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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 | 63.096 | 64.50 | 80,382 | 15:29:37 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Dec 2021 to Dec 2024
TIDMSNWS
RNS Number : 1855K
Smiths News PLC
04 May 2022
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Unaudited Interim Financial Results for the 26 weeks ended 26 February 2022
Good performance delivering profit growth and strong net debt reduction
Resilient sales and a clear focus on our operational priorities have driven a good performance, with Adjusted profit growth, cash generation and Bank Net Debt reduction all showing progress in line with or ahead of expectations. Total revenue at -1.2% is a strong performance in the context of long-term trends, with a beneficial product mix resulting in a 2.9% increase in core sales margin. Achieving Bank Net Debt of below 1 x Adjusted EBITDA (ex IFRS16 leases) is ahead of the expectations announced in November 2021. The inflationary pressures outlined at that time continue to be balanced by a combination of favourable margin mix, additional revenues and structured cost control underpinning our confidence that full year performance will be in line with market expectations.
Hot Features
Premium
Adjusted continuing results 26 weeks 26 weeks to Change
(7) to 27 Feb 2021
26 Feb 2022
Revenue GBP544.8m GBP551.6m -1.2%
Adjusted EBITDA (ex IFRS16
leases) (4) GBP20.7m GBP20.5m 1.0%
Operating profit (1) GBP19.1m GBP18.9m 1.1%
Profit before tax (1) GBP15.3m GBP14.4m 6.3%
Earnings per share 5.1p 4.6p 10.9%
Statutory continuing results
(7)
Revenue GBP544.8m GBP551.6m -1.2%
Profit before tax GBP14.6m GBP16.0m -8.8%
Statutory profit GBP11.6m GBP13.0m -10.8%
Earnings per share 4.8p 5.3p -9.4%
Interim dividend per share 1.4p Nil p -
Free cash flow (2) GBP17.5m GBP4.6m 280.4%
Bank Net Debt (5) GBP38.8m GBP70.0m -44.6%
Net debt (including IFRS16
leases) (5) GBP67.4m GBP101.3m -33.5%
------------------------------ ------------- ------------- -------
Headlines
-- Performance in line with market expectations, with progress driven by favourable margin mix, structured cost control and additional revenues.
-- Key performance measures of Adjusted EBITDA (ex IFRS16 leases) , Free cash flow, Adjusted EPS and Bank Net Debt all show progress and are on track for the full year.
-- Interim dividend of 1.4p representing an increase of 180% compared to the reinstated dividend of 0.5p announced in June 2021.
-- Revenue of -1.2% reflects a historically strong performance from newspapers and magazines, with margins further benefiting from mix and one shot sales.
-- Impact of inflationary costs in line with expectations, mitigated by a carefully structured programme to secure offsetting efficiencies and additional revenue streams.
-- Successful extension and amendment of banking facilities in December 2021, enabling increased returns for shareholders in line with business performance.
-- Bank Net Debt below 1 x Adjusted EBITDA (ex IFRS16 leases), has been achieved well ahead of the initial target, after benefiting from planned one off receipts totalling GBP14.6m.
Outlook
Building on a good first half, underlying trading for the year to date is in line with market expectations. The net impact of inflationary pressure remains consistent with our planning assumptions, while the cost mitigation programme and continued favourable sales mix means the business is on track to meet the market's expectations for the full year.
Jonathan Bunting, Chief Executive Officer, commented:
"The combination of resilient sales, well-structured cost planning and revenue gains has been the foundation of a pleasing first half performance. The delivery of growing and sustainable shareholder returns from the core business remains our top priority as demonstrated by the increase in the interim dividend."
Enquiries:
Smiths News plc Via Buchanan below
Jonathan Bunting, Chief Executive Officer
Paul Baker, Chief Financial Officer
https://smithsnews.co.uk
Buchanan 0207 466 5000
Richard Oldworth / Jamie Hooper / Toto Berger
smithsnews@buchanan.uk.com
www.buchanan.uk.com
A recording of the presentation for analysts will be made available on the Company's website on the afternoon of Wednesday 4 May 2022 - see the Investor Zone section at https://smithsnews.co.uk
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:
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.
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.
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.
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 Interim 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 impact of acquisitions and disposals, the repayment of bank loans and EBT share purchases.
(3) Operating cash flow is defined as operating profit adding back non-cash items amortisation, depreciation, share based payments, share of profits of jointly controlled entities, and non-cash pension costs, adjusting the increase/ decrease in working capital then deducting pension contributions and tax payments in accordance with its presentation in Note 10 of the Interim Consolidated Financial Statements.
(4) 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.
(5) Bank Net Debt - is calculated as loans, borrowings, overdrafts, obligations under finance leases (excluding the adoption of IFRS16 lease accounting standards) less cash and cash equivalents, as bank covenants are tested under frozen GAAP. Net Debt (including IFRS16 lease transition) is calculated as loans, borrowings, overdrafts, obligations under leases less cash and cash equivalents.
(6) H1 2022 - refers to the 26 weeks ended 26 February 2022 and FY2022 refers to the 52 week period ending 27 August 2022. H1 2021 refers to the 26 week period ended 27 February 2021 and FY2021 refers to the 52 week period ended 28 August 2021.
(7) The Interim 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 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 Interim Financial Results for the half-year ended 26 February 2022 and the Report and Accounts for the year ended 28 August 2021 which can be found on the Investor Zone section of the Smiths News plc website - https://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
Trading in the first half was characterised by resilient sales revenue on core newspapers and magazine categories, with margin benefitting from a favourable sales mix and further benefit to EBITDA from additional revenue streams (including from the leasing of spare warehouse space and an increase in contracted prices for the sale of waste paper).
Adjusted EBITDA ( ex IFRS16 leases ) of GBP20.7m was up 1.0% (H1 2021: GBP20.5m) from revenue of GBP544.8m, which was down 1.2% (H1 2021: GBP551.6m). Core sales of newspapers and magazines continue to provide a relatively predictable bedrock of revenue, and while year on year comparisons are still complicated by prior year COVID-19 restrictions, overall trends are now stable in comparison to the fluctuations of the last two years.
The business has delivered strong cash flow in H1 2022 benefitting from GBP14.6m of one-off receipts, further reducing its borrowings so that Bank Net Debt is now below 1x EBITDA. As a consequence, an interim dividend of 1.4p per share has been proposed, representing an increase of 180% on the reinstated dividend of 0.5p per share announced in June 2021.
Sales resilience
The combined sales of newspapers and magazines are down compared to the prior year period by
(-1.6%) with monthly magazines (+1.1%) performing better than newspapers (-2.9%) and weekly magazines (-2.6%). This represents a resilient performance in the context of historic long term trends. Total sales revenue has also benefited from a boost in higher margin one shots and specials (+45.2%) as traffic returned to high street stores. This favourable mix results in an increase in overall margin of 2.9% in the period.
While year on year comparisons are complicated by prior year COVID-19 restrictions, the overall trend is pleasing and reflects a re-stabilisation of the market after two years of relative volatility. We anticipate the recent ending of virtually all COVID-19 restrictions in the United Kingdom to be supportive of the gradual restoration of demand in high volume travel and commuting retailers, representing those sectors most impacted by the pandemic.
Inflationary pressure and mitigation
In addition to general cost inflation, virtually all distribution businesses have been impacted by three additional pressures: driver shortages and consequent wage/contractor inflation; national minimum wage increases; and fuel price rises. Our response has been structured and proportionate. Our well-established cost efficiency programme has continued, focused on maintaining service levels while seeking efficiencies and compensating new revenues.
Managing inflationary pressure continues to be a top operational priority. In line with the estimates we gave at our Preliminary Financial Results in November 2021 we currently expect the full year net impact to be in the region of GBP2.0m. The rise in national minimum wage and further increases in fuel prices largely as a result of the war in Ukraine will result in some annualised carry over to FY2023.
Capital management
On 2 November 2021 the Company received a payment of GBP6.5m in relation to the first instalment of deferred consideration arising from the sale of Tuffnells in May 2020. More recently (and following the balance sheet date), the Company has received a further payment of GBP7.5m on 29 April 2022 in full and final settlement of the deferred consideration, payment being received ahead of the second instalment due in August 2022 and the final instalment in May 2023. This sum will be used to pay down debt under the terms of the banking agreement.
In December 2021 the Company received a sum of GBP8.1m in consideration of the net cash surplus resulting from the winding up of the WHSmith Pension Trust (News section). More broadly, these funds represent the finalisation of the buy-out process, removing any potential future cash drain from legacy pension commitments.
In December 2021 the Company also favourably extended and amended its current banking agreements to comprise a GBP60.0m amortising term loan and a revolving credit facility with an initial limit of GBP30.0m. The agreement also increased the cap on dividends and distributions from GBP6m to GBP10m for each financial year during the term of the facilities, enabling the business to increase cash returns to shareholders.
Free cash flow and Bank Net Debt
Continuing free cash flow of GBP17.5m (H1 2021: GBP4.6m) benefitted from the receipts of the pension surplus (GBP8.1m) and Tuffnells deferred consideration (GBP6.5m), both of which were used to pay down debt under the terms of the previous banking agreements. Bank Net Debt of GBP38.8m (H1 2021: GBP70.0m) is equivalent to 0.9 x Adjusted EBITDA (ex IFRS16 leases) and the Company's average daily Bank Net Debt during H1 2022 was GBP58.9m, a decrease of 34.2% from the prior period (H1 2021: GBP89.5m) . Looking ahead, management will continue to apply a prudent capital management policy, using excess free cash to meet the needs of all stakeholders through a balance of lower borrowings, investment in the business, and paying dividends within the distribution limits of our banking agreements.
Dividend
In the light of the good first half performance and the Board's confidence in ongoing trading, the Board has proposed an interim dividend of 1.4p per share, representing an increase of 180% on the reinstated dividend of 0.5p per share announced in June 2021. The dividend will be paid on 7 July 2022 to all shareholders who are on the share register at the close of business on 10 June 2022; the ex-dividend date will be 9 June 2022.
