TIDMSMWH
RNS Number : 9584W
WH Smith PLC
28 April 2021
28 April 2021
WH SMITH PLC
INTERIM RESULTS ANNOUNCEMENT
For the six months ended 28 February 2021
Well positioned for the recovery in Travel with
good growth opportunities; c.100 stores won and yet to open
-- Encouraging performance despite continued impact from Covid-19 with improving trends
-- Good results across all key markets from our focused plan on
customer conversion, increasing average transaction value (ATV),
category development and cost management
-- Free cash outflow of GBP13m in the half
-- Extensive opportunities for further growth; c.100 new stores
won and planned to open in Travel over the next three years with
over 60 in North America
-- Encouraging recovery in North America
-- Profitable performance from High Street
-- Strong online performance, including a record performance from funkypigeon.com
-- Finished March ahead of plan with cash on deposit of GBP50m and undrawn facilities of GBP200m
-- New financing arrangements successfully agreed including the
launch of a convertible bond providing flexibility and capacity to
fund new and existing growth opportunities
-- Well positioned as travel markets recover
Carl Cowling, Group Chief Executive, commented:
"Thanks to the outstanding work of all our colleagues across the
business, the Group has adapted well to the evolving trading
environment and we are in a strong position as our markets begin to
recover.
"In Travel, while many of our stores have remained closed, it is
a credit to the team that we have kept up the momentum, focusing on
our plan to increase average transaction value and spend per
passenger while continuing to win new business. As a result, we are
now operationally stronger than prior to the pandemic.
"We continue to see encouraging signs of recovery in North
America and we are delighted to have won some significant tenders
in the US during the period.
"We have a strong pipeline of new store openings with c.100
stores already won and due to open in Travel over the next three
years, the majority of these in North America. We are an important
retail partner for our travel landlords and we are well positioned
to take advantage of further space opportunities that will arise
over the coming months.
"In a difficult retail environment, our High Street business has
generated a resilient performance. At the same time, we are pleased
that our online businesses, including funkypigeon.com, have
delivered a record performance.
"We have positioned the Group well. We are financially strong as
a result of the actions we have taken, and the new financing
arrangements also announced today will put us in an even stronger
position to capitalise on the growth of our key markets and take
advantage of the many exciting opportunities ahead."
Group financial summary:
IFRS IAS 17*
6 months to 6 months to 6 months to
Feb 2021 Feb 2020 Feb 2021 6 months to Feb 2020
------------ ------------ ------------
Travel trading (loss)/profit(1) GBP(31)m GBP50m GBP(28)m GBP49m
High Street trading profit(1) GBP33m GBP47m GBP24m GBP44m
Group profit/(loss) from trading operations(1) GBP2m GBP97m GBP(4)m GBP93m
Headline Group (loss)/profit before tax(1) GBP(17)m GBP80m GBP(19)m GBP80m
Headline (loss)/earnings per share(1) (12.9)p 56.1p (13.6)p 56.1p
Non-underlying costs(1) GBP(21)m GBP(17)m GBP(18)m GBP(17)m
------------ ------------ ------------
Group (loss)/profit before tax GBP(38)m GBP63m GBP(37)m GBP63m
Basic (loss)/earnings per share (26.7)p 41.6p (26.0)p 41.6p
Diluted (loss)/earnings per share (26.5)p 41.2p (25.8)p 41.2p
------------------------------------------------ ------------ ------------ ------------ ---------------------
Revenue performance:
GBPm Total %
change
Travel 150 (65)%
------- ----------
High Street 270 (14)%
Group 420 (44)%
------- ----------
* In addition to the statutory IFRS 16 presentation, the results
for both the period ended 28 February 2021 and 29 February 2020
have been presented on a pre-IFRS 16 (IAS 17) basis which is how
performance is monitored internally, and commentary throughout this
report will refer to these pre-IFRS 16 numbers. Measures presented
under IAS 17 are identified with a "*". Reconciliations from IAS 17
measures to IFRS 16 measures are provided in the Glossary on page
40. Group revenue was not affected by the adoption of IFRS 16, and
therefore all references to and discussion of revenue are based on
statutory measures.
(1) Alternative Performance Measure (APM) defined and explained
in the Glossary on page 40. Unless otherwise stated, all references
in this announcement to growth rates and year-on-year comparisons
relating to the Group's statutory and alternative performance
measures are stated on a consistent basis under IAS 17.
WEBCAST:
A live webcast will be held tomorrow at 8.30am BST for investors
and analysts and will be available on our website at
www.whsmithplc.co.uk .
ENQUIRIES:
WH Smith PLC
Nicola Hillman Media Relations 01793 563354
Mark Boyle Investor Relations 07879 897687
Brunswick
Tim Danaher 020 7404 5959
WH Smith PLC's Interim Results 2021 are available at
www.whsmithplc.co.uk .
GROUP OVERVIEW
Strategic Initiatives
While the trading environment has remained challenging
throughout the first half of our financial year, with reduced
footfall on the UK high street and extensive travel restrictions in
place, we have focused on initiatives within our control that
support us in the immediate term and position us well to emerge
operationally stronger as our markets recover.
These key areas of focus include:
Ø Driving ATV and sales per passenger
Ø Extending our categories and ranges to reflect the specific
needs of our customers in each location. For example, health and
beauty products across our Travel stores and working from home and
electrical accessories ranges across our High Street stores
Ø Working with landlords building on our strong relationships to
create opportunities for winning new business, extending key
contracts and improving the quality and location of the space where
we operate
Ø Investing capex in strategically important projects which set
us up well for the future, such as our combined pharmacy format
store at London Heathrow Terminal 2, our refitted stores at London
Heathrow Terminal 5 and our stores at the new terminal at
Manchester Airport
Ø Forensic focus on costs, minimising discretionary spend and
managing our cash burn
Ø Securing our financial position through the new banking
arrangements announced today
Ø Completing the integration of our North American businesses,
delivering c.GBP5m of cost savings annually
Ø Building our internet proposition by extending ranges,
investing in marketing, fulfilment and distribution and building
customer engagement through social media
In line with government guidance, we kept the vast majority of
our High Street stores and Hospital stores open throughout the
periods of lockdown to ensure we could continue to serve our
communities and support frontline NHS workers. This would not be
possible without the support of our colleagues who have shown
remarkable commitment.
As restrictions eased and we were able to re-open our stores, we
applied the learnings from the past year to ensure we could open
swiftly, profitably and with the full support of our teams.
Group Summary
Total Group revenue in the period as a percentage of 2019 total
revenue has been:
% of 2019 Revenue
Q1 Q2 Q3 to
date
------ ----- -------
High Street 88% 84% 87%
------ ----- -------
Travel 39% 34% 43%
------ ----- -------
Group 59% 58% 60%
------ ----- -------
Covid-19 continues to have a significant impact on the Group.
Total Group revenue in the first half was GBP420m (2020: GBP747m),
down 44% on last year. Travel remained impacted by the government
enforced travel restrictions throughout the half with the tighter
UK restrictions impacting from January. We saw a consistently good
performance in High Street throughout the half with the important
December trading period at 92% of 2019.
Whilst the third lockdown in the UK impacted January and
February, we saw an improved performance at the start of Q3, with a
stronger performance in High Street. We also saw an improvement in
Travel, led by the recovery in North America.
The Headline Group loss from trading operations (1) for the
period was GBP4m* (2020: profit of GBP93m) with Headline Group loss
before tax (1) at GBP19m* (2020: profit of GBP80m). Including
non-underlying items, the Group loss before tax (1) was GBP37m*
(2020: profit of GBP63m). The Group loss before tax, after
non-underlying items and including IFRS 16, was GBP38m (2020:
profit of GBP63m).
Equivalent month in 2019
The Group will not be paying an Interim dividend. As at 28
February, net debt (1) was GBP336m* (2020: GBP411m). Group free
cash flow (1) was an outflow of GBP13m* (2020: free cash inflow of
GBP1m). As at 28 February 2021, the Group had cash of GBP72m of
which GBP52m was cash on deposit(2) .
As at the end of March 2021, the Group had cash on deposit of
GBP50m with GBP48m of known commitments (rents and outstanding
creditors) and access to GBP200m of committed facilities.
The Group has the following debt facilities as at 28 April 2021,
prior to the new financing arrangements and issue of the
convertible bond:
Amount Drawn at
28 February 2021 and Maturity
28 April 2021
Available facilities
---------------------- --------------
GBP200m Revolving Credit GBPNil December 2023
Facility
---------------------- --------------
Existing debt
---------------------- --------------
GBP200m Term Loan GBP200m October 2023
---------------------- --------------
GBP200m MRG Loan GBP200m October 2023
---------------------- --------------
New financing arrangements
The Group has separately announced today new financing
arrangements which include a GBP250m RCF (increased from GBP200m)
with an extended maturity from 2023 to 2025 and provided by an
expanded syndicate of lending banks. As part of the financing
arrangements, the Group is also launching an offering of
convertible bonds maturing in 2026. The convertible bonds are
expected to raise approximately GBP325m and will provide GBP50m of
new capacity for the Group to fund the opening of c.100 new Travel
stores won and yet to open over the next three years and new growth
opportunities. The remainder of the proceeds will be used to
partially pay down the existing GBP400m of term loans from both the
Marshall Retail Group ('MRG') and InMotion acquisitions. The
maturity of the remaining term loan has also been extended from
2023 to 2025 in line with the RCF.
We continued to focus on minimising the cash outflows and,
despite the lockdowns, limited the first half free cash outflow(1)
to GBP13m*, reflecting a better than expected performance
particularly from High Street and a rigorous focus on cash. Our
cash burn during the latest lockdown over the January to March
period was approximately GBP7m(3) per month. Based on our current
expectations, we anticipate a small drawdown on our RCF at the end
of August 2021, and assuming the same conditions as 2020, to be
cash generative over the September to December period.
The Group's approach to capital allocation remains unchanged:
investing in the business and new opportunities where we see
attractive rates of return ahead of the cost of capital; returning
cash to shareholders via dividends and share buybacks; to make
appropriate value-creating acquisitions in markets with good growth
prospects.
(2) Cash and cash equivalents of GBP72m is cash on deposit/cash
at bank of GBP52m, plus GBP20m of cash in transit/held at
stores.
(3) Monthly average recurring cash flows adjusted for timing and
one-off items
TRAVEL
Covid-19 has continued to significantly impact the business
across both our UK and international markets. This has resulted in
a trading loss(1) of GBP28m* (2020: profit of GBP49m) in the
period, of which a loss of GBP9m* (2020: profit of GBP9m) relates
to our international business including North America. Total
revenue was GBP150m (2020: GBP432m).
Throughout the Travel business we have focused on initiatives
within our control that support us in the immediate term and
position us well to emerge operationally stronger as our markets
recover :
I. Business development and winning new business
We do this through building and managing relationships with all
our landlord partners to win new space, improve the quality and
amount of space, develop new formats and extend contracts. As at
the end of March 2021, we had c.100 stores won and yet to open
across our global Travel business.
II. ATV growth and spend per passenger
We do this through our forensic attention to space, cross
category promotions, store layouts and store refits.
III. Category development
We do this by developing adjacent product categories relevant
for our customers, such as health and beauty and electrical
accessories ranges; and expanding existing categories.
IV. Minimising costs
We remain focused on cost control and minimising our cost base
to reflect the level of sales in each channel and country whilst
retaining our ability to trade as recovery occurs.
As at 28 February 2021, our global Travel business operated from
1,168 units (29 February 2020: 1,194 units). Of these, 745 were
open as at 28 February 2021. Excluding franchise units, Travel
occupies 1.0m square feet.
UK Travel
Our UK Travel business has continued to be impacted by a
significant decline in passenger numbers as a result of travel
restrictions throughout the first half of the financial year. Total
revenue in the six months to 28 February 2021 was GBP79m, (2020:
GBP271m). Compared to 2019, air was 16%, our hospital channel was
71% and rail was 22%. This resulted in a trading loss(1) of GBP19m*
(2020: profit of GBP40m).
Recent trading in UK Travel has been impacted by further
lockdown restrictions, quarantine measures and reduced passengers
on public transport. Revenue in March and April was 27% of 2019
revenue. As the number of Covid-19 patients in hospitals has
reduced, we have seen an improvement in our hospital performance as
hospitals return to general medical care. As the roadmap out of
lockdown continues, we expect to see improved performance in our
rail business. We await further government guidance on air travel
and continue to plan cautiously whilst retaining the flexibility to
meet customer and landlord needs.
We have worked hard across all our channels to deliver against
our plan focusing on key priorities within our control that support
us in the immediate term and enable us to emerge operationally
stronger when our markets recover. Our key areas of focus include:
increasing conversion and ATV, category development, cost and cash
management and identifying opportunities for further growth. These
key areas of focus are integral to each channel and put us in a
strong position for the future for organic growth and leave us well
placed to return to winning 10 to 15 new stores per year.
We now have c.60% of our UK Travel store estate open.
Air
In Air, despite the reduction in passenger numbers, we have
continued to build on our strong position in this channel. We have
extended our categories and existing ranges into new categories
such as health and beauty, tech accessories, premium souvenirs and
premium food trials. We have seen some very positive results
delivering a double-digit increase in ATV and we see further
opportunities across our store portfolio.
In addition, we have continued to invest in our stores and
develop new formats, working with our landlords to improve the
amount and quality of our space at our largest airports. These
stores will serve c.25% of our airport customers and include two
new stores at the new Terminal 2 at Manchester Airport, our
flagship pharmacy format store at London Heathrow Terminal 2, and
major refits across London Heathrow Terminal 5 to our 'store of the
future' format. Our experience shows us that our large store
formats deliver significantly higher ATV and spend per passenger as
a result of the improved layout, increased capacity and by creating
a one-stop-shop for passengers. In addition, we have successfully
extended a number of key contracts.
Looking ahead to our peak summer trading period, we expect
leisure customers to return first, accounting for c.80% of the
market, and we know that WH Smith customers trend more towards
leisure than business travel. We are also in active discussions
with our landlords and we have recently opened a new bookshop at
London Heathrow Terminal 2 and plan to open a Costa Coffee store at
Aberdeen Airport in the second half. Going forward, we expect more
space to become available.
