TIDMSNWS
RNS Number : 2832R
Smiths News PLC
04 November 2021
This announcement contains inside information
Smiths News plc
(the 'Company')
Audited Preliminary Results Announcement for the 52 weeks ended
28 August 2021
Performance ahead of expectations, with dividends restored
Headlines
-- Performance ahead of full year market expectations
-- Resilient sales in line with pre-COVID trends and medium term planning forecasts
-- Above target cost savings of GBP6.0m across operations and central support functions
-- Commenced new sustainability strategy aligned to ESG goals
-- Bank Net Debt of GBP53.2m, driven by cash generation of a strong operational performance
-- Final dividend of 1.0p, making a full year dividend of 1.5p
-- Recent inflationary pressures on distribution costs tempering expectations for FY2022
Financial performance
Adjusted continuing results(7) FY2021 FY2020 % Change
Revenue GBP1,109.6m GBP1,164.5m -4.7%
Adjusted EBITDA (excl. IFRS
16 leases)(4) GBP42.6m GBP39.1m 9.0%
Profit before tax GBP30.9m GBP27.9m 10.8%
Earnings per share 10.8p 9.7p 11.3%
Free cash flow(2) GBP24.0m GBP10.9m 120.2%
Bank Net Debt(5) GBP53.2m GBP79.7m - 33.2%
Continuing statutory results(7)
Revenue GBP1,109.6m GBP1,164.5m -4.7%
Profit before tax GBP30.6m GBP14.8m 106.8%
Earnings per share 10.8p 4.9p 120.4%
Net debt (incl. IFRS 16 leases)(5) GBP81.2m GBP112.9m - 28.1%
Dividend per share 1.5p nil p
------------------------------------ ------------ ------------ ---------
Performance on track
In parallel with a strong financial performance, our strategy to
deliver consistent and predictable profit from our core operations
is firmly on track. Drawing on robust management controls, we have
maintained a full service throughout the extended COVID-19
pandemic, without compromise to our restructuring and efficiency
targets. One-off sales and cost opportunities have further boosted
profit performance this year, helping to offset growing
inflationary pressures in the final quarter. Meanwhile, our close
attention to capital management has strengthened the balance sheet,
supporting the Board's confidence in the restoration of dividend
payments to shareholders.
Outlook and current trading
Building on a successful year, we are confident in our ability
to continue generating strong profits and cash, returning value to
shareholders through a combination of lower Bank Net Debt and
regular dividends. The newspaper and magazine markets have made a
resilient recovery from the uncertainties of the COVID-19 pandemic
and, more broadly, continue to provide a solid foundation for the
delivery of predictable cashflows. Although some uncertainty
remains, the immediate outlook for our markets suggests a continued
stabilisation of sales and a gradual improvement to the prospects
of those retailers most affected by the pandemic.
The widely reported inflationary pressures in distribution
labour markets began to impact the business in August 2021 and have
increased since the period end. The situation is likely to be fluid
for some months, hence we are monitoring the situation closely
while seeking to make compensatory savings subject to maintaining
our service KPIs. Currently, we estimate the impact on EBITDA in
FY2022 to be in the region of GBP2m after mitigation.
Trading in the year to date is in line with the Board's
expectations.
Jonathan Bunting, CEO , commenting on today's results said:
'By focusing on our core competencies, we have returned a strong
performance, ahead of market expectations. In doing so, we have met
our key strategic targets for the year and strengthened our
capability to deliver for all our stakeholders. Looking ahead, we
face increasing inflationary pressures and must continue to focus
on managing costs, but we have clear plans to do so, underpinned by
a flexible business model that is a robust foundation for the
delivery of shareholder value.'
Enquiries:
Smiths News plc Via Buchanan below
Jonathan Bunting, Chief Executive
Officer
Paul Baker, Chief Financial Officer
Tony Grace, Executive Director
Investor.relations@smithsnews.co.uk
www.corporate.smithsnews.co.uk
Buchanan
Richard Oldworth/Jamie Hooper/Toto
Berger smithsnews@buchanan.com
www.buchanan.uk.com 020 7466 5000
Smiths News plc's Preliminary Results 2021 are available at
www.corporate.smithsnews.co.uk
A recording of the presentation for analysts will be made
available on the Company's website from 11.00am on 4 November 2021
- see the Investor Relations section at
www.corporate.smithsnews.co.uk/investors
Notes
The Company uses certain performance measures for internal
reporting purposes and employee incentive arrangements. The terms
'Bank Net Debt', 'free cash flow', 'Adjusted revenue', 'Adjusted
operating profit', 'Adjusted profit before tax', 'Adjusted earnings
per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined
terms under IFRS and may not be comparable with similar measures
disclosed by other companies.
(1) The following are key non-IFRS measures identified by the
Group in the consolidated financial statements as Adjusted
results:
Continuing Adjusted operating profit - is defined as operating
profit including the operating profit of businesses from the date
of acquisition and excludes adjusted items and operating profit of
businesses disposed of in the year or treated as held for sale.
Continuing Adjusted profit before tax - is defined as Continuing
Adjusted operating profit less finance costs attributable to
Continuing Adjusted operating profit and before adjusted items,
including amortisation of intangibles and network and
reorganisation costs.
Continuing Adjusted earnings per share - is defined as
continuing adjusted PBT, less taxation attributable to adjusted PBT
and including any adjustment for minority interest to result in
adjusted PAT attributable to shareholders; divided by the basic
weighted average number of shares in issue.
Adjusted items - Adjusting items of income or expense are
excluded in arriving at Adjusted operating profit to present a
further measure of the Group's performance. Each adjusting item is
considered to be significant in nature and/or quantum,
non-recurring in nature and/or considered to be unrelated to the
Group's ordinary activities or are consistent with items treated as
adjusting in prior periods. Excluding these items from profit
metrics provides readers with helpful additional information on the
performance of the business across periods because it is consistent
with how the business performance is planned by, and reported to,
the Board and the Executive Team. They are disclosed and described
separately in Note 4 of the Group Financial Statements to provide
further understanding of the financial performance of the Group. A
reconciliation of adjusted profit to statutory profit is presented
on the income statement.
(2) Free cash flow - is defined as cash flow excluding the
following: payment of the dividend, acquisitions and disposals, the
repayment of bank loans, EBT share purchases and cash flows
relating to pension deficit repair. Free cash flow (excluding
Adjusted items) is free cash flow to equity adding back Adjusted
cash costs.
(3) Operating cash flow is defined as operating profit adding
back non-cash items amortisation, depreciation, share based
payments, share of profits of jointly controlled entities, and
non-cash pension costs, adjusting the increase/ decrease in working
capital then deducting pension contributions and tax payments in
accordance with its presentation in Note 26 of the Group Financial
Statements.
(4) Adjusted EBITDA - is calculated as Adjusted operating profit
before depreciation and amortisation. In line with our debt
facility agreement, Adjusted Bank EBITDA used for covenant
calculations is calculated as Adjusted operating profit before
depreciation, amortisation, Adjusted items and share based payments
charge but after adjusting for the last 12 months of
profits/(losses) for any acquisitions or disposals made in the
year. Adjusted EBITDA (excluding IFRS16) excludes the impact of
IFRS16 lease accounting in FY2021 to aid comparability to prior
periods.
(5) Bank Net Debt - is calculated as total debt less cash and
cash equivalents. Total debt includes loans and borrowings,
overdrafts and obligations under finance leases (excluding the
adoption of IFRS16 lease accounting standards), as bank covenants
are tested under 'frozen GAAP'. Net debt is calculated as total
debt less cash and cash equivalents. Total debt includes loans and
borrowings, overdrafts and obligations under leases.
(6) FY2021 - refers to the 52 weeks ended 28 August 2021. FY2020
refers to the 52 weeks ended 29 August 2020.
(7) The Preliminary Results have been prepared and presented on
a continuing operations basis after adjusting for the discontinued
operations of the Tuffnells business (sold in May 20202) in the
prior period.
Cautionary Statement
This document contains certain forward-looking statements with
respect to Smiths News plc's financial condition, its results of
operations and businesses, strategy, plans, objectives and
performance. Words such as 'anticipates', 'expects', 'intends',
'plans', 'believes', 'seeks', 'estimates', 'targets', 'may',
'will', 'continue', 'project' and similar expressions, as well as
statements in the future tense, identify forward-looking
statements. These forward-looking statements are not guarantees of
Smiths News plc's future performance and relate to events and
depend on circumstances that may occur in the future and are
therefore subject to risks, uncertainties and assumptions. There
are a number of factors which could cause actual results and
developments to differ materially from those expressed or implied
by such forward looking statements, including, among others the
enactment of legislation or regulation that may impose costs or
restrict activities; the re-negotiation of contracts or licences;
fluctuations in demand and pricing in the industry; fluctuations in
exchange controls; changes in government policy and taxations;
industrial disputes; war, pandemic and terrorism. These
forward-looking statements speak only as at the date of this
document. Unless otherwise required by applicable law, regulation
or accounting standard, Smiths News plc undertakes no
responsibility to publicly update any of its forward-looking
statements whether as a result of new information, future
developments or otherwise. Nothing in this document should be
construed as a profit forecast or profit estimate. This document
may contain earnings enhancement statements which are not intended
to be profit forecasts and so should not be interpreted to mean
that earnings per share will necessarily be greater than those for
the relevant preceding financial period. The financial information
referenced in this document does not contain sufficient detail to
allow a full understanding of the results of Smiths News plc. For
more detailed information, please see the Preliminary Financial
Results and/or the Annual Report and Accounts, each for the 52 week
period ended 28 August 2021 which can be found on the Investor
Relations section of the Smiths News plc website -
www.corporate.smithsnews.co.uk. However, the contents of Smiths
News plc's website are not incorporated into and do not form part
of this document.
OPERATING REVIEW
Overview - focus pays dividends in a year of clear progress
In a year of ongoing and widespread uncertainty in the UK and
global economies, we have returned a strong performance driven by
close attention to the achievement of our stated strategic
priorities. Across the key areas of operations, central
restructuring and capital management we have met our objectives in
a way that strengthens the fundamentals of the business, benefiting
all stakeholders and supporting the return of regular dividend
payments to shareholders.
At a time of wider disruption, the actions we took in the prior
year, including the sale of Tuffnells, have been instrumental in
our delivery of sustainable operational efficiencies and a leaner
central support model for FY2021. Furthermore, the principles we
adopted in managing through the pandemic have proved decisive as
sales stabilised and steep declines of the early months of the
pandemic in Spring 2020 began to reverse. Critically, as both sales
volumes and the number of deliveries has increased, we have been
successful in keeping the consequential increase in base
distribution costs in line with the benefit of additional
sales.
Central support costs have reduced following the removal of
former operational and central support structures that are no
longer required in a leaner business. Further one-off overhead
savings arose this year from certain aspects of managing through
the pandemic including homeworking, reduced travel and ancillary
expenses. Looking to the longer term, we have pursued solutions
that deliver sustainable savings without compromise to the
investment needs of the business and our position as market leader
for service and innovation.
Our capital management goals were aided by the successful
renewal of our banking facilities in November 2020. Good progress
has been made in improving the key metrics of Bank Net Debt, free
cashflow and capital expenditure, and we are on track to reduce
Bank Net Debt to 1x EBITDA, ahead of our initial target of the end
of FY2023 . As a consequence, in July 2021 we reinstated the
payment of regular dividends which we regard as an essential
element of our ongoing capital management objectives.
Looking ahead, we expect newspaper and magazine sales trends to
further stabilise, with potential opportunities from the gradual
increase in travel and commuting. Inflationary pressures in
distribution markets are an immediate challenge, but service and
efficiency plans are in hand to deliver a sustainable offset to the
long term decline in core sales. Capital management remains under
tight control and we have clear sight of investment requirements
over the lifetime of our publisher contracts. Building on these
foundations, the business is well placed for the year ahead.
Strong financial performance
Adjusted EBITDA (excluding IFRS 16) of GBP42.6m was up by 9.0%
(FY2020: GBP39.1m) from Revenue of GBP1,109.6m that was down by
(4.7%). Adjusted profit before tax from continuing operations of
GBP 30.9 m was also up 10.8% (FY2020: GBP 27.9 m) .
The underlying factors in driving this strong performance
were:
-- The management of a full service through the COVID-19
restrictions, minimising the impact on sales and retailer delivery
service charges.
-- The year-on-year sales recovery in H2 2021 (following the
anniversary of the first lockdown) and the further capitalising of
one-off sales opportunities, most notably the European Football
Championship.
-- The achievement in full of our operations and central savings
targets, which have offset the impact of the anticipated structural
decline in sales.
-- Close control of capital expenditure and ancillary costs.
Continuing Statutory profit before tax of GBP30.6m is up by
106.8% (FY2020: GBP14.8m). The increase was primarily driven by
improved trading in Smiths News and DMD which drove higher
operating profit, reductions in impairment charges and a decrease
in network and reorganisation costs.
Adjusted earnings per share of 10.8p is 11.3% higher than prior
year (FY2020: 9.7p).
Free cash flow of GBP24.0m is up 120.2% (FY2020: GBP10.9m)
reflecting the improved underlying performance, careful management
of cash, and lower maintenance capex and adjusting items than in
FY2020.
The working capital inflow of GBP1.0m was a GBP6.7m improvement
on the prior year (FY2020: GBP5.7m) benefiting from the
stabilisation of cash movements associated with the trading impact
of COVID-19 in FY2020, including the temporary closure of many
retail outlets and the return of unsold copies in the early months
of the pandemic.
Resilient sales boosted by One-Shot sticker collections
Revenue from combined newspaper and magazine sales declined by
4.7% in line with our long term expectations of market trends.
Magazines, which attract a higher margin, performed more strongly
than newspapers, with a particularly good performance from one-shot
titles, including stickers and albums.
Performance varied across the year with sales being 11.5% down
in H1 2021 but up 3.1% in H2 2021. This volatility primarily
reflects the anniversary of the steep declines in sales in the
immediate aftermath of the first lockdown in March 2020. In
contrast, the impact of the regional restrictions in autumn 2020
and the second national lockdown in early 2021 were much reduced.
Although some retailers remained closed (particularly in travel and
commuting locations), our total market coverage meant we were able
to substitute supplies and redirect sales to alternative outlets.
Indeed, many smaller independent retailers have seen increases in
sales as they became essential hubs for their local
communities.
As we emerge from the pandemic there are encouraging signs that
the market is continuing to recover some of its lost ground, with
opportunities in the return to greater travel and commuting,
sectors which have been especially hard hit by restrictions and
changes to working patterns.
Sales and margin this year have been boosted by the European
Football Championship and England's successful run to the final,
together with an increase in Pokémon sticker collectables as
children went back to schools. The benefit of these two
opportunities in the year amounted to circa GBP1m of EBITDA.
Although they will not be repeated in FY2022, the FIFA World Cup
finals should once again boost sales in the first quarter of
FY2023.
Service and efficiency
Working to the operational principles we established at the
start of the pandemic, we are proud to have maintained full service
throughout all periods of lockdown and ongoing restrictions in the
United Kingdom. As always, the wellbeing of our colleagues and
customers was paramount, shaping the introduction of new processes
and safety procedures.
Despite this disruption, our service KPIs have remained above
target, helping to reduce waste and support the efficient
allocation of supplies. As the COVID-19 restrictions have eased and
more retailers returned to full trading, we have been successful in
keeping the cost of increased volumes in line with the benefit of
additional sales.
Combined operational efficiencies and central savings of GBP6.0m
have offset the margin impact of the decline in core sales in the
year, with opportunities taken across network, staffing, routing
and customer services. Looking ahead, we have actions in hand to
maintain this offset and are confident of its continued delivery
over the lifetime of our publisher contracts.
Ancillary businesses impacted by COVID-19
Our ancillary businesses continue to be impacted by COVID-19
restrictions. DMD, which supplies airlines and travel points, is
operating a much reduced service, albeit maintaining a breakeven
position due to its operational integration with Smiths News.
Instore, which supplies field marketing services to major
retailers, has similarly been impacted by both the restrictions and
a more general reduction in demand as retailers and suppliers
adjust to the new environment. We continue to have confidence in
the underlying business models of these smaller operations but,
taking a prudent approach, our plans for FY2022 are not dependent
on their further recovery.
Sustainability strategy
The focusing of the business on core news wholesaling has
provided an appropriate opportunity to review our Environmental,
Social and Governance goals and activity. In doing so, we aim to
take a more active leadership role in the development of
sustainable solutions for our supply chain, its customers and
people. This is fully compatible with our values and strategy to
offer the most effective and highest quality route to market for
both publishers and retailers.
After consulting widely with colleagues and industry
stakeholders, we have introduced a new framework for ESG
sustainability that adopts both the principles of the UN
Sustainable Development Goals and the structured disclosures-based
reporting suite promoted by the Global Reporting Initiative. Our
framework recognises the forthcoming obligation on the Company to
report in line with the requirements of the Task Force on
Climate-related Financial Disclosures and will include metrics and
KPIs that are fully compliant. A key outcome of the review is the
establishment of five pillars of focus and activity, each of which
supports targeted actions and measurable goals. Collectively these
capture the scope of our ESG strategy, and consist of: Governance;
Environment; People; Community and Responsible Partnerships.
In addition to the above, we have determined longer term goals
that give appropriate priority to those aspects of our supply chain
which we most directly impact and for which we can make the most
tangible difference. In this regard, we are committed to the
following ambitions:
o The migration of our subcontracted delivery service partners
to sustainably fuelled vehicles by 2035 through the installation of
supporting infrastructure at our sites by 2030.
o The migration of the Company's car fleet to sustainably
fuelled/ hybrid vehicles by 2025 and of our heavy goods vehicles to
decarbonised technology by 2030.
o New warehouse locations to be net carbon neutral and current
sites to be net carbon neutral by 2030.
o All gas and electricity to be sourced from 100% green /
renewable sources by 2024.
o A colleague engagement score of 70% or greater each year and
an improving trend of relevant 'promoters' within the underlying
metrics.
o A material improvement in the ethnic and gender diversity of
our leadership population.
o At least one Board member from a minority group and at least
two female members by 2026.
People
The commitment of our 1,600 colleagues has been never more
essential in both delivering our results and, throughout the
pandemic, maintaining the daily distribution to thousands of
communities across the UK. This year, we have invested significant
time and resource in improving communications with our colleagues
so that our network of 37 depots operate as one team, sharing goals
and working closely with the support centres as we have
restructured responsibilities and removed former group
structures.
Although the majority of our people work in warehouse locations,
a significant number of central support teams have been homeworking
for up to 18 months. For these colleagues we are implementing a
gradual return to office working and, where appropriate, have
introduced hybrid models that blend home and office working in a
flexible way. Mindful of the impact on wellbeing, we will monitor
these transitions carefully and will provide additional support
where necessary. The Hardship Fund we established for UK colleagues
in the wake of COVID-19 has been extended to support our outsourced
support centres in India, and will now be an ongoing element of our
people polices. Training and development, spearheaded by our talent
programme, will also be increased this year with a return of face
to face sessions alongside online learning.
Dividend
In light of the Company's performance and consistent with our
previously stated objective to return to regular dividend payments,
an interim dividend of 0.5p was paid in July 2020. The Board has
proposed a further final dividend of 1.0p, making a total dividend
for the year of 1.5p (FY2020: nil p). The final dividend will be
paid on 10 February 2022 to all shareholders who are on the
register at the close of business on 14 January 2022; the
ex-dividend date will be 13 January 2022.
Bank Net Debt
Bank Net Debt of GBP53.2m (FY2020: GBP79.7m) reflects the
improvement in free cash flow resulting from a strong operating
performance and the positive impact of the 52 week period end date
being ahead of scheduled payments to publishers. In addition, in
October 2020 the Company received GBP6.7m in repayment of the
working capital loan provided to the purchaser of Tuffnells in
FY2020.
It should be noted that, as a consequence of the timing of
payments and receipts, intra-month debt typically fluctuates by up
to GBP40m across the payment cycle, with average net debt of
GBP82.6m (FY2020: GBP98.8m). Looking ahead, we are on track to
reduce Bank Net Debt to 1x EBITDA, ahead of our initial target of
the end of FY2023.
Receipt of deferred consideration
In addition to the repayment of the working capital loan in
October 2020, the Company received a payment of GBP6.5m on 2
November 2021 in relation to the 1(st) instalment of deferred
consideration arising from the sale of Tuffnells in May 2020. A
further payment of GBP4.25m is scheduled to be received in August
2022, and a final settlement of GBP4.25m is due on the third
anniversary of sale in May 2023.
Receipt of pension surplus
The Trustee of the news section of the WHSmith Pension Trust has
confirmed that the Company will receive the benefit of the cash
surplus which will arise on the wind up of the scheme following the
buyout of the scheme by Legal & General in March 2021. The
surplus (net of professional fees and tax) of GBP8.0m is expected
to be paid to the Company during November 2021. The proceeds will
be used to reduce net debt in line with the terms of our banking
agreements.
Appointment of Chief Financial Officer
Following the decision by Tony Grace to retire from his
executive role on 31 December 2021 and to step down from the Board
on 30 November 2021, Paul Baker has been appointed as director of
the Company and Chief Financial Officer with effect from 4 October
2021. Paul was formerly at Compass Group plc, prior to which he had
held various Finance Director roles within Iglo Group/ Birds Eye
Limited and Cadbury Schweppes PLC.
The Board would like to acknowledge the outstanding contribution
Tony Grace has made during his three years as CFO, including his
critical role in strengthening the Company's finances and
processes, the sale of Tuffnells, and the agreement of new banking
facilities - all of which have underpinned our delivery of improved
shareholder value while meeting the needs of wider
stakeholders.
Outlook
Building on a successful year, we are confident in our ability
to continue generating strong profits and cash, returning value to
shareholders through a combination of lower Bank Net Debt and
regular dividends. The newspaper and magazine markets have made a
resilient recovery from the uncertainties of the COVID-19 pandemic
and, more broadly, continue to provide a solid foundation for the
delivery of predictable cashflows. Although some uncertainty
remains, the immediate outlook for our markets suggests a continued
stabilisation of sales and a gradual improvement to the prospects
of those retailers most affected by the pandemic.
The widely reported inflationary pressures in distribution
labour markets began to impact the business in August 2021 and have
increased since the period end. The situation is likely to be fluid
for some months, hence we are monitoring the situation closely
while seeking to make compensatory savings subject to maintaining
our service KPIs. Currently, we estimate the impact on EBITDA in
FY2022 to be in the region of GBP2m after mitigation.
Trading in the year to date is in line with the Board's
expectations.
FINANCIAL REVIEW
OVERVIEW
The underlying strength of our financial position is evidenced
by the Group's profit, cash and debt metrics in a year impacted by
further COVID-19 restrictions and a depressed economy. Free cash
flow of GBP24.0m reduced bank net debt to GBP53.2m as the benefit
of cost savings actioned at the end of FY2020 drove a 12.8% year on
year increase in Adjusted Operating Profit to GBP39.6m. On a
statutory basis, Operating Profit increased 69.7% to GBP35.8m
(FY2020: GBP21.1m) as the level of asset impairments and
reorganisation costs incurred in the prior year resulting from the
impacts of the COVID-19 pandemic and Tuffnells disposal were not
repeated.