Outlook
Building on a good first half, underlying trading for the year to date is in line with market expectations. The net impact of inflationary pressure remains consistent with our planning assumptions, while the cost mitigation programme and continued favourable sales mix means the business is on track to meet the current market expectations for the full year.
FINANCIAL REVIEW
OVERVIEW
The Company has continued to generate good levels of profit and free cash flow since last year's interim report, which, along with the GBP8.1m receipt of pension surplus and GBP6.5m receipt of Tuffnells deferred consideration, have resulted in a reduction in Bank Net Debt to below 1x EBITDA (H1 2022: 0.9x; H1 2021: 1.8x).
The solid base of cash generation and the amendment to the terms of the Company's banking facilities in December 2021 allows for an increase in the interim dividend to 1.4p per share (GBP3.3m) compared to 0.5p per share (GBP1.2m) announced in June 2021.
Adjusted EBITDA (ex IFRS16) of GBP20.7m and Adjusted operating profit of GBP19.1m were both up on H1 2021 by GBP0.2m, with the impact of inflationary pressures in the cost base more than offset by better wholesale margin and the benefit of additional revenue streams. While revenue decreased overall by 1.2% there was a mix benefit at a margin level from year on year increases in magazine and one shot sales.
At an Adjusted profit before tax level, 34.2% lower average debt resulted in GBP0.7m lower bank interest, contributing to a GBP0.9m increase to GBP15.3m (H1 2021: GBP14.4m).
Continuing free cash flow of GBP17.5m (H1 2021: GBP4.6m) benefitted from pension surplus (GBP8.1m) and Tuffnells (GBP6.5m) receipts, both of which were used to pay down debt under the terms of the previous banking agreement. A scheduled amortisation payment of GBP7.5m was also made in October 2021, allowing the facility to be resized at GBP90m at its amendment in December 2021, compared to GBP112.5m at the end of August 2021.
Closing Bank Net Debt of GBP38.8m is a reduction of GBP31.2m on H1 2021 (GBP70.0m) and Bank Net Debt: Adjusted EBITDA (ex IFRS16) is now 0.9x (H1 2021: 1.8x) after allowing for the payment of the FY2021 final dividend (GBP2.8m) in February 2022. Reported Bank Net Debt in the current and prior year period and at FY2021 year-end benefitted from the timing of c.GBP20m publisher payments which fell due in the following financial period. An interim dividend of 1.4p per share (GBP3.3m) is proposed by the Board, due to be paid in July 2022.
CONTINUING ADJUSTED RESULTS
GROUP
Continuing Adjusted results GBPm 26 weeks 26 weeks Change
to to
26 Feb 2022 27 Feb 2021
---------------------------------- ------------- ------------- --------
Revenue 544.8 551.6 (1.2)%
Adjusted EBITDA (ex IFRS 16) 20.7 20.5 1.0%
Operating profit 19.1 18.9 1.1%
Net finance costs (3.8) (4.5) (15.6)%
---------------------------------- ------------- ------------- --------
Profit before tax 15.3 14.4 6.3%
Taxation (3.1) (3.0) 3.3%
---------------------------------- ------------- ------------- --------
Effective tax rate 20.3% 20.8% (50)bps
---------------------------------- ------------- ------------- --------
Profit after tax 12.2 11.4 7.0%
---------------------------------- ------------- ------------- --------
Revenue was GBP544.8m (H1 2021: GBP551.6m), down 1.2% on the prior year, a positive performance compared to the historic trend of c.3%-5%. Monthly magazines (+1.1%) and one shots (+45.2%) performed strongly against a prior year period which had been impacted by lockdowns, aided by successful releases of football stickers and Pokémon trading cards. Newspapers and weekly magazine sales revenue were both down c.3%, at the lower end of historic trends, having recovered faster after the initial COVID-19 lockdowns in H2 2020.
DMD revenue of GBP2.1m (H1 2021: GBP1.8m) was up GBP0.3m (16.7%) due to the easing of travel restrictions which impacted airlines and airports in H1 2021. DMD's operating profit of GBP0.1m was consistent with H1 2021 as the prior period benefitted from a GBP0.2m one off gain.
The increase in Adjusted operating profit of GBP0.2m to GBP19.1m (H1 2021: GBP18.9m) can be attributed to:
-- Improvement in wholesale margin (GBP1.1m), driven by higher underlying revenue from monthly magazines and one shots (trading cards and stickers);
-- The benefit of additional revenue streams (GBP1.5m) including the leasing of spare warehouse space and an increase in contracted prices for the sale of waste paper;
-- Inflationary pressures (net impact GBP1.4m) affecting the depot cost base, particularly over the pre-Christmas peak period, offset by depot cost savings; and
-- The impact of GBP1.1m of incidental items in H1 2022 and of one off items that benefitted the prior period which did not reoccur, for example strategic planning support costs in H1 2022 and the DMD lease exit in H1 2021 as mentioned above.
Net finance charges of GBP3.8m (H1 2021: GBP4.5m) were lower than the prior period by GBP0.7m due to lower average net debt.
Adjusted profit before tax was GBP15.3m, up 6.3% on H1 2021. Taxation of GBP3.1m indicates a marginally lower effective tax rate of 20.3% compared to the prior period (H1 2021: 20.8%) for continuing operations.
STATUTORY RESULTS
GROUP
Continuing Operations GBPm 26 weeks 26 weeks Change
to to
26 Feb 2022 27 Feb
2021
Revenue 544.8 551.6 (1.2)%
Operating profit 17.0 18.8 (9.6)%
Net finance costs (2.4) (2.8) (14.3)%
------------------------------------------------ ------------- --------- --------
Profit before tax 14.6 16.0 (8.8)%
Taxation (3.0) (3.0) -%
------------------------------------------------ ------------- --------- --------
Effective tax rate 20.5% 18.7%
------------------------------------------------ ------------- --------- --------
Profit after tax 11.6 13.0 (10.8)%
------------------------------------------------ ------------- --------- --------
Discontinued Operations GBPm
------------------------------------------------ ------------- --------- --------
Loss for the year from discontinued operations (0.1) (0.4) (75.0)%
------------------------------------------------ ------------- --------- --------
Profit attributable to equity shareholders
continuing and discontinued operations 11.5 12.6 (8.7)%
------------------------------------------------ ------------- --------- --------
Statutory Continuing profit before tax of GBP14.6m was a GBP1.4m decrease on the prior year (H1 2021: GBP16.0m). The decrease was primarily driven by the GBP1.6m of adjusting items in respect of the costs associated with the receipt of the pension surplus from the Trustee.
The Company has net liabilities of GBP38.7m on its balance sheet (H1 2021: GBP69.0). The net liabilities arose largely as the result of impairments to the assets and goodwill of the Tuffnells business prior to its sale in May 2020.
EARNINGS PER SHARE
Continuing Adjusted Continuing Statutory
----------------------------------- ---------------------- -----------------------
26 weeks 26 weeks 26 weeks 26 weeks
to to 27 to to
26 Feb Feb 2021 26 Feb 27 Feb
2022 2022 2021
----------------------------------- ---------- ---------- ----------- ----------
Earnings attributable to ordinary
shareholders (GBPm) 12.2 11.4 11.6 13.0
Basic weighted average number of
shares (millions) 240.7 245.2 240.7 245.2
Basic Earnings per share 5.1p 4.6p 4.8p 5.3p
Diluted weighted number of shares
(millions) 252.0 256.1 252.0 256.1
Diluted Earnings per share 4.8p 4.5p 4.6p 5.1p
----------------------------------- ---------- ---------- ----------- ----------
Continuing Adjusted EPS of 5.1p, is an increase of 0.5p on the prior year driven by the improved trading of the business and lower interest charges.
Statutory continuing earnings per share, which includes adjusted items, is down 0.5p to 4.8p (H1 2021: 5.3p) and reflects the inclusion of a GBP1.6m pension administration charge in respect of indemnity insurances and pension wind up costs within profit, noting that the gross gain from the return of pension surplus is recorded in Other Comprehensive Income.
DIVID
26 weeks 26 weeks
to to
26 Feb 2022 27 Feb
2021
----------------------------------------- ------------- ---------
Dividend per share (proposed) 1.4p nil
Dividend per share (paid and recognised) 1.15p nil
----------------------------------------- ------------- ---------
The Board is proposing an interim dividend of 1.4p per share, (FY2021: 0.5p per share declared in June 2021). The proposed dividend will be paid on 7 July 2022 to shareholders on the register at close of business on 10 June 2022. The ex-dividend date will be 9 June 2022. While no dividend was proposed within the H1 2021 interim report, an interim dividend of 0.5p per share (GBP1.2m) was subsequently declared in June 2021 and paid in July 2021.
The FY2021 final dividend of 1.15p per share (GBP2.8m) was approved by shareholders at the Annual General Meeting on 20 January 2022, paid on 10 February 2022 and is recognised in the Group Financial Statements.
ADJUSTED ITEMS
Continuing Operations GBPm 26 weeks to 26 weeks to 27
26 Feb 2022 Feb 2021
------------------------------------- ------------- ---------------
Transformation programme planning (0.6) -
costs
Pensions (1.7) (0.2)
Network and reorganisation costs 0.2 0.1
Total before tax and interest (2.1) (0.1)
Finance income - unwind of deferred
consideration 1.4 1.7
------------------------------------- ------------- ---------------
Total before tax (0.7) 1.6
Taxation 0.1 -
------------------------------------- ------------- ---------------
Total after taxation (0.6) 1.6
Adjusted items before tax of GBP0.7m were a GBP2.3m increase on the prior year period (H1 2021: GBP1.6m credit). The increase was due to GBP1.6m of additional costs in respect of the return of the net GBP8.1m pension surplus and GBP0.1m of costs incurred in respect of rationalising the Company's pension portfolio, GBP0.6m of costs related to strategic planning projects and GBP0.3m related to the lower unwind of the Tuffnells deferred consideration. Further information on these items can be found in Note 4 of the Group Financial Statements.