Hospitals
The Hospital channel is our second largest channel by revenue in
UK Travel. Throughout the first half, we continued to trade in
c.130 hospital stores across the UK in order to support frontline
NHS staff throughout the pandemic. While sales were clearly
impacted with no hospital visitors and elective surgeries
cancelled, these stores performed well.
This channel is a great example of how we continue to innovate
to meet the specific needs of each location. We have developed a
strong customer offer and aligned our ranges to the NHS strategy on
healthy eating. Our broad suite of brands, which include Costa
Coffee and M&S Simply Food, also ensure that we can tailor and
adapt our proposition to each hospital's requirements. We now
operate from c.130 hospital stores across 100 hospitals in the UK.
There are around 300 hospitals with scope to support at least one
of our store formats and we are therefore well positioned to
increase the number of stores and to grow this channel further. We
would expect to return to opening c.10 new stores on average each
year in this channel as the impact of Covid-19 declines.
Rail
Rail remains an important channel with c.1.7bn passengers
pre-Covid and leisure passengers accounting for around 40%. During
the half, this channel has been impacted by travel restrictions,
however we are seeing improving trends and it is our expectation
that leisure customers will return to pre-Covid levels before
business passengers. Since the beginning of March, we have also
seen a steady improvement in passenger numbers as more people
return to office working and we expect to see passenger numbers
increase as lockdown eases. More flexible working arrangements
should also spread passengers more evenly throughout the day with
fewer rush hour pinch points when customers have less time to
browse.
Similar to Air, we know that WH Smith rail customers trend more
towards leisure than business travel. Over 70% of our sales,
pre-Covid, were taken at off-peak times and over the weekend with a
higher ATV and spend per passenger, reflecting leisure passengers
with more time to browse.
Although passenger numbers may continue to be impacted in the
short-term, we have a very focused plan on driving ATV and we have
seen some good results in the half with a double-digit increase. We
also continue to invest in this channel and during the second half
we will open our first combined pharmacy format store at Euston
Station.
International
Within our International Travel division, North America now
represents c.50% of our stores outside of the UK and we continue to
see significant opportunities to grow this business further.
Outside of North America, we still have a small market share of the
international news, books and convenience (NBC) market and we
believe there is good long-term potential for us to continue to
grow our space. During the first half of the financial year, our
International Travel business has continued to be adversely
impacted by Covid-19.
Total revenue for the half, including MRG and InMotion, was
GBP71m (2020: GBP161m). The trading loss(1) for the six months to
28 February 2021 was GBP9m* (2020: profit GBP9m).
North America
The growth opportunities in North America are substantial. The
US is the largest travel retail market in the world and valued,
pre-Covid, at $3.2bn. Approximately 85% of passengers are domestic
with leisure passengers the biggest segment, and we are witnessing
a faster recovery in this market versus the rest of the world. TSA
(Transportation Security Administration) data continues to show a
consistent, gradual recovery in passenger numbers week on week,
with passenger numbers for the week ending 25 April 2021 at 57% of
2019 levels. In addition, we expect a substantial amount of retail
space to be put up for tender over the next ten years.
MRG has a strong track record of winning new business and we
have 62 new stores (including InMotion) won and due to open in
North America over the next three years with 18 stores won this
financial year. Differentiated from its competitors by its strategy
of developing highly customised retail experiences tailored to
local customers and landlords, MRG has a highly successful and
proven business model. The combination of WH Smith, MRG and
InMotion now enables the Group to participate in the entire North
American airport specialty retail market.
In the first half, MRG opened 10 stores and we are in a strong
position to build further upon our combined expertise.
Outside of the airport business, the resorts channel continues
to be resilient. MRG are a leading player in this channel with very
longstanding relationships and a significant amount of expertise.
There are also similar dynamics to our Travel business with a high
number of short stay visitors. As expected, this market has proven
very resilient as a leisure location. Whilst many people drive to
Las Vegas, we are also seeing a significant improvement in
passenger numbers coming through McCarran International
Airport.
Our sales performance has reflected these trends with overall
sales in North America at 61% of 2019 levels in March. We currently
have 221 stores open (127 MRG and 94 InMotion).
InMotion has an excellent store portfolio with 118 stores
located across 43 airports in North America and two stores in
Resorts. During the half, InMotion opened 8 units, including our
first InMotion stores in the Resort locations, and 6 airport
stores.
During the half, we completed the integration of InMotion into
MRG which will deliver cost savings of c.GBP5m per annum.
Rest of the World
Our International business outside of North America is seeing
broadly similar trends to the UK with passenger numbers
significantly down year on year. As elsewhere in Travel, we remain
focused on areas within our control, including increasing ATV. Our
very low market share of the international NBC market means there
is significant opportunity to grow this business further. As this
market recovers, we expect to see more space becoming available
across our traditional categories as well as in tech accessories.
As at 28 February 2021, we had 194 stores trading (c. 60% of the
total). Recovery in these markets is likely to take some time with
short-haul travel recovering first and we are planning accordingly.
Revenue in March was at 24% of 2019 levels.
In the first half, outside of North America, we opened 5 new
stores. In addition, we won 12 new stores, including a significant
tender at Adelaide Airport, Australia.
In total, as at 28 February 2021, we had 310 stores. 41% are
directly run, 53% are franchised with the balance being joint
ventures. We will continue to use these three economic models
flexibly in order to create value and win new business.
Across our global Travel business outside of the UK, we are now
present in over 100 airports and 30 countries with 286 units in
North America, 82 units in Europe, 107 in the Middle East and
India, and 121 in Asia Pacific.
HIGH STREET
Our High Street business delivered a resilient performance with
trading profit(1) of GBP24m* (2020: GBP44m). Total revenue was down
14%.
Throughout the lockdown periods, we kept the vast majority of
our stores open, in line with government guidance which classes
newsagents as essential retailers. We did however close our
non-newsagent stores as well as secondary floors across some of our
larger stores, while maintaining access for essential Post Office
services.
As with our Travel business, we have focused on initiatives
within our control with a greater focus on: increasing ATV, where
we have seen some very positive results; category development,
introducing new ranges; and good cost control. During the half, w e
saw strong performances from both our seasonal and new 'work from
home' ranges.
We consider retail space as a strategic asset and we utilise our
space to maximise return in the current year in ways that are
sustainable for future years. We have extensive and detailed space
and range elasticity data for every store, built up over many years
and we utilise our space to maximise the return on every metre drop
of display space in every store. This approach remains as
appropriate today as it has ever been. Our stores are well located
with 95% in prime pitch locations and with an average lease length
of 2.5 years we retain high levels of flexibility.
During the half, we have been encouraged by the performance of
our instore stationery trials, in partnership with Typo and Tinc.
These new ranges complement our WH Smith stationery ranges and
attract a different customer type to shop in our stores. While it
is still early days, the results are encouraging and customer
feedback has been very positive.
We continue to invest in whsmith.co.uk which provides a
complementary offer to our customers. During the period, we have
focused on extending our ranges and building our customer base.
Driving efficiencies remains a core part of our strategy and we
continue to focus on all areas of cost in the business. We achieved
cost savings of GBP24m in the first half of the financial year.
These savings come from right across the business, including rent
savings at lease renewal (on average over 45%) which continue to be
a significant proportion, government business rates holiday,
marketing efficiencies and productivity gains from our distribution
centres. We are on track to deliver GBP37m of cost savings for the
full year.
Over the years, we have actively looked to put as much
flexibility into our store leases as we can, and this leaves us
well positioned in the current environment. The average lease
length in our High Street business, including where we are
currently holding over at lease end is 2.5 years. We only renew a
lease where we are confident of delivering economic value over the
life of that lease. We have c.430 leases due for renewal over the
next three years, including 150 where we are holding over and in
negotiation with our landlord. In the half, we closed 7 of the 25
stores we announced in November 2020 and expect to close most of
the remaining 18 stores by the end of this financial year as the
leases on these stores expire. As we close these stores we actively
manage the cash costs of doing so and have been able to cover over
70% of closure costs through active management of the stock held in
each store. While closing stores is not an easy decision to make
for our colleagues or the communities we serve, it is vital we
retain a strong and cash generative high street portfolio going
forward.
As at 28 February 2021, the High Street business operated from
561 WH Smith stores (2020: 575) which occupy 2.7m square feet
(2020: 2.7m square feet). Seven WH Smith stores were closed in the
period.
Specialist websites
Our online specialist websites have delivered strong growth in
the period.
Funkypigeon.com delivered a record performance in the period and
is on track to deliver profit in the mid-teens this financial year.
The online card market has a small penetration of the overall card
market with significant growth opportunities. We therefore continue
to invest in the site and have extended the fulfilment capability
to meet demand supporting the significant increase in new customers
over the past twelve months. We have further invested in the
funkypigeon.com app during the period which has helped improve
customer conversion. We believe there are significant opportunities
to grow the platform further in terms of both capability and
ranging.
Our specialist pen website, C ultpens.com has continued to
perform well. During the half, we have invested further in the site
adding international functionality to build on our existing
international sales. In addition, we have continued to focus on our
luxury pen ranges with increased marketing investment in ranges
such as Montblanc.
Outlook
The Group has responded quickly and adapted well to the evolving
trading environment despite the challenges and uncertainties faced
during the period. We have managed our cash position well and we
are in a stronger position today than we had expected to be back in
November 2020.
In Air, we expect domestic passengers to return first followed
by short-haul and then long-haul. We have already seen this borne
out in North America and Australia but expect this to be the case
in all our markets. In Rail, as government restrictions are lifted,
we expect leisure passengers to return first followed by more
people returning to office working. We have a resilient Hospital
channel in the UK and we expect to see a further improvement in
revenue from this channel as the impact of Covid-19 declines. Both
within and outside the UK, we remain committed to our four key
areas of focus: to drive ATV; increase customer conversion; expand
our range of categories; and minimise costs and cash burn.
We have already won a strong pipeline of new space across all
our channels and territories, totalling c.100 new stores which are
due to open in Travel over the next three years, with the majority
in North America. We have also made good progress investing in our
existing stores, opening new formats and winning new business. We
anticipate further growth opportunities across all our markets. All
this puts us in a robust position to continue to recover and emerge
operationally stronger from the pandemic.
We are financially strong and are an important retail partner
for our travel landlords. As a result, we are well positioned to
benefit from further opportunities, including extending our user
clauses to drive spend per passenger.
Our High Street business has delivered a robust performance and
is well placed to continue to generate cash from its portfolio of
well-located stores and growing internet businesses. Across our
digital channels, we expect to see continued strong growth,
particularly from funkypigeon.com, and we are well positioned to
grow this platform further.
Given our better than expected performance in the period and the
recent improving trends in the business, we expect the full year
2020/21 outturn for the Group to be modestly ahead of current
expectations.
The speed with which the Group will return to levels of revenue
seen in 2019 will depend on the trajectory of the global economic
recovery, but we currently expect 2019 revenue to be achieved
within the next two to three years. At that point, we expect the
balance of revenue to be more heavily weighted towards Travel than
High Street, and within the High Street business, we expect to see
an increased weighting towards our online businesses.
Overall, the business is performing well in difficult
circumstances and we are confident that the business will recover
to historic levels and beyond.
Environmental, Social and Corporate Governance ('ESG')
During the half, we launched our new sustainability strategy,
'Our journey to a better business', and we have continued our focus
on our ESG performance. Our business is now carbon neutral across
all of our UK estate through our ongoing focus on energy efficiency
and switching to 100% renewable electricity. We will continue our
transition to Net Zero with an aim to reach the same milestone for
our international estate by 2025, and by working with our suppliers
to decarbonise our supply chain by 2040.
We remain committed to responsible sourcing practices and the
vast majority of our own-brand paper products are made from
recycled materials or come from sustainably-certified sources. In
addition, we will be removing all plastic glitter from our ranges
ahead of Christmas 2021. This is in addition to our work to
re-design and remove plastic packaging from our seasonal ranges
wherever possible.
One of the greatest impacts of Covid-19 has been the increasing
gap in children's literacy levels. We are very proud to continue
our partnership with the National Literacy Trust at such a critical
time and, working together, we will provide books to every child in
this country that does not own a book of their own.
We continue to focus on our colleagues' mental health as well as
their physical health and we recognise that it has been a
challenging year. We have therefore doubled our efforts to promote
the importance of mental wellbeing, providing financial and
in-person support to those that need it. In addition, all of our
line managers have now received mental health first aid
training.
During the period, we were awarded a place in the Dow Jones
World Sustainability Index. As one of only eleven retailers
included worldwide we were delighted to be recognised. We are
committed to continuing to play our part to address some of the key
challenges facing society and the environment over the years
ahead.
GROUP
The Group generated Headline loss before tax(1) of GBP19m*
(2020: Headline profit before tax GBP80m) and, after non-underlying
items and IFRS 16, statutory loss before tax of GBP38m (2020:
profit before tax GBP63m). During the first half, the Group
received a total of GBP8m from the UK Government's Job Retention
Scheme and similar schemes in other countries. The Group also
benefited from the business rates holiday implemented by the UK
Government which was worth GBP24m in the period.
IFRS IAS 17*
------------------------------ ---------------------- ----------------------
GBPm 6 months 6 months 6 months 6 months
to to to to
Feb 2021 Feb 2020 Feb 2021 Feb 2020
------------------------------ ---------- ---------- ---------- ----------
Travel trading (loss) /
profit (1) (31) 50 (28) 49
High Street trading profit
(1) 33 47 24 44
Group (loss) / profit from
trading operations (1) 2 97 (4) 93
Unallocated costs (1) (9) (9) (9) (9)
------------------------------- ---------- ---------- ---------- ----------
Headline Group operating
(loss) / profit (1) (7) 88 (13) 84
Net finance costs (10) (8) (6) (4)
------------------------------- ---------- ---------- ---------- ----------
Headline Group (loss) /
profit before tax (1) (17) 80 (19) 80
Non-underlying items (21) (17) (18) (17)
------------------------------- ---------- ---------- ---------- ----------
Group (loss) / profit before
tax (38) 63 (37) 63
------------------------------- ---------- ---------- ---------- ----------
Non-underlying items (1)
Items which are not considered part of the normal operating
costs of the business, are non-recurring and are exceptional
because of their size, nature or incidence, are treated as
non-underlying items and disclosed separately. Non-underlying items
in the half mainly relate to the impact of Covid-19 on the business
and the majority of these items are non-cash.
