 (0.4) - - - -
Leases 29.2 (8.0) 5.4 (0.6) 1.6 27.6
Total 100.9 (37.8) 5.4 (0.6) 6.8 74.7
------------ ----- ----------- ------------ -------- ---------- --------- -----------
Financing New Other
GBPm Note 29/08/2020 cash flows leases Disposals changes 28/08/2021
------------ ----- ----------- ------------ -------- ---------- --------- -----------
Term Loan* 18 49.8 21.5 - - - 71.3
Revolving
credit
facility 18 39.0 (39.0) - - - -
Overdrafts 18 41.3 (40.9) - - - 0.4
Leases 33.4 (5.9) - - 1.7 29.2
Total 163.5 (64.3) - - 1.7 100.9
------------ ----- ----------- ------------ -------- ---------- --------- -----------
*The opening term loan liabilities have been amended to include the associated loan arrangement fees.
Analysis of net debt
GBPm Note 2022 2021 -------------------------- ---- ------ ------ Cash and cash equivalents 18 35.3 19.3 Current borrowings 18 (8.0) (21.2) Non-current borrowings 18 (39.1) (50.1) -------------------------- ------ Net borrowings (11.8) (52.0) Lease liabilities 20 (27.6) (29.2) Net debt (39.4) (81.2) -------------------------- ---- ------ ------
18. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group's funding requirements and financial risks in line with the Board approved treasury policies and procedures and their delegated authorities. Treasury's role is to ensure that appropriate financing is available for running the businesses of the Group on a day to day basis, whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings, cash and cash equivalents as disclosed in Note 19 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Group Statement of Changes in Equity.
The only externally imposed capital requirements for the Group are debt to EBITDA, fixed charge cover and interest cover under the terms of the bank facilities. The Group has fully complied during both the current year and the prior year. To maintain or adjust its capital structure, the Group may adjust the dividend payment to shareholders and/or issue new shares. There is a future cap on dividends of GBP10.0m under the new banking facility, this is also subject to all the covenants.
The Board regularly reviews the capital structure. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. We expect free cash from operations to be sufficient to reduce net debt while also maintaining an attractive total shareholder return. The Group is targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by 2023, with repayment achieved through surplus free cash from operations. The Group's facilities include a frozen GAAP clause in relation to IAS17 and the net debt/EBITDA is stated on this basis.
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows. The facilities that the Group has at its disposal to further reduced liquidity risk are described below.
As at 27 August 2022, the Group had GBP79.5m committed bank facilities in place (2021: GBP112.5m). Bank facilities comprised:
-- GBP49.5 million amortising term loan (Facility A); and -- GBP30 million revolving credit facility (RCF)
which together expire in August 2025.
The facility described above is subject to the following covenants which are subject to a frozen GAAP clause:
-- Leverage cover - the net debt: adjusted EBITDA ratio which must remain below 2.00x, reducing 0.25x annually to 1.5x at 24 February 2024. At 27 August 2022 the ratio was 0.3x (2021: 1.2x);
-- Interest cover - the consolidated net interest: adjusted EBITDA ratio which must remain above 4.0x. As at 27 August 2022 the ratio was 12.0x (2021: 8.5x);
-- Fixed charge cover - the ratio of adjusted EBITDA to consolidated fixed charges is not less than 1.75x to 1. As at 27 August 2022 the ratio was 4.3x (2021: 4.0x); and
-- Guarantor cover - The annual turnover, gross assets and pre-tax profits of the Guarantors contribute at any time 80% or more of the annual consolidated turnover, gross assets and pre-tax profits of the Group for each of its financial years. The guarantors, which are all 100% owned or wholly owned subsidiaries of the Smiths News plc (formerly Connect Group PLC), are each of Smiths News plc, Smiths News Holdings Limited, and Smiths News Trading Limited.
At 27 August 2022, the Group had available GBP27.7m (2021: GBP35.1m) of undrawn committed borrowing facilities. There were no breaches of loan agreements during either the current or prior years.
As the Group is cash generative its liquidity risk is considered low. The Group's cash generation allows it to meet all loan commitments as they fall due as well as sustain a negative working capital position.
