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WH Smith PLC Interim Results

14/05/2020 7:00am

UK Regulatory (RNS & others)


Wh Smith (LSE:SMWH)
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RNS Number : 8370M

WH Smith PLC

14 May 2020

14 May 2020

WH SMITH PLC

INTERIM RESULTS ANNOUNCEMENT

For the six months ended 29 February 2020

Good first half performance; significant mitigating actions implemented following the

Covid-19 outbreak; resilient Group well positioned for the recovery

Group financial summary:

 
                                                    6 months to      6 months to    6 months to          % 
                                                   Feb 2020 (IFRS*)     Feb 2020      Feb 2019      Change (IAS 17) 
                                                                        (IAS 17)      (IAS 17) 
       Travel trading profit**                         GBP50m           GBP49m         GBP44m            11% 
        High Street trading profit**                    GBP47m           GBP44m        GBP48m            (8)% 
        Group profit from trading operations**          GBP97m           GBP93m        GBP92m             1% 
      -----------------------------------------  ------------------  ------------  -------------  ----------------- 
       Headline Group profit before tax**              GBP80m           GBP80m         GBP81m            (1)% 
        Headline earnings per share**                   56.1p            56.1p          60.6p            (7)% 
       Non-underlying costs**                         GBP(17)m         GBP(17)m       GBP(16)m            6% 
                                                 ------------------  ------------  ------------- 
       Group profit before tax                         GBP63m           GBP63m         GBP65m            (3)% 
        Basic earnings per share                        41.6p            41.6p          47.2p            (12)% 
        Diluted earnings per share                      41.2p            41.2p          46.8p            (12)% 
      -----------------------------------------  ------------------  ------------  -------------  ----------------- 
 
      Revenue performance: 
                              Total %   LFL** % 
                        GBPm    change    change 
        Travel          432      19%       2% 
       -------------  ------  --------  -------- 
        High Street     315     (5)%      (4)% 
        Group           747      7%       (1)% 
                      ------  -------- 
 
   * The Group adopted IFRS 16 'Leases' with effect from 1 September 
   2019 using the modified retrospective approach to transition 
   and has accordingly not restated prior periods. The results 
   for the six months ended 29 February 2020 are not directly 
   comparable with those reported in the prior period under the 
   previous applicable accounting standard, IAS 17 'Leases'. To 
   provide meaningful comparatives, the results for the six months 
   ended 29 February 2020 have therefore also been presented under 
   IAS 17 with the growth rates shown on an IAS 17 basis. All 
   references to Trading profit are stated on a comparable IAS 
   17 basis. Group revenue was not affected by the adoption of 
   IFRS 16, and therefore all references to and discussion of 
   revenue, and like-for-like revenue are based on statutory measures. 
   See page 12 for more information. 
   ** Denotes first instance of an Alternative Performance Measure 
   (APM) term defined and explained in the Glossary on page 41. 
   Unless otherwise stated, all references in this announcement 
   to growth rates and period-on-period comparisons relating to 
   the Group's statutory and alternative performance measures 
   are stated on a consistent basis under IAS 17. 
 
   Carl Cowling, Group Chief Executive, commented: 
   "The emergence of Covid-19 and the associated global pandemic 
   has affected all of us in ways that were unimaginable only 
   a short while ago. I have enormous admiration for how our colleagues 
   across WH Smith have responded to these unprecedented times 
   and I would like to thank them all. 
   "Our primary focus over the past eight weeks has been to protect 
   our colleagues across all areas of our business and our customers. 
   We have supported many good causes and we have kept over 300 
   stores open to serve the communities that most need our services 
   at this critical time, including the NHS and the communities 
   that rely on the Post Office services we provide on the high 
   street. 
   "There was very little impact of Covid-19 on our first half 
   results, however inevitably the performance in the second half 
   will be very different. During the first half, we continued 
   to see strong sales growth in our Travel business with total 
   revenue up 19%, driven by our ongoing investment and initiatives 
   in our UK business and our growing international businesses. 
   Trading profit in the first half was up 11%. Our recently acquired 
   US business, MRG, continued to perform well and maintained 
   its momentum of securing significant tender wins across major 
   US airports. Our High Street business also performed well delivering 
   Trading profit of GBP44m in the period. 
   "Since March, we have seen a significant impact on our business 
   as a result of Covid-19, with the majority of our stores closed 
   around the world. We were fast to react to the situation and 
   issued new equity via a placing, raising c.GBP162m on 6 April 
   2020. We also secured an additional GBP120m of bank funding. 
   "We are a resilient and versatile business and with the operational 
   actions we have taken including managing costs and the new 
   financing arrangements, we are in a strong position to navigate 
   this time of uncertainty and are well positioned to benefit 
   in due course from the normalisation and growth of our key 
   markets." 
 
   First half results overview: 
 
    *    Group revenue up 7% with Group like-for-like revenue 
         down 1% 
 
 
    *    Travel revenue up 19% (up 4% excluding InMotion and 
         MRG) and up 2% on a like-for-like basis 
 
 
    *    Strong profit growth in Travel with Trading profit up 
         11% to GBP49m (2019: GBP44m) 
 
 
    *    Integration of Marshall Retail Group (MRG) 
         progressing well; 12 new units won in North America, 
         including a major airport win 
 
 
    *    International Travel now has 599 units open across 31 
         countries, including over 280 units in North America 
 
 
    *    High Street trading profit at GBP44m (2019: GBP48m) 
 
 
    *    Headline profit before tax at GBP80m (2019: GBP81m) 
 
 
    *    Statutory profit before tax at GBP63m (2019: GBP65m) 
 
 

Covid-19 has had a significant impact on current trading:

-- In our UK Travel business, we have seen a significant decline in passenger numbers as a result of travel bans; the vast majority of our stores at airports and railway stations have been temporarily closed

-- We remain committed to serving the communities which most need our services at this critical time; we are proud to continue to serve NHS staff from c.130 stores located in hospitals across the UK and have extended our groceries range to provide further support for these key workers

-- Internationally, we are seeing broadly similar trends to the UK with all large airport stores closed

-- In our High Street business, 203 stores with Post Offices continue to serve their local communities by providing vital postal and banking services at this time

-- Our online businesses have performed strongly, particularly in books where we have seen a 400% increase in sales during the past month

-- In April, Group total revenue was down 85% on the same period last year, as expected, with Travel revenue down 91% and High Street revenue down 74%

Mitigating actions taken to support our colleagues, customers and business:

   --    Our number one priority remains the health and wellbeing of our colleagues and our customers 

-- Stores that continue to trade have effective safety measures in place, including social distancing measures, PPE for colleagues' use, protective screens at the till point, guidelines to limit the number of customers in store

-- Distribution centres remain operational albeit at reduced capacity with effective social distancing measures in place

   --    Head office staff working from home, where possible 

-- Reduced stock purchases to reflect ongoing demand, returning sale or return stock and negotiating extended payment terms

   --    All non-essential and non-contractual capital expenditure delayed 
   --    Stopping all discretionary expenditure and reducing corporate overheads to a minimum 

-- Working with landlords to significantly reduce or remove rent payments and ensuring rent is aligned with revenue

   --    Suspension of business rates in the UK 

-- Significant reduction in headcount across stores and head offices through furlough arrangements; participating in the UK Government Job Retention Scheme

   --    Deferring tax payments in line with UK government announcements 
   --    The Board will not be making an interim dividend payment in the current financial year 

Actions taken to strengthen the balance sheet and liquidity position:

-- A new GBP120m 12 month + 7 month, at the option of the Group, committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC; in addition to our existing facilities

   --    Waiver on existing bank covenants at August 2020 and February 2021 
   --    As at 12 May our liquidity reserves were approximately GBP400m 
   --    Secured eligibility for the government's Covid Corporate Financing Facility (CCFF) 

Continued focus in the second half of the financial year:

-- Ensure the health and wellbeing of our colleagues and customers is at the forefront of everything we do

   --    Continue to focus on managing costs 
   --    Plans on track for phased re-opening of stores in the second half 
   --    Focus on driving spend per passenger across Travel channels as stores re-open 
   --    Continue to invest in flagship new store formats across the UK and North America 
   --    MRG is well positioned to continue to grow when the US travel market re-opens 
   --    Maintain strong relationships with landlord partners 
   --    Expand relationship with M&S; extend pilot to a further 2 High Street stores 
   --    Maintain sales momentum of online businesses 

WEBCAST:

A live webcast will be held today at 8.30am BST for investors and analysts and will be available on our website at www.whsmithplc.co.uk .

ENQUIRIES:

 
 WH Smith PLC 
 Nicola Hillman                     Media Relations       01793 563354 
 Mark Boyle                         Investor Relations    07879 897687 
 
 Brunswick 
 Fiona Micallef-Eynaud / Camille 
  Ng                                                      020 7404 5959 
 
 

WH Smith PLC's Interim Results 2020 are available at www.whsmithplc.co.uk .

GROUP OVERVIEW

Group Summary

Total Group revenue was up 7% compared to last year at GBP747m (2019: GBP695m) with Group LFL revenue down 1%.

Group profit from trading operations increased to GBP93m (2019: GBP92m) with Headline Group profit before tax at GBP80m (2019: GBP81m). Including non-underlying items (relating primarily to the acquisition of MRG) , Group profit before tax was GBP63m (2019: GBP65m).

Headline earnings per share was 56.1p (2019: 60.6p). This reflects Headline profit, a 19% effective tax rate** and a higher basic weighted average number of shares in issue following the share placement in October 2019.

Following the disruption to the business from the Covid-19 pandemic, the Board has announced that it will not be paying an interim dividend in the current financial year.

As at 29 February net debt** (on a pre-IFRS 16 basis) including the additional GBP200m term loan and after finance leases, was GBP411m (2019: GBP221m). Group free cash flow** was GBP1m (2019: GBP27m) reflecting GBP14m additional tax payments on account (now refunded by HMRC), higher investment capex of GBP10m and further working capital investment of GBP5m.

As announced on 6th April 2020, we have raised net proceeds of c.GBP162m via a share placing. In addition, we have agreed a GBP120m 12 month (plus 7 months at the option of the Group) committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC. This is in addition to our existing facilities. The Group has agreed waivers for the bank covenant tests at August 2020 and February 2021.

Following the acquisitions of InMotion and MRG, and the Group's most recent re-financing as a result of Covid-19, the Group has the following debt facilities as at 14 May:

 
                                Quantum Drawn           Maturity 
 Available facilities 
                               --------------  ----------------- 
 GBP120m 'Liquidity' Facility             Nil   November 2021*** 
                               --------------  ----------------- 
 GBP200m Revolving Credit                 Nil      December 2023 
  Facility 
                               --------------  ----------------- 
 Existing debt 
                               --------------  ----------------- 
 GBP200m Term Loan                    GBP200m       October 2022 
                               --------------  ----------------- 
 GBP200m MRG Loan                     GBP200m    October 2022*** 
                               --------------  ----------------- 
 

*** The maturity dates above include extension options at the Group's control

As at 12 May 2020 the Group had available cash and liquidity reserves of c.GBP400m, being GBP200m revolving credit facility, GBP120m liquidity facility and net cash at bank of GBP84m. The Group's monthly cash burn under an extended lockdown is approximately GBP25m-GBP30m per month. In addition, the Group has secured eligibility for the CCFF. For information, the Bank of England's guidance published on their website states that companies with WH Smith's pre-crisis credit rating are permitted to draw up to GBP300m. If we draw on the CCFF, the GBP120m 'Liquidity' Facility would be terminated and any draw down would be repayable.

TRAVEL

Travel delivered a strong performance across all channels in the first half. Trading profit increased by 11% to GBP49m (2019: GBP44m), of which GBP9m (2019: GBP6m) relates to our growing international business including MRG and InMotion. Total revenue was GBP432m (2019: GBP364m), up 19% compared to last year and up 2% on a LFL basis driven by our initiatives and ongoing investment. Gross margin**, excluding MRG and InMotion, was up 110bps compared to last year.

As at 29 February 2020, our global Travel business, including MRG and InMotion, operated from 1,194 units (31 August 2019: 1,019 units), and excluding franchise units, occupies 1.0m square feet.

UK Travel

Total revenue in the half was GBP271m, (2019: GBP260m), up 4% on the previous year. Total revenue in Air was up 3% with LFL revenue up 2%; in our hospital channel, total revenue was up 13% with LFL revenue up 6%, and in Rail, total revenue was up 2% with LFL revenue also up 2%. Gross margin increased by 60bps during the period, driven by a positive mix effect. Trading profit was up 5% to GBP40m (2019: GBP38m).

We worked hard across all channels in the first half to drive spend per passenger, delivering some positive results. Our focus on developing our large store formats continued and we expect these formats to position us well for the future. Our experience continues to show that we can deliver much higher sales per passenger from these large stores, through improved layouts and increased capacity. Despite the current uncertainty, we remain committed to refitting our 5,000 square foot store at Heathrow Terminal 2 this summer. This flagship store will feature an extensive news, books and convenience offer with the addition of a world class health and wellbeing department with specialist staff. The health and wellbeing department will comprise a comprehensive range of over 3,000 products curated through our partnership with market leading brands. In addition, the pharmacy counter will offer healthcare advice along with a wide selection of medicines.

Hospitals are an important business for us. We continue to invest and innovate in this channel to meet the needs of each hospital and we have developed a strong customer offer and aligned our ranges to the NHS strategy on healthy eating. Our broad suite of brands, which include Costa and M&S Simply Food, also ensure that we can tailor and adapt our proposition. Given our ongoing investment, we continue to win and open new stores, with a further 3 stores opened in the first half.

During the current crisis, we are also delighted to be in a position to support frontline NHS staff from our hospital stores, ensuring we can continue to play our part in the communities we serve. Since April, we have extended our grocery ranges in these stores to include over 90 essential items to further support frontline workers at this time. In addition, we have doubled the NHS staff discount to 20% and have supported a large number of hospitals with stock donations.