Non-underlying items included in the period ending 28 February
2021 are shown in the table below (2020: GBP17m). The expected cash
impact in the second half in relation to these items is
approximately GBP2m.
Income statement Cash Outflow
--------------------------------- ----- ------------------------ ---------------
Ref. Feb 2021 Feb 2021 H2
GBPm IFRS IAS 17 2021
--------------------------------- ----- ----------- ----------- ---------------
Costs directly attributable
to Covid-19
Impairment (1) 14 6 -
Onerous leases (2) - 2 -
Stock provisions, write-offs
and other costs (3) 4 7 1
Other non-underlying costs
Integration costs (4) 1 1 1
Amortisation (5) 2 2 -
21 18 2
--------------------------------- ----- ----------- ----------- ---------------
Items 1-3 in the above table have arisen as a direct consequence
of Covid-19, and reflect the impact of lost revenues as a result of
store closures, and downward revisions to budgeted revenues
following government interventions.
(1) Impairment of Property, plant and equipment and Right-of-use
assets
The impact on the Group's operations of Covid-19 is expected to
continue during the current year and beyond. As a result, the Group
has carried out a review for potential impairment across the entire
store portfolio. The impairment review compared the value-in-use of
individual store cash-generating units, based on managements'
assumptions regarding likely future trading performance taking into
account the effect of Covid-19, to their carrying values at 28
February 2021. Following this review, a charge of GBP6m* was
recorded for impairment of retail store assets on an IAS 17 basis,
and GBP14m on an IFRS 16 basis which includes an impairment of the
right of use assets of GBP9m, as a result of further government
restrictions in the first half and a movement in the discount
rate.
(2) Onerous leases*
As a result of the impact of Covid-19, the Group has carried out
a review of leases where the obligations of those leases exceed the
potential economic benefits expected to be received under them.
This resulted in a charge during the half of GBP2m*. This concept
relates to IAS 17 only and does not exist under IFRS 16.
(3) Stock provisions, write-offs and other
Provisions of GBP4m have been recorded against inventory mainly
relating to dated and perishable stock and stock subject to
obsolescence such as technology and apparel where the sell through
rate has significantly reduced due to store closures and lower
footfall as a consequence of Covid-19. In addition, as a result of
the government lockdowns, the Group has incurred stock write-offs
of GBP1m mainly relating to perishable and dated product. Other
costs relate to international franchisees, and under IFRS 16 only,
the derecognition of lease liabilities relating to the disposal of
WHSmith France.
(4) Integration costs
During the half, the Group incurred further costs of GBP1m in
relation to the integration of MRG into the Group, and the merging
of the InMotion and MRG corporate offices into Las Vegas.
(5) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands.
A tax credit of GBP3m has been recognised in relation to the
above items (GBP2m* under IAS 17).
Net Finance Costs
IFRS IAS 17*
-------------------------------- ---------------------- ----------------------
6 months 6 months 6 months 6 months
to to to to
GBPm Feb 2021 Feb 2020 Feb 2021 Feb 2020
-------------------------------- ---------- ---------- ---------- ----------
Interest payable on bank loans
and overdrafts 6 4 6 4
Interest on lease liabilities 4 4 - -
-------------------------------- ---------- ---------- ---------- ----------
Net finance costs 10 8 6 4
-------------------------------- ---------- ---------- ---------- ----------
Net finance costs relating to bank loans were GBP6m compared
with GBP4m last year, reflecting a full six month charge on MRG
acquisition term loan from December 2019. The non-cash pension
interest charge was GBPnil (2020: GBPnil). Lease interest of GBP4m
in the current period arises on lease liabilities recognised under
IFRS 16 (2020: GBP4m).
Tax
The effective tax rate (1) was 2%* on the loss made in the
period (2020: 19%). The Group does not anticipate making any
corporation tax payments in the current year.
Fixed Charges Cover (1)
6 months to Year ended
----------------------------------- -------------------- -----------
GBPm Feb 2021 Feb 2020 Aug 2020
----------------------------------- --------- --------- -----------
Net finance charges* (IAS 17) 6 4 9
Net operating lease rentals* (IAS
17) (1) 58 125 210
Total fixed charges* 64 129 219
Headline (loss)/profit before tax*
(1) (19) 80 (69)
----------------------------------- --------- --------- -----------
Headline (loss)/profit before tax
and fixed charges* 45 209 150
----------------------------------- --------- --------- -----------
Fixed charges cover(1) - times 0.7x 1.6x 0.7x
----------------------------------- --------- --------- -----------
Fixed charges, comprising property operating lease rentals and
net finance charges, were covered 0.7 times* (2020: 1.6 times) by
Headline (loss)/profit before tax and fixed charges.
Cash Flow
Free cash flow(1) reconciliation
6 months to
-------------------------------------------- --------------------
GBPm Feb 2021 Feb 2020
-------------------------------------------- --------- ---------
Headline Group operating (loss) / profit*
(1) (13) 84
Depreciation, amortisation and impairment*
(4) 25 28
Non-cash items 3 2
--------------------------------------------- --------- ---------
Operating cash flow * (5) 15 114
Capital expenditure (22) (41)
Working capital* (4) (1) (44)
Net tax refunded / (paid) - (24)
Net interest paid* (4) (3)
Other (1) (1)
--------------------------------------------- --------- ---------
Free cash flow (13) 1
--------------------------------------------- --------- ---------
(4) Excludes cash flow impact of non-underlying items.
(5) Headline Group operating (loss) / profit before
depreciation, amortisation and impairment and other non-cash
items.
The free cash outflow(1) for the period was GBP13m*. The
operating cash inflow was GBP15m* (2020: GBP114m) driven by a good
trading performance from High Street. We continued to focus on
managing our working capital making appropriate buying decisions
for stores we have open and had an outflow of GBP1m in the
half.
Net corporation tax payments in the period were GBPnil, compared
to GBP24m last year.
Capital expenditure was GBP22m (2020: GBP41m). We continue to
invest in strategically important projects, such as London Heathrow
Airport Terminal 5 and the new terminal at Manchester Airport,
while also continuing to spend on health and safety. We expect
capex spend for the full year to be around GBP50m although we
retain some discretion over this.
6 months to
---------------------------------------- --------- -------------------
GBPm Feb 2021 Feb 2020
----------------------------------------------- ----------- ----------
New stores and store development 10 16
Refurbished stores 4 7
Systems 5 8
Other 3 10
----------------------------------------------- ----------- ----------
Total capital expenditure 22 41
----------------------------------------------- ----------- ----------
Reconciliation of net debt (1)
Net debt(1) is presented on an IAS 17 basis. See Note 10 of the
Interim financial statements for the impact of IFRS 16 on net
debt.
As at 28 February 2021 the Group had net debt(1) of GBP336m*
comprising term loans of GBP400m relating to the acquisitions of
InMotion and MRG, GBP8m* of finance lease liabilities and cash(2)
of GBP72m, of which GBP52m was on deposit (31 August 2020: net debt
of GBP301m, comprising term loan of GBP400m relating to the
acquisitions of InMotion and MRG, GBP9m of finance lease
liabilities and cash of GBP108m ).
6 months to Year ended
GBPm Feb 2021 Feb 2020 Aug 2020
-------------------------------------------------- --------- -------------------- -----------
Opening net debt* (301) (180) (180)
Movement in period
Free cash flow* (13) 1 (41)
Dividends - (47) (47)
Pensions (1) (1) (3)
Net purchase of own shares for employee
share schemes - (1) (2)
Other 1 (3) (4)
Non-underlying items (22) (16) (20)
Proceeds from placings - 152 312
Acquisition of businesses, net of cash acquired - (316) (316)
-------------------------------------------------- --------- -------------------- -----------
Closing net debt* (336) (411) (301)
-------------------------------------------------- --------- -------------------- -----------
Cash 72 - 108
Term Loans (400) (400) (400)
Finance leases* (8) (11) (9)
-------------------------------------------------- --------- -------------------- -----------
(336) (411) (301)
-------------------------------------------------- --------- -------------------- -----------
The Group's net debt has increased by GBP35m* since year end. In
addition to the free cash outflow of GBP13m*, the Group has
incurred GBP22m of cash spend on non-underlying items which mainly
relate to restructuring costs following the review of store and
head office operations, as previously reported and charged to the
income statement in the prior year.
Balance sheet
IFRS IAS 17*
--------------------------- ---------------------------------- -------------------------------
Year
6 months Year 6 months 6 months ended 6 months
ended ended ended ended Aug ended
GBPm Feb 2021 Aug 2020 Feb 2020 Feb 2021 2020 Feb 2020
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Goodwill and other
intangible assets 471 493 510 472 495 512
Property, plant and
equipment 182 192 228 178 190 243
Right of use assets 370 413 540 - - -
Investments in joint
ventures 2 2 3 2 2 3
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
1,025 1,100 1,281 652 687 758
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Inventories 123 150 188 123 150 188
Payables less receivables (148) (183) (130) (181) (226) (145)
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Working capital (25) (33) 58 (58) (76) 43
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Derivative financial
(liability) / asset (1) - 1 (1) - 1
Net current and deferred
tax asset / (liability) 32 28 3 20 17 (1)
Provisions (14) (14) (2) (27) (27) (4)
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Operating assets employed 1,017 1,081 1,341 586 601 797
Net debt (837) (851) (977) (336) (301) (411)
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Net assets excluding
pension liability 180 230 364 250 300 386
Pension liability (4) (4) (4) (4) (4) (4)
Deferred tax asset
on pension liability 1 1 1 1 1 1
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
Total net assets 177 227 361 247 297 383
--------------------------- ---------- ---------- ---------- ---------- ------- ----------
The Group had net assets of GBP250m* before pension liabilities
and associated deferred tax assets, GBP50m lower than last year end
reflecting the increase in net debt due to the net cash outflow in
the half. Net assets after the pension liability and associated
deferred tax asset were GBP247m* compared to GBP297m at 31 August
2020. Under IFRS the Group had net assets of GBP177m.
Pensions
The latest actuarial valuation of the main defined benefit
pension scheme, the WH Smith Pension Trust, was at 31 March 2020 at
which point the deficit was GBP9m (31 March 2017 actuarial
valuation deficit of GBP11m). The Group has agreed a continuation
of the annual funding schedule with the Trustees from March 2020
for the next five years, which includes the deficit recovery
contributions and other running costs of just under GBP3m per
annum. During the period ended 28 February 2021, the Group made a
contribution of GBP1m to the scheme.
The scheme has been closed to new members since 1996 and closed
to defined benefit service accrual since 2007. The Liability Driven
Investment (LDI) policy adopted by the scheme continues to perform
well with around 94% of the inflation and interest rate risks
hedged.
As at 28 February 2021, the Group has an IFRIC 14 minimum
funding requirement in respect of the WH Smith Pension Trust of
GBP3m (31 August 2020: GBP3m) and an associated deferred tax asset
of GBP1m (2020: GBP1m) based on the latest schedule of
contributions agreed with the Trustees. As at 28 February 2021, the
scheme had an IAS 19 surplus of GBP198m (31 August 2020: surplus of
GBP268m) which the Group has continued not to recognise. There is
an actuarial deficit due to the different assumptions and
calculation methodologies used compared to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined
benefit pension scheme was GBP1m (31 August 2020: GBP1m).
Principal Risks and Uncertainties
The Group's Annual Report and Accounts 2020, a copy of which is
available on the Group's website at www.whsmithplc.co.uk, sets out
the principal risks and uncertainties which could impact the Group
for the remainder of the current financial year along with
mitigating activities relevant to each risk (see Annual Report and
Accounts 2020 pages 21 to 28). These include:
-- economic, political, competitive and market risks;
-- brand and reputation;
-- key suppliers and supply chain management;
-- store portfolio;
-- business interruption (including pandemics);
-- reliance on key personnel;
-- international expansion;
-- treasury, financial and credit risk management; and
-- cyber risk and data security.
The Annual Report and Accounts 2020 also identified specific
changes to our risk profile as a consequence of the Covid-19
pandemic following the Board's assessment of the ongoing impact of
Covid-19 as a significant risk facing the Group, due to uncertainty
around the timing and extent of recovery on our ability to re-open
and operate our Travel and High Street stores, both in the UK and
internationally, and its impact upon the levels of global and
domestic travel.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulations.
This announcement contains certain forward-looking statements
with respect to the operations, performance and financial condition
of the Group. By their nature, these statements involve uncertainty
since future events and circumstances can cause results to differ
from those anticipated. Nothing in this announcement should be
construed as a profit forecast. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
WH Smith PLC
Condensed Group Income Statement
For the 6 months to 28 February 2021
6 months to 28 Feb 6 months to 29 Feb 2020
2021
(unaudited) (unaudited)
------------------------------------ ----- ------------------------------------- ----------------------------------
Non-underlying Non-underlying
GBPm Note Headline(1) items(2) Total Headline(1) items(2) Total
------------------------------------ ----- ----------- -------------- -------- ----------- -------------- -----
Revenue 2 420 - 420 747 - 747
Group operating (loss) / profit 2 (7) (21) (28) 88 (17) 71
Finance costs 5 (10) - (10) (8) - (8)
(Loss) / profit before tax (17) (21) (38) 80 (17) 63
Income tax credit / (expense) 6 - 3 3 (15) - (15)
------------------------------------ ----- ----------- -------------- -------- ----------- -------------- -----
(Loss) / profit for the period (17) (18) (35) 65 (17) 48
------------------------------------ ----- ----------- -------------- -------- ----------- -------------- -----
Attributable to equity holders of the
parent (17) (18) (35) 64 (17) 47
Attributable to non-controlling interests - - - 1 - 1
------------------------------------------- ----------- -------------- -------- ----------- -------------- -----
(17) (18) (35) 65 (17) 48
(Loss) / earnings per share
Basic 8 (26.7)p 41.6p
Diluted 8 (26.5)p 41.2p
(1) ' Headline' denotes an alternative performance measure. See
Glossary on page 40 for definition of alternative performance
measures.
