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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 | 62.968 | 64.50 | 47,151 | 15:28:59 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Dec 2019 to Dec 2024
TIDMSNWS
RNS Number : 5404X
Smiths News PLC
05 May 2021
This announcement contains inside information
Smiths News PLC
(Smiths News or the Company)
Unaudited Interim Financial Results for the 26 weeks ended 27 February 2021 and
retirement of Chief Financial Officer
Resilient performance giving confidence to future restoration of dividend
Smiths News has returned a resilient performance despite challenges in the wider economy and against a comparative period that pre-dated the COVID-19 pandemic. Our plans to deliver value by focusing on core operations and strengthening the Company's financial base are firmly on track. Subject to current performance being maintained, the Board expects to reintroduce the payment of a dividend later in H2 FY2021.
Hot Features
Premium
Continuing Adjusted results 26 weeks 26 weeks to Change
(1) to 29 Feb 2020(6)
27 Feb 2021
Revenue GBP551.6m GBP623.1m -11.5%
Adjusted EBITDA (ex IFRS16)
(3) GBP20.5m GBP21.7m -5.5%
Adjusted Operating profit GBP18.9m GBP19.9m -5.0%
Adjusted Profit before tax GBP14.4m GBP16.3m -11.7%
Adjusted Basic earnings per
share 4.6p 5.4p -14.8%
Statutory continuing results
Revenue GBP551.6m GBP623.1m -11.5%
Operating profit GBP18.8m GBP10.3m 82.5%
Profit before tax GBP16.0m GBP6.7m 138.8%
Basic earnings per share 5.3p 1.8p 194.4%
Interim dividend per share Nil p Nil p -
Free cash flow (2) GBP4.6m GBP5.0m -8.0%
Bank net debt (4) GBP70.0m GBP68.5m 2.2%
Net debt (including IFRS16
lease transition)(4) GBP101.3m GBP146.2m -30.7%
------------------------------ ------------- ---------------- -------
Headlines
-- Overall performance in H1 2021 was in line with the Board's expectations, with good progress on strategic priorities.
-- Adjusted EBITDA of GBP20.5m (H1 2020: GBP21.7m) is a resilient performance despite the challenging environment.
-- The core newspaper and magazine wholesale business delivered EBITDA ahead of last year.
-- Newspaper and magazine sales were impacted by COVID-19 but more stable in the period compared to H2 2020, with significantly fewer retail closures in the subsequent lockdowns.
-- Savings from operations and central overheads fully offsetting the margin impact of reduced core wholesale revenues.
-- Statutory profit before tax of GBP16.0m, was GBP9.3m favourable on the prior year period which had included impairments.
-- Successful refinancing in November 2020 and targeted reduction of net debt to 1 X EBITDA on track by end of FY2023.
-- Tony Grace (Chief Financial Officer) has confirmed his intention to retire on 31 December 2021-a process to appoint his successor is underway.
Outlook
Trading for the year to date is in line with the Board's expectations and on track to meet the market's expectations for the full year. Subject to current performance being maintained, the Board expects to reintroduce the payment of dividends later in H2 FY2021.
Jonathan Bunting, Chief Executive Officer, commented:
'In what have been challenging circumstances we have made good progress with our plans to focus operations and deliver improved value for stakeholders. Despite the further lockdowns we have secured material efficiencies that will bring continuing benefits as restrictions are eased. We are therefore confident in the ongoing performance of the business and of returning to the payment of a dividend later in the financial year.'
Enquiries:
Smiths News PLC Jonathan Bunting, Chief Executive Officer Via Buchanan Tony Grace, Chief Financial Officer www.corporate.smithsnews.co.uk Buchanan Richard Oldworth / Jamie Hooper smithsnews @buchanan.uk.com www.buchanan.uk.com 020 7466 5000
A recording of the presentation for analysts will be made available on the Company's website from 11.00am on 5 May 2021 - see the Investor Relations section at www.corporate.smithsnews.co.uk/investors .
Notes
The Group uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'bank net debt', 'free cash flow', 'Adjusted revenue', '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 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; are items of income or expense that are considered significant, in nature or value, and are excluded in arriving at Adjusted profit measures. The purpose is considered to enhance the users understanding of the Company's performance as it aids the comparability of information between reporting periods and business units by adjusting for non-recurring or uncontrollable factors which affect IFRS measures. The specific items vary between financial years, and may include certain disposal related costs, legal provisions, amortisation of intangibles, integration costs, business restructuring costs and network re-organisation costs including those relating to strategy changes which are not normal operating costs of the underlying business. They are disclosed and described separately in Note 4 of the 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, EBT share purchases and cash flows relating to pension deficit repair.
(3) Adjusted EBITDA (ex IFRS16) - is calculated as Adjusted operating profit before depreciation and amortisation, excluding the impact of IFRS16 changes to leases. In line with loan agreements Adjusted Bank EBITDA used for covenant calculations is calculated as Adjusted operating profit before depreciation, amortisation, Adjusted items and share based payments charge but after adjusting for the last 12 months of profits/(losses) for any acquisitions or disposals made in the year.
(4) Bank net debt - 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.
(5) H1 2021 - refers to the 26 weeks ended 27 February 2021 and FY2021 refers to the 52 week period ended 28 August 2021. H1 2020 refers to the 26 week period ended 29 February 2020 and FY 2020 refers to the 52 week period ended 29 August 2020.
(6) The Interim Results have been prepared and presented on a continuing operations basis after adjusting for the discontinued operations of the Tuffnells business.
About Smiths News PLC
Smiths News PLC and its core business, Smiths News, is the UK's largest newspaper and magazine wholesaler, with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the major national and regional publishers, delivering to approximately 24,000 customers across England and Wales on a daily basis. The speed of turnaround and the density of Smiths News' coverage is critical to one of the world's fastest physical supply chains.
Ancillary businesses include: Dawson Media Direct (DMD) which supplies airlines and travel points in the UK; and Instore, which offers field marketing services to retailers and suppliers across the UK .
Notes to Editors
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 27 February 2021 and the Report and Accounts for the year ended 29 August 2020 which can be found on the Investor Relations section of the Smiths News PLC website - www.corporate.smithsnews.co.uk/investors. However, the contents of Smiths News PLC's website are not incorporated into and do not form part of this document.
OPERATING REVIEW
Overview
Overall performance was in line with the Board's expectations for the period and is on track to meet full year market expectations.
Adjusted EBITDA of GBP20.5m was down 5.5% (H1 2020: GBP21.7m) from revenues of GBP551.6m that were down 11.5% (H1 2020: GBP623.1m), confirming the continuing resilience of our business model given that prior year comparators are from an entirely pre-COVID-19 period.
Sales trends of newspapers and magazines have recovered and stabilised from the sharp declines experienced in H2 2020, with significantly fewer retail outlets having closed in the subsequent lockdowns. Nonetheless, the pandemic has continued to impact sales and profitability, requiring decisive action to control costs while maintaining essential service to the communities we serve.
Our plans to deliver greater value through more focused operations are on track. Central and operational plans have delivered overall savings marginally ahead of schedule, helping to mitigate the ongoing impact of the pandemic in the period.
The key financial metrics of Adjusted EBITDA, cash and capex are in line with expectations. Net debt remains well within the covenants of our new banking facilities and the first term loan amortisation payment of GBP7.5m was completed in April 2021. We remain on track to reduce bank net debt to 1 x EBITDA by the end of FY2023
Subject to current performance being maintained, the Board expects to reintroduce the payment of dividends later in H2 FY2021.
Operational priorities
At our preliminary results in November 2020 the Company set out three operational priorities for this financial year: proactively managing through the pandemic; securing efficiencies sufficient to offset the decline in core sales; and progressing the next generation of operational efficiencies.
Overall progress on these priorities is good, with an understandable focus on managing through the pandemic in a way that maintains service while pressing ahead with improvements in operational and central costs. As lockdown restrictions ease, we plan to embed the efficiencies we have secured to date and, thereafter, to make further progress on wider network opportunities.
Core wholesale operations
The core wholesale business delivered strong profit and cash generation, with cost efficiencies fully offsetting the decline in margin from sales despite the additional impact of COVID-19. Cost control measures implemented in the first lockdown of 2020 have been maintained and further savings were made in central costs following the disposal of Tuffnells in May 2020. Demonstrating the resilience of its business model, the profitability of the Smiths News core wholesale business is ahead of the prior year.
Sales of newspapers and magazines continued to be challenged in the period but have recovered and stabilised from the sharp declines and fluctuations seen in the early months of the pandemic in 2020. Core sales (excluding DMD) are down by 9.5% in the period with newspapers performing better than magazines, especially in the first quarter. This compares to a decline of 16.9% in H2 2020 and a three-year average decline of circa 3-5% prior to the pandemic. Excluding the impact from travel and commuting retailers (which remain severely impacted by the COVID-19 restrictions) we estimate overall sales in other retailers to be down by circa 8%.
Operational efficiencies have been helped by action taken earlier in the pandemic and we anticipate many of the routing and trunking consolidations will remain until such time as increased volumes justify further costs. Longer term efficiency opportunities will be reviewed once the operational impact of the easing of lockdown restrictions becomes clearer.
Looking ahead, the long-term impact of the pandemic remains unclear, but we are optimistic of prospects for the second half of the year with potential sales increases from the return of sporting events and a gradual return to higher levels of travel and commuting. Our plans for further operating efficiencies are ongoing and we have clear roadmap to secure the necessary savings while maintaining the service excellence that underpins our business model.
As previously reported, following the completion of the long term agreement with Associated Newspapers in October 2020, Smiths News has now secured its contracts with all the major publishers until at least 2024. These contracts encompass 95% of current revenues, with the remainder operating on rolling agreements.
Ancillary businesses
DMD and Instore continue to be more severely impacted by the COVID-19 restrictions. The decisive action we have taken means both businesses are operating on a break-even basis. Nonetheless, the impact on profitability in the period is a year-on-year decline of GBP1.4m. We are cautiously optimistic of improvement over time, however, our overall plans and expectations are not dependent on any recovery.
COVID-19 - impact, response and recovery
Restrictions on social movement and retailing have continued throughout the period, moving from a regionally tiered approach in the autumn of 2020 to a comprehensive lockdown in the early months of 2021.
Service to customers and communities has been fully maintained throughout, requiring adjustments to working procedures and additional costs arising from the continued deployment of necessary safety measures. The Company ended the use of the UK Government's furlough support (CJRS) in FY2020 and has not taken any other financial assistance in this financial year.
The impact on overall sales in the period is estimated to be in the region of 7.5%, calculated as the difference between historic trends and the period's year-on-year performance. The long-term impact on sales cannot yet be quantified, however, our plans are not dependent on a return to former volumes.
Profitability impact has been mitigated by a combination of operating efficiencies and the swift removal of central costs following the sale of Tuffnells.
Sales to retailers serving travel, commuting and business customers remain especially challenged, and more broadly we continue to see weaker sales of products such as one-shot magazines and sticker collections. The return of major sporting events and the gradual increase in travel and commuting is likely to have a positive impact, but it is too early to quantify or plan with any certainty. We are, however, confident that any additional costs from a return to more normal sales patterns can be managed in line with the benefit of any increased volume.
It is too early to quantify the impact of the UK's roadmap to removing COVID-19 restrictions, however, the trajectory is likely to be positive for our customers and publisher partners. We are therefore cautiously optimistic that sales in the second half will maintain their current stability as we press ahead with plans for further efficiency improvements.
Cash Flow and Bank Net Debt
Continuing free cash flow of GBP4.6m (H1 2020: GBP5.0m) and bank net debt of GBP70.0m (H1 2020: GBP68.5m) reflect management's focus on liquidity through the uncertain period of the COVID-19 restrictions. The first amortisation of the term loan, amounting to a repayment of GBP7.5m, was completed 30 April 2021.
Capital Management
The underlying financial position of the Company continues to strengthen, and all lending covenant ratios remain comfortably within the requirements of the new banking facilities, announced in November 2020. Our ongoing approach to capital management is consistent with the conditions of our current banking facilities.
We remain on track to reduce bank net debt to 1x EBITDA by the end of FY2023 and it is the Board's intention to maintain leverage at around that level over the long term. Capital expenditure for maintenance requirements will continue to be closely controlled at a level approximately equal to depreciation of circa GBP4m per annum. Any incremental capital expenditure for growth would be required to achieve an appropriate risk adjusted return on our cost of capital.