In Rail, we continued to invest in format development during the first half. Our new large store format at Paddington Station delivered some encouraging results and we believe there are opportunities in the future to apply this format across our rail channel.

International

Our business outside the UK comprises the stores we operate in North America and WH Smith stores across the rest of the world. During the first half, our strategy to grow our international travel business progressed well. However, our share of the global news, books and convenience (NBC) travel market is still small.

Total revenue for the half, including MRG and InMotion, was GBP161m (2019: GBP104m), up 55% versus the previous year. LFL revenue, on a constant currency basis, was up 3% excluding InMotion and down 1% including InMotion. The impact of InMotion on LFL revenue, was primarily the result of good availability of certain Apple products in the prior year, which drove very strong LFL revenue last year. The equivalent products this year were in short supply. Trading profit for the half was GBP9m (2019: GBP6m), including GBP1m Trading profit from MRG.

During the period, we won 38 new units internationally and opened 21 units, making a total of 599 units open as at 29 February 2020 across the WH Smith, MRG and InMotion brands. Of the 38 units won in the first half, 12 are in North America, 5 are in Australia, 6 are in Europe, 1 is in the Middle East and 14 are in South East Asia and India.

Of the 318 WH Smith units open outside of North America, 38% are directly run, 51% are franchised with the balance being joint ventures. We will continue to use these three economic models flexibly in order to create value and win new business.

In total, across our global Travel business outside of the UK, we are now present in over 100 airports and 31 countries with 292 units open in North and South America, 80 units open in Europe, 108 in the Middle East and India, and 119 in Asia Pacific.

North America

Our largest market outside of the UK is North America. On 20 December 2019, we completed the acquisition of MRG, a leading and fast-growing US travel retailer. The store opening programme for MRG remained on track during the first half and integration into the WH Smith Group is progressing well.

Differentiated from its competitors by its strategy of developing highly customised retail experiences tailored to local customers and landlords, MRG has a highly successful and proven business model with a strong track record of concession and tender wins. With a further 33 new airport stores due to open over the next 4 years following successful tenders, MRG is expected to add more than 43,000 square feet of airport retail selling space to its current c.54,000 square feet of existing airport selling space.

MRG has maintained its momentum of tender wins. We have won a further 12 units in the US in the period, including a number of significant tenders in major US airports, demonstrating the growth opportunities that exist there.

In addition to MRG, our digital accessories business, InMotion, has an excellent store portfolio with 117 stores across 43 airports in the US. During the half, InMotion opened 6 units.

HIGH STREET

High Street delivered a good performance in the first half with Trading profit of GBP44m (2019: GBP48m). LFL revenue was down 4% with total revenue down 5%. We saw a good gross margin performance, up 100bps in the period.

Driving efficiencies remains a core part of our strategy and we focus on all areas of cost in the business. We continue to deliver savings as part of our cost efficiency programme whilst adjusting our variable costs to sales. We achieved cost savings of GBP5m in the half. These savings come from right across the business, including rent savings at lease renewal (on average over 40%) which continue to be a significant proportion, marketing efficiencies and productivity gains from our distribution centres.

We have worked hard over the years to create flexibility in our store portfolio. The average lease length is 3.5 years and we only renew a lease where we are confident of delivering economic value over the life of that lease. We have a rolling programme of lease renewals and over the next three years the leases on around 400 stores expire giving us further opportunities to renegotiate our occupation costs.

As at 29 February 2020, the High Street business operated from 575 WH Smith stores (2019: 578) which occupy 2.7m square feet (2019: 2.7m square feet). 1 WH Smith store was closed in the period.

Online

Our online businesses continue to deliver good growth and complement our core stationery category.

i. Our online personalised greetings card business, www.funkypigeon.com , performed well in the period delivering good revenue and profit growth.

ii. www.whsmith.co.uk provides customers with a comprehensive book and stationery offer and, during the half, we continued to see strong sales growth in our stationery ranges online.

iii. Our specialist pen website, www.cultpens.com performed well in the period and we continue to develop this business and grow sales.

iv. Our recently acquired websites, www.treeofhearts.co.uk and www.dottyaboutpaper.co.uk also performed well. Although small, these online stationery businesses align with our digital strategy of broadening our stationery ranges and enhancing our customer offer.

Update on Covid-19 Impact

In view of the current uncertainty from the impact of Covid-19, we cannot forecast with any certainty the timing of our store re-openings in our Travel and High Street businesses. Nor can we forecast the speed of recovery. At this stage, we are planning on a phased store re-opening schedule across our international territories, UK Travel channels and our High Street business.

Our experience of operating our c.300 stores over the past eight weeks has enabled us to build on and advance our re-opening plans to protect both our colleagues and our customers by:

   -     Equipping our colleagues with appropriate PPE 
   -     Erecting protective screens at our till counters 
   -     Ensuring appropriate social distancing measures are identified within our stores; and 
   -     Where necessary, restricting the number of customers that enter our stores at any one time. 

In Air, we expect a gradual improvement in passenger numbers from Autumn 2020; initially led by an increase in domestic travellers, particularly in the US where c.80% of passengers are domestic, followed by regional, international and inter-continental passengers. In our Hospital channel, although our stores have remained open to serve NHS employees, we have seen a fall in sales as a result of a reduction in visitor numbers. In Rail, we expect a gradual improvement in passenger numbers through Autumn 2020.

We are financially strong and are an important retail partner for our travel landlords. As a result, we are well positioned to benefit from more space becoming available in travel locations and extending our user clauses to drive spend per passenger. We continue to invest in new stores and new store formats where we see attractive opportunities for profitable growth. During the second half, we are planning to open a new flagship store format at Heathrow Terminal 2. MRG, our travel business in the US, has continued to perform well since completion, maintaining its momentum in tender wins with further contract wins at major US airports.

GROUP

The Group generated Headline profit before tax of GBP80m (2019: GBP81m) and, after non-underlying items, statutory profit before tax of GBP63m (2019: GBP65m).

 
                                                      6 months to 
                                              Feb 2020    Feb 2020    Feb 2019          Change 
                                                (IFRS)    (IAS 17)                           % 
  GBPm                                                                (IAS 17)        (IAS 17) 
--------------------------------------  ---  ---------  ----------  ----------      ---------- 
 Travel trading profit                              50          49          44             11% 
 High Street trading profit                         47          44          48            (8)% 
 Group profit from trading operations               97          93          92              1% 
 Unallocated costs                                 (9)         (9)         (9) 
-------------------------------------------  ---------  ----------  ----------      ---------- 
 Headline Group operating profit                    88          84          83              1% 
 Net finance costs                                 (8)         (4)         (2) 
-------------------------------------------  ---------  ----------  ----------      ---------- 
 Headline Group profit before tax                   80          80          81            (1)% 
 Non-underlying items                             (17)        (17)        (16) 
-------------------------------------------  ---------  ----------  ----------      ---------- 
 Group profit before tax                            63          63          65            (3)% 
-------------------------------------------  ---------  ----------  ----------      ---------- 
 

Non-underlying Items

Items which are not considered part of the normal operating costs of the business, are non-recurring and are exceptional because of their size, nature and incidence, are treated as non-underlying items and disclosed separately.

Non-underlying items included in the period ending 29 February 2020 (2019: GBP16m) are:

 
                                                 6 months to Feb            6 months to Feb 
                                                       2020                       2019 
---------------------------------  ----------------------------------  ------------------------- 
                                                 Income          Cash       Income   Cash Impact 
   GBPm                                       Statement        impact    Statement 
----------------------------------------  -------------  ------------  -----------  ------------ 
 Acquisition related costs: 
 - Transaction costs                                 11            12            6             6 
 - Integration costs                                  2             2            2             - 
 - Amortisation                                       1             -            1             - 
 Impairment of property, plant and                    3             -            -             - 
  equipment 
 Completed High Street review                         -             2            7             3 
----------------------------------------  -------------  ------------  -----------  ------------ 
                                                     17            16           16             9 
----------------------------------------  -------------  ------------  -----------  ------------ 
 
 
 

Non-underlying items in the half relate primarily to acquisition costs and a non-cash impairment charge.

Costs relating to the acquisition of MRG were GBP13m and include transaction and integration costs. We expect full year non-underlying costs relating to the MRG acquisition to be around GBP19m with the additional amount in the second half being further integration costs and the second half amortisation charges.

The GBP3m non-cash impairment charge relates to the adjusting post balance sheet impact of Covid-19 in our Asia Pacific businesses, primarily in Singapore, and as such met the requirements to be recognised in the first half.

The cash cost relating to non-underlying items in the half was GBP16m with a further GBP4m expected in the second half. The cash impact also includes GBP2m relating to the High Street review which was completed and fully expensed in 2019.

Net Finance Costs

 
                                                            6 months to 
                                                  Feb 2020    Feb 2020    Feb 2019 
                                                    (IFRS)    (IAS 17) 
  GBPm                                                                    (IAS 17) 
-----------------------------------------------  ---------  ----------  ---------- 
 Interest payable on bank loans and overdrafts           4           4           2 
 Interest on lease liabilities                           4           -           - 
-----------------------------------------------  ---------  ----------  ---------- 
 Net finance costs                                       8           4           2 
-----------------------------------------------  ---------  ----------  ---------- 
 

Net finance costs relating to bank loans were GBP4m compared with GBP2m last year. The non-cash pension interest charge was GBPnil (2019: GBPnil). Lease interest of GBP4m in the current period arises on lease liabilities recognised under IFRS 16.

Fixed Charges Cover**

 
                                            6 months to       12 months 
                                                                     to 
-------------------------------------  --------------------  ---------- 
 GBPm                                   Feb 2020   Feb 2019    Aug 2019 
-------------------------------------  ---------  ---------  ---------- 
Net finance charges (IAS 17)                   4          2           5 
Net operating lease rentals (IAS 17)         125        110         236 
Total fixed charges                          129        112         241 
Headline profit before tax                    80         81         155 
-------------------------------------  ---------  ---------  ---------- 
Headline profit before tax and fixed 
 charges                                     209        193         396 
-------------------------------------  ---------  ---------  ---------- 
Fixed charges cover - times                 1.6x       1.7x        1.6x 
-------------------------------------  ---------  ---------  ---------- 
 

Fixed charges, comprising property operating lease rentals and net finance charges, were covered 1.6 times (2019: 1.7 times) by Headline profit before tax and fixed charges.

Cash Flow

Free cash flow reconciliation

 
                                                                  6 months to 
 GBPm                                                         Feb 2020    Feb 2019 
                                                              (IAS 17) 
                                                                          (IAS 17) 
--------------------------------------------  ------------  ----------  ---------- 
 Headline Group operating profit                                    84          83 
 Depreciation, amortisation & impairment(1)                         28          24 
 Non-cash items                                                      2           3 
 Working capital(1)                                               (43)        (38) 
 Employers payroll tax on exercised share 
  awards                                                           (1)         (1) 
 Capital expenditure                                              (41)        (31) 
 Net tax paid                                                     (24)        (10) 
 Net interest paid                                                 (3)         (2) 
 Movement on provisions                                            (1)         (1) 
----------------------------------------------------------  ----------  ---------- 
 Free cash flow                                                      1          27 
----------------------------------------------------------  ----------  ---------- 
 
 

(1) Headline, excludes the cash flow impact of non-underlying items, explained on page 8.

The Group generated free cash flow of GBP1m during the period. Th is is lower than last year due to GBP14m accelerated corporation tax payments on account, GBP10m higher investment capex and GBP5m higher working capital. The working capital movement reflects our usual seasonality and in this half we also invested additional working capital in our recently acquired US businesses to support their growth.

Capital expenditure in the half was GBP41m, GBP10m higher than the same period last year. Capital expenditure includes investment in new Travel stores both in the UK and internationally, investment in High Street stores and further investment in our in-store operating model.

Net corporation tax paid increased to GBP24m in the period from GBP10m last year, mainly as a result of the acceleration of corporation tax payments on account. All of the tax payments made in the first half have now been refunded.

As at 29 February 2020 the Group had net debt (on a pre-IFRS 16 basis) of GBP411m, including GBP11m of finance lease liabilities and net borrowings of GBP400m (2019: net debt of GBP221m, including GBP12m of finance lease liabilities and net borrowings and overdrafts of GBP209m).

Reconciliation of net debt

Net debt is presented on an IAS 17 basis. See Note 10 of the Interim statements for the impact of IFRS 16 on net debt.

 
                                                                        6 months to 
 GBPm                                                     Feb 2020            Feb 2019 
                                                          (IAS 17) 
                                                                              (IAS 17) 
-----------------------------------------  -----  ----------------  ------------------ 
 Opening net cash                                               34                  12 
 Free cash flow generated                                        1                  27 
 Dividend paid(2)                                             (47)                (41) 
 Pension funding                                               (1)                 (1) 
 Net purchase of shares for employee 
  share schemes                                                (1)                 (5) 
 Purchase of own shares for cancellation                         -                (25) 
 Acquisition of subsidiaries, net of 
  cash acquired                                              (316)               (161) 
 Proceeds of share placing                                     152                   - 
 Proceeds from borrowings                                      200                 200 
 Repayments of obligations under finance 
  leases                                                       (3)                 (3) 
 Other                                                         (3)                 (3) 
 Non-underlying items(3)                                      (16)                 (9) 
------------------------------------------------  ----------------  ------------------ 
 Closing net cash / (overdraft)(1)                               -                 (9) 
 Borrowings                                                  (400)               (200) 
 Finance leases                                               (11)                (12) 
------------------------------------------------  ----------------  ------------------ 
 Net debt (IAS 17)                                           (411)               (221) 
 Lease liabilities under IFRS 16(4)                          (566)                   - 
-----------------------------------------  -----  ----------------  ------------------ 
 Net debt (IFRS)                                             (977)               (221) 
------------------------------------------------  ----------------  ------------------ 
 

(1) Net cash/overdrafts is cash and cash equivalents (GBP45m; 2019: GBP48m) less bank overdrafts and other borrowings (GBP45m; 2019 GBP57m). See Condensed Group Balance Sheet on page 17.