(2) See Note 3 for an analysis of Non-underlying items. See
Glossary on page 40 for definition of alternative performance
measures.
WH Smith PLC
Condensed Group Income Statement
For the 6 months to 28 February 2021
6 months to 28 Feb 12 months to 31 Aug
2021 2020
(unaudited) (audited)
--------------------------- ----- ------------------------------------- -------------------------------------
Non-underlying Non-underlying
GBPm Note Headline(1) items(2) Total Headline(1) items(2) Total
--------------------------- ----- ----------- -------------- -------- ----------- -------------- --------
Revenue 2 420 - 420 1,021 - 1,021
Group operating loss 2 (7) (21) (28) (48) (212) (260)
Finance costs 5 (10) - (10) (20) - (20)
Loss before tax (17) (21) (38) (68) (212) (280)
Income tax credit 6 - 3 3 16 25 41
--------------------------- ----- ----------- -------------- -------- ----------- -------------- --------
Loss for the period (17) (18) (35) (52) (187) (239)
--------------------------- ----- ----------- -------------- -------- ----------- -------------- --------
Attributable to equity holders
of the parent (17) (18) (35) (52) (187) (239)
Attributable to non-controlling - - - - - -
interests
---------------------------------- ----------- -------------- -------- ----------- -------------- --------
(17) (18) (35) (52) (187) (239)
Loss per share
Basic 8 (26.7)p (199.2)p
Diluted 8 (26.5)p (199.2)p
(1) ' Headline' denotes an alternative performance measure. See
Glossary on page 40 for definition of alternative performance
measures.
(2) See Note 3 for an analysis of Non-underlying items. See
Glossary on page 40 for definition of alternative performance
measures.
WH Smith PLC
Condensed Group Statement of Comprehensive Income
For the 6 months to 28 February 2021
12 months
to
6 months 6 months
to 28 Feb to 29 Feb 31 Aug
2021 2020 2020
GBPm Note (unaudited) (unaudited) (audited)
---------------------------------------------------------- ----- ------------- ------------- -----------
(Loss) / profit for the period (35) 48 (239)
---------------------------------------------------------- ----- ------------- ------------- -----------
Other comprehensive (loss) / income:
Items that will not be reclassified subsequently
to the income statement:
Actuarial (losses) / gains on defined
benefit pension schemes 4 (1) (1) 11
(1) (1) 11
Items that may be reclassified subsequently
to the income statement:
(Losses) / gains on cash flow hedges
* Net fair value losses (1) (9) (8)
* Reclassified and recognised in goodwill - 8 8
* Reclassified and recognised in inventories - - (1)
* Reclassified and reported in the income statement - - (1)
Exchange differences on translation of
foreign operations (16) (8) (22)
---------------------------------------------------------- ----- ------------- ------------- -----------
(17) (9) (24)
Other comprehensive loss for the period,
net of tax (18) (10) (13)
---------------------------------------------------------- ----- ------------- ------------- -----------
Total comprehensive (loss) / income for
the period (53) 38 (252)
---------------------------------------------------------- ----- ------------- ------------- -----------
Attributable to equity holders of the
parent (53) 37 (252)
Attributable to non-controlling interests - 1 -
---------------------------------------------------------- ----- ------------- ------------- -----------
(53) 38 (252)
---------------------------------------------------------- ----- ------------- ------------- -----------
WH Smith PLC
Condensed Group Balance Sheet
As at 28 February 2021
At At At
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm Note (unaudited) (unaudited) (audited)
------------------------------------- ------- ------------ ------------ -----------
Non-current assets
Goodwill 9 402 431 418
Other intangible assets 9 69 79 75
Property, plant and equipment 9 182 228 192
Right-of-use assets 9 370 540 413
Investments in joint ventures 2 3 2
Deferred tax assets 26 6 23
Trade and other receivables 8 10 9
------------------------------------- ------- ------------ ------------ -----------
1,059 1,297 1,132
------------------------------------- ------- ------------ ------------ -----------
Current assets
Inventories 123 188 150
Trade and other receivables 44 77 49
Derivative financial assets - 1 -
Current tax receivable 8 12 8
Cash and cash equivalents 10 72 45 108
------------------------------------- ------- ------------ ------------ -----------
247 323 315
------------------------------------- ------- ------------ ------------ -----------
Total assets 1,306 1,620 1,447
------------------------------------- ------- ------------ ------------ -----------
Current liabilities
Trade and other payables (200) (217) (241)
Bank overdrafts and other borrowings 10 - (45) -
Retirement benefit obligations 4 (1) (1) (1)
Lease liability 10 (119) (126) (130)
Current tax liabilities - - -
Derivative financial liabilities (1) - -
Short-term provisions (5) - (5)
(326) (389) (377)
Non-current liabilities
Bank loans and other borrowings 10 (400) (400) (400)
Retirement benefit obligations 4 (3) (3) (3)
Long-term provisions (9) (2) (9)
Lease liability 10 (390) (451) (429)
Deferred tax liabilities (1) (14) (2)
------------------------------------- ------- ------------ ------------ -----------
(803) (870) (843)
------------------------------------- ------- ------------ ------------ -----------
Total liabilities (1,129) (1,259) (1,220)
------------------------------------- ------- ------------ ------------ -----------
Total net assets 177 361 227
------------------------------------- ------- ------------ ------------ -----------
Capital and reserves
Called up share capital 12 29 25 29
Share premium 316 160 315
Capital redemption reserve 13 13 13
Translation reserve (30) (1) (14)
Other reserve (280) (276) (279)
Retained earnings 124 435 158
------------------------------------- ------- ------------ ------------ -----------
Total equity attributable to equity
holders of the parent 172 356 222
------------------------------------- ------- ------------ ------------ -----------
Non-controlling interest 5 5 5
------------------------------------- ------- ------------ ------------ -----------
Total equity 177 361 227
------------------------------------- ------- ------------ ------------ -----------
WH Smith PLC
Condensed Group Cash Flow Statement
For the 6 months to 28 February 2021
6 months to 12 months
to
GBPm 28 Feb 2021 29 Feb 2020 31 Aug 2020
Note (unaudited) (unaudited) (audited)
------------------------------------------- ---- ------------ ------------ -----------
Operating activities
Cash generated from operating activities 11 34 79 94
Interest paid (7) (6) (13)
------------------------------------------- ---- ------------ ------------ -----------
Net cash inflow from operating activities 27 73 81
------------------------------------------- ---- ------------ ------------ -----------
Investing activities
Purchase of property, plant and equipment (16) (35) (67)
Purchase of intangible assets (6) (6) (12)
Acquisition of subsidiaries, net of
cash acquired 15 1 (316) (316)
Net cash outflow from investing activities (21) (357) (395)
------------------------------------------- ---- ------------ ------------ -----------
Financing activities
Dividend paid 7 - (47) (47)
Distributions to non-controlling interests - (1) 1
Issue of share capital - 152 312
Issue of new shares for employee share
schemes 1 - -
Purchase of own shares for employee
share schemes - (1) (2)
Proceeds from borrowings - 230 200
Repayment of borrowings - - (15)
Financing arrangement fees (1) (1) (3)
Repayments of obligations under leases (42) (51) (72)
Net cash (outflow) / inflow from financing
activities (42) 281 374
------------------------------------------- ---- ------------ ------------ -----------
Net (decrease) / increase in cash
and cash equivalents in the period (36) (3) 60
------------------------------------------- ---- ------------ ------------ -----------
Opening cash and cash equivalents 108 49 49
Effect of movements in foreign exchange
rates - (1) (1)
------------------------------------------- ---- ------------ ------------ -----------
Closing cash and cash equivalents 72 45 108
------------------------------------------- ---- ------------ ------------ -----------
WH Smith PLC
Condensed Group Cash Flow Statement (continued)
For the 6 months to 28 February 2021
Reconciliation of net cash flow to movement in net debt
6 months to 12 months
to
--------------------------------------------- ---- -------------------------- -----------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm Note (unaudited) (unaudited) (audited)
--------------------------------------------- ---- ------------ ------------ -----------
Net debt at beginning of the period (851) (180) (180)
Net (decrease) / increase in cash
and cash equivalents (36) (3) 60
Impact of adoption of IFRS 16 (1) - (479) (479)
Lease liability acquired through business
combination - (98) (106)
Decrease in debt - - 15
Increase in debt - (230) (200)
Net movement in lease liability 44 12 32
Effect of movements in foreign exchange
rates 6 1 7
--------------------------------------------- ---- ------------ ------------ -----------
Net debt at end of the period 10 (837) (977) (851)
--------------------------------------------- ---- ------------ ------------ -----------
(1) The Group initially applied IFRS 16 at 1 September 2019,
using the modified retrospective approach. Under this approach,
comparative information in the prior year was not restated and the
cumulative effect of applying IFRS 16 was recognised in Retained
earnings at the date of initial application.
WH Smith PLC
Condensed Group Statement of Changes in Equity
For the 6 months to 28 February 2021
Called Total
up equity
share attributable
capital to equity
and Capital holders
share redemption Translation Other Retained of the Non-controlling Total
GBPm premium reserve reserves reserve(1) earnings parent interest equity
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Balance at 1
September
2020 344 13 (14) (279) 158 222 5 227
Profit for the
period - - - - (35) (35) - (35)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial losses
on
defined benefit
pension
schemes - - - - (1) (1) - (1)
Cash flow hedges - - - (1) - (1) - (1)
Exchange
differences
on translation
of foreign
operations - - (16) - - (16) - (16)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Total
comprehensive
loss for the
period - - (16) (1) (36) (53) - (53)
Recognition of
share-based
payments - - - - 2 2 - 2
Issue of shares 1 - - - - 1 - 1
Balance at 28
February
2021
(unaudited) 345 13 (30) (280) 124 172 5 177
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Balance at 1
September
2019 33 13 8 (274) 455 235 2 237
Impact of
adoption of
IFRS 16 - - - - (22) (22) - (22)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Adjusted balance
at
1 September
2019 33 13 8 (274) 433 213 2 215
Profit for the
period - - - - 47 47 1 48
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial losses
on
defined benefit
pension
schemes - - - - (1) (1) - (1)
Cash flow hedges - - - (1) - (1) - (1)
Exchange
differences
on translation
of foreign
operations - - (8) - - (8) - (8)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Total
comprehensive
(loss) / income
for
the period - - (8) (1) 46 37 1 38
Recognition of
share-based
payments - - - - 2 2 - 2
Dividends paid
(Note
7) - - - - (47) (47) - (47)
Employee share
schemes - - - (1) - (1) - (1)
Issue of shares 152 - - - - 152 - 152
Non-controlling
interest
arising on
acquisition - - - - - - 2 2
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Balance at 29
February
2020
(unaudited) 185 13 - (276) 434 356 5 361
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Balance at 1
September
2019 33 13 8 (274) 455 235 2 237
Impact of
adoption of
IFRS 16 - - - - (22) (22) - (22)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Adjusted balance
at
1 September
2019 33 13 8 (274) 433 213 2 215
Loss for the
year - - - - (239) (239) - (239)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial gains
on defined
benefit pension
schemes - - - - 11 11 - 11
Cash flow hedges - - - (2) - (2) - (2)
Exchange
differences
on translation
of foreign
operations - - (22) - - (22) - (22)
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
Total
comprehensive
loss for the
year - - (22) (2) (228) (252) - (252)
Net cash flows
from
non-controlling
interests - - - - - - 1 1
Dividends paid
(Note
7) - - - - (47) (47) - (47)
Employee share
schemes - - - (3) - (3) - (3)
Issue of shares 311 - - - - 311 - 311
Non-controlling
interest
arising on
acquisition - - - - - - 2 2
Balance at 31
August
2020 (audited) 344 13 (14) (279) 158 222 5 227
----------------- -------- ------------ ------------ ----------- --------- ------------- ---------------- -------
(1) Other reserve includes Revaluation reserve of GBP2m (August
2020: GBP2m), ESOP reserve of GBP(4)m (August 2020: GBP(4)m),
hedging reserve of GBP(1)m (August 2020: GBPnil) and Other reserves
of GBP(277)m (August 2020: GBP(277)m). The 'Other' reserve includes
reserves created in relation to the historical capital
reorganisation, proforma restatement and the demerger from Smiths
News PLC in 2006.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
1. Basis of preparation, Accounting policies and Approval
of Interim Statement
The Condensed Interim Financial Statements for the 6 months
ended 28 February 2021 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, "Interim Financial Reporting" as adopted
by the European Union. This report should be read in conjunction
with the Group's Annual Report and Accounts 2020, which were
prepared in accordance with IFRSs as adopted by the European
Union.
The financial information set out in this report does not
constitute statutory accounts within the meaning of section 435 of
the Companies Act 2006. The Annual Report and Accounts 2020 have
been filed with the Registrar of Companies. The auditors' report on
those accounts was unqualified, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain statements under
s498(2) or s498(3) of the Companies Act 2006.
The Condensed Interim Financial Statements have been prepared in
accordance with the accounting policies set out in the 2020 Annual
Report and Accounts and it is these accounting policies which are
expected to be followed in the preparation of the full financial
statements for the financial year ended 31 August 2021, except as
outlined below.
Taxes on income in the interim period are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
The Group has adopted the following standards and
interpretations which became mandatory for the first time during
the current financial year. Except as outlined below the adoption
of these standards has had no material impact on the Group.
Amendments to IFRS 9, IAS Interest Rate Benchmark Reform
39 and IFRS 7
Amendments to IFRS 3 Business combinations
At the Group balance sheet date, the following standards and
interpretations, which have not been applied in these financial
statements, were in issue but not yet effective (and in some cases
had not yet been adopted by the EU):
Amendments to IFRS 4 Insurance contracts
Amendments to IFRS 9, IAS Interest Rate Benchmark Reform - Phase
39, IFRS 7, IFRS 4 and IFRS 2
16
Amendments to IAS 1 Presentation of financial statements
on classification of liabilities
Annual Improvements 2018-2020
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
The directors anticipate that the adoption of these standards
and interpretations will have no material impact on the Group's
financial statements.
