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Connect Group PLC Unaudited Interim Results 6 mts ended 28 Feb 19

01/05/2019 7:00am

UK Regulatory (RNS & others)


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6 Months : From Apr 2019 to Oct 2019

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TIDMCNCT

RNS Number : 6519X

Connect Group PLC

01 May 2019

Connect Group PLC

("Connect Group" or "the Group")

Unaudited Interim Results for the six months ended 28 February 2019

Improved operational execution, in a challenging first half.

Connect Group, a leading specialist distributor, is today announcing its Interim Results for the six months ended 28 February 2019.

 
 Continuing Adjusted results(1)      Six months     Six months   Change 
                                             to             to 
                                    28 Feb 2019    28 Feb 2018 
 Revenue                              GBP732.5m      GBP766.5m   -4.4% 
 EBITDA                                GBP18.0m       GBP24.2m   -25.6% 
 Operating profit                      GBP13.0m       GBP18.0m   -27.8% 
 Profit before tax                      GBP9.9m       GBP15.1m   -34.4% 
 Basic earnings per share                  3.2p           5.0p   -36.0% 
 Statutory continuing results 
 Revenue                              GBP732.5m      GBP766.5m   -4.4% 
 Operating profit                       GBP6.4m       GBP12.4m   -48.3% 
 Profit before tax                      GBP3.3m        GBP9.5m   -65.3% 
 Basic earnings per share                  1.1p           3.1p   -64.5% 
 Interim dividend per share               Nil p           3.1p    N/A 
 
 Free cash flow (including 
  Adjusted items)(2)                    GBP5.8m       GBP10.0m   -42.0% 
 Net debt(5)                           GBP77.5m       GBP83.6m   -7.3% 
--------------------------------  -------------  -------------  ------- 
 

Headlines:

   --      Overall performance in line with expectations as we address the legacy challenges 
   --      Strategy on track, driving business unit accountability and central efficiencies 

-- Smiths News demonstrating a good recovery, with a return to strong cost control and excellent progress with 65% of contracts renewed by total revenue

-- Tuffnells impacted by revenue and cost challenges that flowed through from second half of FY 2018

-- DMD returning a solid performance in the period but loss of key contract will impact FY 2020

   --      Net Debt of GBP77.5m, down GBP6.1m year on year, a net debt: Adjusted EBITDA ratio of 1.95x 

Jos Opdeweegh, Chief Executive Officer, commented:

'Today's results confirm the progress we have made, with a good performance in Smiths News and further benefits from central efficiencies and focused capital management. Looking ahead, we continue to drive our strategic priorities, spearheaded by business unit accountability, the turnaround of Tuffnells and lean processes across the entire organisation.'

The Group uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'net debt', 'free cash flow', 'Adjusted revenue', 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted earnings per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies. See the Glossary on page 45 for more details.

(1) The following are the key non-IFRS measures identified by the Group in the consolidated financial statements as Adjusted results:

Continuing Adjusted operating profit - is defined as operating profit including the operating profit of businesses from their date of acquisition and excludes adjusted items and operating profit of businesses disposed of in the prior year or treated as held for sale.

Continuing Adjusted profit before tax - is defined as Continuing Adjusted operating profit less finance costs attributable to Continuing Adjusted operating profit and before adjusted items, including amortisation of intangibles and network and reorganisation costs.

Continuing Adjusted earnings per share - is defined as continuing adjusted PBT, less taxation attributable to adjusted PBT and including any adjustment for minority interest to result in adjusted PAT attributable to shareholders; divided by the basic weighted average number of shares in issue.

Adjusted items - are items of income or expense that are excluded in arriving at Adjusted operating profit. The purpose of excluding these items from adjusted measures is to provide additional performance metrics to users of the financial statements that exclude the impact of the items the Directors consider to have an impact on reported results and do not relate to the underlying trading activity of the Group. The specific items vary between financial years, and may include certain corporate activity 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 Group. 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 any dividend, acquisitions and disposal costs, the repayment of bank loans, EBT share purchases and cash flows relating to pension deficit repair contributions. Free cash flow (excluding Adjusted items) is Free cash flow adding back Adjusted cash costs.

(3) Operating cash flow is defined as operating profit adding back non-cash items amortisation, depreciation, share based payments, share of profits of jointly controlled entities, and non cash pension costs, adjusting the increase/ decrease in working capital then deducting pension contributions and tax payments in accordance with note 11 of the financial statements.

(4) Adjusted EBITDA - is calculated as Adjusted operating profit before depreciation and amortisation. In line with loan agreements Adjusted Bank EBITDA used for covenant calculations is calculated as Adjusted operating profit before depreciation, amortisation, Adjusted items and share based payments charge but after adjusting for the last 12 months of profits for any acquisitions or disposals made in the year.

(5) Net debt - is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases.

(6) H1 2018 refers to the half year ended 28 February 2018, H2 2018 refers to the half year ended 31 August 2018 and FY 2018 refers to the full year ended 31 August 2018. H1 2019 refers to the half year ended 28 February 2019 and H2 2019 refers to the half year ended 31 August 2019 and FY 2019 refers to the full year ended 31 August 2019. FY 2020 refers to the full year ended 31 August 2020.

   (7)    External revenue excludes intercompany sales, see note 3: Segmental Analysis of Results for reconciliation. 

Enquiries:

 
 Connect Group PLC 
  Jos Opdeweegh, Chief Executive Officer 
  Tony Grace, Chief Financial Officer         01793 563641 
 www.connectgroupplc.com 
 Buchanan 
  Richard Oldworth / Jamie Hooper 
  connect@buchanan.uk.com 
  www.buchanan.uk.com                         020 7466 5000 
 

A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 1 May 2019 commencing at 9.30am. Connect Group PLC's Interim Results 2019 are available at www.connectgroupplc.com

An audio webcast will be available on:

https://webcasting.buchanan.uk.com/broadcast/5c6bc2bae6e1d92d38f4ed50

About Connect Group

Connect Group PLC is a UK based specialist distributor and a leading provider of distribution solutions in complex and fragmented markets. The Group's networks are focused on serving high density early morning deliveries and the demands of mixed and irregular sized freight.

The Group's core businesses are each leading players in their markets:

Smiths News

Smiths News is the UK's largest newspaper and magazine wholesaling business with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the major national and regional publishers, delivering to approximately 27,000 customers across England and Wales on a daily basis. The speed of turnaround in the UK and density of Smiths News' coverage is critical to one of the world's fastest physical supply chains.

Dawson Media Direct (DMD) supplies newspapers, magazines and inflight entertainment technology and content to over 80 airlines in 50 countries. Delivering to strict time windows with security accreditation, DMD serves the specialist needs of airlines and travel points in the UK and worldwide with printed and digital media.

Tuffnells

Tuffnells is a leading distributor of mixed and irregular freight, serving approximately 5,000 small and medium sized enterprises across the UK. Its network of 37 depots collects and delivers mixed parcel freight consignments, specialising in items of irregular dimension and weight ("IDW"), examples of which include bulky items, building materials and automotive parts. With a mix of local and national clients, Tuffnells completes up to 70,000 daily deliveries, offering a range of timed services that are responsive to customer demand.

Notes to Editors

This document contains certain forward-looking statements with respect to Connect Group PLC's financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as 'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of Connect Group PLC's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Connect Group PLC undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise. Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Connect Group PLC. For more detailed information, please see the Interim Results announcement for the half-year ended 28 February 2019 and the Report and Accounts for the year ended 31 August 2018 which can be found on the Investor Relations section of the Connect Group PLC website - www.connectgroupplc.com. However, the contents of Connect Group PLC's website are not incorporated into and do not form part of this document.

INTERIM MANAGEMENT REPORT

OPERATING REVIEW

INTRODUCTION

Overall performance is in line with expectations as we continue to address the underlying issues that impacted revenue and costs in FY 2018 and flowed through into this year. Group continuing Adjusted operating profit of GBP13.0m was driven by the return to focused accountability in Smiths News and good progress in overhead cost reductions, offset by a continuation of the weaker trading in Tuffnells. We will continue to drive improvements to service and cost control and we remain confident that the steps taken will continue to deliver tangible benefits in the second half of the year.

In January 2019 the Group set out its strategy for recovery, building on the immediate priorities that were identified at the preliminary financial results in November 2018. While it is early days, progress is on track in all key areas.

The underlying financial position of the Group remains strong with free cash flow in the period of GBP5.8m, and net debt reducing to GBP77.5m from GBP83.4m at year end.

Smiths News

The return to focused accountability has restored stability to the Group's largest business. Adjusted operating profit of GBP20.3m is up by GBP3.4m (H1 2018: GBP16.9m) with cost efficiencies more than offsetting the impact of declining revenues, which at -4.0% remain in line with established trends.

Good progress has been made with the accelerated renewal of publisher contracts, with new agreements securing 98% of Smiths News' magazine revenues and 65% of its total revenues, for an average contract extension of 5 years. All our existing territories have been retained, providing the necessary certainty to unlock supply chain efficiencies over the contract periods.

Cost reductions in Smiths News are ahead of plan, mitigating the impact of sales declines through efficiencies in operational and central costs.

In January 2019 the Group disposed of its vending coffee business known as Jack's Beans. This sale was in line with the strategy to divest of non-core assets; the business made negligible contribution and there will be no impact on financial performance in the year.

DMD

DMD had a solid performance in the period with Adjusted operating profit of GBP1.3m in line with last year (H1 2018: GBP1.3m). The business was not successful in re-tendering for its contract with British Airways which will terminate in June 2019. Actions are in hand to substantially mitigate the consequential reduction in revenue that would otherwise be estimated to impact profit contribution by up to GBP1.5m in FY 2020.

Tuffnells

Tuffnells' performance was hindered by the carry-over of customer losses suffered in the second half of last year, which resulted in significantly lower consignment volumes. Revenue of GBP80.2m was down by 8.1% (H1 2018: GBP87.3m) resulting in an Adjusted operating loss for the period of GBP8.6m. This compares to an Adjusted loss of GBP0.2m in the comparable prior period, and an Adjusted loss of GBP5.0m in the second half of FY 2018.

Despite the challenging period, we believe that management actions are the right ones for a sustainable recovery. We continue to prioritise improvements to revenue quality, cost reduction and standard operating processes - these actions are beginning to achieve traction and we are confident of achieving an improvement in the second half.

As a predominantly UK business to business carrier, Tuffnells is not expected to be directly impacted by the UK's decision to leave the EU. Nonetheless, in the short term, the stockpiling of goods in bulk by some suppliers has resulted in a more uneven and harder to predict distribution of consignments than would be typically usual in the period.

Looking ahead, our view on stabilising business operations and arresting the decline in performance is unchanged. While trading in the period has been weaker than anticipated, we continue to target a return to positive contribution, after full cost allocation, in FY 2020. Once this is achieved, the market fundamentals remain strong and offer good prospects for a sustainable recovery.

Sale and Leaseback

In January 2019 the Group announced its intention to secure a sale and leaseback agreement in relation to 16 Tuffnells' properties; this process is on-going and we will update shareholders in due course.

Pensions

In October 2018 the Group's largest legacy pension scheme (WH Smith Pension Trust) was subject to an insurance backed annuity buy-in of the News section scheme assets. The Group has subsequently been notified that the assets are expected to be sufficient to cover future liabilities and therefore monthly cash contributions to address a deficit repair are no longer required. This will reduce future cash outflows by GBP3.3m per annum to March 2020.

Dividend

In line with our strategy of balancing the interests of all stakeholders the Board has resolved not to pay an interim dividend in FY 2019. We continue to plan for a final dividend of circa 1p per share subject to meeting overall financial expectations for the full year.

Outlook

Overall expectations for the full year are unchanged with an anticipated strong performance in Smiths News, further central cost savings, and an improving performance of Tuffnells in H2 2019.

FINANCIAL REVIEW

GROUP INCOME STATEMENT EXTRACTS - CONTINUING ADJUSTED

 
 GBPm 
                                6 months    6 months   Change 
                                      to          to 
                                Feb 2019    Feb 2018 
---------------------------   ----------  ----------  ------- 
 Revenue                           732.5       766.5    -4.4% 
 Adjusted operating profit          13.0        18.0   -27.8% 
 Net finance costs                 (3.1)       (2.9)    -6.9% 
----------------------------  ----------  ----------  ------- 
 Adjusted profit before 
  tax                                9.9        15.1   -34.4% 
 Taxation                          (1.9)       (3.0)    36.7% 
 Tax rate                          19.2%       19.7% 
----------------------------  ----------  ----------  ------- 
 Adjusted profit after 
  tax                                8.0        12.1   -33.9% 
----------------------------  ----------  ----------  ------- 
 

Revenue of GBP732.5m was down overall by 4.4%. Smiths News' revenue declined by GBP26.3m, (4.0%) in line with expectations, DMD's revenue fell GBP0.4m (3%) and Tuffnells' revenue declined GBP7.1m (8.1%).

Adjusted operating profit of GBP13.0m was down by GBP5.0m (27.8%) on the prior period. Of this, Smiths News' Adjusted operating profit was up GBP3.4m (20.1%) offset by an increased Tuffnells' Adjusted operating loss of GBP8.6m.

Net finance costs of GBP3.1m were up by GBP0.2m (6.9%) on the prior period. The interest cost on borrowings incurred was GBP2.5m compared to GBP1.9m in the prior period. Other finance costs include finance lease interest, interest cost on pension obligations and unwinding of discounts on provisions of GBP0.3m (H1 2018: GBP0.7m); and the amortisation of banking arrangement fees of GBP0.3m (H1 2018: GBP0.2m).

Adjusted profit before tax of GBP9.9m was down by 34.4%.

The tax charge for the period of GBP1.9m was GBP1.1m down on the prior period, reflecting an effective tax rate of 19.2% (H1 2018: 19.7%). This was in line with the reduction in the UK Corporation Tax rate.

Consequently, Adjusted profit after tax of GBP8.0m was down GBP4.1m (33.9%) on the prior period.