(2) Dividend paid is the prior year final dividend.

(3) Cash flow effect of non-underlying items is explained on page 8.

(4) Excluding GBP11m finance leases already included in IAS 17 net debt.

Following the acquisition of MRG we suspended the buyback. The dividend payment of GBP47m was the final dividend relating to the previous financial year and was paid on 30 January 2020. During the period the Group acquired MRG for a net cash consideration of GBP316m. The cash flow impact of non-underlying items was GBP16m. Further detail is provided on page 8.

Post period end re-financing

The Group undertook an equity raise on 6 April 2020 which raised net proceeds of c.GBP162m through a 13.7% placing of new shares. The Group also secured a new GBP120m 12 month + 7 month (at the option of the Group) committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC. In addition, the maturity on the Group's two GBP200m term loans was extended to October 2022.

 
                                         12 May 2020   29 February 2020 
 Net cash / (overdraft)                       GBP84m           (GBP34m) 
  at bank (1) 
                             -----------------------  ----------------- 
 Revolving Credit Facility               GBP200m (2)            GBP200m 
                             -----------------------  ----------------- 
 Further Liquidity Facility              GBP120m (2) 
                             -----------------------  ----------------- 
 InMotion - Term Loan                        GBP200m            GBP200m 
                             -----------------------  ----------------- 
 MRG - Term Loan                             GBP200m            GBP200m 
                             -----------------------  ----------------- 
 

(1) Net cash at bank includes cash at bank and drawdown on the revolving credit facility.

(2) Undrawn as at 12 May 2020

In the context of restrictions imposed following the Covid-19 pandemic, our cash burn per month would be approximately GBP25m-GBP30m in an extended lockdown scenario.

Balance sheet

 
 GBPm                                       Feb 2020    Feb 2020    Aug 2019 
                                              (IFRS)    (IAS 17)    (IAS 17) 
-----------------------------------------  ---------  ----------  ---------- 
 Goodwill and other intangible assets            510         512         225 
 Property, plant and equipment                   228         243         201 
 Right of use assets                             540           -           - 
 Investments in joint ventures                     3           3           4 
-----------------------------------------  ---------  ----------  ---------- 
                                               1,281         758         430 
-----------------------------------------  ---------  ----------  ---------- 
 
 Inventories                                     188         188         174 
 Payables less receivables                     (130)       (145)       (178) 
-----------------------------------------  ---------  ----------  ---------- 
 Working capital                                  58          43         (4) 
-----------------------------------------  ---------  ----------  ---------- 
 
 Derivative financial asset                        1           1           2 
 Net current and deferred tax asset 
  / (liability)                                    3         (1)         (3) 
 Provisions                                      (2)         (4)         (5) 
-----------------------------------------  ---------  ----------  ---------- 
 Operating assets employed                     1,341         797         420 
 Net debt                                      (977)       (411)       (180) 
-----------------------------------------  ---------  ----------  ---------- 
 Net assets excluding pension liability          364         386         240 
 Pension liability                               (4)         (4)         (4) 
 Deferred tax asset on pension liability           1           1           1 
-----------------------------------------  ---------  ----------  ---------- 
 Total net assets                                361         383         237 
-----------------------------------------  ---------  ----------  ---------- 
 

The Group had net assets of GBP386m before pension liabilities and associated deferred tax assets, GBP146m higher than last year end, reflecting the share placement in October 2019, and profits for the period offset by dividends paid. Net assets after the pension liability and associated deferred tax asset were GBP383m compared to GBP237m at 31 August 2019. Under IFRS the Group had net assets of GBP361m.

We have performed an assessment of the impact of Covid-19 on the Group to ascertain if the outbreak or related government actions constitute an adjusting post balance sheet event under IAS 10 'Events after the Reporting Date'. Following our review, apart from our Asia Pacific businesses, we have concluded that the government actions occurred after the end of the reporting period, and are therefore non-adjusting. A non-cash impairment charge of GBP3m was recorded in the Group income statement as a result of our assessment. This charge is included within non-underlying items (see page 8).

Principal Risks and Uncertainties

The Group's Annual Report and Accounts 2019, a copy of which is available on the Group's website at www.whsmithplc.co.uk, sets out the principal risks and uncertainties which could impact the Group for the remainder of the current financial year (see Annual Report and Accounts 2019 pages 20 to 25). These include: economic, political, competitive and market risks; brand and reputation; key suppliers and supply chain management; store portfolio; business interruption (including pandemics); reliance on key personnel; international expansion; treasury, financial and credit risk management; and cyber risk and data security. In addition, the ongoing impact of Covid-19 is a significant risk facing the Group for the remainder of the current financial year, due to uncertainty around the timing and extent of the recovery on our ability to re-open and operate our Travel and High Street stores, both in the UK and Internationally, and its impact upon the levels of global and domestic travel. The Group has deployed a framework of operational procedures, mitigating actions and business continuity plans as outlined in this announcement and will continue to adapt these plans as the situation evolves.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulations.

This announcement contains certain forward looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results to differ from those anticipated. Nothing in this announcement should be construed as a profit forecast. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Impact of IFRS 16 Leases

The Group has implemented IFRS 16 using the modified retrospective approach, which means that

prior year balances have not been restated. IFRS 16 superseded the lease guidance under IAS 17 and the related interpretations. The results for the six months ended 29 February 2020 included on pages 1 to 11 have been shown both including the impact of IFRS 16, and on a pre-IFRS 16 basis. Results have been discussed on a pre-IFRS 16 basis to show meaningful year on year comparisons.

Accounting under IFRS 16

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model as the distinction between operating and finance leases is removed. The only exceptions are short-term and low-value leases.

At the commencement date of a lease, a lessee will recognise a lease liability for the future lease payments and an asset (right-of-use asset) representing the right to use the underlying asset during the lease term. Lessees are required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Income Statement impact

The impact of the implementation of IFRS 16 on the Income Statement is as follows:

 
                                         6 months  IFRS 16 Adjustment       6 months 
                                               to                                 to 
                                      29 Feb 2020                        29 Feb 2020 
GBPm                                       IAS 17                            IFRS 16 
---------------------------------  --------------  ------------------  ------------- 
Revenue                                       747                   -            747 
---------------------------------  --------------  ------------------  ------------- 
Headline Group operating profit                84                   4             88 
Finance cost                                  (4)                 (4)            (8) 
---------------------------------  --------------  ------------------  ------------- 
Headline Group profit before tax               80                   -             80 
Non-underlying items                         (17)                   -           (17) 
---------------------------------  --------------  ------------------  ------------- 
Group Profit before tax                        63                   -             63 
Income tax expense                           (15)                   -           (15) 
Profit for the period                          48                   -             48 
---------------------------------  --------------  ------------------  ------------- 
 

The impact of the adoption of IFRS 16 on a segmental basis is summarised below:

 
                                             6 months  IFRS 16 Adjustment       6 months 
                                                   to                                 to 
                                          29 Feb 2020                        29 Feb 2020 
GBPm                                           IAS 17                            IFRS 16 
-------------------------------------  --------------  ------------------  ------------- 
Travel trading profit(1)                           49                   1             50 
High Street trading profit                         44                   3             47 
-------------------------------------  --------------  ------------------  ------------- 
Group profit from trading operations               93                   4             97 
Unallocated costs                                 (9)                   -            (9) 
-------------------------------------  --------------  ------------------  ------------- 
Headline Group operating profit                    84                   4             88 
-------------------------------------  --------------  ------------------  ------------- 
 
   (1)   Includes International Trading profit of GBP9m under IAS 17 and GBP10m under IFRS 16 

Cash Flow impact

There is no impact on cash flows, although the classification of cash flows has changed, with an increase in net cash inflows from operating activities being offset by a decrease in net cash inflows from financing activities.

 
                                           6 months  IFRS 16 Adjustment       6 months 
                                                 to                                 to 
                                        29 Feb 2020                        29 Feb 2020 
GBPm                                         IAS 17                            IFRS 16 
-----------------------------------  --------------  ------------------  ------------- 
Net cash inflows from operating 
 activities                                      25                  48             73 
Net cash outflows from investing 
 activities                                   (357)                   -          (357) 
Net cash inflows from financing 
 activities                                     329                (48)            281 
Net decrease in cash in the period              (3)                   -            (3) 
-----------------------------------  --------------  ------------------  ------------- 
 

Balance Sheet impact

The impact on the Balance Sheet of the IFRS 16 at 29 February 2020 was as follows:

 
                                                 At                                    At 
                                             29 Feb     IFRS 16 Adjustment    29 Feb 2020 
   GBPm                                        2020                               IFRS 16 
                                             IAS 17 
-----------------------------------------  --------  ---------------------  ------------- 
 Goodwill and other intangible assets           512                    (2)            510 
 Property, plant and equipment                  243                   (15)            228 
 Right-of-use assets                              -                    540            540 
 Investments in joint ventures                    3                      -              3 
-----------------------------------------  --------  ---------------------  ------------- 
                                                758                    523          1,281 
-----------------------------------------  --------  ---------------------  ------------- 
 
 Inventories                                    188                      -            188 
 Payables less receivables                    (145)                     15          (130) 
-----------------------------------------  --------  ---------------------  ------------- 
 Working capital                                 43                     15             58 
-----------------------------------------  --------  ---------------------  ------------- 
 
 Derivative financial asset                       1                      -              1 
 Net current and deferred tax liability         (1)                      4              3 
 Provisions                                     (4)                      2            (2) 
-----------------------------------------  --------  ---------------------  ------------- 
 Operating assets employed                      797                    544          1,341 
 Net (debt) / funds                           (411)                  (566)          (977) 
-----------------------------------------  --------  ---------------------  ------------- 
 Net assets excluding pension liability         386                   (22)            364 
 Pension liability                              (4)                      -            (4) 
 Deferred tax asset on pension liability          1                      -              1 
-----------------------------------------  --------  ---------------------  ------------- 
 Total net assets                               383                   (22)            361 
-----------------------------------------  --------  ---------------------  ------------- 
 

Further information on the impact of the adoption of IFRS 16 can be found in Note 1 on page 21.

WH Smith PLC

Condensed Group Income Statement

For the 6 months to 29 February 2020

 
                                              6 months to 29 Feb                6 months to 28 Feb 2019 
                                                      2020 
                                                 (unaudited) (1)                       (unaudited) 
------------------------------  ----  -----------------------------------  ---------------------------------- 
                                                   Non-underlying                       Non-underlying 
GBPm                            Note  Headline(2)        items(3)   Total  Headline(2)        items(3)  Total 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
 
Revenue                          2            747               -     747          695               -    695 
Group operating profit 
 / (loss)                        2             88            (17)      71           83            (16)     67 
Finance costs                    5            (8)               -     (8)          (2)               -    (2) 
Profit / (loss) before 
 tax                                           80            (17)      63           81            (16)     65 
Income tax expense               6           (15)               -    (15)         (15)               1   (14) 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
Profit / (loss) for the 
 period                                        65            (17)      48           66            (15)     51 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
 
Attributable to equity holders 
 of the parent                                 64            (17)      47           66            (15)     51 
Attributable to non-controlling 
 interests                                      1               -       1            -               -      - 
------------------------------------  -----------  --------------  ------  -----------  --------------  ----- 
                                               65            (17)      48           66            (15)     51 
 
 
  Earnings per share 
Basic                             8                                 41.6p                               47.2p 
Diluted                           8                                 41.2p                               46.8p 
 
Equity dividends per share(4)     7                                  0.0p                               17.2p 
 
 
 
 
 
 
 
 
 
 
 

(1) The Group has initially applied IFRS 16 at 1 September 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application (see Note 1).

(2) ' Headline' denotes an alternative performance measure. See Glossary on page 41 for definition of alternative performance measures.

(3) See Note 3 for an analysis of Non-underlying items. See Glossary on page 41 for definition of alternative performance measures.

(4) D ividend per share is the interim dividend. No interim dividend is proposed in the current period.

WH Smith PLC

Condensed Group Income Statement

For the 6 months to 29 February 2020

 
                                              6 months to 29 Feb                  12 months to 31 Aug 
                                                      2020                                2019 
                                                 (unaudited) (1)                        (audited) 
------------------------------  ----  -----------------------------------  ---------------------------------- 
                                                   Non-underlying                       Non-underlying 
GBPm                            Note  Headline(2)        items(3)   Total  Headline(2)        items(3)  Total 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
 
Revenue                          2            747               -     747        1,397               -  1,397 
Group operating profit 
 / (loss)                        2             88            (17)      71          160            (20)    140 
Finance costs                    5            (8)               -     (8)          (5)               -    (5) 
Profit / (loss) before 
 tax                                           80            (17)      63          155            (20)    135 
Income tax expense               6           (15)               -    (15)         (28)               1   (27) 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
Profit / (loss) for the 
 period                                        65            (17)      48          127            (19)    108 
------------------------------  ----  -----------  --------------  ------  -----------  --------------  ----- 
 
Attributable to equity holders 
 of the parent                                 64            (17)      47          125            (19)    106 
Attributable to non-controlling 
 interests                                      1               -       1            2               -      2 
------------------------------------  -----------  --------------  ------  -----------  --------------  ----- 
                                               65            (17)      48          127            (19)    108 
 
 
  Earnings per share 
Basic                             8                                 41.6p                               98.1p 
Diluted                           8                                 41.2p                               97.2p 
 
Equity dividends per share(4)     7                                  0.0p                               58.2p 
 
 
 
 
 
 
 
 
 
 
 

(1) The Group has initially applied IFRS 16 at 1 September 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application (see Note 1).

(2) ' Headline' denotes an alternative performance measure. See Glossary on page 41 for definition of alternative performance measures.

(3) See Note 3 for an analysis of Non-underlying items. See Glossary on page 41 for definition of alternative performance measures.