Alternative performance measures
The Group has identified certain alternative performance
measures ("APMs") that it believes will assist the understanding of
the performance of the business. The Group believes that High
Street and Travel trading profit, Group profit from trading
operations, Fixed charges cover, Gross margin, Like-for-like
revenue, Free cash flow and Net debt provide useful information to
users of the financial statements. The terms are not defined terms
under IFRS and may therefore not be comparable with similarly
titled measures reported by other companies. They are not intended
to be a substitute for, or superior to, IFRS measures. Many of
these APMs will be used on both an IFRS basis and on an IAS 17
basis (i.e. before the impact of IFRS 16). The Group has defined
and outlined the purpose of its APMs in the Glossary on page
40.
Non-underlying items
The Group has chosen to present a Headline measure of profit and
earnings per share which excludes certain items, which are
considered non-underlying and exceptional due to their size, nature
or incidence, and are not considered to be part of the normal
operating costs of the Group. These costs may include the financial
effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, amortisation of acquired intangibles
assets, costs relating to business combinations, impairment charges
and onerous lease charges, significant items relating to pension
schemes, and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax
effect of these items. The Group believes that they provide
additional useful information to users of the financial statements
to enable a better understanding of the Group's underlying
financial performance.
Further details of the non-underlying items are provided in Note
3.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
1. Basis of preparation, Accounting policies and Approval of Interim
Statement (continued)
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed interim financial statements in
conformity with generally accepted accounting principles requires
management to make judgements, estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results
could differ from these estimates and any subsequent changes are
accounted for with an effect on income at the time such updated
information becomes available.
The most critical accounting judgements and sources of
estimation uncertainty in determining the financial condition and
results of the Group are those requiring the greatest degree of
subjective or complex judgement. These relate to the classification
of items as non-underlying, assessment of lease substitution
rights, determination of the lease term, determination of the
incremental borrowing rate, valuation of retirement benefit
obligations, valuation of goodwill and other non-current assets and
inventory valuation.
The key areas where the judgments, estimates and assumptions
applied have a significant risk of causing a material adjustment to
the carrying value of assets and liabilities are consistent with
those applied in the Group's financial statements for the year
ended 31 August 2020, as set out on pages 101 to 102 of those
financial statements.
For details of changes to significant estimates for impairment
of property, plant and equipment and right-of-use assets and for
inventory provisioning in the current period, refer to Notes 3 and
9.
Going concern
The condensed interim financial statements have been prepared on
a going concern basis.
The directors are required to assess whether the Group can
continue to operate for the 12 months from the date of approval of
these financial statements, and to prepare the financial statements
on a going concern basis. The directors report that they have
assessed the principal risks, reviewed current performance and
forecasts, combined with expenditure commitments, including capital
expenditure, and borrowing facilities. The directors have concluded
that it is appropriate to adopt the going concern basis of
accounting in preparing these financial statements, having
undertaken a rigorous assessment of the financial forecasts
particularly in the context of the ongoing Covid-19 pandemic, for
the reasons set out below.
In making the going concern assessment, the directors have
modelled a number of scenarios for a 16-month period to August
2022. The base case scenario is based on the latest Board-approved
forecast, adjusted for subsequently announced government support
measures, and the three year plan for the period ending 31 August
2022. These reflect our expectations of ongoing challenging trading
conditions, with sales remaining significantly below pre-Covid
levels for the duration of the going concern period. In High Street
we have assumed that rents are paid as normal across the period and
on a monthly basis. In Travel rents are based on agreed or
contractual agreements with landlords and our reasonable assessment
of extending those agreements where necessary to incorporate the
16-month review period.
In light of the continuing uncertainty surrounding the ongoing
impact of Covid-19, a downside scenario has also been modelled,
applying severe but plausible assumptions to the base case. This
replicates the Group's forecast performance in the year ending 31
August 2021 by applying the same cash flows from the year ending
August 2021 to the year ending August 2022, but excludes
non-recurring restructuring costs and government support received
in the year ending 31 August 2021. These scenarios include a number
of mitigating actions including further savings in store and head
office payrolls, a reduction in inventory purchases, a reduction in
discretionary spend and reductions in capital expenditure across
High Street and Travel.
In both the base case and severe but plausible scenarios the
Group would continue to have sufficient liquidity headroom on its
existing facilities, as described below.
On 9th March the Group announced an extension to its debt
facilities which includes the duration of the Group's term debt to
October 2023. In addition, the Group has a multi-currency revolving
credit facility of GBP200m, which expires in December 2023 and
which is undrawn as at 28 April 2021. The covenants tests on the
above facilities for August 2021 and February 2022 are based on a
minimum liquidity test. The new financing arrangements disclosed in
Note 17, including the offering of convertible bonds, has not been
taken into account in making the going concern assessment.
The Group will next be tested on its leverage and fixed charge
financial covenants at 31 August 2022, over 16 months from the date
of signing these interim accounts. Under the conditions of the
severe but plausible scenario, it is likely that the Group would
not meet the conditions of the August 2022 covenant tests. If this
situation prevailed, the Group would engage its lending banks in
advance of this date to secure a further covenant amendment.
Throughout the pandemic we have received excellent support from our
banks who have granted covenant waivers for our February 2021
covenant and minimum liquidity covenants for August 2021 and
February 2022.
The Condensed Interim Financial Statements are unaudited but
have been reviewed by our auditors and were approved by the Board
of Directors on 28 April 2021.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
2. Segmental analysis of results
For management and financial reporting purposes, the Group is
organised into two operating divisions and reportable segments -
Travel and High Street. The Travel operating segment includes both
MRG and InMotion from the dates of acquisition, as the MRG and
InMotion operations share similar economic characteristics with
Travel and are managed within the Travel segment.
The Group's operating segments are based on the reports reviewed
by the Board of Directors (who are collectively considered to be
the chief operating decision maker) to make strategic decisions and
allocate resources.
IFRS 8 requires segment information to be presented on the same
basis as that used by the Board for assessing performance and
allocating resources. The information presented to the Board is
prepared in accordance with the Group's IFRS accounting policies,
with the exception of IFRS 16, and is shown below as Headline
information in Section b). A reconciliation to statutory measures
is provided below in accordance with IFRS 8, and in the Glossary on
page 40 (Note A1)
a) Group revenue
6 months to 12 months
to
--------------- ---------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
--------------- ------------- ------------- ------------
Travel 150 432 553
High Street 270 315 468
Group revenue 420 747 1,021
--------------- ------------- ------------- ------------
Seasonality
Sales in the High Street business are subject to seasonal
fluctuations, with peak demand in the Christmas trading period,
which falls in the first half of the Group's financial year. Sales
in the Travel business are also subject to seasonal fluctuations,
with higher demand during peak travel periods particularly during
the summer holiday months. Both the High Street and Travel
businesses have been impacted by the Covid-19 pandemic as discussed
in detail in the Group Overview on pages 3 to 15.
b) Group results
6 months to 28 Feb 2021 6 months to 29 Feb 2020
(unaudited) (unaudited)
--------------------- -------------------------------------------- --------------------------------------------
Non-underlying Non-underlying
items items
(pre-IFRS IFRS (pre-IFRS IFRS
GBPm Headline(1) 16) 16 Total Headline(1) 16) 16 Total
--------------------- ------------ --------------- ----- ------ ------------ --------------- ----- ------
Travel trading
(loss) / profit (28) - (3) (31) 49 - 1 50
High Street trading
profit 24 - 9 33 44 - 3 47
Group (loss)
/ profit from
trading operations (4) - 6 2 93 - 4 97
Unallocated costs (9) - - (9) (9) - - (9)
--------------------- ------------ --------------- ----- ------ ------------ --------------- ----- ------
Headline Group
operating (loss)
/ profit (13) - 6 (7) 84 - 4 88
Non-underlying
items (Note 3) - (18) (3) (21) - (17) - (17)
--------------------- ------------ --------------- ----- ------ ------------ --------------- ----- ------
Group operating
(loss) / profit (13) (18) 3 (28) 84 (17) 4 71
Finance costs (6) - (4) (10) (4) - (4) (8)
Income tax credit
/ (expense) 1 2 - 3 (15) - - (15)
(Loss) / profit
for the period (18) (16) (1) (35) 65 (17) (-) 48
--------------------- ------------ --------------- ----- ------ ------------ --------------- ----- ------
(1) Presented on a pre-IFRS 16 basis. Alternative Performance
Measures are defined and explained in the Glossary on page 40.
Included within Travel revenue and Trading profit is
International revenue of GBP71m (2020: GBP161m) and International
Trading loss of GBP9m (2020: profit of GBP9m). International
revenue includes revenue from the USA of GBP55m (2020: GBP84m) and
revenue from Australia of GBP9m (2020: GBP30m).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
2. Segmental analysis of results (continued)
c) Other segmental items
6 months to 28 Feb 2021
GBPm Travel High Street Unallocated Group
------------------------------------- ------- ------------ ----------- -----
Capital additions(1) 13 8 - 21
Depreciation and amortisation of
non-current assets(1) 16 9 - 25
Depreciation of Right-of-use assets 21 20 2 43
Impairment of non-current assets(2) 2 3 - 5
Impairment of Right-of-use assets(3) 2 7 - 9
------------------------------------- ------- ------------ ----------- -----
6 months to 29 Feb 2020
GBPm Travel High Street Unallocated Group
------------------------------------- ------- ------------ ----------- -----
Capital additions(1) 24 19 - 43
Depreciation and amortisation of
non-current assets(1) 14 11 - 25
Depreciation of Right-of-use assets 23 26 3 52
Impairment of non-current assets(2) 3 - - 3
Impairment of Right-of-use assets(3) - - - -
------------------------------------- ------- ------------ ----------- -----
(1) Excludes Right-of-use assets under IFRS 16.
(2) Impairment charges relating to non-current assets for the
period ended 28 February 2021 as a result of the impact of
Covid-19, which have been included in Non-underlying items as
described in Note 3.
(3) Impairment charges relating to Right-of-use assets for the
period ended 28 February 2021 as a result of the impact of
Covid-19, which have been included in Non-underlying items as
described in Note 3.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
3. Non-underlying items
Items which are not considered part of the normal operating
costs of the business are non-recurring and are considered
exceptional because of their size, nature or incidence, are treated
as non-underlying items and disclosed separately. Further details
of the non-underlying items are included in Note 1, and in the
Group Overview on page 40.
6 months to 12 months
to
------------------------------------------------------- ----------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
------------------------------------------------------- -------------- ------------- ------------
Costs relating to business combinations 1 13 20
Amortisation of acquired intangible
assets 2 1 3
Pension past service cost - - 14
Costs directly attributable to Covid-19
* Impairment of property, plant and equipment 5 3 39
* Impairment of intangible assets - - 1
* Impairment of right-of-use assets 9 - 95
* Write-down of inventories 5 - 14
* Restructuring costs 2 - 25
* Other (3) - 1
Non-underlying items, before tax 21 17 212
------------------------------------------------------- -------------- ------------- ------------
Tax credit on non-underlying items (3) - (25)
------------------------------------------------------- -------------- ------------- ------------
Non-underlying items, after tax 18 17 187
------------------------------------------------------- -------------- ------------- ------------
Non-underlying items recognised in the year are as follows:
Costs relating to business combinations
During the year, the Group incurred further integration costs of
GBP1m in relation to the acquisition of Marshall Retail Group
('MRG'), which completed on 20 December 2019.
Prior year costs of GBP13m also related to the acquisition of
MRG. Further information on the acquisition of MRG is included in
Note 15.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands.
Costs directly attributable to Covid-19
As described in the Group Overview the Covid-19 pandemic
continues to have a substantial impact on the Group's operations.
As a result, the Group has incurred significant costs which have
been separately recognised in non-underlying items, in accordance
with the Group's accounting policy. The charges have arisen as a
direct consequence of Covid-19, and reflect the impact of lost
revenues as a result of store closures, and downward revisions to
budgeted revenues following government interventions.
Impairment of Property, plant and equipment and Right-of-use
assets
The impact on the Group's operations of Covid-19 is expected to
continue during the remainder of this financial year and beyond. As
a result, the Group has carried out a review for potential
impairment across the entire store portfolio. The impairment review
compared the value-in-use of individual store cash-generating
units, based on managements' assumptions regarding likely future
trading performance (taking into account the effect of Covid-19) to
the carrying values at 28 February 2021. Following this review, a
charge of GBP14m was recorded within non-underlying items for
impairment of retail store assets, of which GBP5m relates to
property, plant and equipment and GBP9m relates to right-of-use
assets. Refer to Note 9 for details of impairment of store
cash-generating units.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
3. Non-underlying items (continued)
Write-down of inventories
The Group assesses the recoverability of the carrying value of
inventories at every reporting period and, where the expected
recoverable amount is lower than the carrying value, a provision is
recorded. Provisions of GBP4m have been recorded against inventory,
which relate to dated and perishable stock and stock subject to
obsolescence such as technology and some apparel where the sell
through rate has significantly reduced due to store closures and
lower footfall. In addition, as a result of the government
lockdowns, the Group has incurred stock write-offs of GBP1m mainly
relating to perishable and dated product. The Group has recognised
these charges as non-underlying as they meet the Group's definition
of non-underlying. A sensitivity analysis has been carried out on
the calculation of inventory provisions, including consideration of
the uncertainties arising from Covid-19. The key assumption driving
the stock provision calculation is forecast revenue. A 10 per cent
change in the revenue assumptions applied in the provision
calculation, representing a reasonably possible outcome, would
reduce the net realisable value of inventories by GBP2m.