EPS AND DIVID

 
                                    Continuing Adjusted      Continuing Statutory 
-------------------------------  ------------------------  ------------------------ 
 
                                    6 months     6 months     6 months     6 months 
                                          to           to           to           to 
                                    Feb 2019     Feb 2018     Feb 2019     Feb 2018 
-------------------------------  -----------  -----------  -----------  ----------- 
 
 Profit after tax (GBPm)                 8.0         12.1          2.8          7.6 
 Basic weighted average number 
  of shares (millions)                 246.2        245.7        246.2        245.7 
 Basic EPS (p)                           3.2          5.0          1.1          3.1 
 Diluted weighted average 
  number of shares (millions)          246.6        248.0        246.6        248.0 
 Diluted EPS (p)                         3.2          4.9          1.1          3.1 
-------------------------------  -----------  -----------  -----------  ----------- 
 Dividend per share                    Nil p         3.1p        Nil p         3.1p 
 

On a continuing adjusted basis, profit after tax of GBP8.0m resulted in a basic EPS of 3.2p, a decrease of 36.0% on the prior year. Including Adjusted items, a statutory continuing profit after tax of GBP2.8m was attributable to equity shareholders. This resulted in a basic statutory EPS of 1.1p, a decrease of 2.0p on the prior year.

The weighted average number of shares increased by 0.5m to 246.2m.

Dilutive shares increased the basic number of shares at 28 February 2019 by 0.4m to 246.6m. This resulted in a diluted adjusted EPS of 3.2p, a decrease of 36.0% on the prior period.

The calculation of diluted EPS includes the potential dilutive effect of employee incentive schemes of 0.4m shares (H1 2018: 2.3m).

The statutory continuing EPS was 1.1p (H1 2018: 3.1p), down 64.5%.

The Board has determined not to pay an interim dividend in FY 2019, comparing to an interim dividend payment of 3.1p on last year.

SMITHS NEWS INCOME STATEMENT

 
 GBPm 
                               6 months to   6 months to   Change 
                                  Feb 2019      Feb 2018 
---------------------------   ------------  ------------  ------- 
 Revenue(7)                          639.4         665.7    -4.0% 
 Adjusted operating profit            20.3          16.9    20.1% 
 
 Operating margin                     3.2%          2.5%    70bps 
----------------------------  ------------  ------------  ------- 
 

Smiths News' revenue of GBP639.4m declined 4.0% on the prior period. Newspaper revenue was down by 3.8% with cover price inflation mitigating volume declines. Magazine revenue was down by 5.6% with weekly titles again performing more strongly than monthlies. Revenue decline continues in line with our long term projections.

Smiths News' Adjusted operating profit of GBP20.3m was GBP3.4m favourable than the prior period driven by two factors:

-- The impact of ongoing reduction in newspaper and magazine sales has been successfully mitigated by the implementation of compensating cost savings to the network and distribution cost base.

-- The new Group structure with two separate accountable business units in Smiths News and Tuffnells, has restored a more focused approach by the Smiths News management team. Allowing one-off cost benefits from the abandonment of the Tuffnells integration efforts and the exit of Pass My Parcel to be unlocked.

These have been the primary drivers in the improvement of operating margin in the period to 3.2%.

DMD INCOME STATEMENT

 
 GBPm 
                         6 months    6 months   Change 
                               to          to 
                         Feb 2019    Feb 2018 
--------------------   ----------  ----------  ------- 
 Revenue                     13.0        13.4    -3.0% 
 Adjusted operating 
  profit                      1.3         1.3        - 
 
 Operating margin           10.0%        9.7%    30bps 
---------------------  ----------  ----------  ------- 
 

Revenue of GBP13.0m was down by GBP0.4m (3.0%) on the prior period. The reduction reflects a range of contract wins and losses, together with variations in demand from publishers and airline operators. Such fluctuations are not unusual in what is a more dynamic market environment than retail newspaper and magazine distribution. Looking ahead, British Airways re-tendered its contract during the period and mutually acceptable terms could not be agreed; as a consequence the contract will cease from July 2019. Actions to partially offset the impact in FY 2020 are underway.

Adjusted operating profit of GBP1.3m is flat on prior period and operating margin of 10.0% is up 30bps versus prior year.

TUFFNELLS INCOME STATEMENT

 
 GBPm 
                         6 months    6 months   Change 
                               to          to 
                         Feb 2019    Feb 2018 
--------------------   ----------  ----------  ------- 
 Revenue(7)                  80.2        87.3    -8.1% 
 Adjusted operating 
  (loss) / profit           (8.6)       (0.2)     N.A. 
 
 Operating margin         (10.7%)      (0.2%)     N.A. 
---------------------  ----------  ----------  ------- 
 

Revenue of GBP80.2m was down GBP7.1m (8.1%) on the prior period.

The H1 2019 decline in revenue was driven predominantly by the annualised impact of lower consignment volumes resulting from customer losses suffered in H2 2018.

Further impacting performance, the cost structure in the period has proved insufficiently variable to adjust with sufficient speed to the year on year changes in consignment volumes. In addition, year on year performance has been affected by: the impact of the national living wage; the re-allocation of directly attributable overheads; continued investment in leadership; and maintaining capacity and capability to meet service standards.

As a consequence, the adjusted operating loss was GBP8.6m, an increase of GBP8.4m on H1 2018 and an increase of GBP3.6m on H2 2018.

ADJUSTED ITEMS(1)

 
 GBPm 
 
                                                        6 months to     6 months to 
                                                           Feb 2019        Feb 2018 
--------------------------------------------------   --------------  -------------- 
 Network and re-organisation costs                            (1.3)           (0.5) 
 Vacant property cost release                                     -             0.5 
 IPR settlement income                                          0.3               - 
 Sales and leaseback professional fees                        (0.5)               - 
 Pension 'buy-in' professional fees                           (1.5)               - 
 Brierley Hill insurance claim                                (0.2)               - 
 NMW regulatory compliance                                      0.1               - 
 Impairment of PMP intangible and tangible assets                 -           (2.0) 
 Amortisation of acquired intangibles                         (3.5)           (3.6) 
 Total loss before tax - continuing                           (6.6)           (5.6) 
 Total loss before tax - discontinued                             -          (10.7) 
---------------------------------------------------  --------------  -------------- 
 Total loss before tax                                        (6.6)          (16.3) 
---------------------------------------------------  --------------  -------------- 
 Taxation - continued                                           1.4             1.1 
 Taxation - discontinued                                          -               - 
--------------------------------------------------   --------------  -------------- 
 Taxation                                                       1.4             1.1 
---------------------------------------------------  --------------  -------------- 
 Total loss after tax - continued                             (5.2)           (4.5) 
 Total loss after tax - discontinued                              -          (10.7) 
---------------------------------------------------  --------------  -------------- 
 Total loss after tax                                         (5.2)          (15.2) 
---------------------------------------------------  --------------  -------------- 
 

Total continuing adjusted items were GBP5.2m after tax, compared to GBP4.5m in the prior period.

Total adjusted items including discontinued were GBP5.2m after tax, compared to GBP15.2m in the prior period.

Network and reorganisation costs

There are GBP1.3m (H1 2018: GBP0.5m) network and reorganisation costs. In the current period this includes network rationalisation redundancy costs of GBP0.4m (H1 2018: GBP0.4m). While costs associated with network and reorganisation recur across financial years and will continue to be incurred in the financial year, the Group consider these to be adjusted items given they are part of a strategic programme to drive future cost savings and are significant in value to the results of the Group.

There are further costs of GBP0.9m (H1 2018: GBPnil) relating to redundancies and costs incurred in restructuring the Executive team which were as a result of the appointment of the Group's new CEO in September 2018. This is separate to the network restructuring in the previous financial year. The costs of the previous executive team are considered adjusting as they enable comparability between financial years and segments and therefore consistency of results at a consolidated level.

Vacant property cost release

There were GBPnil costs attributable to vacant property costs (H1 2018: GBP0.5m). The vacant property provision release of GBP0.5m relates to the vacant Smiths News Slough depot which is now being used by Tuffnells.

IPR settlement income

The Group received a one-off payment of GBP0.3m (H1 2018: GBPnil) in relation to the settlement of an IPR dispute concerning the proposed use of a similar brand to one of the Group's brands. This is considered an adjusting item given its size and one-off nature.

Amortisation of acquired intangibles

Amortisation of continuing intangibles for acquisitions, for which there is no associated cash cost, was GBP3.5m (H1 2018: GBP3.6m). This is considered an adjusting item as it allows comparison between segments and therefore consistency of results at a consolidated level.

Pass My Parcel (PMP) impairment and exit costs

In the current financial year the Group has incurred GBPnil (H1 2018: GBPnil).

Following a review of the PMP proposition on 23 May 2018, management decided to close the business unit, as a result of this decision a charge of GBP6.7m was booked in FY 2018.

Management concluded that losses on winding down the business unit represented an onerous contract with a recognised cost of GBP4.6m. This comprises the forecast excess of costs over income from the date the Group took the decision to close the business unit. It is considered adjusting due to its one-off nature and significant value. Of this balance, GBP1.4m remains in provisions to cover the costs to close all contracts (see note 16).

In the period from 1 September 2017 to the date of the decision to close, PMP incurred losses of GBP5.4m (these losses are included in the Group's adjusted operating results for FY 2018 and H1 2018).

A further GBP2.0m of impairment charges split GBP1.0m tangible and GBP1.0m intangible were recognised to write off the non-current assets relating to the business unit in H1 2018.

Sale and Leaseback professional fees

The Group incurred GBP0.5m (H1 2018: GBPnil) in relation to sale and leaseback professional fees. In January 2019 the Group took the decision to sell the Tuffnells' freehold and long leasehold property portfolio and lease it back. The Group expects to realise a profit on the sale and leaseback transaction in the financial year and the total impact of the transaction is expected to be recognised within adjusting items - see note 9 for further information. Given the magnitude and one-off nature this is considered to be an adjusting item.

Pension 'buy-in' professional fees

The Group incurred GBP1.5m (H1 2018: GBPnil) in relation to buy in costs incurred on behalf of the WH Smith Pension Trust, which entered into an insurance backed annuity 'buy-in' of the Scheme assets within the section of the Trust sponsored by Smiths News, which thereby minimises the Group's exposure to future pension obligations. Given the magnitude and one-off nature it is considered to be an adjusting item.

Brierley Hill insurance claim

The Group incurred GBP0.2m (H1 2018: GBPnil) of insurance settlement costs in relation to the fatality at Tuffnells' Brierley Hill depot that occurred in January 2016. The Group had previously recognised the cost of the fine and legal costs in relation to this in adjusting items see note 4. Given the magnitude, one-off nature and to ensure consistent treatment with previously reported costs it is considered to be an adjusting item.

National Minimum Wage regulatory compliance

The Group has released GBP0.1m of the provision in relation to the National Minimum Wage (NMW) regulatory compliance (H1 2018: GBPnil). The Group has been in discussion with HMRC regarding an historical underpayment in relation to a misapplication of national minimum wage legislation in Tuffnells. Dialogue continues and a provision amounting to GBP1.3m was made in the prior year in respect of any potential liabilities, of which GBP0.5m related specifically to the estimated fine was classified as adjusting GBP0.1m of this provision has since been released in the period based on the latest correspondence. This is recognised as an adjusting item to be consistent with prior periods and due to its one-off nature and magnitude.

(Loss)/Profit on disposal of subsidiary

On 14 February 2018, the Group completed the sale of the Connect Books business at a loss of GBP10.7m. Full details are provided in note 9 in the Connect Group PLC Annual Report and Accounts 2018.

FREE CASH FLOW

 
 GBPm 
 Continuing operations                          6 months to   6 months to 
                                                   Feb 2019      Feb 2018 
-------------------------------------------    ------------  ------------ 
 Adjusted Operating profit - continuing                13.0          18.0 
 Depreciation & amortisation                            5.0           6.2 
---------------------------------------------  ------------  ------------ 
 Adjusted EBITDA                                       18.0          24.2 
 Working capital movement                               2.4           1.8 
 Capital expenditure                                  (2.7)         (4.4) 
 Finance lease payments                               (1.5)         (1.9) 
 Net interest paid                                    (2.6)         (3.5) 
 Taxation                                             (1.2)         (3.4) 
 Other movements                                        0.2         (0.1) 
---------------------------------------------  ------------  ------------ 
 Free cash flow (excluding adjusted items)             12.6          12.7 
---------------------------------------------  ------------  ------------ 
 Adjusted items                                       (6.8)         (2.7) 
---------------------------------------------  ------------  ------------ 
 Free cash flow                                         5.8          10.0 
---------------------------------------------  ------------  ------------ 
 

The Group generated continuing free cash flow of GBP5.8m in the period, a decrease of GBP4.2m or 42% on the prior year.

Adjusted EBITDA of GBP18.0m was down GBP6.2m caused by weaker trading performance at Tuffnells. The working capital movement in the period was a GBP2.4m inflow.

Capital expenditure of GBP2.7m is down GBP1.7m year on year, as the focus has been on maintenance rather than growth capex spend and a more rigorous capex spend criteria being established.

Net interest paid of GBP2.6m is down GBP0.9m on prior year, due to a combination of lower average net debt and prior year including a bank arrangement fee of GBP1.6m for the GBP175m bank facility signed in October 2017.

Tax paid of GBP1.2m compared to GBP3.4m in the prior period, is a consequence of the lower profit before tax being generated compared to the prior period.

The total cash impact of adjusted items for the period was GBP6.8m compared to the prior period figure of GBP2.7m. The increase in cash payments of GBP4.1m can be attributed to the settlement of a regulatory health and safety matter at Tuffnells Brierley Hill depot for GBP1.5m in October 2018; pension buy-in costs of GBP1.5m; closure costs for PMP of GBP1.4m utilising the year end provision; and redundancy costs from the year end reorganisation programme.