The Group invests significant resources in the forecasting and management of its cash flows. This is critical given a routine cash cycle at Smiths News that results in significant predictable swings within each month of around GBP40.0m, the Groups average gross borrowings for the past year was GBP62.3m (2021: GBP94.5m). The Group has utilised the Revolving Credit Facility of GBP30.0m for this.
The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and derivatives. The undiscounted cash flows will differ from both the carrying value and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date.
GBPm Due within Due between Due between Greater than
1 Year 1 and 2 years 2 and 3 years 3 years
At 27 August
2022
Non derivative
financial liabilities
Bank and other
borrowings (8.0) (10.0) (10.0) (21.5)
Trade and other
payables (140.3) - - -
Leases (7.3) (5.8) (4.8) (14.5)
Total (155.6) (15.8) (14.8) (36.0)
At 28 August
2021
Non derivative
financial liabilities
Bank and other
borrowings (21.3) (23.5) (27.8) -
Trade and other
payables (136.5) - - -
Leases (5.9) (5.7) (4.4) (13.1)
Total (163.7) (29.2) (32.2) (13.1)
Counterparty risk
Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored.
Foreign currency risk
-- The majority of the Group's transactions are carried out in the functional currencies of its operations, and so transactional exposure is limited.
-- The majority of the Group's net liabilities are held in Sterling, with only GBP0.6m (2021: GBP0.7m) of net assets held in overseas currencies. Translation exposure arises on the re-translation of overseas subsidiaries profits and net assets into sterling for financial reporting purposes and is not seen as significant.
-- Note 19 denote borrowings by currency. -- There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the Group's debt exposure, consideration of the macroeconomic environment and sensitivity to potential interest rate rises. The Group avoids the use of derivatives or other financial instruments in circumstances when the outcome would effectively be largely dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the balance sheet date were outstanding for the whole year, if interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit and equity for the 52 weeks ending 27 August 2022 would decrease/increase by GBP0.2m (2021: GBP0.4m).
Credit risk
The Group considers its exposure to credit risk at 27 August 2022 to be as follows:
GBPm 2022 2021
---------------------------- ----- ------
Bank deposits 35.3 19.3
Deferred consideration - 11.5
Trade and other receivables 93.1 94.8
------
128.4 125.6
------
Further detail on the Group's policy relating to trade receivables and other receivables can be found in Note 15.
19. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to leases:
GBPm Equipment & vehicles Land & buildings Total Cost: At 29 August 2021 1.6 38.6 40.2 Additions 0.1 5.3 5.4 Disposals - (1.8) (1.8) At 27 August 2022 1.7 42.1 43.8 Accumulated depreciation: At 29 August 2021 (0.6) (11.2) (11.8) Depreciation charge (0.4) (6.5) (6.9) Disposals - 1.2 1.2 At 27 August 2022 (1.0) (16.5) (17.5) Net book value at 27 August 2022 0.7 25.6 26.3 Cost: At 30 August 2020 1.8 36.9 38.7 Additions - 2.8 2.8 Disposals (0.2) (1.1) (1.3) At 28 August 2021 1.6 38.6 40.2 Accumulated depreciation: At 30 August 2020 (0.4) (5.5) (5.9) Depreciation charge (0.4) (6.0) (6.4) Disposals 0.2 0.3 0.5 At 28 August 2021 (0.6) (11.2) (11.8) Net book value at 28 August 2021 1.0 27.4 28.4
Lease commitments
The company have the following lease commitments:
2022 2021
------------------------------------------- ----- -----
Due within 1 year 5.9 5.9
Due in more than 1 year, but no more than
5years 15.2 16.6
Due in more than 5 years 6.5 6.7
Total lease commitments 27.6 29.2
------------------------------------------- -----
Amounts recognised in the income statement
GBPm 2022 2021 Continuing operations Interest expense (included in finance cost) 1.6 1.6 Expense relating to low value leases (included in cost of sales and administrative expenses) 0.3 (0.1) Property rental income (0.4) 0.3 Total cash outflow from leases 6.6 6.2 GBPm 2022 2021 Lease Liabilities Current (5.9) (5.9) Non-current (21.7) (23.3) Total (27.6) (29.2)
20. Deferred tax
Deferred tax assets and liabilities are attributable to the following:
GBPm Fixed Share based Retirement Total
Assets payments benefits
-------- ------------ -----------
At 30 August 2021 1.4 0.4 - 1.8
(Charge)/credit to income (0.8) 0.3 - (0.5)
Charge to equity - (0.2) - (0.2)
At 27 August 2022 0.6 0.5 - 1.1
-------- ------------ -----------
Deferred tax assets 0.6 0.5 - 1.1
-------- ------------ -----------
Deferred tax liabilities - - - -
-------- ------------ -----------
At 29 August 2020 0.7 0.1 - 0.8
Credit to income 0.7 0.1 - 0.8
Credit to other comprehensive
income - 0.2 - 0.2
At 28 August 2021 1.4 0.4 - 1.8
-------- ------------ -----------
Deferred tax assets 1.4 0.4 - 1.8
-------- ------------ -----------
Deferred tax liabilities - - - -
-------- ------------ -----------
The deferred tax assets have been deemed recoverable as the Group forecasts that it will continue to make profits against which the assets can be utilised for tax purposes.