The increase in operating profit underpins the GBP3.5m increase
in Adjusted EBITDA to GBP42.6m (FY2020 GBP39.1m) which is the
profit metric used for banking covenants and internal management
reporting. Of particular note is Bank Net Debt: EBITDA of 1.2x and
free cash flow less dividends/ EBITDA of over 50%. Reported Bank
Net Debt benefitted from the timing of c.GBP20m of publisher
payments which fell due in the following financial period. Free
cash flow of GBP24.0m and the full GBP6.7m receipt in October 2020
of the working capital loan made to Tuffnells, comfortably
accommodates the amortisation of debt facilities and payment of
dividends. Debt was reduced through agreed amortisation repayments
of GBP7.5m in April 2021 and a further GBP7.5m in October 2021. An
interim dividend payment of GBP1.2m was made in July 2021, with a
final dividend of GBP2.4m proposed for approval at the AGM in
January 2022 (and payment in February 2022).
CONTINUING ADJUSTED RESULTS
GROUP
Continuing Adjusted results 2021 2020 Change
GBPm
------------------------------------ -------- -------- --------
Revenue 1,109.6 1,164.5 (4.7%)
Adjusted EBITDA (excluding IFRS16) 42.6 39.1 9.0%
EBITDA (including IFRS16) 50.3 45.7 10.1%
Operating profit 39.6 35.1 12.8%
Net finance costs (8.7) (7.2) (20.8%)
------------------------------------ -------- -------- --------
Profit before tax 30.9 27.9 10.8%
Taxation (4.6) (4.2) 9.5%
------------------------------------ -------- -------- --------
Effective tax rate 14.9% 15.1%
------------------------------------ -------- -------- --------
Profit after tax 26.3 23.7 11.0%
------------------------------------ -------- -------- --------
Continuing Adjusted operating profit of GBP39.6m was an increase
of GBP4.5m (12.8%) on the prior year. The impact of lower revenue
was more than offset by better wholesale margin due to the product
mix and cost savings both in depot and overheads.
In particular, trading patterns in the second half of the year
were strong in comparison to FY2020, with the result that the H1
2021 adverse variance in adjusted operating profit of GBP1m was
offset by GBP5m higher profit in H2 2021. In the first half of
FY2020, the Company experienced normal trading conditions other
than in DMD, which had started to be impacted by restrictions to
international travel in early calendar year 2020. Trading in Q3
FY2020 was severely affected by store closures following the first
lockdown in March 2020, but recovered from this low point into Q4
FY2020. As reported in our half year announcement on 5 May 2021,
trading was then stable through the first half of FY2021, even in
the light of subsequent lockdowns. Since the half year, trading has
continued to improve gradually as the overall economy has started
to recover.
Revenue was GBP1,109.6m (FY2020: GBP1,164.5m) down 4.7% on the
prior year which is within the historical trend of -3% to -5%
annual revenue decline. H1 2021 revenue was down 11.5% compared to
the prior year, but was up 2.9% in H2 2021 year-on-year (on a
comparative period impacted by COVID-19). Revenue grew by 1%
between the first and second half of FY2021 compared to a pre-COVID
trend of circa 4%. The year-on-year sales recovery in H2 2021
(following the anniversary of the first lockdown) benefitting from
one -off sales opportunities, most notably the sales of Euro 2020
stickers and Pokémon trading cards.
Newspaper sales for FY2021 were down 4.3% (FY2020: 6.9%) and
magazine sales were down 4.2% (FY2020: 16.3%). Newspapers had been
8.8% down in H1 2021 but were 0.6% up in H2 2021 year-on-year.
Magazines were 14.9% down in H1 2021 but were 9.4% up in H2 2021.
The newspaper market stabilised quicker than the magazines market
in Q4 2020 with consumer purchasing shifting towards local stores
rather than supermarkets and this gave a stronger comparative in H2
FY2021 for newspapers than magazines.
DMD revenue of GBP3.3m (FY2020: GBP10.5m) was down GBP7.2m
(68.6%), due to travel restrictions impacting airlines and
airports. DMD's operating profit of GBP0.1m was GBP0.6m higher than
FY2020 due to full period benefit of cost restructuring activities
implemented in Q4 2020 and lower depreciation charges following
asset write offs in FY2020.
The increase in Adjusted operating profit of GBP4.5m to GBP39.6m
(FY2020: GBP35.1m) can be attributed to:
-- Smiths News network efficiency programme, which generated
GBP5.0m of year-on-year savings from the labour and distribution
cost base. These savings more than offset the GBP2.2m year-on-year
reduction in net margin originating from lower sales. Network
savings were generated largely from final mile route reductions as
the cost base was flexed downwards on lower volumes;
-- DMD Adjusted operating profits increased by GBP0.6m year-on-year; and
-- Central cost overheads were reduced by GBP1.0m comprising the
full year benefit to back office costs following the disposal of
Tuffnells in May 2020, partly offset by the increase in colleague
and management incentives following the above target performance in
FY2021.
Net finance charges of GBP8.7m (FY2020: GBP7.2m) were up on the
prior year by GBP1.5m due to a higher level of amortisation of bank
arrangement fees GBP2.0m (FY2020: GBP0.5m) following renewal of the
Company's banking facilities in November 2020. The effective
interest rate is 5.27% (FY2020: 4.45%).
Adjusted profit before tax was GBP30.9m, up 10.8% on last year.
Taxation of GBP4.6m indicates a marginally lower effective tax rate
of 14.9% compared to the prior year (FY2020: 15.1%) for continuing
operations driven by an adjustment in respect of the prior period
(higher group relief from Tuffnells) and the unwind of the discount
on the Tuffnells deferred consideration which is not subject to
corporation tax.
STATUTORY RESULTS
GROUP
Continuing operations GBPm 2021 2020 Change
Revenue 1,109.6 1,164.5 (4.7%)
Operating profit 35.8 21.1 69.7%
Net finance costs (5.2) (6.3) (17.5%)
------------------------------------------- -------- -------- --------
Profit before tax 30.6 14.8 106.8%
Taxation (4.3) (2.8) 53.6%
------------------------------------------- -------- -------- --------
Effective tax rate 14.1% 18.9%
------------------------------------------- -------- -------- --------
Profit after tax 26.3 12.0 119.2%
------------------------------------------- -------- -------- --------
Discontinued operations GBPm
------------------------------------------- -------- -------- --------
Loss for the year from discontinued
operations (0.1) (18.7) 99.5%
------------------------------------------- -------- -------- --------
Profit/(loss) attributable to equity
shareholders continuing and discontinued
operations 26.2 (6.7) 491.0%
------------------------------------------- -------- -------- --------
Statutory continuing profit before tax of GBP30.6m, was a
GBP15.8m increase on the prior year (FY2020: GBP14.8m). The
increase was primarily driven by improved trading in Smiths News
and DMD which drove GBP4.5m higher operating profit; reductions in
impairment charges of GBP4.8m; and decrease in network and
reorganisation costs of GBP6.9m.
The effective statutory income tax rate for the continuing
operations was 14.1% (FY2020: 18.9%). Although the prior year
benefited from the Group relief relating to losses in Tuffnells,
this was more than offset by the impact of a reduction in the
expenses not deductible for tax purposes and income not subject to
tax in the current year.
Statutory continuing profit after tax of GBP26.3m is up by
GBP14.3m (FY2020: GBP12.0m), and statutory continuing profit per
share of 10.8p is up 5.9p (FY2020: 4.9p).
The Company has net liabilities of GBP57.7m on its balance sheet
(FY2020: GBP81.6m) largely as the result of impairments to the
assets and goodwill of the Tuffnells business in prior years.
The Company-entity balance sheet continues to have distributable
reserves of GBP124.9m to allow for future dividend payments.
EARNINGS PER SHARE
Continuing Continuing Statutory
Adjusted
----------------------------------- -------------- -----------------------
2021 2020 2021 2020
----------------------------------- ------ ------ ----------- ----------
Earnings attributable to ordinary
shareholders (GBPm) 26.3 23.7 26.3 12.0
Basic weighted average number of
shares (millions) 243.5 244.5 243.5 244.5
Basic Earnings per share 10.8p 9.7p 10.8p 4.9p
Diluted weighted number of shares
(millions) 254.8 247.2 254.8 247.2
Diluted Earnings per share 10.3p 9.6p 10.3p 4.9p
----------------------------------- ------ ------ ----------- ----------
Statutory continuing earnings per share is up 5.9p to 10.8p
(FY2020: 4.9p per share) and reflects the reduction in impairment
charges and decrease in network and reorganisation costs in the
current year.
Earnings attributable to shareholders on a continuing Adjusted
basis of GBP26.3m resulted in an Adjusted EPS of 10.8p, an increase
of 1.1p on the prior year driven by the improved trading of the
business.
The fully diluted weighted number of shares was 254.8m (FY2020:
247.2m). Fully diluted shares include an 11.3m diluted share
adjustment for employee incentive schemes (FY2020: 2.6m).
DIVID
2021 2020
-------------------------------------- ----- -----
Dividend per share (paid & proposed) 1.5p nil
Dividend per share (recognised) 0.5p 1.0p
-------------------------------------- ----- -----
The Board is proposing a final dividend of 1.0p, taking the full
period dividend to 1.5p (FY2020: nil p). The proposed final
dividend for the period ended 28 August 2021 of 1.0p is subject to
approval by shareholders at the Annual General Meeting on 20
January 2022 and has not been included as a liability in these
accounts. The proposed dividend, if approved, will be paid on 10
February 2022 to shareholders on the register at close of business
on 14 January 2022. The ex-dividend date will be 13 January
2022.
ADJUSTED ITEMS
Adjusted items of GBP0.3m relating to continuing operations were
a GBP12.8m reduction on the prior year (FY2020: GBP13.1m). Network
and reorganisation costs (FY2020: GBP6.9m lower) and asset
impairments (GBP4.8m lower) reduced significantly, the costs in
FY2020 having been the result both of internal restructuring and a
response to the initial phase of COVID-19.
Adjusted items are defined in the accounting policies in Note 1
of the Group Financial Statements and present a further measure of
the Group's performance. Excluding these items from profit metrics
provides readers with helpful additional information on the
performance of the business across periods because it is consistent
with how the business performance is planned by, and reported to,
the Board and the Executive Team. Alternative Performance Measures
(APMs) should be considered in addition to, and are not intended to
be a substitute for, or superior to, IFRS measurements.
The tables below and commentary provide a summary of the
adjusting items impacting continuing operations. Full details of
these and those impacting discontinued items can be found in Note 4
of the Group Financial Statements.
Continuing Operations GBPm 2021 2020
-------------------------------------- ------ -------
Transformation programme planning (1.1) -
costs
Pensions (1.0) (0.9)
Share of profits from joint ventures (0.3) -
Asset impairments (1.6) (6.4)
Network and re-organisation costs 0.1 (6.8)
Other 0.1 0.1
-------------------------------------- ------ -------
Total before tax and interest (3.8) (14.0)
Finance income - unwind of deferred
consideration 3.5 0.9
-------------------------------------- ------ -------
Total before tax (0.3) (13.1)
Taxation 0.3 1.4
-------------------------------------- ------ -------
Total after taxation - (11.7)
Adjusted items from continuing operations before tax was GBP0.3m
(FY2020: GBP13.1m).
During the year, the Company incurred professional fees in
relation to transformation programme planning of GBP1.1m. These
included professional fees related to the rationalisation of DMD's
corporate structure (GBP0.4m) to minimise the cost base of this
business.
Pension costs in the current and prior years related to the
buy-out of the Group's defined benefit pension scheme, as discussed
further below.
Rascal Solutions Limited, a joint venture, has fully impaired an
intangible asset in its annual accounts to 31 August 2021 because
it is considered no longer to have future economic value. The net
book value of this asset was GBP0.6m of which 50% (GBP0.3m) of the
write off is attributed to the Group.
Asset impairment charges of GBP1.6m were recognised in the
period (FY2020: GBP6.4m) in respect of the joint venture investment
in Rascal driven by increased market competition. The largest
component of the GBP6.4m charge in the prior year was the GBP5.7m
write down of goodwill in DMD, which trades primarily in the global
travel market.
Network and re-organisation costs were a credit of GBP0.1m in
FY2021 owing to an overprovision of redundancy costs in the prior
year. The decrease in costs of GBP6.9m since FY2020 represents an
absence of material one-off projects compared to last year. Costs
of a similar nature have been incurred in FY2021 to support depot
and cost reduction plans but were not of sufficient materiality to
be considered for adjustment.
In the prior year, network and reorganisation costs of GBP6.8m
related to the outsourcing of central functions (GBP1m); the
restructuring of our magazine hubs (GBP1.9m - mainly redundancy
costs); and redundancies in DMD, Instore and in our central
functions of GBP2.7m, as a consequence of both the disposal of
Tuffnells and due to the impact of COVID-19 lockdowns on our
trading; with the balance of costs being related to changes in the
Executive Team.
A finance income credit of GBP3.5m (FY2020: GBP0.9m) arises on a
full period of unwind of the discount on the Tuffnells deferred
consideration. The tax credit on continuing adjusted items was
GBP0.3m (FY2020: GBP1.4m). Adjusted items before tax for
discontinued operations in the prior year all related to the
Tuffnells business, with asset impairments of GBP0.6m; the net
impact of the sale and leaseback of properties of GBP1.0m; the net
profit of GBP0.6m following the strategic review and sale of
Tuffnells; and depot closures and executive redundancies of GBP1m
prior to disposal. Tax charges on discontinued adjusting items
totalled GBP3.6m in FY2020.
FREE CASH FLOW
Free cash flow generation remains one of the Company's key
strengths. Free cash flow includes lease payments, Adjusted items,
interest and tax; but it excludes pension deficit recovery
payments.
GBPm 2021 2020
------------------------------------------------- ------ ------
Operating profit continuing (including Adjusted
items) 35.8 21.1
Adjusting items 3.8 14.0
Depreciation & amortisation 10.7 10.6
------------------------------------------------- ------ ------
Adjusted EBITDA (including IFRS16) 50.3 45.7
Working capital movements 1.0 (5.7)
Capital expenditure (2.4) (7.0)
Lease payments (5.9) (6.8)
Net interest and fees (9.5) (6.5)
Taxation (6.3) (2.2)
Other 0.8 0.7
------------------------------------------------- ------ ------
Free cash flow (excluding adjusted items) 28.0 18.2
------------------------------------------------- ------ ------
Adjusted items - cash effect (4.0) (7.3)
Continuing Free cash flow 24.0 10.9
------------------------------------------------- ------ ------
The Company generated GBP24.0m of free cash flow which was
GBP13.1m higher than FY2020 (FY2020: GBP10.9m). Throughout the
COVID-19 pandemic, the Company has continued to generate strong
levels of cash, enabling it to continue to reduce debt and to pay
dividends.
Adjusted EBITDA of GBP50.3m is up by GBP4.6m (10.1%) compared to
FY2020 of GBP45.7m. The primary drivers are consistent with those
which supported the increase in operating profit, being significant
depot cost reductions which more than offset margin declines and
lower overheads.
The increase in working capital in the year was GBP1.0m (FY2020:
decrease GBP5.7m). Working capital is affected by the billing
cycles of both publishers and retailers and leads to intra-month
working capital movements of up to GBP40m. Those cycles were
consistent at the FY2021 and FY2020 period end cut-off points,
resulting in only a GBP1.0m movement during the year.
Cash capital expenditure in the year was GBP2.4m (FY2020:
GBP7.0m) a decrease of GBP4.6m. Depot and network investments were
GBP2.3m (FY2020: GBP3.9m) and technology investment was GBP1.1m
(FY2020: GBP3.1m). Of these investments, GBP1m remained unpaid at
period end as a capital creditor. The prior period included cash
payments made in early FY2020 from capital commitments and
creditors unpaid from the end of the FY2019 financial period of
GBP4.3m.
Lease payments of GBP5.9m (FY2020: GBP6.8m) have decreased by
GBP0.9m due to leases expiring during the period.
Net interest and fees of GBP9.5m (FY2020: GBP6.5m) has increased
by GBP3.0m, due to the payment of arrangement fees in relation to
the Company's refinancing of its debt facilities in November
2020.
Cash tax outflow of GBP6.3m was a GBP4.1m increase on the prior
period (FY2020: GBP2.2m outflow) owing principally to the move to
the quarterly instalment payment regime in FY2021 resulting in a
one-off negative cashflow impact in the year.
The total net cash impact of Adjusted items was GBP4.4m (FY2020:
GBP7.3m). This comprised: GBP3.4m (FY2020: GBP6.4m) of network
reorganisation, other strategic and restructuring costs; and
pension buy-in costs GBP1.0m (FY2020: GBP0.9m).
NET DEBT
GBPm 2021 2020
--------------------------------------------- ------- --------
Opening net debt (79.7) (72.1)
Continuing operations Free cash flow 24.0 10.9
Discontinued operations Free cash flow (0.4) (4.9)
--------------------------------------------- ------- --------
Free cash flow 23.6 6.0
Lease creditor & other movement - 0.5
Dividend paid (1.2) (2.4)
Purchase of own shares for employee share
schemes (2.6) (0.7)
Disposal costs - (3.7)
Discontinued operations - pension deficit
recovery - (0.8)
Discontinued operations - Tuffnells working
capital loan 6.7 (6.5)
Bank Net Debt (53.2) (79.7)
--------------------------------------------- ------- --------
Unamortised arrangement fees 1.2 0.2
--------------------------------------------- ------- --------
IFRS16 leases (29.2) (33.4)
--------------------------------------------- ------- --------
Closing net debt (81.2) (112.9)
--------------------------------------------- ------- --------
Bank Net Debt (excluding IFRS16 Leases) closed the period at
GBP53.2m compared to GBP79.7m at August 2020, a decrease of
GBP26.5m. The reduction in debt was driven by free cash flow from
continuing operations of GBP24.0m and GBP6.7m from the full
repayment in October 2020 of the working capital loan made to
Tuffnells as part of the sale agreement in May 2020. These inflows
were offset by the payment of the interim dividend of GBP1.2m in
July 2021 and a loan made to the Company's employee benefit trust
to purchase shares for the satisfaction of future share scheme
awards of GBP2.6m.
The Company's Bank Net Debt/EBITDA ratio decreased to 1.2x
(FY2020: 2.0x). The period end fell just before major publisher
payments of c.GBP20m were made, benefitting reported net
borrowings. Net debt rose to GBP69.3m on 1 September 2021 and to
GBP72.2m on 23 September 2021 which was the peak debt point for the
month.
The intra-month working capital cash flow cycle at Smiths News
generates a routine and predictable cash swing of up to GBP40m
within the overall bank facility of GBP112.5m at the period end.
This results in a predictable fluctuation of net debt during the
course of the month compared to the closing net debt position. Our
average daily Bank Net Debt during FY2021 was GBP82.6m (FY2020:
GBP98.8m).
The Bank Net Debt to EBITDA covenant of 1.2x is comfortably
within our main leverage covenant ratio of 2.75x and we remain well
within all of our other bank covenant tests at period end.
Several items impacting the prior year did not recur or only
partially reoccurred in FY2021. Discontinued operations cash flow
of GBP4.9m related to the net cash loss made by Tuffnells prior to
disposal. In FY2021, there was a further GBP0.4m cash outflow in
relation to the payment of insurance claims made against Tuffnells
which had existed at the date of sale. The lease creditor movement
in FY2020 was the result of the transition into IFRS 16 and did not
reoccur. Disposal costs of GBP3.5m in FY2020 related to Tuffnells
as did pension deficit recovery payments of GBP0.8m in FY2020.
Pension deficit repair payments are considered as a non-free cash
flow item. The Tuffnells working capital loan which was an GBP6.5m
outflow in FY2020 was repaid in full in October 2020 including
accrued interest of GBP0.2m, giving an FY2021 inflow of
GBP6.7m.
Closing net debt (including IFRS16 'Leases') is GBP81.2m at the
end of FY2021, representing a decrease of GBP31.7m on the prior
year.
GOING CONCERN
Having considered the Company's banking facility, the impact of
COVID-19 and the funding requirements of the Group and Company, the
directors are confident that headroom under our bank facility
remains adequate, future covenant tests can be met and there is a
reasonable expectation that the business can meet its liabilities
as they fall due for a period of greater than 12 months (being an
assessment period of 22 months) from the date of approval of the
Group Financial Statements. For this reason, the directors continue
to adopt the going concern basis in preparing the financial
statements and no material uncertainty has been identified.
PENSION SCHEMES
The Company operated a defined benefit scheme, the news section
of the WH Smith Pension Scheme which, as at 28 August 2021 had an
IAS-19 pre-tax surplus of GBP14.8m (FY2020: GBP15.2m). The Smiths
News section is both closed to new entrants and closed to future
accrual.
During the year, there was a reduction in equalisation
liabilities by GBP2.8m to GBP5.4m. The GBP2.8m movement is
considered an actuarial remeasurement recognised within other
comprehensive income and is offset by the release of the IFRIC 14
liability. On 17 February 2021, the WH Smith Pension Trust
purchased an additional insurance backed annuity 'buy-in' to cover
the additional equalisation liabilities not covered by the original
'buy-in' in October 2018 at a cost of GBP6.2m.
The High Court handed down its judgement in the latest
instalment of the Lloyds cases in November 2020, this time in
relation to equalising past transfers for inequalities in
Guaranteed Minimum Pension (GMP) benefits. The judgment created an
additional liability of GBP0.4m which is not covered by 'buy-in'
insurance. At the balance sheet date, GBP0.3m of the amounts owed
has been paid and a further GBP54k of liability is still to be
traced.
On 26 February 2021, the Company gave notice to terminate its
liability to the pension scheme with effect from 2 March 2021. This
notice was accepted by the Trustee and the wind-up of the pension
commenced. On 31 March 2021, the pension liabilities covered by the
buy-in insurance, which had been undertaken in October 2018,
transferred over to the new pension provider L&G and the
"buy-out" concluded, removing the Company's obligation to the
members.
At the balance sheet date, the Company did not recognise the
GBP14.8m pre-tax surplus as an asset, as it did not have an
unconditional right to the asset. The right of return is dependent
on the Trustee reaching a position where it is advised that it can
legally distribute the surplus to the employer and on completion of
activities to trace former members of the Trust impacted by the GMP
ruling.
Subsequent to the balance sheet date, the Trustee confirmed its
intention to return the surplus to the Company. The surplus, net of
additional professional fees and tax charged at a rate of 35%, is
expected to be paid to the Company in November 2021. The surplus
received by the Company will be used to reduce the Company's net
debt as required by the terms of our debt facility agreement.
PRINCIPAL AND EMERGING RISKS
The Company has a clear framework in place to continuously
identify and review both the principal and emerging risks it faces.
This includes, amongst others, a detailed assessment of business
and functional teams' principal risks and regular reporting to and
robust challenge from both the Executive Team and Audit Committee.
The directors' assessment of these principal risks is aligned to
the strategic business planning process.
