TIDMSNWS
RNS Number : 7086S
Smiths News PLC
08 November 2023
This announcement contains inside information
Smiths News plc
(Smiths News or the Company)
Audited Financial Results for the 52 weeks ended 26 August
2023
Performance ahead of expectations with further debt reduction
and contract renewals
Headlines
-- Performance ahead of full year market expectations
-- Revenues benefiting from strong cover price rises, FIFA World
Cup and Royal Succession
-- Cost reduction programme and management actions substantially
mitigating the ongoing impacts of inflation in the year
-- Contract renewals securing 65% of our current publisher revenue
streams to at least 2029
-- Additional new national and regional newspaper contract awards
in FY2024, with a combined sales value of c.GBP32m p.a.
-- Roll out of Smiths News Recycle - growing to c.4,000 customers
following successful trials
-- Free cash flow of GBP21.8m in line with expectations after
one-off benefits in FY2022
-- Further strong reductions in both Average and Bank Net Debt
-- Proposed total dividend payment maintained at GBP10m, the maximum
payable under our banking agreements that run to August 2025
FY2023 FY2022 % Change
Adjusted continuing results
Revenue GBP1,091.9m GBP1,089.3m +0.2%
Operating profit GBP38.8m GBP38.1m +1.8%
Profit before tax GBP32.3m GBP31.1m +3.9%
Earnings per share 10.8p 10.8p -
Cash flow and net debt
Free cash flow GBP21.8m GBP48.2m -54.8%
Bank Net Debt GBP4.2m GBP14.2m -70.4%
Average Bank Net Debt GBP25.0m GBP49.9m -49.9%
Statutory continuing results
Revenue GBP1,091.9m GBP1,089.3m +0.2%
Operating profit GBP38.3m GBP32.4m +18.2%
Profit before tax GBP31.8m GBP27.9m +14.0%
Earnings per share 10.6p 9.8p +8.2%
Statutory Net Debt GBP26.1m GBP39.4m -33.8%
Dividend per share 4.15p 4.15p -
------------------------------ ------------ ------------ ---------
A good performance in a challenging economy
Despite wider economic uncertainty and continued inflationary
pressures, the business has delivered a good performance, exceeding
market expectations while making progress on all key metrics,
including the accelerated renewal of our publisher contracts. Core
revenues and margin continued to benefit from strong cover price
rises and buoyant collectables sales together with a further boost
from the Royal Succession. Meanwhile, our well-established approach
to cost management has delivered GBP5.8m of sustainable savings
making a substantial contribution to offsetting margin decline as
well as the impact of inflation in the year. While it remains early
days, our workstreams to grow complementary revenues, including
Smiths News Recycle and the delivery of DVDs and books to selected
large retailers, have also made progress, returning a modest
contribution to operating profit in the year.
As previously announced, the business has re-secured 65% of its
current publisher contract revenues through to at least 2029. This
provides good visibility of future cashflows, whilst allowing our
teams to plan with greater certainty for both future cost
management initiatives and complementary profit streams.
Financial progress is headlined by Adjusted Operating Profit
that is up by 1.8% while Average Net Debt, which best reflects the
day-to-day requirements of the business, is down by 49.9%. Free
cash flow of GBP21.8m is in line with our ongoing expectations,
supporting a second year of total dividend payments amounting to
GBP10m, the maximum allowable under our banking facilities, which
continue through to August 2025.
Outlook
The new financial year has started well. Our critical drivers of
sales, margin and sustainable cost reduction are being closely
managed and we remain attentive to ongoing inflationary pressures
which remain above historic levels. Cost reduction initiatives are
well underway and progress continues to be made with our growth
strategy. We are confident in delivering results for the current
financial year in line with market expectations.
Jonathan Bunting, CEO, said:
"Smiths News has delivered another good performance against a
challenging macro-economic backdrop. We have worked tirelessly to
maintain service, find sustainable cost savings and secure new
long-term publisher contracts. As a result, we are well placed to
continue delivering reliable profits and cash, meeting the needs of
all stakeholders, through a combination of market leadership, sound
finances and exceptional people."
Enquiries:
Smiths News plc Via Buchanan
below
Jonathan Bunting, Chief Executive Officer
Paul Baker, Chief Financial Officer
Investor.relations@smithsnews.co.uk
www.smithsnews.co.uk
Buchanan
Richard Oldworth / Jamie Hooper / Toto Berger 020 7466 5000
smithsnews@buchanan.uk.com
www.buchanan.uk.com
Smiths News plc's Preliminary Results 2023 are available at
www.smithsnews.co.uk
A recording of the presentation for analysts will be made
available on the Investor Zone of the Company's website after
midday on 8 November 2023. See www.smithsnews.co.uk/investors .
Notes
The Company uses certain performance measures for internal
reporting purposes and employee incentive arrangements. The terms
'Adjusted operating profit', 'Adjusted profit before tax',
'Adjusted earnings per share', 'Adjusting items', 'free cash flow',
'Bank Net Debt' and 'Bank EBITDA', are not defined terms under IFRS
and may not be comparable with similar measures disclosed by other
companies.
(1) The following are key non-IFRS measures identified by the
Company in the consolidated financial statements as Adjusted
results:
a. Adjusted operating profit - is defined as operating profit excluding Adjusted items.
b. Adjusted profit before tax (PBT) - is defined as Adjusted
operating profit less finance costs and including finance income
attributable to Adjusted operating profit and before Adjusting
items.
c. Adjusted earnings per share - is defined as Adjusted PBT,
less taxation attributable to Adjusted PBT and including any
adjustment for minority interest to result in adjusted profit after
tax attributable to shareholders; divided by the basic weighted
average number of shares in issue.
d. Adjusting items - Adjusting items of income or expense are
excluded in arriving at Adjusted operating profit to present a
further measure of the Company's performance. Each adjusting item
is considered to be significant in nature and/or quantum,
non-recurring in nature and/or considered to be unrelated to the
Company's ordinary activities or are consistent with items treated
as adjusting in prior periods. Excluding these items from profit
metrics provides readers with helpful additional information on the
performance of the business across periods because it is consistent
with how the business performance is planned by, and reported to,
the Board and the Executive Team. They are disclosed and described
separately in Note 4 of the Consolidated Financial Statements to
provide further understanding of the financial performance of the
Company. A reconciliation of adjusted profit to statutory profit is
presented on the income statement.
(2) Free cash flow - is defined as cash flow excluding the
following: payment of the dividend, the repayment of bank loans and
EBT share purchases.
(3) Bank Net Debt - represents the net position drawn under the
Company's banking facilities and is calculated as total debt less
cash and cash equivalents. Total debt includes loans and borrowings
and overdrafts but excludes unamortised arrangement fees and
excludes IFRS16 lease liabilities.
(4) Bank EBITDA - is calculated in line with loan agreements and
is used for covenant calculations, being Adjusted operating profit
before depreciation, amortisation, excluding the impact of IFRS16
lease accounting, excluding Adjusting items and excluding share
based payments charge.
(5) FY2023 refers to the 52-week period ending 26 August 2023
and FY2022 refers to the 52-week period ended 27 August 2022.
(6) The Consolidated Results have been prepared and presented on
a Continuing Operations basis after adjusting for the Discontinued
Operations of the Tuffnells business, which was sold in May
2020.
Cautionary Statement
This document contains certain forward-looking statements with
respect to Smiths News plc's financial condition, its results of
operations and businesses, strategy, plans, objectives and
performance. Words such as 'anticipates', 'expects', 'intends',
'plans', 'believes', 'seeks', 'estimates', 'targets', 'may',
'will', 'continue', 'project' and similar expressions, as well as
statements in the future tense, identify forward-looking
statements. These forward-looking statements are not guarantees of
Smiths News plc's future performance and relate to events and
depend on circumstances that may occur in the future and are
therefore subject to risks, uncertainties and assumptions. There
are a number of factors which could cause actual results and
developments to differ materially from those expressed or implied
by such forward looking statements, including, among others the
enactment of legislation or regulation that may impose costs or
restrict activities; the re-negotiation of contracts or licences;
fluctuations in demand and pricing in the industry; fluctuations in
exchange controls; changes in government policy and taxations;
industrial disputes; war, pandemic and terrorism. These
forward-looking
statements speak only as at the date of this document. Unless
otherwise required by applicable law, regulation or accounting
standard, Smiths News plc undertakes no responsibility to publicly
update any of its forward-looking statements whether as a result of
new information, future developments or otherwise. Nothing in this
document should be construed as a profit forecast or profit
estimate. This document may contain earnings enhancement statements
which are not intended to be profit forecasts and so should not be
interpreted to mean that earnings per share will necessarily be
greater than those for the relevant preceding financial period. The
financial information referenced in this document does not contain
sufficient detail to allow a full understanding of the results of
Smiths News plc. For more detailed information, please see the
Preliminary Financial Results and/or the Annual Report and
Accounts, each for the 52-week period ended 26 August 2023 which
can be found on the Investor Zone section of the Smiths News plc
website - www.smithsnews.co.uk. However, the contents of Smiths
News plc's website are not incorporated into and do not form part
of this document.
OPERATING REVIEW
Overview
Despite uncertainty in the wider economy and continued
inflationary pressures, the business has performed well, driving a
typically robust result that is founded on sound operating
principles, well-executed plans and maintaining close attention to
our strategic priorities. The fundamentals of excellent service,
cost control and our ability to adapt to market trends, remain
signature qualities of our business model and its continued
resilience.
We have exceeded market expectations for the full year by
ensuring the benefit of stronger revenue was able to flow through
to profitability. While top line sales were boosted by the FIFA
World Cup, the Royal Succession and sustained price rises above
historic norms, our performance was also driven by the mitigation
of volume declines and inflationary impacts as a result of
management actions and our ongoing programme of operational cost
savings across the network. In this respect, the renewal of 65% of
our publisher contracts to at least 2029 has given us the certainty
required to proceed with network optimisation plans that will
deliver savings over the lifetime of our agreements.
In parallel with our resilient profit performance, the
underlying finances of the business have continued to strengthen,
with Average Net Debt reducing to GBP25.0m. Free Cash of GBP21.8m
and Earnings per Share of 10.8p are in line with our expectations,
while a total dividend payment for the year of GBP10m is the
maximum allowable under our banking arrangements, which run to
August 2025.
More broadly, the easing in labour markets has aided
recruitment, helping to ensure our market leading service metrics
have been maintained. This underpins our relationships with
publishers and retailers and further reduces cost by minimising
waste and rectification expense. Drawing on a deep well of
experience, we remain closely focused on operational efficiency and
adapting to the structural decline in volumes in a way that
maintains service for customers and performance for our
stakeholders.
Our stated plans to explore adjacent market opportunities have
progressed and we have learned a great deal in researching, testing
and evaluating a range of initiatives that leverage our skills,
technology and capacity. The regional trial and subsequent national
launch of Smiths News Recycle is a highlight, and we remain
optimistic about the prospects of supplying new categories to
existing customers. Meanwhile, we continue to explore the potential
for carefully targeted bolt-on acquisitions that provide greater
scale to our new revenues while also complementing our core
business and its customer relationships by adding value to our role
and services.
In summary, our strategy and plans continue to achieve their
objectives of strengthening the core while exploring appropriate
platforms for future opportunity. That we have met and surpassed
the majority of our targets in such challenging economic conditions
is testament to the resilience of our business model and its
reliability in delivering for all our stakeholders.
Financial performance and key variables
Adjusted Operating Profit of GBP38.8m was up by 1.8% (FY2022:
GBP38.1m) from Revenue of GBP1,091.9m that was up by 0.2%. Adjusted
Profit before tax of GBP32.3m was up 3.9% (FY2022: GBP31.1m) as a
result of lower financing charges and from the continued reduction
in the Company's average debt requirements. Adjusted EPS is
maintained at 10.8p (FY2022: 10.8p).
Statutory Profit Before Tax of GBP31.8m is up by 14.0% (FY2022:
GBP27.9m), the difference primarily due to the previous year's
provision of GBP4.4m for bad debt risk associated with the
administration of McColl's Retail Group in May 2022.
The most significant variables in driving our financial
performance were:
-- Overall revenue growth driven by strong cover price rises across the year
-- Additional sales from the Royal Succession and the FIFA World Cup
-- New revenues from ancillary contracts and ventures
-- Lower wholesale margin due primarily to magazine volumes
declining in line with historic norms
-- Inflationary pressures on distribution costs, wages and third-party providers
-- Cost savings of GBP5.8m from our actions to improve operational efficiency
-- Lower depreciation costs reflecting sustained reductions in capital expenditure.
Newspaper and magazine sales performance and trends
Overall sales in our core markets showed marginal growth as a
result of sustained inflationary price increases as publishers
looked to recover higher production costs. Newspapers have
performed more strongly than magazines for which greater volume
declines have offset the benefit of increased cover prices. The
continued strong year on year performance of higher margin trading
cards and stickers (aided by the men's FIFA World Cup in H1)
amounted to a further revenue boost of GBP8m. The Royal Succession
had a broadly similar revenue impact, spread across newspapers
magazines and special editions.
As we start the current financial year sales continue to benefit
from the remaining flow through of price rises in FY2023. We expect
volumes to continue to decline and we are planning accordingly,
taking the opportunity to reconfigure our network and operations as
part of our cost reduction programme. Furthermore, while underlying
patterns are relatively predictable and stable we are mindful that
sales gains from the World Cup and Royal Succession will not repeat
in FY2024.
Publisher contract success
By accelerating our contract renewals we have secured favourable
agreements representing 65% of our current revenues through to at
least 2029. As previously announced, we concluded new agreements
with each of Frontline, Seymour Distribution, Associated
Newspapers, Telegraph Media Group and News UK in the year. The
renewed contracts not only give us security of territories but also
enviable visibility of potential revenue and cash flows over their
lifetime.
In addition to the renewal of existing contracts, in October
2023 the Company announced a supplementary agreement with News UK
for newspaper distribution in our existing London territories
(commencing in November 2023) and, also, secured a new contract
with National World plc to distribute the Midland News Association
regional press titles (expected to commence distribution in the
Midlands in December 2023). Taken together, these contract awards
represent additional sales value of c.GBP32m p.a.
Our remaining publisher contracts continue to operate well and
we would very much expect them to be renegotiated in line with
their end dates, which are staggered over the next three years.
Smiths News Recycle
The first of our organic growth ventures, Smiths News Recycle is
a new and convenient waste recycling service for our retail
customers. The service collects plastic and cardboard waste largely
from our independent customers using our existing delivery runs and
recycling facilities to transport and consolidate the waste.
Starting as a regional trial in FY2022 we have moved from concept
to launch across our network in February 2023. The service
currently has c.4,000 subscribing customers, and the near-term
potential in its current scope to make profits of c.GBP1.0m. We
plan to continue scaling the operation in a way that first
leverages our existing capacity and have opened exploratory
discussions with selected larger customers to explore its potential
in new categories and outside the independent sector.
New revenue streams
Our plans to develop new and ancillary revenues, announced in
FY2023, are founded on finding opportunities to leverage our
physical capability and spare capacity; our technology and market
intelligence; and our supply chain relationships. In adopting an
agile approach to organic initiatives we were mindful of taking a
prudent approach to long term investment, and clear that while some
trials would succeed, others would likely prove less practical at
scale. Our plans also include exploring the potential for small
scale bolt-on acquisitions that would complement our core business
without risk to our dividend policy or commitment to maintaining a
strong balance sheet.
The exploitation of spare warehouse capacity and new revenues
arising from parcel sortation services for other non-competitor
carriers continues to drive a welcome contribution to overheads and
our national launch of Smiths News Recycle is a highlight of our
organic opportunities. In other areas we have started to pick, pack
and deliver books and DVDs to major supermarkets and have
maintained our investment in Love Media, a digital solution for the
sale of single issue magazines. These further initiatives remain in
their early stages.
We continue to explore opportunities for acquisitions of
appropriate scale that would enhance our capabilities and add value
to our role in the supply chain. While mindful of the current macro
economic climate our ambition to grow in new areas is undiminished,
however, we will only act when we have the identified the right
combination strategic fit, timing and commercial opportunity.
Cash Flow and Net Debt
Free cash flow of GBP21.8m (FY2022: GBP48.2m) represents a
further good performance as the previous year had benefited from
GBP22.1m of exceptional inflows. After removing these one-off
factors and allowing for other timing and trading adjustments we
are satisfied that our cash generation remains strong and
appropriate to meeting the needs of all stakeholders. Furthermore,
the greater visibility of our publisher contract revenues and
associated capital requirements, together with the relative
predictability of such revenues, means we are confident that the
levels of free cash flow can be maintained at or about current
levels.
Bank Net Debt (excluding IFRS16 leases) of GBP4.2m is down by
70.4% (FY2022: GBP14.2m) representing just 0.1 x Bank Net
Debt/EBITDA. While this is excellent progress the figure can be
impacted by the timing of publisher and retailer payments, hence a
better indication of our ongoing requirements is Average Net Debt
which at GBP25.0m is down 49.9% (FY2022: GBP49.9m).
The consistent progress we have made since FY2020 has reduced
our interest payments, affording greater flexibility over future
options and positioning us well to refinance our facilities, which
run to August 2025.
Dividend
After considering the Company's financial progress and in line
with our previously stated policy and the terms of our banking
agreements, the Board proposes to use the full extent of the GBP10m
distribution limits for the return of cash to shareholders.
Consequently, the Board has proposed a final dividend of 2.75p,
making a total dividend for the year of 4.15p (FY2022: 4.15p). The
final dividend will be paid on 8 February 2024 to all shareholders
who are on the register at the close of business on 12 January
2024; the ex-dividend date will be 11 January 2024.
Outlook
The new financial year has started well. Our critical drivers of
sales, margin and sustainable cost reduction are being closely
managed and we remain attentive to ongoing inflationary pressures
which remain above historic levels. Cost reduction initiatives are
well underway and progress continues to be made with our growth
strategy. We are confident in delivering results for the current
financial year in line with market expectations.
FINANCIAL REVIEW
Overview
The Company has continued to deliver a strong financial
performance with both revenue and adjusted operating profit
increasing since last year despite the ongoing pressures of
inflation within the wider economy. Reliable cash generation has
enabled the maximum dividend of GBP10m to be proposed by the Board
and for average net debt to be reduced to GBP25m (FY2022:
GBP50m).