The Group has capital losses carried forward of GBP20.2m (2021: GBP20.2m). Deferred tax assets of GBP5.1m (2021: GBP3.8m) have not been recognised in respect of the capital losses carried forward due to the uncertainty of their utilisation.
The UK Finance Act 2021 has been substantively enacted, increasing the corporate tax rate to 25% effective from 1 April 2023.
The deferred tax asset at the period end has been calculated based on the rate of 25% substantively enacted at the balance sheet date on the basis that the temporary differences are expected to unwind when that rate applies.
21. Provisions
GBPm Provision for Re-organisation Insurance and Property Total
onerous contracts provisions legal provision provisions
and other
provisions
---
At 29 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
Charged to income statement - (0.1) - (1.0) (1.1)
Credited to income statement 0.2 - 0.2 - 0.4
Utilised in period - - 0.5 0.6 1.1
Unwinding of discount
utilisation - - - (0.2) (0.2)
At 27 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
At 30 August 2020 (0.9) (2.7) (1.8) (3.9) (9.3)
Charged to income statement - (0.5) (0.6) (0.2) (1.3)
Credited to income statement - 0.3 - - 0.3
Utilised in period 0.2 2.1 1.1 0.5 3.9
Unwinding of discount
utilisation - - - (0.2) (0.2)
At 28 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
GBPm 2022 2021
Included within current
liabilities (3.0) (3.6)
Included within non-current
liabilities (3.4) (3.0)
Total (6.4) (6.6)
Included within non-current liabilities is GBP3.4m (2021: GBP3.0m) relating to real estate property provisions.
Re-organisation provisions of GBP0.9m (2021: GBP0.8m) relates to the restructure of the DMD business, the Smiths News network and the Group's support functions, this was all announced in the prior year.
Insurance & legal provisions represent the expected future costs of employer's liability, public liability, motor accident claims and legal claims, included within the total balance is GBP0.6m (2021: GBP1.0m) relating to claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of the Group's onerous leases on non-trading properties and for potential dilapidation costs across the Group. These provisions have been discounted to present value and this discount will be unwound over the life of the leases. The provisions cover the period to 2036, however, a significant portion of the liability falls within ten years.
The Group has performed sensitivity analysis on property provision using possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision would change by +/-GBP0.1m (2021: +/-GBP0.1m).
If the repair cost per square foot changes by +/- GBP1.00p, the property provision would change by +/-GBP0.3m (2021: +/- GBP0.9m).
22. Contingent liabilities and capital commitments
GBPm 2022 2021 Bank and other guarantees 2.4 4.9
Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC, any such contingent liability in respect of assignment prior to demerger, which becomes an actual liability, will be apportioned between Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that the actual liability of Smiths News plc in any 12 month period does not exceed GBP5m). The Company's share of these leases has an estimated future cumulative gross rental commitment at 27 August 2022 of GBP0.5m (2021: GBP0.5m).
Contracts placed for future capital expenditure approved by the directors but not provided for amount to: GBPnil (2021: GBP0.2m).
As at 27 August 2022, the Group had approved letters of credit of GBP2.4m (2021: GBP4.9m) to the insurers of the Group for the motor insurance and employer liability insurance policies. The letters of credit cover the employer deductible element of the insurance policy for insurance claims.