Looking ahead the Company expects to reinstate the payment of regular dividends with a dividend cover of 2.0 times. In the near term total dividend payments will be constrained by the dividend caps included within the current bank facilities of GBP4m in FY2021 and GBP6m in each of FY2022 and FY2023.
Having applied the Company's policy in respect of achieving: bank net debt to 1x EBITDA, meeting maintenance and growth capital expenditure requirements, and paying dividends at 2 times cover, then in the event of there being further excess cash, the Company will consider the payment of special dividends.
Dividend
Subject to maintaining performance in line with current expectations, the Board is expecting to return to the payment of dividends later in this financial year.
Retirement of Chief Financial Officer
Tony Grace, (Chief Financial Officer), has confirmed his intention to retire from his executive role on 31 December 2021. As a result, he will also step down from the Board in due course. A process to recruit his successor has commenced, with a view to ensuring a timely and seamless handover of responsibilities, and the Company will make a further announcement when appropriate.
Outlook
While the outlook for the wider economy remains uncertain, we are confident of our ability to deliver improved value for shareholders through a combination of a stronger balance sheet and a capital allocation strategy which provides an attractive yield.
Trading for the year to date is in line with the Board's expectations and on track to meet the market's expectations for the full year. Subject to current performance being maintained, the Board expects to reintroduce the payment of dividends later in H2 FY2021.
FINANCIAL REVIEW
COMPANY INCOME STATEMENT EXTRACTS - CONTINUING
GBPm
26 weeks to 26 weeks to Change
27 Feb 2021 29 Feb 2020
---------------------------- ------------- ------------- ---------
Revenue 551.6 623.1 (11.5%)
----------------------------- ------------- ------------- ---------
Adjusted operating profit 18.9 19.9 (5.0%)
Operating margin 3.4% 3.2% 20bps
Net finance costs (4.5) (3.6) 25.0%
----------------------------- ------------- ------------- ---------
Adjusted profit before tax 14.4 16.3 (11.7%)
Taxation (3.0) (3.1) (3.2%)
Tax rate 20.8% 19.0% 180bps
----------------------------- ------------- ------------- ---------
Adjusted profit after tax 11.4 13.2 (13.6%)
----------------------------- ------------- ------------- ---------
Adjusting items after tax 1.6 (8.8) (118.2%)
----------------------------- ------------- ------------- ---------
Profit after tax 13.0 4.4 195.5%
----------------------------- ------------- ------------- ---------
Revenue
Trading in the period was impacted by the COVID-19 pandemic. The reduction in revenue of GBP71.5m (-11.5%) is in excess of the long term trend (c.-4%) and reflects the impact of regional restrictions, the subsequent UK wide lockdowns announced in November 2020 and January 2021 and the impact of the COVID crisis on the wider economy. Period on period comparisons do not therefore reflect like for like trading conditions, nor are they necessarily representative of current trends as market conditions continue to improve in response to easing of Government restrictions.
Newspaper sales were down GBP35.1m a 9% decline (H1 2020 -2%), magazine sales declined by GBP26.3m a 14% decline (H1 2020 -8%). DMD's revenue of GBP1.8m was down by GBP7.5m (81%) on the prior year period due to the impact of COVID-19 on business and leisure air travel and exacerbated by UK COVID-19 travel restrictions within the UK from the start of calendar year 2021 and other sales declined by GBP2.6m a 6% decline (FY 2020 -8%). All categories were impacted in H1 2021 by the COVID-19 pandemic and restrictions on social movement, retail closures and suppressed economic activity.
Adjusted operating profit
Adjusted operating margin increased to 3.4% by incremental cost savings offsetting the lower revenues.The benefit of actions to control costs will flow through into H2 2021 underpinning the flexibility in our business model and our ability to manage through continued uncertainty.
Adjusted operating profit for the Company was GBP18.9m, a decline of GBP1.0m (5%) on the prior period which comprises a reduction of GBP0.5m (2.6%) for Smiths News (H1 2020:GBP19.3m) and GBP0.5m reduction for DMD (H1 2020: GBP0.6m). Smiths News' Adjusted operating profit of GBP18.8m was GBP0.5m adverse to H1 2020 driven by the following factors:
-- Reduction in net income (GBP7.5m) being total revenue less the wholesale cost of newspaper and magazine purchases as a result of the GBP64.0m decline in revenue,
-- Offset by reductions in volume driven depot and delivery costs (GBP4.0m); and
-- Overhead savings (GBP3.0m) a result of the restructuring implemented at the end of FY20 and transfer of activities to the Shared Service Centre in India.
Net finance costs
Net finance costs of GBP4.5m show an increase of GBP0.9m (25.0%) on the prior period. The increase is due to the unwind of higher arrangement fees and higher interest rates from the Company's refinancing in November 2020. Amortisation of arrangement fees increased by GBP0.6m to GBP0.9m (H1 2020: GBP0.3m) and interest costs on borrowings incurred increased by GBP0.3m to GBP2.7m (H1 2020: GBP2.4m).
COMPANY INCOME STATEMENT EXTRACTS - CONTINUING (continued)
Other
Adjusted profit before tax of GBP14.4m was down by GBP1.9m (11.7%).
The tax charge for the period of GBP3.0m was GBP0.1m down on the prior year period, reflecting an effective tax rate of 20.8% (H1 2020: 19.0%).
Consequently, adjusted profit after tax of GBP11.4m was down GBP1.8m (13.6%) on the prior period.
Adjusting items after tax
GBPm 26 weeks to 27 Feb 2021 26 weeks to 29 Feb 2020 --------------------------------------------------- ------------------------ ------------------------ Network and re-organisation costs 0.1 (2.3) Asset impairments - (6.9) Pension (0.2) (0.4) Total before tax and interest (0.1) (9.6) Finance income - unwind of deferred consideration 1.7 - --------------------------------------------------- ------------------------ ------------------------ Total before tax 1.6 (9.6) Taxation - 0.8 --------------------------------------------------- ------------------------ ------------------------ Total after taxation 1.6 (8.8)
In the Directors' opinion, Adjusted items impact the true underlying performance of the Company and can differ significantly between years. The following has occured in the period:
-- Restructuring provision releases of GBP0.1m credit (H1 2020 GBP2.3m charge) incurred from restructuring costs in the prior period,
-- Impairments of GBPnil as there were no impairments in the period (H1 2020 GBP6.9m),
-- Pension related professional fees of GBP0.2m (H1 2020 GBP0.4m), in relation to the continuing process to 'buy-out' the Smiths News section of the WH Smith Pension Trust (the Company's defined benefit pension scheme - see note 5 for details); and
-- Finance income on deferred consideration of GBP1.7m (H1 2020 GBPnil) has been recognised in relation to the unwind of discount on deferred consideration from disposal of Tuffnells.
Adjusting items are defined in the accounting policies in the glossary and further detail is included in Note 4.
Profit after tax
Profit after tax has increased by GBP8.6m (195.5%) to GBP13.0m as a result of the movements in adjusted profit after tax of GBP1.8m and adjusting items after tax GBP10.4m.
EPS AND DIVID
Continuing Adjusted Continuing Statutory
------------------------------- ------------------------ ----------------------------
26 weeks 26 weeks 26 weeks 26 weeks
to to to to
27 Feb 29 Feb 2020 27 Feb 2021 29 Feb 2020
2021
------------------------------- --------- ------------- ------------- -------------
Profit after tax (GBPm) 11.4 13.2 13.0 4.4
Basic weighted average number
of shares (millions) 245.2 245.9 245.2 245.9
Basic EPS (p) 4.6 5.4 5.3 1.8
Diluted weighted average
number of shares (millions) 256.1 247.1 256.1 247.1
Diluted EPS (p) 4.5 5.3 5.1 1.8
------------------------------- --------- ------------- ------------- -------------
Dividend per share Nil p Nil p Nil p Nil p
EPS (continuing)
On a continuing adjusted basis, profit after tax of GBP11.4m resulted in a basic EPS of 4.6p, a decrease of 13.4% on the prior year period. Including Adjusted items, a statutory continuing profit after tax of GBP13.0m was attributable to equity shareholders. This resulted in a basic continuing statutory EPS of 5.3p, an increase of 3.5p on the prior year period.
The weighted average number of shares decreased by 0.7m to 245.2m.
Dilutive shares increased the basic number of shares at 28 February 2021 by 10.9m to 256.1m. This resulted in a diluted adjusted EPS of 4.5p, a decrease of 15.1% on the prior year period.
The calculation of diluted EPS includes the potential dilutive effect of employee incentive schemes of 10.9m shares (H1 2020: 1.2m).
Statutory continuing EPS was 5.3p (H1 2020: 1.8p), up 194.4%.
FREE CASH FLOW
GBPm Restated
26 weeks to 26 weeks to
27 Feb 2021 29 Feb 2020
---------------------------------------- ------------- -------------
Adjusted operating profit - continuing 18.9 19.9
Depreciation & amortisation 5.5 5.0
------------------------------------------ ------------- -------------
Adjusted EBITDA - continuing 24.4 24.9
Adjusting items cashflow (2.6) (4.2)
Working capital movement (4.8) (3.3)
Capital expenditure (0.6) (3.8)
Lease payments (2.9) (3.9)
Net interest paid (3.5) (3.3)
Arrangement fees (2.8) -
Taxation (2.8) (1.7)
Other movements 0.2 0.3
------------------------------------------ ------------- -------------
Free cash flow - continuing 4.6 5.0
------------------------------------------ ------------- -------------
Free cash flow - discontinued (1.3) 4.1
------------------------------------------ ------------- -------------
Free cash flow 3.3 9.1
------------------------------------------ ------------- -------------
The continuing Company generated free cash flow of GBP4.6m in the period, a decrease of GBP0.4m (8.0%) on the prior year.
Adjusted EBITDA of GBP24.4m was GBP0.5m lower than the prior year period, as a result of the reduction in adjusted operating profit as described above which included GBP0.5m of additional depreciation as a result of short term leases being extended which are now depreciated as right of use assets.
Adjusting items cashflow has reduced by GBP1.6m as a result of lower restructuring costs incurred at the end of the previous financial period.
The working capital movement in the period was a GBP4.8m outflow the result of seasonal variations in activity and the timing of month end payments.
Capital expenditure of GBP0.6m is GBP3.2m lower than H1 2020, as the Company withheld investment in short term as contingency against impact of COVID-19 in H1 21 the Company incurred operational maintenance capital expenditure only.
Lease payments reduced from GBP3.9m in FY20 to GBP2.9m as the Company purchased IT equipment that had come to the end of lease in H2 FY20.
Net interest paid has increased by GBP0.2m to GBP3.5m as a result of higher interest rates under the new debt facility. Average borrowings of GBP89.5m in the first half of the year were 3.7% lower than the equivalent period in the prior year. Arrangement fees of GBP2.8m paid in the current year relate to the debt refinancing completed in November 2020.
Tax paid of GBP2.8m is GBP0.9m higher than the prior year period due to an additional quarterly payment in February 2021 as a result of higher taxable profits and the Company breaching the threshold for quarterly payments on account.
The total cash impact of adjusted items for the period was GBP2.6m compared to the prior year period figure of GBP4.2m. The cash payments in the current period relate to redundancy costs (GBP2.0m) under the network and re-organisation programme, pension advisory fees and costs associated with the DMD lease assignment.
In the prior period, the cash outflow also included redundancy costs and pension advisory fees as well as sale and leaseback transaction fees and transition costs from shared service implementation.
Discontinued cash outflow in the period (GBP1.3m) relates to settlement of incidental costs relating to the disposal of Tuffnells and insurance settlements for certain incidents which had occurring during the Company's ownership of Tuffnells.
In the prior period, the cash inflow resulted from the sale of Tuffnells properties (GBP15.2m) and a cash tax receipt of GBP2m, offset by GBP11m of operating cash outflow and GBP1.4m of adjusting items outflow.