Revenues of GBP1,091.9m were ahead of last year by 0.2%
benefitting from sales associated with the Royal Succession and the
FIFA World Cup, and from newspaper price increases which had a
consequent adverse impact on volumes. Adjusted operating profit of
GBP38.8m was a GBP0.7m increase on the prior year (FY2022:
GBP38.1m) due to both the additional revenue and to cost savings
which delivered ahead of plan, although the overall cost base
continued to be affected by higher levels of inflation. Adjusted
profit before tax increased by GBP1.2m to GBP32.3m, with GBP0.5m
lower financing charges on debt fees and leases. Adjusted profit
after tax decreased by GBP0.1m to GBP25.6m due to a GBP1.3m higher
tax charge which included a higher headline rate in FY2023.
Adjusted EPS remained at 10.8p (FY2022: 10.8p).
Average Bank Net Debt for the year fell by GBP24.9m (50%) to
GBP25.0m, with good continuing cash flow across both years assisted
by the one-off pension surplus (GBP8.1m) and Tuffnells deferred
consideration receipts (GBP14.0m) in 2022. Free cash flow of
GBP21.8m was GBP26.3m lower than last year due to those one-off
receipts (GBP22.1m) and to the GBP5.4m timing impact of trade
receivables at the end of August 2023, which fell into the first
week of FY2024. Bank Net Debt on 26 August 2023 was GBP4.2m
compared to GBP14.2m 52 weeks earlier. At two points during the
second half of the year, the Company was in a net cash position,
the first time since demerger from WH Smith in 2006.
Adjusting items reduced by GBP1.8m to GBP0.5m in FY2023 as the
prior year included the provision for McColls receivables (GBP3.6m
cost after tax) and the unwind of a discount on the Tuffnells
deferred consideration (GBP2m benefit after tax). Statutory profit
after tax increased from GBP23.4m in FY2022 to GBP25.1m and
statutory EPS from 9.8p in FY2022 to 10.6p in FY2023.
A final dividend of 2.75p per share (GBP6.7m) is proposed by the
Board, due to be paid in February 2024. Combined with the interim
dividend of 1.4p paid in July 2023, total dividends for the year
are 4.15p or GBP10m, consistent with last year.
The financial results evidence the ability of the Company to
deliver value in what is otherwise considered a declining sector
and with a background of instability in the wider economy. While
the Company does not expect the one-offs events which have
benefitted FY2023 to repeat in FY2024, the Company's financial
performance and balance sheet provide a stable basis for delivering
future value to shareholders.
Adjusted Results
Adjusted results GBPm 2023 2022 Change
----------------------- -------- -------- --------
Revenue 1,091.9 1,089.3 0.2%
Operating profit 38.8 38.1 1.8%
Net finance costs (6.5) (7.0) 7.1%
----------------------- -------- -------- --------
Profit before tax 32.3 31.1 3.9%
Taxation (6.7) (5.4) (24.1%)
----------------------- -------- -------- --------
Effective tax rate 20.7% 17.4% (19.0%)
----------------------- -------- -------- --------
Profit after tax 25.6 25.7 (0.4%)
----------------------- -------- -------- --------
Revenue
Revenue was GBP1,091.9m (FY2022: GBP1,089.3m), up 0.2% on the
prior year (FY2022: down -1.8%) compared to the historic revenue
trend of c.-3% to -5%. This was aided by the 2022 FIFA World Cup,
Premier League and Pokémon trading cards and by newspaper cover
price increases.
Newspaper revenues were up 0.6%, benefitting from newsworthy
events and ongoing cover price increases since the second half of
FY2022, which had an impact on volumes . Magazine revenue was down
5.1%, broadly in line with historic trends. Revenue from
collectibles was up 43% (FY2022 43%), supported by World Cup
football collections and by a continuation of strong Premier League
and Pokémon trading card performance.
Operating profit
The increase in Adjusted operating profit of GBP0.7m to GBP38.8m
(FY2022: GBP38.1m) can be attributed to:
-- The benefit to wholesale margin (GBP1.5m) from sales
associated with the Royal Succession and the FIFA World Cup;
-- A reduction in other wholesale margin (GBP3.4m), driven
primarily by magazine revenue declines, in line with historic
trends;
-- Cost-out plans, which are designed to offset reductions in
wholesale margin and inflation as part of the Company's business
model, which reduced costs by GBP5.8m and were ahead of plan;
-- The impact of inflation on the depot and support functions'
cost bases of GBP4.7m, a greater level than experienced
historically;
-- New ancillary revenue contracts which contributed GBP0.7m; and
-- Lower depreciation on owned assets GBP1.0m reflecting lower
capex over the last 3 years than previously.
Profit after tax
Net finance charges of GBP6.5m (FY2022: GBP7.0m) were lower than
the prior year due to GBP0.6m lower amortisation of bank
arrangement fees following the amendment and extension of banking
facilities in December 2021 and GBP0.3m lower interest on leases
and other items. Interest on bank debt was higher by GBP0.4m than
the prior year (FY2022: GBP3.5m) as lower average net debt was more
than offset by increased interest rates.
Adjusted profit before tax was GBP32.3m, up 3.9% on FY2022.
Taxation of GBP6.7m includes a higher effective tax rate of
20.7% compared to the prior year (FY2022: 17.4%) due to the
increase in the corporation tax rate from 19% to 25% from April
2023 and beneficial one-off adjustments in FY2022 relating to
capital allowances.
As a result of the GBP1.3m increase to the tax charge which
partially offset the GBP1.2m increase in profit before tax, profit
after tax decreased by GBP0.1m to GBP25.6m.
Statutory Results
GBPm 2023 2022 Change
Revenue 1,091.9 1,089.3 0.2%
Operating profit 38.3 32.4 18.2%
Net finance costs (6.5) (4.5) (44.4%)
-------------------------------------------- -------- -------- --------
Profit before tax 31.8 27.9 14.0%
Taxation (6.7) (4.5) (48.9%)
-------------------------------------------- -------- -------- --------
Effective tax rate 21.1% 16.1% (31.1%)
-------------------------------------------- -------- -------- --------
Profit attributable to equity shareholders 25.1 23.4 7.3%
-------------------------------------------- -------- -------- --------
Statutory profit includes the impact of adjusting items, which
had a less significant impact on the FY2022 result than on the
current year. Adjusting items are covered in more detail below.
Statutory operating profit of GBP38.3m was GBP5.9m higher than
in FY2022, owing to GBP0.7m higher adjusted operating profit and
GBP5.2m lower adjusting items, including the provision for McColls
bad debt risk in FY2022 (GBP4.4m).
Net finance costs of GBP6.5m were GBP2.0m higher than FY2022 as
the prior year statutory result benefitted from a GBP2.5m credit
from the unwind of discount on the Tuffnells deferred
consideration.
Statutory profit after tax of GBP25.1m was a GBP1.7m increase on
the prior year, largely due to a decrease in the impact of
adjusting items after tax.
The Company has net liabilities of GBP16.3m on its balance sheet
(FY2022: GBP32.0m). The net liabilities arose largely because of
impairments to the assets and goodwill of the Tuffnells business
prior to its sale in May 2020.
Earnings Per Share
Continuing Adjusted Continuing Statutory
----------------------------------- ---------------------- -----------------------
2023 2022 2023 2022
----------------------------------- ---------- ---------- ----------- ----------
Earnings attributable to ordinary
shareholders (GBPm) 25.6 25.7 25.1 23.4
Basic weighted average number of
shares (millions) 237.3 238.5 237.3 238.5
Basic Earnings per share 10.8 10.8 10.6 9.8
Diluted weighted number of shares
(millions) 249.9 252.0 249.9 252.0
Diluted Earnings per share 10.2 10.2 10.0 9.3
----------------------------------- ---------- ---------- ----------- ----------
Continuing Adjusted basic earnings per share of 10.8p, is
consistent with the prior year driven by the higher profit after
tax and by the reduction in the average number of shares due to
Employee Benefit Trust's share purchases.
Statutory continuing basic earnings per share, which includes
adjusting items, is up 0.8p to 10.6p (FY2022: 9.8p) due to lower
level of adjusting items and a reduction in the weighted number of
shares.
Dividend
2023 2022
---------------------------------------- ------ ------
Dividend per share (paid and proposed) 4.15p 4.15p
Dividend per share (recognised) 4.15p 2.55p
---------------------------------------- ------ ------
The Board is proposing a final dividend of 2.75p per share
(FY2022: 2.75p), taking the full period dividend to 4.15p (FY2022:
4.15p). The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting on 31 January 2024 and
has not been included as a liability in these accounts. The
dividend recommendation represents the maximum permissible sum that
can be paid under the distribution cap limits within our banking
arrangements (GBP10m per annum) and is based on the forecast number
of shares in issue at the record date.
The proposed final dividend will be paid on 8 February 2024 to
shareholders on the register at close of business on 12 January
2024. The ex-dividend date will be 11 January 2024.
Adjusting Items
GBPm 2023 2022
------------------------------------- ------ ------
Aborted acquisition costs (0.6) -
Tuffnells insurance provision (0.4) -
Network and re-organisation credits 0.5 0.2
Impairment of receivables - McColls - (4.4)
Pension - (1.8)
Transformation programme planning
costs - (0.9)
Impairment reversal of investment
in joint ventures - 1.2
Total before tax and interest (0.5) (5.7)
Finance income - unwind of deferred
consideration - 2.5
------------------------------------- ------ ------
Total before tax (0.5) (3.2)
Taxation - 0.9
------------------------------------- ------ ------
Total after taxation (0.5) (2.3)
Adjusting items before tax of GBP0.5m (net cost) were a GBP2.7m
decrease on the prior year (FY2022: GBP3.2m).
In the current year, the Company incurred GBP0.6m of costs for
due diligence and legal activity associated with exploring a
potential acquisition aligned to our adjacent opportunities
strategy. While the target entity was complementary to our core
business, aligned with our markets and synergised with elements of
our business, macro-economic challenges in the latter half of 2022
led to the decision to abort the opportunity.
The Tuffnells insurance provision costs of GBP0.4m were
recognised as a result of Tuffnells' administration in June 2023.
The provision relates to incidents arising during the Company's
period of ownership of Tuffnells up to May 2020.
The above costs were offset by GBP0.5m of network and
re-organisation credits relating to provision releases which were
the result of a contract renewal with our shared service centre
partner.
In the prior year, the Company provided for GBP4.4m impairment
loss on receivables as a result of McColl's going into
administration. This represented 80% of the total receivable of
GBP5.5m due from McColl's at the point of administration and is in
line with the administrator's estimated expected payment to
unsecured creditors. During the reporting period no further
impairment charge or reversal has been recognised.
Pension costs in the prior year related to the buy-out of the
Company's defined benefit pension scheme.
The Company also incurred professional fees of GBP0.9m in the
prior year in relation to transformation programme planning.
An asset impairment reversal of GBP1.2m was recognised in the
prior period in respect of the joint venture investment in Rascal
Solutions Limited ("Rascal"). During the reporting period, no
further impairment charge or reversal has been recognised.
The finance income credit in the prior period of GBP2.5m is the
unwind of the discount on the Tuffnells deferred consideration
which was settled by the end of April 2022.
The tax on adjusting items was GBPnil (FY2022: a credit of
GBP0.9m).
Further information on these items can be found in Note 4 of the
Group Financial Statements. Adjusting items are defined in the
Glossary to the Group Financial Statements and present a further
measure of the Group's performance. Excluding these items from
profit metrics provides readers with helpful additional information
on the performance of the business across years because it is
consistent with how the business performance is planned by, and
reported to, the Board and the Executive Team. Alternative
Performance Measures (APMs) should be considered in addition to,
and are not intended to be a substitute for, or superior to, IFRS
measurements.
Free Cash Flow
Free cash flow of GBP21.8m was GBP26.4m lower than FY2022
(GBP48.2m) due to the GBP8.1m pension surplus receipt and GBP14.0m
deferred consideration received from Tuffnells in FY2022 and a
GBP5.9m increase in the working capital movement in FY2023.
GBPm 2023 2022
----------------------------------------------------- ------- ------
Adjusted operating profit 38.8 38.1
Depreciation & amortisation 9.2 10.5
----------------------------------------------------- ------- ------
Adjusted EBITDA 48.0 48.6
Working capital movements (4.9) (0.6)
Capital expenditure (3.4) (1.9)
Lease payments (6.1) (6.4)
Net interest and fees (5.3 ) (8.0)
Taxation (6.6) (5.3)
Other 1.1 1.2
----------------------------------------------------- ------- ------
Free cash flow (excluding Adjusting items) 22.8 27.6
----------------------------------------------------- ------- ------
Adjusting items (cash effect) - return of pension
surplus - 8.1
Adjusting items (cash effect) - receipt of deferred
consideration - 14.0
Adjusting items (cash effect) - Other (1.0) (1.5)
Free cash flow 21.8 48.2
----------------------------------------------------- ------- ------
The increase in working capital reflects from the timing of
GBP5.4m due before the end of August 2023 from a major supermarket
which was received on Thursday 31 August 2023 (the first week of
FY2024). These working capital cycles led to average intra-month
working capital movements of GBP28.7m (FY2022: GBP28.4m).
Cash capital expenditure in the year was GBP3.4m (FY2022:
GBP1.9m), an increase of GBP1.5m due to depot refurbishments which
were initiated at the end of FY2022.
Lease payments of GBP6.1m (FY2022: GBP6.4m) decreased by GBP0.3m
due to the exit of a depot lease in the second half of the last
financial year and the non-renewal of a further depot lease in H2
FY2022.
Net interest and fees of GBP5.3m (FY2022: GBP8.0m) decreased by
GBP2.7m, as the prior year included the payment of GBP2.9m
arrangement fees in relation to the Company's refinancing of its
banking facilities.
Cash tax outflow of GBP6.6m was a GBP1.3m increase on the prior
year (FY2022: GBP5.3m outflow) due to the increase in corporation
tax rate from 19% to 25% in April 2023 and lower taxable profit in
FY2022 due to the GBP4.4m provision for the McColls debtor.
Other items relate predominantly to the non-cash share-based
payment expense.
In the prior year, the wind-up of the Company's defined benefit
pension scheme (detailed further below) resulted in the receipt of
GBP8.1m and settlement of deferred consideration due from Tuffnells
(GBP14.0m).
The total net cash impact of other Adjusting items was a GBP1.0m
outflow (FY2022: GBP1.5m outflow). In the reporting period, amounts
related to aborted acquisition costs (GBP0.6m), payments in respect
of legacy Tuffnells insurance matters (GBP0.2m) and reorganisation
costs (GBP0.2m). In the prior year, adjusting items comprised:
GBP1.3m of Transformation programme planning costs and GBP0.2m of
Pension related costs.
A reconciliation of free cash flow to the net movement in cash
and cash equivalents is given in the Glossary.
Net Debt
GBPm 2023 2022
------------------------------------------------- ------- -------
Opening Bank Net Debt (14.2) (53.2)
Continuing operations free cash flow (excluding
adjusting items) 22.8 27.6
Continuing operations free cash flow (adjusting
items) (1.0) 20.6
Discontinued operations free cash flow - (0.5)
------------------------------------------------- ------- -------
Free cash flow 21.8 47.7
Dividend paid (9.8) (6.1)
Investment in joint venture (0.3) -
Purchase of shares for employee benefit trust (1.7) (2.6)
Bank Net Debt (4.2) (14.2)
------------------------------------------------- ------- -------
Bank Net Debt closed the year at GBP4.2m compared to GBP14.2m at
August 2022, a decrease of GBP10.0m. Average daily net debt reduced
from GBP49.9m last year to GBP24.9m this year, a reduction of
GBP25.0m.
The reduction in both reported and average daily bank net debt
was driven by the Company's ongoing cash flow generation and aided
by GBP21.1m of one-off receipts in FY2022, being the pension
receipt of GBP8.1m in December 2021 and deferred consideration
receipts from Tuffnells of GBP6.5m in November 2021 and GBP7.5m in
April 2022.
The Company's Bank Net Debt/EBITDA ratio decreased to 0.1x
(FY2022: 0.3x). The year end fell just before major publisher
payments of c.GBP18m were made, which benefitted reported Bank Net
Debt. Bank Net Debt rose to GBP19.5m on 5 September 2023 after the
year end.
The intra-month working capital cash flow cycle generates a
routine and predictable cash swing averaging GBP28.7m (FY2022
GBP28.4m) within the overall bank facility of GBP64.0m at the year
end (FY2022: GBP79.5m). This results in a predictable fluctuation
of net debt during the month compared to the closing net debt
position.
Discontinued items cash flow in the prior year relates to
insurance settlements for incidents which occurred during the
Company's ownership of Tuffnells prior to 2 May 2020.
Total dividends paid during the year amounted to GBP9.8m (FY2022
GBP6.1m) an increase of GBP3.7m. The FY2022 final dividend of
GBP6.5m was paid in February (FY2022: GBP2.8m), bringing the total
dividend paid in respect of FY2022 to GBP9.8m (FY2022: GBP6.1m).
The Company also paid an interim dividend in July 2023 of GBP3.3m
(FY2022: GBP3.3m). The Company invested GBP0.3m during the year in
LoveMedia, a joint venture for retailing single copy electronic
versions of newspapers and magazines.
A reconciliation of Bank Net Debt (which excludes the IFRS16
lease creditor and unamortised arrangement fees) to the balance
sheet is provided in the Glossary.
Going Concern
Having considered the Company's banking facility, the ongoing
impact of inflationary pressures within the macro economy and the
funding requirements of the Group and Company, the directors are
confident that headroom under our bank facility remains adequate,
future covenant tests can be met and there is a reasonable
expectation that the business can meet its liabilities as they fall
due for a year of greater than 12 months (being an assessment
period of 16 months) from the date of approval of the Group
Financial Statements. For this reason, the directors continue to
adopt the going concern basis in preparing the financial statements
and no material uncertainty has been identified.