Adjusted items are defined in the Glossary to the Group Financial Statements and present a further measure of the Group's 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.
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 26 weeks 26 weeks
to to
26 Feb 27 Feb
2022 2021
---------------------------------------------------- --------- ---------
Operating profit continuing (including Adjusted
items) 17.0 18.8
Adjusting items 2.1 0.1
Depreciation & amortisation 5.3 5.5
---------------------------------------------------- --------- ---------
Adjusted EBITDA (including IFRS 16) 24.4 24.4
Working capital movements (7.8) (4.8)
Capital expenditure (1.2) (0.6)
Lease payments (3.3) (2.9)
Net interest and fees (5.2) (6.3)
Taxation (3.4) (2.8)
Other 0.4 0.2
---------------------------------------------------- --------- ---------
Free cash flow (excluding Adjusted items) 3.9 7 .2
---------------------------------------------------- --------- ---------
Adjusted items (cash effect) - return of pension 8.1 -
surplus
Adjusted items (cash effect) - receipt of deferred 6.5 -
consideration
Adjusted items (cash effect) - Other (1.0) (2.6)
Continuing Free cash flow 17.5 4.6
---------------------------------------------------- --------- ---------
The Company generated GBP17.5m of free cash flow which was GBP12.9m higher than H1 2021 (GBP4.6m) due to the GBP8.1m receipt of pension surplus and GBP6.5m deferred consideration received from Tuffnells.
The increase in working capital in the year was GBP7.8m (H1 2021: GBP4.8m) due to the timing of period end compared to the billing cycles of both publishers and retailers. These cycles lead to intra-month working capital movements of up to GBP40m. Underlying working capital levels remain consistent with the prior year period.
Cash capital expenditure in the period was GBP1.2m (H1 2021: GBP0.6m), an increase of GBP0.6m due to depot refurbishments which were initiated at the end of FY2021.
Lease payments of GBP3.3m (H1 2021: GBP2.9m) have increased by GBP0.4m due to lease renewals and rent reviews signed during the period.
Net interest and fees of GBP5.2m (H1 2021: GBP6.3m) has decreased by GBP1.1m, due to the lower levels of net debt. Both the current and the prior year period included the payment of arrangement fees in relation to the Company's refinancing of its banking facilities (H1 2022: GBP2.7m, H1 2021 GBP2.8m).
Cash tax outflow of GBP3.4m was a GBP0.6m increase on the prior year period (H1 2021: GBP2.8m outflow) owing principally to the final payment in respect of the 2020 tax return in September 2021.
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.
In November 2021 the first scheduled instalment of deferred consideration was received from Tuffnells (GBP6.5m).
The total net cash impact of other Adjusted items was a GBP1m outflow (H1 2021: GBP2.6m outflow). This comprised: GBP0.8m (H1 2021: GBPnil) of Transformation programme planning costs; GBP0.1m (H1 2021: GBP0.2m) of Pension related costs and GBP0.1m (H1 2021: GBP2.4m) of Network and reorganisation costs.
A reconciliation of free cash flow to the net movement in cash and cash equivalents is given in the Glossary.
NET DEBT
GBPm As at As at
26 Feb 27 Feb
2022 2021
----------------------------------------------------- -------- --------
Opening Bank Net Debt (53.2) (79.7)
Continuing operations free cash flow 17.5 4.6
Discontinued operations free cash flow (0.3) (1.3)
----------------------------------------------------- -------- --------
Free cash flow 17.2 3.3
Dividend paid (2.8) -
Purchase of own shares for employee share schemes - (0.4)
Discontinued operations - Tuffnells working capital
loan - 6.7
Other - 0.1
Bank Net Debt (38.8) (70.0)
----------------------------------------------------- -------- --------
Bank Net Debt closed the period at GBP38.8m compared to GBP53.2m at August 2021, a decrease of GBP14.4m. The reduction in debt was driven by free cash flow from continuing operations of GBP17.5m as described above. These inflows were offset by the payment of the FY2021 final dividend of GBP2.8m in February 2022.
The Company's Bank Net Debt/EBITDA ratio decreased to 0.9x (H1 2021: 1.8x, FY2021 1.2x). The period end fell just before major publisher payments of c.GBP20m were made, which benefitted reported Bank Net Debt. Bank Net Debt rose to GBP61.5m on 28 February 2022 after the half year end. Following the balance sheet date, the Company received a payment of GBP7.5m on 29 April 2022 in full and final settlement of the deferred consideration arising from the sale of Tuffnells in May 2020. This sum will be used to pay down debt under the terms of the banking agreement.
The intra-month working capital cash flow cycle generates a routine and predictable cash swing of up to GBP40m within the overall bank facility of GBP90m at the period end. This results in a predictable fluctuation of net debt during the month compared to the closing net debt position. Our average daily Bank Net Debt during H1 2022 was GBP58.9m (H1 2021: GBP89.5m) a decrease of 34.2%.
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 0.9x is comfortably within our main leverage covenant ratio of 2.0x 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 impact of COVID-19 and inflationary pressures within the macro economy and the funding requirements of the Group and 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
On 3 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.
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 the 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 and regulatory landscape.
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 and the Company's future strategic direction and ambition. The directors have carried out a robust assessment of the Company's emerging and principal risks, including those that could threaten its business model, future performance, solvency or liquidity.
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 Mitigations Strategic link/ change
potential impact
Macro-economic uncertainty
Deterioration in the Annual budgets and forecasts take into account the
macro-economic environment current macro-economic environment to set Strategic link:
results in supply side cost expectations internally and externally, allowing for Cost and efficiencies,
inflation. The or changing objectives to meet short Operations
Company is presented with and medium term financial targets.
cost challenges in a number Weekly cost monitoring enables oversight and action on Change:
of areas which are being a timely basis. Heightened
driven by increased Predictable level of volume decline within the core
competition in the business enables cost optimisation planning. Significant market
distribution labour market In the short term the Company has fixed energy uncertainty exists as a
and rises in fuel and contracts that mitigate current pricing volatility result of the conflict in
commodity prices. These in the market. Ukraine and continuing
cost increases present a The Company continues to be significantly cash impact of COVID-19 on the
risk when they cannot be generating to support its strategic priorities. wider indirect supply chain
fully mitigated through
increased prices
or other productivity gains.
This results in
deterioration in the level
of profitability in both the
short and medium term,
and impacts on the Company's
ability to execute its
strategies, including level
of debt, liquidity
objectives and returns to
shareholders.
------------------------------------------------------- ------------------------------
Acquisition and retention of labour
Due to the current We seek to offer market competitive terms to ensure Strategic link:
competition in the talent remains engaged. People first,
distribution labour market, We offer long term contracts with our sub-contracted Culture and values,
the Company is facing an delivery partners. Costs and efficiencies
increased risk of being We use a variety of platforms to recruit colleagues
unable to recruit and retain and to engage self-employed contractors. Change:
warehouse colleagues and The level of vacancies across warehouse and delivery No Change
support staff. contractors is monitored daily. The market continues to be
The same pressures are also We undertake workforce planning; performance, talent challenging, however the
being felt in sourcing and and succession initiatives; learning measures put in place have
retaining self-employed and development programmes; and promote the Company's successfully
delivery sub-contractors. culture and core values. stablised the risk.
A failure to maintain an Retention plans are reviewed to address key risk
appropriate level of areas, and attrition across the business
resourcing could result in is regularly monitored.
increased costs, Regular surveys are undertaken to monitor the
employee disengagement engagement of colleagues.
and/or loss of management
focus and underpins the
ability to address
the strategic priorities and
to deliver the forecast
performance.
------------------------------------------------------- ------------------------------
IT infrastructure and cyber security
To meet the needs of our Defined risk based approach to the information Strategic link:
stakeholders, our IT security roadmap and technology strategy which Technology
infrastructure needs to be is aligned to the strategic plans.
flexible, reliable * Regular tracking of key programmes against spend Change:
and secure. Secure targets and delivery dates. No Change
infrastructure prevents
external cyber-attack, The Company continues to
insider threat or supplier The Company assesses cyber risk on a day to day basis, invest in its infrastructure,
breach which could cause using proactive and reactive information however the background risk
service interruption and/or security controls to mitigate common threats. remains
the loss of Company and Dedicated information security investments and access high.
customer data. to third-party cyber security specialists.
Cyber incidents could lead The Company encourages a cyber aware culture by
to major adverse customer, undertaking exercises such as computer-based
financial, reputational and training and more regular communications about
regulatory specific cyber threats.
impacts. Flexible and
reliable IT infrastructure
means the Company is able to
meet its strategic
goals and react quickly to
changing events. The lack of
this could lead to the
Company being
unable to execute its
strategic goals.
------------------------------------------------------- ------------------------------
Legal and regulatory compliance
The Company is Changes in laws and regulations are monitored with Strategic link:
required to be policies and procedures being updated as Technology,
compliant with required. Sustainability,
all applicable Business-wide mandatory training programmes are in Operations
laws and place for higher risk regulatory areas.
regulations. External experts are used where applicable. Change:
Failure All major policies are reviewed by the Board or Audit No Change
to adhere to Committee on an annual basis.
these could Operational auditing and monitoring systems for higher The Company has a well
result in risk areas. managed process for
financial monitoring changes in
penalties and/or legislation and complying
reputational with them.
damage.