Specifically, key risks are plotted on risk maps with
descriptions, owners, and mitigating actions, reporting against a
level of materiality (principally relating to impact and
likelihood) consistent with its size. These risk maps are reviewed
and challenged by the Executive Team and Audit Committee and
reconciled against the Company's risk appetite. As part of the
regular principal risk process, a review of emerging risks
(internal and external) is also conducted and a list of emerging
risks is maintained and rolled-forward to future discussions by the
Executive Team and Audit Committee. Where appropriate, these
emerging risks may be brought into the principal risk registers.
Additional risk management support is provided by external experts
in areas of technical complexity to complete our bottom-up and
top-down exercises.
As part of the Board's ongoing assessment of the principal and
emerging risks, the Board has considered the performance of the
business, its markets, the changing regulatory landscape and the
Company's future strategic direction and ambition. The directors
have carried out a robust assessment of the Group's emerging and
principal risks, including those that could threaten its business
model, future performance, solvency or liquidity.
Risks are still subject to ongoing monitoring and appropriate
mitigation.
The table below details each principal business risk, those
aspects that would be impacted were the risk to materialise , our
assessment of the current status of the risk and how each is
mitigated.
Principal risks and potential impact Mitigations Strategic link/
Change
Macroeconomic uncertainty
Deterioration in the macro-economic
environment results in supply side * Annual budgets and forecasts take into account the Strategic
cost inflation. current macro-economic environment to set Link:
The Company is presented with cost expectations internally and externally, allowing for Cost and
challenges in a number of areas or changing objectives to meet short and medium term efficiencies,
which are being driven financial targets. Operations
by increased competition in the
distribution labour market and rises Change:
in fuel and utility prices. * Weekly cost monitoring enables oversight and action Increasing
These cost increases present a risk on a timely basis.
when they cannot be fully mitigated
through increased
prices or other productivity gains. * Predictable level of volume decline within the core
This results in deterioration in the business enables cost optimisation planning.
level of profitability in both the
short and medium term,
and impacts on the Company's ability * The Company continues to be significantly cash
to execute its strategies, including generating to support its strategic priorities.
level of debt and
liquidity objectives.
---------------------------------------------------------------- ----------------
Acquisition and retention of labour
Due to the current competition in Strategic Link:
the distribution labour market the * We seek to offer market competitive terms to ensure People first,
Company is facing an talent remains engaged. Culture and
increased risk of being unable to values,
recruit and retain warehouse Costs and
colleagues and support staff. * We offer long-term contracts with our sub-contracted efficiencies
The same pressures are also being delivery partners.
felt in sourcing and retaining Change:
delivery sub-contractors. Increasing
A failure to maintain an appropriate * We use a variety of platforms to recruit employees
level of resourcing could result in and contractors.
increased costs,
employee disengagement and/or loss
of management focus and underpins * The level of vacancies across warehouse and delivery
the ability to address contractors are monitored daily.
the strategic priorities and to
deliver the forecast performance.
* We undertake workforce planning; performance, talent
and succession initiatives; learning and development
programs; and promote the Company's culture and core
values.
* Retention plans are reviewed to address key risk
areas, and attrition across the business is regularly
monitored.
* Regular surveys are undertaken to monitor the
engagement of colleagues.
---------------------------------------------------------------- ----------------
IT infrastructure and Cyber Security
To meet the needs of our Strategic Link:
stakeholders, our IT infrastructure * Defined risked based approach to the information Technology
needs to be flexible, reliable security roadmap and technology strategy which is
and secure. aligned to the strategic plans. Change:
Secure infrastructure prevents Increasing
external cyber-attack, insider
threat or supplier breach could * Regular tracking of key programmes against spend
cause service interruption and/or targets and delivey dates.
the loss of company and customer
data.
Cyber incidents could lead to major * The Company assesses cyber risk on a day to day basis,
adverse customer, financial, using proactive and reactive information security
reputational and regulatory controls to mitigate common threats.
impacts.
Flexible and reliable IT
infrastructure means the Company is * Dedicated information security investments and access
able to meet its strategic goals to third-party cyber security specialists.
and react quickly to changing
events. The lack of this could lead
to the Company being unable * The Company encourages a cyber aware culture by
to execute its strategic goals. undertaking exercises such as computer-based training
and more regular communications about specific cyber
threats
---------------------------------------------------------------- ----------------
Legal and regulatory compliance
The Company is required to be Strategic link:
compliant with all applicable * Changes in laws and regulations are monitored with Technology,
laws and regulations. Failure policies and procedures being updated as required. Sustainability,
to adhere to these could result Operations,
in financial penalties and/or
reputational damage. * Business-wide mandatory training programmes for Change:
Key areas of legal and higher-risk regulatory areas. Stable
regulatory compliance include:
* GDPR
* External experts are used where applicable.
* Health and Safety
* All major policies are reviewed by the Board or Audit
Committee on an annual basis.
* Tax compliance
* Operational auditing and monitoring systems for
* Environmental legislation higher risk areas.
* Employment law
---------------------------------------------------------------- ----------------
GROUP FINANCIAL STATEMENTS - SMITHS NEWS PLC
Group Income Statement for the 52 week period ended 28 August
2021
GBPm 2021 2020
---------------------------- ---- ------------------------------ ------------------------------
Note Adjusted* Adjusted Total Adjusted* Adjusted Total
items items
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Revenue 2 1,109.6 - 1,109.6 1,164.5 - 1,164.5
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of Sales 3 (1,036.2) - (1,036.2) (1,091.4) (0.2) (1,091.6)
Gross profit 3 73.4 - 73.4 73.1 (0.2) 72.9
Administrative
expenses 3 (33.9) (1.9) (35.8) (38.1) (13.8) (51.9)
Income from joint
ventures 0.1 (0.3) (0.2) 0.1 - 0.1
Impairment of
joint venture
investment 15 - (1.6) (1.6) - - -
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Operating profit 2,3 39.6 (3.8) 35.8 35.1 (14.0) 21.1
Finance costs 7 (8.8) - (8.8) (7.4) - (7.4)
Finance income 7 0.1 3.5 3.6 0.2 0.9 1.1
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
before tax 30.9 (0.3) 30.6 27.9 (13.1) 14.8
Income tax credit/(expense) 8 (4.6) 0.3 (4.3) (4.2) 1.4 (2.8)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
for the year from
continuing operations 26.3 - 26.3 23.7 (11.7) 12.0
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Discontinued operations
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Loss for the year
from discontinued
operations 11 - (0.1) (0.1) (13.1) (5.6) (18.7)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Profit/(loss)
attributable to
equity shareholders
continuing and
discontinued operations 26.3 (0.1) 26.2 10.6 (17.3) (6.7)
---------------------------- ---- --------- -------- --------- --------- -------- ---------
Earnings/(Loss) per
share from continuing
operations
Basic 10 10.8 10.8 9.7 4.9
Diluted 10 10.3 10.3 9.6 4.9
Earnings per share
total
Basic 10 10.8 10.8 4.3 (2.7)
Diluted 10 10.3 10.3 4.3 (2.7)
Equity dividends
per share (paid
and proposed) 9 1.5 1.5 nil
--------------------- ---- ---- --- ------------
* This measure is described in Note 1(4) of the accounting
policies and the Glossary to the Accounts. Adjusted items are set
out in Note 4 to the Group Financial Statements.
Group Statement of Comprehensive Income for the 52 week period
ended 28 August 2021
GBPm Note 2021 2020
Continuing
-------------------------------------------- ---- ----- ------
Items that will not be reclassified
to the Group Income Statement
Actuarial loss on defined benefit pension
scheme 6 (0.4) (0.7)
Impact of IFRIC 14 on defined benefit
pension scheme 6 0.8 0.9
Tax relating to components of other
comprehensive income that will not be
reclassified 8 0.2 -
-------------------------------------------- ---- ----- ------
0.6 0.2
Items that may be subsequently reclassified
to the Group Income Statement
Currency translation differences - 0.1
Other comprehensive result for the year
- continuing 0.6 0.3
Profit for the year - continuing 26.3 12.0
-------------------------------------------- ---- ----- ------
Total comprehensive income for the year
- continuing 26.9 12.3
Other comprehensive income for the period
discontinued - 0.3
(Loss) for the year - discontinued (0.1) (18.7)
-------------------------------------------- ---- ----- ------
Total comprehensive (expense) for the
year - discontinued (0.1) (18.4)
-------------------------------------------- ---- ----- ------
Total comprehensive income/(expense)
for the year 26.8 (6.1)
-------------------------------------------- ---- ----- ------
Group Balance Sheet at 28 August 2021
GBPm Note 2021 2020
----------------------------------- ------ ----------- -------
Non-current assets
Intangible assets 13 2.3 4.0
Property, plant and equipment 14 9.4 9.4
Right of use assets 21 28.4 32.8
Interest in joint ventures 15 2.9 4.9
Other receivables 17 2.3 14.6
Deferred tax assets 22 1.8 0.8
47.1 66.5
----------------------------------- ------ ----------- -------
Current assets
Inventories 16 13.2 14.1
Trade and other receivables 17 106.6 101.2
Cash and bank deposits 19 19.3 50.6
Corporation tax receivable - -
139.1 165.9
----------------------------------- ------ ----------- -------
Total assets 186.2 232.4
----------------------------------- ------ ----------- -------
Current liabilities
Trade and other payables 18 (136.5) (139.5)
Current tax liabilities (0.3) (1.7)
Bank loans and other borrowings 19 (21.2) (130.1)
Lease liabilities 21 (5.9) (5.8)
Provisions 23 (3.6) (6.8)
(167.5) (283.9)
----------------------------------- ------ ----------- -------
Non-current liabilities
Bank loans and other borrowings 19 (50.1) -
Lease liabilities 21 (23.3) (27.6)
Non-current provisions 23 (3.0) (2.5)
----------------------------------- ------ ----------- -------
(76.4) (30.1)
----------------------------------- ------ ----------- -------
Total liabilities (243.9) (314.0)
----------------------------------- ------ ----------- -------
Total net liabilities (57.7) (81.6)
----------------------------------- ------ ----------- -------
Equity
Called up share capital 27(a) 12.4 12.4
Share premium account 27(c) 60.5 60.5
Demerger reserve 28(a) (280.1) (280.1)
Own shares reserve 28(b) (3.9) (1.8)
Translation reserve 28(c) 0.4 0.4
Retained earnings 29 153.0 127.0
----------------------------------- ------ ----------- ---------
Total shareholders' deficit (57.7) (81.6)
----------------------------------- ------ ----------- ---------
The accounts were approved by the Board of Directors and
authorised for issue on 3 November 2021 and were signed on its
behalf by:
Jonathan Bunting Anthony Liam Grace
Chief Executive Officer Executive Director
Registered number - 05195191
Group Statement of Changes in Equity for the 52 week period
ended 28 August 2021
GBPm Note Share Share Demerger Own shares Hedging *Retained *Total
capital premium reserve reserve & translation earnings
account reserve
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- -------
Balance at
31 August 2019 12.4 60.5 (280.1) (1.7) 0.3 135.7 (72.9)
Loss for the
year - - - - - (6.7) (6.7)
Actuarial gain
on defined
benefit pension
scheme 6 - - - - - 0.1 0.1
Impact of IFRIC
14 on defined
benefit pension
scheme 6 - - - - - 0.9 0.9
Currency translation
differences - - - - 0.1 0.1 0.2
Tax relating
to components
of other comprehensive
income - - - - - (0.5) (0.5)
Total comprehensive
expense for
the year - - - - 0.1 (6.1) (6.0)
Dividends paid 9 - - - - - (2.4) (2.4)
Employee share
schemes purchases - - - (0.7) - - (0.7)
Employee share
scheme awards - - - 0.6 - (0.6) -
Recognition
of share based
payments net
of tax - - - - - 0.4 0.4
Balance at
29 August 2020 12.4 60.5 (280.1) (1.8) 0.4 127.0 (81.6)
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- -------
Profit for
the year - - - - - 26.2 26.2
Actuarial gain
on defined
benefit pension
scheme 6 - - - - - (0.4) (0.4)
Impact of IFRIC
14 on defined
benefit pension
scheme 6 - - - - - 0.8 0.8
Tax relating
to components
of other comprehensive
income - - - - - 0.2 0.2
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- -------
Total comprehensive
expense/income
for the year - - - - - 26.8 26.8
Dividends paid 9 - - - - - (1.2) (1.2)
Employee share
schemes purchases - - - (2.7) - - (2.7)
Employee share
scheme awards - - - 0.6 - (0.6) -
Recognition
of share based
payments net
of tax - - - - - 1.0 1.0
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- -------
Balance at
28 August 2021 12.4 60.5 (280.1) (3.9) 0.4 153.0 (57.7)
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- -------
* 2020 Retained earnings has been restated to include GBP0.1m
currency translation difference .
Group Cash Flow Statement for the 52 week period ended 28 August 2021
GBPm Note 2021 2020
------------------------------------------ ---- ------ ------
Net cash inflow from operating activities 26 41.4 23.4
------------------------------------------ ---- ------ ------
Investing activities
Dividends received from joint ventures 0.2 0.2
Purchase of property, plant and equipment (2.4) (6.9)
Purchase of intangible assets - (2.4)
Net proceeds on sale of property,
plant and equipment - 14.6
Loans advances 11 - (6.5)
Net cost of disposal of subsidiary 12 - (3.7)
Interest received 0.1 -
Loan repayment received 6.5 -
------------------------------------------ ---- ------ ------
Net cash (used in) investing activities 4.4 (4.7)
------------------------------------------ ---- ------ ------
Financing activities
Interest paid (9.5) (8.0)
Dividend paid 9 (1.2) (2.4)
Repayments of lease principal (5.9) (15.6)
Repayment of term loan (57.5) -
New loans issued 80.0 -
Net (decrease)/increase in revolving
credit facility and overdrafts (80.2) 50.8
Purchase of shares for employee benefit
trust (2.6) (0.7)
Net cash (used in)/generated financing
activities (76.9) 24.1
------------------------------------------ ---- ------ ------
Net (decrease)/increase in cash and
cash equivalents (31.1) 42.8
Effect of foreign exchange rate changes (0.2) (0.1)
------------------------------------------ ---- ------ ------
(31.3) 42.7
Opening net cash and cash equivalents 50.6 7.9
Closing net cash and cash equivalents 19 19.3 50.6
------------------------------------------ ---- ------ ------
During the year, cash inflow from investing activities
attributed to discontinued operations amounted to GBPnil (2020:
GBPnil inflow) Cash outflow from operating activities during the
year attributed to discontinued operations amounted to GBPnil
(2020: GBP10.3m outflow) and paid GBPnil outflow (2020: GBP9.1m
inflow) in respect of investing activities. There were GBPnil
(2020: GBP7.3m outflow) cash outflows associated with financing
activities attributable to discontinued operations.
Notes to the Accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc ('the Company') is a company incorporated in
England UK under Companies Act 2006. The Group accounts for the 52
week period ended 28 August 2021 comprise the Company and its
subsidiaries (together referred to as the 'Group') and the Group's
interests in joint ventures and associates. Subsidiary undertakings
are included in the Group Accounts from the date on which control
is obtained. They are deconsolidated from the date on which control
ceases. All significant subsidiary accounts are made up to 28
August 2021 and are included in the Group Accounts.
Unless otherwise noted references to 2020 and 2021 relate to a
52 week period ended 29 August 2020 and 28 August 2021 as opposed
to calendar year.
The Accounts were authorised for issue by the directors on 3
November 2021.
(2) Accounting basis of preparation
The financial information contained within this preliminary
announcement for the 52 weeks to 28 August 2021 and the 52 weeks to
29 August 2020 does not comprise statutory financial statements for
the purpose of the Companies Act 2006, but is derived from those
statements. The statutory accounts for Smiths News PLC for the 52
weeks to 29 August 2020 have been filed with the Registrar of
Companies and those for the 52 weeks to 28 August 2021 will be
filed following the Company's annual general meeting. The auditor's
reports on the accounts for both the 52 weeks to 28 August 2021 and
the 52 weeks to 29 August 2020 were unqualified, did not draw
attention to any matters by way of emphasis, and did not include a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The Annual Report and Accounts will be available for shareholders
in December 2021.
The Accounts are prepared on the historical cost basis with the
exception of certain financial instruments and are presented in
Pound Sterling and rounded to GBP0.1m, except where otherwise
indicated.
The Group Accounts have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
Intra-group balances and unrealised gains and losses or income
and expenses arising from intra-group transactions, are eliminated
in preparing Group Accounts. Unrealised gains and losses arising
from transactions with the joint ventures are eliminated to the
extent of the Group's interest in the entities.
(3) Going concern
The Company has a net liability position of GBP57.7m as at 28
August 2021. All bank covenant tests were met at the period end
with the key bank net debt: EBITDA (ex IFRS16) ratio of 1.2x, which
is below the current facility agreement covenant test threshold of
3.0x. The threshold reduces by 0.25x biannually to 2.25x at 27 May
2023.
The intra-month working capital cash flow cycle at Smiths News
generates a routine and predictable cash swing of up to GBP40m,
where necessary the Company utilises the Revolving Credit Facility
(RCF) to manage this. At the period end, GBP35.1m of the RCF
remains available as GBP4.9m of the GBP40m is allocated against
letters of credit. Post period end, the letters of credit were
reduced to GBP2.4m. Our average Bank Net Debt during 2021 was
GBP82.6m (2020: GBP98.8m).
3i) Bank facility
The Company has a facility of GBP112.5 million facility at the
balance sheet date, comprising a GBP37.5 million amortising term
loan (Facility A), a GBP35.0m million bullet repayment term loan
(Facility B) and a GBP40 million revolving credit facility (RCF).
Term Loan (facility B) is repayable from any proceeds received from
the deferred consideration as part of the sale of Tuffnells and
receipt of any pension surplus. The agreement is with a syndicate
of banks comprising lenders HSBC, Barclays, Santander, Clydesdale
and Shawbrook Bank.
The facility's current margin is 4.25% per annum (5.5% on
initial inception) over LIBOR (in respect of Facility A and the
RCF) and 4.75% per annum (6.0% on initial inception) over LIBOR (in
respect of Facility B). Post period end a revised senior finance
agreement was signed moving the pricing from LIBOR to SONIA.
Consistent with the Company's stated strategic priorities to
reduce net debt, the terms of the facility agreement include: an
amortisation schedule of GBP15m per annum for the repayment of
Facility A; agreed repayments against Facility B arising from funds
received in relation to both deferred consideration received
following the sale of Tuffnells and any cash surplus arising from
the buy-out of the Company's defined benefit pension scheme; and
capped dividend payments for FY 2021 (up to GBP4m) and FY 2022
onwards (up to GBP6m per year). The scheduled payment of GBP7.5m
was made in April 2021 reducing the initial GBP120m facility to
GBP112.5m at the balance sheet date. A further payment of GBP7.5m
was made in October 2021, post the balance sheet date, reducing the
facility further to its current GBP105m.
As part of the terms of the refinancing, the Company and its
principal trading subsidiaries have also agreed to provide security
over their assets to the lenders.
The final maturity date of the facility is 6 November 2023.
3ii) COVID-19 impact
The Company continued to generate cash and trade in line with
expectations through 2021 despite the second national lockdown in
November 2020 and third national lockdown announced in January
2021. Since the half year, trading has continued to improve
gradually as the overall economy has started to recover. Revenue
decline in FY2021 has overall returned to within the historical
trend of -3% to -5% annual revenue decline. The Going Concern
assessment assumes revenue decline will continue to be in line with
historic trends going forwards.
3iii) Reverse stress testing
The directors have prepared their base case forecast which
represents their best estimate of cash flows over the going concern
period and in accordance with FRC guidance and have prepared a
reverse stress test that would create a covenant break scenario
which could lead to the facilities being repayable on demand.
The break scenario would occur in August 2022 if EBITDA (ex IFRS
16) was 49% below expectations. The directors consider the
likelihood of this level of downturn and non-receipt to be remote
based on:
-- current trading which is in line with expectations
-- year-on-year declines in revenues would have to be
significantly greater than historical trends
-- the contracts are secured with publishers until at least 2024; and
-- the Company continues to trade with adequate profit to service its debt covenants.
3iv) Mitigating actions
In the event the break environment scenario moved from being
remote to possible then management would seek to take mitigating
actions to maintain liquidity and compliance with the bank facility
covenants. The options within the control of management would be
to:
-- Optimise liquidity by working capital management of the
peak-to-trough intra-month movement of up to GBP40m. Utilising
existing vendor management finance arrangements* with retailers and
optimising contractual payment cycles to suppliers which would
improve liquidity headroom
-- Not pay planned dividends
-- Delay non-essential capex projects
-- Cancel discretionary annual bonus payments; and
-- Identify other overhead and depot savings.
More extreme mitigating actions would also be available if the
scenario arose.
*The Company has vendor finance arrangements in place where it
has the ability to request early payment of invoices at a small
discount, the payments are non-recourse and the invoices are
considered settled from both sides once payment is received. The
Company has not made use of this facility in FY2021.
3v) Assessment
Having considered the above and the funding requirements of the
Group and Company, the directors are confident that headroom under
the bank facility remains adequate, future covenant tests can be
met and there is a reasonable expectation that the business can
meet its liabilities as they fall due for a period of greater than
12 months (being an assessment period of 22 months) from the date
of approval of the Group Financial Statements. For this reason, the
directors continue to adopt the going concern basis in preparing
the financial statements and no material uncertainty has been
identified.
(4) Alternate performance measures
In reporting financial information, the Group presents
alternative performance measures (APMs), which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs (listed in the glossary, are
not considered to be a substitute for, or superior to, IFRS
measures but provide stakeholders with additional helpful
information on the performance of the business. These APMs are
consistent with how the business performance is planned and
reported within the internal management reporting to the Board and
Executive Team.
The APMs do not have standardised meaning prescribed by IFRS and
therefore may not be directly comparable to similar measures
presented by other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from
these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of
newspapers and magazines. The Group is considered to be the
principal based on the following indicators of control over its
inventory: discretion to establish prices; it holds some of the
risk of obsolescence once in control of the inventory; and has the
responsibility of fulfilling the performance obligation on delivery
of inventory to its customers. If the Group were considered to be
the agent, revenue and cost of sales would reduce by GBP945.2m
(2020: GBP995.5m).
Tuffnells Deferred consideration
The Tuffnells business unit was disposed on 2 May 2020; the
Group is due GBP15.0m as deferred consideration payable over 3
years. There is a balance of GBP11.5m included within other
receivables (GBP2.3m non-current and GBP9.2m current) in respect of
the deferred consideration. The Group has calculated the fair value
of the deferred consideration on disposal at GBP7.1m and has
subsequently recognised the receivable at amortised cost. The fair
value was calculated by discounting the deferred consideration at
30% which is considered the key judgement. A +/-5% change in the
discount rate would have resulted in a decrease/increase of the
fair value of the deferred consideration by +/-GBP1.0m which would
change the profit and loss on disposal. For more information see
Note 11. Recoverability of the Tuffnells deferred consideration is
a key estimate. Management have assessed its recoverability and
have concluded that no impairment is necessary. This was assessed
using a number of scenarios such as delays in in payments and
non-recovery of the balance; changes in these assumptions may lead
to an impairment of the balance.