Pension Schemes
On 3 December 2021, the Company received the sum of GBP8.1m in
respect of the net cash surplus held by the Trustee from the
finalisation of the buy-out of the defined benefit liabilities in
the News Section of the WH Smith Pension Scheme. As agreed with the
Trustee of the Scheme, the return of surplus preceded the formal
winding up steps of the News Section - the winding up of the News
Section being formally completed on 25 February 2022 through the
purchase of insurance run-off cover and the payment of taxes owed
to HMRC, which were settled by the Trustee.
PRINCIPAL AND EMERGING RISKS
The Company has a clear framework in place to continuously
identify and review both the principal and emerging risks it faces.
This includes, amongst others, a detailed assessment of business
and functional teams' principal and emerging risks and regular
reporting to, and robust challenge from, both the Executive Team
and Audit Committee. The directors' assessment of these risks is
aligned to the strategic business planning process and regulatory
landscape.
Specifically, key risks are plotted on risk maps with
descriptions, owners and mitigating actions, reporting against a
level of materiality (principally relating to impact and
likelihood) consistent with its size. These risk maps are reviewed
and challenged by the Executive Team and Audit Committee and
reconciled against the Company's risk appetite. As part of the
regular principal risk process, a review of emerging risks
(internal and external) is also conducted, and a list of emerging
risks is maintained and rolled-forward to future discussions by the
Executive Team and Audit Committee. Where appropriate, these
emerging risks may be brought into the principal risk registers.
Additional risk management support is provided by external experts
in areas of technical complexity to complete our bottom-up and
top-down exercises.
As part of the Board's ongoing assessment of the principal and
emerging risks, the Board has considered the performance of the
business, its markets, the changing regulatory and macro-economic
landscape, the Company's future strategic direction and ambition as
well as the heightened climate-related risk environment . The
directors have carried out a robust assessment of the Group's
emerging and principal risks, including those that could threaten
its business model, future performance, solvency or liquidity.
Following those assessments, one emerging risk has been elevated to
principal risks in our risk register and relates to the risk of a
major newspaper title/s potentially exiting the market and/or
moving to digital only editions.
Risks are still subject to ongoing scrutiny, monitoring and
appropriate mitigation.
The table below details each principal business risk, those
aspects that would be impacted were the risk to materialise , our
assessment of the current status of the risk and how each is
mitigated.
Principal risks and potential impact Mitigations Strategic Link/
Change
1. Cyber Security
To meet the needs of our Strategic Link:
stakeholders, our IT infrastructure * Defined risk-based approach to the information Technology
and data processes need to be security roadmap and technology strategy which is
flexible, reliable and secure from aligned to the strategic plans. Change:
cyber-attacks. Increasing -
Secure infrastructure acts as a this risk has
deterrent to and helps prevent * Regular tracking of key programs against spend been
and/or mitigate the impact targets and delivery dates. re-evaluated
of external cyber-attack, internal following
threat or supplier-related breach, enhancement of
which could cause service * The Company assesses cyber risk on a day-to-day basis, the Company's
interruption and/or the loss of using proactive and reactive information security IT
Company and customer data. controls to detect and mitigate common threats. Infrastructure
Cyber incidents could lead to major and now focuses
adverse customer, financial, exclusively on
reputational and regulatory * Dedicated information security investments and access cyber security
impacts. to third-party cyber security specialists, including related risks.
24/7 security monitoring, incident response and That said,
specialist testing. despite ongoing
investment in
the Company's IT
* The Company encourages a cyber-aware culture by infrastructure
undertaking exercises, such as computer-based and IT security
training and simulated phishing attacks and regular (notably gaining
communications about specific cyber threats. Cyber Essentials
Plus
certification),
* We have successfully secured Cyber Essentials and the backdrop
Cyber Essential Plus certification. remains
heightened,
leading to an
increased
risk assessment.
----------------------------------------------------------------- -----------------
2. Macro-economic uncertainty
Deterioration in the macro-economic
environment results in supply side * Annual budgets and forecasts take into account the Strategic Link:
cost inflation and/or current macro-economic environment to set Cost and
a reduction in demand-side sales expectations internally and externally, allowing for efficiencies,
volumes . or changing objectives to meet short and medium-term Operations
Supply-side macro-economic pressures financial targets.
present the Company with additional Change:
cost challenges e.g.
increased competition in the * Weekly cost monitoring enables oversight and action Stable
distribution labour market and rises on a timely basis.
in fuel and utility prices.
Adverse changes to economic
conditions result in reduced * Cover price increases in magazine and newspaper
consumer demand for newspapers and titles provide some offset against the impact of
magazines and/or reduction in volume decline.
titles/editions. These cost
increases and sales pressures
present * Predictable level of volume decline within the core
a risk when they cannot be fully business enables cost optimisation planning.
mitigated through increased prices
or other productivity
gains. * Use of fixed term contracts as a hedge against
This results in deterioration in the rapidly rising prices, e.g. energy costs
level of profitability in both the
short and medium-term
and impacts on the Company's ability * The Company continues to be significantly cash
to execute its strategies, including generating to support its strategic priorities.
level of debt and
liquidity objectives.
----------------------------------------------------------------- -----------------
3. Changes to retailers' commercial environment
Our largest retailers (e.g. grocers Strategic link:
and symbol group members) remain * Our EPoS-based returns (EBR) solution has been Cost and
under significant pressure introduced instore with our largest retailers, efficiencies
to maximise sales and profitability improving staff efficiency in managing the magazine
by channel within their retail category, thereby reducing cost to the retailer. Change:
stores and at associated
sale outlets, such as at petrol Stable
forecourt stores. This could result * Potential to extend EBR to newspapers in order to
at any time in a category broaden efficiency-benefits to retailers.
review of the newspaper and/or
magazine channel, leading to a
significant reduction in newspapers' * Form stronger partnerships with emerging retailers to
and/or magazines' selling space stock magazines and newspapers.
instore (or its location) in favour
of other higher margin
products and/or the delisting of Expand retail offering to include single copy digital
all/particular titles of newspapers downloads of newspapers and/or magazines
and/or magazines. to supplement physical print and category range instore.
A reduction in (or change in
location of) sales space and/or full
delisting of newspapers
and/or magazines by our largest
retailers (or a high number of other
retailers) could materially
reduce the Company's revenue,
profitability and cash flow.
----------------------------------------------------------------- -----------------
4. Acquisition and retention of labour
Due to the current competition in Strategic Link:
the distribution labour market, an * We seek to offer market competitive terms to ensure People first,
increased risk of being talent remains engaged. Culture and
unable to recruit and retain values,
warehouse colleagues and support Costs and
staff. * We offer long-term contracts with our sub-contracted efficiencies
The same pressures are also being delivery partners.
felt in sourcing and retaining Change:
delivery sub-contractors Stable
as well as filling in-house roles * We use a variety of platforms to recruit employees
within our central support and contractors.
functions.
A failure to maintain an appropriate
level of resourcing could result in * The level of vacancies across warehouse and delivery
increased costs, contractors are monitored daily.
employee disengagement and/or loss
of management focus and underpins
our ability to address * We undertake workforce planning; performance, talent
the strategic priorities and to and succession initiatives; learning and development
deliver forecasted performance. programs; and promote the Company's culture and core
values.
* Retention plans are reviewed to address key risk
areas, and attrition across the business is regularly
monitored.
* Regular surveys are undertaken to monitor the
engagement of colleagues.
----------------------------------------------------------------- -----------------
5. Growth and diversification
A successful growth and Strategic link:
diversification strategy is * Strong project management and governance in place to Cost and
essential to the long-term success sign-off growth initiatives and oversee their efficiencies
of implementation.
the Company. At the same time, Change:
maintaining the Company's
outstanding and sector-leading * A Growth Business Development Group and Growth Stable
standards Operations Delivery Steering Committee have been
of service in newspaper and magazine established to review and control new business
wholesaling is paramount to help opportunities and then plan and measure the impact of
fund growth and diversification these opportunities on core operations.
opportunities and support publisher
contract renewals, each of which
deliver shareholder value. * Experimentation through trials of new business
opportunities have been deployed to assess the demand
Implementing new business growth and potential economic benefit of such opportunities
opportunities without detrimentally and any likely impact on maintaining the Company's
impacting the Company's outstanding and sector-leading standards of service
core newspaper and magazine in newspaper and magazine wholesaling .
wholesaling carries an execution
risk to both the new initiative
and ensuring the Company remains * The Executive Team's balanced scorecard of key
able to deliver sector-leading performance indicators ensures sub-optimal
support to publisher clients. performance is tracked and monitored on a regular
basis and allows appropriate interventions to be
made.
----------------------------------------------------------------- -----------------
6. Sustainability and Climate Change
Climate change is a widely Strategic link:
acknowledged global emergency. In * Sustainability Steering Committee established Cost and
the UK, government and regulatory (chaired by the Chief Financial Officer) to efficiencies,
changes in response to a drive to coordinate the Company's action on climate change. Operations,
'net zero' carbon emissions and Sustainability
increasingly stringent air
quality targets for UK towns and * Emissions and air quality targets in UK towns and Change:
cities could make it more difficult cities are monitored by a central team in the
and costly for the Company Operations function which ensures the Company can Stable
to undertake newspaper and magazine fulfil its obligations to customers and remain
wholesaling activities within the UK compliant with legal requirements.
or particular towns
and cities. In addition to these
transitional risks associated with * Operational sites are reviewed for their resilience
moving to a low carbon to extreme weather events, such as floodings, with
future, there are also a range of upgrades and interventions made where these are
ongoing physical risks. These cost-effective. Depots are relocated to new sites
include an increase in the (e.g. during lease break windows) where this
frequency of extreme weather events represents a better option than adapting an existing
which may result in power outages, location.
disruption to our service
operations and/or impact our ability
to serve our customers in an * Working with suppliers to ensure they share the
efficient and cost-effective Company's vision to act on climate change.
manner.
In common with all major
organisations, there is a risk of
reputational damage and/or loss
of revenue if the Company fails to
meet stakeholder expectations for
action on climate change.
----------------------------------------------------------------- -----------------
7. Major newspaper titles exit the market or move to digital only editions
Significant decline in advertising Strategic link:
and/or circulation, together with * We seek to ensure full availability of alternative Costs and
rising production costs, newspaper titles to maximise substitution efficiencies
lead to one or more national opportunities for customers.
newspaper titles exiting the market Change:
and/or publications being New risk
taken fully digital. This could lead * Partial mitigation against newspaper title closures
to a significant deterioration in is built into our contracts with major publishers.
the Company's profitability
and cash flow in both the short and
medium-term as well as impacting on * Ongoing successful execution of our growth and
its ability to execute diversification strategy provides longer-term
its strategies. mitigation though alternative profitable revenue
streams.
----------------------------------------------------------------- -----------------
8. Legal and regulatory compliance
The Company is required to be Strategic link:
compliant with all applicable * Changes in laws and regulations are monitored, with Technology,
laws and regulations. Failure policies and procedures being updated as required. Sustainability,
to adhere to these could result Operations
in financial penalties, third
party redress and/or * Business-wide mandatory training programmes for Change:
reputational higher-risk regulatory areas. Stable
damage.
Key areas of legal and
regulatory compliance include: * External experts are used where applicable.
* GDPR
* All major policies are reviewed by the Board or Audit
* Health and Safety Committee on an annual basis.
* Tax compliance * Operational auditing and monitoring systems for
higher risk areas.
* Environmental legislation
* Employment law
----------------------------------------------------------------- -----------------
GROUP FINANCIAL STATEMENTS
Group Income Statement for the 52-week period ended 26 August
2023
GBPm 2023 2022
---------------------------- ---- ------------------------------- -------------------------------
Note Adjusted* Adjusting Total Adjusted* Adjusting Total
items items
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Revenue 2 1,091.9 - 1,091.9 1,089.3 - 1,089.3
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Cost of Sales 3 (1,019.4) - (1,019.4) (1,016.6) - (1,016.6)
Gross profit 3 72.5 - 72.5 72.7 - 72.7
Administrative expenses 3 (33.7) (0.5) (34.2) (35.0) (2.5) (37.5)
Net impairment loss
on trade receivables 4 (0.1) - (0.1) - (4.4) (4.4)
Other income - - - 0.1 - 0.1
Income from joint
ventures 13 0.1 - 0.1 0.3 - 0.3
Impairment reversal
of joint venture
investment 13 - - - - 1.2 1.2
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Operating profit 2,3 38.8 (0.5) 38.3 38.1 (5.7) 32.4
Finance costs 7 (6.5) - (6.5) (7.0) - (7.0)
Finance income 7 - - - - 2.5 2.5
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Profit/(loss) before
tax 32.3 (0.5) 31.8 31.1 (3.2) 27.9
Income tax (expense)/credit 8 (6.7) - (6.7) (5.4) 0.9 (4.5)
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Profit/(loss) for
the year attributable
to equity shareholders 25.6 (0.5) 25.1 25.7 (2.3) 23.4
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Earnings per share
Basic 10 10.8 10.6 10.8 9.8
Diluted 10 10.2 10.0 10.2 9.3
---------------------------- ---- --------- --------- --------- --------- --------- ---------
Equity dividends
per share (paid
and proposed) 9 4.15 4.15 4.15 4.15
---------------------------- ---- --------- --------- --------- --------- --------- ---------
*This measure is described in Note 1(4) of the accounting
policies and the Glossary to the Accounts. Adjusting items are set
out in Note 4 to the Group Financial Statements .
Group Statement of Comprehensive Income for the 52-week period
ended 26 August 2023
GBPm Note 2023 2022
-------------------------------------------------- ---- ---- -----
Items that will not be reclassified
to the Group Income Statement
Reassessment as to recoverability of
retirement benefit scheme surplus 6 - 14.8
Tax relating to components of other comprehensive
income that will not be reclassified 6 - (5.1)
-------------------------------------------------- ---- ---- -----
- 9.7
Other comprehensive result for the year - 9.7
Profit for the year 25.1 23.4
-------------------------------------------------- ---- ---- -----
Total comprehensive income for the year 25.1 33.1
-------------------------------------------------- ---- ---- -----
Group Balance Sheet as at 26 August 2023
GBPm Note 2023 2022
-------------------------------- ----- ------- -------
Non-current assets
Intangible assets 11 1.9 1.7
Property, plant and equipment 12 8.8 8.6
Right of use assets 19 21.8 26.3
Interest in joint ventures 13 4.4 4.2
Deferred tax assets 20 1.7 1.1
38.6 41.9
-------------------------------- ----- ------- -------
Current assets
Inventories 14 17.7 15.6
Trade and other receivables 15 101.1 95.7
Cash and bank deposits 17 37.3 35.3
Corporation tax receivable 0.6 0.9
156.7 147.5
-------------------------------- ----- ------- -------
Total assets 195.3 189.4
-------------------------------- ----- ------- -------
Current liabilities
Trade and other payables 16 (141.5) (140.3)
Bank loans and other borrowings 17 (10.0) (8.0)
Lease liabilities 19 (4.9) (5.9)
Provisions 21 (2.5) (3.0)
(158.9) (157.2)
-------------------------------- ----- ------- -------
Non-current liabilities
Bank loans and other borrowings 17 (30.2) (39.1)
Lease liabilities 19 (18.3) (21.7)
Non-current provisions 21 (4.2) (3.4)
-------------------------------- ----- ------- -------
(52.7) (64.2)
-------------------------------- ----- ------- -------
Total liabilities (211.6) (221.4)
-------------------------------- ----- ------- -------
Total net liabilities (16.3) (32.0)
-------------------------------- ----- ------- -------
Equity
Called up share capital 25(a) 12.4 12.4
Share premium account 25(c) 60.5 60.5
Demerger reserve 26(a) (280.1) (280.1)
Own shares reserve 26(b) (4.4) (4.6)
Translation reserve 26(c) 0.4 0.4
Retained earnings 27 194.9 179.4
-------------------------------- ----- ------- -------
Total shareholders' deficit (16.3) (32.0)
-------------------------------- ----- ------- -------
The accounts were approved by the Board of Directors and
authorised for issue on 7 November 2023 and were signed on its
behalf by:
Jonathan Bunting Paul Baker
Chief Executive Officer Chief Financial Officer
Registered number - 05195191
Group Statement of Changes in Equity for the 52-week period
ended 26 August 2023
GBPm Note Share Share Demerger Own Hedging *Retained *Total
capital premium reserve shares & translation earnings
account reserve reserve
---------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Balance at 28 August
2021 12.4 60.5 (280.1) (3.9) 0.4 153.0 (57.7)
Profit for the year - - - - - 23.4 23.4
Actuarial gain on
defined benefit pension
scheme 6 - - - - - 14.8 14.8
Tax relating to components
of other comprehensive
income - - - - - (5.1) (5.1)
Total comprehensive
expense/income for
the year - - - - - 33.1 33.1
Dividends paid 9 - - - - - (6.1) (6.1)
Employee share schemes
purchases - - - (2.2) - - (2.2)
Employee share scheme
awards - - - 1.5 - (1.5) -
Recognition of share-based
payments net of tax - - - - - 1.2 1.2
Current tax recognised
in equity - - - - - (0.1) (0.1)
Deferred tax recognised
in equity - - - - - (0.2) (0.2)
Balance at 27 August
2022 12.4 60.5 (280.1) (4.6) 0.4 179.4 (32.0)
---------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Profit for the year - - - - - 25.1 25.1
Total comprehensive
expense/income for
the year - - - - - 25.1 25.1
Dividends paid 9 - - - - - (9.8) (9.8)
Employee share schemes
purchases - - - (1.7) - - (1.7)
Employee share scheme
awards - - - 1.9 - (1.9) -
Recognition of share-based
payments net of tax - - - - - 1.5 1.5
Deferred tax recognised
in equity - - - - - 0.6 0.6
---------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Balance at 26 August
2023 12.4 60.5 (280.1) (4.4) 0.4 194.9 (16.3)
---------------------------- ----- --------- --------- --------- --------- --------------- ---------- -------
Group Cash Flow Statement for the 52-week period ended 26 August
2023
GBPm Note 2023 2022
------------------------------------------ ---- ------ ------
Net cash inflow from operating activities 24 36.4 49.8
------------------------------------------ ---- ------ ------
Investing activities
Dividends received from joint ventures 0.2 0.2
Purchase of property, plant and
equipment (2.6) (1.3)
Purchase of intangible assets (0.8) (0.7)
Investment in joint venture 13 (0.3) -
Net proceeds on sale of property,
plant and equipment - 0.1
Deferred consideration receipts - 14.0
------------------------------------------ ---- ------ ------
Net cash (used in)/generated from
investing activities (3.5) 12.3
------------------------------------------ ---- ------ ------
Financing activities
Interest paid (5.3) (5.1)
Arrangement fees paid - (2.9)
Dividend paid 9 (9.8) (6.1)
Repayments of lease principal (6.1) (6.4)
Repayment of term loan (8.0) (83.0)
New loans issued - 60.0
Purchase of shares for employee
benefit trust (1.7) (2.6)
Net cash (used in)/generated from
financing activities (30.9) (46.1)
------------------------------------------ ---- ------ ------
Net increase in cash and cash equivalents 2.0 16.0
2.0 16.0
Opening net cash and cash equivalents 35.3 19.3
Closing net cash and cash equivalents 17 37.3 35.3
------------------------------------------ ---- ------ ------
Notes to the Accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc ('the Company') is a company incorporated in
England UK under the Companies Act 2006. The Group accounts for the
52-week period ended 26 August 2023 comprise the Company and its
subsidiaries (together referred to as the 'Group') and the Group's
interests in joint ventures and associates. Subsidiary undertakings
are included in the Group Accounts from the date on which control
is obtained. They are deconsolidated from the date on which control
ceases. All significant subsidiary accounts are made up to 26
August 2023 and are included in the Group Accounts.