   (4)   No interim dividend is proposed in the current period. 

WH Smith PLC

Condensed Group Statement of Comprehensive Income

For the 6 months to 29 February 2020

 
                                                                                6 months    12 months 
                                                                                      to           to 
                                                                 6 months 
                                                                to 29 Feb         28 Feb       31 Aug 
                                                                     2020           2019         2019 
                                                              (unaudited) 
 GBPm                                                Note             (1)    (unaudited)    (audited) 
--------------------------------------------------  -----  --------------  -------------  ----------- 
 Profit for the period                                                 48             51          108 
--------------------------------------------------  -----  --------------  -------------  ----------- 
 Other comprehensive (loss) / income: 
 Items that will not be reclassified subsequently 
  to the income statement: 
 Actuarial losses on defined benefit pension 
  schemes                                             4               (1)            (1)          (3) 
                                                                      (1)            (1)          (3) 
 Items that may be reclassified subsequently 
  to the income statement: 
 (Losses) / gains on cash flow hedges 
 
   *    Net fair value (losses) / gains                               (9)            (1)            2 
                                                                        8              -            - 
   *    Reclassified and reported in goodwill 
 
   *    Reclassified and reported in inventories                        -              -          (1) 
 Exchange differences on translation of 
  foreign operations                                                  (8)            (7)           10 
--------------------------------------------------  -----  --------------  -------------  ----------- 
                                                                      (9)            (8)           11 
 
 Other comprehensive (loss) / income for 
  the period, net of tax                                             (10)            (9)            8 
--------------------------------------------------  -----  --------------  -------------  ----------- 
 Total comprehensive income for the period                             38             42          116 
--------------------------------------------------  -----  --------------  -------------  ----------- 
 Attributable to equity holders of the 
  parent                                                               37             42          114 
 Attributable to non-controlling interests                              1              -            2 
--------------------------------------------------  -----  --------------  -------------  ----------- 
                                                                       38             42          116 
--------------------------------------------------  -----  --------------  -------------  ----------- 
 

(1) The Group has initially applied IFRS 16 at 1 September 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application (see Note 1).

WH Smith PLC

Condensed Group Balance Sheet

As at 29 February 2020

 
                                                           At            At           At 
                                                  29 Feb 2020   28 Feb 2019  31 Aug 2019 
                                                  (unaudited)   (unaudited)    (audited) 
GBPm                                     Note             (1) 
-------------------------------------  -------  -------------  ------------  ----------- 
Non-current assets 
Goodwill                                  9               431           160          176 
Other intangible assets                   9                79            45           49 
Property, plant and equipment             9               228           193          201 
Right-of-use assets                       9               540             -            - 
Investments in joint ventures                               3             3            4 
Deferred tax assets                                         6             8            8 
Trade and other receivables                                10             9           10 
-------------------------------------  -------  -------------  ------------  ----------- 
                                                        1,297           418          448 
-------------------------------------  -------  -------------  ------------  ----------- 
Current assets 
Inventories                                               188           173          174 
Trade and other receivables                                77            67           73 
Derivative financial assets                                 1             -            2 
Current tax receivable                                     12             -            - 
Cash and cash equivalents                10                45            48           49 
-------------------------------------  -------  -------------  ------------  ----------- 
                                                          323           288          298 
-------------------------------------  -------  -------------  ------------  ----------- 
Total assets                                            1,620           706          746 
-------------------------------------  -------  -------------  ------------  ----------- 
Current liabilities 
Trade and other payables                                (205)         (216)        (250) 
Bank overdrafts and other borrowings     10              (45)          (57)         (15) 
Retirement benefit obligations            4               (1)           (1)          (1) 
Lease liability                          10             (126)           (5)          (5) 
Current tax liabilities                                     -          (11)          (7) 
Short-term provisions                                       -           (1)          (1) 
                                                        (377)         (291)        (279) 
 
Non-current liabilities 
Bank loans and other borrowings          10             (400)         (200)        (200) 
Retirement benefit obligations            4               (3)           (3)          (3) 
Long-term provisions                                      (2)           (3)          (4) 
Lease liability                          10             (451)           (7)          (9) 
Deferred tax liabilities                                 (14)           (2)          (3) 
Other non-current liabilities                            (12)          (12)         (11) 
-------------------------------------  -------  -------------  ------------  ----------- 
                                                        (882)         (227)        (230) 
-------------------------------------  -------  -------------  ------------  ----------- 
Total liabilities                                     (1,259)         (518)        (509) 
-------------------------------------  -------  -------------  ------------  ----------- 
Total net assets                                          361           188          237 
-------------------------------------  -------  -------------  ------------  ----------- 
 
Capital and reserves 
Called up share capital                  12                25            24           24 
Share premium                                             160             8            9 
Capital redemption reserve                                 13            13           13 
Translation reserve                                       (1)           (9)            8 
Other reserve                                           (276)         (274)        (274) 
Retained earnings                                         435           424          455 
-------------------------------------  -------  -------------  ------------  ----------- 
Total equity attributable to equity 
 holders of the parent                                    356           186          235 
-------------------------------------  -------  -------------  ------------  ----------- 
Non-controlling interest                                    5             2            2 
-------------------------------------  -------  -------------  ------------  ----------- 
Total equity                                              361           188          237 
-------------------------------------  -------  -------------  ------------  ----------- 
 
 

(1) The Group has initially applied IFRS 16 at 1 September 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application (see Note 1).

WH Smith PLC

Condensed Group Cash Flow Statement

For the 6 months to 29 February 2020

 
                                                          6 months to            12 months 
                                                                                        to 
GBPm                                                29 Feb 2020   28 Feb 2019  31 Aug 2019 
                                                    (unaudited)   (unaudited)    (audited) 
                                             Note           (1) 
-------------------------------------------  ----  ------------  ------------  ----------- 
Operating activities 
Cash generated from operating activities      11             79            50          153 
Interest paid                                               (6)           (2)          (4) 
-------------------------------------------  ----  ------------  ------------  ----------- 
Net cash inflow from operating activities                    73            48          149 
-------------------------------------------  ----  ------------  ------------  ----------- 
Investing activities 
Purchase of property, plant and equipment                  (35)          (26)         (47) 
Purchase of intangible assets                               (6)           (5)         (12) 
Acquisition of subsidiaries, net of 
 cash acquired                                            (316)         (161)        (161) 
Acquisition of investments in joint 
 ventures                                                     -           (1)            - 
Net cash outflow from investing activities                (357)         (193)        (220) 
-------------------------------------------  ----  ------------  ------------  ----------- 
Financing activities 
Dividend paid                                 7            (47)          (41)         (60) 
Distributions to non-controlling interests                  (1)             -          (2) 
Issue of share capital                                      152             -            - 
Issue of new shares for employee share 
 schemes                                                      -             -            1 
Purchase of own shares for cancellation                       -          (25)         (32) 
Purchase of own shares for employee 
 share schemes                                              (1)           (5)          (7) 
Proceeds from borrowings                                    230           224          182 
Financing arrangement fees                                  (1)           (1)          (1) 
Repayments of obligations under leases                     (51)           (3)          (6) 
Net cash inflow from financing activities                   281           149           75 
-------------------------------------------  ----  ------------  ------------  ----------- 
 
Net (decrease) / increase in cash 
 and cash equivalents in the period                         (3)             4            4 
-------------------------------------------  ----  ------------  ------------  ----------- 
 
Opening cash and cash equivalents                            49            45           45 
Effect of movements in foreign exchange 
 rates                                                      (1)           (1)            - 
-------------------------------------------  ----  ------------  ------------  ----------- 
Closing cash and cash equivalents                            45            48           49 
-------------------------------------------  ----  ------------  ------------  ----------- 
 
 

WH Smith PLC

Condensed Group Cash Flow Statement (continued)

For the 6 months to 29 February 2020

Reconciliation of net cash flow to movement in net debt

 
 
                                                            6 months to            12 months 
                                                                                          to 
---------------------------------------------  ----  --------------------------  ----------- 
                                                      29 Feb 2020   28 Feb 2019  31 Aug 2019 
                                                      (unaudited)   (unaudited)    (audited) 
GBPm                                           Note           (1) 
---------------------------------------------  ----  ------------  ------------  ----------- 
Net debt at beginning of the period                         (180)           (2)          (2) 
Impact of adoption of IFRS 16                   1           (479)             -            - 
Lease liability acquired through business 
 combination                                    15           (98)             -            - 
Net (decrease) / increase in cash 
 and cash equivalents                                         (3)             4            4 
Increase in debt                                            (230)         (224)        (182) 
Net movement in lease liability                                12             2            - 
Effect of movements in foreign exchange 
 rates                                                          1           (1)            - 
---------------------------------------------  ----  ------------  ------------  ----------- 
Net debt at end of the period                   10          (977)         (221)        (180) 
---------------------------------------------  ----  ------------  ------------  ----------- 
 
 

(1) The Group has initially applied IFRS 16 at 1 September 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of applying IFRS 16 is recognised in Retained earnings at the date of initial application (see Note 1).

WH Smith PLC

Condensed Group Statement of Changes in Equity

For the 6 months to 29 February 2020

 
                       Called                                                              Total 
                           up                                                             equity 
                        share                                                       attributable 
                      capital                                                          to equity 
                          and       Capital                                              holders 
                        share    redemption   Translation        Other   Retained         of the   Non-controlling    Total 
 GBPm                 premium       reserve      reserves   reserve(1)   earnings         parent          interest   equity 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Balance at 1 
  September 
  2019                     33            13             8        (274)        455            235                 2      237 
 Impact of adoption 
  of 
  IFRS 16                   -             -             -            -       (22)           (22)                 -     (22) 
 Profit for the 
  period                    -             -             -            -         47             47                 1       48 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Other 
 comprehensive 
 income/(expense): 
 Actuarial losses 
  on 
  defined benefit 
  pension 
  schemes                   -             -             -            -        (1)            (1)                 -      (1) 
 Cash flow hedges           -             -             -          (1)          -            (1)                 -      (1) 
 Exchange 
  differences 
  on translation of 
  foreign 
  operations                -             -           (8)            -          -            (8)                 -      (8) 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income for the 
  period                    -             -           (8)          (1)         46             37                 1       38 
 
 Recognition of 
  share-based 
  payments                  -             -             -            -          2              2                 -        2 
 Dividends paid 
  (Note 
  7)                        -             -             -            -       (47)           (47)                 -     (47) 
 Employee share 
  schemes                   -             -             -          (1)          -            (1)                 -      (1) 
 Issue of shares          152             -             -            -          -            152                 -      152 
 Non-controlling 
  interest 
  arising on 
  acquisition               -             -             -            -          -              -                 2        2 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Balance at 29 
  February 
  2020 (unaudited)        185            13             -        (276)        434            356                 5      361 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 
 Balance at 1 
  September 
  2018                     32            13           (2)        (268)        437            212                 -      212 
 Profit for the 
  period                    -             -             -            -         51             51                 -       51 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Other 
 comprehensive 
 income/(expense): 
 Actuarial losses 
  on 
  defined benefit 
  pension 
  schemes                   -             -             -            -        (1)            (1)                 -      (1) 
 Cash flow hedges           -             -             -          (1)          -            (1)                 -      (1) 
 Exchange 
  differences 
  on translation of 
  foreign 
  operations                -             -           (7)            -          -            (7)                 -      (7) 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income for the 
  period                    -             -           (7)          (1)         50             42                 -       42 
 Recognition of 
  share-based 
  payments                  -             -             -            -          3              3                 -        3 
 Dividends paid 
  (Note 
  7)                        -             -             -            -       (41)           (41)                 -     (41) 
 Employee share 
  schemes                   -             -             -          (5)          -            (5)                 -      (5) 
 Purchase of own 
  shares 
  for cancellation          -             -             -            -       (25)           (25)                 -     (25) 
 Non-controlling 
  interest 
  arising on 
  acquisition               -             -             -            -          -              -                 2        2 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Balance at 28 
  February 
  2019 (unaudited)         32            13           (9)        (274)        424            186                 2      188 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 
 Balance at 1 
  September 
  2018                     32            13           (2)        (268)        437            212                 -      212 
 Profit for the 
  year                      -             -             -            -        106            106                 2      108 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Other 
 comprehensive 
 income/(expense): 
 Actuarial losses 
  on 
  defined benefit 
  pension 
  schemes                   -             -             -            -        (3)            (3)                 -      (3) 
 Cash flow hedges           -             -             -            1          -              1                 -        1 
 Exchange 
  differences 
  on translation of 
  foreign 
  operations                -             -            10            -          -             10                 -       10 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income for the 
  year                      -             -            10            1        103            114                 2      116 
 Recognition of 
  share-based 
  payments                  -             -             -            -          6              6                 -        6 
 Dividends paid 
  (Note 
  7)                        -             -             -            -       (60)           (60)                 -     (60) 
 Employee share 
  schemes                   -             -             -          (7)          -            (7)                 -      (7) 
 Non-controlling 
  interest 
  arising on an 
  acquisition               -             -             -            -          -              -                 2        2 
 Distributions to 
  non-controlling 
  interests                 -             -             -            -          -              -               (2)      (2) 
 Premium on issue 
  of 
  shares                    1             -             -            -          -              1                 -        1 
 Purchase of own 
  shares 
  for cancellation          -             -             -            -       (31)           (31)                 -     (31) 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Balance at 31 
  August 
  2019 (audited)           33            13             8        (274)        455            235                 2      237 
-------------------  --------  ------------  ------------  -----------  ---------  -------------  ----------------  ------- 
 

(1) Other reserve includes Revaluation reserve of GBP2m (August 2019: GBP2m), ESOP reserve of (GBP2m) (August 2019: (GBP6m)), hedging reserve of GBP1m (August 2019: GBP2m) and Other reserves of (GBP277m) (August 2019: (GBP272m)). The 'Other' reserve includes reserves created in relation to the historical capital reorganisation, proforma restatement and the demerger from Connect Group PLC (formerly Smiths News PLC) in 2006.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval 
       of Interim Statement 
 

The Condensed Interim Financial Statements for the 6 months ended 29 February 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting" as adopted by the European Union. This report should be read in conjunction with the Group's Annual Report and Accounts 2019, which have been prepared in accordance with IFRSs as adopted by the European Union.