Determining lease terms
In determining lease terms, management considers all facts and
circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
For leases of distribution centres and equipment, the following
factors are the most relevant:
-- The Company continually considers the optimal network
structure in its judgement over lease terms;
-- If there are significant penalties to terminate (or not
extend), the Company is typically reasonably certain to extend (or
not terminate);
-- If any leasehold improvements are expected to have a
significant remaining value, the Company is typically reasonably
certain to extend (or not terminate); and
-- Otherwise, the Group considers other factors including
historical lease durations and the costs and business disruption
required to replace the leased asset. Most extension options in
vehicles leases have not been included in the lease liability,
because the Group could replace the assets without significant cost
or business disruption.
The lease term is reassessed if an option is actually exercised
(or not exercised) or the Group becomes obliged to exercise (or not
exercise) it. The assessment of reasonable certainty is only
revised if a significant event or a significant change in
circumstances occurs, which affects this assessment, and that is
within the control of the lessee.
Adjusting items
Adjusting items of income or expense are excluded in arriving at
Adjusted operating profit to present a further measure of the
Group's performance. Each adjusting item is considered to be
significant in nature and/or quantum, non-recurring in nature
and/or are considered to be unrelated to the Group's ordinary
activities or are consistent with items treated as adjusting in
prior periods. Excluding these items from profit metrics provides
readers with helpful additional information on the performance of
the business across periods because it is consistent with how the
business performance is planned by, and reported to, the Board and
the Executive Team.
The classification of adjusting items requires significant
management judgement after considering the nature and intentions of
a transaction. Adjusted measures are defined with other APM's in
the glossary.
Based on the nature of the transactions that it had Adjusting
items after tax totalling GBP0.1m (2020: GBP17.3m) and a breakdown
is included within Note 4.
Retirement benefits
In line with the accounting policy the 'buy-in' annuity
purchased on 17 February 2021 (Note 5) is recognised as a plan
asset consistent with previous transactions. The difference in
value between the value of the insurance asset received of GBP5.4m
at the date of the transaction and the asset transferred in
exchange for the policy GBP6.2m was considered an actuarial
remeasurement as the obligation to settle the scheme liabilities
continues to sit with the pension scheme. The GBP0.8m impact is
recognised within other comprehensive income and is offset by the
release of the IFRIC 14 liability.
If this was instead considered to form part of the settlement
costs of the subsequent pension 'buy-out' the GBP0.8m income
statement would be accounted for as a charge to the income
statement. The offsetting GBP0.8m, being the release of the
restriction, would continue to be included within other
comprehensive income.
The Company committed itself to wind-up the pension scheme on 2
March 2021 which was the date the Company and the Trustees of the
pension scheme committed to remove the Company's liability to the
pension scheme, the 'buy-out' removing the obligations happened on
31 March 2021.
At the balance sheet date, the Company does not recognise the
GBP14.8m pre-tax surplus as an asset, as it does not yet have an
unconditional right to the asset. The right of return is dependent
on the Trustee reaching a position where it is advised that it can
legally distribute the surplus to the employer and completion of
activities to trace former members of the Trust impacted by the GMP
ruling. Subsequent to the balance sheet date the Trustee confirmed
its intention to return the surplus to the Company. The surplus,
net of additional professional fees and tax charged at a rate of
35%, is expected to be paid to the Company in FY2022. The surplus
received by the Company will be used to repay existing debt.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumption concerning the future, and other key sources
of estimation uncertainty at the end of the reporting period that
may have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. When a review for impairment is
conducted, the recoverable amount is determined using value in use
calculations. The value in use method requires the Company to
determine appropriate assumptions in relation to the cash flow
projections over the three-year plan period (which is a key source
of estimation uncertainty), the terminal growth rate to be applied
beyond this three-year period and the risk-adjusted post-tax
discount rate used to discount the assumed cash flows to present
value. The assumption that cash flows continue into perpetuity is a
source of significant estimation uncertainty.
The Company has since reviewed the business plan for the Rascal
Solutions Limited Joint Venture, taking into account the challenges
arising from increasing market competition. As a result, an
impairment review has been performed. A value in use of GBP2.9m has
been calculated based on future cash flows of the business and have
been discounted at a rate of 15.4% and a terminal growth rate
applied of 0%. The result is an impairment loss of GBP1.6m. Refer
to Note 15, for further details.
Property provision
The Group holds a property provision which estimates the future
liabilities to restore leased premises to an agreed standard at the
date the lease is terminated. The provision is calculated based on
key assumptions including the length of time properties will be
occupied, the future costs of restoration and the condition of the
property at the future exit date.
The property provision represents the estimated future cost of
the Group's onerous leases on non-trading properties and for
potential dilapidation costs across the Group. These provisions
have been discounted to present value and this discount will be
unwound over the life of the leases.
A change in any of these assumptions could materially impact the
provision balance. Refer to Note 23 for further details on the
sensitivity of the assumptions used to calculated the property
provision. The property provisions carrying value at the period end
is GBP3.8m (FY2020: GBP3.9m).
Recoverability of Tuffnells deferred consideration
The recoverability of the Tuffnells deferred consideration is a
key estimate. Management have assessed its recoverability and have
concluded no impairment is necessary. This was assessed using a
number of scenarios such as delays in payments and non-recovery of
the balance, changes in these assumptions may lead to an impairment
of the balance.
(6) Non-current assets held for sale and disposal groups (prior period)
In the prior period, non-current assets held for sale and
disposal groups were classified as assets held for sale when their
carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. They were
stated at the lower of their carrying amount or fair value less
costs to sell.
Held for sale as assets are assets that have met all the
criteria required by IFRS 5 to be classified as held for sale, at
which point they are derecognised as non-current assets.
(7) Discontinued operations
In accordance with IFRS 5 'Non-current assets held for sale and
Discontinued operations', the net results of discontinued
operations are presented separately in the Group Income statement
(and the comparatives restated) and the assets and liabilities of
operations are presented separately in the Group balance sheet if
they meet the held for sale criteria at the balance sheet date or
were disposed of during the year.
A cash generating unit would meet the classification of a
discontinued operation when considered a material to the Group's
overall results.
(8) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of
the products has transferred, that is, when the products are
delivered to the retailer and there is no unfulfilled obligation
that could affect the retailer's acceptance of the products, the
risks of obsolescence and loss have been transferred to the
retailer. Goods are sold to retailers on a sale or return
basis.
Return Reserve
Newspapers and Magazines sales are made on a sale or return
basis, therefore the Group is required to estimate a value relating
to expected returns from retailers. Likewise as the publishers are
required to provide the Group with credit for any purchase returns,
so a purchase returns reserve is also required. The key estimates
used in calculating the period end reserve are rates of returns
(based on historical tends), average shelf life of the product
types and average price of each product type. These estimates are
similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net
of the value of any returns. Newspapers and magazines are often
sold with retrospective volume discounts based on aggregate sales.
Revenue from these sales is recognised based on the price specified
in the contract, net of the estimated volume discounts. Accumulated
experience is used to estimate and provide for the discount and
returns', using the expected value method and revenue is only
recognised to the extent that it is highly probable that a
significant reversal will not occur. A returns reserve accrual and
discount accrual (included in trade and other payables) is
recognised for expected volume discounts and refunds payable to
customers in relation to sales made until the end of the reporting
period. A right to the returned goods (included in other debtors)
are recognised for the products expected to be returned. Newspapers
and Magazines are made on a sale or return basis, therefore the
Group is required to estimate a value relating to expected returns
from retailers. Likewise as the publishers are required to provide
the Group with credit for any purchase returns a purchase returns
reserve is also required No element of financing is deemed present,
because the sales are made with short credit terms, which is
consistent with market practice.
A receivable is recognised when the goods are delivered, since
this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is
due.
(9) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of
inventories recognised as an expense, net impairment losses on
financial assets and distribution costs as these are considered to
represent for the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of
sales.
(10) Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement, except to
the extent it relates to items recognised in other comprehensive
income or directly in equity. Current tax is the expected tax
payable based on the taxable profit for the year, using tax rates
enacted, or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax
provided is calculated using tax rates enacted or substantively
enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax
liability is settled. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be
available against which these temporary differences can be
utilised.
(11) Dividends
Interim and final dividends are recorded in the financial
statements in the period in which they are paid.
(12) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group
is able to demonstrate all of the following: the technical
feasibility of the resulting asset; the ability (and intention) to
complete the development and use it; how the asset will generate
probable future economic benefits; and the ability to measure
reliably the expenditure attributable to the asset during its
development. Subsequent to initial recognition, internally
generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
(13) Joint ventures
The Group Accounts include the Group's share of the total
recognised gains and losses in its joint ventures on an equity
accounted basis.
Investments in joint ventures are carried in the balance sheet
at cost adjusted by post-acquisition changes in the Group's share
of the net assets of the joint ventures, less any impairment
losses. The carrying values of investments in joint ventures
include acquired goodwill. Losses in joint ventures that are in
excess of the Group's interest in the joint venture are recognised
only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint
venture.
(14) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account
for business combinations. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued,
liabilities incurred or assumed at the date of exchange.
Acquisition related costs are recognised in profit or loss as
incurred. Any deferred or contingent purchase consideration is
recognised at fair value over the period of entitlement. If the
contingent purchase consideration is classified as equity, it is
not remeasured and settlement is accounted for in equity. Any
deferred or contingent payment deemed to be remuneration as opposed
to purchase consideration in nature is recognised in profit or loss
as incurred, and excluded from the acquisition method of accounting
for business combinations. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured, initially, at their fair values at the
acquisition date, irrespective of the extent of any non-controlling
interest. The non-controlling interest is measured, initially, at
the non-controlling interest's proportion of the net fair value of
the assets, liabilities and contingent liabilities recognised.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer's previously held
equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
Goodwill arising on all acquisitions is initially recognised as
an asset at cost and is subsequently measured at cost less any
accumulated impairment losses.
The carrying value is reviewed annually for impairment or
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable . Intangible assets arising
under a business combination (acquired intangibles) are capitalised
at fair value as determined at the date of exchange and are stated
at fair value less accumulated amortisation and impairment losses.
Amortisation of acquired intangibles is charged to the income
statement on a straight-line basis over the estimated useful lives
as follows:
Customer relationships - 2.5 to 7.5 years
Trade name - 5 to 10 years
Software and development costs - 3 to 7 years
Computer software and internally generated development costs
which are not integral to the related hardware are capitalised
separately as an intangible asset and stated at cost less
accumulated amortisation and impairment losses.
Assets held under leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. All intangible assets are
reviewed for impairment in accordance with IAS 36 'Impairment of
Assets' when there are indications that the carrying value may be
higher than its recoverable value. The recoverable value used is
the value in use. The value in use is determined by estimating the
future cash inflows and outflows to be derived from continuous use
of the asset and applying the appropriate discount rate to those
future cash flows. Where the carrying value is higher than the
calculated value in use, an impairment loss will be recognised.
(15) Property, plant and equipment
Property, plant and equipment assets are stated at cost less
accumulated depreciation and any recognised impairment losses. No
depreciation has been charged on freehold land. Other assets are
depreciated, to a residual value, on a straight-line over their
estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease period
and the estimated remaining economic life
Fixtures and fittings - 3 to 15 years
Equipment - 5 to 12 years
Computer equipment - up to 5 years
Vehicles - up to 5 years
Assets held under leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. All property, plant and
equipment is reviewed for impairment in accordance with IAS 36
'Impairment of Assets' when there are indications that the carrying
value may not be recoverable.
(16) Leasing
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.The
lease payments are discounted using the interest rate implicit in
the lease. If that rate cannot be readily determined, which is
generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
To determine the incremental borrowing rate, the Group:
-- where possible, uses recent third-party financing received by
the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was
received;
-- uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the
Group, which does not have recent third party financing; and
-- Makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- Restoration costs.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT equipment and small items of office
furniture.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These are used to
maximise operational flexibility in terms of managing the assets
used in the Group's operations. The majority of extension and
termination options held are exercisable only by the Group and not
by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted using a revised
discount rate. The carrying value of lease liabilities is similarly
revised when the variable element of future lease payments
dependent on a rate or index is revised, except the discount rate
remains unchanged. In both cases an equivalent adjustment is made
to the carrying value of the right-of-use asset, with the revised
carrying amount being amortised over the remaining (revised) lease
term. If the carrying amount of the right-of-use asset is adjusted
to zero, any further reduction is recognised in profit or loss.
(17) Inventories
Inventories comprise goods held for resale and are stated at the
lower of cost or net realisable value. Inventories are valued using
a weighted average cost method. Costs comprise direct materials
and, where applicable, direct labour costs and those overheads that
have been incurred in bringing the inventories to their present
location and condition.
(18) Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument. The Group derecognises
financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Financial assets comprise trade and other receivables and cash
and cash equivalents. Financial liabilities comprise trade
payables, financing liabilities, bank borrowings.
(19) Financial assets
The group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
Trade receivables
Trade receivables are initially measured at fair value, which
for trade receivables is equal to the consideration expected to be
received from the satisfaction of performance obligations, plus any
directly attributable transaction costs. Subsequent to initial
recognition these assets are measured at amortised cost less any
provision for impairment losses including expected credit losses.
In accordance with IFRS 9 the Group applies the simplified approach
to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected
credit losses, trade receivables have been grouped based on shared
credit risk characteristics such as the ageing of the debt and the
credit risk of the customers. An historical credit loss rate is
then calculated for each group and then adjusted to reflect
expectations about future credit losses. The Group does not have
any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies and
the calculation of the loss allowance are provided in Note 17.
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
Other receivables
Other receivables are recognised on trade date, being the date
on which the Group has the right to the asset. Other receivables
are derecognised when the rights to receive cash flows from the
other receivables have expired or have been transferred and the
group has transferred substantially all the risks and rewards of
ownership.
At initial recognition, the Group measures other receivable at
their fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed
in profit or loss.
Subsequent measurement of other receivables depends on the
Group's business model for managing the asset and the cash flow
characteristics of the asset. The group classifies its other
receivables at amortised cost.
Assets that are held for collection of contractual cash flows,
where those cash flows represent solely payments of principal and
interest, are measured at amortised cost. Interest income from
these financial assets is included in finance income using the
effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and
presented in other gains/ (losses) together with foreign exchange
gains and losses. Impairment losses are presented as a separate
line item in Note 3.
The Group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- the asset is held within a business model whose objective is
to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are solely
payments of principal and interest.
The Group applies the general approach to impairment under IFRS
9 based on significant increases in credit risk rather than the
simplified approach for trade receivables using lifetime ECL.
(20) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year which
are unpaid. The amounts are unsecured and are usually paid within
30 days of recognition. Trade and other payables are presented as
current liabilities unless payment is not due within 12 months
after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the
effective interest method.
(21) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short term deposits with an original maturity
of three months or less. BACS and next day payments are recognised
at the settlement date, rather than when they are initiated, to
more appropriately reflect the nature of these transactions. In the
consolidated balance sheet, bank overdrafts are shown within
borrowings in current liabilities. Cash and cash equivalents in the
cash flow statement comprise cash at bank and in hand and bank
overdrafts which form part of the groups cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued are recorded at the
proceeds received, net of direct issue costs.
Bank borrowings
Interest bearing bank loans and overdrafts are initially
measured at fair value (being proceeds received, net of direct
issue costs), and are subsequently measured at amortised cost,
using the effective interest rate method. Finance charges,
including premiums payable on settlement or redemptions and direct
issue costs are accounted for on an accruals basis and taken to the
income statement using the effective interest rate method and are
added to the carrying value of the instrument to the extent that
they are not settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is
extinguishment of the original financial liability and recognition
of a new financial liability. Equally, modification of the terms of
existing financial liability is accounted for as an extinguishment
of the original financial liability and recognition of a new
financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition of a
foreign entity are treated as assets and liabilities of the foreign
entity and are translated at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations
are translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates of
the transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are translated at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are
recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated
at foreign exchange rates ruling at the dates the fair value was
determined.
(22) Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are measured at the directors'
best estimate of the expenditure required to settle the obligation
at the balance sheet date and if this amount is capable of being
reliably estimated. If such an obligation is not capable of being
reliably estimated, no provision is recognised and the item is
disclosed as a contingent liability where material. Where the
effect is material, the provision is determined by discounting the
expected future cash flows.
(23) Retirement benefit costs
The Group operates a number of defined contribution schemes for
the benefit of its employees. Payments to the Group's schemes are
recognised as an expense in the income statement as incurred.
Following the disposal of Tuffnells, the Group operates one defined
benefit pension scheme, the news section of The WH Smith Pension
Trust which is closed to new entrants and to further accrual. The
Trust formally entered into a buy-out transaction on 31 March 2021,
removing all material liabilities from the Trust. Actuarial
calculations are carried out as at 31 March 2021, the final date at
which the Trust liabilities are to be valued. Actuarial gains and
losses are recognised in full in the period in which they occur in
the group statement of comprehensive income. As at 28 August 2021,
there were a small proportion of liabilities within the Trust
relating to amounts owed to former members of the Trust as a result
of the latest Lloyds ruling in November 2020. As these liabilities
are not long-term in nature, actuarial assumptions at 28 August
2021 are not required. The Group do not recognise any
surplus unless there is an unconditional right to do so.
(24) Employee Benefit Trust
Smiths News Employee Benefit Trust
The shares held by the Smiths News Employee Benefit Trust are
valued at the historical cost of the shares acquired. This value is
deducted in arriving at shareholders' funds and presented as the
own share reserve in line with IAS 32 'Financial Instruments:
Disclosure and Presentation'.
(25) Share schemes
Share based payments
The Group operates several share-based payment schemes, being
the Sharesave Scheme, the Executive Share Option Scheme, the LTIP
and the Deferred Bonus Plan. Details of these are provided in the
Directors' Remuneration report and in Note 30.
Equity-settled share-based schemes are measured at fair value at
the date of grant. The fair value is expensed with a corresponding
increase in equity on a straight-line basis over the period during
which employees become unconditionally entitled to the options. The
fair values are calculated using an appropriate option pricing
model. The income statement charge is then adjusted to reflect
expected and actual levels of vesting based on non-market
performance related criteria.
Administrative expenses and distribution and marketing expenses
include the cost of the share-based payment schemes.
(26) Changes in accounting policies
The Group's accounting policy has been changed to recognise BACS
and next day payments at the settlement date, rather than when they
are initiated, to more appropriately reflect the nature of these
transactions. The comparative amounts have not been restated as the
prior period is unaffected by this change in accounting policy.
The Group has applied the following standards and amendments for
the first time for the annual reporting period commencing 30 August
2020:
-- Amendments to references to the Conceptual Framework in IFRS Standards;
-- Amendments to IFRS 3 Business Combinations;
-- Amendments to IAS 1 and IAS 8: Definition of Material;
-- Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate
Benchmark Reform;
-- Amendments to IFRS 4: Extension of the Temporary Exemption from Applying IFRS 9; and
-- Amendment to IFRS 16: COVID-19-Related Rent Concessions.
None of the other amendments listed above did have any impact on
the amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
New Standards and Interpretations not yet applied.
At the date of authorisation of these financial statements, the
following Standards and Interpretations that are potentially
relevant to the Group and which have not been applied in these
financial statements were in issue but not yet effective (and in
some cases had not yet been adopted by the UK):
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform - Phase 2;
-- Amendment to IFRS 16: COVID-19-Related Rent Concessions beyond 30 June 2021;
-- Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a Contract;
-- Annual Improvements to IFRS Standards 2018-2020;
-- Amendments to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use; and
-- Amendments to IAS 1: Classification of liabilities as current or non-current.
There are no other standards that are not yet effective and that
would be expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future
transactions.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has
identified its operating segments. The performance of these
operating segments is reviewed, on a monthly basis, by the Board.
The Board primarily uses a measure of Adjusted operating profit
before tax to assess the performance of the operating segments.
However, the Board also receives information about the segments'
revenue.
The continuing operating segments are:
Smiths News
Smiths News segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to
approximately 24,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to
airlines and travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers
across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths
News.
Smiths News Core is considered the only reportable segment of
the above given the size of the others and they are consolidated
into one reportable segment based on size.
Tuffnells
A leading provider of next day B2B delivery of mixed and
irregular freight consignments.
Tuffnells was disposed of in the prior year and therefore any
residual costs are considered to be a discontinued operation in the
current financial year. The division is presented as a discontinued
operation and is included below, where necessary, for the purpose
of reconciliation.
The following is an analysis of the Group's revenue and results
by reportable segment:
Revenue
----------------------------------- ------------------
GBPm 2021 2020
----------------------------------- -------- --------
Smiths News 1,109.6 1,164.5
Continuing operations 1,109.6 1,164.5
Discontinued operations - 98.2
Total continuing and discontinued
operations 1,109.6 1,262.7
------------------------------------ -------- --------
The Company's revenue by geographical location is UK 99.9%
(2020: 99.5%) and Rest of World 0.1% (2020: 0.5%).
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in Note 1
2021 2020
------------------- ------------------------------------------- -------------------------------------------
GBPm Adjusted Adjusted Statutory Adjusted Adjusted Statutory
operating items operating operating items operating
profit/(loss) profit/(loss) profit/(loss) profit/(loss)
------------------- --------------- --------- --------------- --------------- --------- ---------------
Smiths News 39.6 (3.8) 35.8 35.1 (14.0) 21.1
Continuing
operations 39.6 (3.8) 35.8 35.1 (14.0) 21.1
Net finance
expense (8.7) 3.5 (5.2) (7.2) 0.9 (6.3)
-------------------- --------------- --------- --------------- --------------- --------- ---------------
Continuing
profit before
tax 30.9 (0.3) 30.6 27.9 (13.1) 14.8
Discontinued
operations
profit before
tax* - (0.2) (0.2) (13.3) (2.0) (15.3)
-------------------- --------------- --------- --------------- --------------- --------- ---------------
Total continuing
and discontinued
operations
Profit before
taxation 30.9 (0.5) 30.4 14.6 (15.1) (0.5)
-------------------- --------------- --------- --------------- --------------- --------- ---------------
*Discontinued operations in the table above are pre-tax
measures. Presentations in the Group income statement for
discontinued operations are post tax measures.
I nformation about major customers
Included in revenues arising from Smiths News are revenues of
approximately GBP121.9m (2020: GBP125.2m) which arose from sales to
the Group's largest customer. Three other customers contributed
6.0% or more of the Group's revenue in 2021 (2020: 6%).
Segment depreciation, amortisation and non-current asset
additions
Depreciation Amortisation Impairment Additions to non-current assets
------------------------ --------------- --------------- ------------- ----------------------------------
GBPm 2021 2020* 2021 2020 2021 2020 2021 2020*
------------------------ ------ ------- ------- ------ ------ ----- --------------- -----------------
Smiths News 8.8 13.6 1.9 2.0 1.6 6.0 6.0 15.8
------------------------ ------ ------- ------- ------ ------ ----- --------------- -----------------
Continuing operations 8.8 13.6 1.9 2.0 1.6 6.0 6.0 15.8
Discontinued operations - 0.4 - - - 2.5 - 2.4
Consolidated total 8.8 14.0 1.9 2.0 1.6 8.5 6.0 18.2
------------------------ ------ ------- ------- ------ ------ ----- --------------- -----------------
Additions to non-current assets include intangible assets,
property, plant and equipment and right of use assets
*2020 depreciation has been restated to include depreciation of
Right of Use assets.