Unless otherwise noted references to 2022 and 2023 relate to a
52-week period ended 27 August 2022 and 26 August 2023 as opposed
to calendar year.
The Accounts were authorised for issue by the directors on 7
November 2023.
(2) Accounting basis of preparation
The financial information contained within this preliminary
announcement for the 52 weeks to 26 August 2023 and the 52 weeks to
27 August 2022 does not comprise statutory financial statements for
the purpose of the Companies Act 2006 but is derived from those
statements. The statutory accounts for Smiths News PLC for the 52
weeks to 27 August 2022 have been filed with the Registrar of
Companies and those for the 52 weeks to 26 August 2023 will be
filed following the Company's annual general meeting. The auditor's
reports on the accounts for both the 52 weeks to 26 August 2023 and
the 52 weeks to 27 August 2022 were unqualified, did not draw
attention to any matters by way of emphasis, and did not include a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The Annual Report and Accounts will be available for shareholders
in December 2023.
The Accounts are prepared on the historical cost basis with the
exception of certain financial instruments and are presented in
Pound Sterling and rounded to GBP0.1m, except where otherwise
indicated.
The Group Accounts have been prepared in accordance with
UK-adopted International Accounting Standards (IAS) in conformity
with the requirements of the Companies Act 2006.
Intra-group balances and unrealised gains and losses or income
and expenses arising from intra-group transactions, are eliminated
in preparing the Group Accounts. Unrealised gains and losses
arising from transactions with joint ventures are eliminated to the
extent of the Group's interest in these entities.
(3) Going concern
The Group accounts have been prepared on a going concern
basis.
When assessing the going concern of the Group, the directors
have reviewed the year to date financial actuals, as well as
detailed financial forecasts for the period up to 28 February 2025,
the going concern period.
The Group currently has a net liability position of GBP16.3m as
at 26 August 2023. All bank covenant tests were met at the year
end. The key bank net debt: EBITDA (ex. IFRS 16) ratio of 0.1x, was
below the covenant test threshold of 1.75x. The threshold reduces
to 1.5x from 25 February 2024.
The intra-month working capital cash flow cycle at Smiths News
generates a routine and predictable cash swing averaging GBP28.7m
during 2023. This results in a predictable fluctuation of bank net
debt during the course of the month compared to the closing net
debt position. The Group's average net borrowings during 2023 were
GBP25.0m (2022: GBP49.8m). The Company utilises the Revolving
Credit Facility (RCF) to manage the cash swing. At the year end,
GBP21.0m of the RCF was available and the Company had GBP37.3m of
cash on hand, giving headroom of GBP58.3m.
3i) Bank facility
The Group has a facility of GBP64.0m at the balance sheet date,
comprising a GBP41.5m amortising term loan and a revolving credit
facility (RCF) with a limit of GBP22.5m. The Group's banking
facility was amended and extended in December 2021 and has a final
maturity date of 31 August 2025. The facility comprised an initial
GBP60m amortising term loan, of which the Group has since repaid
GBP18.5m as at the balance sheet date and a RCF comprising an
initial GBP30m, of which GBP22.5m is available less committed
letters of credit amounting to GBP1.5m (see Note 17). The agreement
is with a syndicate of banks comprising HSBC, Barclays, Santander
and Clydesdale.
The facility's current margin is 4% per annum over SONIA.
Consistent with the Company's stated strategic priorities to
reduce net debt, the terms of the facility agreement include: an
amortisation schedule of GBP10m per annum for the repayment of the
term loan; a reduction in the RCF of GBP5m per year after the first
year; and capped dividend payments at GBP10m per year.
The final maturity date of the facility is 31 August 2025.
3ii) Reverse stress testing
The directors have prepared their base case forecast which
represents their best estimate of cash flows over the going concern
period which is up to 28 February 2025 and in accordance with FRC
guidance have prepared a reverse stress test that would create a
covenant break scenario which could lead to the facilities being
repayable on demand.
The break scenario would occur in February 2025 if EBITDA was
48% below the Board approved three year plan. Facility headroom of
GBP3m would still exist at this point. The directors consider the
likelihood of this level of downturn to be remote based on:
-- current trading, which is in line with expectations
-- year-on-year declines in revenues would have to be
significantly greater than historical trends
-- the publisher contracts are secured for 65% of revenue until 2029; and
-- the Company continues to trade with adequate profit to service its debt covenants.
3iii) Mitigating actions
In the event the break environment scenario went from being
remote to possible then management would seek to take mitigating
actions to maintain liquidity and compliance with the bank facility
covenants. The options within the control of management would be
to:
-- optimise liquidity by working capital management of the
peak-to-trough intra-month movement averaging GBP28.7m in 2023;
-- utilising existing vendor management finance arrangements
with retailers and optimising contractual payment cycles to
suppliers which would improve liquidity headroom;
-- not pay planned dividends;
-- delay non-essential capex projects,
-- cancel discretionary annual bonus payments; and
-- identify other overhead and depot savings.
More extreme mitigating actions would also be available if the
scenario arose.
The Company has vendor finance arrangements in place where it
has the ability to request early payment of invoices at a small
discount, the payments are non-recourse and the invoices are
considered settled from both sides once payment is received. The
Company has not made use of this facility in 2023 nor 2022 or since
the Balance Sheet date.
3iv) Assessment
Having considered the above and the funding requirements of the
Group and Company, the directors are confident that headroom under
the bank facility remains adequate, future covenant tests can be
met and there is a reasonable expectation that the business can
meet its liabilities as they fall due for a period of greater than
12 months (being an assessment period of 16 months) from the date
of approval of the Group Financial Statements. For this reason, the
directors continue to adopt the going concern basis in preparing
the financial statements and no material uncertainty has been
identified.
(4) Alternate performance measures
In reporting financial information, the Group presents
alternative performance measures (APMs), which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs (listed in the glossary), are
not considered to be a substitute for, or superior to, IFRS
measures but provide stakeholders with additional helpful
information on the performance of the business. These APMs are
consistent with how the business performance is planned and
reported within the internal management reporting to the Board and
Executive Team.
The APMs do not have standardised meaning prescribed by IFRS and
therefore may not be directly comparable to similar measures
presented by other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from
these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of
newspapers and magazines. The Group is considered to be the
principal based on the following indicators of control over its
inventory: discretion to establish prices; it holds some of the
risk of obsolescence once in control of the inventory; and has the
responsibility of fulfilling the performance obligation on delivery
of inventory to its customers. If the Group were considered to be
the agent, revenue and cost of sales would reduce by GBP926.5m
(2022: GBP921.3m).
Determining lease terms
In determining lease terms, management considers all facts and
circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
For leases of distribution centres and equipment, the following
factors are the most relevant:
-- the Company continually considers the optimal network
structure in its judgement over lease terms;
-- if there are significant penalties to terminate (or not
extend), the Company is typically reasonably certain to extend (or
not terminate);
-- if any leasehold improvements are expected to have a
significant remaining value, the Company is typically reasonably
certain to extend (or not terminate); and
-- otherwise, the Group considers other factors including
historical lease durations and the costs and business disruption
required to replace the leased asset. Most extension options in
vehicles leases have not been included in the lease liability,
because the Group could replace the assets without significant cost
or business disruption.
The lease term is reassessed if an option is actually exercised
(or not exercised) or the Group becomes obliged to exercise (or not
exercise) it. The assessment of reasonable certainty is only
revised if a significant event or a significant change in
circumstances occurs, which affects this assessment, and that is
within the control of the lessee.
Adjusting items
Adjusting items of income or expense are excluded in arriving at
Adjusted operating profit to present a further measure of the
Group's performance. Each adjusting item is considered to be
significant in nature and/or quantum, non-recurring in nature
and/or are considered to be unrelated to the Group's ordinary
activities or are consistent with items treated as adjusting in
prior periods. Excluding these items from profit metrics provides
readers with helpful additional information on the performance of
the business across periods because it is consistent with how the
business performance is planned by, and reported to, the Board and
the Executive Team.
The classification of adjusting items requires significant
management judgement after considering the nature and intentions of
a transaction. Adjusted measures are defined with other APM's in
the glossary.
Based on the nature of the transactions Adjusting items after
tax totalled GBP0.5m (2022: GBP2.3m) and a breakdown is included
within Note 4.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
The key assumption concerning the future, and other key sources
of estimation uncertainty at the end of the reporting period that
may have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. When a review for impairment is
conducted, the recoverable amount is determined using value in use
calculations. The value in use method requires the Company to
determine appropriate assumptions in relation to the cash flow
projections over the three-year plan period (which is a key source
of estimation uncertainty), the terminal growth rate to be applied
beyond this three-year period and the risk-adjusted post-tax
discount rate used to discount the assumed cash flows to present
value. The assumption that cash flows continue into perpetuity is a
source of significant estimation uncertainty.
During the prior period ended 27 August 2022, the Company had
reviewed the business plan for the Rascal Joint Venture, and it was
determined that the potential challenges anticipated to arise in
2021 had not materialised, with the successful renewal of contracts
previously considered to be at risk. The Company therefore chose to
reverse the impairment previously booked by GBP1.2m. In the period
ended 26 August 2023, a value-in-use of GBP4.3m was calculated
based on the future cash flows of the Rascal business, which were
discounted at a rate of 13% and a terminal growth rate applied of
0%. As a result, there was no further adjustment to the carrying
value of the investment in the Rascal Joint Venture in the current
period. Refer to Note 13 for further details.
Property provision
The Group holds a property provision which estimates the future
liabilities to restore leased premises to an agreed standard at the
date the lease is terminated. The provision is calculated based on
key assumptions including the length of time properties will be
occupied, the future costs of restoration and the condition of the
property at the future exit date.
The property provision represents the estimated future cost of
the Group's potential dilapidation costs on properties across the
Group. As the current economic outlook is for increased inflation,
the Group has assessed the effect of inflation as material on the
provisions in the current year. The provisions have therefore been
adjusted for the effect of inflation in the current year. These
provisions have been discounted to present value and this discount
will be unwound over the life of the leases.
A change in any of these assumptions could materially impact the
provision balance. Refer to Note 21 for further details on the
sensitivity of the assumptions used to calculate the property
provision. The property provision's carrying value at the year end
is GBP4.9m (2022: GBP4.4m).
Net impairment loss on trade receivables
During the prior period ended 27 August 2022 McColl's Retail
Group had gone into administration and an impairment loss provision
of GBP4.4m was recognised. During the current period the
administrators issued an update, stating that unsecured creditors
can be expected to receive between 20-50% of approved claims (2022:
20-40%). Management has determined that a best estimate of only 20%
of the outstanding balance remains recoverable. The Company has
therefore continued to hold a net impairment loss of GBP4.4m (2022:
GBP4.4m), representing 80% of the total balance of GBP5.5m (2022:
GBP5.5m) in the current financial period. If the Company had
considered 50% of the total balance of GBP5.5m to be recoverable in
line with the upper range of the administrator's estimate, the
provision recognised would have been GBP2.8m (2022: 40%,
GBP3.3m).
In the prior period, the net impairment loss of GBP4.4m was
disclosed separately as a specific provision for doubtful debts and
presented in adjusting items as it did not have an impact on the
Group's assessment of its expected credit losses in respect of its
remaining trade receivables.
(6) Discontinued operations
On 2 May 2020, the Company completed the sale of Tuffnells and
assumed liability to settle certain pre-disposal insurance and
legal claims relating to employer's liability, public liability,
motor accident claims and legal claims, held as provisions. During
the current period, the Company is no longer presenting cash
outflows from these provisions as discontinued operations,
comparatives have not been restated.
(7) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of
the products has transferred, that is, when the products are
delivered to the retailer and there is no unfulfilled obligation
that could affect the retailer's acceptance of the products, the
risks of obsolescence and loss have been transferred to the
retailer. Goods are sold to retailers on a sale or return
basis.
Distribution income
Distribution income is recognised when the products such as
newspapers and magazines are delivered to the retailer and there
are no unfulfilled obligations that could affect the retailer's
acceptance of the products.
Voucher income
Voucher income represents the margin income received from
managing the process of collecting voucher payments from retailers
and passing them on to voucher processing centres. The Group is
primarily responsible for fulfilling the service.
Sales and marketing
The Group supplies marketing services to both retailers and
suppliers. This includes services such as shelf stacking, stock
checking and merchandising. The Group is primarily responsible for
fulfilling the services.
Sale of waste
Income from the sale of recyclable waste represents the amount
received per tonne of newspapers and magazines returns sold on for
recycling. The Group has primary responsibility for fulfilling the
service.
Return Reserve
Newspapers and Magazines sales are made on a sale or return
basis, therefore the Group is required to estimate a value relating
to expected returns from retailers. Likewise, as the publishers are
required to provide the Group with credit for any purchase returns,
so a purchase returns reserve is also required. The key estimates
used in calculating the period end reserve are rates of returns
(based on historical tends), average shelf life of the product
types and average price of each product type. These estimates are
similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net
of the value of any returns. Newspapers and magazines are often
sold with retrospective volume discounts based on aggregate net
sales. Revenue from these sales is recognised based on the price
specified in the contract, net of the estimated volume discounts.
Accumulated experience is used to estimate and provide for the
discount and returns, using the expected value method and revenue
is only recognised to the extent that it is highly probable that a
significant reversal will not occur. A returns reserve accrual and
discount accrual (included in trade and other payables) is
recognised for expected volume discounts and refunds payable to
customers in relation to sales made until the end of the reporting
period. A right to the returned goods (included in other debtors)
are recognised for the products expected to be returned.
No element of financing is deemed present because the sales are
made with short credit terms, which is consistent with market
practice.
A receivable is recognised when the goods are delivered, since
this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is
due.
(8) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of
inventories recognised as an expense and distribution costs as
these are considered to represent for the Group direct costs of
making a sale.
The Group considers gross profit to equal revenue less cost of
sales.
(9) Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement, except to
the extent it relates to items recognised in other comprehensive
income or directly in equity. Current tax is the expected tax
payable based on the taxable profit for the year, using tax rates
enacted, or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax
provided is calculated using tax rates enacted or substantively
enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax
liability is settled. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be
available against which these temporary differences can be
utilised.
(10) Dividends
Interim and final dividends are recorded in the financial
statements in the period in which they are paid.
(11) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group
is able to demonstrate all of the following: the technical
feasibility of the resulting asset; the ability (and intention) to
complete the development and use it; how the asset will generate
probable future economic benefits; adequate technical, financial
and other resources to complete the development and to use the
software are available; and the ability to measure reliably the
expenditure attributable to the asset during its development.
Software costs are also capitalised if they can be hosted on
another server, are portable and the Group has sole rights to the
software. Subsequent to initial recognition, internally generated
intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
(12) Joint ventures
The Group Financial Statements include the Group's share of the
total recognised gains and losses in its joint ventures on an
equity accounted basis.
Investments in joint ventures are carried in the balance sheet
at cost adjusted by post-acquisition changes in the Group's share
of the net assets of the joint ventures, less any impairment
losses. The carrying values of investments in joint ventures
include acquired goodwill. Losses in joint ventures that are in
excess of the Group's interest in the joint venture are recognised
only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint
venture.
(13) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account
for business combinations. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued,
liabilities incurred or assumed at the date of exchange.
Acquisition related costs are recognised in profit or loss as
incurred. Any deferred or contingent purchase consideration is
recognised at fair value over the period of entitlement. If the
contingent purchase consideration is classified as equity, it is
not remeasured and settlement is accounted for in equity. Any
deferred or contingent payment deemed to be remuneration as opposed
to purchase consideration in nature is recognised in profit or loss
as incurred and excluded from the acquisition method of accounting
for business combinations.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured,
initially, at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
non-controlling interest is measured, initially, at the
non-controlling interest's proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised. Goodwill
is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer's previously held
equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed.
Goodwill arising on all acquisitions is initially recognised as
an asset at cost and is subsequently measured at cost less any
accumulated impairment losses.
The carrying value is reviewed annually for impairment or
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable . Intangible assets arising
under a business combination (acquired intangibles) are capitalised
at fair value as determined at the date of exchange and are stated
at fair value less accumulated amortisation and impairment losses.
Amortisation of acquired intangibles is charged to the income
statement on a straight-line basis over the estimated useful lives
as follows:
Customer relationships - 2.5 to 7.5 years
Trade name - 5 to 10 years
Software and development costs - 3 to 7 years
Computer software and internally generated development costs
which are not integral to the related hardware are capitalised
separately as an intangible asset and stated at cost less
accumulated amortisation and impairment losses.
Assets held under leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease.