Key areas of
legal and
regulatory
compliance
include:
GDPR Health &
Safety
Tax compliance
Environmental
legislation
Employment law
------------------------------------------------------- ------------------------------
Responsibility Statement
We confirm that to the best of our knowledge:
-- the unaudited condensed set of financial statements has been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting';
-- the interim management report includes a true and fair review of the information required by DTR 4.2.7R, being an indication of important events during the first 26 weeks and description of principal risks and uncertainties for the remaining 26 weeks of the year; and
-- the interim management report includes a true and fair review of the information required by DTR 4.2.8R, being disclosure of related parties' transactions that have taken place in the first 26 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
On behalf of the Board
Jonathan Bunting Paul Baker Chief Executive Officer Chief Financial Officer 3 May 2022 3 May 2022
Smiths News plc
Condensed Consolidated Income Statement (Unaudited)
For the 26 weeks to 26 February 2022
GBPm Note 26 weeks to 26 26 weeks to 27 Audited
Feb 2022 Feb 2021 52 weeks to 28 Aug
2021
------------------ ------ ------------------------------
Adjusted Adjusted Total Adjusted Adjusted Total Adjusted Adjusted Total
items items items
(Note (Note (Note
4) 4) 4)
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Continuing Operations
Revenue 3 544.8 - 544.8 551.6 - 551.6 1,109.6 - 1,109.6
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Cost of Sales (508.0) - (508.0) (515.9) - (515.9) (1,036.2) - (1,036.2)
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Gross profit 36.8 - 36.8 35.7 - 35.7 73.4 - 73.4
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Administrative
expenses (17.9) (2.1) (20.0) (16.9) (0.1) (17.0) (33.9) (1.9) (35.8)
Income from
joint ventures 0.2 - 0.2 0.1 - 0.1 0.1 (0.3) (0.2)
Impairment
of joint venture
investment - - - - - - - (1.6) (1.6)
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Operating
profit/(loss) 3 19.1 (2.1) 17.0 18.9 (0.1) 18.8 39.6 (3.8) 35.8
Finance costs (3.8) (3.8) (4.5) - (4.5) (8.8) - (8.8)
Finance Income - 1.4 1.4 - 1.7 1.7 0.1 3.5 3.6
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Profit before
tax 3 15.3 (0.7) 14.6 14.4 1.6 16.0 30.9 (0.3) 30.6
Income tax
(expense)/credit 6 (3.1) 0.1 (3.0) (3.0) - (3.0) (4.6) 0.3 (4.3)
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Profit/(loss)
for the period
from Continuing
Operations 12.2 (0.6) 11.6 11.4 1.6 13.0 26.3 - 26.3
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Discontinued Operations
Loss for the
period from
Discontinued
Operations 9 - (0.1) (0.1) - (0.4) (0.4) - (0.1) (0.1)
------------------ ------ --------- --------- -------- --------- --------- --------
Profit/(loss)
attributable
to equity
shareholders
Continuing
and Discontinued
Operations 12.2 (0.7) 11.5 11.4 1.2 12.6 26.3 (0.1) 26.2
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- ---------
Audited
Note 26 weeks to 26 26 weeks to 27 52 weeks to 28 Aug
Feb 2022 Feb 2021 2021
------------------ ------ ------------------------------ ------------------------------ ---------------------------------
Earnings in pence
per share from
Continuing Operations
Basic 8 5.1 4.8 4.6 5.3 10.8 10.8
Diluted 8 4.8 4.6 4.5 5.1 10.3 10.3
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Earnings in pence
per share total
Basic 8 5.1 4.8 4.6 5.1 10.8 10.8
Diluted 8 4.8 4.6 4.5 4.9 10.3 10.3
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Equity dividends
pence per
share 7 1.4 nil 1.65
------------------ ------ --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 26 weeks to 26 February 2022
GBPm Note Audited
26 weeks 26 weeks 52 weeks
to to to 28 Aug
26 Feb 2022 27 Feb 2021 2021
------------------------------------------- ----- -------------- -------------- -----------
Continuing
Items that will not be reclassified
to the Income Statement:
Reassessment as to recoverability
of retirement benefit scheme
surplus 5 14.8 0.1 0.4
Tax relating to components of
other comprehensive income that
will not be reclassified 5 (5.1) - 0.2
------------------------------------------- ----- -------------- -------------- -----------
9.7 0.1 0.6
Other comprehensive income for
the period - Continuing 9.7 0.1 0.6
Profit for the period - Continuing 11.6 13.0 26.3
Total comprehensive income for
the period - Continuing 21.3 13.1 26.9
Other comprehensive income for - - -
the period Discontinued
Loss for the year - Discontinued (0.1) (0.4) (0.1)
------------------------------------------- ----- -------------- -------------- -----------
Total comprehensive loss for
the period - Discontinued (0.1) (0.4) (0.1)
------------------------------------------- ----- -------------- -------------- -----------
Total comprehensive income for
the period attributable to shareholders: 21.2 12.7 26.8
------------------------------------------- ----- -------------- -------------- -----------
Total comprehensive income for the period was fully attributable to the equity holders of the parent company.
Consolidated Balance Sheet (Unaudited)
As at 26 February 2022
GBPm Note Audited
As at As at As at
26 Feb 2022 27 Feb 2021 28 Aug 2021
-------------------------------------- ----- -------------- -------------- -------------
Non-current assets
Intangible assets 11 2.0 3.0 2.3
Property, plant and equipment 8.3 8.1 9.4
Right of use assets 27.7 30.7 28.4
Interest in joint venture 3.0 4.8 2.9
Other receivables - 3.2 2.3
Deferred tax assets 1.7 0.8 1.8
42.7 50.6 47.1
-------------------------------------- ----- -------------- -------------- -------------
Current assets
Inventories 14.6 15.2 13.2
Trade and other receivables 106.0 98.4 106.6
Cash and bank deposits 12 24.3 10.0 19.3
144.9 123.6 139.1
-------------------------------------- ----- -------------- -------------- -------------
Total assets 187.6 174.2 186.2
-------------------------------------- ----- -------------- -------------- -------------
Current liabilities
Trade and other payables (131.3) (125.4) (136.5)
Current tax liabilities - (1.9) (0.3)
Lease Liabilities (6.1) (5.9) (5.9)
Bank overdrafts and other borrowings 12 (13.3) (21.3) (21.2)
Provisions 13 (2.4) (4.1) (3.6)
(153.1) (158.6) (167.5)
Non-current liabilities
Bank loans and other borrowings 12 (46.9) (56.7) (50.1)
Non-current provisions 13 (3.8) (2.5) (3.0)
Lease Liabilities (22.5) (25.4) (23.3)
(73.2) (84.6) (76.4)
-------------------------------------- ----- -------------- -------------- -------------
Total liabilities (226.3) (243.2) (243.9)
-------------------------------------- ----- -------------- -------------- -------------
Total net liabilities (38.7) (69.0) (57.7)
-------------------------------------- ----- -------------- -------------- -------------
Equity
Called up share capital 15 12.4 12.4 12.4
Share premium account 15 60.5 60.5 60.5
Other reserves (282.1) (281.5) (283.6)
Retained earnings 170.5 139.6 153.0
-------------------------------------- ----- -------------- -------------- ---------------
Total shareholders' equity (38.7) (69.0) (57.7)
-------------------------------------- ----- -------------- -------------- ---------------
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 26 weeks to 26 February 2022
GBPm Note Share Share Other Retained Total
Capital Premium Reserves Earnings equity
Account
---------------------------------- ------ ---------------- ---------------- ---------- ---------- --------
Balance at 29 August 2020 12.4 60.5 (281.5) 127.0 (81.6)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Profit for the period - - - 12.6 12.6
Remeasurements of retirement
benefit schemes - - - 0.1 0.1
Total comprehensive income
for the period - - - 12.7 12.7
Employee share schemes purchases - - (0.5) - (0.5)
Employee share schemes awards - - 0.5 (0.5-) -
Recognition of share-based
payments - - - 0.4 0.4
---------------- ---------------- ---------- ---------- --------
Balance at 27 February 2021 12.4 60.5 (281.5) 139.6 (69.0)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Profit for the period - - - 13.6 13.6
Actuarial gain on defined
benefit pension scheme - - - 0.3 0.3
Tax relating to components
of other comprehensive income - - - 0.2 0.2
Total comprehensive income
for the period - - - 14.1 14.1
Dividends Paid - - - (1.2) (1.2)
Employee share schemes purchases - - (2.2) - (2.2)
Employee share schemes awards - - 0.1 (0.1) -
Recognition of share-based
payments - - - 0.6 0.6
Balance at 28 August 2021 12.4 60.5 (283.6) 153.0 (57.7)
Profit for the period - - - 11.5 11.5
Actuarial gain on defined
benefit pension scheme - - - 14.8 14.8
Tax relating to components
of other comprehensive income - - - (5.1) (5.1)
Total comprehensive income
for the period - - - 21.2 21.2
Dividends Paid - - - (2.8) (2.8)
Employee share schemes awards - - 1.5 (1.5) -
Recognition of share-based
payments - - - 0.6 0.6
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Balance at 26 February 2022 12.4 60.5 (282.1) 170.5 (38.7)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Condensed Consolidated Cash Flow Statement (Unaudited)
For the 26 weeks to 26 February 2022
GBPm Note 26 weeks 26 weeks 52 weeks
to to to
26 Feb 2022 27 Feb 2021 28 Aug 2021
--------------------------------------- ----- ------------- ------------- -------------
Net cash from operating activities 10 20.3 13.1 41.4
--------------------------------------- ----- ------------- ------------- -------------
Investing activities
Dividends from joint ventures 0.1 0.1 0.2
Capital expenditure (1.2) (0.6) (2.4)
Loan receipts - 6.5 6.5
Deferred consideration receipts 6.5 - -
Interest receivable - 0.2 0.1
Net cash received in investing
activities 5.4 6.2 4.4
--------------------------------------- ----- ------------- ------------- -------------
Financing activities
Interest paid (2.5) (3.5) (6.8)
Arrangement fees paid (2.7) (2.8) (2.7)
Dividends paid (2.8) - (1.2)
Repayments of leases (3.3) (2.9) (5.9)
Purchase of share for employee
benefit trust - (0.4) (2.6)
Repayment of term loan and revolving
credit facility (50.4) (80.0) (57.5)
New loans issued 60.0 80.0 80.0
Net (decrease) in borrowings (19.0) (50.3) (80.2)
Net cash used in financing activities (20.7) (59.9) (76.9)
--------------------------------------- ----- ------------- ------------- -------------
Net increase/(decrease) in cash
and cash equivalents 5.0 (40.6) (31.1)
Effect of foreign exchange rate
changes - - (0.2)
--------------------------------------- ----- ------------- ------------- -------------
5.0 (40.6) (31.3)
Opening net cash and cash equivalents 19.3 50.6 50.6
--------------------------------------- ----- ------------- ------------- -------------
Closing net cash and cash equivalents 24.3 10.0 19.3
--------------------------------------- ----- ------------- ------------- -------------
During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBP0.3m (H1 2021: GBP1.3m outflow) and GBPnil was received in respect of investing activities (H1 2021: GBPnil received). There were GBPnil (H1 2021: GBPnil) cash outflows associated with financing activities attributable to Discontinued Operations.