The financial information set out in this report does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The Annual Report and Accounts 2019 have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

The Condensed Interim Financial Statements have been prepared in accordance with the accounting policies set out in the 2019 Annual Report and Accounts and it is these accounting policies which are expected to be followed in the preparation of the full financial statements for the financial year ended 31 August 2020, except as outlined below.

Taxes on income in the interim period are accrued using the tax rate that would be applicable to the expected total annual profit or loss.

The Group has adopted the following standards and interpretations which became mandatory for the first time during the current financial year. Except as outlined below the adoption of these standards has had no material impact on the Group.

 
 IFRS 16               Leases 
 IFRIC 23              Uncertainty over Income Tax Treatment 
 Amendment to IFRS     Financial instruments - Prepayment features 
  9                     with negative compensation 
 Amendments to IAS     Investments in associates - Long term interests 
  28                    in associates and joint ventures 
 Amendments to IAS     Employee benefits - Plan amendment, curtailment 
  19                    or settlement 
 Annual Improvements   2015-2017 cycle 
 

At the Group balance sheet date, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

 
 IFRS 17                     Insurance Contracts 
 IFRS 14                     Regulatory Deferral Accounts 
 Amendments to IFRS 9, IAS   Interest Rate Benchmark Reform 
  39 and IFRS 7 
 Amendments to IFRS 3        Definition of a Business 
 Amendments to IAS 1         Classification of liabilities as current 
                              or non-current 
 Amendments to IFRS 10 and   Sale of assets between investor and 
  IAS 28                      its Associate or JV 
 Amendments to IAS 1 and     Definition of Material 
  IAS 8 
 Amendments to Conceptual    References in IFRS Standards 
  Framework 
 
 

The directors anticipate that the adoption of these standards and interpretations will have no material impact on the Group's financial statements.

IFRS 16 Leases

The Group has applied IFRS 16 effective from 1 September 2019 which superseded the lease guidance under IAS 17 and the related interpretation.

Nature of change

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model as the distinction between operating and finance leases is removed. The only exceptions are short-term and low-value leases.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval of Interim 
       Statement (continued) 
 

At the commencement date of a lease, a lessee will recognise a lease liability for the future lease payments and an asset (right-of-use asset) representing the right to use the underlying asset during the lease term. Lessees are required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. There will be no impact on cash flows, although the presentation of the Cash Flow Statement will change, with an increase in net cash inflows from operating activities being offset by an increase in net cash outflows from financing activities.

Impact on the Group

The standard has primarily affected the accounting for the group's operating leases relating to properties.

The Group has applied the simplified transition approach (modified retrospective approach) and recognised the lease liability on transition at the present value of the remaining lease payments, discounted using the incremental borrowing rate (IBR) at the date of transition. Right of use assets are measured at either:

- their carrying amount as if IFRS 16 had been applied since the lease commencement date, discounted by the Group's incremental borrowing rate at transition date. The Group has applied this methodology to a small number of its property leases where sufficient historical information has been available to facilitate this.

- an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. The Group has applied this methodology to the majority of its leases as the sufficient historical data was not available to enable a retrospective calculation.

The weighted average discount rate applied on transition date is 1.78%.

The Group has not restated comparatives and the cumulative effect of initially applying IFRS 16 is recognised as an adjustment to the opening reserves at the date of transition.

The Group has elected to apply the following practical expedients as allowed under IFRS 16:

- Exclude short-term leases (lease with a remaining term of less than one-year) and low-value assets (defined as less than $5,000 at initial cost);

- Rely on its assessment of whether leases are onerous immediately before the date of transition as an alternative to performing an impairment review. This is applied on a lease by lease basis;

- Exclude initial direct costs from the measurement of the right-of-use asset on transition; and

- The use of hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.

The Group has not applied the practical expedient of placing reliance on the previous identification of a lease under IAS 17 but has assessed all its existing lease contracts to determine whether they meet the new definition of a lease and therefore fall within the scope of IFRS 16. This has resulted in multiple contracts, where the lessor is considered to have substantive substitution rights over the associated assets, falling outside the scope of IFRS 16. In addition to this, where Group has not taken the practical expedient of taking an onerous lease provision under IAS 37 as a proxy to the opening impairment charge, the Group has undertaken the impairment review at the date of transition. These are explained further below under section "key areas of judgement".

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval of Interim 
       Statement (continued) 
 

Impact on the financial statements

   (i)            Balance Sheet impact on transition 
 
                                                               At      IFRS 16            At 
                                                      31 Aug 2019   Adjustment    1 Sep 2019 
GBPm                                                    (Audited)                (unaudited) 
-------------------------------------  ------------  ------------  -----------  ------------ 
Non-current assets 
Goodwill                                                      176            -           176 
Other intangible assets                                        49            -            49 
Property, plant and equipment (1)                             201         (18)           183 
Right-of-use assets                                             -          457           457 
Investments in joint ventures                                   4            -             4 
Deferred tax assets (2)                                         8            4            12 
Trade and other receivables                                    10            -            10 
---------------------------------------------------  ------------  -----------  ------------ 
                                                              448          443           891 
 --------------------------------------------------  ------------  -----------  ------------ 
Current assets 
Inventories                                                   174            -           174 
Trade and other receivables (3)                                73          (3)            70 
Derivative financial assets                                     2            -             2 
Cash and cash equivalents                                      49            -            49 
---------------------------------------------------  ------------  -----------  ------------ 
                                                              298          (3)           295 
 --------------------------------------------------  ------------  -----------  ------------ 
Total assets                                                  746          440         1,186 
---------------------------------------------------  ------------  -----------  ------------ 
Current liabilities 
Trade and other payables (4)                                (250)           15         (235) 
Bank overdrafts and other borrowings                         (15)            -          (15) 
Retirement benefit obligations                                (1)            -           (1) 
Obligations under finance leases 
 (5)                                                          (5)            5             - 
Lease liability                                                 -        (108)         (108) 
Current tax liabilities                                       (7)            -           (7) 
Short-term provisions                                         (1)            -           (1) 
                                                            (279)         (88)         (367) 
 
Non-current liabilities 
Retirement benefit obligations                                (3)            -           (3) 
Bank overdrafts and other borrowings                        (200)            -         (200) 
Long-term provisions (6)                                      (4)            2           (2) 
Obligations under finance leases 
 (5)                                                          (9)            9             - 
Lease liability                                                 -        (385)         (385) 
Deferred tax liabilities                                      (3)            -           (3) 
Other non-current liabilities                                (11)            -          (11) 
---------------------------------------------------  ------------  -----------  ------------ 
                                                            (230)        (374)         (604) 
 --------------------------------------------------  ------------  -----------  ------------ 
Total liabilities                                           (509)        (462)         (971) 
---------------------------------------------------  ------------  -----------  ------------ 
Total net assets                                              237         (22)           215 
---------------------------------------------------  ------------  -----------  ------------ 
 
Capital and reserves 
Called up share capital                                        24            -            24 
Share premium                                                   9            -             9 
Capital redemption reserve                                     13            -            13 
Translation reserve                                             8            -             8 
Other reserve                                               (274)            -         (274) 
Retained earnings                                             455         (22)           433 
---------------------------------------------------  ------------  -----------  ------------ 
Total equity attributable 
 to equity holders of the parent                              235         (22)           213 
---------------------------------------------------  ------------  -----------  ------------ 
Non-controlling interest                                        2            -             2 
---------------------------------------------------  ------------  -----------  ------------ 
Total equity                                                  237         (22)           215 
---------------------------------------------------  ------------  -----------  ------------ 
 
 

(1) In respect of transfer of former finance leases and impairment on the date of initial application of IFRS 16.

(2) Deferred tax recognised on transition impact on opening retained earnings.

(3) Adjustment mainly in respect of prepaid rent.

(4) Adjustment in respect of lease incentive and rent accrual.

(5) Adjustment in respect of former finance lease liability now reclassified as lease liability.

(6) Adjustment in respect of onerous lease provision.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval of Interim 
       Statement (continued) 
 

The table below shows a reconciliation from the total operating lease commitment as disclosed at 31 August 2019 to the total lease liability recognised in the financial statements on the date of transition:

 
                                                               At 1 Sep 2019 
                                                                       GBP'm 
 Operating lease commitment at 31 August 2019 as 
  disclosed in the Group's consolidated financial 
  statements                                                             986 
-----------------------------------------------------------  --------------- 
 Discounted using the incremental borrowing rate 
  at 1 September 2019                                                    920 
 Leases where landlords have substantive substitution 
  rights (i.e., leases outside the scope of IFRS 16)(1)                (412) 
 Leases with variable lease payment(2)                                  (12) 
 Recognition exemption for short-term leases(3)                         (10) 
 Extension options reasonably certain to be exercised(4)                   4 
 Termination options reasonably certain to be exercised(4)              (11) 
-----------------------------------------------------------  --------------- 
 Additional lease liabilities recognised at 1 September 
  2019                                                                   479 
 Finance lease liabilities as at 31 August 2019                           14 
 Total Lease liabilities recognised at 1 September 
  2019                                                                   493 
-----------------------------------------------------------  --------------- 
 

(1) Contracts that were considered to be a lease under IAS 17 which do not meet the definition of a lease under IFRS 16, principally because the owner/suppler is considered to have substantive substitution rights over the associated assets. This is explained further below under the section "key areas of judgement".

(2) Contracts where the minimum lease payments are dependent upon a variable factor and therefore the lease payments are in substance variable in nature.

(3) The Group has applied the practical expedient to classify leases for which the leases term ends within 12 months of the date of initial application of IFRS 16 as short-term leases. The Group has also applied the recognition exemption for short term leases.

(4) Previously, lease commitments only included non-cancellable periods in the lease agreements. Under IFRS 16, the lease term includes period covered by options to extend or terminate the lease where the Group is reasonably certain that such options will be exercised.

   (ii)         Income statement impact 

As a result of applying IFRS 16, the Group has recognised depreciation and interest costs in respect of leases that are within the scope of IFRS 16 (which were previously classified as operating leases), rather than rental expense. During the period ended 29 February 2020, the Group recognised GBP48m of additional depreciation charges and GBP4m of additional interest costs in respect of these leases instead of recognising the rental expense of GBP52m, resulting in a net nil impact on profit.

   (iii)        Cash flow impact 

As a result of applying IFRS 16, there is an increase in net cash inflows from operating activities by GBP48m being offset by an increase in net cash outflows from financing activities by GBP48m. There is no impact on the net cash flow.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval of Interim 
       Statement (continued) 
 

Key areas of judgement in applying IFRS 16

Substantive substitution rights

Judgement is involved in determining whether a contract meets the definition of a lease under IFRS 16. Management has determined that certain lease contracts give the lessor substantive substitution rights because the contract gives the lessor rights to relocate the retail space occupied by the lessee. In such cases, management has concluded that there is not an identified asset and therefore such contracts are outside the scope of IFRS 16.

Determination of Incremental Borrowing Rate (IBR)

The application of IFRS 16 required judgement around the calculation of the IBR. This has been determined on a lease-by-lease basis based on the right-of-use asset in a similar economic environment and taking into account the risk-free rate, adjusted for factors such as the credit rating and the lease term.

Determination of lease term

In determining the lease term for contracts that have options to extend or terminate early, management has applied judgement in determining the likelihood of whether such options will be exercised. This is based on the length of time remaining before the option is exercisable, performance of the individual store and the trading forecasts.

Impairment assessment

The right of use asset is tested for impairment on a lease by lease basis as at the transition date in accordance with IAS 36. Each store is regarded to be a cash generating unit. In estimating the future net cashflow, judgement is made around the lease term and estimated profit growth which is based on the underlying economics of the individual stores such as the store contribution and location. As part of estimating the value-in-use, future cash flows for each store are discounted based on the Group's weighted average cost of capital which is determined based on factors such as risk-free rate and risk premium.

The Group has recorded an impairment of GBP21m to the right-of-use assets and fixed assets with a corresponding adjustment to the opening reserves. The impairment predominantly resulted from the application of different discount rates in line with the applicable accounting standards. IFRS 16 requires using an incremental borrowing rate based on which the right-of-use assets is recorded whereas the value-in-use calculation under IAS 36 requires the cash flow to be discounted using a pre-tax discount rate, for which we have used the pre-tax weighted average cost of capital. The application of these standards caused an impairment on numerous right-of-use assets and fixed assets.

All accounting policies in respect of lease accounting will be updated to reflect the application of IFRS 16 in the consolidated financial statements for the year ended 31 August 2020.

Other key areas of judgement

Following the acquisition of MRG on 20(th) December 2019, we classified the business of the newly acquired entity into our Travel segment. This is considered appropriate as MRG shares similar economic characteristics with the Travel segment, and its operations are managed within Travel. Goodwill arising on the acquisition has been allocated to the group of Travel cash generating units.

Following the outbreak of Covid-19, we have undertaken an assessment of events after the end of the reporting period to ascertain if any of these events provide further information with respect to conditions existing at the balance sheet date. Following our review, we have concluded that apart from our Asia Pacific businesses, the events linked to the Covid-19 pandemic that have occurred after the balance sheet date are non-adjusting under IAS 10 'Events after the end of the reporting period'. We have reached this conclusion based on a detailed review of factors that existed at the period end in each of our key jurisdictions, including government action taken on free movement of people, and action by airlines to suspend international flights.