NET DEBT AND BANK FACILITIES

 
 GBPm 
                                                          As at       As at                As at 
                                                       Feb 2019    Feb 2018             Aug 2018 
---------------------------------------------------  ----------  ----------  ------------------- 
 Opening net debt                                        (83.4)      (82.1)               (82.1) 
---------------------------------------------------  ----------  ----------  ------------------- 
 Free cash flow                                             5.8        10.0                 20.2 
 Finance lease creditor movement                            1.5         1.5                  3.2 
 Pension deficit recovery                                 (1.2)       (2.5)                (4.7) 
 Dividend paid                                                -      (16.5)               (24.1) 
 Other                                                    (0.2)         1.3                    - 
 Disposal proceeds                                            -        13.7                 12.9 
 Discontinued disposal proceeds to repay overdraft            -           -               (12.7) 
---------------------------------------------------  ----------  ----------  ------------------- 
 Discontinued operations cash flow                            -       (9.0)                  3.9 
---------------------------------------------------  ----------  ----------  ------------------- 
 Closing net debt                                        (77.5)      (83.6)               (83.4) 
---------------------------------------------------  ----------  ----------  ------------------- 
 

Net debt at the end of the period was GBP77.5m compared to GBP83.4m at August 2018 and GBP83.6m at February 2018. Debt at the end of the half year was lower than the year end position as no final dividend for FY 2018 was announced and paid in H1 2019.

Pension deficit recovery of GBP1.2m (H1 2018: GBP2.5m), in respect of Smiths News and Tuffnells, was significantly lower than the prior period as WH Smith Pension Trustees notified Smiths News that deficit repair payments could cease from November 2018 following the completion of the pension buy-in process. Pension deficit repair payments are considered as a non-free cash flow item.

Disposal proceeds represented GBPnil. Disposal proceeds in the prior year included cash consideration of GBP13.4m for the Books division sold in the period and cash proceeds of GBP0.3m from the disposal of Education & Care division in June 2017.

Net debt:EBITDA(4) at the end of February 2019 was 1.95x versus 1.47x at August 2018 and 1.86x at February 2018. This remains comfortably within our main covenant ratio of 2.75x.

Within the Trading and Strategy Update issued on 22 January 2019 it was announced that the Group plans to enter into a sale and leaseback transaction for sixteen Tuffnells freehold and long lease properties which is expected to complete in H2 2019 with the proceeds applied to reduce net debt.

PENSIONS

The Group operates a combination of defined benefit and defined contribution schemes.

The completion of the Smiths News pension scheme buy-in in October 2018 has facilitated the elimination of the pension deficit repair liability of GBP5.1m at August 2018. The deficit repair payment in H1 2019 has fallen to GBP1.2m from GBP2.5m in the prior year, This will reduce future cash outflows by GBP3.3m per annum to March 2020.

Pension 'buy-in' costs of GBP1.5m were recorded within Adjusted Items during the period.

The Tuffnells defined benefit scheme IAS19 deficit at 28 February 2019 was GBP2.0m (31 August 2018: GBP2.1m). The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2016 was a scheme deficit of GBP4.3m. Deficit recovery contributions have been agreed and remain at GBP0.3m per annum.

The largest scheme across the Group is the Smiths News defined benefit pension scheme (the WH Smith Pension Trust) which as at 28 February 2019 had an IAS 19 surplus of GBP16.5m (Aug 2018: GBP154.2m). However, as the pension scheme is closed to future accrual, this IAS 19 surplus is not available as a reduction of future contributions or through a funding holiday, and as a result the Group has not recognised this surplus on the balance sheet. The Smiths News section of the WH Smith Pension Trust completed the actuarial triennial valuation as at 31 March 2015 and had an actuarial deficit of GBP17.5m.

Smiths News had previously agreed with the WH Smith Pension Trust a schedule of cash contributions of GBP3.3m per annum to March 2020. In October 2018, the Trust entered into an insurance backed annuity (the buy-in') of the Scheme assets within the section of the Trust sponsored by Smiths News. This 'buy-in' annuity is recognised as a plan asset and the difference in value is considered an actuarial remeasurement. The pension Trustees notified the Group that future cash contributions by the Group to address the deficit would no longer be required and the Group has released the liability. The present value of the agreed deficit repair contributions as a pension liability at 28 February 2019 is GBPnil (28 February 2018: GBP6.7m).

DISCONTINUED OPERATIONS

There were no discontinued operations in the period.

Discontinued operations contributed Adjusted operating profit of GBP1.6m in HY 2018, in respect of the former Books division which was sold in February 2018.

In the prior year, the Group completed the sale of the Books division in February 2018 for an enterprise value of GBP18.7m of which cash consideration for equity was GBP6.0m and cash settlement of intercompany overdraft balances was GBP12.7m. A loss of GBP10.5m arose on the disposal of the Books division, which had been written down to the estimated fair value less cost to sell of GBP15.0m when it became classified as held for sale on 31 August 2017.

RISKS AND UNCERTAINTIES

The Group has a clear framework in place to continuously identify and review the principal risks. This includes, amongst others, a detailed assessment of each business unit and functional team's principal risks together with a separate assessment of those risks relating to the Group as a whole and regular reporting to and robust challenge from the Audit Committee. The Directors' assessment of the Group's principal risks is aligned to the strategic business planning process.

Specifically, key risks are plotted on risk maps with descriptions, owners, and mitigating actions, reporting against a level of materiality consistent with its size. These risk maps are reviewed and challenged by the Executive Team and Audit Committee. 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 risks, the Board has considered the performance of the Group, its markets, the changing regulatory landscape and future strategic plans. Principal risks previously reported have been reviewed in detail and they have been refined and made more specific. Compared to the principal risks reported in the Annual Report 2018 the following observations are reported from the Board's half year review:

-- The mitigating actions for the risks related to Failing to Attract, Engage and Retain Talent and Inadequate Processes to Support People Initiatives have been updated in line with the progress made with our on-going talent, recruitment and Connect People projects; and

-- A new principal risk relating to Capacity and Capability to deliver change has been introduced.

These 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 it is mitigated.

 
                 Principal risks                      Potential impact              Mitigating actions and assurance 
 1.    Failure to refine and execute the     Management fail to identify, win      A high level strategy and mission 
       Group's strategy and direction -      and deliver new adjacencies           statement is in place which will be 
       The risk of failing to                opportunities profitably.             developed into a 3-5 
       establish and execute the Group                                             year business plan. 
       strategy through detailed business    Budgeted cost reductions are not 
       plans at the Group, Tuffnells         achieved as a result of increasing    Performance to the budget is 
       and Smiths News level. The lack of    near adjacencies which                reviewed regularly using a balanced 
       a clear vision and supporting         result in a sub-optimal result in     scorecard framework. This 
       business plans for the Group          the short term before achieving       ensures effective and timely 
       could impact colleague engagement,    medium and longer term benefits.      monitoring of performance with 
       financial returns, external                                                 action taken in the event of 
       confidence and shareholder                                                  shortfalls 
       perception.                                                                 to expectations. 
 
                                                                                   Financial and operational KPIs are 
                                                                                   considered along with risk 
                                                                                   assessments and impact on 
                                                                                   management 
                                                                                   before remedial action is taken. 
 
                                                                                   Accountability at leadership level 
                                                                                   is redefined. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 2.    Tuffnells - Failure to deliver the    Impact on growth and profitability    More work is planned to understand 
       turnaround of the business as         within Tuffnells if consistent        the changes in customer 
       expected by the market -              service standards are not             expectations and to improve 
       The risk that management fail to      understood and addressed, and/or if   customer 
       turnaround the Tuffnells business     organisational efficiency goals are   service, in particular around the 
       due to not maintaining                not met.                              operating model, the management 
       customer service standards and/or                                           information, supporting 
       not understanding and adapting to                                           technology, IT infrastructure and 
       new technologies, competitors,                                              safe workplace. 
       demographics which drive change in 
       customer behaviour and/or that                                              The team is being strengthened with 
       result in deep and speedy                                                   industry skills. 
       structural market changes. 
                                                                                   There are various change programmes 
                                                                                   to improve service levels and 
                                                                                   business efficiency. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 3.    Failure to adequately monitor         Impact on ability to meet financial   Annual budgets and forecasts, 
       financial performance and/or delays   commitments and ability to invest     supported by regular financial 
       in the Group's performance            in the programmes and                 management reporting, take into 
       recovery - The risk that the Group    improvements that are essential to    account the current financial 
       does not achieve or monitor           sustainable performance in the        position of the Group, allowing for 
       financial performance or meet         medium to long term.                  or changing objectives to 
       forecast commitments, as well as                                            meet short and medium-term 
       the associated risk that the                                                financial targets, as well as 
       current financial position does                                             longer term aspirations. 
       not allow for planned investment 
       programmes and business                                                     Provision of financial information 
       improvements to be undertaken.                                              to the business has improved over 
                                                                                   the last six months. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 4.    Failing to secure revenue on          Impact on supply of product or        As the market leader Smiths News is 
       contract retenders together with      route to market may erode margin      well placed to maximise its margins 
       optimising profitability within       and/or increase cost to serve.        and margin share which 
       Smiths News - The risk of failing                                           is demonstrated by recently 
       to retain major contracts in Smiths                                         securing 65% of revenues at today's 
       News at acceptable rates                                                    value pursuant to new five 
       and manage costs in a declining                                             year contracts and is in line with 
       market impacts current and                                                  the business plan. 
       projected business performance.                                             The management team has been 
                                                                                   reinforced to focus on Six Sigma 
                                                                                   Black Belt and lean ways of 
                                                                                   working to improve profitability 
                                                                                   and achieve cost reduction. 
                                                                                   Strong relationships across the 
                                                                                   supply chain help the business to 
                                                                                   understand and demonstrate 
                                                                                   its strengths for the benefit of 
                                                                                   its suppliers and customers and in 
                                                                                   particular to build on 
                                                                                   the service proposition as central 
                                                                                   to achieving excellence. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 5.    Failing to attract, engage and        Impact on the ability to address      The Executive team has planned to 
       retain talent within a high           the strategic priorities and          review talent and succession 
       performance and values-based          deliver the forecast performance      planning in addition to holding 
       culture                               for the Group.                        quarterly strategic business unit 
       - The risk that we do not establish                                         resourcing reviews. 
       a high performing and inclusive 
       culture, where we are                                                       We undertake workforce planning; 
       able to attract and retain a                                                performance, talent and succession 
       diverse colleague profile to                                                initiatives; learning 
       deliver the company strategy.                                               and development programmes; and 
                                                                                   promote the Group's culture and 
                                                                                   core values, for example, 
                                                                                   through the launch of our 
                                                                                   Everyone-In programme and our 
                                                                                   approach for 'Everyday 
                                                                                   Performance'. 
 
                                                                                   An annual survey and monthly 
                                                                                   colleague forums are undertaken to 
                                                                                   monitor the engagement of 
                                                                                   colleagues and these are followed 
                                                                                   by action plans. 
                                                                                   We improved our approach to Talent 
                                                                                   Management through improved focus 
                                                                                   on the 'what and the 
                                                                                   how' with a focus on critical 
                                                                                   roles. 
                                                                                   We sustain our focus on Total 
                                                                                   Reward Strategy through a new 
                                                                                   approach to pay benchmarking and 
                                                                                   broader benefits offer. 
                                                                                   We have started to re-build 
                                                                                   leadership capability and diversity 
                                                                                   in senior management through 
                                                                                   our investment in talent and 
                                                                                   leadership programmes scheduled for 
                                                                                   FY 2020. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 6.    Inadequate processes in place to      Impact on the ability to address      A Group-wide People and Payroll 
       support People initiatives - The      the control and efficiency            system, Connect People, has been 
       risk that the People processes        improvements and change programmes    introduced, alongside Connect 
       and systems do not deliver the        necessary to changes in culture and   Recruit. Both systems are supported 
       Connect Way for a standard            to support compliance.                by updated processes and tools to 
       operating model, which reflects                                             support management in 
       requirements in compliance,                                                 ensuring compliance. 
       legislation and lean thinking. 
                                                                                   Improved management information 
                                                                                   will become available following 
                                                                                   Connect People going live, 
                                                                                   enabling managers to have better 
                                                                                   insight for key people metrics, 
                                                                                   compliance and legislation. 
 
                                                                                   We are developing a full People 
                                                                                   Operating Model to enable managers 
                                                                                   to have the processes, 
                                                                                   tools and skills to support 
                                                                                   colleagues at every stage of the 
                                                                                   colleague life cycle for completion 
                                                                                   by August. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 7.    Failing to meet high health and       In addition to the danger to staff    Safety is a key priority of the 
       safety standards - The risk of        or the public, the impact of a        Group. Health & Safety performance 
       inadequate health and safety          health and safety failure             is reviewed at Board meetings, 
       framework and insufficiently          negatively impacts operations,        Audit Committee, and Executive Team 
       enforcing a health and safety         profitability and/or corporate        meetings. 
       culture results in serious injury     reputation, together with the 
       to colleagues and/or the public or    risk of possible enforcement          A dedicated Health and Safety Team 
       a breach of relevant health and       action.                               led by the H&S Director has been 
       safety legislation.                                                         executing an improvement 
                                                                                   programme within Tuffnells and 
                                                                                   promoting a safety culture. 
                                                                                   The Group continues to invest in 
                                                                                   improvements. Improvements have 
                                                                                   been achieved in safety culture 
                                                                                   in Tuffnells through increased 
                                                                                   communication supported by the H&S 
                                                                                   audit programme. These activities 
                                                                                   have also supported better 
                                                                                   management reporting. The aim 
                                                                                   continues to be consistency in 
                                                                                   standards 
                                                                                   and culture across the Group. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 8.    Increased labour market constraints   In the event of any legal claim as    The Group regularly reviews its 
       and costs - The risk of legislative   to worker status by consultants,      legal terms of engagement with 
       changes or interpretation,            subcontractors or agency              contractors and has appropriate 
       coupled with the EU Exit and          workers the business could be         contractual and operational 
       political uncertainty drives          liable for increased costs            arrangements in place. 
       demographic or legislative changes    (National Insurance contributions)    Self-employed delivery contractors 
       or interpretation impacting the       and liabilities (such as certain      have 
       ability to recruit and retain         employee rights). The inability to    clearly articulated agreements 
       warehouse and delivery contractors    pass on such statutory                defining tasks they are contracted 
       resulting in higher attrition risk    increases to customers could impact   to provide whether personally 
       in warehousing and distribution       profitability, and affect the cost    or by a substitute. 
       and/or increasing liabilities         of future efficiency 
       and costs.                            programmes. The implications of EU    Contractor manager resource exists 
                                             Exit may include a decreasing pool    in Smiths News and is being 
                                             of available, suitably                recruited in Tuffnells. 
                                             qualified employees and 
                                             subcontractors.                       Increasing employment cost 
                                                                                   associated with National Living 
                                                                                   Wage/Apprentices Levy/Auto 
                                                                                   Enrolment 
                                                                                   has been factored into latest 
                                                                                   budgets. Future impact of EU Exit 
                                                                                   on employment risks are unknown 
                                                                                   at the date of this report but are 
                                                                                   being tracked. 
 