On winding up of the News Section of the Trust defined benefit pension scheme, the Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at GBP6.5m over the next 60 years.
23. Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
GBPm 2022 2021
----- -----
Within one year 0.2 0.2
In the second to fifth years inclusive 0.3 0.5
More than five years - -
0.5 0.7
----- -----
24. Net cash inflow from operating activities
GBPm Note 2022 2021 Operating profit - continuing 3 32.4 35.8 Operating profit/(loss) - discontinued 3 - (0.2) Operating profit - total 32.4 35.6 Profit on disposal of assets - (0.2) Impairment (reversal)/charge of investments in joint ventures 13 (1.2) 1.6 Share of profits of joint ventures 13 (0.3) 0.2 Adjustment for pension funding 6 8.1 - Depreciation of property, plant and equipment 12 2.3 2.4 Depreciation of right of use assets 19 6.9 6.4 Amortisation of intangible assets 11 1.3 1.9 Impairment of assets 4 - 0.1 Share based payments 1.2 1.0 (Increase)/decrease in inventories (2.4) 0.7 Decrease in receivables 1.7 5.4
Increase/(decrease) in payables 3.9 (5.1)
(Decrease) in provisions (0.4) (2.8)
Non cash pension costs 1.6 0.5
Income tax paid (5.3) (6.3)
Net cash inflow from operating
activities 49.8 41.4
--------
Net cash flow from operating activities
is stated after the following adjusted
items:
Continuing operations
Re-organisation, restructuring
& Transformation programme planning
costs(1) (1.3) (2.2)
Pension (0.2) (0.6)
Return of pension surplus 8.1 -
Other strategic costs - (1.2)
6.6 (4.0)
Discontinued operations (2)
Re-organisation & restructuring
costs - (0.1)
Strategic review - -
Sale and leaseback - -
Insurance cost (0.5) (1.1)
VAT refund - 0.8
------------------------------------------------- --------
(0.5) (0.4)
------------------------------------------------- --------
Total adjusting items cash flow 6.1 (4.4)
------------------------------------------------- --------
(1) Included in the Re-organisation, restructuring & Transformation
programme planning costs adjusted cash flows in the prior
period of GBP2.2m was GBP0.7m of Transformation programme
planning costs.
(2) On 2 May 2020, the Company completed the sale of Tuffnells
and assumed liability to settle certain pre-disposal insurance
and legal claims relating to employer's liability, public
liability, motor accident claims and legal claims, held as
provisions. The Company continues to present the cash outflows
from these provisions for comparative purposes.
25. Share Capital
(a) Share capital
GBPm 2022 2021
-----
Issued, authorised and fully paid:
At 27/28 August 12.4 12.4
Shares issued during the year - -
-----
247.7m ordinary shares of 5p each (2021: 247.7m) 12.4 12.4
-----
(b) Movement in share capital
Number (m) Ordinary shares
of 5p each
28 August 2021 247.7
Shares issued during the year -
At 27 August 2022 247.7
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.
No shares were issued during the 52 weeks to 27 August 2022 or the period to 28 August 2021.
(c) Share premium
GBPm 2022 2021
-----
Balance at 27/28 August 60.5 60.5
Balance at 27/28 August 60.5 60.5
26. Reserves
(a) Demerger reserve
GBPm 2022 2021
-------
At 27/28 August (280.1) (280.1)
At 27/28 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 2022 2021
------
Balance at 27/28 August (3.9) (1.8)
Acquired in the period (2.2) (2.7)
Disposed of on exercise of options 1.5 0.6
------
Balance at 27/28 August (4.6) (3.9)
The reserve represents the cost of shares in Smiths News 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 (see Note 28). The number of ordinary shares held by the Trust as at 27 August 2022 was 12,084,239 (2021: 8,121,362). In accordance with IAS 32, these shares are deducted from shareholders' funds. Under the terms of the Trust, the Trustee has waived all dividends on the shares it holds.