Notes to the Condensed Unaudited Interim Financial Statements
For the 26 weeks to 26 February 2022
1 Basis of Preparation
Smiths News plc is comprised of the Company and its subsidiaries (together referred to as the 'Company').
These unaudited condensed consolidated interim financial statements have been prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting' and also in accordance with the measurement and recognition principles of UK adopted international accounting standards. They do not include all of the information required for full annual financial statements and should be read in conjunction with the 2021 Annual Report and Accounts. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into the UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted international accounting standards in its consolidated financial statements for the 52 week period ending 27 August 2022. There was no impact or changes in accounting from the transition. The financial period represents the 26 weeks ended 26 February 2022 (prior financial period 26 weeks to 27 February 2021, prior financial period 52 weeks ended 28 August 2021).
These condensed consolidated interim financial statements for the current period and prior financial periods do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the prior financial period has been filed with the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006 issued by BDO LLP. The auditors review opinion on the 26 weeks period ended 26 February 2022 is at the end of this report.
A) Discontinued Operations
On 28 February 2020, the Board concluded that the Tuffnells division had met the criteria as being held for sale and should be classified as a Discontinued Operation in accordance with International Financial Reporting Standards (IFRS) 5 'Non-current Assets Held for Sale and Discontinued Operations'. On 2 May 2020 Tuffnells was sold, but the Company 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 movement on which has passed through the income statement in the period. The net results of Discontinued Operations are presented separately in the consolidated income statement.
B) Going concern
The condensed interim financial statements have been prepared on a going concern basis.
The Company currently has a net liability position of GBP38.7m as at 26 February 2022. All bank covenant tests were met at the period end with the key Bank Net Debt: EBITDA (ex IFRS16) ratio of 0.9x, below the facility agreement covenant test threshold of 2.0x reducing by 0.25x to 1.75x at 25 February 2023.
The intra-month working capital cash flow cycle generates a routine and predictable cash swing of up to GBP40m, the Company utilises the Revolving Credit Facility (RCF) to manage this, GBP27.0m of the RCF remains available at the period end. This results in a predictable fluctuation of Bank Net Debt during the month compared to the closing Bank Net Debt position. Our average daily Bank Net Debt during H1 2022 was GBP58.9m (H1 2021: GBP89.5m).
Bank facility
The Company has a facility of GBP90 million, comprising a GBP60 million amortising term loan ('Facility A') and a GBP30 million revolving credit facility ('RCF'). The agreement is with a syndicate of banks comprising lenders HSBC, Barclays, Santander and Clydesdale Banks.
The facility's current margin is 4.25% per annum, plus SONIA (in respect of Facility A and the RCF).
Consistent with the Company's stated strategic priorities to reduce net debt, 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 an amortisation schedule of GBP3.0m in the remainder of FY2022, 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. The RCF 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.
Any remaining balances will be repaid on or before the final maturity date of the facility which is 31 August 2025.
Reverse stress testing
The directors have prepared their base case forecast which represents their best estimate of cash flows over the going concern period 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 2023 if EBITDA (ex IFRS 16) was 40% below expectations and the deferred consideration from the sale of Tuffnells was not received. The directors consider the likelihood of this level of downturn and non-receipt 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; -- banking facilities extend to August 2025; and -- the Company continues to trade with adequate profit to service its debt covenants.
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 payments; -- 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.
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.
2 Accounting Policies
Adoption of new IFRSs
There has been no significant impacts from the adoption of new accounting standards in the current period.
Alternative performance measures
In reporting financial information, the Company presents alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS and therefore may not be directly comparable to similar measures presented by other companies.
The Company 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.
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 changes in key accounting judgements and estimates in the period are laid out below.
Retirement benefit obligations
During the period, 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 H1 2022 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.
Tuffnells deferred consideration
In H1 2022, Tuffnells Holdings Limited (formerly Palm Bidco Limited (THL)) approached the Company regarding the outstanding deferred consideration payable following the acquisition of Tuffnells in May 2020. 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 will accept GBP7.5m in full and final settlement of the outstanding deferred consideration where received on or before 2 August 2022 (Note 9 for further details). If payment of GBP7.5m is not received on or before 2 August 2022, the terms revert back to the original agreement with a total of GBP8.5m payable in two equal tranches of GBP4.25m with the first due on or prior to 2 August 2022 and the second due on or prior to 2 May 2023.
The carrying value of the deferred consideration as at the balance sheet date has been assessed in light of the revised terms, expected timing of the cashflows and amended discount rate and there is no material impact.
The Company has performed sensitivity analysis on the carrying value of the deferred consideration as at the balance sheet date using the possible scenarios below:
-- If the assumption for the likely timing of the cash receipt is accelerated by one month, the impact as at H1 2022 would be a GBP0.4m increase in the carrying value of the Tuffnells deferred consideration receivable and a credit to finance income of the same amount; and
-- If the assumption for the likely timing of the cash receipt is accelerated by three months, the impact as at H1 2022 would be a GBP0.7m increase in the carrying value of the Tuffnells deferred consideration receivable and a credit to finance income of the same amount.
3 Segmental Analysis of Results
In accordance with IFRS 8 'Operating Segments', management has identified its operating segments. The performance of these operating segments is reviewed, on a monthly basis, by the Board. S ince the discontinuation of the Tuffnells business, management consider that due to size there is now only one Continuing segment that meets the IFRS 8 criteria.
4 Adjusted Items
The table below summarises the (costs) / income that have been classified as Adjusted items in the period:
GBPm 26 weeks to 26 26 weeks to 27 52 weeks to 28
Feb 2022 Feb 2021 Aug 2021
----------------- ------- ---------------------------------- ---------------------------------- ----------------------------------
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
Note
----------------- ------- ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Transformation
programme
planning
costs (a) (0.6) - (0.6) - - - (1.1) - (1.1)
Pension (b) (1.7) - (1.7) (0.2) - (0.2) (1.0) - (1.0)
Network and
re-organisation
costs (c) 0.2 - 0.2 0.1 - 0.1 0.1 - 0.1
Share of loss
from joint
ventures (d) - - - - - - (0.3) - (0.3)
Asset
impairments (e) - - - - - - (1.6) - (1.6)
Review and sale
of Tuffnells (f) - (0.1) (0.1) - (0.4) (0.4) - (0.6) (0.6)
VAT Refund (g) - - - - - - - 0.4 0.4
Other - - - - - - 0.1 - 0.1
Total before tax
and interest (2.1) (0.1) (2.2) (0.1) (0.4) (0.5) (3.8) (0.2) (4.0)
Finance income
- unwind of
deferred
consideration (h) 1.4 - 1.4 1.7 - 1.7 3.5 - 3.5
----------------- ------- ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Total before tax (0.7) (0.1) (0.8) 1.6 (0.4) 1.2 (0.3) (0.2) (0.5)
Taxation 0.1 - 0.1 - - - 0.3 0.1 0.4
-------------------------- ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Total after taxation (0.6) (0.1) (0.7) 1.6 (0.4) 1.2 - (0.1) (0.1)
-------------------------- ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Adjusted items on a continuing basis for the period totalled a cost GBP0.6m after tax for the period, compared to GBP1.6m credit in the prior period.
Adjusted items are defined in the Glossary. In the directors' opinion, removing these items from Adjusted profit provides a relevant analysis of the trading results of the Company because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team. However, these additional measures are not intended to be a substitute for, or superior to, IFRS measures. They comprise:
a) Transformation programme planning costs GBP0.6m (H1 2021: GBPnil, FY 2021: GBP1.1m)
The Company continued to incur professional fees in relation to strategic planning projects which will be concluded in H2 2022. These costs are reported as adjusting items on the basis that they are significant in both nature and quantum and are non-recurring in nature.
b) Pensions GBP1.7m (H1 2021: GBP0.2m, FY 2021: GBP1.0m)
The Trust completed the wind-up of the News Section of the WH Smith 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 former members owed amounts following the Lloyds GMP ruling in November 2020. The monies paid into the escrow account have 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 at a cost of GBP0.1m less than the amount held in the escrow account. This amount has been credited to the Adjusted items in the Income statement.
In H1 2022, the Company incurred GBP0.4m (H1 2022: GBP0.2m) in pension administrative expenses and other professional fees as a result of the winding up process.
Costs of GBP0.1m (H1 2021: GBP0.4m) were incurred in the rationalisation of the Company's pension portfolio.
These costs are reported as adjusting items on the basis they are significant in both nature and quantum and are unrelated to the Group's ordinary activities.
c) Network and re-organisation credits GBP0.2m (H1 2021: GBP0.1m, FY 2021: GBP0.1m)
The disposal of the Tuffnells business 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 has released GBP0.2m (H1 2021: GBP0.1m, FY 2021: GBP0.1m) of this provision in the current period.
These costs are reported as adjusting items on the basis that the original provision was reported as adjusting.
d) Share of profit of joint ventures GBPnil (H1 2021: GBPnil, FY 2021: GBP0.3m)
During the period ended 28 August 2021 Rascal Solutions Limited, one of the Company's joint ventures wrote off an intangible asset in its own accounts as it considered it to have no future economic value. There has been no significant asset impairments or write downs in the current period.