                                                                                   Legal developments are monitored to 
                                                                                   ensure that the business maintains 
                                                                                   compliance with legislation 
                                                                                   and best practice. 
                                                                                   Workforce planning initiatives 
                                                                                   including apprenticeship and 
                                                                                   training programmes, such as 
                                                                                   Warehouse 
                                                                                   to Wheels, are supporting the 
                                                                                   longer-term mitigation of driver 
                                                                                   shortage. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 9.    Deterioration of the Macroeconomic    Reductions in discretionary           Annual budgets and forecasts take 
       environment - The risk of             spending may impact sales of          into account the current 
       volatility and/or prolonged           newspapers or magazines and/or see    macroeconomic environment to set 
       economic                              a reduction in parcel volumes.        expectations internally and 
       downturn causes a decline in demand   Uncertainty from EU Exit may affect   externally, allowing for, or 
       for our services including the        the business in both the              changing objectives to meet, short 
       uncertainty associated                short and medium term on trade        and medium-term financial targets. 
       with EU Exit, impacts current         arrangements, future capital 
       and/or projected business             investment strategies and             An exercise has been undertaken to 
       performance above that included in    resourcing                            assess the vulnerabilities of the 
       the business planning and review      costs.                                Group to EU Exit risks 
       process.                                                                    to assist with contingency 
                                                                                   planning. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 10.   Capacity and capability to deliver    The business does not have the        Through the establishment of the 
       the scale of change within the        capacity to manage the level of       Group's values, its rigorous 
       Group - The risk of large             change and will fail to execute       project governance processes 
       scale change through numerous         the required transformation           and the promotion of Six Sigma and 
       projects stretching the capacity of   programme to deliver the Group        lean processes as part of Connect 
       colleagues to complete both           strategy.                             Way, the Group continues 
       the project and BAU work.                                                   to invest in the core skills to 
                                                                                   enable capacity and capability 
                                                                                   across all levels. 
 
                                                                                   We are continuing with our 
                                                                                   engagement programme for senior 
                                                                                   leaders and depot managers to 
                                                                                   ensure 
                                                                                   cross functional updates every 
                                                                                   month. 
 
                                                                                   We will start to re-build 
                                                                                   leadership capability and diversity 
                                                                                   in senior management through 
                                                                                   our investment in talent and 
                                                                                   leadership programmes scheduled for 
                                                                                   FY 2020. 
      ------------------------------------  ------------------------------------  ------------------------------------ 
 

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 by 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 six months and description of principal risks and uncertainties for the remaining six months of the year; and

-- the interim management report includes a true and fair review of the information required by DTR 4.2.8R, being disclosure of related parties' transactions that have taken place in the first six months 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

 
 Jos Opdeweegh             Tony Grace 
 Chief Executive Officer   Chief Financial Officer 
 1 May 2019                1 May 2019 
 

Condensed Consolidated Income Statement (Unaudited)

For the 6 months to 28 February 2019

 
 
 GBPm                Note         6 months to Feb               6 months to Feb               12 months to Aug 
                                        2019                          2018                           2018 
------------------  -----  ---------------------------- 
                            Adjusted   Adjusted   Total   Adjusted   Adjusted   Total   Adjusted   Adjusted     Total 
                                          items                         items                         items 
                                          (note                         (note                         (note 
                                             4)                            4)                            4) 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 Continuing operations 
 Revenue              3        732.5          -   732.5      766.5          -   766.5    1,534.3          -   1,534.3 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 Operating profit     3         13.0      (6.6)     6.4       18.0      (5.6)    12.4       33.9     (63.9)    (30.0) 
 Net finance 
  costs                        (3.1)          -   (3.1)      (2.9)          -   (2.9)      (5.5)          -     (5.5) 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 Profit before 
  tax                 3          9.9      (6.6)     3.3       15.1      (5.6)     9.5       28.4     (63.9)    (35.5) 
 Income tax 
  (expense)/credit    6        (1.9)        1.4   (0.5)      (3.0)        1.1   (1.9)      (5.5)        2.9     (2.6) 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 Profit/ (loss) 
  for the period 
  from continuing 
  operations                     8.0      (5.2)     2.8       12.1      (4.5)     7.6       22.9     (61.0)    (38.1) 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 Discontinued operations 
 Profit for the 
  period from 
  discontinued 
  operations          9            -          -       -        1.3     (10.7)   (9.4)        1.3     (10.2)     (8.9) 
 
 Profit/ (loss) 
  attributable 
  to equity 
  shareholders 
  continuing and 
  discontinued 
  operations                     8.0      (5.2)     2.8       13.4     (15.2)   (1.8)       24.2     (71.2)    (47.0) 
------------------  -----  ---------  ---------  ------  ---------  ---------  ------  ---------  ---------  -------- 
 
 
 Earnings per share from 
  continuing operations 
 Basic                8         3.2p               1.1p       5.0p               3.1p       9.3p              (15.5)p 
 Diluted              8         3.2p               1.1p       4.9p               3.1p       9.3p              (15.5)p 
 
 Equity dividends 
  per share           7                               -                          3.1p                            3.1p 
 
 

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the 6 months to 28 February 2019

 
 GBPm                                         Note    6 months    6 months   12 months 
                                                            to          to          to 
                                                      Feb 2019    Feb 2018    Aug 2018 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Continuing 
 Items that will not be reclassified 
  to the Group Income Statement: 
 Remeasurements of retirement benefit 
  schemes                                      5           4.4         0.4           - 
 Tax relating to components of other                     (0.7)           -           - 
  comprehensive income that will 
  not be reclassified 
-------------------------------------------  -----  ----------  ----------  ---------- 
                                                           3.7         0.4           - 
 Items that may be reclassified 
  to the Group Income Statement: 
 Currency translation differences                        (0.2)       (0.2)       (0.3) 
 Tax relating to components of other                         -           -           - 
  comprehensive income 
-------------------------------------------  -----  ----------  ----------  ---------- 
                                                         (0.2)       (0.2)       (0.3) 
 
 Other comprehensive income/(loss) 
  for the period - continuing                              3.5         0.2       (0.3) 
 Profit/(loss) for the period - 
  continuing                                               2.8         7.6      (38.1) 
 Total comprehensive income/(loss) 
  for the period - continuing                              6.3         7.8      (38.4) 
 Other comprehensive income/(loss)                           -           -           - 
  for the period discontinued 
 Profit/(loss) for the year - discontinued                   -       (9.4)       (8.9) 
 Total comprehensive income/(loss) 
  for the period - discontinued                              -       (9.4)       (8.9) 
 Total comprehensive income/(loss) 
  for the period attributable to 
  shareholders:                                            6.3       (1.6)      (47.3) 
 

Total comprehensive income for the period was fully attributable to the equity holders of the parent company.

Condensed Consolidated Balance Sheet (Unaudited)

As at 28 February 2019

 
 GBPm                                       Note       As at   Restated(1)   Restated(1) 
                                                    Feb 2019         As at         As at 
                                                                  Feb 2018      Aug 2018 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Non-current assets 
 Intangible assets                           12         47.1         101.0          50.8 
 Property, plant and equipment                          19.4          38.9          38.8 
 Interest in joint venture and associate                 5.2           4.8           5.1 
 Deferred tax assets                                       -           5.4             - 
                                                        71.7         150.1          94.7 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Current assets 
 Inventories                                            16.5          16.1          13.3 
 Trade and other receivables                 14        127.3         139.9         129.7 
 Cash and cash equivalents                   13         25.6           5.0          18.0 
 Current tax asset                                       0.1             -           0.3 
 Assets classified as held for sale          9          16.7             -           0.5 
-----------------------------------------  -----  ----------  ------------  ------------ 
                                                       186.2         161.0         161.8 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Total assets                                          257.9         311.1         256.5 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Current liabilities 
 Trade and other payables                    15      (178.9)       (183.5)       (175.6) 
 Current tax liabilities                               (0.2)         (3.6)         (0.8) 
 Obligations under finance leases                      (3.0)         (2.8)         (2.8) 
 Bank overdrafts and other borrowings        13       (50.2)        (33.0)        (47.2) 
 Provisions                                  16        (5.9)         (5.7)         (9.5) 
 Retirement benefits obligation              5         (0.4)         (3.4)         (3.7) 
                                                     (238.6)       (232.0)       (239.6) 
 Non-current liabilities 
 Bank loans and other borrowings             13       (49.1)        (48.6)        (48.8) 
 Retirement benefit obligation               5         (1.6)         (5.5)         (3.6) 
 Deferred tax liabilities                              (2.8)         (7.4)         (2.5) 
 Non current provisions                      16        (4.1)         (5.8)         (4.8) 
 Obligations under finance leases                      (0.9)         (4.2)         (2.5) 
 Other non-current liabilities                         (0.5)         (0.7)         (0.6) 
-----------------------------------------  -----  ----------  ------------  ------------ 
                                                      (59.0)        (72.2)        (62.8) 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Total liabilities                                   (297.6)       (304.2)       (302.4) 
-----------------------------------------  -----  ----------  ------------  ------------ 
 Total net assets                                     (39.7)           6.9        (45.9) 
-----------------------------------------  -----  ----------  ------------  ------------ 
 
 
 Equity 
 Called up share capital       18      12.4      12.4      12.4 
 Share premium account         18      60.5      60.5      60.5 
 Other reserves                     (281.7)   (282.3)   (282.0) 
 Retained earnings                    169.1     216.3     163.2 
----------------------------  ---  --------  --------  -------- 
 Total shareholders' equity          (39.7)       6.9    (45.9) 
----------------------------  ---  --------  --------  -------- 
 
   1.     The Group has applied IFRS 15 using the fully retrospective method. See Note 2. 

Condensed Consolidated Statement of Changes in Equity (Unaudited)

For the 6 months to 28 February 2019

 
 GBPm                                 Note    Share Capital   Share Premium       Other    Retained     Total 
                                                                    Account    Reserves    Earnings    equity 
-----------------------------------  ------  --------------  --------------  ----------  ----------  -------- 
 Balance at 31 August 2017                             12.4            60.5     (282.7)       234.9      25.1 
 Loss for the period                                      -               -           -       (1.8)     (1.8) 
 Currency translation differences                         -               -       (0.2)           -     (0.2) 
 Actuarial gain on defined 
  benefit pension scheme                                  -               -           -         1.4       1.4 
 Impact of IFRIC 14 on defined 
  benefit pension scheme                                  -               -           -       (1.0)     (1.0) 
 Total comprehensive income 
  for the period                                          -               -       (0.2)       (1.4)     (1.6) 
 Dividends paid                                           -               -           -      (16.5)    (16.5) 
 Employee share schemes                                                             0.6       (0.6)         - 
 Recognition of share based 
  payments                                                -               -           -       (0.1)     (0.1) 
 Balance at 28 February 2018                           12.4            60.5     (282.3)       216.3       6.9 
-------------------------------------------  --------------  --------------  ----------  ----------  -------- 
 Loss for the period                                      -               -           -      (45.2)    (45.2) 
 Actuarial gain on defined 
  benefit pension scheme                                  -               -           -       (3.5)     (3.5) 
 Impact of IFRIC 14 on defined 
  benefit pension scheme                                  -               -           -         3.1       3.1 
 Currency translation differences                         -               -       (0.1)           -     (0.1) 
 Tax relating to components                               -               -           -           -         - 
  of other comprehensive income 
-----------------------------------  ------  --------------  --------------  ----------  ----------  -------- 
 Total comprehensive loss 
  for the period                                          -               -       (0.1)      (45.6)    (45.7) 
 Issue of share capital                                   -               -           -           -         - 
 Purchase of own shares                                   -               -           -           -         - 
 Dividends paid                                           -               -           -       (7.6)     (7.6) 
 Employee share schemes                                   -               -         0.4       (0.4)         - 
 Recognition of share based 
  payments                                                -               -                     0.5       0.5 
 Balance at 31 August 2018                             12.4            60.5     (282.0)       163.2    (45.9) 
-------------------------------------------  --------------  --------------  ----------  ----------  -------- 
 Profit for the period                                    -               -           -         2.8       2.8 
 Currency translation differences                         -               -       (0.2)           -     (0.2) 
 Remeasurements of retirement 
  benefit schemes                                         -               -           -         4.4       4.4 
 Tax relating to components 
  of other comprehensive income                           -               -           -       (0.7)     (0.7) 
 Total comprehensive income/(loss) 
  for the period                                          -               -       (0.2)         6.5       6.3 
 Dividends paid                                           -               -           -           -         - 
 Employee share schemes                                   -               -         0.5       (0.6)     (0.1) 
 Recognition of share based                               -               -           -           -         - 
  payments 
-----------------------------------  ------  --------------  --------------  ----------  ----------  -------- 
 Balance at 28 February 2019                           12.4            60.5     (281.7)       169.1    (39.7) 
-------------------------------------------  --------------  --------------  ----------  ----------  -------- 
 

Condensed Consolidated Group Cash Flow Statement (Unaudited)

For the 6 months to 28 February 2019

 
 GBPm                                         Note    6 months    6 months   12 months 
                                                            to          to          to 
                                                      Feb 2019    Feb 2018    Aug 2018 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Net cash from operating activities            11         11.5         8.9        37.5 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Investing activities 
 Dividends from associates                                 0.1         0.1         0.2 
 Purchase of property, plant and equipment               (1.9)       (3.6)       (6.1) 
 Purchase of intangible assets                           (0.8)       (1.4)       (2.4) 
 Proceeds on sale of property, plant                         -           -           - 
  and equipment 
 Proceeds on sale of subsidiary (net 
  of disposal costs & cash held)                             -        13.7        12.9 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Net cash used in investing activities                   (2.6)         8.8         4.6 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Financing activities 
 Interest paid                                           (2.6)       (3.5)       (5.8) 
 Dividends paid                                              -      (16.5)      (24.1) 
 Repayments of obligations under finance 
  leases                                                 (1.5)       (1.9)       (3.8) 
 Net (decrease)/increase in revolving 
  credit facility                                        (2.0)           -        25.3 
 New bank loans raised                                       -           -        48.8 
 Increase/(repayment) of borrowings                          -         3.0      (80.0) 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Net cash from financing activities                      (6.1)      (18.9)      (39.6) 
-------------------------------------------  -----  ----------  ----------  ---------- 
 
 Net increase/(decrease) in cash and 
  cash equivalents                                         2.8       (1.2)         2.5 
 Effect of foreign exchange rate changes                 (0.1)       (0.2)       (0.2) 
-------------------------------------------  -----  ----------  ----------  ---------- 
                                                           2.7       (1.4)         2.3 
 Opening net cash and cash equivalents                     8.7         6.4         6.4 
-------------------------------------------  -----  ----------  ----------  ---------- 
 Closing net cash and cash equivalents                    11.4         5.0         8.7 
-------------------------------------------  -----  ----------  ----------  ---------- 
 

During the period, cash outflow from operating activities attributed to Discontinued Operations amounted to GBPnil (H1 2018: GBP8.4m inflow) and GBPnil was paid in respect of investing activities (H1 2018: GBP0.6m). There were no cash flows associated with financing activities attributable to Discontinued Operations.