(c) Translation reserve
GBPm 2022 2021
----- -----
Balance at 27/28 August 0.4 0.4
Exchange differences on translating net assets - -
of foreign operations
----- -----
Balance at 27/28 August 0.4 0.4
27. Retained Earnings
GBPm
Balance at 30 August 2020 127.0
Amounts recognised in Total comprehensive
expense 26.8
Dividends paid (1.2)
Disposed of on exercise of options (0.6)
Equity-settled share based payments, net
of tax 1.0
Balance at 28 August 2021 153.0
Amounts recognised in total comprehensive
expense 33.1
Dividends paid (6.1)
Disposed of on exercise of options (1.5)
Equity-settled share based payments, net
of tax 1.2
Current tax recognised in equity (0.1)
Deferred tax recognised in equity (0.2)
Balance at 27 August 2022 179.4
28. Share-based payments
In 2022, the Group recognised a total charge of GBP1.2m related to equity-settled share-based payment transactions. In 2021 there was a total charge of GBP1.0m. The average share price throughout the year was 35.6p (2021: 33.2p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Smiths News
Group Sharesave Scheme, the Board
may grant options to purchase ordinary
shares in the Company to eligible
employees who enter into an HM Revenue
& Customs approved Save-As-You-Earn
('SAYE') savings contract for a term
of three years. Options are granted
at a 20% discount to the market price
of the shares on the day preceding
the date of offer and are normally
exercisable for a period of six months
after completion of the SAYE contract.
Executive Share Option Under the terms of the Smiths News
Scheme (ESOS) Group Executive Share Option Scheme,
the Board may grant options to purchase
ordinary shares in the Company to
executives up to an annual limit
of 200% of base salary. The exercise
of options is conditional on the
achievement of adjusted profit after
a three year period, which is determined
by the Remuneration Committee at
the time of grant. Provided that
the target is met, options are normally
exercisable until the day preceding
the 10(th) anniversary of the date
of grant.
LTIP Under the terms of the Smiths News
Group LTIP, executive directors and
key senior executives may be awarded
each year conditional entitlements
to ordinary shares in the Company
(which may be in the form of nil
cost options or conditional awards)
or, in order to retain flexibility
and at the Company's discretion,
a cash sum linked to the value of
a notional award of shares up to
a value of 200% of base salary. The
vesting of awards is subject to the
satisfaction of a three year performance
condition, which is determined by
the Remuneration Committee at the
time of grant. Subject to the satisfaction
of the performance condition, awards
are normally exercisable until the
10(th) anniversary of the date of
grant.
Deferred Bonus Plan Under the terms of the Smiths News
(DBP) Group Deferred Bonus Plan, each year
executive directors and key senior
executives may be granted share awards
(in the form of nil cost options)
dependent on the achievement of the
Annual Bonus Plan performance targets.
Awards are immediately exercisable
but a two year hold-back period applies,
during which the share certificate
for such shares is held by the Company.
Separately, key senior executives
may also be granted share awards
(in the form of nil cost options)
under the DBP plan in respect of
a (discounted) restricted share award
(dependent on continued employment
with the Company).
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number No of Weighted No of Weighted No of Weighted No of Weighted
of options/ shares average shares average shares average shares average
awards exercise exercise exercise exercise
price (p) price price price
(p) (p) (p)
At 29 Aug
2020 8,252,887 34.2 1,785,833 126.7 10,967,034 - 1,464,611 -
Granted 2,122,030 43.64 - - 4,350,408 - 1,541,268 -
Exercised (59,495) - - - - - (938,854) -
Expired
/Forfeited (1,927,785) 23.12 (62,621) 108.7 (1,389,340) - (41,481) -
At 28 Aug
2021* 8,387,637 28.92 1,723,212 126.7 13,928,102 - 2,025,544 -
Granted 900,405 34.70 - - 4,043,731 - 1,807,242 -
Exercised (92,308) - - (1,113,915) - (2,333,638) -
Expired
/Forfeited (1,616,651) 35.80 (666,468) 137.8 (4,439,620) - - -
At 27 Aug
2022 7,579,083 1,056,744 12,418,298 1,499,148
Exercisable
at 27 Aug
2022 - - 1,056,744 126.1 - - - -
Exercisable
at 28 Aug
2021 - - 1,723,212 113.8 - - - -
*During the current period, the opening number of options for the Sharesave, LTIP and DBP schemes were restated to amend disclosure errors made in the prior period.