Following a full review of the assets the Group held in the Asia Pacific region as at the balance sheet date, we recognised a GBP3m non-cash impairment charge of property, plant and equipment in our Singapore locations. This charge is recorded in non-underlying items in the Group Income statement. See page 26 and Note 3 for further details of non-underlying items.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 1.   Basis of preparation, Accounting policies and Approval of Interim 
       Statement (continued) 
 

Alternative performance measures

The Group has identified certain alternative performance measures ("APMs") that it believes will assist the understanding of the performance of the business. The Group believes that High Street and Travel trading profit, Group profit from trading operations, Fixed charges cover, Gross margin, Like-for-like revenue, Free cash flow, Return on capital employed and Net debt provide useful information to users of the financial statements. The terms are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, IFRS measures. Many of these APMs will be used on both an IFRS basis and on an IAS 17 basis (i.e. before the impact of IFRS 16). The Group has defined and outlined the purpose of its APMs in the Glossary on page 41.

Non-underlying items

The Group has chosen to present a Headline measure of profit and earnings per share which excludes certain items, which are considered non-underlying and exceptional due to their size, nature or incidence, and are not considered to be part of the normal operating costs of the Group. These costs may include the financial effect of non-underlying items which are considered exceptional and/or occur infrequently such as, inter alia, restructuring costs, impairment charges and onerous lease charges, amortisation of acquired intangibles, costs relating to business combinations, and the related tax effect of these items. The Group believes that they provide additional useful information to users of the financial statements to enable a better understanding of the Group's underlying financial performance.

Further details of the non-underlying items are provided in Note 3.

Going concern

The directors are required to assess whether the Group can continue to operate for the 12 months from the date of approval of these financial statements, and to prepare the financial statements on a going concern basis. The directors report that they have re-assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure, and borrowing facilities. The directors have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the interim financial information, having undertaken a rigorous assessment of the financial forecasts particularly in the context of the ongoing Covid-19 pandemic, for the reasons set out below.

The Group Overview describes the Group's financial position, cash flows and borrowing facilities and also highlights the principal risks and uncertainties facing the Group. The Group has acted quickly to mitigate the impact of Covid-19 by taking steps to strengthen our balance sheet and to ensure access to further funding. As announced on 6th April 2020, we have raised c.GBP162m of additional funding via a share placing. In addition, we have agreed a GBP120m 12 month (plus 7 months at the option of the Group) committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC. This is in addition to our existing facilities. The Group has reached an agreement with its lenders to waive all covenants on these facilities for August 2020 and February 2021.

The Group Overview also sets out the Group's business activities together with the factors that are likely to affect its future developments, performance and position. The Annual Report and Accounts 2019 includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. Whilst Covid-19 did not have a significant impact on our results for the six months to 29 February 2020, it has significantly impacted our business after the end of the reporting period. At present, the majority of our stores are temporarily closed, apart from our locations that are providing essential services such as our Hospital stores, and our High Street stores with Post Offices.

The Group has undertaken a detailed exercise to model the ongoing financial impact of Covid-19, particularly on the Group's liquidity. This modelling has included a number of "downside" scenarios involving assumptions in respect of the speed of store re-openings and the extent to which trading recovers. In preparing this sensitivity analysis, we have used severe but plausible assumptions. Under the most extreme scenario modelled, being a prolonged closure of our stores, the Group has sufficient financial resources to meet its obligations for the 12 months from the date of approval of these financial statements.

The Condensed Interim Financial Statements are unaudited but have been reviewed by our auditors and were approved by the Board of Directors on 14 May 2020.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 2.   Segmental analysis of results 
 

For management and financial reporting purposes, the Group is organised into two operating divisions and reportable segments - High Street and Travel. The Group's operating segments are based on the reports reviewed by the Board of Directors (who are collectively considered to be the chief operating decision maker) to make strategic decisions and allocate resources.

Following the acquisition of MRG on 20th December 2019, we classified the business of the newly acquired entity into our Travel segment. This is considered appropriate as MRG shares similar economic characteristics with the Travel segment, and its operations are managed within Travel. Goodwill arising on the acquisition has been allocated to the group of Travel cash generating units.

IFRS 8 requires segment information to be presented on the same basis as that used by the Board for assessing performance and allocating resources.

 
a)   Group revenue 
 
 
                          6 months to             12 months 
                                                         to 
---------------  ----------------------------  ------------ 
                   29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm              (unaudited)    (unaudited)     (audited) 
---------------  -------------  -------------  ------------ 
 Travel                    432            364           817 
 High Street               315            331           580 
 Group revenue             747            695         1,397 
---------------  -------------  -------------  ------------ 
 

Seasonality

Sales in the High Street business are subject to seasonal fluctuations, with peak demand in the Christmas trading period, which falls in the first half of the Group's financial year. Sales in the Travel business are also subject to seasonal fluctuations, with higher demand during peak travel periods particularly during the summer holiday months.

 
b)   Group results 
 
 
                                                 6 months to              12 months 
                                                                                 to 
--------------------------------------  -----------------------------  ------------ 
                                           29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm                                      (unaudited)    (unaudited)     (audited) 
--------------------------------------  --------------  -------------  ------------ 
 Travel trading profit                              50             44           117 
 High Street trading profit                         47             48            60 
 Group profit from trading operations               97             92           177 
 Unallocated costs                                 (9)            (9)          (17) 
--------------------------------------  --------------  -------------  ------------ 
 Headline Group operating profit                    88             83           160 
 Non-underlying items (Note 3)                    (17)           (16)          (20) 
--------------------------------------  --------------  -------------  ------------ 
 Group operating profit                             71             67           140 
 Finance costs                                     (8)            (2)           (5) 
 Income tax expense                               (15)           (14)          (27) 
 Profit for the period                              48             51           108 
--------------------------------------  --------------  -------------  ------------ 
 

Included within Travel revenue and Trading profit is International revenue of GBP161m (2019: GBP104m) and International Trading profit of GBP10m (2019: GBP6m). International revenue includes revenue from the USA of GBP84m (2019: GBP30m).

Group profit before finance charges and taxation for the period to 29 February 2020 is stated after the write-down of inventories to net realisable value of GBP2m (2019: GBP1m).

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 2.   Segmental analysis of results (continued) 
 
 
c)   Balance sheet 
 
 
                                          As at 29 Feb 2020 
GBPm                          Travel      High Street   Group 
--------------------------  --------  ---------------  ------ 
Assets 
Segment assets                 1,048              530   1,578 
Unallocated assets                 -                -      42 
--------------------------  --------  ---------------  ------ 
Consolidated total assets      1,048              530   1,620 
--------------------------  --------  ---------------  ------ 
 
 
Liabilities 
Segment liabilities              (422)  (374)    (796) 
Unallocated liabilities              -      -    (463) 
-------------------------------  -----  -----  ------- 
Consolidated total liabilities   (422)  (374)  (1,259) 
-------------------------------  -----  -----  ------- 
Net assets                         626    156      361 
-------------------------------  -----  -----  ------- 
 
 
                                          As at 28 Feb 2019 
GBPm                          Travel      High Street   Group 
--------------------------  --------  ---------------  ------ 
Assets 
Segment assets                   381              271     652 
Unallocated assets                 -                -      54 
--------------------------  --------  ---------------  ------ 
Consolidated total assets        381              271     706 
--------------------------  --------  ---------------  ------ 
 
 
Liabilities 
Segment liabilities              (101)  (126)  (227) 
Unallocated liabilities              -      -  (291) 
-------------------------------  -----  -----  ----- 
Consolidated total liabilities   (101)  (126)  (518) 
-------------------------------  -----  -----  ----- 
Net assets                         280    145    188 
-------------------------------  -----  -----  ----- 
 
 
                                          As at 31 Aug 2019 
GBPm                          Travel      High Street   Group 
--------------------------  --------  ---------------  ------ 
Assets 
Segment assets                   410              282     692 
Unallocated assets                 -                -      54 
--------------------------  --------  ---------------  ------ 
Consolidated total assets        410              282     746 
--------------------------  --------  ---------------  ------ 
 
 
Liabilities 
Segment liabilities              (138)  (126)  (264) 
Unallocated liabilities              -      -  (245) 
-------------------------------  -----  -----  ----- 
Consolidated total liabilities   (138)  (126)  (509) 
-------------------------------  -----  -----  ----- 
Net assets                         272    156    237 
-------------------------------  -----  -----  ----- 
 

Segment assets include intangible assets, property, plant and equipment, inventories and receivables. Segment liabilities comprise operating liabilities.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 3.   Non-underlying items 
 

Items which are not considered part of the normal operating costs of the business are non-recurring and are considered exceptional because of their size, nature and incidence, are treated as non-underlying items and disclosed separately. Further details of the non-underlying items are included in Note 1, and in the Group Overview on page 8.

 
                                                    6 months to              12 months 
                                                                                    to 
-----------------------------------------  -----------------------------  ------------ 
                                              29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm                                         (unaudited)    (unaudited)     (audited) 
-----------------------------------------  --------------  -------------  ------------ 
 Costs relating to business combinations               13              8            11 
 Amortisation of acquired intangible 
  assets                                                1              1             2 
 Impairment of property, plant and                      3              -             - 
  equipment 
 High Street business review                            -              7             7 
                                                       17             16            20 
-----------------------------------------  --------------  -------------  ------------ 
 

During the period, we incurred transaction and integration costs of GBP13m in relation to the acquisition of Marshall Retail Group (MRG) which completed on 20 December 2019, as well as the amortisation of intangible assets relating to the InMotion and MRG brands.

As discussed on page 25, we have concluded that the impact of government actions to control the spread of Covid-19 in our Asia Pacific businesses is an adjusting post balance sheet event. As a result, a non-cash impairment charge of property, plant and equipment of GBP3m has been recorded in the Group income statement in relation to our Singapore business.

Non-underlying items in 2019 relate to the acquisition and integration of InMotion and the review of our High Street business.

 
 4.   Retirement benefit obligations 
 

WH Smith PLC has operated a number of defined benefit schemes (which are closed to new entrants and future service accrual) and defined contribution pension schemes. The main pension arrangements for employees are operated through a defined contribution scheme, WH Smith Retirement Savings Plan, and a defined benefit scheme, WHSmith Pension Trust. The most significant scheme is the defined benefit WHSmith Pension Trust.

The retirement benefit obligations recognised in the balance sheet for the respective schemes at the relevant reporting dates were:

 
                                                     At            At            At 
                                            29 Feb 2020   28 Feb 2019   31 Aug 2019 
GBPm                                        (unaudited)   (unaudited)     (audited) 
-----------------------------------------  ------------  ------------  ------------ 
WHSmith Pension Trust                               (3)           (3)           (3) 
United News Shops Retirement Benefits 
 Scheme                                             (1)           (1)           (1) 
-----------------------------------------  ------------  ------------  ------------ 
Retirement benefit obligation recognised 
 in the balance sheet                               (4)           (4)           (4) 
-----------------------------------------  ------------  ------------  ------------ 
 

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 4.   Retirement benefit obligations (continued) 
 

WHSmith Pension Trust

The market value of the assets and the present value of the liabilities in the scheme at the relevant reporting dates were:

 
GBPm                                                 At            At            At 
                                            29 Feb 2020   28 Feb 2019   31 Aug 2019 
                                            (unaudited)   (unaudited)     (audited) 
-----------------------------------------  ------------  ------------  ------------ 
Present value of the obligations                (1,103)         (994)       (1,107) 
Fair value of plan assets                         1,405         1,262         1,461 
-----------------------------------------  ------------  ------------  ------------ 
Surplus before consideration of asset 
 ceiling                                            302           268           354 
Amounts not recognised due to effect 
 of asset ceiling                                 (302)         (268)         (354) 
Additional liability recognised due 
 to minimum funding requirements                    (3)           (3)           (3) 
-----------------------------------------  ------------  ------------  ------------ 
Retirement benefit obligation recognised 
 in the balance sheet                               (3)           (3)           (3) 
-----------------------------------------  ------------  ------------  ------------ 
 

Total (expense) / income recognised in the Statement of Comprehensive Income ("SOCI"):

 
                                                                               12 months 
                                                        6 months to                   to 
-----------------------------------------------  --------------------------  ----------- 
                                                  29 Feb 2020   28 Feb 2019  31 Aug 2019 
GBPm                                              (unaudited)   (unaudited)    (audited) 
-----------------------------------------------  ------------  ------------  ----------- 
Total actuarial loss before consideration 
 of asset ceiling                                         (6)          (20)        (141) 
(Loss) on plan assets excluding amounts 
 included in net interest cost                           (50)          (12)          190 
Gain / (loss) resulting from changes 
 in amounts not recognised due to effect 
 of asset ceiling excluding amounts 
 recognised in net interest cost                           55            31         (52) 
Gain resulting from changes in additional                   -             -            - 
 liability due to minimum funding requirements 
 excluding amounts recognised in net 
 interest cost 
Total actuarial loss recognised in 
 other comprehensive income                               (1)           (1)          (3) 
-----------------------------------------------  ------------  ------------  ----------- 
 

Actuarial losses recognised in the statement of comprehensive income on the United News Shops Retirement Benefits Scheme were GBPnil in the period to 29 February 2020 (28 February 2019: GBPnil).

Movement in net retirement benefit liability during the period:

 
                                                                         12 months 
                                                  6 months to                   to 
-----------------------------------------  --------------------------  ----------- 
GBPm                                        29 Feb 2020   28 Feb 2019  31 Aug 2019 
                                            (unaudited)   (unaudited)    (audited) 
-----------------------------------------  ------------  ------------  ----------- 
At beginning of period                              (3)           (3)          (3) 
Current service cost                                  -             -            - 
Net interest cost on the defined benefit              -             -            - 
 liability 
Contributions from sponsoring companies               1             1            3 
Actuarial losses on defined benefit 
 pension schemes                                    (1)           (1)          (3) 
-----------------------------------------  ------------  ------------  ----------- 
At end of period                                    (3)           (3)          (3) 
-----------------------------------------  ------------  ------------  ----------- 
 

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 4.   Retirement benefit obligations (continued) 
 

In accordance with the requirements of IFRIC 14 management has recognised the net present value of the schedule of contributions as a liability of GBP3m (2019: GBP3m). The defined benefit pension schemes are closed to further accrual and the present value of the economic benefits of the IAS 19 surplus in the pension scheme of GBP302m (2019: GBP268m) available as a reduction of future contributions is GBPnil (2019: GBPnil). As a result, the Group has not recognised this IAS 19 surplus on the balance sheet. There is an ongoing actuarial deficit primarily due to the different assumptions and calculation methodologies used compared to those on interpretation of IAS 19.