Analysis of net debt

 
                                       As at     As at     As at 
  GBPm                        Note  Feb 2019  Feb 2018  Aug 2018 
----------------------------  ----  --------  --------  -------- 
  Cash and cash equivalents    13       11.4       5.0       8.7 
  Current borrowings           13     (36.0)    (33.0)    (38.0) 
  Non-current borrowings       13     (49.1)    (48.6)    (48.8) 
----------------------------  ----  --------  --------  -------- 
  Net borrowings                      (73.7)    (76.6)    (78.1) 
----------------------------  ----  --------  --------  -------- 
  Finance lease liabilities            (3.8)     (7.0)     (5.3) 
----------------------------  ----  --------  --------  -------- 
  Net debt                            (77.5)    (83.6)    (83.4) 
----------------------------  ----  --------  --------  -------- 
 

The movement in net debt in the period includes GBP0.3m loan fee amortisation.

Cash and cash equivalents includes cash of GBP25.6m (H1 2018: GBP15.9m) offset by GBP14.2m (H1 2018: GBP10.9m) of overdrafts.

Notes to the Condensed Unaudited Interim Financial Statements

For the 6 months to 28 February 2019

   1     Basis of Preparation 

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 by 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 2018. The financial period represents the 6 months ended 28 February 2019 (prior financial period 6 months ended 28 February 2018, prior financial year ended 31 August 2018).

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 Deloitte LLP. Following the conclusion of a tender process Deloitte LLP resigned and BDO LLP were subsequently appointed as the Group's auditor.

Discontinued operations

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 Group income statement and the assets and liabilities of these operations are presented separately in the Group balance sheet.

Going Concern

The Group meets its day to day working capital requirements through its committed bank facility of GBP175m which runs until January 2021.

The Group's forecasts, taking into account the Board's future expectations of the Group's performance, indicate that there is adequate headroom within these bank facilities and the Group will continue to operate within the covenants attached to those facilities. Those bank facilities together with renewed long term contracts within Smiths News with a number of publishers mean that the Group is well placed to successfully forecast.

As a result, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.

The Group's principal areas of estimation and judgement remain unchanged since the year end and are set out in note 1 (d) on page 79 of the Annual Report and Accounts for the year ended 31 August 2018. The below accounting policy changes include a refresh of estimation and judgments in relation to new accounting standards.

   2     Accounting policies 

Adoption of new IFRSs

The Group has adopted IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' effective for the period beginning 1 September 2018. IFRS 15 has been applied fully retrospectively and comparatives for the prior periods have been restated, whilst IFRS 9 has been applied retrospectively but the Group has elected not to restate comparatives and to reflect any changes at the date of initial adoption on 1 September 2018. Further details on the transitional impact on adoption of these standards is described below.

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 'Revenue from Contracts with Customers' is a new standard based on a five-step model framework, which replaces all existing revenue recognition standards. The standard requires revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group adopted IFRS 15 from 1 September 2018 using a fully retrospective approach. The Group considered that the current segmental split of revenue to be appropriately disaggregated in line with IFRS 15. There is no change to the Group's revenue recognition under IFRS 15, however there are other impacts to the Group which are set out in the table below.

 
 As at                                         Trade and         Trade and   Net Assets 
  Feb 2018                             other receivables    other payables         GBPm 
                                                    GBPm              GBPm 
-----------------------------------  -------------------  ----------------  ----------- 
 Balance without IFRS15 adjustment                  92.0           (135.6)          6.9 
 IFRS15 Adjustments: 
 A - Returns reserve accrual                        25.5            (25.5)            - 
 B - Returns reserve asset                          22.4            (22.4)            - 
-----------------------------------  -------------------  ----------------  ----------- 
 As reported total                                 139.9           (183.5)          6.9 
-----------------------------------  -------------------  ----------------  ----------- 
 
 
 As at                                         Trade and         Trade and   Net Assets 
  Aug 2018                             other receivables    other payables         GBPm 
                                                    GBPm              GBPm 
-----------------------------------  -------------------  ----------------  ----------- 
 Balance without IFRS15 adjustment                  81.7           (127.6)       (45.9) 
 IFRS15 Adjustments: 
 A - Returns reserve accrual                        25.5            (25.5)            - 
 B - Returns reserve asset                          22.5            (22.5)            - 
-----------------------------------  -------------------  ----------------  ----------- 
 As reported total                                 129.7           (175.6)       (45.9) 
-----------------------------------  -------------------  ----------------  ----------- 
 

Adjustment A - Returns reserve accrual

Under IFRS 15 a right of return is not a separate performance obligation and the Group is required to recognise revenue net of estimated returns. A returns reserve accrual and a corresponding asset representing the right to recover products from the customer is also recognised. The Group previously recognised these items on a net basis on adoption of IFRS 15 the Group was required to adjust trade receivables to gross out the returns reserve accrual with the offset now included within other creditors.

Adjustment B - Returns reserve asset

The asset representing the right to return discussed in Adjustment A has now been recognised within other debtors where it was previously offset against trade payables.

IFRS 9 'Financial Instruments'

IFRS 9 'Financial Instruments' is a new standard which enhances the ability of investors and other users of financial information to understand the accounting for financial assets and reduces complexity. The adoption of IFRS 9 has no material impact on the Group's financial statements and subsequently prior year comparatives have not been restated. The Group has determined that the provision arising from the expected credit losses on financial assets is in line with the levels of provisions already held and that there have been no changes as a result of adoption of the new classification and measurement model and all financial assets are at amortised cost.

Key accounting judgements

Revenue recognised in relation to sales of newspapers and magazines is at the price charged to retailers as the Group consider themselves to be the principal in the arrangement after considering the indicators of control over the inventory.

Key accounting estimates

Revenue continues to be recognised net of estimated sales returns based on past experience.

Impairment of financial assets

Since adoption of IFRS 9 on 1 September 2018, the Group assesses on a forward-looking basis the expected credit losses associated with its financial assets carried at amortised cost. The expected credit losses are updated at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. The three-stage model for impairment has been applied to loans and advances to customers and banks, financial assets at fair value through other comprehensive income, and loan receivables from joint ventures and associates. The credit risk is determined through modelling a range of possible outcomes for different loss scenarios, using reasonable and supportable information about past events, current conditions and forecasts of future events and economic conditions. A 12 month expected credit loss is recognised, unless the credit risk on the financial asset increases significantly after initial recognition, when the lifetime expected credit loss is recognised.

For other financial assets, primarily trade and accrued income, the Group applies the simplified approach permitted by IFRS 9, with expected lifetime credit losses recognised from initial recognition of the receivable. These assets are grouped based on shared credit risk characteristics and days past due, with expected loss allowances for each risk grouping determined based on the Group's historical credit loss experience, adjusted for factors specific to each receivable, general economic conditions and expected changes in forecast conditions.

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 45, are important when assessing the underlying financial and operating performance of the Group 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.

   3     Segmental Analysis of Results 

In accordance with IFRS 8 'Operating Segments', Group management has identified its operating segments. The performance of these operating segments is reviewed on a monthly basis by the Board. The Board monitors the tangible, intangible and financial assets attributable to each segment to determine the allocation of resources and the performance of each segment.

These operating segments are:

 
               The UK market leading distributor of newspapers 
                and magazines to 27,000 retailers across 
 Smiths News    England and Wales. 
               A supplier of newspaper and magazines to 
                airlines and an emerging player in inflight 
 DMD            entertainment. 
              ------------------------------------------------ 
               A leading provider of next day B2B delivery 
 Tuffnells      of mixed and irregular freight consignments. 
              ------------------------------------------------ 
 

As explained in Note 9 Connect Books was sold in the prior financial year. The division is presented as a discontinued operation and is included below where necessary for the purpose of reconciliation.

The following is an analysis of the Group's revenue and results by reportable segment:

 
                                             Revenue                       Operating profit 
-------------------------  ---  ---------------------------------  -------------------------------- 
GBPm                            6 months      6 months  12 months  6 months     6 months  12 months 
                                  to Feb   to Feb 2018     to Aug    to Feb       to Feb     to Aug 
                                    2019                     2018      2019         2018       2019 
                                                                              (restated) 
-------------------------  ---  --------  ------------  ---------  --------  -----------  --------- 
Smiths News                        639.4         666.0    1,335.1      20.3         16.9       35.9 
DMD                                 13.0          13.4       26.5       1.3          1.3        3.0 
Tuffnells                           80.2          88.1      175.2     (8.6)        (0.2)      (5.0) 
Elimination of 
 Intra group revenue               (0.1)         (1.0)      (2.5)         -            -          - 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Continuing operations 
 - adjusted                        732.5         766.5    1,534.3      13.0         18.0       33.9 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Revenue Discontinued 
 operations - adjusted                 -         114.3      114.3 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Revenue - Continuing 
 and discontinued 
 operations -adjusted              732.5         880.8    1,648.6 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Continuing operations 
 -Total Adjusted 
 items                                                                (6.6)        (5.6)     (63.9) 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Total Continuing 
 operations after 
 Adjusted items                                                         6.4         12.4     (30.0) 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Net finance expense                                                   (3.1)        (2.9)      (5.5) 
Profit/(loss) 
 before taxation 
 - Continuing operations                                                3.3          9.5     (35.5) 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Profit/(loss) 
 before taxation 
 - Discontinued 
 operations                                                               -        (9.1)      (8.8) 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
Profit/(loss) 
 before taxation 
 - Continuing operations 
 and Discontinued 
 operations                                                             3.3          0.4     (44.3) 
------------------------------  --------  ------------  ---------  --------  -----------  --------- 
 

Segmental revenue includes intercompany sales.

Segment assets and liabilities

 
                             Assets                          Liabilities                        Net assets 
--------------  --------------------------------  ---------------------------------  --------------------------------- 
GBPm            6 months    6 months   12 months  6 months    6 months    12 months  6 months    6 months    12 months 
                  to Feb      to Feb      to Aug    to Feb      to Feb       to Aug        to      to Feb       to Aug 
                    2019        2018        2018      2019        2018         2018       Feb        2018         2018 
                          (Restated)  (Restated)            (Restated)   (Restated)      2019  (Restated)   (Restated) 
--------------  --------  ----------  ----------  --------  ----------  -----------  --------  ----------  ----------- 
Smiths News        134.0       129.1       124.9   (253.5)     (263.9)      (260.2)   (119.5)     (134.8)      (135.3) 
DMD                 26.4        22.8        22.7     (9.9)       (8.6)        (7.3)      16.5        14.2         15.4 
Tuffnells           97.5       159.2       108.9    (34.2)      (31.7)       (34.9)      63.3       127.5         74.0 
  Consolidated 
       assets/ 
 (liabilities)     257.9       311.1       256.5   (297.6)     (304.2)      (302.4)    (39.7)         6.9       (45.9) 
--------------  --------  ----------  ----------  --------  ----------  -----------  --------  ----------  ----------- 
 

Segment depreciation, amortisation and non-current asset additions

 
                                  Depreciation                   Amortisation             Additions to non-current 
                                                                                                    assets 
------------------------  -----------------------------  -----------------------------  ----------------------------- 
GBPm                      6 months  6 months  12 months  6 months  6 months  12 months  6 months  6 months  12 months 
                            to Feb    to Feb     to Aug    to Feb    to Feb     to Aug    to Feb    to Feb     to Aug 
                              2019      2018       2018      2019      2018       2018      2019      2018       2018 
------------------------  --------  --------  ---------  --------  --------  ---------  --------  --------  --------- 
Smiths News                  (1.4)     (3.0)      (3.8)     (1.2)     (2.7)      (4.1)       1.4       1.5        3.8 
DMD                          (0.1)     (0.1)      (0.2)     (0.2)     (0.2)      (0.3)         -         -        0.1 
Tuffnells                    (2.3)     (2.3)      (4.6)     (3.4)     (3.5)     (53.1)       0.2       2.4        4.4 
------------------------  --------  --------  ---------  --------  --------  ---------  --------  --------  --------- 
Continuing operations        (3.8)     (5.4)      (8.6)     (4.8)     (6.4)     (57.5)       1.6       3.9        8.3 
------------------------  --------  --------  ---------  --------  --------  ---------  --------  --------  --------- 
Discontinued operations          -         -          -         -         -          -         -         -        0.6 
------------------------  --------  --------  ---------  --------  --------  ---------  --------  --------  --------- 
Consolidated total           (3.8)     (5.4)      (8.6)     (4.8)     (6.4)     (57.5)       1.6       3.9        8.9 
------------------------  --------  --------  ---------  --------  --------  ---------  --------  --------  --------- 
 

In H1 2018 Smiths News includes a charge for impairment of Pass My Parcel assets within depreciation of GBP1.0m and amortisation of GBP1.0m.