NET BORROWINGS
GBPm
As at As at As at
27 Feb 2021 29 Feb 2020 29 Aug 2020
---------------------------------------------------------- ------------- ------------- -------------
Opening net borrowings (79.7) (72.1) (72.1)
---------------------------------------------------------- ------------- ------------- -------------
Free cash flow - continuing 4.6 5.0 10.9
Other 0.1 (0.3) 0.5
Pension deficit recovery (discontinued) - (0.7) (0.8)
Dividend paid - (2.4) (2.4)
Disposal costs - - (3.7)
Working capital loan repaid/(borrowed) from/to Tuffnells 6.7 - (6.5)
Purchase of own shares for employee share schemes (0.4) (0.7) (0.7)
Free cash flow - discontinued (1.3) 4.1 (4.9)
---------------------------------------------------------- ------------- ------------- -------------
Net borrowings (70.0) (67.1) (79.7)
---------------------------------------------------------- ------------- ------------- -------------
Net borrowings at the end of the period was GBP70.0m compared to GBP67.1m at February 2020. Debt at the end of the half year was lower than the year end position driven primarily by free cash flow generation at Smiths News and the receipt of the working capital loan and interest made to Tuffnells in May 2020 of GBP6.7m.
The Pension deficit recovery payment of GBPnil (H1 2020: GBP0.7m) was in respect of Tuffnells. Pension deficit repair payments are considered as a non-free cash flow item.
NET DEBT
GBPm
---------------------------------------------- ------------- ------------- -------------
As at As at As at
27 Feb 2021 29 Feb 2020 29 Aug 2020
---------------------------------------------- ------------- ------------- -------------
Net borrowings (70.0) (67.1) (79.7)
Finance lease liabilities (IAS 17) - (1.4) -
---------------------------------------------- ------------- ------------- -------------
Bank net debt (70.0) (68.5) (79.7)
---------------------------------------------- ------------- ------------- -------------
Other Lease liabilities (IFRS 16) (31.3) (77.7) (33.4)
---------------------------------------------- ------------- ------------- -------------
Net Debt (including IFRS16 lease transition) (101.3) (146.2) (113.1)
---------------------------------------------- ------------- ------------- -------------
Net borrowings includes finance lease liabilities as defined by IAS 17 as the Company's covenants are on a Frozen GAAP basis and excludes unamortised arrangement fees of GBP2.1m (H1 2020 GBP0.6m)
Bank net debt: EBITDA at the end of February 2021 was 1.83x versus 2.0x at August 2020 and 1.95x at February 2020. This remains within our main leverage covenant ratio of 3.5x (covenant testing is based on frozen GAAP in the bank facility agreement).
Net debt reduced by GBP44.9m to GBP101.3m apart from the above the primary reason for the reduction in Net Debt is the disposal of Tuffnells lease liabilities of GBP45.1m.
PENSION SCHEMES
The Company operates a defined benefit scheme, The Smiths News defined benefit pension scheme (known as the Smiths News section of the WH Smith Pension Trust) which, as at 27 Feburary 2021 had an IAS 19 pre-tax surplus of GBP16.0m. The Smiths News section of the WH Smith Pension Trust is both closed to new entrants and closed to future accrual.
During the period there was a reduction in equalisation liabilities by GBP2.8m to GBP5.4m. On 17 February 2021 the 'buy in' insurance was extended at a cost to the pension scheme of GBP6.2m to cover these liabiliies. The net impact of the items discussed and other movements in the period has resulted in the increase of the pre-tax surplus by GBP0.8m to GBP16.0m.
On 26 February 2021 the Company gave notice to terminate its liability to the pension scheme with effect from 2 March 2021. This notice was accepted by the Trustees and the wind-up of the pension commenced and on 31 March 2021 the pension liabilities covered by the buy-in insurance which had been undertaken in October 2018 transferred over to L&G the new pension provider and "buy-out" concluded, removing the Company's obligation to the members.
At the balance sheet date, the Company does not recognise the GBP16.0m pre-tax surplus as an asset, as it does not yet have an unconditional right to the asset. The right of return is dependent on the conclusion of; a member consultation, pension regulator approval, settlement of other liabilities which are outside the scope of the buy-out and final acceptance from the Trustees. If any surplus is returned to the Company it will be net of additional professional fees and tax which will be charged at a rate significantly higher that the Company's effective tax rate and will materially reduce the surplus balance available to the Company. For more information see note 5.
GOING CONCERN
The condensed financial interim financial statements have been prepared on a going concern basis.
The Company has a net liability position of GBP69.0m as at 27 February 2021 (29 February 2020 GBP85.8m) and continues to be profitable and cash generative. All bank covenant tests were met at the period end and the Company's base forecast anticipates they will continue to be met during the life of the facility agreement which ends in November 2023.
Having considered a number of scenarios including detailed stress tests and the funding requirements of the Company, the Directors are confident that headroom under the bank facility remains adequate and future covenant tests can be met and there is a reasonable expectation that the Company has adequate resources to continue in operational existence for the next 12 months. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements and a full assessment is included in Note 1.
DISCONTINUED OPERATIONS
On 2 May 2020, the Company completed the sale of the Tuffnells business for GBP15.0m of cash, which is deferred and payable over three years from date of disposal. The Company made a secured working capital loan available to the new owners of GBP10.5m, GBP6.5m was drawn at the year end. On 1 October 2020 the full loan was repaid and the security released.
In H2 2020 the disposal of Tuffnells resulted in a profit on disposal of GBP1.8m and disposal costs of GBP3.7m were incurred. Further details of the strategic review and impact of the sale of Tuffnells are provided in Note 9 of the financial statements.
STATUTORY CONTINUING & DISCONTINUED RESULTS
GBPm
26 weeks to 6 months to Change
27 Feb 2021 29 Feb 2020
--------------------------------------------- ------------- ------------- --------
Continuing
Revenue 551.6 623.1 (11.5%)
Operating profit 18.8 10.3 82.5%
Net finance costs (2.8) (3.6) (22.2%)
---------------------------------------------- ------------- ------------- --------
Profit before tax 16.0 6.7 138.8%
Taxation (3.0) (2.3) 30.4%
Tax rate 18.7% 34.3%
---------------------------------------------- ------------- ------------- --------
Profit after tax 13.0 4.4 195.5%
---------------------------------------------- ------------- ------------- --------
Discontinued operations - loss (0.4) (14.5) (97.2%)
---------------------------------------------- ------------- ------------- --------
Profit/ (loss) attributable to shareholders 12.6 (10.1) 224.8%
---------------------------------------------- ------------- ------------- --------
Discontinued Adjusted operating loss for the period to 27 February 2021 of GBPnil (H1 2020: GBP9.2m loss) and adjusted loss before tax of GBPnil (H1 2020: GBP8.4m loss).
Discontinued statutory loss after tax was GBP0.4m (H1 2020: GBP14.5m).
Statutory continuing profit before tax of GBP16.0m to prior year period by GBP9.3m (H1 2020: GBP6.7m), primarily driven by lower adjusting items (GBP9.6m) as described above.
The effective statutory income tax rate for continuing operations was (18.7%) (H1 2020: 34.3%).
Statutory continuing & discontinued profit after tax of GBP12.6m is up by GBP22.7m (H1 2020: GBP10.1m loss). Statutory continuing & discontinued profit per share of 5.2p is up 9.3p (H1 2020: 4.1p loss).
PRINCIPAL AND EMERGING RISKS
The Company has a clear framework in place to continuously identify and review both the principal and emerging risks it faces. This includes, amongst others, a detailed assessment of business and functional teams' principal risks and regular reporting to and robust challenge from both the Executive Team and Audit Committee. The directors' assessment of the principal risks is aligned to the strategic business planning process.
Specifically, key risks are plotted on risk maps with descriptions, owners, and mitigating actions, reporting against a level of materiality (principally relating to impact and likelihood) consistent with its size. These risk maps are reviewed and challenged by the Executive Team and Audit Committee and reconciled against the Company's risk appetite. As part of the regular principal risk process, a review of emerging risks (internal and external) is also conducted and a list of emerging risks is maintained and rolled-forward to future discussions by the Executive Team and Audit Committee. Where appropriate, these emerging risks may be brought into the principal risk registers. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercises.
As part of the Board's ongoing assessment of the principal and emerging risks, the Board has considered the performance of the business, its markets, the changing regulatory landscape and the Company's future strategic direction and ambition.
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 Change Potential Mitigating actions and assurance
risks during the impact
period
1 . Deterioration Reducing Reductions in
of the macro discretionary * Annual budgets and forecasts take into account the
economic spending may current macro-economic environment to set
environment - impact sales expectations internally and externally, allowing for
The UK appears of newspapers or changing objectives to meet short and medium term
to be exiting or magazines, financial targets.
Covid-19 that could
associated not be offset
restrictions, with cost * The Company continues to embed business scenario
through which reductions. plans for the changes to social movement restrictions
the Company This could to address the business risks posed by the COVID-19
continues to impact future pandemic.
trade through capital
robustly. investment
While the strategies. * The Company forecasts cash flows weekly and
outlook Cash liquidity continually monitors treasury liquidity and headroom
for the UK is and available within the bank facility.
more positive, headroom
economic within the new
volatility bank facility * The Company continues to be significantly cash
and/or could diminish generative which supports opportunities for
prolonged in the event refinancing and investment.
economic of a
downturn protracted
associated deterioration * The UK vaccination program reduces the risk of
with the of the macro further COVID -19 restrictions on the UK.
COVID-19 economic
pandemic could environment or
cause a a sharp
decline in deterioration
demand for our in
services. sales or
This impacts working
current and/or capital.
projected
business
performance,
cash liquidity
and bank
facility
headroom above
that included
in the
business
planning and
review
process.
--------------- ----------- --------------- -----------------------------------------------------------------
2. Failing to No change Impact on the
attract, ability to * We seek to offer market competitive terms to ensure
engage and address the talent remains engaged.
retain talent strategic
within a high priorities and
performance to deliver the * We undertake workforce planning; performance, talent
and forecast and succession initiatives; learning and development
values-based performance programmes; and promote the Company's culture and
culture for the core values.
- The risk Company.
that we do not
attract or * Retention plans are being reviewed to address key
retain the risk areas, and attrition across each business is
people and the regularly monitored.
skills we need
to execute the
Company * Regular surveys are undertaken to monitor the
strategy and engagement of employees.
that employees
are not
motivated * The restructure enacted at the end of FY 2020 enables
towards, or the Company to provide opportunities to its remaining
are disengaged employees.
from, the
task in hand.
Risk that the
level of
change affects
staff and
retention
levels.
The longer
term impacts
of Brexit
create skills
gaps or labour
shortages.
--------------- ----------- --------------- -----------------------------------------------------------------
3. Failing to Reducing In addition to
meet high the danger to * Safety is a key priority of the Company. Health and
health & staff or the Safety performance is reviewed by the Board, Audit
safety public, the Committee and Executive Team.
standards - impact of a
The risk of an health and
inadequate safety failure * A dedicated Health & Safety team executes improvement
health & negatively programmes, undertakes audits and promotes a safety
safety impacts culture.
framework and operations,
insufficiently profitability
enforcing a and/or * The Company continues to invest in H&S improvements,
health & corporate including the role of H&S Director and better
safety culture reputation, management reporting.
results in together with
serious injury the
to employees risk of * The Company continues to promote consistency in
and/or the possible safety standards and culture.
public, and/or enforcement
a breach of action.
relevant The risk of * COVID-19 protocols are well established and business
health & transport continuity plans in place for significant outbreaks.
safety compliance
legislation. failures may
The risk of impact
failing to consistent
adhere to service
external laws standards
and and/or the
regulations by ability to
employees, deliver the
including the forecast
risk of performance
failing to for the
maintain Company.
COVID-19
protocols
within depots
and the
resultant risk
of a COVID-19
outbreak on
service
delivery and
KPI
performance.
--------------- ----------- --------------- -----------------------------------------------------------------
4. Cyber security Increasing Unavailability
- The Company of critical * The Company assesses the cyber risk on a day to day
is aware of systems or basis, using proactive and reactive information
the increasing data over a security controls to mitigate common threats.
prevalence of prolonged
cyber security period could
attacks impact the * Controls include: 24/7 protective monitoring,
targeted at Company's anti-malware, information and process assurance,
business, operational regular vulnerability scans, patch and vulnerability
resulting in performance to management, penetration testing, IT Health Checks,
the prolonged meet its day regular audits, routine access reviews, regular
loss of to day service backups, user training and risk management.
availability requirements
of critical The theft or
systems loss of data
and data, and could lead to
theft or loss penalties,
of data. significant
fines and/or
regulatory
action.