Restructuring costs
As a result of the impact of Covid-19 on passenger numbers and
lower footfall on the UK high street, in August 2020 the Group
announced a review of store operations across both our Travel and
High Street businesses. The current period charge of GBP2m is
principally attributable to redundancies and restructuring costs
relating to that and other corporate office restructuring
undertaken by the Group. These costs are presented as a
non-underlying item as they are part of a restructuring programme,
and are considered material and one-off in nature.
Other
Other non-underlying items relate to costs in relation to
international franchisees, and derecognition of lease liabilities
relating to the disposal of WHSmith France. In the prior year,
costs of exiting WH Smith France were included within
non-underlying items.
A tax credit of GBP3m has been recognised in relation to the
above items.
Prior year non-underlying items
Pension past service cost
A past service cost of GBP14m was recognised in the year ended
31 August 2020. This related to equalisation of pension benefits
between men and women over the period from 1 April 1992 to 29 July
1993 ('Barber equalisation'). The WHSmith Pension Trust has
historically been administered assuming gender equalisation was
achieved on 1 April 1992, and thus a Barber equalisation window of
17 May 1990 to 1 April 1992 applied. A new Trust Deed and Rules
reflecting the equalisation of normal retirement ages at 65 was
executed on 29 July 1993. It has since been determined that Barber
equalisation was not effective until 29 July 1993. Accordingly,
this past service cost is the expected cost of providing these
benefits based on a normal retirement age of 60 rather than 65 for
the period between 1 April 1992 and 29 July 1993.
Restructuring costs
As a result of the impact of Covid-19 on passenger numbers and
lower footfall on the UK high street, in August 2020 the Group
announced a review of store operations across both our Travel and
High Street businesses. The prior year charge of GBP21m was
principally attributable to redundancies and restructuring costs
relating to that and other corporate office restructuring
undertaken by the Group. In addition, the Group incurred GBP4m
relating to costs of exiting the Paris bookshop and the Brazil
joint venture both of which were as a result of Covid-19. These
costs were presented as a non-underlying item as they are part of a
restructuring programme, and are considered material and one-off in
nature.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
4. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit schemes
(which are closed to new entrants and future service accrual) and
defined contribution pension schemes. The main pension arrangements
for employees are operated through a defined contribution scheme,
WH Smith Retirement Savings Plan, and a defined benefit scheme,
WHSmith Pension Trust. The most significant scheme is the defined
benefit WHSmith Pension Trust.
The retirement benefit obligations recognised in the balance
sheet for the respective schemes at the relevant reporting dates
were:
At At At
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ ------------
WHSmith Pension Trust (3) (3) (3)
United News Shops Retirement Benefits
Scheme (1) (1) (1)
----------------------------------------- ------------ ------------ ------------
Retirement benefit obligation recognised
in the balance sheet (4) (4) (4)
----------------------------------------- ------------ ------------ ------------
WHSmith Pension Trust
The market value of the assets and the present value of the
liabilities in the scheme at the relevant reporting dates were:
GBPm At At At
28 Feb 2021 29 Feb 2020 31 Aug 2020
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ ------------
Present value of the obligations (1,121) (1,103) (1,144)
Fair value of plan assets 1,319 1,405 1,412
----------------------------------------- ------------ ------------ ------------
Surplus before consideration of asset
ceiling 198 302 268
Amounts not recognised due to effect
of asset ceiling (198) (302) (268)
Additional liability recognised due
to minimum funding requirements (3) (3) (3)
----------------------------------------- ------------ ------------ ------------
Retirement benefit obligation recognised
in the balance sheet (3) (3) (3)
----------------------------------------- ------------ ------------ ------------
Total (loss) / gain recognised in the Statement of Comprehensive
Income ("SOCI"):
12 months
6 months to to
----------------------------------------- -------------------------- -----------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ -----------
Total actuarial gain/(loss) before
consideration of asset ceiling 13 (6) (43)
Loss on plan assets excluding amounts
included in net interest cost (86) (50) (38)
Gain resulting from changes in amounts
not recognised due to effect of asset
ceiling excluding amounts recognised
in net interest cost 72 55 92
Total actuarial (loss) / gain recognised
in other comprehensive income (1) (1) 11
----------------------------------------- ------------ ------------ -----------
Actuarial losses recognised in the statement of comprehensive
income on the United News Shops Retirement Benefits Scheme were
GBPnil in the period to 28 February 2021 (29 February 2020:
GBPnil).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
4. Retirement benefit obligations (continued)
Movement in net retirement benefit liability during the
period:
12 months
6 months to to
---------------------------------------- -------------------------- -----------
GBPm 28 Feb 2021 29 Feb 2020 31 Aug 2020
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ -----------
At beginning of period (3) (3) (3)
Current service cost - - -
Past service cost - - (14)
Contributions from sponsoring companies 1 1 3
Actuarial (losses) / gains on defined
benefit pension schemes (1) (1) 11
---------------------------------------- ------------ ------------ -----------
At end of period (3) (3) (3)
---------------------------------------- ------------ ------------ -----------
In accordance with the requirements of IFRIC 14 management has
recognised the net present value of the schedule of contributions
as a liability of GBP3m (2020: GBP3m). The defined benefit pension
schemes are closed to further accrual and the present value of the
economic benefits of the IAS 19 surplus in the pension scheme of
GBP198m (2020: GBP302m) available as a reduction of future
contributions is GBPnil (2020: GBPnil). As a result, the Group has
not recognised this IAS 19 surplus on the balance sheet. There is
an ongoing actuarial deficit primarily due to the different
assumptions and calculation methodologies used compared to those on
interpretation of IAS 19.
A full actuarial valuation of the scheme is carried out every
three years with interim reviews in the intervening years. The
latest full actuarial valuation of the Pension Trust was carried
out as at 31 March 2020 by independent actuaries using the
projected unit credit method. At 31 March 2020 the deficit was
GBP9m; at 31 March 2017 the deficit was GBP11m. The Group has
agreed a continuation of the annual funding schedule with the
Trustees from March 2020 for the following 5 years, which includes
the deficit recovery contributions and other running costs of just
under GBP3m.
During the period, the Group made a contribution of GBP1m to the
WHSmith Pension Trust (2020: GBP1m) in accordance with the agreed
pension deficit funding schedule. The Group expects the cash
payments for the year ended 31 August 2021 to be approximately
GBP3m in total in relation to the scheme (year ended 31 August
2020: GBP3m).
The principal long-term assumptions used in the IAS 19 valuation
were:
6 months to 12 months
to
-------------------------------------- -------------------------- -----------
28 Feb 2021 29 Feb 2020 31 Aug 2020
% (unaudited) (unaudited) (audited)
-------------------------------------- ------------
Rate of increase in pension payments 3.22 2.95 3.04
Rate of increase in deferred pensions 2.50 2.20 2.30
Discount rate 2.00 1.70 1.75
RPI Inflation assumption 3.30 3.00 3.10
CPI Inflation assumption 2.50 2.20 2.30
-------------------------------------- ------------ ------------ -----------
5. Finance costs
6 months to 12 months
to
----------------------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
------------- -------------
Interest payable on bank loans and
overdrafts 6 4 9
Interest on lease liabilities 4 4 11
Net interest cost on the defined benefit - - -
pension liabilities
10 8 20
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
6. Income tax expense
6 months to 12 months
to
--------------------------------------- ----------------------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
--------------------------------------- ------------- -------------
Tax on (loss) / profit - 5 (5)
Standard rate of UK corporation tax
19.00% (2020: 19.00%)
Adjustment in respect of prior year
UK corporation tax - - (6)
Total current tax expense / (credit) - 5 (11)
Deferred tax - current year - 10 (7)
Deferred tax - prior year - - 2
Tax on Headline (loss) / profit - 15 (16)
Tax on non-underlying items - current
tax - - (9)
Tax on non-underlying items - deferred
tax (3) - (16)
Total tax on (loss) / profit (3) 15 (41)
The effective tax rate, before non-underlying items, was 2%
(2020: 19%). The UK corporation tax rate has been 19 per cent
effective from 1 April 2017. In the Spring Budget 2021, the
Government announced that from 1 April 2023 the corporation tax
rate will increase to 25% (rather than remaining at 19%). As the
proposal to increase the rate to 25% had not been substantively
enacted at the balance sheet date, its effects are not included in
these financial statements.
7. Dividends
Amounts paid and recognised as distributions to shareholders in
the period are as follows:
6 months to 12 months
to
--------------------------------- ---------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
(audited)
GBPm (unaudited) (unaudited)
--------------------------------- ------------- ------------- ------------
Dividends
2019 Final dividend of 41.0p per
ordinary share - 47 47
- 47 47
The directors have not declared an interim dividend in respect
of the period ending 28 February 2021.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
8. (Loss) / earnings per share
a) Earnings
6 months to 12 months
to
-------------------------------------------- ---------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
-------------------------------------------- ------------- ------------- ------------
(Loss) / profit for the period attributable
to equity holders of the parent (35) 47 (239)
Non-underlying items (Note 3) 18 17 187
Headline (loss) / profit for the
period attributable to equity holders
of the parent (17) 64 (52)
b) Weighted average share capital
6 months to 12 months
to
---------------------------------------- ---------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
(audited)
Millions (unaudited) (unaudited)
---------------------------------------- ------------- ------------- ------------
Weighted average ordinary shares
in issue 131 113 120
Less weighted average ordinary shares - - -
held in ESOP Trust
Weighted average ordinary shares
for basic earnings per share 131 113 120
Add weighted average number of ordinary
shares under option 1 1 -
Weighted average ordinary shares
for diluted earnings per share 132 114 120
c) Basic and diluted (loss) / earnings per share
6 months to 12 months
to
---------------------------- ------------
28 Feb 2021 29 Feb 2020 31 Aug 2020
(audited)
Pence (unaudited) (unaudited)
------------- ------------- ------------
Basic (loss) / earnings per
share (26.7) 41.6 (199.2)
Adjustments for non-underlying
items 13.7 15.0 155.9
Headline basic (loss) / earnings
per share (13.0) 56.6 (43.3)
Diluted (loss) / earnings
per share (26.5) 41.2 (199.2)
Adjustments for non-underlying
items 13.6 14.9 155.9
Headline diluted (loss) /
earnings per share (12.9) 56.1 (43.3)
Diluted earnings per share takes into account various share
awards and share options including SAYE schemes, which are expected
to vest, and for which a sum below fair value will be paid.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
9. Non-current assets
During the 6 months to 28 February 2021, there were additions to
property, plant and equipment of GBP15m (29 February 2020: GBP36m).
There were no material disposals of tangible assets during the
period (29 February 2020: GBPnil). During the 6 months to 28
February 2021, there were additions right of use assets of GBP14m
through signing of new leases and lease modifications.
Capital expenditure in respect of intangible assets totalled
GBP6m (29 February 2020: GBP7m) in the period. There were no
material disposals of intangible assets during the period (29
February 2020: GBPnil).
Goodwill decreased by GBP16m in the period, as a result of
movements in exchange rates (29 February 2020: increased of
GBP255m, due to the acquisition of MRG and movements in exchange
rates).
Impairment of property, plant and equipment, right-of-use assets
and intangible assets
For impairment testing purposes, the Group has determined that
each store is a separate CGU. Each CGU is tested for impairment at
the balance sheet date if any indicators of impairment have been
identified. The Group has revised its forecasts in light of the
ongoing significant disruption to trading as a result of the
Covid-19 pandemic, and related government interventions, and
therefore all CGUs have been tested for impairment as at the
balance sheet date.
Property, plant and equipment and right-of-use assets have been
tested for impairment by comparing the carrying amount of each CGU
with its recoverable amount determined from value-in-use
calculations. It was determined that value in use was higher than
fair value less costs to sell as a result of the significant impact
on fair values as a result of Covid-19. The value-in-use of each
CGU has been calculated using discounted cash flows derived from
the Group's latest Board-approved forecasts, taking into account
the projected impact of Covid-19, and reflects historic performance
and knowledge of the current market, together with the Group's
views on the future achievable growth. Cash flows beyond the
forecast period are extrapolated using growth rates and inflation
rates appropriate to each store's location. Cash flows have been
included for the remaining lease life for the specific store. These
growth rates do not exceed the long-term growth rate for the
Group's retail businesses in the relevant territory. Where stores
have a relatively short remaining lease life, an extension to the
lease has been assumed where management consider it likely that an
extension will be granted.
The key assumptions on which the forecast cash flows of the CGUs
are based include sales and the pre-tax discount rate. Other
assumptions in the model relate to gross margin, cost inflation and
longer-term growth rates. The forecasts used in the impairment
review are based on management's best estimate of revenue
reductions versus a 'pre-Covid' base, and the recovery in revenue
over the forecast period. In developing these forecasts, management
have used available information, including historical knowledge of
the store level cash flows, and knowledge gained during the
pandemic up to the period end.
The forecasts for the year for our High Street business assume
that like-for-like sales will be initially lower by around 44 per
cent on average and recover to around 12 per cent below pre-Covid
levels by the end of August 2021. The recovery is non-linear and is
affected by monthly seasonality.
In Travel UK, revenue is assumed to be down around 76 per cent
on average across all formats, recovering to around 50 per cent
down by the end of the year. Our International locations outside of
North America assume a similar profile. In North America, revenue
is assumed to be down around 55 per cent initially, improving to
down 33 per cent by the end of the year.
The pre-tax discount rates are derived from the Group's weighted
average cost of capital, which has been calculated using the
capital asset pricing model, the inputs of which include the
risk-free rate, equity risk premium, Group size premium and a risk
adjustment (beta). The pre-tax discount rate used in the
calculation was 9.3 per cent.
Where the value-in-use is less than the carrying value of the
CGU, an impairment of property, plant and equipment and
right-of-use assets has been recorded. The Group has recognised an
impairment charge of GBP5m to property, plant and equipment and
GBP9m to right-of-use assets as a result of impairment testing (29
February 2020: GBP3m). These impairments have been presented as
non-underlying items in the current year (see Note 3).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
9. Non-current assets (continued)
As disclosed in Note 1, Accounting policies, the forecast cash
flows used within the impairment model are based on assumptions
which are sources of estimation uncertainty and changes to these
assumptions could lead to further impairments to assets. Given the
significant uncertainty regarding the impact of Covid-19 on the
Group's operations and on the global economy, management have
considered sensitivities to the impairment charge as a result of
changes to the estimate of future revenues achieved by the
stores.