All intangible assets are reviewed for impairment in accordance
with IAS 36 'Impairment of Assets' when there are indications that
the carrying value may be higher than its recoverable value. The
recoverable value used is the value in use. The value in use is
determined by estimating the future cash inflows and outflows to be
derived from continuous use of the asset and applying the
appropriate discount rate to those future cash flows. Where the
carrying value is higher than the calculated value in use, an
impairment loss will be recognised.
(14) Property, plant and equipment
Property, plant and equipment assets are stated at cost less
accumulated depreciation and any recognised impairment losses. No
depreciation has been charged on freehold land. Other assets are
depreciated, to a residual value, on a straight-line over their
estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease period
and the estimated remaining economic life
Fixtures and fittings - 3 to 15 years
Equipment - 5 to 12 years
Computer equipment - up to 5 years
Vehicles - up to 5 years
Assets held under leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. All property, plant and
equipment is reviewed for impairment in accordance with IAS 36
'Impairment of Assets' when there are indications that the carrying
value may not be recoverable.
(15) Leasing
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments) less
any lease incentives receivable;
-- variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
To determine the incremental borrowing rate, the Group:
-- where possible, uses recent third-party financing received by
the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was
received;
-- uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the
Group, which does not have recent third party financing; and
-- makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- Restoration costs.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT equipment and small items of office
furniture.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These are used to
maximise operational flexibility in terms of managing the assets
used in the Group's operations. The majority of extension and
termination options held are exercisable only by the Group and not
by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted using a revised
discount rate. The carrying value of lease liabilities is similarly
revised when the variable element of future lease payments
dependent on a rate or index is revised, except the discount rate
remains unchanged. In both cases an equivalent adjustment is made
to the carrying value of the right-of-use asset, with the revised
carrying amount being amortised over the remaining (revised) lease
term. If the carrying amount of the right-of-use asset is adjusted
to zero, any further reduction is recognised in profit or loss.
(16) Inventories
Inventories comprise goods held for resale and are stated at the
lower of cost or net realisable value. Inventories are valued using
a weighted average cost method. Costs comprise direct materials
and, where applicable, direct labour costs and those overheads that
have been incurred in bringing the inventories to their present
location and condition.
(17) Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument. The Group derecognises
financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Financial assets comprise trade and other receivables and cash
and cash equivalents. Financial liabilities comprise trade
payables, financing liabilities, bank borrowings.
(18) Financial assets
The group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
Trade receivables
Trade receivables are initially measured at fair value, which
for trade receivables is equal to the consideration expected to be
received from the satisfaction of performance obligations, plus any
directly attributable transaction costs. Subsequent to initial
recognition these assets are measured at amortised cost less any
provision for impairment losses including expected credit losses.
In accordance with IFRS 9 the Group applies the simplified approach
to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected
credit losses, trade receivables have been grouped based on shared
credit risk characteristics such as the ageing of the debt and the
credit risk of the customers. An historical credit loss rate is
then calculated for each group and then adjusted to reflect
expectations about future credit losses. The Group does not have
any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies and
the calculation of the loss allowance are provided in Note 15.
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
Other receivables
Other receivables are recognised on trade date, being the date
on which the Group has the right to the asset. Other receivables
are derecognised when the rights to receive cash flows from the
other receivables have expired or have been transferred and the
group has transferred substantially all the risks and rewards of
ownership.
At initial recognition, the Group measures other receivable at
their fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed
in profit or loss.
Subsequent measurement of other receivables depends on the
Group's business model for managing the asset and the cash flow
characteristics of the asset. The group classifies its other
receivables at amortised cost.
Assets that are held for collection of contractual cash flows,
where those cash flows represent solely payments of principal and
interest, are measured at amortised cost. Interest income from
these financial assets is included in finance income using the
effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and
presented in other gains/(losses) together with foreign exchange
gains and losses. Impairment losses are presented as a separate
line item in Note 3.
The Group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- the asset is held within a business model whose objective is
to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are solely
payments of principal and interest.
The Group applies the general approach to impairment under IFRS
9 based on significant increases in credit risk rather than the
simplified approach for trade receivables using lifetime ECL.
(19) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year which
are unpaid. The amounts are unsecured and are usually paid within
30 days of recognition. Trade and other payables are presented as
current liabilities unless payment is not due within 12 months
after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the
effective interest method.
(20) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short term deposits with an original maturity
of three months or less. BACS and next day payments are recognised
at the settlement date, rather than when they are initiated, to
reflect the nature of these transactions. In the consolidated
balance sheet, bank overdrafts are shown within borrowings in
current liabilities. Cash and cash equivalents in the cash flow
statement comprise cash at bank and in hand and bank overdrafts
which form part of the Group's cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued are recorded at the
proceeds received, net of direct issue costs.
Bank borrowings
Interest bearing bank loans and overdrafts are initially
measured at fair value (being proceeds received, net of direct
issue costs), and are subsequently measured at amortised cost,
using the effective interest rate method. Finance charges,
including premiums payable on settlement or redemptions and direct
issue costs are accounted for on an accruals basis and taken to the
income statement using the effective interest rate method and are
added to the carrying value of the instrument to the extent that
they are not settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is
extinguishment of the original financial liability and recognition
of a new financial liability. Equally, modification of the terms of
existing financial liability is accounted for as an extinguishment
of the original financial liability and recognition of a new
financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition of a
foreign entity are treated as assets and liabilities of the foreign
entity and are translated at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations
are translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates of
the transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are translated at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are
recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated
at foreign exchange rates ruling at the dates the fair value was
determined.
(21) Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are measured at the present value
of the directors' best estimate of the expenditure required to
settle the present obligation at the balance sheet date and if this
amount is capable of being reliably estimated. If such an
obligation is not capable of being reliably estimated, no provision
is recognised and the item is disclosed as a contingent liability
where material. Where the effect is material, the provision is
determined by discounting the expected future cash flows.
(22) Retirement benefit costs
Defined contribution schemes
The Group operates two defined contribution schemes for the
benefit of its employees. Payments to the Group's schemes are
recognised as an expense in the income statement as incurred.
Defined benefit scheme
The Group previously operated one defined benefit pension
scheme, the news section of The WH Smith Pension Trust. On 3
December 2021, the Group received the sum of GBP8.1m in respect of
the net cash surplus held by the Trustee following finalisation of
the buy-out of the defined benefit liabilities in the News Section
of the Trust. As agreed with the Trustee, the return of surplus
preceded the formal winding up steps of the News Section of the
Trust, the winding up of the News Section of the Trust being
formally completed on 25 February 2022 through the purchase of
insurance run-off cover and payment of taxes owed to HMRC. The IAS
19 pre-tax surplus of GBP14.8m has been recognised through other
comprehensive income in the prior financial period after the
Trustee confirmed its intention to return the surplus cash to the
employer giving the Company an unconditional right to the
surplus.
(23) Employee Benefit Trust
Smiths News Employee Benefit Trust
Where any Group company purchases the Company's shares, for
example as the result of a share buy-back or a share-based payment
plan, the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity as
'own shares reserve' until those shares are either cancelled or
reissued.
The shares held by the Smiths News Employee Benefit Trust are
valued at the historical cost of the shares acquired. This value is
deducted in arriving at shareholders' funds and presented as the
own share reserve in line with IAS 32 'Financial Instruments:
Disclosure and Presentation'.
(24) Share schemes
Share based payments
The Group operates several share-based payment schemes, being
the Sharesave Scheme, the Executive Share Option Scheme, the LTIP
and the Deferred Bonus Plan. Details of these are provided in the
Directors' Remuneration report and in Note 28.
Equity-settled share-based schemes are measured at fair value at
the date of grant. The fair value is expensed with a corresponding
increase in equity on a straight-line basis over the period during
which employees become unconditionally entitled to the options. The
fair values are calculated using an appropriate option pricing
model. The income statement charge is then adjusted to reflect
expected and actual levels of vesting based on non-market
performance related criteria.
Administrative expenses and distribution and marketing expenses
include the cost of the share-based payment schemes.
(25) Changes in accounting policies
The Group has not applied any new standards or amendments for
the annual reporting period commencing 28 August 2022.
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the
following Standards and Interpretations that are potentially
relevant to the Group and which have not been applied in these
financial statements were in issue but not yet effective (and in
some cases had not yet been adopted by the UK):
-- Classification of Liabilities as Current or Non-current - Amendments to IAS 1;
-- Definition of Accounting Estimates - Amendments to IAS 8;
-- Disclosure of Accounting Policies - Amendments to IAS 1 and
IFRS Practice Statement; and
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12.
-- Lease liability in a Sale and Leaseback - IFRS 16 Leases
There are no other standards that are not yet effective and that
would be expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future
transactions.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has
identified its operating segments based wholly on the overall
activities of the Group. The Group has therefore determined that it
has only one reportable operating segment under IFRS 8, which is
that of a 'UK market leading distributor of newspapers and
magazines', referred to as 'Smiths News'. The performance of Smiths
News is reviewed, on a monthly basis, by the Board. The Board
primarily uses a measure of Adjusted operating profit before tax to
assess its performance. The Board also receives information about
the segments' revenue.
The Smiths News continuing operating segment consists of the
following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to
approximately 23,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to
airlines and travel points worldwide.
Instore
Supplies field marketing services to retailers and suppliers
across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths
News.
The Company derives revenue from the transfer of goods and
services in the following major product line and geographical
regions:
Revenue
------------------------------ ---------------- ---------------
GBPm 2023 2022
------------------------------ ---------- ---------- ---------
Smiths News 1,091.9 1,089.3
Total revenue from contracts
with customers 1,091.9 1,089.3
------------------------------------------ ---------- ---------
The Company's revenue by geographical location is UK 99.8%
(2022: 99.9%) and Rest of World 0.2% (2022: 0.1%).
Information about major customers
Included in revenues arising from Smiths News are revenues of
approximately GBP99.5m (2022: GBP102.5m) which arose from sales to
the Group's largest customer. Three other customers contributed
13.1% or more of the Group's revenue in 2023 (2022: 13.3%).
3. Operating profit
The Group's results are analysed as follows:
GBPm 2023 2022
Note Adjusted Adjusting Total Adjusted Adjusting Total
items items
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
Revenue 1,091.9 - 1,091.9 1,089.3 - 1,089.3
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
Cost of inventories
recognised as an expense (926.5) - (926.5) (921.3) - (921.3)
Distribution costs (92.9) - (92.9) (95.3) - (95.3)
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
Cost of sales (1,019.4) - (1,019.4) (1,016.6) - (1,016.6)
----------------------------- ----
Gross profit 72.5 - 72.5 72.7 - 72.7
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
Other administrative
expenses (23.4) (0.5) (23.9) (23.3) (2.5) (25.8)
Share-based payment
expense 28 (1.1) - (1.1) (1.2) - (1.2)
Net impairment loss
on trade receivables (0.1) - (0.1) - (4.4) (4.4)
Impairment reversal
of joint venture investment - - - - 1.2 1.2
Other income - - - 0.1 - 0.1
Share of profits from
joint ventures 13 0.1 - 0.1 0.3 - 0.3
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
EBITDA 48.0 (0.5) 47.5 48.6 (5.7) 42.9
Depreciation on property,
plant and equipment 12 (2.2) - (2.2) (2.3) - (2.3)
Depreciation on right
use assets 19 (6.4) - (6.4) (6.9) - (6.9)
Amortisation of intangibles 11 (0.6) - (0.6) (1.3) - (1.3)
Operating profit 38.8 (0.5) 38.3 38.1 (5.7) 32.4
----------------------------- ---- ----------- --------- --------- --------- --------- ---------
Operating profit is stated after charging/(crediting):
GBPm Note 2023 2022
----------------------------- ----- ----------------------------- -----------
Total Total
Depreciation on property,
plant and equipment 12 2.2 2.3
Amortisation of intangible
assets 11 0.6 1.3
Depreciation on right
use assets 19 6.4 6.9
Short term and low value
lease charges on equipment
and vehicles 0.4 0.3
Lease rental income -
land and buildings (0.4) (0.4)
Staff costs (excluding
share-based payments) 5 44.1 43.7
----------------------------- ----- ---- ----- ---------------- ----------
Included in administrative expenses are amounts payable by the
Company and its subsidiary undertakings in respect of audit and
non-audit services which are as follows:
GBPm 2023 2022
---------------------------------------------- ----- -----
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts - BDO LLP 0.2 0.2
Fees payable to the Company's auditor
for the audit of the Company's subsidiaries
- BDO LLP 0.4 0.4
---------------------------------------------- ----- -----
Total non-audit fees 0.1 0.1
---------------------------------------------- ----- -----
Total fees 0.7 0.7
---------------------------------------------- ----- -----
Details of the Company's policy on the use of auditors for
non-audit services and how the auditor's independence and
objectivity was safeguarded are set out in the Audit Report.
4. Adjusting items
GBPm 2023 2022
------------------------------------- ----- ------ ------
Aborted acquisition costs (a) (0.6) -
Tuffnells provision (b) (0.4) -
Network and re-organisation credits (c) 0.5 0.2
Pension (d) - (1.8)
Transformation programme planning
costs (e) - (0.9)
Administrative expenses (0.5) (2.5)
Net impairment loss on trade
receivables (f) - (4.4)
Asset impairment reversal/(charge) (g) - 1.2
Total before tax and interest (0.5) (5.7)
Finance income - unwind of deferred
consideration (h) - 2.5
------------------------------------- ----- ------ ------
Total before tax (0.5) (3.2)
Taxation - 0.9
-------------------------------------------- ------ ------
Total after taxation (0.5) (2.3)
-------------------------------------------- ------ ------
The Group incurred a total of GBP0.5m (2022: GBP3.2m) of
adjusting items before tax and GBP0.5m (2022: GBP2.3m) after tax
respectively. All adjusting items relate to continuing
operations.
Adjusting items are defined in the accounting policies in Note 1
and in the glossary. In the directors' opinion, the impact of
removing these items from the adjusted profit provide a relevant
analysis of the trading results of the Group because it is
consistent with how the business performance is planned by, and
reported to the Board and Executive Team. However, these additional
measures are not intended to be a substitute for, or superior to,
IFRS measures. They comprise:
Administrative expenses GBP0.5m (2022: GBP2.5m)
(a) Aborted acquisition costs: GBP0.6m (2022: GBPnil)
During the period the Company incurred due diligence and legal
costs associated with an aborted acquisition. The cash impact of
these items was an outflow of GBP0.6m (2022: GBPnil).
(b) Tuffnells provision: GBP0.4m (2022: GBPnil)
As part of the sale of Tuffnells Parcels Express Limited
(Tuffnells) in May 2020, a contractual agreement was put in place
in respect of the future treatment and responsibility of certain
insurance claims brought or notified to insurers. This agreement
extinguished the Group's exposure to new accident and insurance
claims brought after the sale of Tuffnells but which related to the
Group's period of ownership of Tuffnells up to May 2020. However,
as a result of Tuffnells Parcel Express Limited (Tuffnells) falling
into administration in June 2023, the enforceability of, and
subsequent recoverability under, this contractual agreement has
been negatively impacted and the Company's insurers have looked to
the Company to stand behind the excess/deductible limit of such
claims.
Costs of GBP0.4m were incurred to increase the existing
insurance provisions, which represents a best estimate of claims
brought in relation to the period which Tuffnells was part of the
Group and that therefore are now probable to be paid by the Group
as a result. The cash impact of utilisations on existing claims was
a GBP0.2m outflow (2022: GBP0.5m, presented as discontinued
operations).
(c) Network and re-organisation: GBP0.5m credit (2022: GBP0.2m
credit)
During the period, there has been a reversal of accrued amounts
of GBP0.6m relating to projects in connection with our outsourced
Shared Service Centre (SSC) in India, where accrued costs relating
to overheads on projects will no longer materialise. These amounts
have been released to the income statement. The projects were
concluded in 2022. This is partially offset by GBP0.1m of costs
incurred in respect of simplifying the DMD group structure.
During the prior period, the Company restructured its support
functions and put in place a reorganisation provision. This arose
in 2021 as a result of the disposal of the Tuffnells business in
May 2020, and subsequent lockdowns associated with the COVID-19
pandemic. The Company has released GBP0.2m of this provision in the
prior period.
The cash impact of network and re-organisation was a GBP0.2m
outflow (2022: GBP0.1m).
(d) Pensions: GBPnil (2022: GBP1.8m)
In the prior period the Trust completed the wind-up of the news
section of the WH Smiths Pension Trust (the Company's defined
benefit pension scheme), with a Deed of Termination signed by the
Company and the Trustee on 25 February 2022.
As part of the wind up, GBP1.3m was paid to an escrow account in
December 2021 for the Trustee to purchase indemnity insurance and
to cover future claims from members owed amounts following the
Lloyds GMP equalisation ruling in November 2020. This amount has
been accounted for as an adjusted item through the income
statement.
The winding up of the News Section was formally completed on 25
February 2022 through the purchase of insurance run-off cover, plus
other associated professional fees at a total cost of GBP0.6m.
GBP0.3m of these costs were funded from the total pre-tax pension
surplus received of GBP14.8m, see Note 6 for further details. A
refund of GBP0.1m due to the Company in relation to the total
amount previously held in escrow, has been credited against these
costs. In the prior period, the Company incurred GBP1.0m in pension
administrative expenses and other professional fees as a result of
the winding up process.
These costs are reported as adjusting items on the basis that
they are significant in nature and quantum and are unrelated to the
Group's ordinary activities.
The total impact on net cash inflow from operating activities in
the prior period was a GBP7.9m inflow. An GBP8.1m inflow was
received in the prior period from the return of the pension
surplus, less a net GBP0.2m outflow in respect of the insurance
run-off cover, see Note 24 for further details.
(e) Transformation programme planning costs: GBPnil (2022:
GBP0.9m)
During the prior period the Company incurred professional fees
in relation to transformation programme planning projects. These
projects were concluded in the current period.
These costs are reported as adjusting items on the basis that
they are significant in nature and quantum and are considered to be
non-underlying items.
The total impact on net cash inflow from operating activities
was GBPnil (2022: outflow of GBP1.3m), see Note 24 for further
details.