Geographical analysis

 
                             Revenue by destination          Non-current assets by 
                                                             location of operation 
------------------------  -----------------------------  ----------------------------- 
GBPm                      6 months  6 months  12 months  6 months  6 months  12 months 
                            to Feb    to Feb     to Aug    to Feb    to Feb     to Aug 
                              2019      2018       2018      2019      2018       2018 
------------------------  --------  --------  ---------  --------  --------  --------- 
United Kingdom               725.8     760.0    1,521.2      71.7     144.7       94.6 
Europe                         4.6       4.2        8.6         -         -          - 
Rest of World                  2.1       2.3        4.5         -         -          - 
------------------------  --------  --------  ---------  --------  --------  --------- 
Continuing operations        732.5     766.5    1,534.3      71.7     144.7       94.6 
------------------------  --------  --------  ---------  --------  --------  --------- 
Discontinued operations          -     114.3      114.3         -         -          - 
------------------------  --------  --------  ---------  --------  --------  --------- 
Total continuing 
 and discontinued 
 operations                  732.5     880.8    1,648.6      71.7     144.7       94.6 
------------------------  --------  --------  ---------  --------  --------  --------- 
 
   4     Adjusted Items 
 
 GBPm                                          6 months       6 months      12 months 
                                            to Feb 2019    to Feb 2018    to Aug 2018 
---------------------------------  -----  -------------  -------------  ------------- 
 Continuing operations 
 Network and re-organisation 
  costs                             (a)           (1.3)          (0.5)          (3.1) 
 Vacant property costs 
  release                           (b)               -            0.5            0.7 
 IPR settlement income              (c)             0.3              -              - 
 Amortisation of acquired 
  intangibles                       (d)           (3.5)          (3.6)          (7.1) 
 Pass my parcel exit costs          (e)               -          (2.0)          (6.7) 
 Impairment of tangible 
  assets                            (f)               -              -          (1.1) 
 Impairment of Tuffnells 
  goodwill                          (g)               -              -         (46.1) 
 Sale and leaseback professional    (h)           (0.5)              -              - 
  fees 
 Pension 'buy-in' professional      (i)           (1.5)              -              - 
  fees 
 Brierley Hill insurance            (j)           (0.2)              -              - 
  claim 
 NMW regulatory compliance          (k)             0.1              -          (0.5) 
---------------------------------  -----  -------------  -------------  ------------- 
 Total before tax                                 (6.6)          (5.6)         (63.9) 
----------------------------------------  -------------  -------------  ------------- 
 Taxation                                           1.4            1.1            2.9 
----------------------------------------  -------------  -------------  ------------- 
 Total after taxation                             (5.2)          (4.5)         (61.0) 
----------------------------------------  -------------  -------------  ------------- 
 
 Discontinued operations 
 (Loss)/ profit on disposal 
  of subsidiary                     (l)               -         (10.5)         (10.5) 
 Acquisition and disposal 
  related costs                     (l)               -          (0.2)          (0.1) 
 Total before tax                                     -         (10.7)         (10.6) 
----------------------------------------  -------------  -------------  ------------- 
 Taxation                                             -              -              - 
---------------------------------  -----  -------------  -------------  ------------- 
 Total after taxation                                 -         (10.7)         (10.6) 
----------------------------------------  -------------  -------------  ------------- 
 
 Continuing and discontinued 
  operations 
 Total before tax                                 (6.6)         (16.3)         (71.6) 
 Taxation                                           1.4            1.1            2.9 
----------------------------------------  -------------  -------------  ------------- 
 Total after taxation                             (5.2)         (15.2)         (68.7) 
----------------------------------------  -------------  -------------  ------------- 
 

Adjusted items on a continuing basis for the period totalled GBP5.2m after tax for the period, compared to GBP4.5m (restated) in the prior year.

(a) Network and re-organisation costs

There are GBP1.3m (H1 2018: GBP0.5m) network and reorganisation costs. In the current period this includes network rationalisation redundancy costs of GBP0.4m (H1 2018: GBP0.4m). While costs associated with network and reorganisation recur across financial years and will continue to be incurred in the financial year, the Group consider these to be adjusted items given they are part of a strategic programme to drive future cost savings and are significant in value to the results of the Group.

There are further costs of GBP0.9m (H1 2018: GBPnil) relating to redundancies and costs incurred from restructuring the executive team following the appointment of the Group's new CEO in September 2018, this cost is separate to the network restructuring in the previous financial year. The costs of the previous executive team are considered adjusting as they enable comparability between financial years and segments and therefore consistency of results at a consolidated level.

(b) Vacant property cost release

There were GBPnil costs attributable to vacant property costs (H1 2018: GBP0.5m). The vacant property provision release of GBP0.5m relates to the vacant Smiths News Slough depot which is now being used by Tuffnells.

(c) IPR settlement income

The Group received a one-off GBP0.3m (H1 2018: GBPnil) of income in relation to the settlement of an IPR dispute concerning the proposed use of a similar brand to one of the Group's brands. This is considered adjusting given its size and one-off nature.

(d) Amortisation of acquired intangibles

Amortisation of continuing intangibles for acquisitions, for which there is no associated cash cost, was GBP3.5m (H1 2018: GBP3.6m). This is considered an adjusting item as it allows comparison between segments and therefore consistency of results at a consolidated level.

(e) Pass My Parcel (PMP) exit costs

In the current financial year the Group has incurred GBPnil (H1 2018: GBPnil) in relation to PMP exit costs.

Following a review of the PMP proposition on 23 May 2018, management decided to terminate the contracts in relation to PMP and close the business unit. As a result of this decision a charge of GBP6.7m was booked in FY 2018.

Management concluded that losses on winding down the business unit represented an onerous contract with a cost of GBP4.6m recognised which comprises the forecast excess of costs over income from the date the Group took the decision to close the business unit. It is considered adjusting due to its one-off nature and significant value. Of this balance, GBP1.4m remains in provisions to cover the costs to close all contracts (see note 16).

In the period from 1 September 2017 to the date of the decision to close, PMP incurred losses of GBP5.4m. These losses are included in the Groups adjusted operating results for FY 2018 and H1 2018.

A further GBP2.0m of impairment charges split GBP1.0m tangible and GBP1.0m intangible were recognised to write off the non-current assets relating to the business unit in H1 2018.

(f) Impairment of tangible assets

The Group impaired GBPnil (H1 2018: GBPnil) of tangible assets. The Group took the decision to consider the sale of the Jack's Beans business unit to focus on its core businesses. Bids received indicated an excess of net book value of GBP1.1m therefore the Group impaired the assets and moved them into non-current assets held for sale. This was subsequently sold at net book value in January 2019. Given the magnitude, one-off nature and the Group's strategy to focus on core business it is considered to be an adjusting item.

(g) Impairment of Tuffnells goodwill

The Group incurred GBPnil (H1 2018: GBPnil) impairment of Tuffnells Goodwill. During the prior financial year management reviewed the carrying value of Tuffnells goodwill and concluded that an impairment charge of GBP46.1m was required. The recoverable amount of goodwill (in both the current and prior year) is calculated with reference to its value in use based on future cash flow projections. The key assumptions used in the calculation are disclosed in the Connect Group PLC Annual Report and Accounts 2018.

(h) Sale and leaseback professional fees

The Group incurred GBP0.5m (H1 2018: GBPnil) in relation to sale and leaseback costs. In January 2019 the Group took the decision to sell the Tuffnells freehold and long leasehold property portfolio and lease it back. The Group expects to realise a profit on the sale and leaseback transaction in the financial year and the total impact of the transaction is expected to be recognised within adjusting items see note 9 for further information. Given the magnitude and one-off nature is considered to be an adjusting item.

(i) Pension 'buy-in' professional fees

The Group incurred GBP1.5m (H1 2018: GBPnil) in relation to buy in costs incurred on behalf of the WH Smith Pension Trust, which entered into an insurance backed annuity 'buy-in' of the Scheme assets within the section of the Trust sponsored by Smiths News, this minimises the Group's exposure to future pension obligations. Given the magnitude and one-off nature it is considered to be an adjusting item.

(j) Brierley Hill insurance claim

The Group incurred GBP0.2m (H1 2018: GBPnil) of insurance settlement costs in relation to a fatality at its Brierley Hill depot that occurred in January 2016. The Group had previously recognised the cost of the fine and legal costs in relation to this - see note 16. Given the magnitude, one-off nature and to ensure consistent treatment with previously reported costs it is considered to be an adjusting item.

(k) National Minimum Wage regulatory compliance

The Group has been in discussion with HMRC regarding an historical underpayment in relation to a misapplication of national minimum wage legislation in Tuffnells. A provision amounting to GBP1.3m was made in the prior year financial statements. Of this balance GBP0.5m relates specifically to the estimated fine. This was classified as adjusting in H2 2018. GBP0.1m of this provision has been released based on the latest correspondence with HMRC. This was recognised as an adjusting item to be consistent with prior periods and due to its one-off nature and magnitude.

(l) (Loss)/Profit on disposal of subsidiary

On 14 February 2018, the Group completed the sale of the Books business at a loss of GBP10.5m full details are provided in note 9.

   5     Retirement Benefit Obligation 

Defined benefit pension schemes

The Group operates two defined benefit schemes, the WH Smith Pension Trust (the 'Pension Trust') and the Tuffnells Parcels Express Pension Scheme.

The amounts recognised in the balance sheet are as follows:

 
 GBPm                                    As at Feb   As at Feb   As at Aug 
                                              2019        2018        2018 
--------------------------------------  ----------  ----------  ---------- 
 Present value of defined 
  benefit obligation                       (424.9)     (444.9)     (440.4) 
 Fair value of assets                        439.4       596.9       592.7 
--------------------------------------  ----------  ----------  ---------- 
 Net surplus                                  14.5       152.0       152.3 
 Amounts not recognised due 
  to asset limit                            (16.5)     (154.2)     (154.5) 
 Additional liability recognised 
  due to minimum funding requirements            -       (6.7)       (5.1) 
 Pension liability                           (2.0)       (8.9)       (7.3) 
--------------------------------------  ----------  ----------  ---------- 
 

The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of GBP16.5m at 28 February 2019 (H1 2018: GBP154.2m surplus) which the Group does not recognise in the accounts as the investment policy adopted means that the amount available on a reduction of future contributions is expected to be GBPnil (FY 2018: GBPnil). The valuation of the defined benefit schemes for the IAS 19 (revised) disclosures have been carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for membership experience and changes in the actuarial assumptions.

The actuarial valuation for funding purposes produces a scheme deficit due to different assumptions and calculation methodologies used compared to those under IAS 19, most notably the use of a discount rate that reflects the actual investment strategy, rather than corporate bond yields as required under IAS 19.

The actuarial valuation of the Smiths News section of the WH Smith Pension Trust at 31 March 2015 was a deficit of GBP17.5m. Following the completion of the 'buy-in' in October 2018 where the WH Smith Pension Trust entered into an insurance backed annuity of the Scheme assets within the section of the Trust sponsored by Smiths News the pension schemes actuary notified the Group that future cash contributions by the Group to address the deficit would no longer be required and the Group has released the IFRIC 14 liability. The 'buy-in' annuity is recognised as a plan asset and the difference in value between the value of the insurance asset received of GBP425m at the date of transaction and the asset transferred in exchange for the policy GBP555m is considered an actuarial remeasurement recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.

Tuffnells Parcels Express scheme

The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2016 was a scheme deficit of GBP4.3m. Deficit recovery contributions to the scheme have been agreed at GBP0.3m per annum. The GBP2.0m of pension liabilities at the period end relates entirely to the Tuffnells Parcels Express scheme.

The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:

 
 % p.a.                         6 months to   6 months to      12 months 
                                   Feb 2019      Feb 2018    to Aug 2018 
-----------------------------  ------------  ------------  ------------- 
 Discount rate                        2.65%         2.60%          2.60% 
 Inflation assumptions - CPI          2.20%         2.25%          2.20% 
 Inflation assumptions - RPI          3.20%         3.25%          3.20% 
-----------------------------  ------------  ------------  ------------- 
 

A summary of the movements in the net balance sheet asset /(liability) and amounts recognised in the Group Income Statement and Other Comprehensive Income are as follows:

 
 GBPm                                        Fair value       Defined          Impact of    Total 
                                              of scheme       benefit           IFRIC 14 
                                                 assets    obligation         on defined 
                                                                         benefit pension 
                                                                                 schemes 
------------------------------------------  -----------  ------------  -----------------  ------- 
 At 31 August 2017                                620.1       (473.6)            (158.0)   (11.5) 
 Current service cost                                 -         (0.1)                  -    (0.1) 
 Interest cost                                      7.0         (5.2)              (1.9)    (0.1) 
 Administrative costs                             (0.1)             -                  -    (0.1) 
 Past service cost/(credit)                           -             -                  -        - 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Total amount recognised in income 
  statement                                         6.9         (5.3)              (1.9)    (0.3) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Return on plan assets excluding 
  amounts included in net interest               (21.5)             -                  -   (21.5) 
 Actuarial gains on scheme liabilities                -          22.9                  -     22.9 
 Change in surplus not recognised                     -             -              (1.0)    (1.0) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Amount recognised in other comprehensive 
  income                                         (21.5)          22.9              (1.0)      0.4 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Employer contributions                             2.5             -                  -      2.5 
 Employee contributions                               -             -                  -        - 
 Benefit payments                                (11.1)          11.1                  -        - 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Amounts included in cash flow 
  statement                                       (8.6)          11.1                  -      2.5 
------------------------------------------  -----------  ------------  -----------------  ------- 
 At 28 February 2018                              596.9       (444.9)            (160.9)    (8.9) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 
 Current service cost                                 -             -                  -        - 
 Interest cost                                      7.4         (5.7)              (1.8)    (0.1) 
 Administration expenses                          (0.1)             -                  -    (0.1) 
 Total amount recognised in income 
  statement                                         7.3         (5.7)              (1.8)    (0.2) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Return on plan assets excluding 
  amounts included in net interest                (1.9)             -              (1.7)    (3.6) 
 Actuarial gains on scheme liabilities                -         (1.6)                  -    (1.6) 
 Change in surplus not recognised                     -             -                4.8      4.8 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Amount recognised in other comprehensive 
  income                                          (1.9)         (1.6)                3.1    (0.4) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Employer contributions                             2.2             -                  -      2.2 
 Employee contributions                               -             -                  -        - 
 Benefit payments                                (11.8)          11.8                  -        - 
------------------------------------------  -----------  ------------  -----------------  ------- 
 Amounts included in cash flow 
  statement                                       (9.6)          11.8                  -      2.2 
------------------------------------------  -----------  ------------  -----------------  ------- 
 At 31 August 2018                                592.7       (440.4)            (159.6)    (7.3) 
------------------------------------------  -----------  ------------  -----------------  ------- 
 