3. Operating profit/(loss)
The Group's results are analysed as follows:
GBPm 2021 2020
Continuing operations Note Adjusted Adjusted Total Adjusted Adjusted Total
items items
---------------------- ---- --------- -------- --------- --------- -------- ---------
Revenue 1,109.6 - 1,109.6 1,164.5 - 1,164.5
---------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of inventories
recognised as
an expense (945.2) - (945.2) (995.5) - (995.5)
Net impairment
losses on financial
assets - - (0.3) (0.2) (0.5)
Distribution costs (91.0) - (91.0) (95.6) - (95.6)
---------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of sales (1,036.2) - (1,036.2) (1,091.4) (0.2) (1,091.6)
---------------------- ----
Gross profit 73.4 - 73.4 73.1 (0.2) 72.9
---------------------- ---- --------- -------- --------- --------- -------- ---------
Other administrative
expenses (30.9) (1.9) (32.8) (35.8) (7.8) (43.6)
Share-based payment
expense 30 (1.0) - (1.0) (0.3) - (0.3)
Amortisation of
intangibles 13 (1.9) - (1.9) (2.0) - (2.0)
Impairment (0.1) - (0.1) - (6.0) (6.0)
Administrative
expenses (33.9) (1.9) (35.8) (38.1) (13.8) (51.9)
---------------------- ---- --------- -------- --------- --------- -------- ---------
Share of profits
from joint ventures 15 0.1 (0.3) (0.2) 0.1 - 0.1
---------------------- ---- --------- -------- --------- --------- -------- ---------
Impairment of
joint venture
Investment - (1.6) (1.6) - - -
---------------------- ---- --------- -------- --------- --------- -------- ---------
Operating profit 39.6 (3.8) 35.8 35.1 (14.0) 21.1
---------------------- ---- --------- -------- --------- --------- -------- ---------
The operating profit/ (loss) are stated after charging/
(crediting):
GBPm Note 2021 2020
------------------------------------------- ----- ---------------------------------- ---------------------------------
Continuing Discontinued Total Continuing Discontinued Total
Depreciation
on property,
plant & equipment 14 2.4 - 2.4 2.6 0.4 3.0
Amortisation
of intangible
assets 13 1.9 - 1.9 2.0 - 2.0
Depreciation
on right use
assets 21 6.4 - 6.4 6.0 5.0 11.0
Short term and
low value lease
charges
* occupied land and buildings 0.1 - 0.1 0.9 0.4 1.3
* equipment and vehicles 0.4 - 0.4 0.3 1.8 2.1
Lease rental
income - land
and buildings 0.2 - 0.2 0.2 - 0.2
(Loss)/gain on
disposal of non-current
assets 0.2 - 0.2 - 1.7 1.7
Staff costs (excluding
share based payments) 5 43.8 - 43.8 49.0 44.7 93.7
------------------------------------------- ----- ----------- ------------- ------ ----------- ------------- -----
Included in administrative expenses are amounts payable by the
Company and its subsidiary undertakings in respect of audit and
non-audit services which are as follows:
GBPm 2021 2020
---------------------------------------------- ----- -----
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts - BDO LLP 0.2 0.3
Fees payable to the Company's auditor
for the audit of the Company's subsidiaries
- BDO LLP 0.2 0.2
---------------------------------------------- ----- -----
Total non-audit fees 0.1 0.2
---------------------------------------------- ----- -----
Total fees 0.5 0.7
---------------------------------------------- ----- -----
Details of the Company's policy on the use of auditors for
non-audit services and how the auditor's independence and
objectivity was safeguarded are set out in the Audit Committee
report.
4. Adjusted items
GBPm 2021 2020
------------------------- ----- ---------------------------------- -----------------------------------
Continuing Discontinued Total Continuing Discontinued Total
------------------------- ----- ----------- ------------- ------ ----------- ------------- -------
Transformation
programme
planning costs. (a) (1.1) - (1.1) - - -
Pension (b) (1.0) - (1.0) (0.9) - (0.9)
Share of profits
from joint
ventures (c) (0.3) - (0.3) - - -
Asset impairments (d) (1.6) - (1.6) (6.4) (0.6) (7.0)
Other 0.1 - 0.1 0.1 - 0.1
Network and
re-organisation
costs (e) 0.1 - 0.1 (6.8) (1.0) (7.8)
VAT refund (f) - 0.4 0.4 - - -
Review and
sale of Tuffnells (g) - (0.6) (0.6) - 0.6 0.6
Sale and Leaseback (h) - - - - (1.0) (1.0)
Total before
tax and interest (3.8) (0.2) (4.0) (14.0) (2.0) (16.0)
Finance income
- unwind of
deferred consideration (i) 3.5 - 3.5 0.9 - 0.9
------------------------- ----- ----------- ------------- ------ ----------- ------------- -------
Total before
tax (0.3) (0.2) (0.5) (13.1) (2.0) (15.1)
Taxation 0.3 0.1 0.4 1.4 (3.6) (2.2)
-------------------------------- ----------- ------------- ------ ----------- ------------- -------
Total after
taxation - (0.1) (0.1) (11.7) (5.6) (17.3)
The Group incurred a total of GBP0.5m (2020: GBP15.1m) of
Adjusted items and after tax GBP0.1m (2020: GBP17.3m)
respectively.
Adjusted items are defined in the accounting policies in Note 1
and in the glossary in the directors' opinion the impact of
removing these items, from the adjusted profit provide a relevant
analysis of the trading results of the Group because it is
consistent with how the business performance is planned by, and
reported to the Board and Executive Team. However, these additional
measures are not intended to be a substitute for, or superior to,
IFRS measures. They comprise:
Continuing operations
(a) Transformation programme planning costs: GBP1.1m (2020:
GBPnil)
During the financial period, the Company incurred professional
fees in relation to transformation programme planning. This
included professional fees related to the rationalisation of DMD's
corporate structure (GBP0.4m) to minimise the cost base of this
business.
These costs are reported as adjusting items on the basis that
they are significant in nature and quantum and are non-recurring in
nature.
(b) Pensions: GBP1.0m (2020: GBP0.9m)
The Company incurred GBP1.0m (2020 GBP0.9m) in pension
administrative expenses and other professional fees as a result of
the continuing process to wind up the news section of the WH Smith
Pension Trust (the Company's defined benefit pension scheme) see
Note 6 for details). In the prior financial period, this included
GBP0.9m in rationalising the Company's pension portfolio which was
triggered by the buy-in of an insurance backed annuity relating to
the news section of the WH Smith Pension Trust.
These costs are reported as adjusting items on the basis that
they are significant in nature and quantum and are unrelated to the
Group's ordinary activities.
(c) Share of profits from Joint Ventures: GBP0.3m (2020:
GBPnil)
Rascal Solution Limited, one of the Group's joint ventures, has
written off an intangible asset in full in its annual accounts to
31 August 2021 because it is considered to no longer have future
economic value. The net book value of this asset was GBP0.6m of
which 50% (GBP0.3m) of the write off is attributed to the
Company.
These costs are reported as adjusting items on the basis that
they are significant to the investment in Rascal, are non-recurring
in nature and aid comparability from one period to the next
regarding the performance of the Joint Venture.
(d) Asset impairments: GBP1.6m (2020: GBP6.4m)
As a result of competitive pressures in the market, the Company
reviewed the business plan for its Rascal joint venture and an
impairment review has been performed. The Company has assessed the
investment in the joint venture to be impaired by GBP1.6m.
In the prior financial period, the impacts of the lockdowns
associated with the COVID-19 pandemic triggered impairment reviews
of a number of the Group's assets:
A prior financial period charge of GBP5.7m was incurred against
DMD Goodwill to fully impair its balance because of the trading
impact of the COVID-19 travel restrictions.
The pandemic also increased risk of recovery of DMD's
receivables and as a result the Company recognised GBP0.2m
increased expected credit loss provision against customers impacted
by the COVID-19 pandemic.
A further GBP0.2m charge was incurred as a result of the write
down of a balance with one of the Company's joint venture.
The impact of COVID-19 pandemic also triggered a review of the
viability of Bluebox Systems Group Limited (Bluebox); a joint
venture of the Company. As a result the outlook of Bluebox remains
uncertain and the investment was written off completely incurring a
GBP0.3m impairment charge.
The Group considers the impact of the above to be adjusting
given the impairment charges are been significant in both quantum
and nature to the results of the Group .
(e) Network and re-organisation: GBP0.1m credit (2020:
GBP6.8m)
These are analysed as follows:
GBPm 2021 2020
================================== ====== =====
Executive team redundancies - 1.2
Outsourcing of central functions - 1.0
Business restructuring (0.1) 2.7
Network reorganisation - 1.9
---------------------------------- ------ -----
Total (0.1) 6.8
================================== ====== =====
Executive Team redundancies
In the prior year, costs of GBP0.5m have been incurred as a
result of the departure of the CEO in November 2019 (payment in
lieu of notice having been made in 12 monthly instalments to
November 2020). Separately, following the disposal of Tuffnells in
2020, the Group incurred GBP0.7m streamlining the Group's Executive
Team.
These costs were considered to be adjusting given their quantum
and to enable comparability between periods with equivalent costs
of the Executive Team.
Outsourcing central functions
In the prior year GBP1.0m of costs related to the off-shoring of
selected technology, customer services and finance functions. This
comprised a provision of GBP0.5m related to redundancy costs as
part of this transition and GBP1.4m related to set up costs which
include the cost of parallel running when the shared service centre
whilst transitioning. The costs were offset by a GBP0.9m release of
the previous year redundancy provision.
These costs are considered adjusting as the impact of the
transition to an off shored central function is considered
non-recurring and significant both in nature and quantum. The
running costs of the parts of the centre which are fully
operational were treated as non-adjusting.
Business Restructuring
The disposal of the Tuffnells business and lockdowns associated
with the COVID-19 pandemic led to the Company restructuring its
support functions and a reorganisation provision was put in place.
The Company has released GBP0.1m of this provision in the current
period and the release is reported as an adjusting item consistent
with the prior period treatment.
In the prior year, the disposal of the Tuffnells business and
lockdowns associated with the Covid-19 pandemic led to the Group
also restructuring its support functions and two of its business
units (DMD and Instore) and incurring incremental costs. In total
these costs were GBP2.7m.
These costs were considered to be adjusting given they are
significant in nature and quantum and they enable comparability
between periods with equivalent costs of the day to day operations
of the business. Ongoing incremental costs incurred as a result of
COVID-19 have been recognised with non-adjusted amounts.
Network reorganisation
In the prior period, GBP1.9m costs relating to the restructuring
of the Smiths News network were incurred. The costs incurred
primarily related to redundancies as a result of the decision to
further consolidate its magazine hubs.
Costs associated with the reorganisation programmes were
considered Adjusting items given they are significant in nature and
quantum. The costs were related to a strategic programme to drive
future cost savings and treating these costs as adjusting aid
comparability from one period to the next.
(i) Finance Income - Deferred consideration GBP3.5m credit
(2020: GBP0.9m credit)
During the year, GBP3.5m has been recognised as unwind of
discount on deferred consideration (2020:GBP 0.9m). The deferred
consideration relates to the disposal of Tuffnells and for that
reason has been classified as adjusting because it does not relate
to the Group's ordinary activities. The deferred consideration is
expected to fully unwind by May 2023.
Discontinued operations
(d) Impairment of Tuffnells assets: GBPnil (2020: GBP0.6m)
Impairments of Tuffnells assets of GBP0.6m were recognised by
the Group in the prior financial period against property, plant and
equipment. The bids received for Tuffnells indicated that the net
book value of Tuffnells was above its fair value less costs to
sell, indicating an impairment was required. Accordingly,
impairments totalling GBP0.6m were recognised to reflect the
updated value of the business.
The impairment was considered adjusting because it does not
relate to the Group's ordinary activities.
(e) Network and re-organisation costs: GBPnil (2020:
GBP1.0m)
There are GBPnil incurred on Network and re-organisation in
2021. 2020 costs are analysed as follows:
-- Executive Team redundancies of GBPnil (2020: GBP0.4m)
-- Network reorganisation costs of GBPnil (2020: GBP0.6m)
Executive Team redundancies GBPnil (2020: GBP0.4m)
These costs had been incurred as a result of the restructure of
the Tuffnells executive team as part of the strategic review in
2020.
Network Reorganisation GBPnil (2020: GBP0.6m)
These costs had been incurred as a result of depot closures. The
depot closures were identified as a cost saving measure from the
strategic review; the depot closure enabled greater flexibility
with minimal impacts on the businesses.
These costs were considered to be adjusting given significance
in nature and quantum and to aid comparability between periods.
(f) VAT refund: GBP0.4m credit (2020 GBPnil)
During the period the Company put forward a claim to HMRC of
GBP0.8m in relation to the reclamation of VAT previously treated as
non-recoverable on prior disposals of businesses previously owned
by the Group. The claim was successful and the amount has been paid
in full. A credit of GBP0.4m has been recognised in the period. As
this income relates to costs which would have been classed as
discontinued, the same treatment has been applied. This income is
considered to be adjusting given its quantum and is unrelated to
the Group's ordinary activities.
(g) Review and sale of Tuffnells: GBP0.6m (2020:GBP0.6m
credit)
As part of the sale of Tuffnells the Company assumed liability
to settle certain pre-disposal insurance and legal claims related
to: employer's liability, public liability, motor accident claims
and legal claims. In the current financial period GBP0.6m of costs
were recognised.
In the prior financial period the Tuffnells business was
reviewed, the review involved evaluating a number of options in
order to maximise value for Shareholders, including:
-- continuing to support the continuing Tuffnells turnaround under the Company's ownership;
-- the potential for and consequences of closing the business; and
-- a possible disposal to a third party.
Costs incurred as a result of this review were GBP0.3m
The Board subsequently concluded that a sale to a third party
would generate the most value for shareholders. Following the
strategic review, Tuffnells was sold on 2 May 2020 and a profit of
GBP1.8m generated.
As part of the disposal agreement with Tuffnells, Tuffnells were
provided with services under a transitional service agreement.
Tuffnells notified the Group that it intended to terminate a number
of services early within the transitional service agreement, some
of which were provided by third party suppliers. Where the Company
was unable to co-terminate these contracts with its suppliers, it
considered these onerous contracts and an onerous contract
provision of GBP0.9m was recognised.
These costs are considered adjusting due to their significance
in nature and quantum, to aid comparability between periods and
because they are unrelated to the Group's ordinary activities.
(h) Sale and leaseback: GBPnil (2020: GBP1.0m)
Tuffnells, a discontinued division of the Company, disposed of
eight properties in the prior period and as a result the following
were incurred:
GBPm 2021 2020
----------------------- ------- ------ ------
Sale & leaseback
Profit on disposal of
Tuffnells properties (i) - 1.5
Rectification costs (ii) - (0.6)
Impairment (iii) - (1.9)
Total - (1.0)
-------------------------------- ----- ------
(i) Profit on loss on disposal of Tuffnells properties GBPnil (2020: GBP1.5m)
In line with IFRS 16, a profit of GBPnil (2020 GBP1.5m) has been
recognised.
(ii) Rectification costs GBPnil (2020: GBP0.6m)
As part of the terms of the disposal the Group agreed to
undertake rectification works to the disposed of properties within
2 years. A provision totalling GBP0.6m was recognised in relation
to this obligation.
(iii) Impairment GBPnil (2020: GBP1.9m)
After the sale of the properties noted above, a number of
properties remained unsold as the bids received were below historic
cost an impairment charge of GBP1.9m was recognised when the assets
were reclassified from held for sale back into property plant and
equipment
These costs are considered to be adjusting given the
significance in nature and quantum and do not relate to the Group's
ordinary activities.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive
directors) was:
GBPm Note 2021 2020
Continuing
------------------------------- ----- ----- ------
Wages and salaries 39.2 44.9
Furlough - (0.9)
------------------------------- ----- ----- ------
Net wages and salaries 39.2 44.0
Social security 3.4 3.7
Pension costs 6 1.2 1.3
------------------------------- ----- ----- ------
Continuing operations total 43.8 49.0
------------------------------- ----- ----- ------
Discontinued operations
Wages and salaries - 41.4
Furlough - (0.5)
------------------------------- ----- ----- ------
Wages and salaries - 40.9
Social security - 3.5
Pension costs 6 - 0.3
------------------------------- ----- ----- ------
Discontinued operations total 44.7
------------------------------- ----- ----- ------
Total 43.8 93.7
------------------------------- ----- ----- ------
Pension costs shown above exclude charges and credits for
pension scheme financing and actuarial gains and losses arising on
the pension schemes. Wages and salaries shown above exclude amounts
related to share based payment charges. On a continuing basis there
was a charge of GBP1.0m in 2021 (2020: GBP0.3m) relating to share
based payments (refer to Note 3).
(b) Employee numbers
The average total monthly number of employees relating to
operations (including directors) was:
Number 2021 2020
------------------------------- ------ ------
Continuing operations
Operations 1,536 1,787
Support functions 154 268
Continuing operations total 1,690 2,055
------------------------------- ------ ------
Discontinued operations
Operations - 2,380
Support functions - 74
------------------------------- ------ ------
Discontinued operations total - 2,454
------------------------------- ------ ------
Total - 4,509
------------------------------- ------ ------
6. Retirement benefit obligation
Defined benefit pension schemes
In the period the Group operated one defined benefit scheme, the
news section of the WH Smith Pension Trust (the 'Pension Trust').
In the prior financial period the Group also operated the Tuffnells
Parcels Express Pension Scheme, which is now outside the Group
following the disposal of Tuffnells in May 2020.
The amounts recognised in the balance sheet are as follows:
GBPm 2021 2020
------------------------- ------ -------
Present value of defined
benefit obligation (0.1) (481.2)
Fair value of assets 14.9 496.4
------------------------- ------ -------
Net surplus 14.8 15.2
Amounts not recognised
due to asset limit (14.8) (15.2)
------------------------- ------ -------
Pension liability - -
------------------------- ------ -------
The valuation of the defined benefit schemes for the IAS 19
(revised) disclosures have been carried out by independent
qualified actuaries based on updating the most recent funding
valuations of the respective scheme, adjusted as appropriate for
membership experience and changes in the actuarial assumptions.
The W.H.Smith Pension Trust purchased an insurance backed
annuity 'buy-in' in October 2018 to cover the liabilities of the
news section of the scheme. In FY2020, it was considered that
equalisation happened at a later date than previously assumed, as a
result further "equalisation liabilities" were recognised as a
prior year adjustment made to 1 September 2018 in the FY2020 annual
report and financial statements (see Note 1C).
In December 2020 an exercise was completed to calculate the
equalisation liability for the purposes of purchasing an insurance
policy. The completion of this exercise reduced the liabilities
from GBP8.2m to GBP5.4m, the GBP2.8m movement is considered an
actuarial remeasurement recognised within other comprehensive
income and is offset by the release of the IFRIC 14 liability.
On 17 February 2021 the W.H.Smith Pension Trust purchased an
additional insurance backed annuity 'buy-in' to cover the
additional equalisation liabilities not covered by the original
'buy-in' in October 2018 at a cost of GBP6.2m. The 'buy-in' annuity
is recognised as a plan asset and the difference in value between
the value of the insurance asset received of GBP5.4m and the asset
transferred in exchange for the policy GBP6.2m is considered an
actuarial remeasurement recognised within other comprehensive
income and is offset by the release of the IFRIC 14 liability.
On 26 February 2021 the Company gave notice to terminate its
liability to the pension scheme with effect from 2 March 2021, this
was accepted by the Trustees and the wind-up of the pension
commenced. On 31 March 2021 the pension liabilities covered by the
buy-in insurance transferred over to L&G the new pension
provider and "buy-out" concluded removing the Company's obligation
to the members.
The High Court handed down its judgement in the latest
instalment of the Lloyds cases in November 2020, this time in
relation to equalising past transfers for inequalities in
Guaranteed Minimum Pension (GMP) creating an additional liability
of GBP0.4m which is not covered by 'buy-in' insurance. At the
balance sheet date, GBP0.3m of the amounts owed have been paid and
a further GBP0.1m of liability is still to be traced.
The Company does not recognise the GBP14.8m pre-tax surplus,
noted in the table above, as an asset, as it does not yet have an
unconditional right to the asset. The right of return is dependent
on the Trustee reaching a position where it is advised that it can
legally distribute the surplus to the employer and completion of
activities to trace former members of the Trust impacted by the GMP
ruling. Subsequent to the balance sheet date the Trustee confirmed
its intention to return the surplus to the Company net of
additional professional fees and tax charged at a rate of 35%. The
surplus of circa GBP8m, is expected to be paid to the Company in
November 2021. The surplus received by the Company will be used to
repay existing debt.
The principal long-term assumptions used to calculate scheme
liabilities on all Group schemes up to the disposal date are:
% p.a. 2021 2020
----------------------------- -------------- --------------
Discount rate 1.95 1.5
Inflation assumptions - CPI 2.8 2.1
Inflation assumptions - RPI 3.4 3.1
Demographic assumptions for 2021 2020
WH Smith Pension Trust:
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 21.7 23.7 21.7 23.6
Member currently aged 45 22.8 24.9 22.7 24.8
----------------------------- ----- ------- ----- -------
Inflation assumptions
Pension increases in deferment in both Schemes are granted in
line with CPI for all deferred members. RPI inflation is used to
determine the increases for pensions currently in payment, subject
to any annual caps and floors.
A summary of the movements in the net balance sheet asset/
(liability) and amounts recognised in the Group Income Statement
and Other Comprehensive Income are as follows:
GBPm Fair value Defined Impact of Total
of scheme benefit IFRIC 14 on
assets obligation defined benefit
pension schemes
------------------------------------------ ----------- ------------ ----------------- -------
At 31 August 2019 504.7 (491.8) (15.8) (2.9)
------------------------------------------ ----------- ------------ ----------------- -------
Net interest cost 8.5 (8.2) (0.3) -
Administration expenses (0.3) - - (0.3)
Total amount recognised in income
statement 8.2 (8.2) (0.3) (0.3)
------------------------------------------ ----------- ------------ ----------------- -------
Actual return on scheme assets
(excluding amounts included
in net interest expense) 14.8 - - 14.8
Actuarial gains arising from
changes in financial assumptions - (12.6) - (12.6)
Actuarial gains arising from
changes in demographic assumptions - (2.1) - (2.1)
Change in surplus not recognised - - 0.9 0.9
Amount recognised in other comprehensive
income 14.8 (14.7) 0.9 1.0
Employer contributions 0.8 - - 0.8
Employee contributions - - - -
Benefit payments (21.8) 21.8 - -
------------------------------------------ ----------- ------------ ----------------- -------
Amounts included in cash flow
statement (21.0) 21.8 - 0.8
------------------------------------------ ----------- ------------ ----------------- -------
Disposal of business (10.3) 11.7 - 1.4
------------------------------------------ ----------- ------------ ----------------- -------
At 29 August 2020 496.4 (481.2) (15.2) -
------------------------------------------ ----------- ------------ ----------------- -------
Net interest cost 4.4 (4.2) (0.2) -
Administration expenses (0.4) - - (0.4)
Total amount recognised in income
statement 4.0 (4.2) (0.2) (0.4)
------------------------------------------ ----------- ------------ ----------------- -------
Actual return on scheme assets
(excluding amounts included
in net interest expense) (8.7) - - (8.7)
Actuarial gains arising from
experience - 2.4 - 2.4
Actuarial gains arising from
changes in financial assumptions - 6.1 - 6.1
Change in surplus not recognised - - 0.6 0.6
Amount recognised in other comprehensive
income (8.7) 8.5 0.6 0.4
Benefit payments (14.5) 14.5 - -
------------------------------------------ ----------- ------------ ----------------- -------
Amounts included in cash flow
statement
------------------------------------------ ----------- ------------ ----------------- -------
Settlement (462.3) 462.3
------------------------------------------ ----------- ------------ ----------------- -------
At 28 August 2021 14.9 (0.1) 14.8 -
------------------------------------------ ----------- ------------ ----------------- -------
Included within Current liabilities -
Included within Non-current -
liabilities
------------------------------------------ ----------- ------------ ----------------- -------
The charge for the current service cost is included within
administrative expenses. 'Net interest costs' are calculated by
applying a discount rate to the net defined benefit asset or
liability scheme assets and are included within finance income and
expense.