(f) Net impairment loss on trade receivables GBPnil (2022: loss
of GBP4.4m)
On 9 May 2022 ("the administration date"), McColl's Retail Group
went into administration. A statement of claim form was filed with
the Administrators for an amount of GBP5.5m. The latest issued
notification from the administrators on 8 June 2023 states that
unsecured creditors can be expected to receive between 20-50% of
approved claims, previously 20-40%. Management has maintained a
best estimate that only 20% of the outstanding balance is
recoverable and that the level of provision in place is adequate.
The Company has therefore maintained a net impairment loss of
GBP4.4m, representing 80% of the total balance of GBP5.5m in the
current financial period.
The Company continues to trade with McColl's as acquired by Wm
Morrison Supermarkets Ltd ("Morrisons") under a pre-packaged
insolvency agreement with the administrator. The Company's bad debt
exposure relates solely to the outstanding trade receivable balance
as at the administration date.
This cost is reported as an adjusting item on the basis that
they are significant in nature and quantum, are considered
non-underlying items, outside the normal course of activity and aid
comparability from one period to the next. The bad debt from
McColl's has limited predictive value given the historic low level
of bad debts incurred in the ordinary course of business.
(g) Asset impairment: impairment reversal GBPnil (2022:
GBP1.2m)
During the prior period, the Company reviewed the business plan
for the Rascal Joint Venture and it was determined that the
potential challenges anticipated to arise in the prior period, had
not materialised, with the successful renewal of contracts
previously considered to be at risk. The Company has therefore
chosen to reverse the impairment previously booked by GBP1.2m.
During the current period, no further impairment charge or reversal
has been recognised.
The Group considers the impact of the above to be adjusting
given the impairment charges were significant in both quantum and
nature to the results of the Group.
(h) Finance Income - Deferred consideration GBPnil (2022: GBP2.5m credit)
During the prior period, GBP2.5m has been recognised in finance
income as the unwind of discount on the original total deferred
consideration due of GBP15.0m. This is offset by the GBP1.0m agreed
reduction in deferred consideration due that was then received. The
deferred consideration relates to the disposal of Tuffnells that
took place in May 2020 and for that reason has been classified as
adjusting because it does not relate to the Group's ordinary
activities.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive
directors) was:
GBPm Note 2023 2022
---------------------- ----- ----- -----
Wages and salaries 39.2 39.2
Social security 3.7 3.4
Pension costs 6 1.2 1.1
Share-based payments
expense 1.1 1.2
---------------------- ----- ----- -----
Total 45.2 44.9
---------------------- ----- ----- -----
Pension costs shown above exclude charges and credits for
pension scheme financing and actuarial gains and losses arising on
the pension schemes.
(b) Employee numbers
The average total monthly number of employees relating to
operations (including directors) was:
Number 2023 2022
------------------- ------ ------
Operations 1,368 1,425
Support functions 140 149
Total 1,508 1,574
------------------- ------ ------
6. Retirement benefit obligation
Defined contribution schemes
The Group operates two defined contribution schemes. For the 52
weeks ended 26 August 2023, contributions from the respective
employing company for continuing operations totalled GBP1.2m (2022:
GBP1.1m) which is included in the Income Statement.
A defined contribution plan is a pension plan under which the
Group pays contributions to an independently administered fund -
such contributions are based upon a fixed percentage of employees'
pay. The Group has no legal or constructive obligations to pay
further contributions to the fund once the contributions have been
paid. Members' benefits are determined by the amount of
contributions paid by the Company and the member, together with
investment returns earned on the contributions arising from the
performance of each individual's chosen investments and the type of
pension the member chooses to buy at retirement. As a result,
actuarial risk (that benefits will be lower than expected) and
investment risk (that assets invested in will not perform in line
with expectations) fall on the employee.
Defined benefit pension schemes
During the prior period, the Group operated one defined benefit
scheme, the news section of the WH Smith Pension Trust (the
'Pension Trust').
On 25 February 2022 the scheme was wound-up with a Deed of
Termination being signed by the Company and the Trustee at that
date.
In the prior period to February 2022, GBP14.8m was recognised
through other comprehensive income after the previously
unrecognised IAS19 pension asset was received in cash, net of
GBP5.1m tax and administrative expenses of GBP1.6m.
An asset was not previously recognised as the Company did not
have an unconditional right to the surplus and, therefore, the
surplus in the scheme was restricted with an IFRIC 14 asset
ceiling. This was reversed during the prior financial period,
enabling the Company to receive the sum of GBP8.1m (net of tax and
costs) following finalisation of the buy-out of the defined benefit
liabilities in the News Section of the Pension Trust.
The return of the surplus preceded the formal winding up steps
of the News Section, the winding up of the News Section being
formally completed during the prior year on 25 February 2022
through the purchase of insurance run-off cover and payment of
taxes owed to HMRC.
A summary of the movements in the net balance sheet asset /
(liability) and amounts recognised in the Company Income Statement
and Other Comprehensive Income in the prior period are as
follows:
GBPm Fair Defined Impact Total
value benefit of IFRIC
of scheme obligation 14 on defined
assets benefit
pension
schemes
---------------------------------- ----------- ------------ --------------- ------
At 29 August 2021 14.9 (0.1) (14.8) -
---------------------------------- ----------- ------------ --------------- ------
Purchase of indemnity insurance (1.3) - - (1.3)
Other administration expenses (0.3) - - (0.3)
Total amount recognised in
income statement (1.6) - - (1.6)
---------------------------------- ----------- ------------ --------------- ------
Change in surplus not previously
recognised (0.1) 0.1 14.8 14.8
Tax relating to the repayment
of pension surpluses - - (5.1) (5.1)
Amount recognised in other
comprehensive income (0.1) 0.1 9.7 9.7
---------------------------------- ----------- ------------ --------------- ------
Tax paid (5.1) - 5.1 -
Refund of surplus to Company (8.1) - - (8.1)
---------------------------------- ----------- ------------ --------------- ------
Amounts included in cash flow
statement (13.2) - 5.1 (8.1)
---------------------------------- ----------- ------------ --------------- ------
At 27 August 2022 - - - -
---------------------------------- ----------- ------------ --------------- ------
At 26 August 2023 - - - -
---------------------------------- ----------- ------------ --------------- ------
On winding up of the News Section of the Pension Trust, the
Company has agreed run-off indemnity coverage for any member claims
that are uninsured liabilities capped at GBP6.5m over the following
60 years.
7. Finance costs
GBPm Note 2023 2022
-------------------------------------- ----- ----- -----
Interest on bank overdrafts and loans (3.9) (3.5)
Amortisation of loan arrangement fees (1.1) (1.7)
Interest payable on leases (1.4) (1.6)
-------------------------------------- ----- ----- -----
Total interest cost on financial
liabilities at amortised cost (6.4) (6.8)
Unwinding of discount on provisions
- trading 21 (0.1) (0.2)
Finance costs (6.5) (7.0)
Interest income on loans and deferred
consideration 4 - 2.5
-------------------------------------- ----- ----- -----
Net Finance costs (6.5) (4.5)
-------------------------------------- ----- ----- -----
8. Income tax expense
GBPm 2023 2022
Adjusted Adjusting Total Adjusted Adjusting Total
items items
--------------------------- --------- ---------- ------ --------- ---------- ------
Current tax 6.5 - 6.5 5.7 (0.9) 4.8
Adjustment in respect
of prior year 0.2 - 0.2 (0.8) - (0.8)
Total current tax
charge/(credit) 6.7 - 6.7 4.9 (0.9) 4.0
Deferred tax - current
year 0.5 - 0.5 (0.3) - (0.3)
Deferred tax - prior
year (0.4) - (0.4) 0.6 - 0.6
Deferred tax - impact
of rate change (0.1) - (0.1) 0.2 - 0.2
--------------------------- --------- ---------- ------ --------- ---------- ------
Total tax charge/(credit) 6.7 - 6.7 5.4 (0.9) 4.5
--------------------------- --------- ---------- ------ --------- ---------- ------
Effective tax rate 20.7% 21.1% 17.4% 16.1%
--------------------------- --------- ---------- ------ --------- ---------- ------
The effective adjusted income tax rate in the year was 20.7%
(2022: 17.4%). After the impact of Adjusting items of GBPnil (2022:
GBP0.9m), the effective statutory income tax rate was 21.1% (2022:
16.1%).
Corporation tax is calculated at the main rates of UK
corporation tax, those being a blended rate of 21.5% (2022: 19.0%).
The UK Finance Act 2021 increased the corporate tax rate to 25%
effective from 1 April 2023 and in the current period this results
in a blended rate. The Group has assessed its deferred tax
positions using the higher enacted rate of 25%. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The tax charge for the year can be reconciled to the profit in
the income statement as follows:
GBPm 2023 2022
------------------------------------------ ------ ------
Profit before tax 31.8 27.9
------------------------------------------ ------ ------
Tax on profit at the standard rate of UK
corporation tax 21.5% (2022: 19.0%) 6.8 5.3
Income not subject to tax 0.1 (1.0)
Expenses not deductible for tax purposes 0.1 0.2
Adjustment in respect of prior years (0.2) (0.2)
Impact of change in UK tax rate (0.1) 0.2
Tax charge 6.7 4.5
------------------------------------------ ------ ------
Income not subject to tax in the prior period comprised mainly
of the tax effect of the Tuffnells discount unwind.
Amounts recognised directly in equity
Aggregate current tax and deferred tax arising in the reporting
period and not recognised in net profit or loss or other
comprehensive income but directly credited/(charged) to equity was
as follows:
GBPm 2023 2022
------------------------------------------- ----- ------
Current tax: share-based payments - (0.1)
Deferred tax assets: share-based payments 0.6 (0.2)
------------------------------------------- ----- ------
9. Dividends
Amounts paid and proposed as distributions to equity
shareholders in the years:
2023 2022 2023 2022
Paid and proposed dividends Per share Per share GBPm GBPm
for the year
----------------------------- ---------- ---------- ----- -----
Interim dividend - paid 1.40p 1.40p 3.3 3.3
Final dividend - proposed 2.75p 2.75p 6.7 6.7
4.15p 4.15p 10.0 10.0
----------------------------- ---------- ---------- ----- -----
Recognised dividends for
the year
Final dividend - prior
year 2.75p 1.15p 6.5 2.8
Interim dividend - current
year 1.40p 1.40p 3.3 3.3
----------------------------- ---------- ---------- ----- -----
4.15p 2.55p 9.8 6.1
----------------------------- ---------- ---------- ----- -----
A final 2.75p dividend per share is proposed for the 52 weeks
ended 26 August 2023 (2022: 2.75p), which is expected to be paid on
8 February 2024 to all shareholders who are on the register of
members at close of business on 12 January 2024. The ex-dividend
date will be 11 January 2024.
10. Earnings per share
2023 2022
-------------------------------- ------------------------------- ----------------------------------
GBPm Million Pence GBPm Million Pence
Earnings Weighted per Earnings Weighted per
average share average share
number number
of shares of shares
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Weighted average number
of shares in issue 247.7 247.7
Shares held by the
ESOP (weighted) (10.4) (9.2)
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Basic earnings per
share (EPS)
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Adjusted earnings attributable
to ordinary shareholders 25.6 237.3 10.8 25.7 238.5 10.8
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Adjusting items (0.5) - - (2.3) - -
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Earnings attributable
to ordinary shareholders 25.1 237.3 10.6 23.4 238.5 9.8
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Diluted earnings per
share (EPS)
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Effect of dilutive
share options 12.6 13.5
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Diluted adjusted EPS 25.6 249.9 10.2 25.7 252.0 10.2
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Diluted EPS 25.1 249.9 10.0 23.4 252.0 9.3
-------------------------------- --------- ----------- ------- ------------ ----------- -------
Dilutive shares increase the basic number of shares at 26 August
2023 by 12.6m to 249.9m (27 August 2022: 252m).
The calculation of diluted EPS reflects the potential dilutive
effect of employee incentive schemes of 12.6m dilutive shares (27
August 2022: 13.5m). All earnings relate to continuing
operations.
11. Intangible assets
Goodwill Acquired Intangibles Internally Computer Total
generated software
development costs
costs
-----------------------
GBPm Customer Trade
relationships name
------------------- --------- --------------- ------ ------------- ----------
Cost:
At 27 August
2022 5.7 2.4 0.2 3.2 7.4 18.9
Additions - - - 0.5 0.3 0.8
Disposal - - - (1.9) (4.9) (6.8)
At 26 August
2023 5.7 2.4 0.2 1.8 2.8 12.9
------------------- --------- --------------- ------ ------------- ---------- -------
Accumulated
amortisation
and impairment:
At 27 August
2022 (5.7) (2.4) (0.2) (2.1) (6.8) (17.2)
Amortisation
charge - - - (0.2) (0.4) (0.6)
Disposals - - - 1.9 4.9 6.8
At 26 August
2023 (5.7) (2.4) (0.2) (0.4) (2.3) (11.0)
------------------- --------- --------------- ------ ------------- ---------- -------
Net book value
at 26 August
2023 - - - 1.4 0.5 1.9
------------------- --------- --------------- ------ ------------- ---------- -------
Cost:
At 29 August
2021 5.7 2.4 0.2 2.7 7.2 18.2
Additions - - - 0.5 0.2 0.7
At 27 August
2022 5.7 2.4 0.2 3.2 7.4 18.9
------------------- --------- --------------- ------ ------------- ---------- -------
Accumulated
amortisation
and impairment:
At 29 August
2021 (5.7) (2.4) (0.2) (1.8) (5.8) (15.9)
Amortisation
charge - - - (0.3) (1.0) (1.3)
At 27 August
2022 (5.7) (2.4) (0.2) (2.1) (6.8) (17.2)
------------------- --------- --------------- ------ ------------- ---------- -------
Net book value
at 27 August
2022 - - - 1.1 0.6 1.7
------------------- --------- --------------- ------ ------------- ---------- -------
Impairment of goodwill
Goodwill is not amortised but has been reviewed annually for
impairment. As a result of these reviews goodwill is fully impaired
at the end of 2023 and 2022.
12. Property, plant and equipment
GBPm Land and Buildings
----------------------------------
Long term Short term Fixtures Equipment Total
leasehold leasehold and fittings and vehicles
improvements improvements
--------------------------- -------------- -------------- ---------------- ---------------- -------
Cost:
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
Additions - 1.0 0.9 0.5 2.4
Disposals - (2.3) (0.4) (6.5) (9.2)
At 26 August 2023 0.2 9.2 3.5 17.0 29.9
--------------------------- -------------- -------------- ---------------- ---------------- -------
Accumulated depreciation:
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
Depreciation charge - (0.4) (0.5) (1.3) (2.2)
Disposals - 2.3 0.6 6.3 9.2
At 26 August 2023 (0.2) (6.8) (1.7) (12.4) (21.1)
--------------------------- -------------- -------------- ---------------- ---------------- -------
Net book value
at 26 August 2023 - 2.4 1.6 4.8 8.8
--------------------------- -------------- -------------- ---------------- ---------------- -------
Cost:
At 29 August 2021 0.2 10.2 2.9 22.1 35.4
Additions - 0.3 0.1 1.2 1.6
Disposals - - - (0.3) (0.3)
At 27 August 2022 0.2 10.5 3.0 23.0 36.7
--------------------------- -------------- -------------- ---------------- ---------------- -------
Accumulated depreciation:
At 29 August 2021 (0.2) (8.2) (1.6) (16.0) (26.0)
Depreciation charge - (0.5) (0.2) (1.6) (2.3)
Disposals - - - 0.2 0.2
At 27 August 2022 (0.2) (8.7) (1.8) (17.4) (28.1)
--------------------------- -------------- -------------- ---------------- ---------------- -------
Net book value
at 27 August 2022 - 1.8 1.2 5.6 8.6
--------------------------- -------------- -------------- ---------------- ---------------- -------
13. Interests in joint ventures
GBPm 2023 2022
-------------------- ----- -----
At 28/27 August 4.2 2.9
Additions 0.3 -
Share of profit 0.1 0.3
Impairment reversal - 1.2
Dividends received (0.2) (0.2)
-------------------- ----- -----
At 26/27 August 4.4 4.2
-------------------- ----- -----
The Joint ventures listed below have share capital consisting
solely of ordinary shares, which are held directly by the
Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group Registered address Measurement
(number) % method
------------------------ ------------ ------ ------------------------- --------------
Rascal Solutions Ordinary 50% Silbury Court, 420 Equity method
Limited A Shares Silbury Boulevard,
05191277 Milton Keynes MK9
2AF
Bluebox Systems Ordinary 36.1% Estantia House, Equity method
Group Limited SC544863 A Shares Pitreavie Drive,
Pitreavie Business
Park, Dunfermline,
Fife KY11 8US
Fresh On The Go Ordinary 30% 61 Bridge Street, Equity method
Limited Shares Kington, HR5 3DJ
08775703
Lucid Digital Magazines Ordinary 50% Rowan House Cherry Equity method
Limited t/a LoveMedia Shares Orchard North, Kembrey
12738320 Park, Swindon, England,
SN2 8UH
------------------------ ------------ ------ ------------------------- --------------
The Group owns 50% of the ordinary shares of Rascal Solutions
Limited, a company incorporated in England, which in turn owns 100%
of the ordinary shares of Open-Projects Limited. The latest
statutory accounts of Rascal Solutions Limited were drawn up to 31
August 2022. Rascal Solutions Limited provides retail support
services and is a strategic partnership for the Group to provide
additional services to its existing customers.
Bluebox Systems Group Limited, is the holding company of Bluebox
Aviation Systems Ltd, the principal activity of which is the sale
of innovative in-flight entertainment systems. This business is a
strategic partnership with DMD which also provides inflight media
to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee
vending and other related products.
During the period, the Group purchased 50% of the ordinary
shares in Lucid Digital Magazines Limited t/a LoveMedia, a company
incorporated in England. LoveMedia provides single use downloads of
newspapers and magazines to consumers.
The Group has also provided a working capital loan of GBP0.3m to
LoveMedia, which is presented within other debtors. There are no
other commitments relating to its joint ventures.
All joint ventures are private companies and there is no quoted
market price available for their shares.