Cost of
recovery from
an attack may
be
significant.
--------------- ----------- --------------- -----------------------------------------------------------------
Responsibility Statement
We confirm that to the best of our knowledge:
-- the unaudited condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union;
-- 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 Tony Grace Chief Executive Officer Chief Financial Officer 04 May 2021 04 May 2021
Smiths News PLC
Condensed Consolidated Income Statement (Unaudited)
For the 26 weeks to 27 February 2021
GBPm Note 26 weeks to 27 26 weeks to 29 Audited
Feb 2021 Feb 2020 52 weeks to 29 Aug
2020
------------------ ----- ------------------------------ ------------------------------
Adjusted Adjusted Total Adjusted Adjusted Total Adjusted Adjusted Total
items items items
(note (note (note
4) 4) 4)
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Continuing operations
Revenue 3 551.6 - 551.6 623.1 - 623.1 1,164.5 - 1,164.5
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Cost of Sales (515.9) - (515.9) (581.7) - (581.7) (1,091.4) (0.2) (1,091.6)
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Gross
profit/(loss) 35.7 - 35.7 41.4 - 41.4 73.1 (0.2) 72.9
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Administrative
expenses (16.9) (0.1) (17.0) (21.7) (9.6) (31.3) (38.1) (13.8) (51.9)
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Income from
joint ventures 0.1 - 0.1 0.2 - 0.2 0.1 - 0.1
------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ----------
Operating
profit 3 18.9 (0.1) 18.8 19.9 (9.6) 10.3 35.1 (14.0) 21.1
Finance costs (4.5) - (4.5) (3.6) - (3.6) (7.4) - (7.4) Finance Income - 1.7 1.7 0.2 0.9 1.1 ------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ---------- Profit before tax 3 14.4 1.6 16.0 16.3 (9.6) 6.7 27.9 (13.1) 14.8 Income tax (expense)/credit 6 (3.0) - (3.0) (3.1) 0.8 (2.3) (4.2) 1.4 (2.8) ------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ---------- Profit/(loss) for the period from continuing operations 11.4 1.6 13.0 13.2 (8.8) 4.4 23.7 (11.7) 12.0 ------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ---------- Discontinued operations Loss for the period from discontinued operations 9 - (0.4) (0.4) (8.4) (6.1) (14.5) (13.1) (5.6) (18.7) Profit/ (loss) attributable to equity shareholders continuing and discontinued operations 11.4 1.2 12.6 4.8 (14.9) (10.1) 10.6 (17.3) (6.7) ------------------ ----- --------- --------- -------- --------- --------- -------- ---------- --------- ---------- Earnings per share from continuing operations Basic 8 4.6 5.3 5.4 1.8 9.7 4.9 Diluted 8 4.5 5.1 5.3 1.8 9.6 4.9 Earnings per share total Basic 8 4.6 5.1 2.0 (4.1) 4.3 (2.7) Diluted 8 4.5 4.9 1.9 (4.1) 4.3 (2.7) Equity dividends 7 nil nil nil per share
Smiths News PLC
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 26 weeks to 27 February 2021
GBPm Note 26 weeks 26 weeks Audited
to to 52 weeks to
27 Feb 29 Feb 2020 29 Aug 2020
2021
-------------------------------------- ----- --------- ------------- -------------
Continuing
Items that will not be reclassified
to the Income Statement:
Remeasurements of retirement benefit
schemes 5 0.1 0.2 0.2
Tax relating to components of other - (0.1) -
comprehensive income that will
not be reclassified
-------------------------------------- ----- --------- ------------- -------------
0.1 0.1 0.2
Items that may be reclassified
to the Income Statement:
Currency translation differences - 0.1 0.1
Tax relating to components of other - - -
comprehensive income
-------------------------------------- ----- --------- ------------- -------------
- 0.1 0.1
Other comprehensive income for
the period - continuing 0.1 0.2 0.3
Profit for the period - continuing 13.0 4.4 12.0
Total comprehensive income for
the period - continuing 13.1 4.6 12.3
Other comprehensive income for
the period discontinued - - 0.3
Loss for the year - discontinued (0.4) (14.5) (18.7)
-------------------------------------- ----- --------- ------------- -------------
Total comprehensive Loss for the
period - discontinued (0.4) (14.5) (18.4)
Total comprehensive income/(loss)
for the period attributable to
shareholders: 12.7 (9.9) (6.1)
Total comprehensive income for the period was fully attributable to the equity holders of the parent company.
Smiths News PLC
Consolidated Balance Sheet (Unaudited)
As at 27 February 2021
GBPm Note As at As at Audited
27 Feb 2021 29 Feb 2020 As at
29 Aug 2020
-------------------------------------- ----- ------------- ------------- -------------
Non-current assets
Intangible assets 11 3.0 5.2 4.0
Property, plant and equipment 8.1 8.6 9.4
Right of use assets 30.7 33.4 32.8
Interest in joint venture 4.8 5.1 4.9
Other receivables 3.2 - 14.6
Deferred tax assets 0.8 1.0 0.8
50.6 53.3 66.5
-------------------------------------- ----- ------------- ------------- -------------
Current assets
Inventories 15.2 16.9 14.1
Trade and other receivables 98.4 119.4 101.2
Cash and bank deposits 12 10.0 37.1 50.6
Assets classified as held for sale 9 - 69.7 -
-------------------------------------- ----- ------------- ------------- -------------
123.6 243.1 165.9
-------------------------------------- ----- ------------- ------------- -------------
Total assets 174.2 296.4 232.4
-------------------------------------- ----- ------------- ------------- -------------
Current liabilities
Trade and other payables (125.4) (164.7) (139.5)
Current tax liabilities (1.9) (0.1) (1.7)
Lease Liabilities (5.9) (5.6) (5.8)
Bank overdrafts and other borrowings 12 (21.3) (93.5) (130.1)
Provisions 13 (4.1) (3.5) (6.8)
Liabilities classified as held for - (83.8) -
sale
(158.6) (351.2) (283.9)
Non-current liabilities
Bank loans and other borrowings 12 (56.7) - -
Non-current provisions 13 (2.5) (2.6) (2.5)
Lease Liabilities (25.4) (28.4) (27.6)
(84.6) (31.0) (30.1)
-------------------------------------- ----- ------------- ------------- -------------
Total liabilities (243.2) (382.2) (314.0)
-------------------------------------- ----- ------------- ------------- -------------
Total net liabilities (69.0) (85.8) (81.6)
-------------------------------------- ----- ------------- ------------- -------------
Equity
Called up share capital 15 12.4 12.4 12.4
Share premium account 15 60.5 60.5 60.5
Other reserves (281.5) (282.4) (281.5)
Retained earnings 139.6 123.7 127.0
---------------------------- --- -------- -------- --------
Total shareholders' equity (69.0) (85.8) (81.6)
---------------------------- --- -------- -------- --------
Smiths News PLC
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 26 weeks to 27 February 2021
GBPm Note Share Capital Share Premium Other Retained Total
Account Reserves Earnings equity
---------------------------------- ------ ---------------- ---------------- ---------- ---------- --------
Balance at 31 August 2019 12.4 60.5 (281.5) 134.3 (74.3)
IFRS 16 transition adjustment(1) - - - 1.4 1.4
Restated Balance at 31 August
2019 12.4 60.5 (281.5) 135.7 (72.9)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Loss for the period - - - (10.1) (10.1)
Currency translation differences - - - - -
Actuarial gain on defined
benefit pension scheme - - - 0.5 0.5
Tax relating to components
of other comprehensive income - - - (0.4) (0.4)
Total comprehensive income
for the period - - - (10.0) (10.0)
Dividends paid - - - (2.4) (2.4)
Employee share schemes - - (0.9) - (0.9)
Recognition of share based
payments - - - 0.4 0.4
---------------- ---------------- ---------- ---------- --------
Balance at 29 February 2020 12.4 60.5 (282.4) 123.7 (85.8)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
Profit for the period - - - 3.4 3.4
Currency translation differences - - 0.1 - 0.1
Actuarial gain on defined
benefit pension scheme - - - 0.5 0.5
Tax relating to components
of other comprehensive income - - - (0.1) (0.1)
Total comprehensive loss
for the period - - 0.1 3.8 3.9
Employee share scheme awards - - 0.8 (0.5) 0.3
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)
------------------------------------------ ---------------- ---------------- ---------- ---------- --------
1. The Company applied IFRS 16 using the cumulative catch up approach as a result the Obligation under finance leases has been replaced with Lease liabilities which is wider in scope the impact was included in the prior year statements.
Smiths News PLC
Condensed Consolidated Cash Flow Statement (Unaudited)
For the 26 weeks to 27 February 2021
GBPm Note 26 weeks 26 weeks 52 weeks
to to to
27 Feb 2021 29 Feb 2020 29 Aug 2020
------------------------------------------- ----- ------------- ------------- -------------
Net cash from operating activities 10 13.1 13.2 23.4
------------------------------------------- ----- ------------- ------------- -------------
Investing activities
Dividends from joint ventures 0.1 0.1 0.2
Purchase of property, plant and equipment (0.4) (3.4) (6.9)
Purchase of intangible assets (0.2) (2.5) (2.4)
Loan receipts 6.5 - -
Interest receivable 0.2 - -
Loan issued - - (6.5)
Net proceeds on sale of property,
plant and equipment - 14.6 14.6
Net cost of disposal from subsidiary - - (3.7)
Net cash received/(used) in investing
activities 6.2 8.8 (4.7)
------------------------------------------- ----- ------------- ------------- -------------
Financing activities
Interest paid (3.5) (4.4) (8.0)
Arrangement fees paid (2.8) - -
Dividends paid - (2.4) (2.4)
Repayments of leases (2.9) (9.3) (15.6)
Purchase of share for employee benefit
trust (0.4) (0.7) (0.7)
Repayment of term loan and revolving - -
credit facility (80.0)
New loans issued 80.0 - -
Net (decrease)/ increase in borrowings (50.3) 8.0 50.8
Net cash (used)/received in financing
activities (59.9) (8.8) 24.1
------------------------------------------- ----- ------------- ------------- -------------
Net (decrease)/increase in cash and
cash equivalents (40.6) 13.2 42.8
Effect of foreign exchange rate changes - - (0.1)
------------------------------------------- ----- ------------- ------------- -------------
(40.6) 13.2 42.7
Opening net cash and cash equivalents 50.6 7.9 7.9
------------------------------------------- ----- ------------- ------------- -------------
Closing net cash and cash equivalents 10.0 21.1 50.6
------------------------------------------- ----- ------------- ------------- -------------
Closing net cash and cash equivalents incudes GBP10.0m (H1 2020: GBP37.1m) of cash offset by GBPnil (H1 2020: GBP16.0m) of overdraft - see note 12 for further information.
During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBP1.3m (H1 2020: GBP1.1m outflow) and GBPnil was received in respect of investing activities (H1 2020: GBP12.5m received). There were GBPnil (H1 2020: GBP11.4m) cash outflows associated with financing activities attributable to Discontinued Operations.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements
For the 26 weeks to 27 February 2021
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 the Disclosure and Transparency Rules of the UK Financial Conduct Authority, and with IAS 34 'Interim Financial Reporting', as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Unless otherwise stated, the accounting policies applied, and the judgements, estimates and assumptions made in applying these policies, are consistent with those described in the Annual Report and Accounts 2020. The financial period represents the 26 weeks ended 27 February 2021 (prior financial period 26 weeks to 29 February 2020, prior financial period 52 weeks ended 29 August 2020).
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 year 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 twenty six weeks period ended 27 February 2021 is on page 49.
A) Discontinued operations
On 28 February 2020, the Board concluded 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', the net results of discontinued operations are presented separately in the consolidated income statement and the assets and liabilities of these operations are presented separately in the balance sheet.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
1 Basis of Preparation (continued)
B) Going Concern
The condensed financial interim financial statements have been prepared on a going concern basis.
The Company currently has a net liability position of GBP69.0m as at 27 February 2021. All bank covenant tests were met at the period end with the key bank net debt: EBITDA (ex IFRS16) ratio of 1.8x, below the facility agreement covenant test threshold of 3.5x reducing by 0.25x biannually to 2.25x at 27 May 2023.