These costs are considered adjusting because they are significant to the investment in Rascal, are non-recurring in nature and to aid comparability between periods.
e) Asset Impairments GBPnil (H1 2021: GBPnil, FY 2021: GBP1.6m)
During the period ended 28 August 2021 the Company reviewed the business plan for its Rascal joint venture and assessed that its investment had been impaired by GBP1.6m. In the current period Rascal has performed in line with expectations and no further impairment loss or reversal is indicated.
The Company considers the impact to be adjusting given the impairment charge is significant in both quantum and nature to the results of the Company.
f) Review and sale of Tuffnells GBP0.1m (HY 2021: GBP0.4, FY 2021: GBP0.6m)
As part of the sale of Tuffnells the Company assumed liability to settle certain pre-disposal insurance and legal claims relating to: employer's liability, public liability, motor accident claims and legal claims. In the current financial period GBP0.1m (HY 2021: GBP0.4m, FY 2021: GBP0.6m ) of costs were recognised due to clarification of the likely settlement costs of existing claims.
These costs are considered adjusting because they are unrelated to the Company's ordinary activities and to aid comparability between periods.
g) VAT refund GBPnil (HY 2021: GBPnil, FY 2021: GBP0.4m)
During the period ended 28 August 2021 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 reported as adjusted based on its quantum and that it was unrelated to the Group's ordinary activities.
h) Finance income - deferred consideration GBP1.4m income (H1 2021: GBP1.7m, FY 2021: GBP3.5m)
During the current period, GBP1.4m of finance income has been recognised in relation to the unwind of the discount on the Tufnells deferred consideration.
The deferred consideration arose on the disposal of Tuffnells and for that reason has been classified as adjusting because it does not relate to the underlying trade of the business.
5 Retirement Benefit Obligation
Defined benefit pension schemes
In the period the Company was responsible for one defined benefit scheme, the WH Smith Pension Trust (the 'Pension Trust'). On 25 February 2022 the scheme was wound-up with a Deed of Termination being signed by the Company and the Trustee at that date.
The amounts recognised in the balance sheet are as follows:
GBPm As at 26 As at 27 As at 28
Feb 2022 Feb 2021 Aug 2021
---------------------------- ----------- ------------ ------------
Present value of defined
benefit obligation - (470.4) (0.1)
Fair value of assets - 486.4 14.9
---------------------------- ----------- ------------ ------------
Net surplus - 16.0 14.8
Amounts not recognised due
to asset limit - (16.0) (14.8)
Pension liability - - -
---------------------------- ----------- ------------ ------------
The IAS 19 pre-tax surplus of GBP14.8m has been recognised through other comprehensive income in H1 2022 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 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.
During the period GBP0.4m 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.
The principal long-term assumptions used to calculate scheme liabilities on all Company schemes are:
% p.a. 26 weeks to 26 weeks to 52 weeks to
26 Feb 2022 27 Feb 2021 28 Aug 2021
----------------------------- -------------- ------------- -------------
Discount rate N/a 1.80% 1.95%
Inflation assumptions - CPI N/a 2.70% 2.80%
Inflation assumptions - RPI N/a 3.30% 3.40%
----------------------------- -------------- ------------- -------------
A summary of the movements in the net balance sheet asset / (liability) and amounts recognised in the Company Income Statement and Other Comprehensive Income are as follows:
GBPm Fair value Defined Impact of Total
of scheme benefit IFRIC 14
assets obligation on defined
benefit
pension
schemes
------------------------------------------ ----------- ------------- ------------ ------
At 29 August 2020 496.4 (481.2) (15.2) -
------------------------------------------ ----------- ------------- ------------ ------
Interest cost 3.6 (3.6) (0.1) (0.1)
Total amount recognised in income
statement 3.6 (3.6) (0.1) (0.1)
------------------------------------------ ----------- ------------- ------------ ------
Return on plan assets excluding
amounts included in net interest (2.9) - - (2.9)
Actuarial gains on scheme liabilities - 3.7 - 3.7
Change in surplus not recognised - - (0.7) (0.7)
------------------------------------------ ----------- ------------- ------------ ------
Amount recognised in other comprehensive
income (2.9) 3.7 (0.7) 0.1
------------------------------------------ ----------- ------------- ------------ ------
Employer contributions - - - -
Benefit payments (10.7) 10.7 - -
------------------------------------------ ----------- ------------- ------------ ------
Amounts included in cash flow
statement (10.7) 10.7 - -
------------------------------------------ ----------- ------------- ------------ ------
At 27 February 2021 486.4 (470.4) (16.0) -
------------------------------------------ ----------- ------------- ------------ ------
Interest cost 0.8 (0.6) (0.1) 0.1
Administration expenses (0.4) - - (0.4)
Total amount recognised in income
statement 0.4 (0.6) (0.1) (0.3)
------------------------------------------ ----------- ------------- ------------ ------
Return on plan assets excluding
amounts included in net interest (5.8) - - (5.8)
Actuarial gains on scheme liabilities - 4.8 - 4.8
Change in surplus not recognised - - 1.3 1.3
------------------------------------------ ----------- ------------- ------------ ------
Amount recognised in other comprehensive
income (5.8) 4.8 1.3 0.3
------------------------------------------ ----------- ------------- ------------ ------
Employer contributions - - - -
Benefit payments (3.8) 3.8 - -
------------------------------------------ ----------- ------------- ------------ ------
Amounts included in cash flow
statement
------------------------------------------ ----------- ------------- ------------ ------
Settlement (462.3) 462.3 - -
------------------------------------------ ----------- ------------- ------------ ------ At 28 August 2021 14.9 (0.1) (14.8) - ------------------------------------------ ----------- ------------- ------------ ------ Purchase of indemnity insurance (1.2) - - (1.2) Other Administrative expenses (0.4) - - (0.4) ------------------------------------------ ----------- ------------- ------------ ------ 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 26 February 2022 - - - - ------------------------------------------ ----------- ------------- ------------ ------ 6 Income Tax Expense
The income tax charge for the 26 weeks ended 26 February 2022 is calculated based upon the effective tax rates expected to apply to the Company for the full year. The rate of tax on Adjusted profits before tax from Continuing Operations is 20.3% (H1 2021: 20.8%). The rate of tax on Adjusted profits (on both Continuing and Discontinued Operations) is 20.5% (H1 2021: 18.7%).
An increase in the UK corporation tax rate to 25% from 1 April 2023 was substantially enacted at the balance sheet date. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
7 Dividends
Paid and proposed dividends 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
for the period to 26 to 27 to 28 to 26 to 27 to 28
Feb 2022 Feb 2021 Aug 2021 Feb 2022 Feb 2021 Aug 2021
Per share Per share Per share GBPm GBPm GBPm
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Interim dividend 1.4p - 0.5p 3.3 - 1.2
Final dividend - - 1.15p - - 2.8
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
1.4p - 1.65p 3.3 - 4.0
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Recognised dividends
for the period
Per share Per share Per share GBPm GBPm GBPm
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Final dividend - prior
year - - 1.15p 2.8 - -
Interim dividend - - - - - - -
current year
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
- - 1.15p 2.8 - -
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
An interim dividend of 1.4p per ordinary share is proposed for the 26-week period to 26 February 2022 (February 2021: GBPnil per ordinary share), which is expected to be paid on 7 July 2022 to all shareholders who are on the register of members at the close of business on 10 June 2022. The ex-dividend date will be 9 June 2022. While no dividend was proposed at the H1 2021 interim financial report, a dividend of 0.5p per share was subsequently proposed in June 2021 and paid in July 2021.
The FY2021 final dividend of 1.15p per share (GBP2.8m) was approved by shareholders at the Annual General Meeting on 20 January 2022 and paid on 10 February 2022 and is recognised in this period.
8 Earnings per share
26 weeks to 26 Feb 26 weeks to 27 52 weeks to 28
2022 Feb 2021 Aug 2020
Earnings Weighted Pence Earnings Weighted Pence Earnings Weighted Pence
(GBPm) average per (GBPm) average per (GBPm) average per
number share number share number share
of shares of shares of shares
million million million
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Weighted average
number of shares
in issue 247.7 247.7 247.7
Shares held
by the ESOP
(weighted) (7.0) (2.5) (4.2)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
240.7 245.2 244.5
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Basic earnings
per share (EPS)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Continuing
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted earnings
attributable
to ordinary
shareholders 12.2 240.7 5.1 11.4 245.2 4.6 26.3 243.5 10.8
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted items (0.6) 1.6 -
Earnings attributable
to ordinary
shareholders 11.6 240.7 4.8 13.0 245.2 5.3 26.3 243.5 10.8
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Discontinued
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted Profit
attributable
to ordinary
shareholders - 240.7 - - 245.2 - - 243.5 -
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted items (0.1) (0.4) (0.1) - -
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Profit/(loss)
attributable
to ordinary
shareholders (0.1) 240.7 - (0.4) 245.2 (0.2) (0.1) 243.5 -
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Total - Continuing
and Discontinued
Operations
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted earnings
attributable
to ordinary
shareholders 12.2 240.7 5.1 11.4 245.2 4.6 26.3 243.5 10.8
Adjusted items (0.7) 1.2 (0.1)
Earnings attributable
to ordinary
shareholders 11.5 240.7 4.8 12.6 245.2 5.1 26.2 243.5 10.8
---------------------- -------- ---------- ------ -------- ---------- -------
Diluted earnings
per share (EPS)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Effect of dilutive
securities 11.3 10.9 2.6
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Continuing
Diluted Adjusted
EPS 12.2 252.0 4.8 11.4 256.1 4.5 26.3 254.8 10.3
Diluted EPS 11.6 252.0 4.6 13.0 256.1 5.1 26.3 254.8 10.3
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Discontinued
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Diluted Adjusted EPS - 252.0 - - 256.1 - - 254.8 - Diluted EPS (0.1) 252.0 - (0.4) 245.2 (0.2) (0.1) 254.8 - ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Total - Continuing and Discontinued Operations ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Diluted Adjusted EPS 12.2 252.0 4.8 11.4 256.1 4.5 26.3 254.8 10.3 Diluted EPS 11.5 252.0 4.6 12.6 256.1 4.9 26.2 254.8 10.3 ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Due to the higher average amount of shares held in Trust during the period and the number of options outstanding in the prior period, the dilutive shares decreased the basic number of shares at February 2021 by 4.1m to 252.0m (Feb 2021: 256.1m) and resulted in a Continuing diluted Adjusted EPS of 4.8p, an increase of 0.3p or 6.7% on prior period.