 
 GBPm                                     Fair value       Defined           Surplus    Total 
                                           of scheme       benefit    not recognised 
                                              assets    obligation 
 At 31 August 2018                             592.7       (440.4)           (159.6)    (7.3) 
 Current service cost                              -             -                 -        - 
 Interest cost                                   7.4         (5.5)             (2.0)    (0.1) 
 Administrative expenses                       (0.1)             -                 -    (0.1) 
 Total amount recognised in 
  income statement                               7.3         (5.5)             (2.0)    (0.2) 
---------------------------------------  -----------  ------------  ----------------  ------- 
 Return on plan assets excluding 
  amounts included in net interest           (151.4)             -             139.9   (11.5) 
 Gain / (loss) from changes 
  in additional liability due 
  to minimum funding requirements 
  excluding amounts recognised 
  in net interest (income)/cost                    -             -               5.1      5.1 
 Actuarial gains on scheme liabilities             -          10.7                 -     10.7 
 Change in surplus not recognised                  -             -                 -        - 
---------------------------------------  -----------  ------------  ----------------  ------- 
 Amount recognised in other 
  comprehensive income                       (151.4)          10.7             145.1      4.4 
---------------------------------------  -----------  ------------  ----------------  ------- 
 Employer contributions                          1.1             -                 -      1.1 
 Benefit payments                             (10.3)          10.3                 -        - 
---------------------------------------  -----------  ------------  ----------------  ------- 
 Amounts included in cash flow 
  statement                                    (9.2)          10.3                 -      1.1 
---------------------------------------  -----------  ------------  ----------------  ------- 
 At 28 February 2019                           439.4       (424.9)            (16.5)    (2.0) 
---------------------------------------  -----------  ------------  ----------------  ------- 
 Included within Current liabilities                                                    (0.4) 
 Included within Non-current 
  liabilities                                                                           (1.6) 
---------------------------------------  -----------  ------------  ----------------  ------- 
 
   6     Income Tax Expense 

The Income tax expense is recognised based on management's best estimate of the income tax charge for the interim period calculated using the interim financial data. The taxation charge on the profit for the half year was GBP0.5m (H1 2018: charge of GBP1.9m). The taxation charge on the adjusted profit for the half year was GBP1.9m (H1 2018: charge of GBP3.0m). This is based on an adjusted effective tax rate for the interim period of 19.2% (H1 2018: 19.7%). The FY 2018 effective tax rate was 19.4%. The adjusted interim effective tax rate of 19.2% is in line with the UK main rate of tax of 19.0%.

   7     Dividends 
 
 Proposed dividends for          6 months    6 months   12 months   6 months   6 months   12 months 
  the period                       to Feb      to Feb      to Aug     to Feb     to Feb      to Aug 
                                     2019        2018        2018       2019       2018        2018 
                                Per share   Per share   Per share       GBPm       GBPm        GBPm 
----------------------------  -----------  ----------  ----------  ---------  ---------  ---------- 
 Final dividend                         -           -           -          -          -           - 
 Interim dividend                       -        3.1p        3.1p          -        7.6         7.6 
----------------------------  -----------  ----------  ----------  ---------  ---------  ---------- 
                                        -        3.1p        3.1p          -        7.6         7.6 
 ----------------------------------------  ----------  ----------  ---------  ---------  ---------- 
 
 Recognised dividends 
  for the period 
                                Per share   Per share   Per share       GBPm       GBPm        GBPm 
----------------------------  -----------  ----------  ----------  ---------  ---------  ---------- 
 Final dividend - prior 
  year                                  -        6.7p        6.7p          -       16.5        16.5 
 Interim dividend - current 
  year                                  -           -        3.1p          -          -         7.6 
----------------------------  -----------  ----------  ----------  ---------  ---------  ---------- 
                                        -        6.7p        9.8p          -       16.5        24.1 
 ----------------------------------------  ----------  ----------  ---------  ---------  ---------- 
 

During the six month period to 28 February 2019, the final dividend for the year ended 31 August 2018 of nil pence (Feb 2018: 6.7p) per ordinary share was paid to shareholders. The Directors have not approved an interim dividend in respect of the period ended 28 February 2019 (Feb 2018: 3.1p per ordinary share).

   8     Earnings per share 
 
                              6 months to Feb                6 months to Feb               12 months to Aug 
                                    2019                           2018                           2018 
                        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                              247.6                         247.6                          247.7 
Shares held 
 by the ESOP 
 (weighted)                            (1.4)                         (1.9)                          (1.7) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
                                       246.2                         245.7                          246.0 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Basic earnings 
 per share (EPS) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Continuing 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Adjusted earnings 
 attributable 
 to ordinary 
 shareholders                8.0       246.2     3.2      12.1       245.7      5.0      22.9       246.0      9.3 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Adjusted items             (5.2)                         (4.5)                         (61.0) 
Earnings attributable 
 to ordinary 
 shareholders                2.8       246.2     1.1       7.6       245.7      3.1    (38.1)       246.0   (15.5) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Total - continuing 
 and discontinued 
 operations 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Adjusted earnings 
 attributable 
 to ordinary 
 shareholders                8.0       246.2     3.2      13.4       245.7      5.5      24.2       246.0      9.8 
Adjusted items             (5.2)                        (15.2)                         (71.2) 
Earnings attributable 
 to ordinary 
 shareholders                2.8       246.2     1.1     (1.8)       245.7    (0.7)    (47.0)       246.0   (19.1) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Diluted earnings 
 per share (EPS) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Effect of dilutive 
 securities                              0.4                           2.3                            0.7 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Continuing 
Diluted adjusted 
 EPS                         8.0       246.6     3.2      12.1       248.0      4.9      22.9       246.7      9.3 
Diluted EPS                  2.8       246.6     1.1       7.6       248.0      3.1    (38.1)       246.0   (15.5) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Total - continuing 
 and discontinued 
 operations 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Diluted adjusted 
 EPS                         8.0       246.6     3.2      13.4       248.0      5.4      24.2       246.7      9.8 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
Diluted EPS                  2.8       246.6     1.1     (1.8)       248.0    (0.7)    (47.0)       246.0   (19.1) 
----------------------  --------  ----------  ------  --------  ----------  -------  --------  ----------  ------- 
 

Dilutive shares increased the basic number of shares at February 2019 by 0.4m to 246.6m (Feb 2018: 248.0m) and resulted in a diluted adjusted EPS of 3.2p, a decrease of 1.7p or 40.7% on prior year.

The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 0.4m dilutive shares (Feb 2018: 2.3m). There is no further dilutive effect from deferred consideration in the period.

   9     Discontinued operations and assets held for sale 

In January 2019 the Group took the decision to enter into a sale and leaseback arrangement for the Tuffnells freehold and long leasehold property portfolio and related assets with a net book value of GBP16.7m being: GBP13.8m freehold property, GBP0.9m long term leasehold property, GBP0.1m short leasehold, GBP0.5m fixtures and fittings and GBP1.4m of equipment and vehicles. These have been subsequently reclassified as assets held for sale at the balance sheet date as they are considered to meet the definition.

In August 2018 the Group took the decision to consider the sale of the Jack's Beans business unit and focus on its core businesses. It subsequently sold the business unit for GBP0.5m which was the net book value of the assets. In the prior year the assets relating to the business unit indicated an excess of net book value of GBP1.0m, therefore, the Group impaired the assets down to GBP0.5m and moved them into non-current assets held for sale.

The Books division was classified as held for sale on 31 August 2017 as the Group was actively marketing the business. The Group subsequently disposed of the business on the 14 February 2018. As such the results of the Books division are also classified as discontinued.

The results of discontinued operations, which have been included within the consolidated income statement, are as follows:

 
 
 GBPm                        6 months to Feb                  6 months to Feb                12 months to Aug 
                                   2019                             2018                            2018 
------------------   -------------------------------                                  ------------------------------ 
                       Adjusted    Adjusted    Total   Adjusted   Adjusted     Total   Adjusted   Adjusted     Total 
                                      items                          items                           items 
------------------   ----------  ----------  -------  ---------  ---------  --------  ---------  ---------  -------- 
 
 Revenue                       -           -       -      114.3          -     114.3      114.3          -     114.3 
 Expenses                      -           -       -    (112.7)     (10.7)   (123.4)    (112.5)     (10.6)   (123.1) 
-------------------   ----------  ----------  ------  ---------  ---------  --------  ---------  ---------  -------- 
 Operating 
  profit                       -           -       -        1.6     (10.7)     (9.1)        1.8     (10.6)     (8.8) 
 Finance costs                 -           -       -          -          -         -      (0.1)          -     (0.1) 
-------------------   ----------  ----------  ------  ---------  ---------  --------  ---------  ---------  -------- 
 Profit before 
  tax                          -           -       -        1.6     (10.7)     (9.1)        1.7     (10.6)     (8.9) 
 Income tax 
  expense                      -           -       -      (0.3)          -     (0.3)      (0.4)        0.4         - 
-------------------   ----------  ----------  ------  ---------  ---------  --------  ---------  ---------  -------- 
 Profit/ (loss) 
  from discontinued 
  operations                   -           -       -        1.3     (10.7)     (9.4)        1.3     (10.2)     (8.9) 
-------------------   ----------  ----------  ------  ---------  ---------  --------  ---------  ---------  -------- 
 

During the period, discontinued operations contributed GBPnil cash outflow (H1 2018: GBP8.4m cash inflow), (FY 2018: GBP8.8m cash inflow) to the Group's net operating cash flows.

The major classes of assets comprising held for sale are as follows:

 
                                              Period        Period     Year ending 
                                              ending        ending      31 August 
                                            28 February   28 February      2018 
                                               2019          2018 
Property, plant and equipment                  16.7           -            0.5 
-----------------------------------------  ------------  ------------  ----------- 
Total assets classified as held for sale       16.7           -            0.5 
-----------------------------------------  ------------  ------------  ----------- 
 
   10    Disposal of subsidiary 

The Group disposed of the Connect Books division on 14 February 2018.

The net assets of the division at the date of disposal were:

 
                                                         GBPm 
 Goodwill                                                  9.7 
 Intangible assets                                         3.6 
 Property, plant and equipment                             4.1 
 Inventories                                              20.7 
 Trade and other receivables                              32.7 
 Cash and bank balances                                    4.6 
 Trade and other payables                               (45.9) 
 Corporation tax liability                               (0.1) 
 Deferred tax liabilities                                (0.3) 
 Provisions                                              (0.5) 
-----------------------------------------------------  ------- 
 Net assets disposed                                      28.6 
 
 Gross proceeds received                                  18.7 
 Disposal costs                                          (1.5) 
 Release of deferred consideration liability               0.9 
 Net assets disposed                                    (28.6) 
-----------------------------------------------------  ------- 
 Loss on disposal                                       (10.5) 
 
 Total consideration 
 Satisfied by: 
 Cash                                                     18.7 
 
 Net cash inflow arising on disposal 
 Equity consideration                                      6.0 
 Intercompany overdraft repayment                         12.7 
-----------------------------------------------------  ------- 
 Consideration received in cash and cash equivalents      18.7 
 Less: cash and cash equivalents disposed                (4.6) 
 Less: cash disposal costs                               (1.5) 
-----------------------------------------------------  ------- 
                                                          12.6 
-----------------------------------------------------  ------- 
 

The loss on disposal is included in the profit for the year from discontinued operations.

   11    Net Cash Inflow from Operating Activities 
 
                                            6 months   6 months   12 months 
                                                  to         to          to 
 GBPm                                       Feb 2019   Feb 2018   Aug 2018 
----------------------------------------   ---------  ---------  ---------- 
 Continuing statutory operating 
  profit                                         6.5       12.4      (30.0) 
 Discontinued operating profit                     -      (9.1)       (8.8) 
 Operating profit                                6.5        3.3      (38.8) 
 Losses on disposal of property, 
  plant and equipment                            0.1          -         0.5 
 Impairment of assets held for 
  sale                                             -          -         1.1 
 Impairment of tangible assets                     -          -         1.0 
 Share of profits of jointly controlled 
  entities                                     (0.3)      (0.3)       (0.5) 
 Loss on disposal of subsidiary                    -       10.5        10.5 
 Pension funding                               (1.2)      (2.5)       (4.2) 
 Depreciation and impairment of 
  property, plant and equipment                  3.8        5.4         8.6 
 Amortisation and impairment of 
  intangible assets                              4.8        6.4        57.5 
 Share based payments                            0.2      (0.1)       (0.3) 
 (Increase)/Decrease in inventories            (3.2)      (2.9)         0.5 
 (Increase)/Decrease in receivables              2.1          -        17.7 
 Increase/(Decrease) in payables                 4.3      (4.9)      (10.2) 
 Non cash pension and admin costs                0.1        0.2         0.3 
 Amortisation of loan arrangement 
  fees                                             -          -         0.6 
 Income tax paid                               (1.2)      (3.1)       (6.5) 
 (Decrease)/ increase in provisions            (4.5)      (3.1)       (0.3) 
-----------------------------------------  ---------  ---------  ---------- 
 Net cash inflow from operating 
  activities                                    11.5        8.9        37.5 
-----------------------------------------  ---------  ---------  ---------- 
 

During the period, discontinued operations contributed GBPnil cash outflow (H1 2018: GBP8.4m cash inflow) to the Group's net operating cash flows.

   12    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.

The Group prepares cash flow forecasts derived from the most recent budgets and forecasts as approved by the Board and extrapolates these cash flows on an estimated growth rate into perpetuity. The rate used to discount the forecast cash flows is the Group's weighted average cost of capital adjusted for industry and market risk.

Tuffnells

The Group performed impairment testing in relation to the Tuffnells business unit in October 2018. This resulted in an impairment charge of GBP46.1m which was booked in the Connect Group PLC Annual Report and Accounts 2018, this was based on a carrying value of GBP67.5m, the assumptions and sensitivities of this assessment are also included within the Connect Group PLC Annual Report and Accounts 2018. Subsequently, the Board have concluded, based on the most recent trading, that there were no further indicators of impairment since the previous assessment. The Group will reassess the carrying value of the Tuffnells goodwill in the Connect Group PLC Annual Report and Accounts 2019 consistent with the Groups policy of annual impairment reviews.