An analysis of the assets at the balance sheet date is detailed
below:
GBPm 2021 2020
--------------------------- --------------------- ----- ------
Gilts and swaps portfolio Quoted and Unquoted 11.4 10.9
Corporate bonds Quoted and Unquoted - -
Equity funds Unquoted - -
Insurance policy Unquoted - 473.0
Cash and other Unquoted 3.5 12.5
14.9 496.4
------------------------------------------------- ----- ------
The return on scheme assets during 2021 was a loss of GBP8.7m
(2020: GBP14.8m gain).
The value of the assets held by the Trust in Smiths News Plc
(formerly Connect Group PLC) issued financial instruments is GBPnil
(2020: GBPnil).
The pension scheme has been insured in full, but there are some
liabilities (GBP0.1m) remaining in respect of former members. The
GBP0.1m of liabilities is not long-term in nature. Therefore, there
are no actuarial assumptions required as at 28 August 2021 to value
these liabilities and by extension no sensitivities to
assumptions.
Defined contribution schemes
The Group operates a number of defined contribution schemes. For
the 52 weeks ended 28 August 2021, contributions from the
respective employing company for continuing operations totalled
GBP1.1m (2020: GBP1.6m) which is included in the Income
Statement.
A defined contribution plan is a pension plan under which the
Group pays contributions to an independently administered fund -
such contributions are based upon a fixed percentage of employees'
pay. The Group has no legal or constructive obligations to pay
further contributions to the fund once the contributions have been
paid. Members' benefits are determined by the amount of
contributions paid by the Company and the member, together with
investment returns earned on the contributions arising from the
performance of each individual's chosen investments and the type of
pension the member chooses to buy at retirement. As a result,
actuarial risk (that benefits will be lower than expected) and
investment risk (that assets invested in will not perform in line
with expectations) fall on the employee.
7. Finance costs
GBPm Note 2021 2020
------------------------------------------ ----- ----- -----
Continuing operations
Interest on bank overdrafts and
loans (5.0) (4.7)
Amortisation of loan arrangement
fees (2.0) (0.5)
Interest payable on leases (1.6) (1.7)
------------------------------------------ ----- ----- -----
Total interest cost on financial
liabilities at amortised cost (8.6) (6.9)
Unwinding of discount on provisions
- trading 23 (0.2) (0.5)
Finance costs - continuing operations (8.8) (7.4)
Interest income on loans and deferred
consideration 3.6 1.1
------------------------------------------ ----- ----- -----
Net Finance costs - continuing operations (5.2) (6.3)
Interest payable on leases - (1.5)
Unwinding of discount on provisions
- trading 23 - (0.1)
------------------------------------------ ----- ----- -----
Net Finance costs - discontinued
operations - (1.6)
------------------------------------------ ----- ----- -----
Net Finance costs - continuing and
discontinued operations (5.2) (7.9)
------------------------------------------ ----- ----- -----
8. Income tax expense
GBPm 2021 2020
Continuing operations Adjusted Adjusted Total Adjusted Adjusted Total
items items
-------------------------------- --------- --------- ------ --------- --------- ------
Current tax 6.3 (0.3) 6.0 3.4 (1.4) 2.0
Adjustment in respect
of prior year (0.9) - (0.9) 0.4 - 0.4
Total current tax
charge/(credit) 5.4 (0.3) 5.1 3.8 (1.4) 2.4
Deferred tax - current
year (0.4) - (0.4) 0.1 - 0.1
Deferred tax - prior
year (0.1) - (0.1) 0.4 - 0.4
Deferred tax - impact
of rate change (0.3) - (0.3) (0.1) - (0.1)
-------------------------------- --------- --------- ------ --------- --------- ------
Total tax charge/(credit)
- continuing operations 4.6 (0.3) 4.3 4.2 (1.4) 2.8
-------------------------------- --------- --------- ------ --------- --------- ------
Effective tax rate 14.9% 14.1% 15.1% 18.9%
-------------------------------- --------- --------- ------ --------- --------- ------
Tax (credit)/charge
- discontinued operations - (0.1) (0.1) (0.2) 3.6 3.4
-------------------------------- --------- --------- ------ --------- --------- ------
Tax charge/(credit)
- continuing and discontinued
operations 4.6 (0.4) 4.2 4.0 2.2 6.2
-------------------------------- --------- --------- ------ --------- --------- ------
The effective adjusted income tax rate for continuing operations
in the year was 14.9% (2020: 15.1%). After the impact of Adjusted
items of (GBP0.3m) (2020: GBP13.1m), the effective statutory income
tax rate for continuing operations was 14.1% (2020: 18.9%).
Corporation tax is calculated at the main rates of UK
corporation tax, those being 19.0% (2020: 19.0%). An increase in
the tax rate to 25% from 1 April 2023 was substantively enacted at
the balance sheet date. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective
jurisdictions.
The tax charge for the year can be reconciled to the profit in
the income statement as follows:
GBPm 2021 Restated*
2020
------------------------------------------ ------ ----------
Continuing Profit before tax 30.6 14.8
------------------------------------------ ------ ----------
Tax on profit at the standard rate of
UK corporation tax 19.0% (2020: 19.0%) 5.9 2.8
Income not subject to tax (0.7) (0.2)
Expenses not deductible for tax purposes 0.4 1.3
Group relief (discontinued operations) - (1.8)
Adjustment in respect of prior years (1.0) 0.8
Impact of change in UK tax rate (0.3) (0.1)
Tax charge 4.3 2.8
------------------------------------------ ------ ----------
* The previous year tax reconciliation has been restated for an
amendment to the debit/credit presentation of expenses not
deductible for tax purposes and to separate income not subject to
tax from expenses not deductible for tax purposes.
Income not subject to tax comprised mainly of the tax effect of
the Tuffnells discount unwind.
Tax charges to other comprehensive income and directly in
equity
GBPm 2021 2020
Continuing operations
--------------------------------------------------- ------ -----
Tax charge to other comprehensive income
and directly in equity - discontinued operations - 0.5
--------------------------------------------------- ------ -----
Tax charge to other comprehensive income
and directly in equity - continuing and
discontinued operations - 0.5
--------------------------------------------------- ------ -----
9. Dividends
Amounts paid and proposed as distributions to equity
shareholders in the years:
2021 2020 2021 2020
Paid & proposed dividends Per share Per share GBPm GBPm
for the year
----------------------------- ---------- ---------- ----- -----
Interim dividend - paid 0.5p - 1.2 -
Final dividend - proposed 1.0p - 2.4 -
1.5p - 3.6 -
----------------------------- ---------- ---------- ----- -----
Recognised dividends for
the year
Final dividend - prior year - 1.0p - 2.4
Interim dividend - current
year 0.5p - 1.2 -
----------------------------- ---------- ---------- ----- -----
0.5p 1.0p 1.2 2.4
----------------------------- ---------- ---------- ----- -----
A final 1.0p dividend per share is proposed for the 52 weeks
ended 28 August 2021 (2020: Nil), which is expected to be paid on
10 February 2022 to all shareholders who are on the register of
members at close of business on 14 January 2022. The ex-dividend
date will be 13 January 2022.
10. Earnings per share
2021 2020
---------------------------- -------------------------------------
GBPm Pence GBPm Pence
Earnings Weighted per Earnings Weighted per share
average share average
number number
of shares of shares
million million
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Weighted average
number of shares
in issue 247.7 246.7
Shares held by
the ESOP (weighted) (4.2) (2.2)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Basic earnings
per share (EPS)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Continuing operations
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Adjusted earnings
attributable to
ordinary shareholders 26.3 243.5 10.8 23.7 244.5 9.7
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Adjusted items - (11.7)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Earnings attributable
to ordinary shareholders 26.3 243.5 10.8 12.0 244.5 4.9
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Discontinued operations
Adjusted profit/(loss)
attributable to
ordinary shareholders - 243.5 - (13.1) 244.5 (5.3)
Adjusted items (0.1) (5.6)
Loss/(profit) attributable
to ordinary shareholders (0.1) 243.5 - (18.7) 244.5 (7.7)
Total - Continuing
and discontinued
operations
Adjusted earnings
attributable to
ordinary shareholders 26.3 243.5 10.8 10.6 244.5 4.3
Adjusted items (0.1) (17.3)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Earnings attributable
to ordinary shareholders 26.2 243.5 10.8 (6.7) 244.5 (2.7)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted earnings
per share (EPS)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Effect of dilutive
share options -
continuing operations 11.3 2.6
Effect of dilutive
share options -
adjusting continuing 11.3 2.6
Effect of dilutive - -
share options -
discontinued operations
Effect of dilutive - -
share options -
total
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Continuing operations
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted adjusted
EPS 26.3 254.8 10.3 23.7 247.2 9.6
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted EPS 26.3 254.8 10.3 12.0 247.2 4.9
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Discontinued operations
- Diluted EPS
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted adjusted
EPS - 254.8 - (13.1) 244.5 (5.3)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted EPS (0.1) 254.8 - (18.7) 244.5 (7.7)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Total - Continuing
and discontinued
operations
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted adjusted
EPS 26.3 254.8 10.3 10.6 247.2 4.3
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Diluted EPS 26.2 254.8 10.3 (6.7) 244.5 (2.7)
---------------------------- --------- ----------- ------- ------------ ----------- ----------
Dilutive shares increase the basic number of shares at 28 August
2021 by 11.3m to 254.8m (29 August 2020: 244.5m).
The calculation of diluted EPS reflects the potential dilutive
effect of employee incentive schemes of 11.3m dilutive shares (29
August 2020: 2.6m).
11. Discontinued Operations (prior period)
Discontinued operations - Tuffnells
On 14 April 2020, a share purchase agreement was signed with
Tuffnells Holdings Limited (formerly Palm Bidco Limited) to sell
Tuffnells subject to shareholder approval. At the Company's General
Meeting held on 1 May 2020 shareholders approved the sale and
completion concluded on 2 May 2020.
The key terms of the share purchase agreement were as
follows:
Unsecured consideration payable by Tuffnells Holdings Limited to
the Group of GBP15.0m in cash, payable in three tranches as
follows:
-- GBP6.5m on the date 18 months following Completion;
-- GBP4.25m on or prior to the date 27 months following Completion; and
-- GBP4.25m on or prior to the date 36 months following Completion.
The Company has discounted the consideration at 30% and
recognised GBP7.1m on Completion. The first tranche of the
unsecured consideration (GBP6.5m) was paid on 2 November 2021 (18
months following Completion) by Tuffnells Holdings Limited. See
Note 17 for further details.
Tuffnells was sold cash free debt free on Completion which
resulted in the Group repaying the Tuffnells overdraft and writing
off the intercompany loan at Completion.
The Company separately agreed to make available a loan facility
secured against selected properties. The total facility available
was GBP10.5m and included a 10% coupon. The facility drawn on
Completion was GBP6.5m; a further GBP1.0m a month was available to
be drawn from 1 September 2020 up to the limit of GBP10.5m. After
Completion no further funds were drawn from the facility. On 1
October 2020, the full balance of the loan was repaid, including
accrued interest. On the same day, the facility was cancelled and
security the Group held over Tuffnells properties released.
The Company repaid GBP1.0m of lease creditors prior to
Completion. Tuffnells were covered under a Company insurance policy
as part of the disposal the decision was made that the Company
would pay for any pre-existing motor and employment liability
claims that Tuffnells incurred prior to disposal. These claims will
be settled as they arise, on Completion the total liability was
estimated at GBP1.8m. A balance of GBP1.0m remains at 28 August
2021 (2020: GBP1.6m).
The Company have recognised costs of disposal as incurred; the
total costs of disposal were GBPnil (2020: GBP3.6m).
Accounting impact
The deferred consideration of Tuffnells at period end was
GBP11.5m (2020: GBP8.1m). The accounting standards require the
Company to assess the balance for an expected credit loss. Given
Tuffnells recent trading performance, it is considered that there
has been no significant increase in the credit risk and management
believe no credit loss is required.
Discontinued Operation Outlook
The results of discontinued operations, have been included
within the consolidated income statement, are as follows:
GBPm 2021 2020
----------------------------------- ------------------------------------
Adjusted Adjusted items Total Adjusted Adjusted items Total
----------------------------------- ---------- --------------- ------ --------- --------------- --------
Revenue - - - 98.2 - 98.2
Cost of sales - - - (102.5) - (102.5)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Gross (loss) - - - (4.3) - (4.3)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Administrative expenses - (0.2) (0.2) (7.4) (2.0) (9.4)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Operating loss - - - (11.7) (2.0) (13.7)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Finance costs - - - (1.6) - (1.6)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Loss before tax - (0.2) (0.2) (13.3) (2.0) (15.3)
Income tax credit/(expense) - 0.1 0.1 0.2 (3.6) (3.4)
------------------------------------ --------- --------------- ------ --------- --------------- --------
Loss from discontinued operations - (0.1) (0.1) (13.1) (5.6) (18.7)
------------------------------------ --------- --------------- ------ --------- --------------- --------
During the year, cash outflow from operating activities
attributed to discontinued operations amounted to GBP0.4m (2020:
GBP10.3m) and a GBPnil inflow (2020: GBP9.1m) in respect of
investing activities. There were GBPnil (2020: GBP7.3m) cash
outflows associated with financing activities attributable to
discontinued operations.
12. Disposal of subsidiaries
The Group disposed of the Tuffnells business on 2 May 2020.
The net assets of the business at the date of disposal were:
2020
GBPm
Intangible assets 0.2
Property, plant and equipment 12.0
Right of use assets 36.5
Inventories 0.6
Trade and other receivables 15.2
Cash and bank balances -
Trade and other payables (17.3)
Lease creditor (41.6)
Retirement benefit creditor (1.4)
Provisions (2.6)
-------------------------------------------------------- ----------
Net assets disposed 1.6
Deferred consideration 7.1
Net cash outflow arising from disposal of Tuffnells
business (3.7)
Net assets disposed (1.6)
-------------------------------------------------------- ----------
Profit on disposal 1.8
Net cash outflow arising on disposal
Cash disposal costs (3.7)
-------------------------------------------------------- ----------
Net cash outflow arising from disposal of Tuffnells
business (3.7)
-------------------------------------------------------- ----------
* As part of the sale and purchase agreement a Group overdraft
balance and a lease was settled which was intrinsically linked to
the Tuffnells business.
13. Intangible assets
Acquired Intangibles Internally Computer
generated software
development costs
costs
----------------------------------- ------------- ----------
GBPm Goodwill Customer Trade Software Total
relationships name
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Cost:
At 1 September
2020 5.7 2.4 0.2 - 2.9 7.5 18.7
Additions - - - - 0.4 0.4
Disposal - - - - (0.6) (0.3) (0.9)
At 28 August
2021 5.7 2.4 0.2 - 2.7 7.2 18.2
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Accumulated
amortisation:
At 1 September
2020 (5.7) (2.4) (0.2) - (1.9) (4.5) (14.7)
Amortisation
charge - - - - (0.4) (1.5) (1.9)
Disposals - - - - 0.5 0.2 0.7
At 28 August
2021 (5.7) (2.4) (0.2) - (1.8) (5.8) (15.9)
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Net book value
at 28 August
2021 - - - - 0.9 1.4 2.3
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Cost:
At 1 September
2019 57.8 29.3 30.7 0.8 7.4 11.4 137.4
Additions - - - - 0.3 1.9 2.2
Disposals - - - - (4.4) (4.6) (9.0)
Disposal of
business (52.1) (26.9) (30.5) (0.8) (0.4) (1.2) (111.9)
At 29 August
2020 5.7 2.4 0.2 - 2.9 7.5 18.7
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Accumulated
amortisation:
At 1 September
2019 (52.1) (29.3) (30.7) (0.8) (6.0) (8.4) (127.3)
Amortisation
charge - - - - (0.4) (1.6) (2.0)
Disposals - - - - 4.2 4.6 8.8
Disposal of
business 52.1 26.9 30.5 0.8 0.3 0.9 111.5
Impairment (5.7) - - - - - (5.7)
At 29 August
2020 (5.7) (2.4) (0.2) - (1.9) (4.5) (14.7)
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Net book value
at 29 August
2020 - - - - 1.0 3.0 4.0
---------------- --------- --------------- ------- --------- ------------- ---------- --------
The historic cost of the Group's Goodwill and acquired
intangibles split by CGU is included in the table below.
GBPm Goodwill Intangibles Total
DMD 5.7 2.6 8.3
Smiths News - 0.3 0.3
5.7 2.9 8.6
Impairment tests goodwill
Goodwill is not amortised, but has been tested annually for
impairment. As a result of these reviews goodwill is fully impaired
at the end of FY20 and FY21.
DMD (prior period)
The impact of the COVID-19 pandemic on the airline industry
started to be seen in February 2020 and were therefore considered
an impairment indicator. A full impairment review was performed in
February 2020 on the Goodwill and other assets relating to this
business unit.
The table below includes the key assumptions used to calculate
the Group's cash generating unit value in use:
2020
Average plan revenue growth 2.0%*
------
Post tax discount rate 20.0%
------
Pre-tax discount rate 37.8%
------
Long term growth rate 0.0%
------
(*Return of 80% of the market followed by 2% growth)
In generating these budgets the Board had considered the overall
strategy of the Group, the principal and emerging risks and
uncertainties inherent within the business, as well as making a
number of key strategic planning assumptions which are noted
below:
-- No significant impact on trading as a result of the EU Exit or other political change;
-- Continued decline in sales of printed media during the
assessment period offset by overhead efficiencies in the assessment
period.
-- Return of the airline industry within 14 months of March 2020
(the start of the lockdown in the UK) and a return of contracts to
80% in the industries activity.
Sensitivity to changes in key assumptions
Impairment testing is dependent on management's estimates and
judgements, particularly as they relate to the forecasting of
future cash flows, the discount rates selected and expected
long-term growth rates.
14. Property, plant and equipment
GBPm Land & Buildings
----------------------------------------------
Freehold Long Short Fixtures Equipment Total
properties term term leasehold & fittings & vehicles
leasehold improvements
improvements
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Cost:
At 1 September 2020 - 0.2 10.1 2.7 22.4 35.4
Additions - 0.6 0.4 1.8 2.8
Disposals - - (0.5) (0.2) (2.1) (2.8)
At 28 August 2021 - 0.2 10.2 2.9 22.1 35.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Accumulated depreciation:
At 1 September 2020 - (0.2) (8.2) (1.7) (15.9) (26.0)
Depreciation charge - - (0.5) (0.2) (1.7) (2.4)
Transferred from - - - - - -
held for sale
Disposals - 0.5 0.3 1.6 2.4
At 28 August 2021 - (0.2) (8.2) (1.6) (16.0) (26.0)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Net book value at
28 August 2021 - - 2.0 1.3 6.1 9.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Cost:
At 1 September 2019 0.2 0.3 13.4 4.5 35.7 54.1
Additions 0.4 - 0.2 0.9 3.3 4.8
Disposals - (0.4) (0.4) (2.1) (2.9)
Transferred from
held for sale 13.0 - 0.2 1.1 - 14.3
Disposal of business (13.6) (0.1) (3.3) (3.4) (14.5) (34.9)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
At 29 August 2020 - 0.2 10.1 2.7 22.4 35.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Accumulated depreciation:
At 1 September 2019 - (0.3) (11.1) (4.1) (27.7) (43.2)
Depreciation charge - - (0.5) (0.2) (2.3) (3.0)
Transferred from
held for sale (1.7) - (0.1) (0.8) (0.9) (3.5)
Disposals 0.3 - 0.3 0.4 2.3 3.3
Impairments (2.5) - - - - (2.5)
Disposal of business 3.9 0.1 3.2 3.0 12.7 22.9
At 29 August 2020 - (0.2) (8.2) (1.7) (15.9) (26.0)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Net book value at
29 August 2020 - - 1.9 1.0 6.5 9.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
15. Interests in joint ventures
GBPm 2021 2020
------------------- ----- -----
At 1 September 4.9 5.3
Share of profit (0.2) 0.1
Impairments (1.6) (0.3)
Dividends received (0.2) (0.2)
------------------- ----- -----
At 28/29 August 2.9 4.9
------------------- ----- -----
The Joint venture listed below has share capital consisting
solely of ordinary shares, which is held directly by the Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group Company name/ Share Class Group
(number) % (number) %
Fresh On The
Go Limited Ordinary
08775703 Shares 30%
------------- ------ ----------------- ------------ ------
27 Kings Road, Berkhamsted, Hertfordshire, HP4 3BH
Bluebox Aviation Bluebox Systems
Systems Ltd Ordinary Group Limited Ordinary
SC267388 Shares 36.1% SC544863 A Shares 36.1%
------------- ------ ----------------- ------------ ------
Estantia House, Pitreavie Drive, Pitreavie Business Park,
Dunfermline, Fife KY11 8US
Bluebox Avionics
Limited Ordinary
05684001 Shares 36.1%
------------- ------ ----------------- ------------ ------
Inflight House, Hurricane Way, Langley, SL3 8AG
Open-Projects Rascal Solutions
Limited Ordinary Limited Ordinary
02422753 Shares 50% 05191277 A Shares 50%
------------- ------ ----------------- ------------ ------
Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF
The Group owns 50% of the ordinary shares of Rascal Solutions
Limited, a company incorporated in England, which in turn owns 100%
of the ordinary shares of Open-Projects Limited. The latest
statutory accounts of Rascal Solutions Limited were drawn up to 31
August 2021. Rascal Solutions Limited provides retail support
services and is a strategic partnership for the Group to provide
additional services to its existing customers.
Bluebox Systems Group Limited, is the holding company of Bluebox
Aviation Systems Ltd, the principal activity of which is the sale
of innovative in-flight entertainment systems. This business is a
strategic partnership with DMD which also provides inflight media
to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee
vending and other related products.