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 11.3m dilutive shares (Feb 2021: 10.9m). There is no further dilutive effect from deferred consideration in the period.
9 Discontinued Operations
Tuffnells
On 14 April 2020, a share purchase agreement was signed with Tuffnells Holdings Limited (formerly Palm Bidco Limited (THL)) to sell Tuffnells subject to shareholder approval. At the Company's General Meeting held on 1 May 2020 shareholders approved the sale and completion concluded on 2 May 2020.
The key terms of the share purchase agreement were as follows:
Unsecured consideration payable by THL to the Company of GBP15.0m in cash, payable in three tranches as follows:
-- GBP6.5m on the date 18 months following Completion (2 November 2021); -- GBP4.25m on or prior to the date 27 months following Completion (2 August 2022); and -- GBP4.25m on or prior to the date 36 months following Completion (2 May 2023).
The Company discounted the consideration at 30% and recognised GBP7.1m on Completion. The first tranche of the unsecured consideration (GBP6.5m) was paid on 2 November 2021 (18 months following Completion) by THL and the remaining balance has unwound to GBP6.5m and is shown as a current asset within Trade and other receivables.
The Company also agreed to make available a loan facility secured against selected properties. The total facility available was GBP10.5m and included a 10% coupon. On Completion GBP6.5m was drawn immediately. The facility was fully repaid (GBP6.7m) in October 2020. As a result, the remaining part of the loan has been cancelled and the security held over the properties has been released.
In H1 2022, THL approached the Company regarding the outstanding deferred consideration payable following the acquisition of Tuffnells in May 2020. 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 will accept GBP7.5m in full and final settlement of the outstanding deferred consideration where received on or before 2 August 2022. The carrying value of the deferred consideration has been assessed in light of the revised terms and there is no material impact.
Following the balance sheet date, the Company received a payment of GBP7.5m on 29 April 2022 in full and final settlement of the deferred consideration arising from the sale of Tuffnells in May 2020. This sum will be used to pay down debt under the terms of the banking agreement.
Tuffnells were covered under a Company insurance policy and as part of the disposal the decision was made that the Company would pay for certain pre-existing motor and employment liability claims that Tuffnells incurred prior to disposal. These claims will be settled as they arise. On Completion the total liability was estimated at GBP1.8m. There was a charge in the period of GBP0.1m in respect of claims and a balance of GBP0.8m remains as a provision at 26 February 2022.
10 Net Cash Inflow from Operating Activities
26 weeks 26 weeks 52 weeks
to to to
GBPm 26 Feb 2022 27 Feb 28 Aug
2021 2021
-------------------------------------- ----- ------------ --------- -----------
Continuing statutory operating
profit 17.0 18.8 35.8
Discontinued operating loss (0.1) (0.4) (0.2)
Operating profit 16.9 18.4 35.6
Profit on disposal of property,
plant and equipment - (0.2) (0.2)
Share of (profits)/losses of jointly
controlled entities (0.2) (0.1) 1.8
Pension receipts 8.1 - -
Depreciation of property, plant
and equipment 1.2 1.3 2.4
Depreciation of ROU assets 3.3 3.1 6.4
Amortisation of intangible assets 0.8 0.9 1.9
Impairment of Tuffnells assets - - 0.1
Share based payments 0.6 0.4 1.0
(Increase)/decrease in inventories (1.4) (1.2) 0.7
(Increase)/decrease in receivables (2.2) 9.3 5.4
Decrease in payables (4.5) (13.8) (5.1)
Decrease in provisions (0.5) (2.2) (2.8)
Non cash pension and admin costs 1.6 - 0.5
Net income tax paid (3.4) (2.8) (6.3)
Net cash inflow from operating
activities 20.3 13.1 41.4
--------------------------------------------- ----------- --------- ---------
During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBP0.3m (H1 2021: GBP1.3m outflow).
11 Intangible Assets
Goodwill is not amortised but tested annually for impairment. As a result of these reviews, goodwill was fully impaired in previous periods.
There are no material acquired intangible assets the breakdown of acquired intangibles and goodwill is as follows:
Goodwill Acquired Intangibles Total
------- --------------------------------------- ----------------------------------- -----------------------------------
GBPm On acquisition H1 H1 FY On acquisition H1 H1 FY On acquisition H1 H1 FY
2022 2021 2021 2022 2021 2021 2022 2021 2021
------- -------------- ------- ----- ------- -------------- ----- ----- ----- -------------- ----- ----- -------
DMD 5.7 - - - 2.6 - - - 8.3 - - -
Smiths
News - - - - 0.3 - - - 0.3 - - -
Total 5.7 - - - 2.9 - - - 8.6 - - -
------- -------------- ------- ----- ------- -------------- ----- ----- ----- -------------- ----- ----- -------
Other intangibles 2.0 3.0 2.3
----------------------- ------- ----- ------- -------------- ----- ----- ----- -------------- ----- ----- -------
Total Intangible
assets 2.0 3.0 2.3
---------------------------- -------- --- --- -------------- ----- ----- ----- -------------- ----- ----- -----
12 Cash and Borrowings
Cash and borrowings by currency (sterling equivalent) are as follows:
GBPm Sterling Euro USD Other Total At 27 At 28
26 Feb Feb 2021 Aug 2021
2022
-------------------------------- --------- ---- --- ----- -------- ---------
Cash and bank deposits 23.2 0.6 0.3 0.2 24.3 10.0 19.7
Overdrafts- included in
cash and cash equivalents - - - - - - (0.4)
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Net Cash and cash equivalents 23.2 0.6 0.3 0.2 24.3 10.0 19.3
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Revolving credit facility (3.0) - - - (3.0) - -
Term loan - disclosed
within current liabilities (10.3) - - - (10.3) (21.3) (21.2)
Term loan - disclosed
within non-current liabilities (49.8) - - - (49.8) (58.7) (51.3)
Unamortised arrangement
fees - disclosed within
non-current liabilities 2.9 2.9 2.0 1.2
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Total borrowings - Continuing (60.2) - - - (60.2) (78.0) (71.3)
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Overdrafts - Discontinued - - - - - - -
Total overdraft and borrowings (60.2) - - - (60.2) (78.0) (71.3)
-------------------------------- --------- ---- --- --------
Net borrowings (37.0) 0.6 0.3 0.2 (35.9) (68.0) (52.0)
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Total borrowings
-------------------------------- --------- ---- --- ----- -------- --------- ---------
Amount due for settlement
within 12 months (13.3) - - - (13.3) (21.3) (21.2)
Amount due for settlement
after 12 months (46.9) - - - (46.9) (56.7) (50.1)
-------------------------------- --------- ---- --- ----- -------- --------- ---------
(60.2) - - - (60.2) (78.0) (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 a 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 an amortisation schedule of GBP3.0m in the remainder of FY2022, 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. The RCF 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 4.25% per annum over SONIA (in respect of Facility A and the RCF).
At 26 February 2022, the Company had GBP27.0m (27 February 2021: GBP35.0m) of undrawn committed borrowing and cash facilities in respect of which all conditions precedent had been met.
Analysis of net debt
As at As at As at
GBPm 26 Feb 2022 27 Feb 2021 28 Aug 2021
--------------------------------------- ----------- ----------- -----------
Cash and bank deposits 24.3 10.0 19.7
Overdrafts - included in cash
flow as cash and cash equivalents - - (0.4)
Cash and cash equivalents 24.3 10.0 19.3
---------------------------------------- ----------- ----------- -----------
Current borrowings (13.3) (21.3) (21.2)
Non-current borrowings (46.9) (56.7) (50.1)
---------------------------------------- ----------- ----------- -----------
Net borrowings including unamortised
arrangement fees (35.9) (68.0) (52.0)
---------------------------------------- ----------- ----------- -----------
Unamortised arrangement fees (2.9) (2.0) (1.2)
---------------------------------------- ----------- ----------- -----------
Bank Net Debt (38.8) (70.0) (53.2)
---------------------------------------- ----------- ----------- -----------
Lease liabilities* (28.6) (31.3) (29.2)
---------------------------------------- ----------- ----------- -----------
Net debt (67.4) (101.3) (82.4)
---------------------------------------- ----------- ----------- -----------
* The Company's banking covenants are on a 'frozen' GAAP basis. Bank Net Debt is net borrowings of GBP38.8m (H1 2021: 70.0m) and finance lease liabilities of GBPnil as defined by IAS 17 (H1 2021: GBPnil) to calculate Bank Net Debt of GBP38.8m (H1 2021: GBP70.0m).
The movement in net debt in the period includes GBP1.0m (H1 2021: GBP0.9m) loan fee amortisation and GBP2.7m of bank arrangement fees, being GBP1.2m fee paid on the 12 month anniversary of the signing of the original agreement in November 2021 plus GBP1.5m to extend and amend the facility in December 2021 (H1 2021: GBP2.8m).