The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing of up to GBP40m, the Company utilises the Revolving Credit Facility (RCF) to manage this, GBP35m of the RCF remains available at the period end. This results in a predictable fluctuation of bank net debt during the course of the month compared to the closing net debt position. Our average net borrowings during H1 2021 was GBP89.5m (H1 2020: GBP92.9m).
Bank facility
The Company has a facility of GBP120 million facility, comprising a GBP45 million amortising term loan (Facility A), a GBP35m million bullet repayment term loan (Facility B) and a GBP40 million revolving credit facility (RCF). Term Loan (facility B) is also repayable from any proceeds received from the deferred consideration as part of the sale of Tuffnells and receipt of any pension surplus. The agreement is with a syndicate of banks comprising existing lenders HSBC, Barclays, Santander, AIB and Clydesdale and one new lender, Shawbrook Bank.
The facility's current margin is 4.5% per annum (5.5% on initial inception) over LIBOR (in respect of Facility A and the RCF) and 5.0% per annum (6.0% on initial inception) over LIBOR (in respect of Facility B).
Consistent with the Company's stated strategic priorities to reduce net debt, the terms of the new facility agreement include: an amortisation schedule of GBP15m per annum for the repayment of Facility A; agreed repayments against Facility B arising from funds received in relation to both deferred consideration received following the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Company's defined benefit pension scheme; and an absolute preclusion of payments of dividends in respect of FY 2020 and capped dividend payments thereafter for FY 2021 (up to GBP4m) and FY 2022 onwards (up to GBP6m per year). As part of the terms of the refinancing, the Company and its principal trading subsidiaries have also agreed to provide security over their assets to the lenders.
The final maturity date of the new facility is 6 November 2023.
COVID-19 impact
The Company continued to generate cash and trade in line with expectations through H1 2021 with the second national lockdown in November and third national lockdown announced in January 2021.
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 March 2022 if EBITDA (ex IFRS 16) was 50% below expectations and not receive deferred consideration from the sale of Tuffnells. The directors consider the likelihood of this level of downturn to be remote based on:
-- Current trading which is in line with expectations,
-- Year-on-year declines in revenues would have to be significantly greater than historical trends,
-- The contracts are secured with publishers until 2024; and
-- The company continues to trade with adequate profit to service its debt covenants with COVID-19 related restrictions in place.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
1 Basis of Preparation (continued) B) Going Concern (continued)
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 c. GBP40m. Utilising existing vendor management finance arrangements with retailers and optimising contractual payment cycles to suppliers which would improve liquidity headroom,
-- Not pay planned dividend, -- Delay non-essential capex projects, -- Cancel discretionary annual bonus payments; and -- Identify other overhead and depot savings.
More extreme mitigating actions would also be available if the scenario arose.
Assessment
Having considered the above and the funding requirements of the 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 Company has adequate resources to continue in operational existence for the next 12 months. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
C) Restatement of Pension liability
As a result of the buy-in of the W.H.Smith Pension Trust in October 2018, a thorough review of the effectiveness of the steps taken to equalise the retirement age of pensioners was undertaken in the previous financial year. Previously equalisation of retirement age was considered to have been effective from 1 April 1992 when communicated to employees. However, the Trust Deed approving this equalisation was not signed until 29 July 1993, this is now considered the equalisation date.
The information reviewed which caused this change was available in past periods from July 1993 and given the same information was available; it was considered a similar review would have led to the same conclusion in earlier periods. It was considered a prior year adjustment made to 1 September 2018 in the FY 2020 annual report and financial statements, the impact on these accounts has been to restate the 29 February 2020 Note 5 Retirement benefit obligation and IFRIC 14 restriction only. There was no material effect on the income statement, earning per share, statement of other comprehensive income or the balance sheet. There is no overall impact on net assets and the income statement in any period presented from reflecting this prior year adjustment.
The increased liability is offset by a decrease in the restriction of the surplus which now stands at GBP16.0m (Feb 2020 restated: GBP15.5m). The pension scheme surplus is not recognised as there is not an unconditional right for the Company to receive the surplus.
2 Accounting Policies
Adoption of new IFRSs
There has been no significant impacts from the adoption of new accounting standards in the current period.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
2 Accounting Policies (continued)
The changes in key accounting judgements and estimates in the period are laid out below.
Key accounting judgements
Alternative Performance Measures
The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS. The Directors believe that the APMs, listed in the glossary on page 46, are important when assessing the underlying financial and operating performance of the Company and its segments. The APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.
Retirement benefits
In line with the accounting policy the 'buy-in' annuity purchased on 17 February 2021 (note 5) is recognised as a plan asset consistent with previous transactions. The difference in value between the value of the insurance asset received of GBP5.4m at the date of the transaction and the asset transferred in exchange for the policy GBP6.2m was considered an actuarial remeasurement as the obligation to settle the scheme liabilities continues to sit with the pension scheme. The GBP0.8m impact is recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.
If this was instead considered to form part of the settlement costs of the subsequent pension 'buy-out' the GBP0.8m income statement would be accounted for as a charge to the income statement. The offsetting GBP0.8m, being the release of the restriction, would continue to be included within other comprehensive income.
T he date that the Company committed itself to wind-up the pension scheme was 2 March 2021 which was the date the Company and the Trustees of the pension scheme committed to remove the Company's liability to the pension scheme, the 'buy-out' removing the obligations happened on 31 March 2021.
Key accounting estimates
Tuffnells Deferred consideration
The Tuffnells business unit was disposed on 2 May 2020; the Company is due GBP15.0m as deferred consideration payable over 3 years. There is a balance of GBP9.7m including within other receivables (GBP3.2m non-current, GBP6.5m current), recoverability of the Tuffnells deferred consideration is a key estimate. Management have assessed its recoverability and have concluded no impairment is necessary based on:
-- The working capital loan provided on disposal was repaid early proving the new management's ability to refinance; and
-- Management do not believe there has been a significant increase in the risk of recoverability of the deferred consideration since inception.
This was assessed using a number of scenarios such as delays in payments and non-recovery of the balance, changes in these assumptions may lead to an impairment to the balance.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
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. The Board primarily uses a measure of adjusted operating profit before tax to assess the performance of the operating segments. However, the Board also receives information about the segments' revenue.
These operating segments are:
Smiths News
Smiths News segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to approximately 24,000 retailers across England and Wales.
Other businesses
A number of ancillary businesses which are adjacent to Smiths News including:
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to airlines and travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers across the UK.
Smiths News Core is considered the only reportable segment of the above given the size of the other they are consolidated into one operating segment.
Tuffnells
A leading provider of next day B2B delivery of mixed and irregular freight consignments.
As explained in Note 9, Tuffnells was considered to be a discontinued operation in the previous financial year. The division is presented as a discontinued operation and is included below where necessary for the purpose of reconciliation.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
3 Segmental Analysis of Results (continued)
The following is an analysis of the Company's revenue and results, since the discontinuation of the Tuffnells division there is now only one continuing reportable segment:
Revenue Operating profit
------------------------- -------------------------------- -------------------------------
GBPm 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
to 27 to 29 29 to 29 Aug to 27 to 29 to 29
Feb 2021 Feb 2020 2020 Feb 2021 Feb 2020 Aug 2020
------------------------- --------- --------- ---------- --------- --------- ---------
Continuing operations
- adjusted 551.6 623.1 1,164.5 18.9 19.9 35.1
-------------------------- --------- --------- ---------- --------- --------- ---------
Revenue Discontinued
operations - adjusted - 73.7 98.2
-------------------------- --------- --------- ---------- --------- --------- ---------
Revenue - Continuing
and discontinued
operations -adjusted 551.6 696.8 1,262.7
-------------------------- --------- --------- ---------- --------- --------- ---------
Continuing operations
-Total Adjusted
items (0.1) (9.6) (14.0)
-------------------------- --------- --------- ---------- --------- --------- ---------
Total Continuing
operations after
Adjusted items 18.8 10.3 21.1
-------------------------- --------- --------- ---------- --------- --------- ---------
Adjusted finance
expense (4.5) (3.6) (7.2)
Finance income
adjusting items 1.7 - 0.9
-------------------------- --------- --------- ---------- --------- --------- ---------
Profit before
taxation - Continuing
operations 16.0 6.7 14.8
-------------------------- --------- --------- ---------- --------- --------- ---------
Loss before taxation
- Discontinued
operations (0.4) (12.9) (15.3)
-------------------------- --------- --------- ---------- --------- --------- ---------
(Loss)/profit
before taxation
- Continuing operations
and Discontinued
operations 15.6 (6.2) (0.5)
-------------------------- --------- --------- ---------- --------- --------- ---------
Geographical analysis
Revenue by destination Non-current assets by
location of operation
------------------------ ------------------------------------- ------------------------------
GBPm 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
to 27 to 29 to 29 to 27 to 29 to
Feb 2021 Feb 2020 Aug 2020 Feb 2021 Feb 2020 29 Aug
2020
------------------------ --------- --------------- --------- --------- --------- --------
United Kingdom 551.0 617.3 1,158.3 50.6 53.3 66.5
Spain - 0.2 0.2 - - -
France - 0.9 0.4 - - -
Germany 0.2 1.2 1.4 - - -
Netherlands 0.3 1.7 2.1 - - -
Rest of World 0.1 1.8 2.1 - - -
------------------------ --------- --------------- --------- --------- --------- --------
Continuing operations 551.6 623.1 1,164.5 50.6 53.3 66.5
------------------------ --------- --------------- --------- --------- --------- --------
Discontinued operations - 73.7 98.2 - - -
------------------------ --------- --------------- --------- --------- --------- --------
Total continuing
and discontinued
operations 551.6 696.8 1,262.7 50.6 53.3 66.5
------------------------ --------- --------------- --------- --------- --------- --------
IFRS 8 requires that a measure of segment assets should be disclosed only if that amount is regularly provided to the chief operating decision maker and consequently no segment assets are disclosed.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
4 Adjusted Items
GBPm 26 weeks to 27 26 weeks to 29 52 weeks to 29
Feb 2021 Feb 2020 Aug 2020
----------------- ----- ---------------------------------- ----------------------------------- -----------------------------------
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
----------------- ----- ----------- ------------- ------ ----------- ------------- ------- ----------- ------------- -------
Network and
re-organisation
costs (a) 0.1 - 0.1 (2.3) (0.5) (2.8) (6.8) (1.0) (7.8)
Asset
impairments (b) - - - (6.9) (0.6) (7.5) (6.4) (0.6) (7.0)
Pension (c) (0.2) - (0.2) (0.4) - (0.4) (0.9) - (0.9)
Other - - - - - - 0.1 - 0.1
Review and sale
of Tuffnells (d) - (0.4) (0.4) - (0.5) (0.5) - 0.6 0.6
Sale and
Leaseback (e) - - - (1.0) (1.0) - (1.0) (1.0)
----------- ------------- -------
Total before tax
and interest (0.1) (0.4) (0.5) (9.6) (2.6) (12.2) (14.0) (2.0) (16.0)
Finance income
- unwind of
deferred
consideration (f) 1.7 - 1.7 - - - 0.9 - 0.9
----------------- ----- ----------- ------------- ------ ----------- ------------- ------- ----------- ------------- -------
Total before tax 1.6 (0.4) 1.2 (9.6) (2.6) (12.2) (13.1) (2.0) (15.1)
Taxation - - - 0.8 (3.5) (2.7) 1.4 (3.6) (2.2)
------------------------ ----------- ------------- ------ ----------- ------------- ------- ----------- ------------- -------
Total after taxation 1.6 (0.4) 1.2 (8.8) (6.1) (14.9) (11.7) (5.6) (17.3)
Adjusted items on a continuing basis for the period totalled credit GBP1.6m after tax for the period, compared to GBP8.8m cost in the prior period.
Adjusted items are defined in the accounting policies in the glossary. In the Directors' opinion, the impact of removing these items from the adjusted profit gives the true underlying performance of the Company and these comprise:
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
4 Adjusted Items (continued)
Continuing operations
a) Network and re-organisation costs: GBP0.1m credit (H1 2020: GBP2.3m charge)
These are analysed as follows:
GBPm 26 weeks to 27 Feb 2021 26 weeks to 29 Feb 2020 ================================== ------------------------ ------------------------ Business restructuring 0.1 (0.2) Outsourcing of central functions - (1.9) Executive team redundancies - (0.2) Total 0.1 (2.3) ================================== ======================== ========================
Business Restructuring
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 GBP0.1m of this provision in the current period.