All Joint ventures are private companies and there is no quoted
market price available for their shares.
The Group has no commitments relating to its joint ventures
The results, assets and liabilities of joint ventures are as
follows:
GBPm 2021 2020
-------------------------------- ----------------------------------------- -----------------------------------------
Rascal solutions Limited Other Total Rascal Solutions Limited Other Total
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Revenue 5.7 1.3 7.0 6.9 4.3 11.2
Depreciation 1.6 0.1 1.7 1.4 0.1 1.5
Tax 0.1 - 0.1 0.1 - 0.1
(Loss)/profit after tax (0.1) (0.6) (0.7) 0.2 0.1 0.3
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Non-current assets 2.3 0.6 2.9 3.1 - 3.1
Current assets 1.7 1.5 3.2 1.6 1.5 3.1
Cash 1.0 0.3 1.3 1.3 1.1 2.4
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Total assets 5.0 2.4 7.4 6.0 2.6 8.6
Current liabilities (1.6) (0.9) (2.5) (2.2) (0.9) (3.1)
Non-current liabilities - (1.3) (1.3) - (0.8) (0.8)
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Total liabilities (1.6) (2.2) (3.8) (2.2) (1.7) (3.9)
------------------------- ------ ------ ------------------------- ------ ------
Net assets 3.4 0.2 3.6 3.8 0.9 4.7
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Share of net assets 1.7 - 1.7 1.9 - 1.9
Goodwill 1.2 - 1.2 3.0 - 3.0
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Share of net assets and
Goodwill 2.9 - 2.9 4.9 - 4.9
-------------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Dividends of GBP0.2m (2020: GBP0.2m) were received in the 52
weeks to 28 August 2021 from joint ventures.
Bluebox Systems Group Limited
An impairment of GBP0.3m was charged against the value of the
investment of Bluebox Aviation Limited in the prior period. No
impairment charge in the current period. See Note 4 for further
details.
Rascal Solutions Limited investment
During the period Rascal Solutions Limited recorded a loss of
GBP0.1m (FY2020: profit of GBP0.2m). The result includes the full
impairment (GBP0.6m) of a software development intangible fixed
asset which was found to no longer be of economic value to Rascal.
The Company's share of this impairment is 50% (GBP0.3m) and has
been reported as an adjusting item in income from joint
ventures.
The Company has since reviewed the business plan for the Rascal
Joint Venture, taking into account the challenges arising from
increasing market competition. As a result, an impairment review
has been performed. A value in use of GBP2.9m has been calculated
based on future cash flows of the business and have been discounted
at a post-tax discount rate of 15.4% (pre-tax discount rate of
18.5%) and a terminal growth rate applied of 0%. The result is an
impairment loss of GBP1.6m.
Sensitivities to assumptions
If the post-tax discount rate was increased by 1.0%, the
impairment loss will increase by GBP0.2m and if the post-tax
discount rate was reduced by 1.0%, the impairment loss will reduce
by GBP0.1m.
16. Inventories
GBPm 2021 2020
------------------------------
Goods held for resale 13.1 13.9
Raw materials and consumables 0.1 0.2
Inventories 13.2 14.1
17. Trade and other receivables
GBPm 2021 2020
Trade receivables 65.8 65.1
Provision for expected credit
losses (0.1) (0.4)
65.7 64.7
Other debtors 29.1 30.9
Deferred consideration 9.2 -
Prepayments 1.2 4.1
Accrued income 1.4 1.5
Trade and other receivables 106.6 101.2
Trade receivables
The average credit period taken on sale is 22 days (2020: 23
days). Trade receivables are generally non-interest bearing.
The following table provides information about the Group's
exposure to credit risk and ECLs against customer balances as at 28
August 2021 under IFRS 9:
GBPm 2021 2020
Gross Loss Net Gross Loss allowance Net
carrying allowance carrying carrying carrying
amount amount amount amount
Current (not overdue) 63.9 (0.1) 63.8 64.3 (0.1) 64.2
30-60 days overdue 1.9 - 1.9 0.4 - 0.4
61-90 days overdue - - - 0.1 - 0.1
91-120 days overdue - - - - - -
Over 120 days overdue - - - 0.3 (0.3) -
65.8 (0.1) 65.7 65.1 (0.4) 64.7
The following table provides information about the Group's loss
rates applied against customer balances as at 28 August 2021 under
IFRS 9:
% 2021 2020
Current (not overdue) 0.1 0.1
30-60 days overdue - 0.1
61-90 days overdue 0.9 4.0
91-120 days overdue 11.4 16.8
Over 120 days overdue 15.5 55.6
Of the trade receivables balance at the end of the year:
-- One customer (2020: one) had an individual balance that
represented more than 10% of the total trade receivables balance.
The total of this was GBP9.7m (2020: GBP11.7m); and
-- A further five customers (2020: five) had individual balances
that represented more than 5% of the total trade receivables
balance. The total of these was GBP24.2m (2020: GBP22.7m).
Movement in the allowance for doubtful debts:
GBPm 2021 2020
At 1 September 0.4 0.3
Impairment losses recognised (0.2) 0.4
Amounts written off as uncollectible 0.1 (0.1)
Amounts recovered during the year (0.2) -
Disposal of business - (0.2)
At 28/29 August 0.1 0.4
The directors consider that the carrying amount of trade and
other receivables approximates their fair value which is considered
to be a level 2 methodology of valuing them. The inputs used to
measure fair value are categorised into different levels of the
fair value hierarchy (levels 1 to 3). The fair value measurement is
categorised in its entirety in the level of the lowest level input
that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
Despite the low expected credit loss, the Group performed
sensitivity analysis should the default rate change from
expected.
-- An increase in default rate by 2% would increase the expected credit loss by GBP1.2m and
-- A decrease in default rate by 2% would result in no credit losses.
-- An increase in default rate by 5% would increase the expected credit loss by GBP3.1m and
-- A decrease in default rate would result in no credit losses.
Other debtors and prepayments
The largest items included within this balance are returns
reserve asset of GBP18.5m (2020: GBP18.5m) (refer to Note 1
Accounting Policies, section 8) and GBP6.5m (2020: GBP10.7m) of
publisher debtors.
Non-Current - other receivables
GBPm 2021 2020
Deferred consideration 2.3 8.1
Loans receivable - 6.5
2.3 14.6
The Tuffnells business unit was disposed on 2 May 2020; the
Group is due GBP15.0m as deferred consideration payable over 3
years. There is a balance of GBP11.5m included within other
receivables (GBP9.2m non-current and GBP2.3m current) in respect of
the deferred consideration. The Group has calculated the fair value
of the deferred consideration on disposal at GBP7.1m and has
subsequently recognised the receivable at amortised cost. The fair
value was calculated by discounting the deferred consideration at
30% which is considered the key judgement. A +/-5% change in the
discount rate would have resulted in a decrease/increase of the
fair value of the deferred consideration by +/-GBP1.0m which would
change the profit and loss on disposal. For more information see
Note 11. Recoverability of the Tuffnells deferred consideration is
a key estimate. Management have assessed its recoverability and
have concluded that no impairment is necessary. This was assessed
using a number of scenarios such as delays in payments and
non-recovery of the balance; changes in these assumptions may lead
to an impairment of the balance.
Post balance sheet, Tuffnells Holdings Limited (formerly Palm
Bidco Limited) paid the first tranche of deferred consideration
(GBP6.5m) on 2 November 2021 (18 months following Completion).
The loan receivable was given as part of the terms to sell
Tuffnells (see Note 11 for further information), and was secured
and repaid in full in September 2020.
18. Trade and other payables
GBPm 2021 2020
Trade payables (94.9) (97.3)
Other creditors (33.8) (34.1)
Accruals (7.4) (8.0)
Deferred income (0.4) (0.1)
(136.5) (139.5)
Included within other creditors is a balance of GBP21.7m (2020:
GBP21.4m) relating to the returns reserve accrual. (Refer to Note 1
Accounting Policies, section 8).
Trade and other payables principally comprise amounts
outstanding for trade purchases and on-going costs. The average
credit period taken for trade purchases is 27 days (2020: 26 days).
No interest is charged on trade payables. The directors consider
that the carrying amount of trade and other payables approximates
to their fair value using a level 2 valuation.
19. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as
follows:
GBPm Sterling Euro US Dollar Other Total 2020
2021
Cash and bank deposits 18.5 0.6 0.3 0.3 19.7 50.6
Overdrafts - included
in cash and cash equivalents (0.4) - - - (0.4) -
Net Cash and cash equivalents 18.1 0.6 0.3 0.3 19.3 50.6
Overdrafts - included
in borrowings - - - - - (41.3)
Revolving credit facility
- disclosed within current
liabilities - - - - - (39.0)
Term loan - disclosed
within current liabilities (21.2) - - - (21.2) (49.8)
Term loan - disclosed
within non-current liabilities (50.1) - - - (50.1) -
Total borrowings (71.3) - - - (71.3) (130.1)
Net borrowings (53.2) 0.6 0.3 0.3 (52.0) (79.5)
Total borrowings
Amount due for settlement
within 12 months (21.2) - - - (21.2) (130.1)
Amount due for settlement
after 12 months (50.1) - - - (50.1) -
(71.3) - - - (71.3) (130.1)
Cash and bank deposits comprise cash held by the Company and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates their
fair value.
A new three-year GBP120 million facility was agreed in November
2020, comprising a GBP45m amortising term loan (Facility A), a
GBP35m bullet repayment term loan (Facility B) and a GBP40 million
multicurrency revolving credit facility (RCF). The agreement is
with a syndicate of banks comprising existing lenders HSBC,
Barclays, Santander and Clydesdale and one new lender, Shawbrook
Bank.
The facility was made available at an initial margin of 5.5% per
annum over LIBOR (in respect of Facility A and the RCF) and 6% per
annum over LIBOR (in respect of Facility B). The margin is subject
to reduction as the Company reduces its net leverage. The weighted
average interest rate for the year was 9.6% (2020: 5.8%). The
increase is largely due to higher arrangement fees and a higher
interest rate on the new senior finance agreement. In September
2021 (post the balance sheet date), the Company concluded an
amended and restated facility agreement, migrating base interest
margins from LIBOR to SONIA with effect from 24 September 2021.
Consistent with the Company's stated strategic priorities to
reduce net debt, the terms of the new facility agreement include:
an amortisation schedule of GBP15m per annum for the repayment of
Facility A; agreed repayments against Facility B arising from funds
received in relation to both deferred consideration received
following the sale of Tuffnells and any cash surplus arising from
the winding up of the Company's defined benefit pension scheme; and
capped dividend payments for FY2021 (up to GBP4m) and FY2022
onwards (up to GBP6m per year).
The scheduled payment of GBP7.5m was made in April 2021 reducing
the initial GBP120m facility to GBP112.5m at the balance sheet
date. A further payment of GBP7.5m was made in October 2021, post
the balance sheet date, reducing the facility further to its
current GBP105m.
As part of the terms of the refinancing, the Company and its
principal trading subsidiaries have agreed to provide security over
their assets to the lenders.
Reconciliation of liabilities arising from financing
activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated statement of cash flows as cash flows
from financing activiti es.
GBPm Note 29/08/2020 Financing New leases Disposals Other 28/08/2021
cash flows changes
Term Loan 19 49.8 22.7 - - - 72.5
Revolving
credit
facility 19 39.0 (39.0) - - - -
Overdrafts 19 41.3 (40.9) - - - 0.4
Leases 33.4 (5.9) - - 1.7 29.2
Total 163.5 (63.1) - - 1.7 102.1
m Note 01/09/2019 Financing New leases Disposals Other 29/08/2020
cash flows changes
Term Loan 19 49.3 - - - 0.5 49.8
Revolving
credit
facility 19 30.0 9.0 - - - 39.0
Overdrafts 19 - 41.3 - - - 41.3
Leases 2.5 (15.6) 82.6 (41.6) 5.5 33.4
Total 81.8 34.7 82.6 (41.6) 6.0 163.5
Other changes include interest accruals, payments.
Analysis of net debt
GBPm Note 2021 2020
Cash and cash equivalents 19 19.3 50.6
Current borrowings 19 (21.2) (130.1)
Non-current borrowings 19 (50.1) -
Net borrowings* (52.0) (79.5)
Lease liabilities 21 (29.2) (33.4)
Net debt (81.2) (112.9)
* Net borrowings includes unamortised loan fees of GBP1.2m
(FY2020 GBP0.2m)
20. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the
Group's funding requirements and financial risks in line with the
Board approved treasury policies and procedures and their delegated
authorities. Treasury's role is to ensure that appropriate
financing is available for running the businesses of the Group on a
day to day basis, whilst minimising interest cost. No transactions
of a speculative nature are undertaken. Dealings are restricted to
those banks with suitable credit ratings and counterparty risk and
credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of
debt, which includes the borrowings, cash and cash equivalents as
disclosed in Note 19 and equity attributable to equity holders of
the parent, comprising issued capital, reserves and retained
earnings as disclosed in the Group Statement of Changes in
Equity.
The only externally imposed capital requirements for the Group
are debt to EBITDA, fixed charge cover and interest cover under the
terms of the bank facilities. The Group has fully complied during
both the current year and the prior year. To maintain or adjust its
capital structure, the Group may adjust the dividend payment to
shareholders and/or issue new shares. There is a future cap on
dividends of GBP6.0m in 2022 under the new banking facility, this
is also subject to all the covenants.
The Board regularly reviews the capital structure. As part of
this review, the Board considers the cost of capital and the risks
associated with each class of capital. We expect free cash from
operations to be sufficient to reduce net debt while also
maintaining an attractive total shareholder return. The Group is
targeting a reduced net debt/EBITDA ratio of 1 x by 2023, with
repayment achieved through surplus free cash from operations. The
Group's facilities include a frozen GAAP clause in relation to
IAS17 and the net debt/EBITDA is stated on this basis.
Liquidity risk
The Group manages liquidity risk by maintaining adequate
reserves and banking facilities and by monitoring forecast and
actual cash flows. The facilities that the Group has at its
disposal to further reduced liquidity risk are described below.
As at 28 August 2021, the Group had GBP112.5m committed bank
facilities in place (2020: GBP175.0m). Bank facilities
comprised:
-- GBP37.5 million amortising term loan (Facility A); and
-- GBP35 million bullet repayment term loan (Facility B); and
-- GBP40 million revolving credit facility (RCF)
which together expire in November 2023.
The facility described above is subject to the following
covenants which are subject to a frozen GAAP clause:
-- Leverage cover - the net debt: adjusted EBITDA ratio which
must remain below 2.75x. At 28 August 2021 the ratio was 1.2x
(2020: 2.0x);
-- Interest cover - the consolidated net interest: adjusted
EBITDA ratio which must remain above 4.0x. As at 28 August 2021 the
ratio was 8.5x (2020: 10.1x);
-- Fixed charge cover - the ratio of adjusted EBITDA to
consolidated fixed charges is not less than 1.75x to 1. As at 28
August 2021 the ratio was 4.0x (2020: 4.0x); and
-- Guarantor cover - The annual turnover, gross assets and
pre-tax profits of the Guarantors contribute at any time 80% or
more of the annual consolidated turnover, gross assets and pre-tax
profits of the Group for each of its financial years. The
guarantors, which are all 100% owned or wholly owned subsidiaries
of the Smiths News plc (formerly Connect Group PLC), are each of
Smiths News plc, Smiths News Holdings Limited, and Smiths News
Trading Limited.
At 28 August 2021, the Group had available GBP35.1m (2020:
GBP86.0m) of undrawn committed borrowing facilities. There were no
breaches of loan agreements during either the current or prior
years.
As the Group is cash generative its liquidity risk is considered
low. The Group's cash generation allows it to meet all loan
commitments as they fall due as well as sustain a negative working
capital position.
The Group invests significant resources in the forecasting and
management of its cash flows. This is critical given a routine cash
cycle at Smiths News that results in significant predictable swings
within each month of around GBP40.0m, the Groups average gross
borrowings for the past year was GBP94.5m (2020: GBP105.4m). The
Group has utilised the Revolving Credit Facility of GBP40.0m for
this.
The following is an analysis of the undiscounted contractual
cash flows payable under financial liabilities and derivatives. The
undiscounted cash flows will differ from both the carrying value
and fair value. Floating rate interest is estimated using the
prevailing rate at the balance sheet date.
GBPm Due within Due between Due between Greater than
1 Year 1 and 2 years 2 and 3 years 3 years
At 28 August 2021
Non derivative financial
liabilities
Bank and other borrowings (21.3) (23.5) (27.8) -
Trade and other
payables (136.5) - - -
Leases (5.9) (5.7) (4.4) (13.1)
Total (163.7) (29.2) (32.2) (13.1)
At 29 August 2020
Non derivative financial
liabilities
Bank and other borrowings (130.8) - - -
Trade and other
payables (109.5) - - -
Leases (7.3) (7.1) (6.5) (18.3)
Total (247.6) (7.1) (6.5) (18.3)
Counterparty risk
Dealings are restricted to those banks with suitable credit
ratings and counterparty risk and credit exposure is monitored.
Foreign currency risk
-- The majority of the Group's transactions are carried out in
the functional currencies of its operations, and so transactional
exposure is limited.
-- The majority of the Group's net liabilities are held in
Sterling, with only GBP0.7m (2020: GBP0.7m) of net assets held in
overseas currencies. Translation exposure arises on the
re-translation of overseas subsidiaries profits and net assets into
sterling for financial reporting purposes and is not seen as
significant.
-- Note 19 denote borrowings by currency.
-- There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the
Group's debt exposure, consideration of the macroeconomic
environment and sensitivity to potential interest rate rises. The
Group avoids the use of derivatives or other financial instruments
in circumstances when the outcome would effectively be largely
dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the
balance sheet date were outstanding for the whole year, if interest
rates had been 0.5% higher/lower and all other variables were held
constant, the Group's profit and equity for the 52 weeks ending 28
August 2021 would decrease/increase by GBP0.4m (2020: GBP0.5m).
Credit risk
The Group considers its exposure to credit risk at 28 August
2021 to be as follows:
GBPm 2021 2020
Bank deposits 19.3 50.6
Deferred consideration 11.5 8.1
Loans receivable - 6.5
Trade and other receivables 94.8 100.7
125.6 165.9
Further detail on the Group's policy relating to trade
receivables and other receivables can be found in Note 17.
21. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to
leases:
GBPm Equipment & vehicles Land & buildings Total
Cost:
At 29 August 2020 1.8 36.9 38.7
Additions - 2.8 2.8
Disposals (0.2) (1.1) (1.3)
At 28 August 2021 1.6 38.6 40.2
Accumulated depreciation:
At 29 August 2020 (0.4) (5.5) (5.9)
Depreciation charge (0.4) (6.0) (6.4)
Disposals 0.2 0.3 0.5
At 28 August 2021 (0.6) (11.2) (11.8)
Net book value at 28 August 2021 1.0 27.4 28.4
Cost:
At 31 August 2019 - - -
Transition adjustment 21.9 51.9 73.8
Additions 0.6 8.2 8.8
Disposals - (2.5) (2.5)
Disposal of business (20.7) (20.7) (41.4)
At 29 August 2020 1.8 36.9 38.7
Accumulated depreciation:
At 31 August 2019 - - -
Depreciation charge (4.1) (6.9) (11.0)
Disposals - 0.1 0.1
Disposal of business 3.7 1.3 5.0
At 29 August 2020 (0.4) (5.5) (5.9)
Net book value at 29 August 2020 1.4 31.4 32.8
Lease commitments.
The company have the following lease commitments:
2021 2020
Due within 1 year 5.9 5.8
Due in more than 1 year, but no more than
5years 16.6 18.6
Due in more than 5 years 6.7 9.0
Total operating lease commitments 29.2 33.4
Amounts recognised in the income statement
GBPm 2021 2020
Continuing operations
Interest expense (included in finance
cost) 1.6 1.7
Expense relating to low value leases
(included in cost of sales and administrative
expenses) (0.1) 1.2
Property rental income 0.3 0.2
Total cash outflow from leases 6.2 9.7
Discontinued operations
Interest expense (included in finance
cost) - 1.5
Expense relating to short-term and low
value leases (included in cost of sales
and administrative expenses) - 2.3
Total cash outflow from leases - 12.6
Gain on sale and leaseback - 1.5
GBPm 2021 2020
Lease Liabilities
Current (5.9) (5.8)
Non-current (23.3) (27.6)
Total (29.2) (33.4)
22. Deferred tax
Deferred tax assets and liabilities are attributable to the
following:
GBPm Fixed Assets Share based Retirement Total
payments benefits
At 30 August 2020 0.7 0.1 - 0.8
Credit to income 0.7 0.1 - 0.8
Credit to other comprehensive
income - 0.2 - 0.2
At 28 August 2021 1.4 0.4 - 1.8
Deferred tax assets 1.4 0.4 - 1.8
Deferred tax liabilities - - - -
At 1 September 2019 4.6 0.1 0.5 5.2
Charge to income (3.9) - - (3.9)
Charge to other comprehensive
income and directly in
equity - - (0.5) (0.5)
At 29 August 2020 0.7 0.1 - 0.8
Deferred tax assets 0.7 0.1 - 0.8
Deferred tax liabilities - - - -
The deferred tax assets have been deemed recoverable as the
Group forecasts that it will continue to make profits against which
the assets can be utilised for tax purposes.
The Group has capital losses carried forward of GBP20.2m (2020:
GBP23.9m). Deferred tax assets of GBP3.8m (2020: GBP4.5m) have not
been recognised in respect of the capital losses carried forward
due to the uncertainty of their utilisation.
An increase to the tax rate to 25% tax rate from 1 April 2023
was substantively enacted at the balance sheet date.
The deferred tax asset at the period end has been calculated
based on the rate of 25% substantively enacted at the balance sheet
date on the basis that the temporary differences are expected to
unwind when that rate applies
23. Provisions
GBPm Provision for Re-organisation Insurance and legal Property provisions Total
onerous contracts provisions provision
and other provisions
At 29 August 2020 (0.9) (2.7) (1.8) (3.9) (9.3)
Charged to income
statement - (0.5) (0.6) (0.2) (1.3)
Credited to income
statement - 0.3 - - 0.3
Utilised in period 0.2 2.1 1.1 0.5 3.9
Unwinding of discount
utilisation - - - (0.2) (0.2)
At 28 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
GBPm 2021 2020
Included within
current liabilities (3.6) (6.8)
Included within
non-current
liabilities (3.0) (2.5)
Total (6.6) (9.3)
Included within non-current liabilities is GBP3.0m (2020:
GBP2.5m) relating to real estate property provisions.
Re-organisation provisions of GBP0.8m (2020: GBP2.5m) relates to
the restructure of the DMD business, the Smiths News network and
the Group's support functions, this was all announced in the prior
year.
Insurance & legal provisions represent the expected future
costs of employer's liability, public liability, motor accident
claims and legal claims, included within the total balance is
GBP1.0m (2020: GBP1.6m) relating to claims from the Tuffnells
business prior to disposal.