13 Provisions
GBPm Provision Reorganisation Insurance Property Total
for onerous provisions and legal provisions
contracts provision
------------------------- ------------ ---------------- ---------- ----------- --------
At 28 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
Additions - - (0.1) (0.3) (0.4)
Utilised in period 0.2 0.1 0.5 - 0.8
Released 0.1 - - - 0.1
Unwinding of discount
utilisation - - - (0.1) (0.1)
At 26 February
2022 (0.4) (0.7) (0.9) (4.2) (6.2)
============================= ============ ================ ========== =========== ========
GBPm 26 Feb 2022 27 Feb 28 Aug
2021 2021
------------------------- ------------ ------------ -------------- ----------- ----------
Included within
current liabilities (2.4) (4.1) (3.6)
Included within
non-current liabilities (3.8) (2.5) (3.0)
----------------------------- ------------ ------------ -------------- ----------- ----------
Total (6.2) (6.6) (6.6)
----------------------------- ------------ ------------ -------------- ----------- ----------
Reorganisation provisions of GBP0.7m relates to the restructure of the Smiths News network and the Company's support functions that was announced in prior periods.
Insurance and 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 GBP0.8m relating to claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of the Company's potential dilapidation and other property exit 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 2032, however, approximately GBP1.8m of the potential liability is likely to be payable within five years.
The Company has performed sensitivity analysis on the property provision using the possible scenarios below:
if the discount rate changes by +/- 0.5%, the property provision would change by +/- GBP0.1m;
if the repair cost per square foot changes by +/- GBP1.00p, the property provision would change by +/- GBP0.5m.
14 Contingent Liabilities
The Company has a potential liability that could crystallise in respect of previous assignments of leases where the liability could revert to the Company if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC in 2006, any such contingent liability, which becomes an actual liability, will be apportioned between Smiths News plc and WH Smith PLC in the ratio 35:65 (the actual liability of Smiths News plc in any 12-month period is limited to GBP5m). The Company's share of such liability has an estimated future cumulative gross rental commitment at 26 February 2022 of GBP0.5m (28 August 2021: GBP0.5m).
As at 26 February 2022, the Company have approved letters of credit of GBP3.1m to the insurers of the Company for the motor insurance and employer liability insurance policy. The letter of credit covers the employer deductible element of the insurance policy for insurance claims. Subsequent to the period end the Company was notified that the letters of credit reduced from GBP3.1m to GBP2.4m.
The winding up of the News Section of the Pension Trust following finalisation of the buy-out process to Legal & General Assurance Society Limited was formally completed on 25 February 2022. As part of the wind up, the Company has agreed run-off indemnity coverage with the Trustee for any future member claims that are uninsured liabilities capped at GBP6.5m over the next 60 years.
15 Share Capital a) Share capital GBPm 26 Feb 2022 27 Feb 2021 28 Aug 2021 -------------------------------- ----------- ----------- ----------- Issued and fully paid ordinary shares of 5p each Opening balance 12.4 12.4 12.4 Closing balance 12.4 12.4 12.4 -------------------------------- ----------- ----------- ----------- b) Movement in share capital Number (m) Ordinary shares of 5p each --------------------- --------------------------- At 28 August 2021 247.7 At 26 February 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 meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
c) Share premium GBPm 26 Feb 2022 27 Feb 2021 28 Aug 2021 ----------------- ------------ ------------ ------------ Opening balance 60.5 60.5 60.5 Closing balance 60.5 60.5 60.5 ----------------- ------------ ------------ ------------ 16 Related Party Transactions
No related party transactions had a material impact on the financial performance in the period or financial position of the Company at 26 February 2022. There have been no material changes to or material transactions with related parties as disclosed in Note 32 of the Annual Report and Accounts for the 52-week period ended 28 August 2021 other than the below;
During H1 2022, the Board agreed revised terms with Tuffnells Holdings Limited (formerly Palm Bidco Limited) regarding the outstanding deferred consideration payable such that the Company will accept GBP7.5m in full and final settlement of the outstanding deferred consideration where received on or before 2 August 2022 (see Note 9 for further detail). The Chairman of Tuffnells Holdings Limited is also a non-executive director of Smiths News plc.
Key management compensation
Transactions between the Company and key management personnel in the period relate only to remuneration consistent with the policy set out in the Directors' Remuneration Report within the Company's 2021 Annual Report. There have been no other material changes to the arrangements between the Company and key management personnel in the period.
17 Subsequent events
As at 26 February 2022, the Company have approved letters of credit of GBP3.1m to the insurers of the Company for the motor insurance and employer liability insurance policy. The letter of credit covers the employer deductible element of the insurance policy for insurance claims. After the balance sheet date, the Company was notified that the letters of credit reduced from GBP3.1m to GBP2.4m.
The Company received a payment of GBP7.5m on 29 April 2022 from Tuffnells Holdings Limited (formerly Palm Bidco Limited) in full and final settlement of the deferred consideration arising from the sale of Tuffnells in May 2020. This sum will be used to pay down debt under the terms of the banking agreement.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have adopted various Alternative Performance Measures (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 Company'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 Company'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.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS measure to IFRS measure for reconciliation
Income Statement
Adjusted No direct N/A Note 4 Adjusting items of income or
Items equivalent expenses are excluded in arriving
at Adjusted operating profit
to present a further measure
of the Company'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 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.
--------------- ------------------ -------------------- ----------------------------------------
Adjusted Operating Adjusted items Income statement/ Adjusted operating profit is
operating profit* Note 4 defined as operating profit
profit from Continuing Operations,
excluding the impact of adjusting
items (defined above). This
is the headline measure of
the Company's performance and
is a key management incentive
metric.
--------------- ------------------ -------------------- ----------------------------------------
Adjusted Profit Adjusted items Income statement/ Adjusted profit before tax
profit before 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 items Income statement/ Adjusted profit after tax is
profit after Note 4 defined as profit after tax
after tax (PAT) from Continuing Operations,
tax excluding the impact of adjusting
items (defined above).
--------------- ------------------ -------------------- ----------------------------------------
Adjusted Operating Depreciation Adjusted This measure is based on business
EBITDA profit* and amortisation EBITDA (ex unit operating profit from
Adjusted items IFRS 16) Continuing Operations. It excludes
Continuing depreciation, amortisation
Operations and adjusting items. This is
reconciliation the headline measure of the
following Company's performance and is
this Glossary a key management incentive
metric.
Adjusted Operating Depreciation Adjusted This measure is based on business
EBITDA profit* and amortisation EBITDA (ex unit operating profit from
(ex IFRS16) Adjusted IFRS 16) Continuing Operations.
items Continuing It excludes depreciation,
Operations amortisation and adjusting
reconciliation items after deducting IAS 17
following operating lease costs. This
this Glossary is the headline measure of
the Company's performance and
is a key management incentive
metric.
Adjusted Earnings Adjusted items Note 8 Adjusted earnings per share
earnings per share is defined as continuing Adjusted
per share PBT, less taxation attributable
to Adjusted PBT and including
any adjustment for minority
interest to result in Adjusted
PAT attributable to shareholders;
divided by the basic weighted
average number of shares in
issue.
--------------- ------------------ -------------------- ----------------------------------------
Cash flow Statement
Free cash Cash generated Dividends, Reconciliation Free cash flow is defined as
flow from acquisitions of free cash flow excluding the following:
operating and disposals, cash flow payment of the dividend, acquisitions
activities Repayment to net movement and disposals, the repayment
of bank loans, in cash of bank loans and EBT share
EBT share and cash purchases. This measure reflects
purchases, equivalents the cash available to shareholders.
Pension deficit following
repair payments this Glossary
--------------- ------------------ -------------------- ----------------------------------------
Balance Sheet
Bank Net Borrowings Cash flow Bank Net Debt is calculated
Debt less cash statement as total debt less cash and
cash equivalents. Total debt
includes loans and borrowings,
overdrafts and obligations
under finance leases as defined
by IAS 17.
--------------- ------------------ -------------------- ----------------------------------------
Net Debt Borrowings Cash flow Net Debt is calculated as total
less cash statement debt less cash and cash equivalents.
Total debt includes loans and
borrowings, overdrafts and
obligations under leases.
--------------- ------------------ -------------------- ----------------------------------------
* Operating profit is presented on the Company's 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 of free cash flow to net movement in cash and cash equivalents is shown below:
26 Feb 2022 27 Feb 2021 28 Aug 2021
------------------------------------------------------ ------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents 5.0 (40.6) (31.3)
Decrease in borrowings and overdrafts 9.4 50.3 57.8
Movement in borrowings and cash 14.4 9.7 26.5
Dividend paid 2.8 - 1.2
Receipt of Tuffnells Loan - (6.7) (6.7)
Net outflow on purchase of shares for EBT - 0.4 2.6
Other - (0.1) -
------------------------------------------------------ ------------ ------------ ------------
Total free cash flow 17.2 3.3 23.6
Add back cash outflow from Discontinued Operations 0.3 1.3 0.4
------------------------------------------------------ ------------ ------------ ------------
Continuing free cash flow 17.5 4.6 24.0
------------------------------------------------------ ------------ ------------ ------------
Adjusted EBITDA (ex IFRS 16) Continuing Operations reconciliation
A reconciliation of operating profit to Adjusted EBITDA (ex IFRS 16) is included below:
GBPm 26 weeks to 26 Feb 2022 26 weeks to 27 Feb 2021 52 weeks to 28 Aug 2021 ------------------------------- ------------------------ ------------------------ ------------------------ Operating profit 17.0 18.8 35.8 Adjusted items 2.1 0.1 3.8 Depreciation and amortisation 5.3 5.5 10.7 ------------------------------- ------------------------ ------------------------ ------------------------ Adjusted EBITDA 24.4 24.4 50.3 Operating lease charges* (3.7) (3.9) (7.7) Adjusted EBITDA (ex IFRS 16) 20.7 20.5 42.6 ------------------------------- ------------------------ ------------------------ ------------------------
* Operating lease charges is the rental charge that would have passed through the income statement for leases previously defined as operating leases under IAS 17.
INDEPENT REVIEW REPORT TO SMITHS NEWS plc
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 26 week period ended 26 February 2022 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity the Condensed Consolidated Group Cash Flow Statement and the related notes to the Consolidated Unaudited Interim Financial Statements.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 week period ended 26 February 2022 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London UK
3 May 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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END
IR UOONRUUUVRAR
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