The individual material acquired intangible assets relate to the customer relationships and brand acquired on the acquisition of Tuffnells. The carrying value of these assets at 28 February 2019 is GBP12.0m and GBP17.8m respectively with a remaining amortisation period of 3.5 and 6 years respectively.

 
                         Goodwill                       Acquired Intangibles                         Total 
----------  -----------------------------------  -----------------------------------  ----------------------------------- 
GBPm        On acquisition     H1     H1     FY  On acquisition     H1     H1     FY  On acquisition     H1     H1     FY 
                             2019   2018   2018                   2019   2018   2018                   2019   2018   2018 
----------  --------------  -----  -----  -----  --------------  -----  -----  -----  --------------  -----  -----  ----- 
DMD                    5.7    5.7    5.7    5.7             2.6      -    0.3    0.2             8.3    5.7    6.0    5.9 
Smiths 
 News                    -      -      -      -             0.3      -    0.1      -             0.3      -    0.1      - 
Tuffnells             52.1    6.0   52.1    6.0            58.1   29.8   36.4   33.1           110.2   35.8   88.5   39.1 
Total                 57.8   11.7   57.8   11.7            61.0   29.8   36.8   33.3           118.8   41.5   94.6   45.0 
----------  --------------  -----  -----  -----  --------------  -----  -----  -----  --------------  -----  -----  ----- 
Other intangibles                                                                                       5.6    6.4    5.8 
--------------------------  -----  -----  -----  --------------  -----  -----  -----  --------------  -----  -----  ----- 
Total Intangible 
 assets                                                                                                47.1  101.0   50.8 
--------------------------  -----  -----  -----  --------------  -----  -----  -----  --------------  -----  -----  ----- 
 

Pass My Parcel

The net book value of intangible assets and tangible fixed assets relating to Pass My Parcel is GBPnil (H1 2018: GBPnil). These assets relate to having historically developed the Pass My Parcel service, specifically internally generated development costs and IT equipment, totalling GBP2.0m (H1 2018: GBP2.0m). Given the decision to re-engineer and ultimately close the proposition in the prior year, the balance was written down and an impairment of GBP2.0m was recognised in H1 2018 financial statements see note 4.

   13    Cash and Borrowings 

Cash and borrowings by currency (sterling equivalent) are as follows:

 
GBPm                           Sterling  Euro  USD  Other    Total      At 28      At 31 
                                                            28 Feb   Feb 2018   Aug 2018 
                                                              2019 
                               --------  ----  ---         -------  ---------  --------- 
Cash and bank deposits             22.4   1.7  1.1    0.4     25.6       15.9       18.0 
Overdrafts                       (14.2)     -    -      -   (14.2)     (10.9)      (9.2) 
Revolving credit facility        (36.0)     -    -      -   (36.0)     (33.0)     (38.0) 
Term loan - disclosed within 
 non-current liabilities         (49.1)     -    -      -   (49.1)     (48.6)     (48.8) 
Total borrowings                 (99.3)     -    -      -   (99.3)     (92.5)     (96.0) 
                               --------  ----  --- 
Net borrowings                   (76.9)   1.7  1.1    0.4   (73.7)     (76.6)     (78.0) 
-----------------------------  --------  ----  ---  -----  -------  ---------  --------- 
 
Total borrowings 
-----------------------------  --------  ----  ---  -----  -------  ---------  --------- 
Amount due for settlement 
 within 12 months                (50.2)     -    -      -   (50.2)     (43.9)     (47.2) 
Amount due for settlement 
 after 12 months                 (49.1)     -    -      -   (49.1)     (48.6)     (48.8) 
-----------------------------  --------  ----  ---  -----  -------  ---------  --------- 
                                 (99.3)     -    -      -   (99.3)     (92.5)     (96.0) 
-----------------------------  --------  ----  ---  -----  -------  ---------  --------- 
 

Cash and bank deposits comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.

In October 2017, the Group agreed bank facilities of GBP175m with a syndicate of six banks with a term which runs until January 2021. The facility comprises of a term loan of GBP50m with no amortisation and a revolving credit facility (RCF) for GBP125m. The GBP50.2m due for settlement within 12 months relates to the RCF and overdrafts.

At 28 February 2019, the Group had GBP89.9m (28 February 2018: GBP93.4m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

14 Trade and other receivables

 
GBPm                                        At  Restated*  Restated* 
                                        28 Feb      At 28      At 31 
                                          2019   Feb 2018   Aug 2018 
-------------------------------------  -------  ---------  --------- 
Trade receivables                         86.7       97.5       86.9 
Provision for expected credit losses     (0.3)      (0.4)      (0.5) 
-------------------------------------  -------  ---------  --------- 
                                          86.4       97.1       86.4 
Other debtors                             35.4       35.3       36.7 
Prepayments                                3.3        4.5        3.9 
Accrued income                             2.2        3.0        2.7 
Trade and other receivables              127.3      139.9      129.7 
-------------------------------------  -------  ---------  --------- 
 

* The balances have been restated to reflect the returns reserve accrual previously net off against trade receivables within other creditors and the returns reserve asset net off against trade payables included within other debtors. See note 2 for further information.

   15     Trade and other payables 
 
 GBPm                  At 28   Restated*   Restated* 
                    Feb 2019       At 28       At 31 
                                Feb 2018    Aug 2018 
----------------  ----------  ----------  ---------- 
Trade payables       (120.5)     (123.4)     (116.3) 
Other creditors       (43.6)      (44.3)      (42.9) 
Accruals              (14.5)      (15.6)      (16.2) 
Deferred income        (0.3)       (0.2)       (0.2) 
----------------  ----------  ----------  ---------- 
                     (178.9)     (183.5)     (175.6) 
----------------  ----------  ----------  ---------- 
 

* The balances have been restated to reflect the returns reserve accrual previously net off against trade receivables within other creditors and the returns reserve asset net off against trade payables included within other debtors. See note 2 for further information.

   16    Provisions 
 
GBPm                           Regulatory  Reorganisation   Insurance     Property     Total 
                                               provisions   and legal   provisions 
                                                            provision 
----------------------------   ----------  --------------  ----------  -----------  -------- 
 
At 1 September 2018                 (2.8)           (4.0)       (1.9)        (5.6)    (14.3) 
Additions                               -               -       (0.8)            -     (0.8) 
Utilised in period                    1.5             2.5         0.4          0.1       4.5 
Released                              0.5               -         0.2            -       0.7 
Unwinding of discount 
 utilisation                            -               -           -        (0.1)     (0.1) 
-----------------------------  ----------  --------------  ----------  -----------  -------- 
At 28 February 2019                 (0.8)           (1.5)       (2.1)        (5.6)    (10.0) 
=============================  ==========  ==============  ==========  ===========  ======== 
 
GBPm                                                         Feb 2019     Feb 2018  Aug 2018 
----------------------------   ----------  --------------  ----------  -----------  -------- 
Included within current 
 liabilities                                                    (5.9)        (5.7)     (9.5) 
Included within non-current 
 liabilities                                                    (4.1)        (5.8)     (4.8) 
-----------------------------  ----------  --------------  ----------  -----------  -------- 
Total                                                          (10.0)       (11.5)    (14.3) 
-----------------------------  ----------  --------------  ----------  -----------  -------- 
 

Reorganisation provisions include amounts for programmes which consist primarily of redundancy costs, which were announced prior to the 31 August year end.

Regulatory provisions include GBP0.8m in relation to legal costs and estimated historical underpayment of national minimum wage compliance, see note 4 for further information, GBP0.5m of this provision has been released based on the latest correspondence with HMRC. A further GBP1.5m of the balance was settled in full on 3 October 2018 following Tuffnells prosecution relating to the Brierley Hill depot on 11 September 2018 for an offence under S2(1) of the Health and Safety at Work Act.

Reorganisation provisions include GBP1.4m relating to the closure of Pass My Parcel. During the period GBP1.1m has been utilised. The remaining balance of GBP0.1m relates to redundancy provisions, that were announced in the prior financial year end and are all expected to be utilised during the financial year (see note 4 for further information).

The property provision represents the estimated future cost of the Group's onerous leases on non-trading properties and for potential dilapidation costs across the Group. These provisions have been discounted 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.

   17    Contingent Liabilities 

The Group has a potential liability that could crystallise in respect of previous assignments of leases where the liability could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC in 2006, any such contingent liability, which becomes an actual liability, will be apportioned between Connect Group PLC and WH Smith PLC in the ratio 35:65 (the actual liability of Connect Group PLC in any 12 month period is limited to GBP5m). The Group's share of such liability has an estimated future cumulative gross rental commitment at 28 February 2019 of GBP1.0m (31 August 2018: GBP1.3m).

   18    Share Capital 
   (a)   Share capital 
 
 GBPm                             Feb 2019  Feb 2018  Aug 2018 
--------------------------------  --------  --------  -------- 
 Issued and fully paid ordinary 
  shares of 5p each 
 Opening balance at 1 September       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 1 September 2018                         247.7 
 At 28 February 2019                         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                              Feb 2019   Feb 2018   Aug 2018 
--------------------------------  ---------  ---------  --------- 
 
 Opening balance at 1 September        60.5       60.5       60.5 
 Closing balance                       60.5       60.5       60.5 
--------------------------------  ---------  ---------  --------- 
 
   19    Related Party Transactions 

No related party transactions had a material impact on the financial performance in the period or financial position of the Group at 28 February 2019. 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 year ended 31 August 2018.

Key management compensation

Transactions between the Group and key management personnel in the period relate only to remuneration consistent with the policy set out in the Directors' Remuneration Report within the Group's 2018 Annual Report. There have been no other material changes to the arrangements between the Group and key management personnel in the period.

20 Reconciliation of Adjusted free cash flow to equity to net movement in cash and cash equivalents

A reconciliation of Adjusted free cash flow to equity to net movement in cash and cash equivalents is shown below:

 
                                                         Feb 2019   Feb 2018   Aug 2018 
------------------------------------------------------  ---------  ---------  --------- 
 Net increase/(decrease) in cash and cash equivalents         2.7      (1.2)        2.5 
 Dividend paid                                                  -       16.5       24.1 
 Proceeds on sale of subsidiary (net of disposal 
  costs)                                                        -     (13.7)     (12.9) 
 Decrease/(Increase) in borrowings                            2.0      (3.0)        5.9 
 Adjustment for pension funding                               1.2        2.5        4.7 
 Net outflow on purchase of shares for EBT                      -          -          - 
 Proceeds on issue of shares                                    -          -          - 
 Dividends received from associates                         (0.1)      (0.1)      (0.2) 
------------------------------------------------------  ---------  ---------  --------- 
 Total free cash flow                                         5.8        1.0       24.1 
 Discontinued free cash flow                                    -        9.0      (3.9) 
------------------------------------------------------  ---------  ---------  --------- 
 Continuing free cash flow                                    5.8       10.0       20.2 
------------------------------------------------------  ---------  ---------  --------- 
 

Glossary - Alternative performance measures

Introduction

In the reporting of financial information, the Directors have adopted various APMs.

These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.

APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

Purpose

The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

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 Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive-setting purposes.

The key APMs that the Group has focused on and changes to APMs within the period can be found in Note 1.

 
 APM           Closest           Adjustments         Note/page           Definition and purpose 
                equivalent        to reconcile        reference 
                IFRS 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 Group'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 defined 
  operating     profit*                               Note 4              as operating profit from continuing 
  profit                                                                  operations, excluding the impact 
                                                                          of adjusting items (defined above). 
                                                                          This is the headline measure of 
                                                                          the Group's performance and is 
                                                                          a key management incentive metric. 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Adjusted      Profit            Adjusted items      Income statement/   Adjusted profit before tax is 
  profit        before                                Note 4              defined as profit before tax from 
  before        tax (PBT)                                                 continuing operations, excluding 
  tax                                                                     the impact of adjusting items 
                                                                          (defined above). 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Adjusted      Profit            Adjusted items      Income statement/   Adjusted profit after tax is defined 
  profit        after                                 Note 4              as profit after tax from continuing 
  after         tax (PAT)                                                 operations, excluding the impact 
  tax                                                                     of adjusting items (defined above). 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Adjusted      Operating         Depreciation        Page 12             This measure is based on business 
  EBITDA        profit*           and amortisation                        unit operating profit from 
                                  Adjusted items                          continuing operations. It excludes 
                                                                          depreciation, amortisation and 
                                                                          adjusting items. This is the headline 
                                                                          measure of the Group's performance 
                                                                          and is a key management incentive 
                                                                          metric. 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Adjusted      Earnings          Adjusted items      Note 8              Adjusted earnings per share is 
  earnings      per share                                                 defined as continuing adjusted 
  per                                                                     PBT, less taxation attributable 
  share                                                                   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 generated    Dividends,          Note 20             Free cash flow is defined as cash 
  cash          from operating    acquisitions                            flow excluding the following: 
  flow          activities        and disposals,                          payment of the dividend, acquisitions 
                                  Repayment                               and disposals, the repayment of 
                                  of bank loans,                          bank loans, EBT share purchases 
                                  EBT share                               and cash flows 
                                  purchases,                              relating to pension deficit repair. 
                                  Pension deficit                         This measure reflects the cash 
                                  repair payments                         available to shareholders. 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Free          Cash generated    Dividends,          Note 20             Free cash flow (excluding Adjusted 
  cash          from operating    acquisitions                            items) is Free cash flow adding 
  flow          activities        and disposals,                          back Adjusted cash costs. 
  (excluding                      Repayment 
  adjusting                       of bank loans, 
  items)                          EBT share 
                                  purchases, 
                                  Pension deficit 
                                  repair payments 
                                  Adjusted items 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 Balance Sheet 
 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. 
              ----------------  ------------------  ------------------  ------------------------------------------ 
 

* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

Connect Group PLC

Independent review report to Connect Group 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 six months ended 28 February 2019 which comprises the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity and Condensed Consolidated Group Cash Flow Statement and the related notes to the Consolidated Unaudited Interim Financial Statements.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by 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.

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 six months ended 28 February 2019 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

Statutory Auditor

London, United Kingdom

1 May 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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