The weighted average remaining contractual life in years of options/awards is as follows:
Sharesave ESOS LTIP DBP
Outstanding at 27 August
2022 1.9 5.2 1.2 1.5
Outstanding at 28 August
2021 1.9 6.2 1.2 1.3
Details of the options/awards granted or commencing during the current and comparative year are as follows:
Sharesave ESOS LTIP DBP
----- --------- ---------
During 2022:
Effective date of grant or July 2022 - Dec 2021 Dec 2020
commencement date
Average fair value at date
of grant or scheme commencement
- pence 4.3 - 26.0 38.0
----- --------- ---------
During 2021:
Effective date of grant or Jun 2020 - Dec 2020 Dec 2020
commencement date
Average fair value at date
of grant or scheme commencement
- pence 19.7 - 25.0 35.0
----- --------- ---------
The options outstanding at 27 August 2022 had exercise prices ranging from nil to 167.8p (2021: nil to 167.8p).
The weighted average share price on the date of exercise was 37p (2021: 39p).
The Sharesave options granted during each period have been valued using the Black-Scholes model, the LTIP performance measures include 70% total shareholder return (TSR) metric this is valued by reference to the share price at date of grant less an adjustment for the TSR portion of the award. The DBP schemes are valued by reference to the share price at the date of grant.
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
------ ----
2022 options/awards:
Share price at grant date
- pence 34.7 38 38
TSR adjustment - pence - (17) -
Exercise price - pence 32.0 - -
Expected volatility - per 40.3 - -
cent
Expected life - years 3 - -
Risk free rate - per cent 1.7 - -
Expected dividend yield 8.37 - -
- per cent
Weighted average fair value
- pence 4.3 21 38
------ ----
2021 options/awards:
Share price at grant date
- pence 44.0 30 30
TSR adjustment - pence - (6.0) -
Exercise price - pence 35.0 - -
Expected volatility - per 97.0 - -
cent
Expected life - years 3 - -
Risk free rate - per cent (0.1) - -
Expected dividend yield - - -
- per cent
Weighted average fair value
- pence 19.7 24.0 30
------ ----
29. Post balance sheet events
The directors have considered the period between the balance sheet date and the date when the accounts are authorised for issue for evidence of conditions that existed at the balance sheet date, either adjusting or non-adjusting post balance sheet events and have concluded that there are no such events in the current period.
30. Related party transactions
Transactions between businesses within the 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 6.
Trading transactions
Sales to related Amounts owed by related
parties parties
GBPm 2022 2021 2022 2021
-------- --------
Joint ventures 0.4 0.4 0.1 0.1
-------- --------
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 2022 2021
Joint ventures 0.1 0.2
The balance above is secured against the assets of Fresh on the Go Limited.
Tuffnells Deferred Consideration
On 2 November 2021, the Group received GBP6.5m (the first tranche) of the total amount of unsecured consideration due of GBP15m. Following receipt of this payment, the Board agreed revised terms with Tuffnells Holdings Limited (formerly Palm Bidco Limited) regarding the outstanding deferred consideration payable, such that it would accept GBP7.5m in full and final settlement of the outstanding amount due, were it received on or before 2 August 2022. This amount was received in full during the current financial period. The Chairman of Tuffnells Holdings Limited is also a non-executive director of Smiths News plc.
Directors' remuneration
GBPm 2022 2021
Salaries 0.9 0.9
Bonus 0.6 0.6
Non-executive director fees 0.3 0.3
Post-employment benefits - -
Termination benefits - 0.1
1.8 1.9
Information concerning directors' remuneration, interest in shares and share options are included in the Directors' Remuneration report in the Annual Report.
There are 2 (2021: 2) directors to whom retirement benefits are accruing in respect of qualifying services under money purchase schemes.
Directors made gains on share options of GBPnil (2021: GBPnil).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who are the key management personnel of the continuing Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures.'