The property provision represents the estimated future cost of
the Group's onerous leases on non-trading properties and for
potential dilapidation costs across the Group. These provisions
have been discounted to present value and this discount will be
unwound over the life of the leases. The provisions cover the
period to 2036, however, a significant portion of the liability
falls within ten years.
The Group has performed sensitivity analysis on property
provision using possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision
would change by +/-GBP0.1m.
If the repair cost per square foot changes by +/- GBP1.00p, the
property provision would change by +/- GBP0.9m.
24. Contingent liabilities and capital commitments
GBPm 2021 2020
Bank and other guarantees 4.9 7.1
Other potential liabilities that could crystallise are in
respect of previous assignments of leases where the liability could
revert to the Group if the lessee defaulted. Pursuant to the terms
of the Demerger Agreement from WH Smith PLC, any such contingent
liability in respect of assignment prior to demerger, which becomes
an actual liability, will be apportioned between Smiths News plc
and WH Smith PLC in the ratio 35:65 (provided that the actual
liability of Smiths News plc in any 12 month period does not exceed
GBP5m). The Company's share of these leases has an estimated future
cumulative gross rental commitment at 28 August 2021 of GBP0.5m
(2020: GBP0.6m).
Contracts placed for future capital expenditure approved by the
directors but not provided for amount to: GBP0.2m (2020:
GBPnil).
As at 28 August 2021, the Group had approved letters of credit
of GBP4.9m (2020: GBP7.1m) to the insurers of the Group for the
motor insurance and employer liability insurance policies. The
letters of credit cover the employer deductible element of the
insurance policy for insurance claims. In September 2021, the
Company was notified that the letters of credit had reduced by
GBP2.5m to GBP2.4m.
25. Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants
for the following future minimum lease payments:
GBPm 2021 2020
Within one year 0.2 0.2
In the second to fifth years inclusive 0.5 0.4
More than five years - 0.1
0.7 0.7
26. Net cash inflow from operating activities
GBPm Note 2021 2020
Operating profit - continuing 3 35.8 21.1
Operating profit/(loss) - discontinued 3 (0.2) (13.7)
Operating profit - total 35.6 7.4
Profit on disposal of assets (0.2) (1.4)
Impairment of Goodwill 4 - 5.7
Impairment of investments - 0.3
Share of profits of joint ventures 15 1.8 0.1
Profit on disposal of subsidiary 12 - (1.8)
Adjustment for pension funding 6 - (0.8)
Depreciation of property, plant
and equipment 14 2.4 3.0
Depreciation of right of use
assets 21 6.4 11.0
Amortisation of intangible assets 4 1.9 2.0
Impairment of assets 4 0.1 2.5
Share based payments 1.0 0.4
Decrease in inventories 0.7 2.2
Decrease in receivables 5.4 23.0
Decrease in payables (5.1) (31.3)
(Decrease)/increase in provisions (2.8) 0.8
Non cash pension costs 0.5 0.3
Income tax paid (6.3) -
Net cash inflow from operating
activities 41.4 23.4
Net cash flow from operating
activities is stated after the
following adjusted items:
Continuing operations
Re-organisation & restructuring
costs (2.2) (6.4)
Pension (0.6) (0.9)
Other (1.2) -
(4.0) (7.3)
Discontinued operations
Re-organisation & restructuring
costs (0.1) (1.3)
Strategic review - (0.5)
Sale and leaseback - 14.3
Insurance cost (1.1) -
VAT refund 0.8 -
(0.4) 12.5
Total adjusting items cash flow (4.4) 5.2
27. Share Capital
(a) Share capital
GBPm 2021 2020
Issued, authorised and fully paid:
At 30 August/1 September 12.4 12.4
Shares issued during the year - -
247.7m ordinary shares of 5p each (2020:
247.7m) 12.4 12.4
(b) Movement in share capital
Number (m) Ordinary
shares of
5p each
30 August 2020 247.7
Shares issued during the year -
At 28 August 2021 247.7
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at the general meetings of the Company. The Company has one
class of ordinary shares, which carry no right to fixed income.
No shares were issued during the 52 weeks to 28 August 2021 or
the period to 29 August 2020.
(c) Share premium
GBPm 2021 2020
Balance at 30 August/1 September 60.5 60.5
Balance at 28/29 August 60.5 60.5
28. Reserves
(a) Demerger reserve
GBPm 2021 2020
At 30 August/1 September (280.1) (280.1)
At 28/29 August (280.1) (280.1)
This relates to reserves created following the capital
re-organisation undertaken as part of the demerger of WH Smith PLC
in 2006. The balance represented the difference between the share
capital and reserves of the Group restated on a pro-forma basis as
at 31 August 2004 and the previously reported share capita l.
(b) Own shares reserve
GBPm 2021 2020
Balance at 30 August/1 September (1.8) (1.7)
Acquired in the period (2.7) (0.7)
Disposed of on exercise of options 0.6 0.6
Balance at 28/29 August (3.9) (1.8)
The reserve represents the cost of shares in Smiths News plc
purchased in the market and held by the Smiths News Employee
Benefit Trust to satisfy awards and options granted under the
Group's Executive Share Schemes (see Note 30). The number of
ordinary shares held by the Trust as at 28 August 2021 was
8,121,362 (2020: 2,630,591). In accordance with IAS 32, these
shares are deducted from shareholders' funds. Under the terms of
the Trust, the Trustee has waived all dividends on the shares it
holds.
(c) Translation reserve
GBPm 2021 2020
Balance at 30 August/1 September 0.4 0.3
Exchange differences on translating net
assets of foreign operations - 0.1
Balance at 28/29 August 0.4 0.4
29. Retained Earnings
GBPm
Balance at 31 August 2019 135.7
Amounts recognised in Total comprehensive
expense (6.1)
Dividends paid (2.4)
Disposed of on exercise of options (0.6)
Equity-settled share based payments, net
of tax 0.4
Balance at 29 August 2020 127.0
Amounts recognised in total comprehensive
expense 26.8
Dividends paid (1.2)
Disposed of on exercise of options (0.6)
Equity-settled share based payments, net
of tax 1.0
Balance at 28 August 2021 153.0
30. Share-based payments
In 2021, the Group recognised a total charge of GBP1.0m related
to equity-settled share-based payment transactions. In 2020 there
was a total charge of GBP0.4m. The average share price throughout
the year was 33.2p (2020: 26.2p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Smiths News Group
Sharesave Scheme, the Board may grant options
to purchase ordinary shares in the Company
to eligible employees who enter into an
HM Revenue & Customs approved Save-As-You-Earn
('SAYE') savings contract for a term of
three years. Options are granted at a 20%
discount to the market price of the shares
on the day preceding the date of offer
and are normally exercisable for a period
of six months after completion of the SAYE
contract.
Executive Share Option Under the terms of the Smiths News Group
Scheme (ESOS) Executive Share Option Scheme, the Board
may grant options to purchase ordinary
shares in the Company to executives up
to an annual limit of 200% of base salary.
The exercise of options is conditional
on the achievement of adjusted profit after
a three year period, which is determined
by the Remuneration Committee at the time
of grant. Provided that the target is met,
options are normally exercisable until
the day preceding the 10(th) anniversary
of the date of grant.
LTIP Under the terms of the Smiths News Group
LTIP, executive directors and key senior
executives may be awarded each year conditional
entitlements to ordinary shares in the
Company (which may be in the form of nil
cost options or conditional awards) or,
in order to retain flexibility and at the
Company's discretion, a cash sum linked
to the value of a notional award of shares
up to a value of 200% of base salary. The
vesting of awards is subject to the satisfaction
of a three year performance condition,
which is determined by the Remuneration
Committee at the time of grant. Subject
to the satisfaction of the performance
condition, awards are normally exercisable
until the 10(th) anniversary of the date
of grant.
Deferred Bonus Plan Under the terms of the Smiths News Group
(DBP) Deferred Bonus Plan, each year executive
directors and key senior executives may
be granted share awards (in the form of
nil cost options) dependent on the achievement
of the Annual Bonus Plan performance targets.
Awards are immediately exercisable but
a two year hold-back period applies, during
which the share certificate for such shares
is held by the Company. Separately, key
senior executives may also be granted share
awards (in the form of nil cost options)
under the DBP plan in respect of a (discounted)
restricted share award (dependent on continued
employment with the Company).
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number of No of Weighted No of Weighted No of Weighted No of Weighted
options/ shares average shares average shares average shares average
awards exercise exercise exercise exercise
price price price price
(p) (p) (p)
At 31 Aug
2019 5,118,165 45.42 4,338,942 126.7 9,880,351 - 645,150 -
Granted 6,108,793 30.4 - - 4,970,279 - 1,716,731 -
Exercised - - - - - (480,892) -
Expired
/Forfeited (2,974,071) 45.8 (2,553,109) 126.7 (3,883,596) - (416,378) -
At 29 Aug
2020 8,252,887 34.2 1,785,833 126.7 10,967,034 - 1,464,611 -
Granted 2,122,030 43.64 - - 4,350,408 - 1,211,591 -
Exercised 59,495 - - - - - 949,734 -
Expired
/Forfeited (173,932) 23.12 (62,621) 108.7 (308,116) - -
At 28 Aug
2021 10,260,480 28.92 1,723,212 126.7 15,009,326 - 3,625,936 -
Exercisable
at 28 Aug
2021 - - 1,723,212 113.8 - - - -
Exercisable
at 29 Aug
2020 642,804 36.11 1,785,833 126.7 - - - -
The weighted average remaining contractual life in years of
options/awards is as follows:
Sharesave ESOS LTIP DBP
Outstanding at 28 August
2021 1.9 6.2 1.2 1.3
Outstanding at 29 August
2020 2.5 5.8 1.9 2.0
Details of the options/awards granted or commencing during the
current and comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2021:
Effective date of grant Jun 2020 - Dec 2020 Dec 2020
or commencement date
Average fair value at date
of grant or scheme commencement
- pence 20 - 25.0 35.0
During 2020:
Effective date of grant Jun 2019 - Dec 2019 Dec 2019
or commencement date
Average fair value at date
of grant or scheme commencement
- pence 5.5 - 24.0 24.0
The options outstanding at 28 August 2021 had exercise prices
ranging from nil to 167.8p (2020: nil to 189.5p).
The weighted average share price on the date of exercise was 39p
(2020: 37p).
The Sharesave options granted during each period have been
valued using the Black-Scholes model, the LTIP performance measures
include 70% total shareholder return (TSR) metric this is valued by
reference to the share price at date of grant less an adjustment
for the TSR portion of the award. The DBP schemes are valued by
reference to the share price at the date of grant.
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
2021 options/awards:
Share price at grant date -
pence 44.0 30 30
TSR adjustment - pence - (6.0) -
Exercise price - pence 35.0 - -
Expected volatility - per cent 97.0 - -
Expected life - years 3 - -
Risk free rate - per cent (0.1) - -
Expected dividend yield - per - - -
cent
Weighted average fair value
- pence 19.7 24.0 -
2020 options/awards: Jun 20 Dec 20 Dec 20
Share price at grant date -
pence 18.0 30.0 30.0
TSR adjustment - pence - (6.0) -
Exercise price - pence 14.0 - -
Expected volatility - per cent 97.0 - -
Expected life - years 3.0 - -
Risk free rate - per cent (0.1) - -
Expected dividend yield - per
cent 10.0 - -
Weighted average fair value
- pence 5.5 24.0 -
31. Post balance sheet events
Letters of Credit
The Group has approved letters of credit to insurers of the
Group for motor insurance and employer liability insurance
policies. The letters of credit cover the employer deductible
element of the insurance policy for insurance claims. After the
balance sheet date, the Group was notified that the letters of
credit reduced from GBP4.9m to GBP2.4m.
Discontinued operations - Tuffnells
The Group disposed of Tuffnells on 2 May 2020. One of the key
terms of the share purchase agreement was the unsecured
consideration payable by Tuffnells Holdings Limited (formerly Palm
Bidco Limited) to the Group of GBP15.0m in cash, payable in three
tranches as follows:
- GBP6.5m on the date 18 months following Completion;
- GBP4.25m on or prior to the date 27 months following Completion; and
- GBP4.25m on or prior to the date 36 months following Completion.
The first tranche of the unsecured consideration (GBP6.5m) was
paid on 2 November 2021 (18 months following Completion) by
Tuffnells Holdings Limited.
Pension
The Company operates a defined benefit scheme, known as the
Smiths News section of the WH Smiths Pension Trust which, as at 28
August 2021 had an IAS-19 pre-tax surplus of GBP14.8m (FY2020:
GBP15.2m). At the balance sheet date, the Company did not recognise
the GBP14.8m pre-tax surplus as an asset, as it did not have an
unconditional right to the asset.
Subsequent to the balance sheet date, the Trustee confirmed its
intention to return the surplus to the Company net of additional
professional fees and tax charged at a rate of 35%. The surplus of
circa GBP8m is expected to be paid to the Company in November 2021.
The surplus sums to be received by the Company will be used to
repay existing debt.
Financing Agreement
In September 2021, a revised financing agreement was signed that
applies to the Company's banking syndicate arrangement replacing
the agreement signed in November 2020. The key changes include the
move from LIBOR (London Interbank Offered Rate) to SONIA (Sterling
Overnight Index Average) pricing. The margins remain unchanged.
32. Related party transactions
Transactions between businesses within the Group which are
related parties have been eliminated on consolidation and are not
disclosed in this note.
Transactions with the Group's pension schemes are disclosed in
Note 6.
Trading transactions
Sales to related Amounts owed by related
parties parties
GBPm 2021 2020 2021 2020
Joint ventures 0.4 0.4 0.1 0.2
Sales to related parties are for management fees, payment is due
on the last day of the month following the date of invoice.
Non-trading transactions
Loans to related
parties
GBPm 2021 2020
Joint ventures 0.2 0.4
The balance above is secured against the assets of Fresh on the
Go Limited.
Directors' remuneration
GBPm 2021 2020
Salaries 0.9 0.9
Bonus 0.6 0.1
Non-executive director fees 0.3 0.5
Post-employment benefits - -
Termination benefits 0.1 0.4
1.9 1.9
Information concerning directors' remuneration, interest in
shares and share options are included in the Directors'
Remuneration report in the Annual Report.
There are 2 (2020: 2) directors to whom retirement benefits are
accruing in respect of qualifying services under money purchase
schemes.
Directors made gains on share options of GBPnil (2020:
GBP0.1m).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who
are the key management personnel of the continuing Group, is set
out below in aggregate for each of the categories specified in IAS
24 'Related Party Disclosures.'
GBPm 2021 2020
Short-term employee benefits 2.8 2.5
Termination benefits - 0.6
Share based payments 0.6 0.2
3.4 3.3
33. Subsidiary and associated undertakings
Company name/ Share Class Group Company name/ Share Class Group
(number) % (number) %
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2
8UH
Martin-Lavell
Connect Limited Ordinary Limited Ordinary
02008952 Shares 100% 02654521 (*) Shares 100%
Connect Logistics Pass My Parcel
Limited Ordinary Limited Ordinary
09172965 Shares 100% 09172022 Shares 100%
Connect News & Phantom Media
Media Limited Ordinary Limited Ordinary
08572634 Shares 100% 03805661 (*) Shares 100%
Connect Parcel Smiths News Holdings
Freight Limited Ordinary Limited Ordinary
09295023 Shares 100% 04236079 Shares 100%
Connect Parcels Smiths News Instore
Limited Ordinary Limited Ordinary
09172850 Shares 100% 03364589 Shares 100%
Connect Services Ordinary Smiths News Investments Ordinary
Limited Shares 100% Limited(*) Shares 100%
08522170 06831284
Connect Specialist
Distribution Group Smiths News Distribution
Limited Ordinary Limited Ordinary
08458801 Shares 100% 08506961 Shares 100%
Smiths News Trading
Connect2U Limited Ordinary Limited Ordinary
03920619 Shares 100% 00237811 Shares 100%
Dawson Media Services Ordinary Dawson Limited Ordinary
Limited 06882722 Shares 100% 03433262 Shares 100%
Dawson Guarantee Dawson Media
Company Limited Ordinary Direct Limited Ordinary
06882393 Shares 100% (*) 06882366 Shares 100%
Dawson Holdings Ordinary
Ltd (*) Shares 100%
00034273
France
Dawson Media Direct Ordinary 100% 11 rue Léopold Bellan, 75000
SAS Shares Paris, France
450 101 340 RCS
Bobigny
Spain
Dawson Media Direct Ordinary 100% Avendida de la Industria 38,
Iberica SL Shares Nave C-17, 28223 Coslada, Spain
CIF-B84692904
Germany
Dawson Media Direct Ordinary 100% Auf der Roos 6-12, 65795 Hattersheim
GmbH Shares am Main, Germany
HRB 99445
Belgium
Dawson Media Direct Ordinary 99% Brixtonlaan 1E, 1930 Nossengem,
NV Shares Belgium
474.114323
Turkey
Dawson Media Direct Ordinary 100% Parima Plaza Maltepe Mahallesi
Anonim Sirketi Shares Eski Cirpici Yolu Sok No:8 K:14-176
14449-5 Merter-Zeytinburnu Istanbul Turkey
Australia
Dawson Media Direct Ordinary 100% C/O Grant Thornton Australia
Australia Pty Shares Level 17, 383 Kent Street, Sydney
Limited NSW 2000, Australia
615545545
Hong Kong
Dawson Media Direct Ordinary 100% Flat/Rm 5008 50/F, Central Plaza,
China Limited Shares 18 Harbour Road, Wanchai, Hong
1167911 Kong
Thailand
Dawson Media Direct Ordinary 48.9% 87 M Thai Tower, All Seasons
Co. Ltd Shares Place, 23rd Floor, Wittayu Road,
105558138385 Lumpini Sub-District, Pathumwan
District, Bangkok, Thailand
* Audit exemption statement
For the 52 weeks ended 28 August 2021, the companies as
indicated in the table by '(*)' above were entitled to exemption
from audit under section 479A of the Companies Act 2006 relating to
subsidiary companies. As such, Smiths News plc (formerly Connect
Group PLC) has provided a guarantee against all debts and
liabilities in these subsidiaries as at 28 August 2021. The members
of these companies have not required them to obtain an audit of
their financial statements for the 52 weeks ended 28 August
2021.
GLOSSARY - Alternative performance measures
Introduction
In the reporting of financial information, the directors have
adopted various APMs.
These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' APMs, including those in the
Group's industry.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing
additional useful measures of the Group's performance. They provide
readers with additional information on the performance of the
business across periods which is consistent with how the business
performance is planned by, and reported to, the Board and the
Executive Team.
Consequently, APMs are used by the directors and management for
performance analysis, planning, reporting and incentive-setting
purposes.
The key APMs that the Group has focused on and changes to APMs
within the period can be found in Note 1.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS to IFRS measure for
measure reconciliation
Income Statement
Adjusted No direct N/A Note 4 Adjusting items of income or
Items equivalent expenses are excluded in arriving
at Adjusted operating profit
to present a further measure
of the Group's performance.
Each of these items is considered
to be significant in nature
and/or quantum, non-recurring
in nature and /or are considered
to be unrelated to the Group's
ordinary activities or are consistent
with items treated as adjusting
in prior periods. Excluding
these items from profit metrics
provides readers with helpful
additional information on the
performance of the business
across periods because it is
consistent with how the business
performance is planned by, and
reported to, the Board and the
Executive Team.
Adjusted Operating Adjusted Income Adjusted operating profit is
operating profit* items statement/ defined as operating profit
profit Note 4 from continuing operations,
excluding the impact of adjusting
items (defined above). This
is the headline measure of the
Group's performance and is a
key management incentive metric.
Adjusted Profit Adjusted Income Adjusted profit before tax is
profit before items statement/ defined as profit before tax
before tax (PBT) Note 4 from continuing operations,
tax excluding the impact of adjusting
items (defined above).
Adjusted Profit Adjusted Income Adjusted profit after tax is
profit after items statement/ defined as profit after tax
after tax (PAT) Note 4 from continuing operations,
tax excluding the impact of adjusting
items (defined above).
Adjusted Operating Depreciation Page 12 This measure is based on business
EBITDA profit* and amortisation unit operating profit from
Adjusted Continuing operations. It excludes
items depreciation, amortisation and
adjusting items. This is the
headline measure of the Group's
performance and is a key management
incentive metric.
Adjusted Earnings Adjusted Note 10 Adjusted earnings per share
earnings per share items is defined as continuing adjusted
per PBT, less taxation attributable
share to adjusted PBT and including
any adjustment for minority
interest to result in adjusted
PAT attributable to shareholders;
divided by the basic weighted
average number of shares in
issue.
Cash flow Statement
Free Net movement Dividends, Note 26 Free cash flow is defined as
cash in cash acquisitions cash flow excluding the following:
flow and cash and disposals, payment of the dividend, acquisitions
equivalents Repayment and disposals, the repayment
of bank loans, of bank loans, EBT share purchases
EBT share and cash flows relating to pension
purchases, deficit repair. This measure
Pension deficit reflects the cash available
repair payments to shareholders.
Free Net movement Dividends, Note 26 Free cash flow (excluding Adjusted
cash in cash acquisitions items) is Free cash flow adding
flow and cash and disposals, back Adjusted cash costs.
(excluding equivalents Repayment
adjusting of bank loans,
items) EBT share
purchases,
Pension deficit
repair payments
Adjusted
items
Balance Sheet
Bank Borrowings Cash flow Bank Net Debt is calculated
Net less statement as total debt less cash and
Debt cash cash equivalents. Total debt
includes loans and borrowings,
overdrafts and obligations under
finance leases as defined by
IAS 17.
Net Borrowings Cash flow Net debt is calculated as total
debt less statement debt less cash and cash equivalents.
cash Total debt includes loans and
borrowings, overdrafts and obligations
under leases
* Operating profit is presented on the Group income statement.
It is not defined per IFRS, however, is a generally accepted profit
measure.
Reconciliation of Free cash flow to net movement in cash and
cash equivalents
A reconciliation between free cash flow and the net increase/
(decrease) in cash and cash equivalents are shown below:
GBPm 2021 2020
Net (decrease)/increase in cash
& cash equivalents (31.3) 42.7
Increase in borrowings and overdrafts 57.8 (50.8)
Movement in borrowings and cash 26.5 (8.1)
Dividend paid 1.2 2.4
Tuffnells disposal costs - 3.7
Adjustment for pension funding - 0.8
Working capital loan to Tuffnells (6.7) 6.5
Outflow for EBT shares 2.6 0.7
Dividends received - -
Total Free cash flow 23.6 6.0
Discontinued free cash outflow (0.4) (4.9)
Continuing free cash flow 24.0 10.9
Continuing Adjusted EBITDA reconciliation
GBPm 2021 2020
Operating profit 35.8 21.1
Adjusting items 3.8 14.0
Adjusted operating profit 39.6 35.1
Depreciation 2.4 2.6
Amortisation 1.9 2.0
Right of use asset depreciation 6.4 6.0
IFRS 16 adjusted EBITDA 50.3 45.7
Operating lease charges (7.7) (6.6)
Adjusted EBITDA (excluding IFRS16) 42.6 39.1
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END
FR FFFILLDLVIIL
(END) Dow Jones Newswires
November 04, 2021 03:00 ET (07:00 GMT)
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