In June 2019, DMD's biggest contract with British Airways expired and as a result DMD entered into a period of restructure which continued into H1 2020, resulting in GBP0.2m of costs being incurred.
Outsourcing central functions
In the prior financial period, GBP1.9m costs were incurred off-shoring selected technology, customer services and finance functions which comprised GBP0.5m related to redundancy costs as part of this transition and GBP1.4m related to set up costs which include the cost of parallel running the previous finance team when the shared service centre was up and running. These costs were considered adjusting as the impact of the transition to an off shored central function is considered a one off. The running costs of the parts of the centre which are fully operational are being treated as non-adjusted.
Executive Team redundancies
In the prior period, costs of GBP0.2m were incurred as a result of the departure of the former CEO in November 2020.
Costs associated with the reorganisation programmes are considered Adjusted items given they are part of a strategic programme to drive future cost savings and therefore the impact of the costs in the current year distorts the true underlying performance of the Company.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
4 Adjusted Items (continued)
b) Asset impairment: GBPnil (H1 2020: GBP6.9m)
In the prior financial period the impact of the lockdowns associated with the COVID-19 pandemic triggered impairment reviews of a number of the Company's assets:
A prior financial period charge of GBP5.7m was incurred against DMD Goodwill to fully impair its balance because of the trading impact of the COVID-19 travel restrictions.
In the prior financial period the Company recognised GBP0.9m increased expected credit loss provision against customers impacted by the COVID-19 pandemic.
A further GBP0.3m prior period charge was incurred as a result of the write down of an investment in one of the Company's joint ventures that was impacted by COVID-19 travel restrictions.
c) Pensions: GBP0.2m cost (H1 2020: GBP0.4m)
In H1 2021, the Company incurred GBP0.2m (H1 2020 GBP0.4m), in professional fees as a result of the continuing process to buy-out the WH Smith Pension Trust (the Company's defined benefit pension schemes) see Note 5 for details. In the prior financial period this included GBP0.4m in rationalising the Company's pension portfolio which was triggered by the buy-in of an insurance backed annuity relating to WH Smith Pension Trust.
These pension charges are not considered to be part of normal operations due to their size and nature and are therefore considered to be an Adjusted item.
d) Finance Income - Deferred consideration GBP1.7m income (H1 2020: GBPnil)
During the current period, GBP1.7m of finance income has been recognised in relation to the unwind of discount on 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.
Discontinued operations
a) Network and re-organisation costs : GBPnil (H1 2020: GBP0.5m)
Executive Team redundancies
Costs of GBPnil (H1 2020: GBP0.4m) have been incurred as a result of the restructure of the Tuffnells executive team as part of the strategic review. These costs were considered to be adjusting given the size and as the business was disposed of these costs are not expected to reoccur.
Network Reorganisation
Costs of GBPnil (H1 2020: GBP0.1m) have been incurred as a result of the closure of the North London depot. The depot closure was identified as a cost saving measure from the strategic review; the depot closure enabled greater flexibility. These costs were considered to be adjusting given the strategic impact on the business unit.
b) Asset impairment: GBPnil (H1 2020: GBP0.6m)
In the prior financial period impairments of GBP0.6m were recognised by the Company against Tuffnells property plant and equipment.
It is considered adjusting due to its significant value and aids comparability between years to show the underlying performance of the Company.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
4 Adjusted Items (continued)
c) Review and sale of Tuffnells: GBP0.4m (H1 2020: GBP0.5m)
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 GBP0.4m of costs were recognised due to the greater than expected claims raised in the period see - Note 13 for more information.
In the prior financial period the Tuffnells business was reviewed, the review involved evaluating a number of options in order to maximise value for Shareholders, including:
-- continuing to support the continuing Tuffnells turnaround under the Company's ownership; -- the potential for and consequences of closing the business; and -- a possible disposal to a third party.
The costs incurred as a result of this review in the prior financial period was GBP0.5m (H1 2021 GBPnil).
These costs are considered adjusting due to their significant value and to aid comparability between years to show the underlying impact of the Tuffnells business unit.
d) Sale and leaseback: GBPnil (H1 2020: GBP1.0m)
Tuffnells a discontinued division of the Company, disposed of eight properties in the prior period as a result the following were incurred:
GBPm 26 weeks to 27 Feb 2021 26 weeks to 29 Feb 2020 --------------------- ------- ------------------------- ------------------------ Sale & leaseback Profit on disposal (i) - 1.5 Rectification costs (ii) - (0.6) Impairment (iii) - (1.9) Total - (1.0) ------------------------------ ------------------------ ------------------------ (i) Profit on loss on disposal
In the prior year GBP1.5m profit on disposal of the 8 Tuffnells properties was recognised.
(ii) Rectification costs
As part of the terms of the disposal the Company agreed to undertake rectification works to the disposed of properties within two years. A provision totalling GBP0.6m was recognised in relation to this obligation.
(iii) Impairment
After the sale discussed above a number of properties remained unsold, as the bids received were below historic cost an impairment charge of GBP1.9m was recognised when the assets were reclassified from held for sale back into property plant and equipment.
Given the magnitude of the sale and leaseback and one-off nature is considered to be an adjusting item.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
5 Retirement Benefit Obligation
Defined benefit pension schemes
In the period the Company operated one defined benefit scheme, the WH Smith Pension Trust (the 'Pension Trust'). In the prior financial period the Company also operated the Tuffnells Parcels Express Pension Scheme, which is now outside the Company following the disposal of Tuffnells in May 2020.
The amounts recognised in the balance sheet are as follows:
GBPm As at 27 *restated As at 29 Aug
Feb 2021 As at 29 Feb 2020
2020
---------------------------- ---------- -------------- -------------
Present value of defined
benefit obligation (470.4) (470.6) (481.2)
Fair value of assets 486.4 484.2 496.4
---------------------------- ---------- -------------- -------------
Net surplus 16.0 13.6 15.2
Amounts not recognised due
to asset limit (16.0) (15.5) (15.2)
Transferred to liabilities - 1.9 -
held for sale
Pension liability - - -
---------------------------- ---------- -------------- -------------
*The above table has been restated to reflect the updated defined benefit obligation of the WH Smith pension Trust in Feb 2020. The obligation changed by GBP8.2m and is offset fully by a reduction in the unrecognised surplus asset limit, no other changes have been made. For more information see Note 1C.
The valuation of the defined benefit schemes for the IAS 19 (revised) disclosures have been carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for membership experience and changes in the actuarial assumptions.
The W.H.Smith Pension Trust purchased an insurance backed annuity 'buy-in' in October 2018 to cover the liabilities of the scheme. In FY 2020 it was considered that equalisation happened at a later date than previously assumed, as a result further "equalisation liabilities" were recognised as a prior year adjustment made to 1 September 2018 in the FY 2020 annual report and financial statements (see Note 1C).
In December 2020 an exercise was completed to calculate the equalisation liability for the purposes of purchasing an insurance policy. The completion of this exercise reduced the liabilities from GBP8.2m to GBP5.4m, the GBP2.8m movement is considered an actuarial remeasurement recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.
On 17 February 2021 the W.H.Smith Pension Trust purchased an additional insurance backed annuity 'buy-in' to cover the additional equalisation liabilities not covered by the original 'buy-in' in October 2018 at a cost of GBP6.2m. The 'buy-in' annuity is recognised as a plan asset and the difference in value between the value of the insurance asset received of GBP5.4m and the asset transferred in exchange for the policy GBP6.2m is considered an actuarial remeasurement recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.
On 26 February 2021 the Company gave notice to terminate its liability to the pension scheme with effect from 2 March 2021, this was accepted by the Trustees and the wind-up of the pension commenced. On 31 March 2021 the pension liabilities covered by the buy-in insurance transferred over to L&G the new pension provider and "buy-out" concluded removing the Company's obligation to the members.
The High Court handed down its judgement in the latest instalment of the Lloyds cases in November 2020, this time in relation to equalising past transfers for inequalities in Guaranteed Minimum Pension (GMP) creating an additional liability of GBP0.3m which is not covered by 'buy-in' insurance.
At the balance sheet date, the Company does not recognise the GBP16.0m pre-tax surplus as an asset, as it does not yet have an unconditional right to the asset. The right of return is dependent on the conclusion of; a member consultation, pension regulator approval, settlement of the GMP liabilities which are outside the scope of the insurance policy and final acceptance from the Trustees.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
5 Retirement Benefit Obligation (continued)
If any surplus is returned to the Company it will be net of additional professional fees and tax which will be charged at a rate significantly higher that the Company's effective tax rate and will materially reduce the surplus balance available to the Company.
Tuffnells Parcels Express scheme
The GBP1.9m of pension liabilities at the prior period end relates entirely to the Tuffnells Parcels Express scheme and was reclassified to liabilities held for sale.
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
27 Feb 2021 29 Feb 2020 29 Aug 2020
----------------------------- ------------- ------------- -------------
Discount rate 1.80% 1.70% 1.50%
Inflation assumptions - CPI 2.70% 1.95% 2.10%
Inflation assumptions - RPI 3.30% 2.95% 3.10%
----------------------------- ------------- ------------- -------------
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 *Restated *Restated Total
of scheme Defined Impact of
assets benefit IFRIC 14
obligation on defined
benefit pension
schemes
------------------------------------------ ----------- ---------------- ----------------- ----------------
At 31 August 2019 504.7 (491.8) (15.8) (2.9)
------------------------------------------ ----------- ---------------- ----------------- ----------------
Interest cost 4.3 (4.1) (0.2) -
Administrative costs (0.2) - - (0.2)
Total amount recognised in income
statement 4.1 (4.1) (0.2) (0.2)
------------------------------------------ ----------- ---------------- ----------------- ----------------
Return on plan assets excluding
amounts included in net interest (15.0) - - (15.0)
Actuarial gains on scheme liabilities - 15.0 - 15.0
Change in surplus not recognised - - 0.5 0.5
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amount recognised in other comprehensive
income (15.0) 15.0 0.5 0.5
------------------------------------------ ----------- ---------------- ----------------- ----------------
Employer contributions 0.7 - - 0.7
Benefit payments (10.4) 10.4 - -
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amounts included in cash flow
statement (9.7) 10.4 - 0.7
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amounts transferred to liabilities
held for sale (10.3) 12.2 - 1.9
------------------------------------------ ----------- ---------------- ----------------- ----------------
At 29 February 2020 473.8 (458.3) (15.5) -
------------------------------------------ ----------- ---------------- ----------------- ----------------
Interest cost 4.2 (4.1) (0.1) -
Administration expenses (0.1) - - (0.1)
Total amount recognised in income
statement 4.1 (4.1) (0.1) (0.1)
------------------------------------------ ----------- ---------------- ----------------- ----------------
Return on plan assets excluding
amounts included in net interest 29.8 - - 29.8
Actuarial gains on scheme liabilities - (29.7) - (29.7)
Change in surplus not recognised - - 0.4 0.4
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amount recognised in other comprehensive
income 29.8 (29.7) 0.4 0.5
------------------------------------------ ----------- ---------------- ----------------- ----------------
Employer contributions 0.1 - - 0.1
Benefit payments (11.4) 11.4 - -
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amounts included in cash flow
statement (11.3) 11.4 - 0.1
------------------------------------------ ----------- ---------------- ----------------- ----------------
Amounts transferred to liabilities
held for sale - (0.5) - (0.5)
------------------------------------------ ----------- ---------------- ----------------- ----------------
At 29 August 2020 496.4 (481.2) (15.2) -
------------------------------------------ ----------- ---------------- ----------------- ----------------
*The above table has been restated to reflect the updated defined benefit obligation of the WH Smith pension Trust in H1 2020. The obligation changed by GBP8.2m and is offset fully by a reduction in the unrecognised surplus asset limit, no other changes have been made. For more information see Note 1C.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
5 Retirement Benefit Obligation (continued)
GBPm Fair value Defined Surplus Total
of scheme benefit not recognised
assets obligation
--------------------------------------- ----------- ------------ ---------------- ------
At 29 August 2020 496.4 (481.2) (15.2) -
--------------------------------------- ----------- ------------ ---------------- ------
Interest cost 3.6 (3.6) (0.1) (0.1)
Administrative expenses - - - -
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) -
--------------------------------------- ----------- ------------ ---------------- ------
Included within Current liabilities -
Included within Non-current -
liabilities
--------------------------------------- ----------- ------------ ---------------- ------
6 Income Tax Expense
The income tax charge for the 26 weeks ended 27 February 2021 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 from continuing operations is 20.8% (H1 2020: 19.0%). The rate of tax on adjusted profits (on both continuing and discontinued operations) is 18.7% (H1 2020: 19.0%).