GBPm 2022 2021
Short-term employee benefits 2.8 2.8
Termination benefits - -
Share based payments 1.1 0.6
3.9 3.4
31. Subsidiary and associated undertakings
Company name/ Share Group Company name/ Share Group
(number) Class % (number) Class %
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon
SN2 8UH
Connect Limited Ordinary Martin-Lavell Limited Ordinary
02008952 Shares 100% 02654521 (*) Shares 100%
--------- ---------
Connect Logistics Pass My Parcel
Limited Ordinary Limited Ordinary
09172965 Shares 100% 09172022 Shares 100%
--------- ---------
Connect News & Media
Limited Ordinary Phantom Media Limited Ordinary
08572634 Shares 100% 03805661 (*) Shares 100%
--------- ---------
Connect Parcel Freight Smiths News Holdings
Limited Ordinary Limited Ordinary
09295023 Shares 100% 04236079 Shares 100%
--------- ---------
Connect Parcels Smiths News Instore
Limited Ordinary Limited Ordinary
09172850 Shares 100% 03364589 Shares 100%
--------- ---------
Connect Services Ordinary Smiths News Investments Ordinary
Limited Shares 100% Limited(*) Shares 100%
08522170 06831284
--------- ---------
Connect Specialist
Distribution Group Smiths News Distribution
Limited Ordinary Limited Ordinary
08458801 Shares 100% 08506961 Shares 100%
--------- ---------
Smiths News Trading
Connect2U Limited Ordinary Limited Ordinary
03920619 Shares 100% 00237811 Shares 100%
--------- ---------
Dawson Media Services Ordinary Dawson Limited Ordinary
Limited 06882722 Shares 100% 03433262 Shares 100%
--------- ---------
Dawson Guarantee
Company Limited Ordinary Dawson Media Direct Ordinary
06882393 Shares 100% Limited (*) 06882366 Shares 100%
--------- ---------
Dawson Holdings Ordinary
Ltd (*) Shares 100%
00034273
--------- ---------
France
Dawson Media Direct Ordinary 100% 11 rue Léopold Bellan,
SAS Shares 75000 Paris, France
450 101 340 RCS
Bobigny
---------
Spain
Dawson Media Direct Ordinary 100% Calle Zurbano 76 Madrid 28010,
Iberica SL Shares Spain
CIF-B84692904
---------
Germany
Dawson Media Direct Ordinary 100% Johannstr. 39 40476 Dusseldorf,
GmbH Shares Germany
HRB 99445
---------
Belgium
Dawson Media Direct Ordinary 99% Priester Cuypersstraat 3 Brussel
NV Shares 1040, Belgium
474.114323
---------
Turkey
Dawson Media Direct Ordinary 100% Park Plaza, No:14/24 Resitpasa
Anonim Sirketi Shares Mahallesi Istanbul Turkey
14449-5
---------
Australia
Dawson Media Direct Ordinary 100% C/O Grant Thornton Australia
Australia Pty Limited Shares Level 17, 383 Kent Street,
615545545 Sydney NSW 2000, Australia
---------
Hong Kong
Dawson Media Direct Ordinary 100% Flat/Rm 5008 50/F, Central
China Limited Shares Plaza, 18 Harbour Road, Wanchai,
1167911 Hong Kong
---------
Thailand
Dawson Media Direct Ordinary 48.9% 87 M Thai Tower, All Seasons
Co. Ltd Shares Place, 23rd Floor, Wittayu
105558138385 Road, Lumpini Sub-District,
Pathumwan District, Bangkok,
Thailand
---------
* Audit exemption statement
For the 52 weeks ended 27 August 2022, the companies as indicated in the table by '(*)' above were entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. As such, Smiths News plc (formerly Connect Group PLC) has provided a guarantee against all debts and liabilities in these subsidiaries as at 27 August 2022. The members of these companies have not required them to obtain an audit of their financial statements for the 52 weeks ended 27 August 2022.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have adopted various APMs.
These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing additional useful measures of the Group's performance. They provide readers with additional information on the performance of the business across periods which is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team.
Consequently, APMs are used by the directors and management for performance analysis, planning, reporting and incentive-setting purposes.
The key APMs that the Group has focused on and changes to APMs within the period can be found in Note 1.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS to IFRS for
measure measure reconciliation
Income Statement
Adjusted No direct N/A Note 4 Adjusting items of income
Items equivalent or expenses are excluded
in arriving at Adjusted
operating profit to present
a further measure of the
Group's performance. Each
of these items is considered
to be significant in nature
and/or quantum, non-recurring
in nature and /or are considered
to be unrelated to the Group's
ordinary activities or are
consistent with items treated
as adjusting in prior periods.
Excluding these items from
profit metrics provides
readers with helpful additional
information on the performance
of the business across periods
because it is consistent
with how the business performance
is planned by, and reported
to, the Board and the Executive
Team.