A full actuarial valuation of the Scheme is carried out every three years with interim reviews in the intervening years. The latest full actuarial valuation of the Pension Trust was carried out as at 31 March 2017 by independent actuaries using the projected unit credit method. Following the valuation, the deficit was GBP11m. The Group has agreed a revised annual funding schedule with the Trustees from September 2017 for the following six years, which includes the deficit recovery contributions and other running costs, of just under GBP3m. The next full actuarial valuation will be as at 31 March 2020.

During the period, the Group made a contribution of GBP1m to the WHSmith Pension Trust (2019: GBP1m) in accordance with the agreed pension deficit funding schedule. The Group expects the cash payments for the year ended 31 August 2020 to be approximately GBP3m in total in relation to the scheme (year ended 31 August 2019: GBP3m).

The principal long-term assumptions used in the IAS 19 valuation were:

 
                                               6 months to            12 months 
                                                                             to 
--------------------------------------  --------------------------  ----------- 
                                         29 Feb 2020   28 Feb 2019  31 Aug 2019 
%                                        (unaudited)   (unaudited)    (audited) 
--------------------------------------  ------------  ------------  ----------- 
Rate of increase in pension payments            2.95          3.22         3.13 
Rate of increase in deferred pensions           2.20          2.20         2.20 
Discount rate                                   1.70          2.75         1.85 
RPI Inflation assumption                        3.00          3.30         3.20 
CPI Inflation assumption                        2.20          2.20         2.20 
--------------------------------------  ------------  ------------  ----------- 
 
 
 5.   Finance costs 
 
 
                                                     6 months to             12 months 
                                                                                    to 
------------------------------------------  ----------------------------  ------------ 
                                              29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm                                         (unaudited)    (unaudited)     (audited) 
------------------------------------------  -------------  -------------  ------------ 
 Interest payable on bank loans and 
  overdrafts                                            4              2             5 
 Interest on lease liabilities                          4              -             - 
 Net interest cost on the defined benefit               -              -             - 
  pension liabilities 
                                                        8              2             5 
------------------------------------------  -------------  -------------  ------------ 
 

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 6.   Income tax expense 
 
 
                                                6 months to             12 months 
                                                                               to 
-------------------------------------  ----------------------------  ------------ 
                                         29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm                                    (unaudited)    (unaudited)     (audited) 
-------------------------------------  -------------  -------------  ------------ 
 Tax on profit                                     5             16            32 
 Adjustment in respect of prior year 
  UK corporation tax                               -            (1)           (4) 
-------------------------------------  -------------  -------------  ------------ 
 Total current tax charge                          5             15            28 
-------------------------------------  -------------  -------------  ------------ 
 Deferred tax - current year                      10              -           (1) 
 Deferred tax - prior year                         -              -             1 
-------------------------------------  -------------  -------------  ------------ 
 Tax on headline profit                           15             15            28 
-------------------------------------  -------------  -------------  ------------ 
 Tax on non-underlying items                       -            (1)           (1) 
-------------------------------------  -------------  -------------  ------------ 
 Total tax on profit                              15             14            27 
-------------------------------------  -------------  -------------  ------------ 
 

The effective tax rate, before non-underlying items, was 19% (2019: 18%). The UK corporation tax rate has been 19 per cent with effect from 1 April 2018. In the Spring Budget 2020, the Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather than reducing to 17%, as previously enacted). This new law was substantively enacted on 17 March 2020. As the proposal to keep the rate at 19% had not been substantively enacted at the balance sheet date, its effects are not included in these financial statements.

 
 7.   Dividends 
 

Amounts paid and recognised as distributions to shareholders in the period are as follows:

 
                                               6 months to             12 months 
                                                                              to 
------------------------------------  ----------------------------  ------------ 
                                        29 Feb 2020    28 Feb 2019   31 Aug 2019 
                                                                       (audited) 
 GBPm                                   (unaudited)    (unaudited) 
------------------------------------  -------------  -------------  ------------ 
 Dividends 
 2018 Final dividend of 38.1p per 
  ordinary share                                  -             41            41 
 2019 Interim dividend of 17.2p per 
  ordinary share                                  -              -            19 
 2019 Final dividend of 41.0p per                47              -             - 
  ordinary share 
                                                 47             41            60 
------------------------------------  -------------  -------------  ------------ 
 

The directors have not declared an interim dividend in respect of the period ending 29 February 2020.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 8.   Earnings per share 
 
 
 a)   Earnings 
 
 
                                                  6 months to             12 months 
                                                                                 to 
---------------------------------------  ----------------------------  ------------ 
                                           29 Feb 2020    28 Feb 2019   31 Aug 2019 
 GBPm                                      (unaudited)    (unaudited)     (audited) 
---------------------------------------  -------------  -------------  ------------ 
 Earnings attributable to shareholders              47             51           106 
---------------------------------------  -------------  -------------  ------------ 
 Non-underlying items                               17             15            19 
---------------------------------------  -------------  -------------  ------------ 
 Headline earnings attributable to 
  shareholders                                      64             66           125 
---------------------------------------  -------------  -------------  ------------ 
 
 
 b)   Weighted average share capital 
 
 
                                                    6 months to             12 months 
                                                                                   to 
-----------------------------------------  ----------------------------  ------------ 
                                             29 Feb 2020    28 Feb 2019   31 Aug 2019 
                                                                            (audited) 
 Millions                                    (unaudited)    (unaudited) 
-----------------------------------------  -------------  -------------  ------------ 
 Weighted average ordinary shares 
  in issue                                           113            108           108 
 Less weighted average ordinary shares                 -              -             - 
  held in ESOP Trust 
-----------------------------------------  -------------  -------------  ------------ 
 Weighted average ordinary shares 
  for basic earnings per share                       113            108           108 
 Add weighted average number of ordinary 
  shares under option                                  1              1             1 
 Weighted average ordinary shares 
  for diluted earnings per share                     114            109           109 
-----------------------------------------  -------------  -------------  ------------ 
 
 
 c)   Basic and diluted earnings per share 
 
 
                                              6 months to             12 months 
                                                                             to 
------------------------------  ---  ----------------------------  ------------ 
                                       29 Feb 2020    28 Feb 2019   31 Aug 2019 
                                                                      (audited) 
 Pence                                 (unaudited)    (unaudited) 
------------------------------  ---  -------------  -------------  ------------ 
 Basic earnings per share                     41.6           47.2          98.1 
-----------------------------------  -------------  -------------  ------------ 
 Adjustments for non-headline 
  items                                       15.0           13.9          17.6 
-----------------------------------  -------------  -------------  ------------ 
 Headline basic earnings per 
  share                                       56.6           61.1         115.7 
-----------------------------------  -------------  -------------  ------------ 
 
 Diluted earnings per share                   41.2           46.8          97.2 
-----------------------------------  -------------  -------------  ------------ 
 Adjustments for non-headline 
  items                                       14.9           13.8          17.5 
-----------------------------------  -------------  -------------  ------------ 
 Headline diluted earnings 
  per share                                   56.1           60.6         114.7 
-----------------------------------  -------------  -------------  ------------ 
 

Diluted earnings per share takes into account various share awards and share options including SAYE schemes, which are expected to vest, and for which a sum below fair value will be paid.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 9.   Capital Expenditure and Goodwill 
 

In the financial period, there were additions to property, plant and equipment of GBP36m (28 February 2019: GBP24m). Property, plant and equipment also grew by GBP37m as a result of the acquisition of MRG. There were no material disposals of tangible assets during the period (28 February 2019: GBPnil).

On transition to IFRS, right of use assets of GBP457m were recognised on the Group balance sheet. During the 6 months to 29 February 2020, the Group acquired additional right of use assets of GBP37m through signing of new leases and extension of existing leases. Right of use assets also grew by GBP98m as a result of the acquisition of MRG.

Capital expenditure in respect of intangible assets totalled GBP7m (28 February 2019: GBP5m) in the period. An additional brand of GBP29m was recognised within intangible assets on the acquisition of MRG. There were no material disposals of intangible assets during the period (28 February 2019: GBPnil).

Goodwill increased by GBP255m in the period. The acquisition of MRG (see Note 15) resulted in additional goodwill of GBP257m being recognised on the balance sheet. The remaining movement is as a result of movements in exchange rates.

 
 10.   Analysis of net debt / funds 
 

Net debt / funds can be analysed as follows:

 
                                                            At             At 
                                                   29 Feb 2020    28 Feb 2019            At 
                                                                                31 Aug 2019 
 GBPm                                              (unaudited)    (unaudited)     (audited) 
------------------------------------------------  ------------  -------------  ------------ 
 Cash and cash equivalents                                  45             48                49 
 Borrowings 
 
   *    Revolving credit facility                         (45)           (57)              (15) 
 
   *    Bank loans                                       (400)          (200)             (200) 
 
   *    Lease liability (IAS 17)                          (11)           (12)              (14) 
------------------------------------------------  ------------  -------------  ---------------- 
 Net debt (IAS 17)                                       (411)          (221)             (180) 
                                                         (566)              -                 - 
   *    Additional Lease liability (IFRS 16)(1) 
 Net debt (IFRS 16)                                      (977)          (221)             (180) 
------------------------------------------------  ------------  -------------  ---------------- 
 

(1) Total lease liability under IFRS 16 is GBP577m including finance lease liabilities previously recognised on balance sheet under IAS 17 (GBP11m).

Movement in net debt:

 
                                                        At                                                                          At 
                                                    31 Aug                                                                      29 Feb 
                                                      2019                                                                        2020 
                                                             Impact 
                                                            of IFRS    On acquisition                           Currency 
 GBPm                                            (audited)       16   of subsidiaries   Cash flow   Other    translation   (unaudited) 
---------------------------------------------  -----------  -------  ----------------  ----------  ------  -------------  ------------ 
 Cash and cash 
  equivalents                                           49        -                 1         (4)       -            (1)            45 
 Borrowings 
 
   *    Borrowings - repayable after one year        (200)        -             (115)       (200)     115              -         (400) 
 
   *    Revolving credit facility                     (15)        -                 -        (30)       -              -          (45) 
 
   *    Lease liability                               (14)    (479)              (98)          54    (42)              2         (577) 
---------------------------------------------  -----------  -------  ----------------  ----------  ------  -------------  ------------ 
 Net debt                                            (180)    (479)             (212)       (180)      73              1         (977) 
---------------------------------------------  -----------  -------  ----------------  ----------  ------  -------------  ------------ 
 

An explanation of Alternative performance measures, including Net debt is provided in the Glossary on page 41.

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

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 10.   Analysis of net debt / funds (continued) 
 

The adoption of IFRS 16 on 1 September 2019 has resulted in the recognition of substantial right of use assets and corresponding lease liabilities on the Group balance sheet. On the transition date, GBP479m of lease liabilities have been recognised. In addition, lease liabilities of GBP98m have been recognised as a result of the acquisition of MRG.

The amounts included within the Other category include the repayment of a loan acquired as part of the acquisition of MRG (see Note 15). This payment is included within investing activities in the Group cash flow statement. Movements related to the lease liability are non-cash, and relate mainly to new leases or modifications in the period.

The Group has in place a five-year committed multi-currency revolving credit facility of GBP200m with Barclays Bank PLC, HSBC, BNP Paribas and Santander UK PLC. The revolving credit facility is due to mature on 9 December 2023. The RCF utilisation is interest-bearing at a margin over LIBOR. As at 29 February 2020 this Group had drawn down GBP45m (28 February 2019: GBP57m) on this facility.

The Group also has a four-year committed term loan of GBP200m with the same banks that was drawn down at the time of the acquisition of InMotion (30 November 2018). This term loan is due to mature on 29 October 2022. The loan is interest-bearing at a margin over LIBOR.

During the period, the Group agreed an additional syndicated GBP200m term loan to fund the acquisition of MRG. This loan is interest bearing at a margin over LIBOR and is due to mature on 17 October 2020. The Group has options to extend the term of this loan for up to two further six-month periods to 17 October 2021. After the period end, the Group has agreed options to extend the term of this loan to October 2022.

After the period end, the Group agreed an increase to the multi-currency revolving credit facility of GBP120m (See Note 16). This increase will be in place until 8 November 2021 if the Group opts to use the extension option available to them. After this point the facility will revert to the original GBP200m.

 
 11.   Net cash inflow from operating activities 
 
 
                                                      6 months to             12 months 
                                                                                     to 
-------------------------------------------  ----------------------------  ------------ 
 GBPm                                          29 Feb 2020    28 Feb 2019   31 Aug 2019 
                                                                              (audited) 
                                               (unaudited)    (unaudited) 
-------------------------------------------  -------------  -------------  ------------ 
 Group operating profit                                 71             67           140 
 Depreciation and amortisation                          78             24            50 
 Impairment losses                                       3              -             1 
 Share-based payments                                    2              3             6 
 Profit on disposal of property, plant 
  and equipment                                          -              -           (2) 
 Other non-cash items                                    -              -             1 
 Increase in inventories                               (2)            (3)           (2) 
 Increase in receivables                               (3)            (3)           (6) 
 Decrease in payables                                 (44)           (26)           (3) 
 Pension funding                                       (1)            (1)           (3) 
 Income taxes paid                                    (24)           (10)          (27) 
 Movement on provisions                                (1)            (1)           (2) 
 Net cash inflow from operating activities              79             50           153 
-------------------------------------------  -------------  -------------  ------------ 
 

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 12.   Called Up Share Capital 
 
 
                       29 Feb 2020 (unaudited)           28 Feb 2019 (unaudited)                 31 Aug 2019 
                                                                                                  (audited) 
-----------------  -------------------------------  --------------------------------  -------------------------------- 
                   Number of shares  Nominal value   Number of shares  Nominal value   Number of shares  Nominal value 
                         (millions)           GBPm         (millions)           GBPm         (millions)           GBPm 
-----------------  ----------------  -------------  -----------------  -------------  -----------------  ------------- 
Equity 
Ordinary shares 
 of 22 6/67p                    115             25                108             24                108             24 
-----------------  ----------------  -------------  -----------------  -------------  -----------------  ------------- 
Total                           115             25                108             24                108             24 
-----------------  ----------------  -------------  -----------------  -------------  -----------------  ------------- 
 

During the six-month period to 29 February 2020 the Company issued 7,209,303 shares in a share placing at a price of GBP21.50 per share raising proceeds of GBP152m net of issue cost.