In March 2021, the UK Government announced its intention to increase the corporation tax rate to 25.0% from April 2023. As this change had not been substantively enacted as at 27 February 2021, the deferred tax assets/liabilities of the Company have been calculated based on the substantively enacted corporation tax rate of 19.0%.
7 Dividends
Proposed dividends for 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
the period to 27 to 29 to 29 to 27 to 29 to 29
Feb 2021 Feb 2020 Aug 2020 Feb 2021 Feb 2020 Aug 2020
Per share Per share Per share GBPm GBPm GBPm
---------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Final dividend - - - - - -
Interim dividend - - - - - -
---------------------------- ----------- ---------- ---------- ---------- ---------- ----------
- - - - - -
---------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Recognised dividends
for the period
Per share Per share Per share GBPm GBPm GBPm
---------------------------- ----------- ---------- ---------- ---------- ---------- ----------
Final dividend - prior
year - 1.0 1.0 2.4 2.4 2.4
Interim dividend - current - - - - - -
year
---------------------------- ----------- ---------- ---------- ---------- ---------- ----------
- 1.0 1.0 2.4 2.4 2.4
---------------------------------------- ---------- ---------- ---------- ---------- ----------
During the 26 week period to 27 February 2021, there were no dividends announced or paid (Feb 2020: 1p paid) to shareholders. The Directors have not proposed an interim dividend in respect of the period ended 27 February 2021 (Feb 2020: nil per ordinary share).
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
8 Earnings per share
26 weeks to 27 Feb 26 weeks to 29 Feb 52 weeks to 29 Aug
2021 2020 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) (2.5) (1.8) (3.2)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
245.2 245.9 244.5
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Basic earnings
per share (EPS)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Continuing
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted earnings
attributable
to ordinary
shareholders 11.4 245.2 4.6 13.2 245.9 5.4 23.7 244.5 9.7
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted items 1.6 (8.8) (11.7)
Earnings attributable
to ordinary
shareholders 13.0 245.2 5.3 4.4 245.9 1.8 12.0 244.5 4.9
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Discontinued
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted Losses
attributable
to ordinary
shareholders - 245.2 - (8.4) 245.9 (3.4) (13.1) 244.5 (5.3)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted items (0.4) (6.1) (5.6)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Losses attributable
to ordinary
shareholders (0.4) 245.2 (0.2) (14.5) 245.9 (5.9) (18.7) 244.5 (7.7)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Total - continuing
and discontinued
operations
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Adjusted earnings
attributable
to ordinary
shareholders 11.4 245.2 4.6 4.8 245.9 2.0 10.6 244.5 4.3
Adjusted items 1.2 (14.9) (17.3)
(Losses)/Earnings
attributable
to ordinary
shareholders 12.6 245.2 5.1 (10.1) 245.9 (4.1) (6.7) 244.5 (2.7)
---------------------- -------- ---------- ------ -------- ---------- -------
Diluted earnings
per share (EPS)
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Effect of dilutive
securities 10.9 1.2 2.6
---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Continuing
Diluted adjusted
EPS 11.4 256.1 4.5 13.2 247.1 5.3 23.7 247.2 9.6 Diluted EPS 13.0 256.1 5.1 4.4 247.1 1.8 12.0 247.2 4.9 ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Discontinued ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Diluted adjusted EPS - 256.1 - (8.4) 247.1 (3.4) (13.1) 244.5 (5.3) Diluted EPS (0.4) 245.2 (0.2) (14.5) 247.1 (5.9) (18.7) 244.5 (7.7) ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Total - continuing and discontinued operations ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- ------- Diluted adjusted EPS 11.4 256.1 4.5 4.8 247.1 1.9 10.6 247.2 4.3 Diluted EPS 12.6 256.1 4.9 (10.1) 247.1 (4.1) (6.7) 244.5 (2.7) ---------------------- -------- ---------- ------ -------- ---------- ------- -------- ---------- -------
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
8 Earnings per share (continued)
Dilutive shares increased the basic number of shares at February 2021 by 9.0m to 256.1m (Feb 2020: 247.1m) and resulted in a continuing diluted adjusted EPS of 4.5, a decrease of 0.8p or 15.1% on prior period.
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 10.9m dilutive shares (Feb 2020: 1.2m). There is no further dilutive effect from deferred consideration in the period.
9 Discontinued operations and held for sale
Discontinued operations
Tuffnells strategic review
On 29 February 2020 the Board concluded that the requirements of IFRS 5 to classify Tuffnells as held for sale and a discontinued operation had been met.
Subsequently, on 14 April 2020, a share purchase agreement was signed with Palm Bidco Limited 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 Palm Bidco Limited to the Company of GBP15.0m in cash, payable in three tranches as follows:
-- GBP6.5m on the date 18 months following Completion; -- GBP4.25m on or prior to the date 27 months following Completion; and -- GBP4.25m on or prior to the date 36 months following Completion.
The Company has discounted the consideration at 30% and recognised GBP7.1m on Completion, since completion this has unwound to GBP9.7m (current GBP6.5m, non-current GBP3.2m) and is included within 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 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.
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. A balance of GBP1.3m remains at 27 February 2021.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
9 Discontinued operations and held for sale (continued)
Discontinued operations (continued)
Accounting impact
Tuffnells was considered to be held for sale at the end of H1 2020, and the fair value less cost to sell were GBP14.1m negative, this was calculated based on the bids received. Included within this calculation were the discounted deferred consideration and the forecast future cash trading losses of Tuffnells.
The net liabilities of Tuffnells were GBP13.5m at 29 February 2020; when compared to the fair value less costs to sell, this indicated impairment and a charge of GBP0.6m was recognised against property plant and equipment.
Tuffnells strategic review
The results of discontinued operations, have been included within the consolidated income statement, are as follows:
GBPm 26 weeks to 27 Feb 26 weeks to 29 Feb 52 weeks to 29
2021 2020 Aug 2020
---------------- ----------------------------- ----------------------------- -------------------------------
Adjusted Adjusted Total Adjusted Adjusted Total Adjusted Adjusted Total
items items items
---------------- ---------- --------- ------ --------- --------- ------- --------- --------- ---------
Revenue - - - 73.7 - 73.7 98.2 - 98.2
Cost of sales - - - (78.0) - (78.0) (102.5) - (102.5)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Gross profit - - - (4.3) - (4.3) (4.3) - (4.3)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Administrative
expenses - (0.4) (0.4) (4.9) (2.6) (7.5) (7.4) (2.0) (9.4)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Operating
loss - - - (9.2) (2.6) (11.8) (11.7) (2.0) (13.7)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Finance costs - - - (1.1) - (1.1) (1.6) - (1.6)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Loss before
tax - (0.4) (0.4) (10.3) (2.6) (12.9) (13.3) (2.0) (15.3)
Income tax
expense - - - 1.9 (3.5) (1.6) 0.2 (3.6) (3.4)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Loss from
discontinued
operations - (0.4) (0.4) (8.4) (6.1) (14.5) (13.1) (5.6) (18.7)
----------------- --------- --------- ------ --------- --------- ------- --------- --------- ---------
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
9 Discontinued operations and held for sale (continued)
Discontinued operations (continued)
During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBP1.3m (H1 2020: GBP1.1m outflow) and GBPnil in respect of investing activities (H1 2020: GBP12.5m received). There were GBPnil (H1 2020: GBP11.4m) cash outflows associated with financing activities attributable to Discontinued Operations.
Held for sale
In the prior period to 29 February 2020, the Tuffnells business unit met the definition of being held for sale and thus all its assets and liabilities were classified as such. The Tuffnells business was disposed of in May 2020 and therefore from that point no assets or liabilities relating to the Tuffnells business remain on the balance sheet. There were no other assets or liabilities held for sale in the current or prior period.
A summary of assets and liabilities held for sale is included in the table below:
GBPm Period Period Period
ending ending ending
27 February 29 February 31 August
2021 2020 2020
------------------------------------- ------------- ------------- -----------
Assets
Property, plant and equipment - 12.3 -
Right of use assets - 36.8 -
Inventories - 0.6 -
Trade and other receivables - 20.0 -
Total assets held for sale - 69.7 -
------------------------------------- ------------- ------------- -----------
Liabilities
Trade and other payables - (22.2) -
Lease Liabilities - (45.1) -
Bank overdrafts and other borrowings - (10.1) -
Provisions - (4.5) -
Retirement benefits obligation - (1.9) -
Total liabilities held for sale - (83.8) -
------------------------------------- ------------- ------------- -----------
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
10 Net Cash Inflow from Operating Activities
26 weeks 26 weeks 52 weeks
to to to
GBPm 27 Feb 29 Feb 29 Aug
2021 2020 2020
---------------------------------------- --------- --------- ---------
Continuing statutory operating
profit 18.8 10.3 21.1
Discontinued operating loss (0.4) (11.8) (13.7)
Operating profit/(loss) 18.4 (1.5) 7.4
Profit on disposal of property,
plant and equipment (0.2) (1.5) (1.4)
Impairment of Goodwill - 5.7 5.7
Impairment of investments - 0.3 0.3
Share of profits of jointly controlled
entities (0.1) (0.2) 0.1
Profit on disposal of subsidiary - - (1.8)
Pension funding - (0.7) (0.8)
Depreciation of property, plant
and equipment 1.3 1.4 3.0
Depreciation of ROU assets 3.1 8.0 11.0
Amortisation of intangible assets 0.9 1.1 2.0
Impairment of Tuffnells assets - 2.6 2.5
Share based payments 0.4 0.2 0.4
(Increase)/Decrease in inventories (1.2) (1.3) 2.2
(Increase)/Decrease in receivables 9.3 (15.0) 23.0
Increase/(Decrease) in payables (13.8) 13.2 (31.3)
(Decrease)/Increase in provisions (2.2) 0.4 0.8
Non cash pension and admin costs - 0.2 0.3
Net income tax (paid)/receipt (2.8) 0.3 -
Net cash inflow from operating
activities 13.1 13.2 23.4
----------------------------------------- --------- --------- ---------
During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBP1.3m (H1 2020: GBP1.1m outflow) and GBPnil was received in respect of investing activities (H1 2020: GBP12.5m received). There were GBPnil (H1 2020: GBP11.4m) cash outflows associated with financing activities attributable to Discontinued Operations.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
11 Intangible Assets
Goodwill is not amortised, but tested annually for impairment or more frequently if there are indications that goodwill might be impaired with the recoverable amount being determined from value in use calculations. The recoverable amounts of the combined cash generating units are determined from the value in use calculations.
As goodwill is written down to GBPnil, no impairment testing is required.