The Group has applied certain sensitivities in isolation to
demonstrate the impact on the impairment of changes in key
assumptions. The most significant assumption is the revenue
assumption. A further decrease in revenue of 10 per cent versus the
pre-Covid base for the year ended 31 August 2021 to reflect a
potential slower recovery from the pandemic, with no change to
subsequent forecast revenue growth rate assumptions, would result
in a GBP5m increase in the impairment charge of retail store assets
for the six months ended 28 February 2021. An increase or decrease
of 1 per cent in the discount rate would result in an increase or
decrease in the impairment charge of GBP4m.
The impairment assessment has also been performed on a pre-IFRS
16 basis. See Glossary on page 40.
10. Analysis of net debt
Net debt can be analysed as follows:
At At
28 Feb 2021 29 Feb 2020 At
31 Aug 2020
GBPm (unaudited) (unaudited) (audited)
Borrowings
* Revolving credit facility - (45) -
* Bank loans (400) (400) (400)
* Lease liability (509) (577) (559)
Liabilities from financing activities (909) (1,022) (959)
Cash and cash equivalents 72 45 108
Net debt (837) (977) (851)
Movement in net debt:
At At
31 Aug
2020 28 Feb 2021
Currency
GBPm (audited) Cash flow Other translation (unaudited)
Borrowings
* Borrowings - repayable after one year (400) - - - (400)
- - - - -
* Revolving credit facility
* Lease liability (559) 42 2 6 (509)
Liabilities from financing
activities (959) 42 2 6 (909)
Cash and cash equivalents 108 (36) - - 72
Net debt (851) 6 2 6 (837)
An explanation of Alternative performance measures, including
Net debt is provided in the Glossary on page 40.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
10. Analysis of net debt / funds (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates their
fair value.
Lease liabilities
Other (non-cash) movements in lease liabilities mainly relate to
new leases, modifications and re-measurements in the year.
Borrowings and revolving credit facilities
The Group has in place a five-year committed multi-currency
revolving credit facility of GBP200m with Barclays Bank PLC, HSBC,
BNP Paribas and Santander UK PLC. The revolving credit facility is
due to mature on 9 December 2023. The RCF utilisation is
interest-bearing at a margin over LIBOR. As at 28 February 2021 the
Group was not drawn down on this facility (29 February 2020: draw
down of GBP45m).
The Group has in place two committed term loans of GBP200m with
the same banks that were drawn down at the time of the acquisitions
of InMotion (November 2018) and MRG (December 2019). On 9 March
2021 the Group extended the maturity of these two existing GBP200m
term loans to October 2023 and agreed a new minimum liquidity
covenant for both the August 2021 and February 2022 covenant tests
(see Note 17). The previously agreed covenant waiver for February
2021 remains unchanged. These loans are interest-bearing at a
margin over LIBOR.
These changes have enabled the Group to cancel its existing
GBP120m liquidity loan which was undrawn and due to expire in
November 2021.
11. Net cash inflow from operating activities
6 months to 12 months
to
-------------------------- -----------
GBPm 28 Feb 2021 29 Feb 2020 31 Aug 2020
(audited)
(unaudited) (unaudited)
Group operating profit (28) 71 (260)
Depreciation and amortisation 27 26 55
Impairment losses 13 3 40
Depreciation of right of use assets 43 52 110
Impairment of right of use assets - - 95
Non-cash change in lease liabilities (13) - (15)
Non-cash movement in pension - - 14
Share-based payments 2 2 -
Profit on disposal of property, plant
and equipment (4) - -
Other non-cash items - - 2
Decrease / (increase) in inventories 25 (2) 35
Decrease / (increase) in receivables 8 (3) 27
Decrease in payables (39) (44) (10)
Pension funding (1) (1) (3)
Income taxes paid - (24) (32)
Income taxes refunded - - 37
Movement on provisions 1 (1) (1)
Net cash inflow from operating activities 34 79 94
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
12. Called Up Share Capital
28 Feb 2021 29 Feb 2020 (unaudited) 31 Aug 2020
(unaudited) (audited)
Number of shares Nominal value Number of shares Nominal value Number of shares Nominal value
(millions) GBPm (millions) GBPm (millions) GBPm
Equity
Ordinary shares
of 22 6/67p 131 29 115 25 131 29
Total 131 29 115 25 131 29
The holders of ordinary shares are entitled to receive dividends
as declared from time-to-time and are entitled to one vote per
share at the meetings of the Company.
13. Contingent liabilities and capital
commitments
28 Feb 2021 29 Feb 2020 31 Aug 2020
(audited)
GBPm (unaudited) (unaudited)
Bank guarantees and guarantees in respect
of lease agreements 30 26 31
Other potential liabilities that could crystallise are in
respect of previous assignments of leases where the liability could
revert to the Group if the lessee defaulted. Pursuant to the terms
of the Demerger Agreement with Smiths News PLC, any such contingent
liability, which becomes an actual liability, will be apportioned
between the Group and Smiths News PLC in the ratio 65:35 (provided
that the actual liability of Smiths News PLC in any 12-month period
does not exceed GBP5m). The Group's 65 per cent share of these
leases has an estimated future rental commitment at 28 February
2021 of GBP1m (2020: GBP1m).
At 28 February 2021, contracts placed for future capital
expenditure approved by the directors but not provided for amounted
to GBP9m (2020: GBP35m).
14. Related Parties
There have been no material related party transactions during
the interim period under review.
15. Acquisitions (prior year)
On 20 December 2019, the Group acquired the entire share capital
of Marshall Retail Group ('MRG') for a total cash payment of USD
$401m (GBP316m) comprising $242m of enterprise value, $146m
repayment of loan, $12m working capital, and $1m cash and
restricted cash. During the period ended 28 February 2021 the Group
received GBP1m as an adjustment to the consideration paid.
MRG is an independent travel retailer operating in high footfall
airport and tourist locations in the United States. The acquisition
builds further on the acquisition of InMotion in November 2018 and
significantly strengthens the Group's offering in the United
States, the world's largest travel retail market.
Included within the fair value of the net identifiable assets on
acquisition is an intangible asset of GBP29m (US$37m) representing
the MRG brand. The Board believes that the excess of consideration
paid over the net assets on acquisition of GBP258m is best
considered as goodwill on acquisition representing future operating
synergies. This amount is not tax deductible.
Transaction and integration costs totalling GBP20m were incurred
in the year ended 31 August 2020 in respect of the acquisition. A
further GBP1m integration costs have been incurred in the period to
28 February 2021.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
16. Financial instruments
IFRS 13 requires disclosure of fair value measurements by level
based on the following measurement hierarchy:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices); and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
All fair value measurements made by the group are in the Level 2
category. The fair value of forward foreign exchange contracts has
been determined using forward currency exchange rates at the
balance sheet date. These have been provided by the individual
banking institutions with whom the contracts are held. There have
been no transfers of assets or liabilities between any levels of
the fair value hierarchy.
There were no material differences between the carrying value of
non-derivative financial assets and financial liabilities and their
fair values at the balance sheet date.
28 Feb 29 Feb
GBPm 2021 (unaudited) 2020 (unaudited)
Financial assets
Cash flow hedges:
Forward foreign currency contracts - 1
- 1
28 Feb 29 Feb
GBPm 2021 (unaudited) 2020 (unaudited)
Financial liabilities
Cash flow hedges:
Forward foreign currency contracts (1) -
(1) -
17. Events after the balance sheet
date
On 9 March 2021 the Group entered into an arrangement to extend
the maturity of its two GBP200m Term Loans to October 2023 and
agreed a new minimum liquidity covenant for both the August 2021
and February 2022 covenant tests. The previously agreed covenant
waiver for February 2021 remains unchanged. These changes have
enabled the Group to cancel its existing GBP120m liquidity loan
which was undrawn and due to expire in November 2021.
On 28 April 2021 the Group announced new financing arrangements
which include a GBP250m RCF (increased from GBP200m) with an
extended maturity from 2023 to 2025 and provided by an expanded
syndicate of lending banks. As part of the financing arrangements,
the Group is also launching an offering of convertible bonds
maturing in 2026. The convertible bonds are expected to raise
approximately GBP325m and will provide GBP50m of new capacity for
the Group to fund the opening of c.100 new Travel stores won and
yet to open over the next three years and new growth opportunities.
The remainder of the proceeds will be used to partially pay down
the existing GBP400m of term loans from both the MRG and InMotion
acquisitions. The maturity of the remaining term loan has also been
extended from 2023 to 2025 in line with the RCF.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
(a) The condensed financial statements have been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by
the EU; and
(b) This interim report includes a fair review of the
information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related parties' transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or the performance of the Group
during that period; and any changes in the related parties'
transactions described in the last annual report that could do
so.
The Directors of WH Smith PLC are listed on the website at
www.whsmithplc.co.uk/about-us/our-board .
By order of the Board
Carl Cowling Robert Moorhead
Group Chief Executive Chief Financial Officer and Chief Operating Officer
28 April 2021
Independent review report to WH Smith Plc
Report on the Condensed Interim Financial Statements
Our conclusion
We have reviewed WH Smith Plc's Condensed Interim Financial
Statements (the "interim financial statements") in the Interim
Results Announcement of WH Smith Plc for the 6 month period ended
28 February 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Group Balance Sheet as at 28 February 2021;
-- the Condensed Group Income Statement and Condensed Group
Statement of Comprehensive Income for the period then ended;
-- the Condensed Group Cash Flow Statement for the period then ended;
-- the Condensed Group Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
Announcement of WH Smith Plc have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results Announcement, including the interim
financial statements, is the responsibility of, and has been
approved by the directors. The directors are responsible for
preparing the Interim Results Announcement in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results Announcement based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results Announcement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 April 2021
WH Smith PLC
Glossary
Alternative Performance Measures
In reporting financial information, the Group presents
Alternative Performance Measures, 'APMs', which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The
Alternative Performance Measures are not defined by IFRS and
therefore may not be directly comparable with other companies'
Alternative Performance Measures.
Non-underlying items
The Group has chosen to present a Headline measure of profit and
earnings per share which excludes certain items that are considered
non-underlying and exceptional due to their size, nature or
incidence, and are not considered to be part of the normal
operating costs of the Group. These costs may include the financial
effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, amortisation of acquired intangible
assets, costs relating to business combinations, significant items
related to pension schemes, and impairment charges and items
meeting the definition of non-underlying specifically related to
the Covid-19 pandemic, and the related tax effect of these items.
The Group believes that they provide additional useful information
to users of the financial statements to enable a better
understanding of the Group's underlying financial performance.
IFRS 16
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance sheet
model as the distinction between operating and finance leases is
removed. The only exceptions are short-term and low-value leases.
At the commencement date of a lease, a lessee will recognise a
lease liability for the future lease payments and an asset
(right-of-use asset) representing the right to use the underlying
asset during the lease term. Lessees are required to separately
recognise the interest expense on the lease liability and the
depreciation expense on the right-of-use asset.
For the purposes of narrative commentary on the Group's
performance and financial position in the Interim financial
statements, the effects of IFRS 16 have been excluded, in order to
provide meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income
Statement and Segmental information is provided in Note A1 below.
There is no impact on cash flows, although the classification of
cash flows has changed, with an increase in net cash inflows from
operating activities being offset by a decrease in net cash flows
from financing activities, as set out in Note A8 below. The balance
sheet as at 28 February 2021 both including and excluding the
impact of IFRS 16 is shown in Note A9 below.
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures
issued by the European Securities and Markets Authority ('ESMA'),
we have provided additional information on the APMs used by the
Group below, including full reconciliations back to the closest
equivalent statutory measure
APM Closest equivalent Reconciling Definition and purpose
IFRS measure items to
IFRS measure
Income Statement Measures
Headline Group (loss) See Note Headline Group (loss) / profit before
Group (loss) / profit before A1 tax excludes non-underlying items.
/ profit tax A reconciliation from Headline Group
before tax (loss) / profit before tax to Group
(loss) / profit before tax on an IFRS
16 basis is provided on the Group
income statement on page 16, and on
an IAS 17 basis in Note A1.
High Street Group operating See Note Group profit from trading operations
and Travel profit A1 and High Street and Travel trading
trading profit are stated after directly attributable
profit, share-based payment and pension service
and Group charges and before non-underlying
profit from items, unallocated costs, finance
trading costs and income tax expense.
operations
A reconciliation from the above measures
to Group operating profit and Group
profit before tax on an IFRS 16 basis
is provided in Note 2 to the condensed
financial statements, and on an IAS
17 basis in Note A1.
APM Closest equivalent Reconciling Definition and purpose
IFRS measure items to
IFRS measure
Income Statement Measures (continued)
Non-underlying None Refer to Items which are not considered part
items definition of the normal operating costs of the
and see Note business, are non-recurring and considered
A5 exceptional because of their size,
nature or incidence are treated as
non-underlying items and disclosed
separately. The Group believes the
separate disclosure of these items
provides additional useful information
to users of the financial statements
to enable a better understanding of
the Group's underlying financial performance.
An explanation of the nature of the
items identified as non-underlying
on an IFRS 16 basis is provided in
Note 3 to the condensed financial
statements, and on an IAS 17 basis
in Note A5.
Headline Earnings per Non-underlying Headline earnings per share is defined
earnings share items and as Headline (Loss) / profit for the
/ (loss) dilutive year divided by the weighted average
per share effect of number of ordinary shares in issue
shares under during the financial year, adjusted
option see for the effects of any potentially
Note A3 dilutive share options. See Note 8
and Note A3.
Effective None Non-underlying Total income tax credit / charge excluding
tax rate items see the tax impact of non-underlying items
Notes A2 divided by Group Headline (loss) /
and A5 profit before tax. See Note 6 on an
IFRS 16 basis, and Notes A2 and A5
on an IAS 17 basis.