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.

 
 13.   Contingent liabilities and capital 
        commitments 
 
 
                                              29 Feb 2020    28 Feb 2019   31 Aug 2019 
                                                             (unaudited)     (audited) 
 GBPm                                         (unaudited) 
------------------------------------------  -------------  -------------  ------------ 
Bank guarantees and guarantees in respect 
 of lease agreements                                   26             22            27 
------------------------------------------  -------------  -------------  ------------ 
 

Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement with Connect Group PLC (formerly Smiths News PLC), any such contingent liability, which becomes an actual liability, will be apportioned between the Group and Connect Group PLC in the ratio 65:35 (provided that the actual liability of Connect Group PLC in any 12 month period does not exceed GBP5m). The Group's 65 per cent share of these leases has an estimated future rental commitment at 29 February 2020 of GBP1m (31 August 2019: GBP1m).

At 29 February 2020, contracts placed for future capital expenditure approved by the directors but not provided for amounted to GBP35m (28 February 2019: GBP19m).

 
 14.   Related Parties 
 

There have been no material related party transactions during the interim period under review.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 15.   Acquisitions 
 

On 20 December 2019, the Group acquired the entire share capital of Marshall Retail Group ('MRG') for a total cash payment of USD $402m (GBP317m) comprising $243m of enterprise value, $146m repayment of loan, $12m working capital, and $1m cash and restricted cash.

MRG is an independent travel retailer operating in high footfall airport and tourist locations in the United States. The acquisition builds further on the acquisition of InMotion in November 2018 and significantly strengthens the Group's offering in the United States, the world's largest travel retail market.

Included within the provisional fair value of the net identifiable assets on acquisition is an intangible asset of GBP29m (US$37m) representing the MRG brand. The Board believes that the excess of consideration paid over the net assets on acquisition of GBP257m is best considered as goodwill on acquisition representing future operating synergies. This amount is not tax deductible. The provisional goodwill calculation is summarised below:

 
                                                                           Provisional 
                                                                            fair value 
                                                         Measurement    at 29 February 
                                           Book value    adjustments              2020 
----------------------------------------  -----------  -------------  ---------------- 
                                                 GBPm           GBPm              GBPm 
----------------------------------------  -----------  -------------  ---------------- 
Acquiree's net assets / (liabilities) 
 at acquisition date: 
Intangible assets                                   -             29                29 
Right of use assets                                98              2               100 
Property, plant and equipment                      37            (2)                35 
Inventories                                        17            (3)                14 
Cash and cash equivalents                           1              -                 1 
Trade and other receivables                         5              -                 5 
Deferred tax assets / liabilities                   -            (8)               (8) 
Trade and other payables - current               (13)            (2)              (15) 
Other non-current liabilities                     (4)              3               (1) 
Lease liabilities                                (98)              -              (98) 
Interest-bearing loans                          (115)              -             (115) 
Net identifiable assets / (liabilities)          (72)             19              (53) 
Non-controlling interest                          (2)              -               (2) 
Goodwill on acquisition                                                            257 
----------------------------------------  -----------  -------------  ---------------- 
Total consideration - satisfied in 
 cash                                                                              202 
----------------------------------------  -----------  -------------  ---------------- 
 

The provisional goodwill calculation in the table above includes significant estimates that may be refined for a period of 12 months from the acquisition date. Transaction and integration costs totalling GBP13m have been incurred in the period to 29 February 2020 in respect of the acquisition.

Included in the six months ended 29 February 2020 is revenue of GBP27m and a profit before tax of less than GBP1m in respect of MRG. If the acquisition had taken place on 1 September 2019, total Group revenue would have been GBP799m and Group profit before tax would have been GBP66m.

Reconciliation of cash flows

 
                                              GBPm 
-------------------------------------------  ----- 
Cash consideration                             202 
Cash acquired                                  (1) 
Repayment of interest-bearing loans            115 
Net outflow of cash - investing activities     316 
 

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 16.   Events after the balance sheet 
        date 
 

Since the end of the reporting period Covid-19 has had a significant impact on the Group. As at 14 May 2020, in our UK Travel business, we have seen a significant decline in passenger numbers as a result of travel bans and the vast majority of our stores at airports and railway stations have been temporarily closed. Approximately 130 stores located in hospitals across the UK remain open to serve key workers. Internationally, we are seeing broadly similar trends to the UK with all large airport stores closed.

In our High Street business, 203 stores with Post Offices remain open to provide essential services to the community.

As announced on 6th April 2020, we have raised net funding of c.GBP162m via a share placing. In addition, we have agreed a GBP120m 12 month (plus 7 months at the option of the Group) committed banking facility from BNP Paribas, HSBC Bank PLC and Santander UK PLC. This is in addition to our existing facilities and includes a waiver on the existing bank covenants at 31 August 2020 and 28 February 2021.

We have performed an assessment of the impact of Covid-19 on the Group to ascertain if the outbreak or related government actions constitute an adjusting post balance sheet event under IAS 10 'Events after the Reporting Date'. Following our review, apart from our Asia Pacific businesses, we have concluded that the spread of Covid-19 and related government actions occurred after the end of the reporting period and is therefore a non-adjusting event.

For our Asia Pacific businesses, government actions to combat the spread of Covid-19 were implemented before the balance sheet date, and therefore we have assessed the impact of these conditions as adjusting post balance sheet events. A non-cash impairment of property, plant and equipment of GBP3m was recorded in the Group income statement as a result of our assessment. This is included within non-underlying items.

Although Covid-19 has not had a material impact on the Group's first half results, uncertainty around the scale, timing and impact of the coronavirus pandemic means it is not possible to determine with any degree of precision the potential future impact on our cash flows, liabilities and assets. These will be addressed in the second half of the year when there may be more certainty about the financial impact.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 29 February 2020

 
 Statement of Directors' Responsibilities 
 

The Directors confirm to the best of their knowledge that:

(a) The condensed financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU; and

(b) This interim report includes a fair review of the information required by:

-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- DTR 4.2.8R of the Disclosure and Transparency Rules, being 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 the performance of the Group during that period; and any changes in the related parties' transactions described in the last annual report that could do so.

The Directors of WH Smith PLC are listed on the website at www.whsmithplc.co.uk/about_whsmith/directors/ .

By order of the Board

 
Carl Cowling           Robert Moorhead 
Group Chief Executive  Chief Financial Officer and Chief 
                        Operating Officer 
 

14 May 2020

INDEPENT REVIEW REPORT TO WH SMITH PLC

Report on the Condensed Interim Financial Statements

Our conclusion

We have reviewed WH Smith PLC's Condensed Interim Financial Statements (the "interim financial statements") in the Interim Results Announcement of WH Smith PLC for the 6 month period ended 29 February 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --      The Condensed Group Balance Sheet as at 29 February 2020; 

-- The Condensed Group Income Statement and Condensed Group Statement of Comprehensive Income for the period then ended;

   --      The Condensed Group Cash Flow Statement for the period then ended; 
   --      The Condensed Group Statement of Changes in Equity for the period then ended; and 
   --      The explanatory notes to the interim financial statements. 

The interim financial statements included in the Interim Results Announcement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Results Announcement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Results Announcement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results Announcement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

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 Auditing Practices Board 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.

We have read the other information contained in the Interim Results Announcement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

14 May 2020

London

Notes:

(a) The maintenance and integrity of the WH Smith PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

WH Smith PLC

Glossary

Alternative Performance Measures

In reporting financial information, the Group presents alternative performance measures, "APMs", which are not defined or specified under the requirements of IFRS.

The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional useful information on the underlying trends, performance and position of the Group and are consistent with how business performance is measured internally. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' alternative performance measures. The key APMs that the Group uses are outlined below.

 
APM             Closest     Reconciling     Definition and purpose 
                equivalent   items to 
                IFRS         IFRS measure 
                measure 
Income Statement Measures 
Headline        Group       Non-underlying  Headline Group profit before tax excludes 
 Group profit   profit       items           non-underlying items. A reconciliation 
 before tax     before tax                   from Headline Group profit before 
                                             tax to Group profit before tax is 
                                             provided in the Group income statement 
                                             on page 14. 
High Street     Group       Refer to        Group profit from trading operations 
 and Travel     operating    definition      and High Street and Travel trading 
 trading        profit                       profit are stated after directly attributable 
 profit,                                     share-based payment and pension service 
 and Group                                   charges and before underlying items, 
 profit from                                 unallocated costs, finance costs and 
 trading                                     income tax expense. 
 operations 
                                             A reconciliation from the above measures 
                                             to Group operating profit and Group 
                                             profit before tax is provided in Note 
                                             2 to the financial statements. 
Non-underlying  None        Refer to        Items which are not considered part 
 items                       definition      of the normal operating costs of the 
                                             business, are non-recurring and considered 
                                             exceptional because of their size, 
                                             nature or incidence are treated as 
                                             non-underlying items and disclosed 
                                             separately. The Group believes the 
                                             separate disclosure of these items 
                                             provides additional useful information 
                                             to users of the financial statements 
                                             to enable a better understanding of 
                                             the Group's underlying financial performance. 
                                             An explanation of the nature of the 
                                             items identified as non-underlying 
                                             is provided in Note 3 to the financial 
                                             statements. 
Headline        Earnings    Non-underlying  Profit for the year before non-underlying 
 earnings       per          items and       items divided by the weighted average 
 per share      share        dilutive        number of ordinary shares in issue 
                             effect of       during the financial year, adjusted 
                             shares under    for the effects of any potentially 
                             option          dilutive share options. See Note 8. 
Effective       None        Non-underlying  Total income tax charge excluding 
 tax rate                    items           the tax impact of non-underlying items 
                                             divided by Group Headline profit before 
                                             tax. See Note 6. 
Fixed charges   None        Refer to        This performance measure calculates 
 cover                       definition      the number of times Profit before 
                                             tax is able to cover the total fixed 
                                             charges included in calculating profit 
                                             or loss. Fixed charges included in 
                                             this measure are net finance charges 
                                             and net operating lease rentals stated 
                                             on a pre-IFRS 16 basis (i.e. in line 
                                             with IAS 17). 
Gross           Gross       Not applicable  Where referred to throughout the Interim 
 margin         profit                       statement, gross margin is calculated 
                margin                       as gross profit divided by revenue. 
Like-for-like   Movement    - Revenue       Like-for-like revenue is the change 
 revenue        in          change from      in revenue from stores that have been 
                revenue     non              open for at least a year, with a similar 
                per         like-for-like    selling space at a constant foreign 
                the income  stores           exchange rate. A reconciliation of 
                statement   - Foreign        these percentages is provided below.                          Travel  High Street  Group 
                            exchange         LFL revenue change            2%         (4)%   (1)% 
                            impact           Net new space impact          1%         (1)%    - % 
                                             Acquisitions                 16%          - %     8% 
                                             Foreign exchange impact      - %          - %    - % 
                                             Total revenue change         19%         (5)%     7% 
 

WH Smith PLC

Glossary (continued)

Alternative Performance Measures (continued)

 
Balance Sheet Measures 
Net debt   None             Reconciliation  Net debt is defined as Cash and cash 
                             of net debt     equivalents, less Bank overdrafts 
                                             and other borrowings and both current 
                                             and non-current Obligations under 
                                             finance leases. 
                                             A reconciliation of Net debt is provided 
                                             in Note 10. 
Other measures 
Free cash  Net cash inflow  See Group       Free cash flow is defined as the net 
 flow       from operating   Overview        cash inflow from operating activities 
            activities                       (on a pre-IFRS 16 basis (i.e. in line 
                                             with IAS 17)) before non-underlying 
                                             items and pension funding, less capital 
                                             expenditure and repayments to HMRC. 
                                             The components of free cash flow are 
                                             shown on page 9, as part of the Group 
                                             Overview. 
 

WH Smith PLC

Appendix

Analysis of retailing stores and selling space

Number of High Street stores(1)

 
        1 Sept 2019  Opened  Closed  29 Feb 
                                       2020 
Total           594       -    (13)     581 
 

(1) Excludes 100 WH Smith LOCAL franchised stores

Number of Travel units

A Travel store may consist of multiple units within one location. On an individual unit basis, Travel stores can be analysed as follows:

 
                               1 Sept 2019  Opened  Acquired  Closed  29 Feb 
                                                                        2020 
                              ------------ 
Non franchise units                    695      24       167    (14)     872 
Joint Venture and Franchise 
 units(2)                              324       8         -    (10)     322 
Total                                1,019      32       167    (24)   1,194 
 

(2) Travel units include motorway and international franchise units, and exclude kiosks in India, and Supanews and Wild Cards and Gifts franchisees in Australia.

Retail selling square feet ('000s)

 
              1 Sept  Opened   Acquired   Closed  29 Feb 
                2019                                2020 
                              ---------  ------- 
High Street    2,740       -          -     (16)   2,724 
Travel           744      29        231     (27)     977 
                              ---------  ------- 
Total          3,484      29        231     (43)   3,701 
 

Total Retail selling square feet does not include franchise units.

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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