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
2021 2020 2020 2021 2020 2020 2021 2020 2020
---------- -------------- ----- ----- ----- -------------- ----- ----- ----- -------------- ----- ----- -----
DMD 5.7 - - - 2.6 - - - 8.3 - - -
Smiths
News - - - - 0.3 - - - 0.3 - - -
Tuffnells 52.1 - - - 58.1 - - - 110.2 - - -
Total 57.8 - - - 61.0 - - - 118.8 - - -
---------- -------------- ----- ----- ----- -------------- ----- ----- ----- -------------- ----- ----- -----
Other intangibles 3.0 5.2 4.0
-------------------------- ----- ----- ----- -------------- ----- ----- ----- -------------- ----- ----- -----
Total Intangible
assets 3.0 5.2 4.0
-------------------------- ----- ----- ----- -------------- ----- ----- ----- -------------- ----- ----- -----
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
12 Cash and Borrowings
Cash and borrowings by currency (sterling equivalent) are as follows:
GBPm Sterling Euro USD Other Total At 29 At 29
27 Feb Feb 2020 Aug 2020
2021
-------- ---- --- ---------
Cash and bank deposits 9.0 0.5 0.3 0.2 10.0 37.1 50.6
Overdrafts - - - - - (16.0) (41.3)
Revolving credit facility - - - - - (28.0) (39.0)
Term loan - disclosed within
current liabilities (21.3) - - - (21.3) (49.5) (49.8)
Term loan - disclosed within
non-current liabilities (56.7) - - - (56.7) - -
------------------------------- -------- ---- --- ----- ------- ---------
Total borrowings - continuing (78.0) - - - (78.0) (93.5) (130.1)
------------------------------- -------- ---- --- ----- ------- ---------
Overdrafts - discontinued - - - - - (10.1) -
Total overdraft and borrowings (78.0) - - - (78.0) (103.6) (130.1)
-------- ---- ---
Unamortised arrangement
fees (2.0) - - - (2.0) (0.6) (0.2)
------------------------------- -------- ---- --- ----- ------- --------- ---------
Net borrowings (71.0) 0.5 0.3 0.2 (70.0) (67.1) (79.7)
------------------------------- -------- ------- --------- ---------
Total borrowings
------------------------------- -------- ---- --- ----- ------- --------- ---------
Amount due for settlement
within 12 months (21.5) - - - (21.5) (104.2) (130.3)
Amount due for settlement
after 12 months (58.5) - - - (58.5) - -
------------------------------- -------- ---- --- ----- ------- --------- ---------
(80.0) - - - (80.0) (104.2) (130.3)
------------------------------- -------- ---- --- ----- ------- --------- ---------
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.
A new three-year GBP120 million facility was agreed in November 2020, comprising a GBP45m amortising term loan (Facility A), a GBP35m bullet repayment term loan (Facility B) and a GBP40 million multicurrency revolving credit facility (RCF). The agreement is with a syndicate of banks comprising existing lenders HSBC, Barclays, Santander, AIB and Clydesdale and one new lender, Shawbrook Bank. The final maturity date of the new facility is 6 November 2023.
The terms of the new facility agreement include: an amortisation schedule of GBP15.0m per annum for the repayment of Facility A; agreed repayments against Facility B arising from funds received in relation to both deferred consideration received following the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Company's defined benefit pension scheme; and an absolute preclusion of payments of dividends in respect of FY 2020 and capped dividend payments thereafter for FY 2021 (up to GBP4m) and FY 2022 onwards (up to GBP6m per year).
As part of the terms of the refinancing, 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 4.5% per annum over LIBOR (in respect of Facility A and the RCF) and 5.0% per annum over LIBOR (in respect of Facility B).
At 27 February 2021, the Company had GBP35.0m (29 February 2020: GBP108.4m) of undrawn committed borrowing and cash facilities in respect of which all conditions precedent had been met.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
12 Cash and Borrowings (continued)
Analysis of net debt
As at As at As at
GBPm 27 Feb 2021 29 Feb 2020 29 Aug 2020
------------------------------------------- ----------- ----------- -----------
Cash and bank deposits 10.0 37.1 50.6
Overdrafts - included in cash flow
as cash and cash equivalents - (16.0) -
Cash and cash equivalents 10.0 21.1 50.6
-------------------------------------------- ----------- ----------- -----------
Overdrafts - - (41.3)
Overdrafts - included within liabilities
held for sale - (10.1) -
Current borrowings (21.3) (77.5) (88.8)
Non-current borrowings (56.7) - -
-------------------------------------------- ----------- ----------- -----------
Net borrowings including unamortised
arrangement fees (68.0) (66.5) (79.5)
-------------------------------------------- ----------- ----------- -----------
Unamortised arrangement fees (2.0) (0.6) (0.2)
-------------------------------------------- ----------- ----------- -----------
Net borrowings (70.0) (67.1) (79.7)
-------------------------------------------- ----------- ----------- -----------
Lease liabilities* (31.3) (79.1) (33.4)
-------------------------------------------- ----------- ----------- -----------
Net debt (101.3) (146.2) (113.1)
-------------------------------------------- ----------- ----------- -----------
* The Company's banking covenants are on a frozen GAAP basis. Bank Net Debt is net borrowings of GBP70.0m (H1 2020: GBP67.1m) and finance lease liabilities of GBPnil as defined by IAS 17 (H1 2020: GBP1.4m) to calculate Bank Net Debt of GBP70.0m (H1 2020: GBP68.5m).
The movement in net debt in the period includes GBP0.9m (H1 2020: GBP0.2m) loan fee amortisation and GBP2.8m of fees incurred as a result of the refinancing.
13 Provisions
GBPm Provision Reorganisation Insurance Property Total
for onerous provisions and legal provisions
contracts provision
---------------------------- ------------ -------------- ---------- ----------- ------
At 29 August 2020 (0.9) (2.7) (1.8) (3.9) (9.3)
Additions - - (0.4) - (0.4)
Utilised in period 2.0 0.9 0.1 3.0
Released 0.1 0.1 - - 0.2
Unwinding of discount
utilisation - - - (0.1) (0.1)
At 27 February 2021 (0.8) (0.6) (1.3) (3.9) (6.6)
============================= ============ ============== ========== =========== ======
GBPm 27 Feb 29 Feb 29 Aug
2021 2020 2020
---------------------------- ------------ -------------- ---------- ----------- ------
Included within current
liabilities (4.1) (3.5) (6.8)
Included within non-current
liabilities (2.5) (2.6) (2.5)
----------------------------- ------------ -------------- ---------- ----------- ------
Total (6.6) (6.1) (9.3)
----------------------------- ------------ -------------- ---------- ----------- ------
Reorganisation provisions are primarily in relation to redundancy costs that were accrued in the prior year as part of the Company's strategy to right size following the sale of Tuffnells.
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 GBP1.1m relating to claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of the Company's potential dilapidation costs. These provisions have been discounted at a risk adjusted rate and this discount will be unwound over the life of the leases. The provisions cover the period to 2031, however, a significant portion of the potential liability falls within five years .
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
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 27 February 2021 of GBP0.4m (29 August 2020: GBP0.6m).
As at 27 February 2021, the Company have an approved letter of credit of GBP5.0m 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.
15 Share Capital a) Share capital GBPm 27 Feb 2021 29 Feb 2020 29 Aug 2020 -------------------------------- ----------- ----------- ----------- 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 30 August 2020 247.7 At 27 February 2021 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 27 Feb 2021 29 Feb 2020 29 Aug 2020 ------------------------------ ------------ ------------ ------------ Opening balance at 30 August 60.5 60.5 60.5 Closing balance 60.5 60.5 60.5 ------------------------------ ------------ ------------ ------------
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
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 27 February 2021. There have been no material changes to or material transactions with related parties as disclosed in Note 33 of the Annual Report and Accounts for the 52 week period ended 29 August 2020.
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 2020 Annual Report. There have been no other material changes to the arrangements between the Company and key management personnel in the period.
17 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:
27 Feb 2021 29 Feb 2020 29 Aug 2020
------------------------------------------------------ ------------ ------------ ------------
Net (decrease)/increase in cash and cash equivalents (40.6) 13.2 42.7
Decrease/(Increase) in borrowings and overdrafts 50.3 (8.0) (50.8)
Movement in borrowings and cash 9.7 5.2 (8.1)
Dividend paid - 2.4 2.4
Adjustment for pension funding - 0.7 0.8
Tuffnells disposal costs - - 3.7
Receipt of Tuffnells Loan (6.7) - -
Payment of Tuffnells Loan - - 6.5
Net outflow on purchase of shares for EBT 0.4 0.7 0.7
Other (0.1) 0.1 -
------------------------------------------------------ ------------ ------------ ------------
Total free cash flow 3.3 9.1 6.0
Discontinued free cash flow (1.3) 4.1 (4.9) ------------------------------------------------------ ------------ ------------ ------------ Continuing free cash flow 4.6 5.0 10.9 ------------------------------------------------------ ------------ ------------ ------------ 18 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 27 Feb 2021 26 weeks to 29 Feb 2020 ------------------------------- ------------------------ ------------------------ Operating profit 18.8 10.3 Adjusted items 0.1 9.6 Depreciation and amortisation 5.5 5.0 -------------------------------- ------------------------ ------------------------ Adjusted EBITDA 24.4 24.9 IAS 17 rental charge* (3.9) (3.2) Adjusted EBITDA (exc IFRS 16) 20.5 21.7 -------------------------------- ------------------------ ------------------------
* IAS 17 rental charge is the charge that would have occurred for leases defined as operating leases under IAS 17.
Smiths News PLC
Notes to the Condensed Unaudited Interim Financial Statements (continued)
For the 26 weeks to 27 February 2021
19 Subsequent events
On 26 February 2021 the Company gave notice to terminate its liability to the pension scheme with effect from 2 March 2021, this was accepted by the Trustees and the wind-up of the pension commenced. On 31 March 2021 the pension liabilities covered by the buy-in insurance transferred over to L&G the new pension provider and "buy-out" concluded removing the Company's obligation to the members.
At the balance sheet date, the Company does not recognise the GBP16.0m pre-tax surplus as an asset, as it does not yet have an unconditional right to the asset. The right of return is dependent on the conclusion of; a member consultation, pension regulator approval, settlement of the GMP liabilities which are outside the scope of the insurance policy and final acceptance from the Trustees.
If any surplus is returned to the Company it will be net of additional professional fees and tax which will be charged at a rate significantly higher that the Company's effective tax rate and will materially reduce the surplus balance available to the Company.
Smiths News PLC
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the Directors have adopted various APMs.
These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the 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 information on the underlying trends, performance and position of the Company.
APMs are also used to enhance the comparability of information between reporting periods and business units by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Company's performance.
Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes.
Smiths News PLC
Glossary - Alternative performance measures (continued)
The key APMs that the Company has focused on and changes to APMs within the period can be found in Note 1.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS measure to IFRS measure for
reconciliation
Income Statement
Adjusted No direct N/A Note 4 Are items of income or expense
Items equivalent that are excluded in arriving
at Adjusted operating profit.
This enhances users understanding
of the Company's performance
as it aids the comparability
of information between reporting
periods and business units by
adjusting for non-recurring
or uncontrollable factors which
affect IFRS measures,
---------------- ------------------ ------------------ ----------------------------------------
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 Adjusted
items (defined above).
---------------- ------------------ ------------------ ----------------------------------------
Adjusted Profit Adjusted items Income statement/ Adjusted profit before tax is
profit before Note 4 defined as profit before tax
before tax (PBT) from continuing operations,
tax excluding the impact of Adjusted
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 Adjusted
items (defined above).
---------------- ------------------ ------------------ ----------------------------------------
Adjusted Operating Depreciation Note 18 This measure is based on business
EBITDA profit* and amortisation unit operating profit from continuing
(IFRS16) Adjusted items operations.
It excludes depreciation, amortisation
and Adjusted items.
---------------- ------------------ ------------------ ----------------------------------------
Adjusted Operating Depreciation Note 18 This measure is based on business
EBITDA profit* and amortisation unit operating profit from continuing
(ex IFRS16) Adjusted items operations.
It excludes depreciation, amortisation
and Adjusted items after deducting
IAS 17 operating lease costs.
This 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, Note 17 Free cash flow is defined as
flow from operating acquisitions cash flow excluding the following:
activities and disposals, payment of the dividend, acquisitions
Repayment and disposals, the repayment
of bank loans, of bank loans, EBT share purchases
EBT share and cash flows
purchases, relating to pension deficit
Pension deficit repair. This measure reflects
repair payments the cash available to shareholders.
---------------- ------------------ ------------------ ----------------------------------------
Balance Sheet
Bank net Borrowings Cash flow Net debt is calculated as total
debt less cash statement 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 borrowings,
overdrafts and lease liabilities.
---------------- ------------------ ------------------ ----------------------------------------
* Operating profit is presented on the Company income statement. It is not defined per IFRS, however, is a generally accepted profit measure
Smiths News PLC
INDEPENDENT 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 twenty six weeks period ended 27 February 2021 which comprises Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity and Condensed Consolidated Company 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 International Financial Reporting Standards (IFRSs) as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
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.
Smiths News PLC
INDEPENDENT REVIEW REPORT TO SMITHS NEWS PLC (CONTINUED)
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 twenty six weeks period ended 27 February 2021 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, 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
04 May 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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END
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(END) Dow Jones Newswires
May 05, 2021 02:00 ET (06:00 GMT)
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