Fixed charges None Refer to This performance measure calculates
cover definition the number of times Profit before
tax covers the total fixed charges
included in calculating profit or
loss. Fixed charges included in this
measure are net finance charges (excluding
finance charges from IFRS 16 leases)
and net operating lease rentals stated
on an IAS 17 basis.
The calculation of this measure is
outlined in Note A4.
Gross Gross profit Not applicable Where referred to throughout the Interim
margin margin statement, gross margin is calculated
as gross profit divided by revenue.
As a result of the effect of the Covid-19
pandemic, this measure has not been
utilised in the current period.
Like-for-like Movement in - Revenue Like-for-like revenue is the change
revenue revenue per change from in revenue from stores that have been
the income non like-for-like open for at least a year, with a similar
statement stores selling space at a constant foreign
- Foreign exchange rate. As a result of the
exchange effect of the Covid-19 pandemic, this
impact measure has not been utilised in the
current period.
WH Smith PLC
Glossary (continued)
Balance Sheet Measures
Net debt None Reconciliation Net debt is defined as Cash and cash
of net debt equivalents, less Bank overdrafts
and other borrowings and both current
and non-current Obligations under
finance leases as defined on an IAS
17 basis. Lease liabilities recognised
as a result of IFRS 16 are excluded
from this measure.
A reconciliation of Net debt is provided
in Note A7.
Other measures
Free cash Net cash inflow See Group Free cash flow is defined as the net
flow from operating Overview cash inflow from operating activities
activities before the cash flow effect of non-underlying
items and pension funding, less net
capital expenditure. The components
of free cash flow are shown in Note
A6 and on page 12 as part of the Group
Overview.
Operating None Refer to Operating cash flow is defined as
cash flow definition Headline Group operating profit /
(loss) before depreciation, amortisation
and impairment and other non-cash
items. See Group Overview on page
12.
WH Smith PLC
Glossary (continued)
A1. Reconciliation of Headline to Statutory Segmental trading
(loss) / profit and (Loss) / profit for the period (unaudited)
6 months to 6 months to
28 Feb 2021 29 Feb 2020
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
Non-underlying IFRS 16 Non-underlying IFRS 16
GBPm Headline items Total adjustments Total Headline items Total adjustments Total
Travel trading
(loss) /
profit(1) (28) - (28) (3) (31) 49 - 49 1 50
High street
trading
profit 24 - 24 9 33 44 - 44 3 47
Group (loss)
/ profit from
trading
operations (4) - (4) 6 2 93 - 93 4 97
Unallocated
costs (9) - (9) - (9) (9) - (9) - (9)
Headline Group
operating
(loss)
/ profit (13) - (13) 6 (7) 84 - 84 4 88
Non-underlying
items - (18) (18) (3) (21) - (17) (17) - (17)
Group operating
(loss) / profit (13) (18) (31) 3 (28) 84 (17) 67 4 71
Finance costs (6) - (6) (4) (10) (4) - (4) (4) (8)
(Loss) / profit
before tax (19) (18) (37) (1) (38) 80 (17) 63 - 63
Income tax
credit
/ (expense) 1 2 3 - 3 (15) - (15) - (15)
(Loss) / profit
for the period (18) (16) (34) (1) (35) 65 (17) 48 - 48
Attributable
to:
Equity holders
of the parent (18) (16) (34) (1) (35) 64 (17) 47 - 47
Non-controlling
interests - - - - - 1 - 1 - 1
(18) (16) (34) (1) (35) 65 (17) 48 - 48
(1) Includes International Trading loss of GBP9m under IAS 17
(2020: profit of GBP9m) and GBP12m under IFRS 16 (2020: profit of
GBP10m).
WH Smith PLC
Glossary (continued)
A2. Reconciliation of Headline to Statutory tax (credit) /
expense (unaudited)
6 months to 6 months to
28 Feb 2021 29 Feb 2020
IFRS 16 IFRS IFRS 16
GBPm IAS 17 adjustments 16 IAS 17 adjustments IFRS 16
Headline (loss) / profit
before tax (19) 2 (17) 80 - 80
Tax on profit - - - 5 - 5
Standard rate of UK corporation
tax 19.00% (2020: 19.00%)
Adjustment in respect - - - - - -
of prior year UK corporation
tax
Total current tax charge - - - 5 - 5
Deferred tax - current
year (1) 1 - 10 - 10
Deferred tax - prior year - - - - -
Tax on Headline (loss)
/ profit - - - 15 - 15
Tax on non-underlying
items (2) (1) (3) - - -
Total tax on (loss) /
profit (3) - (3) 15 - 15
A3. Reconciliation of Headline to Statutory (loss) / earnings
per share (unaudited)
6 months to 6 months to
28 Feb 2021 29 Feb 2020
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
Non-underlying IFRS 16 Non-underlying IFRS 16
GBPm Headline items Total adjustments Total Headline items Total adjustments Total
(Loss) /
profit
for the
year,
attributable
to equity
holders
of the
parent (18) (16) (34) (1) (35) 64 (17) 47 - 47
Weighted
average
shares in
issue
for earnings
per share 131 131 113 113
Weighted
average
shares in
issued
for diluted
earnings
per share 132 132 114 114
Basic (loss)
/ earnings
per
share (13.7)p (12.3)p (26.0)p (0.7)p (26.7)p 56.6p (15.0)p 41.6p -p 41.6p
Diluted
(loss)
/ earnings
per
share (13.6)p (12.2)p (25.8)p (0.7)p (26.5)p 56.1p (14.9)p 41.2p -p 41.2p
WH Smith PLC
Glossary (continued)
A4. Fixed charges cover (unaudited)
GBPm 6 months to 6 months
28 Feb 2021 to
29 Feb 2020
Net finance costs (pre-IFRS 16) 6 4
Net operating lease rentals (pre-IFRS 16) 58 125
Total fixed charges 64 129
Headline (Loss) / profit before tax (19) 80
Headline (Loss) / profit before tax and fixed
charges 45 209
Fixed charges cover - times 0.7x 1.6x
A5. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
(unaudited)
6 months to 6 months to
28 Feb 2021 29 Feb 2020
GBPm IAS 17 IFRS 16 IAS 17 IFRS 16
Costs relating to business combinations
* Transaction costs - - 11 11
* Integration costs 1 1 2 2
Amortisation of acquired intangible
assets 2 2 1 1
Costs directly attributable
to Covid-19
* Impairment of property, plant and equipment 6 5 3 3
* Impairment of right-of-use assets - 9 - -
* Other property costs 2 - - -
* Write-down of inventories 5 5 - -
* Restructuring costs 2 2 - -
* Other - (3) - -
Non-underlying items, before
tax 18 21 17 17
Tax credit on non-underlying
items (3) (3) - -
Non-underlying items, after
tax 15 18 17 17
Non-underlying items on a pre-IFRS 16 basis are calculated on a
consistent basis with IFRS 16, with the exception of the below
items.
A tax credit of GBP3m has been recognised in relation to the
above items (GBP3m under IAS 17).
Impairment of property, plant and equipment and right-of-use
assets
The impairment charge recognised on an IAS 17 basis differs from
that recognised under IFRS 16. This is mainly due to a lower asset
base under IAS 17, coupled with lower expected store cash flows,
with rental expenses being included in the forecast cash flows
(treated as financing costs under IFRS 16), and a higher discount
rate. The calculation of the Group's weighted average cost of
capital differs under IFRS 16 versus IAS 17. The pre-tax discount
rate used in the IFRS 16 calculation was 9.3% and the pre-tax
discount rate used in the IAS 17 calculation was 11.3%.
Right-of-use assets are not recognised under IAS 17.
WH Smith PLC
Glossary (continued)
A5. Non-underlying items on pre-IFRS 16 and IFRS 16 bases (unaudited) (continued)
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions
for onerous lease contracts; on an IFRS 16 basis, onerous lease
contracts are recognised as an impairment of the right-of-use
asset. As a result of the impact of Covid-19, the Group has carried
out a review of leases where the obligations of those leases exceed
the potential economic benefits expected to be received under them.
We anticipate that a number of stores will not fully recover to
pre-Covid-19 sales levels and have accelerated our internal
forecasts for the rate of sales decline in those locations. As a
result, we have recognised onerous provisions of GBP2m for stores
where we now anticipate we will make a cash loss over the remaining
term of their leases.
The Group's IAS 17 property provisions represent the present
value of unavoidable future net lease obligations and related costs
of leasehold property (net of estimated sublease income and
adjusted for certain risk factors) where the space is vacant,
loss-making or currently not planned to be used for ongoing
operations. The unwinding of the discount is treated as an imputed
interest charge. These provisions represent the best estimate of
the liability at the time of the balance sheet date, the actual
liability being dependent on future events such as economic
environment and marketplace demand. Expectations will be revised
each period until the actual liability arises, with any difference
accounted for in the period in which the revision is made.
A6. Free cash flow (unaudited)
Note 6 months 6 months
to to
2 8 Feb 29 Feb 2020
GBPm 2021
Cash generated from operating activities 11 34 79
Interest paid (7) (6)
Net cash inflow from operating activities 27 73
Impact of IFRS 16 (Note A8) (41) (48)
Add back:
* Cash impact of non-underlying items 22 16
* Pension funding 1 1
Deduct:
* Purchase of property, plant and equipment (16) (35)
* Purchase of intangible assets (6) (6)
Free cash flow (13) 1
A7. Net debt (unaudited)
6 months
to 6 months
2 8 Feb 202 to
GBPm Note 1 29 Feb 2020
Borrowings
* Revolving credit facility - (45)
* Bank loans (400) (400)
* Lease liabilities (509) (577)
Liabilities from financing activities (909) (1,022)
Cash and cash equivalents 72 45
Net debt (IFRS 16) 10 (837) (977)
* Add back lease liabilities recognised under IFRS
16(1) 501 566
Net debt (IAS 17) (336) (411)
(1) Excludes lease liabilities previously recognised under IAS
17 as finance leases.
WH Smith PLC
Glossary (continued)
A8. Cash flow disclosure impact of IFRS 16 (unaudited)
There is no impact on cash flows, although the classification of
cash flows has changed, with an increase in net cash inflows from
operating activities being offset by a decrease in net cash inflows
from financing activities.
6 months
6 months to to
28 Feb 2021 28 Feb 2021
GBPm IAS 17 IFRS 16 Adjustment IFRS 16
Net cash flows from operating activities (14) 41 27
Net cash outflows from investing
activities (21) - (21)
Net cash outflows from financing
activities (1) (41) (42)
Net decrease in cash in the period (36) - (36)
A9. Balance sheet impact of IFRS 16 (unaudited)
The impact on the Balance Sheet of the IFRS 16 at 28 February
2021 was as follows:
At
28 Feb At
GBPm 2021 28 Feb 2021
IAS 17 IFRS 16 Adjustment IFRS 16
Goodwill and other intangible assets 472 (1) 471
Property, plant and equipment 178 4 182
Right-of-use assets - 370 370
Investments in joint ventures 2 - 2
--------------------
652 373 1,025
--------------------
Inventories 123 - 123
Payables less receivables (181) 33 (148)
--------------------
Working capital (58) 33 (25)
--------------------
Derivative financial liability (1) - (1)
Net current and deferred tax asset 20 12 32
Provisions (27) 13 (14)
--------------------
Operating assets employed 586 431 1,017
Net debt (336) (501) (837)
--------------------
Net assets excluding pension liability 250 (70) 180
Pension liability (4) - (4)
Deferred tax asset on pension liability 1 - 1
--------------------
Total net assets 247 (70) 177
WH Smith PLC
Glossary (continued)
A10. Operating lease expense under IAS 17 (unaudited)
Amounts recognised in Headline Group operating profit on a
pre-IFRS 16 basis are as follows:
GBPm 6 months 6 months
to to
28 Feb 2021 29 Feb 2020
Minimum lease payments 53 86
Contingent rent payments 5 39
Total rent paid 58 125
Sublease rentals received on operating leases - -
Net operating lease charges 58 125
The Group applies IFRS 16, which requires lessees to account for
all leases under a single on-balance sheet model as the distinction
between operating and finance leases is removed. Information
presented to the Board is prepared in accordance with the Group's
IFRS accounting policies, with the exception of IFRS 16, therefore
in order to provide comparable information, the Group has chosen to
present Headline measures of operating profit/(loss) and
profit/(loss) before tax, as explained in Note 2 Segmental
analysis.
The table above presents the pre-IFRS 16 net operating lease
charges, applying the principles of IAS 17, and Group accounting
policies as applicable prior to 1 September 2019, per Note 1 to the
condensed financial statements.
The Group leases various properties under non-cancellable
operating lease agreements. The leases have varying terms,
escalation clauses and renewal rights. The Group has a number of
lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are
accrued in line with revenues generated.
The average remaining lease length across the Group is 4
years.
Rentals payable and receivable under operating leases are
charged to the income statement on a straight-line basis over the
term of the relevant lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term.
Temporary rent reductions due to Covid-19, affecting rent
payments due on or before June 2021, have been recognised in the
Income statement in the period they are received.
WH Smith PLC
Appendix
Analysis of retailing stores and selling space
Number of High Street stores(1)
1 Sept 2020 Opened Closed 28 Feb
2021
Total 571 - (9) 562
(1) Excludes 100 WH Smith LOCAL franchised stores
Number of Travel units
A Travel store may consist of multiple units within one
location. On an individual unit basis, Travel stores can be
analysed as follows:
1 Sept 2020 Opened Closed 28 Feb
2021
Non franchise units 824 5 (25) 804
Joint Venture and Franchise
units(2) 350 21 (7) 364
Total 1,174 26 (32) 1,168
(2) Travel units include motorway and international franchise
units, and exclude kiosks in India, and Supanews and Wild Cards and
Gifts franchisees in Australia.
Retail selling square feet ('000s)
1 Sept Opened Closed 28 Feb
2020 2021
High Street 2,682 - (30) 2,652
Travel 1,000 30 (42) 987
------
Total 3,682 30 (72) 3,639
Total Retail selling square feet does not include franchise
units.
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END
IR MZGZDKRFGMZM
(END) Dow Jones Newswires
April 28, 2021 11:45 ET (15:45 GMT)
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