Adjusted Operating Adjusted Income statement/ Adjusted operating profit
operating profit* items Note 4 is defined as operating
profit profit from continuing operations,
excluding the impact of
adjusting items (defined
above). This is the headline
measure of the Group's performance
and is a key management
incentive metric.
Adjusted Profit Adjusted Income statement/ Adjusted profit before tax
profit before items Note 4 is defined as profit before
before tax (PBT) tax from continuing operations,
tax excluding the impact of
adjusting items (defined
above).
Adjusted Profit Adjusted Income statement/ Adjusted profit after tax
profit after items Note 4 is defined as profit after
after tax (PAT) tax from continuing operations,
tax excluding the impact of
adjusting items (defined
above).
Adjusted Operating Depreciation Note 3 This measure is based on
EBITDA profit* and amortisation business unit operating
Adjusted profit from
items Continuing operations. It
excludes depreciation, amortisation
and adjusting items. This
is the headline measure
of the Group's performance
and is a key management
incentive metric.
Adjusted Earnings Adjusted Note 10 Adjusted earnings per share
earnings per share items is defined as continuing
per adjusted PBT, less taxation
share attributable to adjusted
PBT and including any adjustment
for minority interest to
result in adjusted
PAT attributable to shareholders;
divided by the basic weighted
average number of shares
in issue.
Cash flow Statement
Free Net movement Dividends, See Free Free cash flow is defined
cash in cash acquisitions Cash Flow as cash flow excluding the
flow and cash and disposals, in Financial following: payment of the
equivalents Repayment Review section dividend, acquisitions and
of bank disposals, the repayment
loans, of bank loan principal amounts,
EBT share EBT share purchases and
purchases, cash flows relating to pension
Pension deficit repair. This measure
deficit reflects the cash available
repair payments to shareholders.
Free Net movement Dividends, See Free Free cash flow (excluding
cash in cash acquisitions Cash Flow Adjusted items) is Free
flow and cash and disposals, in Financial cash flow adding back Adjusted
(excluding equivalents Repayment Review section cash costs.
adjusting of bank
items) loans,
EBT share
purchases,
Pension
deficit
repair payments
Adjusted
items
Balance Sheet
Bank Borrowings Cash flow Bank Net Debt is calculated
Net less cash statement as total debt less cash
Debt and cash equivalents. Total
debt includes loans and
borrowings, overdrafts and
obligations under finance
leases as defined by IAS
17.
Net Borrowings Cash flow Net debt is calculated as
debt less cash statement total debt less cash and
cash equivalents. Total
debt includes loans and
borrowings, overdrafts and
obligations under leases.
* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.
Reconciliation of Free cash flow to net movement in cash and cash equivalents
A reconciliation between free cash flow and the net increase/ (decrease) in cash and cash equivalents are shown below:
GBPm 2022 2021 Net (decrease)/increase in cash & cash equivalents 16.0 (31.3) Decrease in borrowings and overdrafts 23.0 57.8 Movement in borrowings and cash 39.0 26.5 Dividend paid 6.1 1.2 Working capital loan to Tuffnells - (6.7) Outflow for EBT shares 2.6 2.6 Continuing free cash flow 47.7 23.6 Discontinued free cash flow 0.5 (0.4) Total free cash flow 48.2 24.0
Continuing Adjusted EBITDA reconciliation
GBPm 2022 2021 Operating profit 32.4 35.8 Adjusting items 5.7 3.8 Adjusted operating profit 38.1 39.6 Depreciation 2.3 2.4 Amortisation 1.3 1.9 Right of use asset depreciation 6.9 6.4 Adjusted EBITDA 48.6 50.3 Operating lease charges (7.9) (7.7) Adjusted EBITDA (excluding IFRS 16) 40.7 42.6
Reconciliation of Bank net debt to reporting net debt
GBPm 2022 2021 Bank net debt (14.2) (53.2) Unamortised arrangement fees (Note 18) 2.4 1.2 IFRS 16 lease liabilities (Note 19) (27.6) (29.2) Net debt (Note 17) (39.4) (81.2)
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END
FR UWRARUOUARUA
(END) Dow Jones Newswires
November 09, 2022 02:00 ET (07:00 GMT)
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