Dividends of GBP0.2m (2022: GBP0.2m) were received in the 52
weeks to 26 August 2023 from joint ventures.
Rascal Solutions Limited investment
During the period Rascal Solutions Limited (Rascal) recorded a
profit of GBP0.5m (2022: GBP0.6m). The Group holds GBP4.2m on the
balance sheet comprising a GBP1.8m (2022: GBP1.8m) share of net
assets and GBP2.4m (2022: GBP2.4m) of Goodwill. Goodwill represents
the difference between the fair value of the share of the net
assets acquired and the amount paid, and forms part of the
investment in the joint venture.
During the prior period, the Company reviewed the business plan
for the Rascal Joint Venture and it was determined that the
potential challenges anticipated to arise in 2021 had not
materialised, with the successful renewal of contracts previously
considered to be at risk. The Company reversed the impairment
previously booked by GBP1.2m.
The current period impairment review was performed, resulting in
a value in use of GBP4.3m being calculated based on future cash
flows of the Rascal business. These cash flows were discounted at a
post-tax discount rate of 13.6% and a pre-tax discount rate of
18.1% (2022: 13.0% post-tax discount rate and pre-tax discount rate
of 15.2%) and a terminal growth rate applied of 0% (2022: 0%). As a
result, there was no further adjustment (2022: reversal of GBP1.2m
impairment loss) to the carrying value of the investment in the
Rascal Joint Venture in the current period.
Sensitivities to assumptions
If the post-tax discount rate had been increased by 1.0%, there
would be an impairment of GBP0.2m, and if the post-tax discount
rate had been reduced by 1.0%, there would be headroom of
GBP0.4m.
14. Inventories
GBPm 2023 2022
------------------------------ ---- ----
Goods held for resale 17.5 15.5
Raw materials and consumables 0.2 0.1
------------------------------ ---- ----
Inventories 17.7 15.6
------------------------------ ---- ----
15. Trade and other receivables
GBPm 2023 2022
----------------------------------------- ----- -----
Trade receivables 73.5 69.0
Specific provision for doubtful debts(1) (4.4) (4.4)
Provision for expected credit losses (0.1) (0.1)
----------------------------------------- ----- -----
69.0 64.5
Other debtors 29.4 28.6
Prepayments 1.1 1.0
Accrued income 1.6 1.6
Trade and other receivables 101.1 95.7
----------------------------------------- ----- -----
(1) Net impairment loss on trade receivables - McColl's Retail Group
During the prior period, the Company received notice that
McColl's Retail Group had gone into administration. A statement of
claim was filed with the Administrators for an amount of GBP5.5m.
The latest notification issued from the administrators on 8 June
2023 states that unsecured creditors can be expected to receive
between 20-50% of approved claims, previously 20-40%. Management
has maintained a best estimate that only 20% of the outstanding
balance is recoverable. The Company has therefore maintained a net
impairment loss of GBP4.4m (2022: GBP4.4m), representing 80% of the
total balance of GBP5.5m in the current and prior period. For more
information see Note 4.
The net impairment loss of GBP4.4m (2022: GBP4.4m) has been
allocated to the 91-120 days overdue ageing bucket (2022: GBP1.3m
to 61-90 days, GBP3.0m to 90-120 days), matching the ageing profile
of the GBP5.5m total receivable due.
If the Company had considered 50% (2022: 40%) of the total
balance of GBP5.5m to be recoverable in line with the upper range
of the administrator's estimate, the provision recognised would
have been GBP2.8m (2022: GBP3.3m), allocated to the 91-120 days
overdue ageing bucket (2022: GBP1.0m to 61-90 days, GBP2.3m to
91-120 days).
Trade receivables
The average credit period taken on sale is 27 days (2022: 23
days). Trade receivables are generally non-interest bearing.
The following table provides information about the Group's
exposure to credit risk and ECLs against customer balances as at 26
August 2023 under IFRS 9:
GBPm 2023 2022
--------------- ---------- ------------------------------------- ---------- ------------------------------------
Gross Specific Loss Net Gross Gross Loss Net
carrying provision allowance carrying carrying carrying allowance carrying
amount for amount amount amount amount
doubtful
debts
Current (not
overdue) 67.8 - (0.1) 67.7 63.0 - (0.1) 62.9
30-60 days
overdue - - - - 0.2 - - 0.2
61-90 days
overdue - - - - 2.0 (1.4) - 0.6
91-120 days
overdue 0.2 - - 0.2 3.8 (3.0) - 0.8
Over 120 days
overdue 5.5 (4.4) - 1.1 - - - -
--------------- ---------- ------------ ----------- ---------- ---------- ---------- ------------ ----------
73.5 (4.4) (0.1) 69.0 69.0 (4.4) (0.1) 64.5
--------------- ---------- ------------ ----------- ---------- ---------- ---------- ------------ ----------
The following table provides information about the Group's loss
rates applied against customer balances as at 26 August 2023 under
IFRS 9:
% 2023 2022
----------------------- ----- -----
Current (not overdue) <0.1 0.1
30-60 days overdue <0.1 -
61-90 days overdue <0.1 1.2
91-120 days overdue <0.1 0.1
Over 120 days overdue 80.0 0.1
----------------------- ----- -----
Of the trade receivables balance at the end of the year:
-- Three customers (2022: two) had individual balances that
represented more than 10% of the total trade receivables balance.
The total of these was GBP30.3m (2022: GBP16.9m); and
-- A further two customers (2022: three) had individual balances
that represented more than 5% of the total trade receivables
balance. The total of these was GBP9.0m (2022: GBP15.6m).
Movement in the allowance for doubtful debts:
GBPm 2023 2022
-------------------------------------- ------ -----
At 28/29 August 4.5 0.1
Impairment losses recognised 0.1 4.4
Amounts written off as uncollectible (0.1) -
At 26/27 August 4.5 4.5
-------------------------------------- ------ -----
The directors consider that the carrying amount of trade and
other receivables approximates their fair value which is considered
to be a level 2 methodology of valuing them. The inputs used to
measure fair value are categorised into different levels of the
fair value hierarchy (levels 1 to 3). The fair value measurement is
categorised in its entirety in the level of the lowest level input
that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
The Group performed sensitivity analysis on the expected credit
loss (excluding losses in respect of McColl's Retail Group) and
should the default rate change from expected.
-- An increase in default rate by 2% would increase the expected credit loss by GBP1.3m.
-- A decrease in default rate by 2% would result in no credit losses.
-- An increase in default rate by 5% would increase the expected credit loss by GBP3.3m.
-- A decrease in default rate would result in no credit losses.
Other debtors and prepayments
The largest items included within this balance are returns
reserve asset of GBP16.8m (2022: GBP18.3m) (refer to Note 1,
section 7) and GBP9.8m (2022: GBP7.9m) of publisher debtors.
16. Trade and other payables
GBPm 2023 2022
----------------- -------- --------
Trade payables (101.0) (98.6)
Other creditors (34.0) (35.1)
Accruals (6.4) (6.5)
Deferred income (0.1) (0.1)
----------------- -------- --------
(141.5) (140.3)
----------------- -------- --------
Included within other creditors is a balance of GBP19.7m (2022:
GBP21.6m) relating to the returns reserve accrual. (Refer to Note
1, section 7).
Trade and other payables principally comprise amounts
outstanding for trade purchases and on-going costs. The average
credit period taken for trade purchases is 32 days (2022: 31 days).
No interest is charged on trade payables. The directors consider
that the carrying amount of trade and other payables approximates
to their fair value using a level 2 valuation.
17. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as
follows:
GBPm Sterling Euro US Dollar Other Total 2022
2023
--------------------------------- --------- ----- ---------- ------ ------- -------
Cash and bank deposits 36.2 0.7 0.3 0.1 37.3 35.3
--------------------------------- --------- ----- ---------- ------ ------- -------
Net Cash and cash equivalents 36.2 0.7 0.3 0.1 37.3 35.3
Term loan - disclosed
within current liabilities (10.0) - - - (10.0) (8.0)
Term loan - disclosed
within non-current liabilities (31.5) - - - (31.5) (41.5)
Unamortised arrangement
fees - disclosed within
non-current liabilities 1.3 - - - 1.3 2.4
Total borrowings (40.2) - - - (40.2) (47.1)
--------------------------------- --------- ----- ---------- ------ ------- -------
Net borrowings (4.0) 0.7 0.3 0.1 (2.9) (11.8)
--------------------------------- --------- ----- ---------- ------ ------- -------
Total borrowings
--------------------------------- --------- ----- ---------- ------ ------- -------
Amount due for settlement
within 12 months (10.0) - - - (10.0) (8.0)
Amount due for settlement
after 12 months (30.2) - - - (30.2) (39.1)
--------------------------------- --------- ----- ---------- ------ ------- -------
(40.2) - - - (40.2) (47.1)
--------------------------------- --------- ----- ---------- ------ ------- -------
Cash and bank deposits comprise cash held by the Company and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates their
fair value.
In December 2021, an agreement was signed to extend and amend
the existing financing arrangements. The original facility, which
was due to expire in November 2023, has been extended to a final
maturity date of 31 August 2025. The facility comprised an initial
GBP60 million amortising term loan ('Facility A') and a GBP30
million revolving credit facility ('RCF'). The agreement is with a
syndicate of banks comprising lenders HSBC, Barclays, Santander and
Clydesdale Bank.
The terms of the facility agreement include; agreed repayments
against Facility A arising from funds received in relation to
deferred consideration received following the sale of Tuffnells;
repayments of GBP8m in FY2023 and then GBP10m in FY2024 and FY2025
respectively for the repayment of Facility A and a final bullet
payment; and capped dividend payments of up to GBP10m in respect of
any financial year.
At the year end, the Term Loan had reduced to GBP41.5m. The RCF
was GBP22.5m at year end and will reduce by GBP2.5m every 6 months
from February 2023 onwards. As part of the terms of the financing,
the Company and its principal trading subsidiaries have agreed to
provide security over their assets to the lenders. The current rate
on the facility is 4% per annum over SONIA (in respect of Facility
A and the RCF).
At 26 August 2023, the Company had GBP22.5m (2022: GBP30.0m) of
fully undrawn committed borrowing and cash facilities in respect of
which all conditions precedent had been met. This is partially
reduced by letters of credit of GBP1.5m (2022: GBP2.4m), further
details are included in Note 22.
Reconciliation of liabilities arising from financing
activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated statement of cash flows as cash flows
from financing activities.
GBPm Note 28 August Financing New Disposals Other 26 August
2022 cash flows leases changes 2023
----------- ----- ---------- ------------ -------- ---------- --------- ----------
Term Loan 18 47.1 (11.9) - - 5.0 40.2
Leases 27.6 (7.5) 1.7 - 1.4 23.2
Total 74.7 (19.4) 1.7 - 6.4 63.4
----------- ----- ---------- ------------ -------- ---------- --------- ----------
GBPm Note 29 August Financing New Disposals Other 27 August
2021 cash flows leases changes 2022
------------ ----- ---------- ------------ -------- ---------- --------- ----------
Term Loan 18 71.3 (29.4) - - 5.2 47.1
Overdrafts 18 0.4 (0.4) - - - -
Leases 29.2 (8.0) 5.4 (0.6) 1.6 27.6
Total 100.9 (37.8) 5.4 (0.6) 6.8 74.7
------------ ----- ---------- ------------ -------- ---------- --------- ----------
Other changes include interest accruals and the amortisation of
loan fees.
Analysis of net debt
GBPm Note 2023 2022
-------------------------- ---- ------ ------
Cash and cash equivalents 18 37.3 35.3
Current borrowings 18 (10.0) (8.0)
Non-current borrowings 18 (30.2) (39.1)
-------------------------- ---- ------ ------
Net borrowings (2.9) (11.8)
Lease liabilities 20 (23.2) (27.6)
Net debt (26.1) (39.4)
-------------------------- ---- ------ ------
18. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the
Group's funding requirements and financial risks in line with the
Board approved treasury policies and procedures and their delegated
authorities. Treasury's role is to ensure that appropriate
financing is available for running the businesses of the Group on a
day-to-day basis, whilst minimising interest cost. No transactions
of a speculative nature are undertaken. Dealings are restricted to
those banks with suitable credit ratings and counterparty risk and
credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of
debt, which includes the borrowings, cash and cash equivalents as
disclosed in Note 17 and equity attributable to equity holders of
the parent, comprising issued capital, reserves and retained
earnings as disclosed in the Group Statement of Changes in
Equity.
The only externally imposed capital requirements for the Group
are net debt to EBITDA (ex. IFRS 16), fixed charge cover and
interest cover under the terms of the banking facilities. The Group
has fully complied during both the current year and the prior year.
To maintain or adjust its capital structure, the Group may adjust
the dividend payment to shareholders and/or issue new shares. There
is a cap on dividends of GBP10.0m under the banking facility, this
is also subject to all the covenants.
The Board regularly reviews the capital structure. As part of
this review, the Board considers the cost of capital and the risks
associated with each class of capital. We expect free cash from
operations to be sufficient to reduce net debt while also
maintaining an attractive total shareholder return. The Group is
targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by
2023, with repayment achieved through surplus free cash from
operations. The Group's facilities include a 'frozen GAAP' clause
in relation to IAS 17 and the net debt/EBITDA is stated on this
basis.
Liquidity risk
The Group manages liquidity risk by maintaining adequate
reserves and banking facilities and by monitoring forecast and
actual cash flows. The facilities that the Group has at its
disposal to further reduced liquidity risk are described below.
As at 26 August 2023, the Group had GBP64.0m committed bank
facilities in place (2022: GBP79.5m). Bank facilities
comprised:
-- GBP41.5m amortising term loan (Facility A); and
-- GBP22.5m revolving credit facility (RCF)
which together expire on 31 August 2025.
The facility described above is subject to the following
covenants which are subject to a 'frozen GAAP' clause:
-- Leverage cover - the net debt: adjusted EBITDA ratio which
must remain below 1.75x, reducing to 1.5x at 24 February 2024. At
26 August 2023 the ratio was 0.1x (2022: 0.3x);
-- Interest cover - the consolidated net interest: adjusted
EBITDA ratio which must remain above 4.0x. As at 26 August 2023 the
ratio was 10.5x (2022: 12.0x);
-- Fixed charge cover - the ratio of adjusted EBITDA (less
rental charges) to consolidated fixed charges is not less than
2.0x. As at 26 August 2023 the ratio was 4.0x (2022: 4.3x); and
-- Guarantor cover - The annual turnover, gross assets and
pre-tax profits of the guarantors under the banking facilities
contribute, at any time, 90% or more of the annual consolidated
turnover, gross assets and pre-tax profits of the Group for each of
its financial years. The guarantors, which are all 100% owned or
wholly owned subsidiaries of the Smiths News plc, comprise Smiths
News plc, Smiths News Holdings Limited, and Smiths News Trading
Limited.
At 26 August 2023, the Group had available GBP21.0m (2022:
GBP27.7m) of undrawn committed borrowing facilities comprising the
GBP22.5m (2022: GBP30.0m) RCF above less letters of credit of
GBP1.5m (2022: GBP2.4m) further details are included in Note 22.
There were no breaches of loan agreements during either the current
or prior years.
As the Group is cash generative its liquidity risk is considered
low. The Group's cash generation allows it to meet all loan
commitments as they fall due as well as sustain a negative working
capital position.
The Group invests significant resources in the forecasting and
management of its cash flows. This is critical given a routine cash
cycle at Smiths News that results in significant predictable swings
within each month of around GBP40.0m, the Group's average gross
borrowings for the past year was GBP45.4m (2022: GBP62.3m). The
Group has available funding via the undrawn RCF.
The following is an analysis of the undiscounted contractual
cash flows payable under non derivative financial liabilities. The
undiscounted cash flows will differ from both the carrying value
and fair value. Floating rate interest is estimated using the
prevailing rate at the balance sheet date.
GBPm Due within Due between Due between Greater than
1 Year 1 and 2 years 2 and 3 years 3 years
----------------- ----------- --------------- --------------- -------------
At 26 August
2023
Bank and other
borrowings (10.0) (10.0) (21.5) -
Trade and other (141.5) - - -
payables
Leases (6.1) (5.1) (4.4) (12.0)
Total (157.6) (15.1) (25.9) (12.0)
----------------- ----------- --------------- --------------- -------------
At 27 August
2022
Bank and other
borrowings (8.0) (10.0) (10.0) (21.5)
Trade and other (140.3) - - -
payables
Leases (7.3) (5.8) (4.8) (14.5)
Total (155.6) (15.8) (14.8) (36.0)
----------------- ----------- --------------- --------------- -------------
Counterparty risk
Dealings are restricted to those banks with suitable credit
ratings and counterparty risk and credit exposure is monitored.
Foreign currency risk
-- The majority of the Group's transactions are carried out in
the functional currencies of its operations, and so transactional
exposure is limited.
-- The majority of the Group's net liabilities are held in
Sterling, with only GBP0.6m (2022: GBP0.6m) of net assets held in
overseas currencies. Translation exposure arises on the
re-translation of overseas subsidiaries profits and net assets into
sterling for financial reporting purposes and is not seen as
significant.
-- Note 17 denotes borrowings by currency.
-- There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the
Group's debt exposure, consideration of the macroeconomic
environment and sensitivity to potential interest rate rises. The
Group avoids the use of derivatives or other financial instruments
in circumstances when the outcome would effectively be largely
dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the
balance sheet date were outstanding for the whole year, if interest
rates had been 0.5% higher/lower and all other variables were held
constant, the Group's profit and equity for the 52 weeks ending 26
August 2023 would decrease/increase by GBP0.2m (2022: GBP0.2m).
Credit risk
The Group considers its exposure to credit risk at 26 August
2023 to be as follows:
GBPm 2023 2022
----------------------------- ------ ------
Bank deposits 37.3 35.3
Trade and other receivables 98.4 93.1
----------------------------- ------ ------
135.7 128.4
----------------------------- ------ ------
Further detail on the Group's policy relating to trade
receivables and other receivables can be found in Note 15.
19. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to
leases:
GBPm Equipment & vehicles Land & buildings Total
---------------------------------- --------------------- ----------------- -------
Cost:
At 28 August 2022 1.7 42.1 43.8
Additions 0.3 1.4 1.7
Disposals - (5.1) (5.1)
At 26 August 2023 2.0 38.4 40.4
---------------------------------- --------------------- ----------------- -------
Accumulated depreciation:
At 28 August 2022 (1.0) (16.5) (17.5)
Depreciation charge (0.4) (6.0) (6.4)
Disposals - 5.3 5.3
At 26 August 2023 (1.4) (17.2) (18.6)
---------------------------------- --------------------- ----------------- -------
Net book value at 26 August 2023 0.6 21.2 21.8
---------------------------------- --------------------- ----------------- -------
Cost:
At 29 August 2021 1.6 38.6 40.2
Additions 0.1 5.3 5.4
Disposals - (1.8) (1.8)
At 27 August 2022 1.7 42.1 43.8
---------------------------------- --------------------- ----------------- -------
Accumulated depreciation:
At 29 August 2021 (0.6) (11.2) (11.8)
Depreciation charge (0.4) (6.5) (6.9)
Disposals - 1.2 1.2
At 27 August 2022 (1.0) (16.5) (17.5)
---------------------------------- --------------------- ----------------- -------
Net book value at 27 August 2022 0.7 25.6 26.3
---------------------------------- --------------------- ----------------- -------
Lease commitments
The company have the following lease commitments:
2023 2022
--------------------------------------------- ----- -----
Due within one year 4.9 5.9
Due in more than one year, but no more than
five years 13.3 15.2
Due in more than five years 5.0 6.5
Total lease commitments 23.2 27.6
--------------------------------------------- ----- -----
Amounts recognised in the income statement
GBPm 2023 2022
------------------------------------------------ ------ ------
Interest expense (included in finance cost) 1.4 1.6
Expense relating to low value leases (included
in cost of sales and administrative expenses) 0.4 0.3
Property rental income (0.4) (0.4)
Total cash outflow from leases 6.5 6.6
------------------------------------------------- ------ ------
GBPm 2023 2022
------------------ ------- ------
Lease Liabilities
Current (4.9) (5.9)
Non-current (18.3) (21.7)
Total (23.2) (27.6)
------------------ ------- ------
20. Deferred tax
Deferred tax assets are attributable to the following:
GBPm Fixed Share based Other temporary Total
Assets payments differences
--------------------------- -------- ------------ ---------------- ------
At 28 August 2022 0.6 0.5 - 1.1
(Charge)/credit to income (0.2) (0.1) 0.3 -
Charge to equity - 0.6 - 0.6
At 26 August 2023 0.4 1.0 0.3 1.7
--------------------------- -------- ------------ ---------------- ------
Deferred tax assets 0.4 1.0 0.3 1.7
--------------------------- -------- ------------ ---------------- ------
At 29 August 2021 1.4 0.4 - 1.8
(Charge)/credit to income (0.8) 0.3 - (0.5)
Charge to equity - (0.2) - (0.2)
At 27 August 2022 0.6 0.5 - 1.1
--------------------------- -------- ------------ ---------------- ------
Deferred tax assets 0.6 0.5 - 1.1
--------------------------- -------- ------------ ---------------- ------
The deferred tax assets have been deemed recoverable as the
Group forecasts that it will continue to make profits against which
the assets can be utilised for tax purposes. There were no deferred
tax liabilities recognised in either reporting period.
The Group has capital losses carried forward of GBP20.2m (2022:
GBP20.2m). Deferred tax assets of GBP5.1m (2022: GBP5.1m) have not
been recognised in respect of the capital losses carried forward
due to the uncertainty of their utilisation.
The UK Finance Act 2021 has been substantively enacted,
increasing the corporate tax rate to 25% effective from 1 April
2023.
The deferred tax asset at the period end has been calculated
based on the rate of 25% substantively enacted at the balance sheet
date on the basis that the temporary differences are expected to
unwind when that rate applies.
21. Provisions
GBPm Provision for Re-organisation Insurance and legal Property provisions Total
onerous contracts provisions provisions
and other provisions
---------------------- -------------------- --------------------- --------------------- ------------------- -----
At 28 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
Charged to income
statement - (0.7) (0.4) (0.4) (1.5)
Credited to income
statement 0.4 0.3 - - 0.7
Utilised in period 0.1 0.3 0.2 - 0.6
Unwinding of discount
utilisation - - - (0.1) (0.1)
At 26 August 2023 - (1.0) (0.8) (4.9) (6.7)
---------------------- -------------------- --------------------- --------------------- ------------------- -----
At 29 August 2021 (0.7) (0.8) (1.3) (3.8) (6.6)
Charged to income
statement - (0.1) - (1.0) (1.1)
Credited to income
statement 0.2 - 0.2 - 0.4
Utilised in period - - 0.5 0.6 1.1
Unwinding of discount
utilisation - - - (0.2) (0.2)
At 27 August 2022 (0.5) (0.9) (0.6) (4.4) (6.4)
GBPm 2023 2022
Included within
current liabilities (2.5) (3.0)
Included within
non-current
liabilities (4.2) (3.4)
---------------------- -------------------- --------------------- --------------------- ------------------- -----
Total (6.7) (6.4)
---------------------- -------------------- --------------------- --------------------- ------------------- -----
Included within non-current liabilities is GBP4.2m (2022:
GBP3.4m) relating to real estate property provisions.
Re-organisation provisions of GBP1.0m (2022: GBP0.9m) relates to
the restructure of the DMD business, the Smiths News network and
the Group's support functions, with new programmes announced during
the period.
Insurance and legal provisions represent the expected future
costs of employer's liability, public liability, motor accident
claims and legal claims, included within the total balance is
GBP0.8m (2022: GBP0.6m) relating to claims from the Tuffnells
business prior to disposal.
The property provision represents the estimated future cost of
dilapidation costs across the Group. These provisions have been
discounted to present value and this discount will be unwound over
the life of the leases. The provisions cover the period to 2034,
however, a significant portion of the liability falls within ten
years.
The Group has performed sensitivity analysis on property
provision using possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision
would change by +/- GBP0.1m (2022: +/- GBP0.1m).
If the repair cost per square foot changes by +/-GBP1.00p, the
property provision would change by +/-GBP0.4m (2022: +/-
GBP0.3m).
22. Contingent liabilities and capital commitments
GBPm 2023 2022
--------------------------- ----- -----
Bank and other guarantees 1.5 2.4
--------------------------- ----- -----
As reported in Note 4(b), following the administration of
Tuffnells Parcels Express Limited (Tuffnells) in June 2023 a
provision of GBP0.4m has been made in light of the probable outcome
of certain insurance claims reverting to the Group which were
previously being handled by Tuffnells. The Board has considered the
administration and other associated processes in respect of
Tuffnells and is not currently aware of any further provision which
may be required.
Other potential liabilities that could crystallise are in
respect of previous assignments of leases where the liability could
revert to the Group if the lessee defaulted. Pursuant to the terms
of the Demerger Agreement from WH Smith PLC in 2006, any such
contingent liability in respect of assignment prior to demerger,
which becomes an actual liability, will be apportioned between
Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that
the actual liability of Smiths News plc in any 12-month period does
not exceed GBP5m). The Company's share of these leases has an
estimated future cumulative gross rental commitment at 26 August
2023 of GBP0.5m (2022: GBP0.5m).
Contracts placed for future capital expenditure approved by the
directors but not provided for amount to: GBPnil (2022:
GBPnil).
As at 26 August 2023, the Group had approved letters of credit
of GBP1.5m (2022: GBP2.4m) to the insurers of the Group for the
motor insurance and employer liability insurance policies. The
letters of credit cover the employer deductible element of the
insurance policy for insurance claims.
On winding up of the News Section of the WH Smith Pension Trust
defined benefit pension scheme in December 2021, the Company has
agreed run-off indemnity coverage for any member claims that are
uninsured liabilities capped at GBP6.5m over the following 60
years. The Group is not aware of any claims brought during either
the current or prior reporting period.
23. Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants
for the following future minimum lease payments:
GBPm 2023 2022
---------------------------------------- ----- -----
Within one year 0.2 0.2
In the second to fifth years inclusive 0.6 0.3
0.8 0.5
---------------------------------------- ----- -----
24. Net cash inflow from operating activities
GBPm Note 2023 2022
---------------------------------------------- ------ ------ -------
Operating profit 3 38.3 32.4
Impairment reversal of investment
in joint venture 13 - (1.2)
Share of profits of joint ventures 13 (0.1) (0.3)
Adjustment for pension funding 6 - 8.1
Depreciation of property, plant
and equipment 12 2.2 2.3
Depreciation of right of use assets 19 6.4 6.9
Amortisation of intangible assets 11 0.6 1.3
Share based payments 1.1 1.2
Increase in inventories (2.1) (2.4)
(Increase)/decrease in receivables (5.5) 1.7
Increase in payables 1.9 3.9
Increase/(decrease) in provisions 0.2 (0.4)
Non-cash pension costs - 1.6
Income tax paid (6.6) (5.3)
Net cash inflow from operating
activities 36.4 49.8
---------------------------------------------- ------ ------ -------
Net cash flow from operating activities
is stated after the following adjusting
items: 4
Continuing operations
---------------------------------------------- ------ ------ -------
Aborted acquisition costs (0.6) -
Tuffnells provision (0.2) -
Network and re-organisation and
transformation programme planning
costs (0.2) (1.3)
Pension - (0.2)
Return of pension surplus - 8.1
(1.0) 6.6
Discontinued operations (1)
Insurance cost - (0.5)
- (0.5)
---------------------------------------------- ------ ------ -------
Total adjusting items cash flow (1.0) 6.1
---------------------------------------------- ------ ------ -------
(1) On 2 May 2020, the Company completed the sale of Tuffnells
and assumed liability to settle certain pre-disposal insurance
and legal claims relating to employer's liability, public
liability, motor accident claims and legal claims, held as
provisions. During the current period, cash flows of GBP0.2m
are presented within continuing operations.
25. Share Capital
(a) Share capital
GBPm 2023 2022
-------------------------------------------------- ----- -----
Issued, authorised and fully paid:
247.7m ordinary shares of 5p each (2022: 247.7m) 12.4 12.4
-------------------------------------------------- ----- -----
(b) Movement in share capital
Number (m) Ordinary shares
of 5p each
----------------------------------------- ----------------
At 27 August 2022 and at 26 August 2023 247.7
------------------------------------------ ----------------
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at the general meetings of the Company. The Company has one
class of Ordinary shares, which carry no right to fixed income.
No shares were issued during the 52 weeks to 26 August 2023 or
the period to 27 August 2022.
(c) Share premium
GBPm 2023 2022
----------------------------- ----- -----
At 27 August 2022 and at 26
August 2023 60.5 60.5
----------------------------- ----- -----
26. Reserves
(a) Demerger reserve
GBPm 2023 2022
---------------------------- ------- -------
At 27 August 2022 and at 26
August 2023 (280.1) (280.1)
---------------------------- ------- -------
This relates to reserves created following the capital
re-organisation undertaken as part of the demerger of WH Smith PLC
in 2006. The balance represented the difference between the share
capital and reserves of the Group restated on a pro-forma basis as
at 31 August 2004 and the previously reported share capital.
(b) Own shares reserve
GBPm 2023 2022
------------------------------------ ------ ------
Balance at 28/29 August (4.6) (3.9)
Acquired in the period (1.7) (2.2)
Disposed of on exercise of options 1.9 1.5
------------------------------------ ------ ------
Balance at 26/27 August (4.4) (4.6)
------------------------------------ ------ ------
The reserve represents the cost of shares in Smiths News plc
purchased in the market and held by the Smiths News Employee
Benefit Trust to satisfy awards and options granted under the
Group's Executive Share Schemes (see Note 28). The number of
ordinary shares held by the Trust as at 26 August 2023 was
10,613,896 (2022: 12,084,239). In accordance with IAS 32, these
shares are deducted from shareholders' funds. Under the terms of
the Trust, the Trustee has waived all dividends on the shares it
holds.
(c) Translation reserve
GBPm 2023 2022
----------------------------------------- ----- -----
At 27 August 2022 and at 26 August 2023 0.4 0.4
----------------------------------------- ----- -----
27. Retained Earnings
GBPm
------------------------------------------- ------
Balance at 28 August 2021 153.0
Amounts recognised in total comprehensive
expense 33.1
Dividends paid (6.1)
Disposed of on exercise of options (1.5)
Equity-settled share-based payments, net
of tax 1.2
Current tax recognised in equity (0.1)
Deferred tax recognised in equity (0.2)
-------------------------------------------- ------
Balance at 27 August 2022 179.4
Amounts recognised in total comprehensive
expense 25.1
Dividends paid (9.8)
Disposed of on exercise of options (1.9)
Equity-settled share-based payments, net
of tax 1.5
Deferred tax recognised in equity 0.6
-------------------------------------------- ------
Balance at 26 August 2023 194.9
28. Share-based payments
The Group recognised a total charge of GBP1.5m (2022: GBP1.2m)
related to equity-settled share-based payment transactions. The
average share price throughout the year was 44.6p (2022:
35.6p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Group Sharesave
Scheme, the Board may grant options
to purchase ordinary shares in the
Company to eligible employees who
enter into an HM Revenue & Customs
approved Save-As-You-Earn ('SAYE')
savings contract for a term of three
years. Options are granted at up
to a 20% discount to the market price
of the shares on the day preceding
the date of offer and are normally
exercisable for a period of six months
after completion of the SAYE contract.
Executive Share Option Scheme Under the terms of the Group Executive
(ESOS) Share Option Scheme, the Board may
grant options to purchase ordinary
shares in the Company to executives
up to an annual limit of 200% of
base salary. The exercise of options
is conditional on the achievement
of adjusted profit after a three-year
period, which is determined by the
Remuneration Committee at the time
of grant. Provided that the target
is met, options are normally exercisable
until the day preceding the 10(th)
anniversary of the date of grant.
LTIP Under the terms of the Group LTIP,
executive directors and key senior
executives may be awarded each year
conditional entitlements to ordinary
shares in the Company (which may
be in the form of nil cost options
or conditional awards) or, in order
to retain flexibility and at the
Company's discretion, a cash sum
linked to the value of a notional
award of shares up to a value of
200% of base salary. The vesting
of awards is subject to the satisfaction
of a three-year performance condition,
which is determined by the Remuneration
Committee at the time of grant. Subject
to the satisfaction of the performance
condition, awards are normally exercisable
until the 10(th) anniversary of the
date of grant.
Deferred Bonus Plan (DBP) Under the terms of the Group Deferred
Bonus Plan, each year executive directors
and key senior executives may be
granted share awards (in the form
of nil cost options) dependent on
the achievement of the Annual Bonus
Plan performance targets. Awards
are immediately exercisable but a
two-year hold-back period applies,
during which the share certificate
for such shares is held by the Company.
Separately, key senior executives
may also be granted share awards
(in the form of nil cost options)
under the DBP plan in respect of
a (discounted) restricted share award
(dependent on continued employment
with the Company).
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number No of Weighted No of Weighted No of Weighted No of Weighted
of options/ shares average shares average shares average shares average
awards exercise exercise exercise exercise
price (p) price price price
(p) (p) (p)
At 28
Aug 2021 8,387,637 28.92 1,723,212 126.7 13,928,102 - 2,025,544 -
Granted 900,405 34.70 - - 4,043,731 - 1,807,242 -
Exercised (92,308) - - (1,113,915) - (2,333,638) -
Expired
/Forfeited* (1,616,651) 35.80 (666,468) 137.8 (5,964,046) - - -
At 27
Aug 2022* 7,579,083 25.27 1,056,744 126.1 10,893,872 - 1,499,148 -
Granted 1,316,234 55.40 - - 2,695,499 1,337,604
Exercised (264,430) - - - (2,791,373) (1,614,771)
Expired
/Forfeited (670,274) 30.01 (256,294) 137.8 (1,429,910) -
At 26
Aug 2023 7,960,613 800,450 9,368,088 1,221,981
Exercisable
at 26
Aug 2023 - - 800,450 125.3 - - - -
Exercisable
at 27
Aug 2022 - - 1,056,744 126.1 - - - -
*During the current period, the opening number of options for
the LTIP schemes were restated to amend disclosure errors made in
the prior period.
The weighted average remaining contractual life in years of
options/awards is as follows:
Sharesave ESOS LTIP DBP
Outstanding at 26 August
2023 1.4 5.2 1.2 1.5
Outstanding at 27 August 2022 1.9 5.2 1.2 1.5
Details of the options/awards granted or commencing during the
current and comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2023:
Effective date of grant or Jul 2023 - Jan 2023 Jan 2023
commencement date
Average fair value at date
of grant or scheme commencement
- pence 21.5 - 34.9 50.6
During 2022:
Effective date of grant or Jul 2022 - Dec 2021 Dec 2020
commencement date
Average fair value at date
of grant or scheme commencement
- pence 4.3 - 26.0 38.0
The options outstanding at 26 August 2023 had exercise prices
ranging from nil to 139.5p (2022: nil to 167.8p).
The weighted average share price on the date of exercise was 48p
(2022: 37p).
The Sharesave options granted during each period have been
valued using the Black-Scholes model, the LTIP performance measures
include 70% total shareholder return (TSR) metric this is valued by
reference to the share price at date of grant less an adjustment
for the TSR portion of the award. The DBP schemes are valued by
reference to the share price at the date of grant.
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
----- ----
2023 options/awards:
Share price at grant date
- pence 55.4 51 51
TSR adjustment - pence - (23) -
Exercise price - pence 44.3 - -
Expected volatility - per 121.5 - -
cent
Expected life - years 3 - -
Risk free rate - per cent 4.7 - -
Expected dividend yield 8.83 - -
- per cent
Weighted average fair value
- pence 22 28 51
----- ----
2022 options/awards:
Share price at grant date
- pence 34.7 38 38
TSR adjustment - pence - (17) -
Exercise price - pence 32.0 - -
Expected volatility - per 40.3 - -
cent
Expected life - years 3 - -
Risk free rate - per cent 1.7 - -
Expected dividend yield 8.37 - -
- per cent
Weighted average fair value
- pence 4.3 21 38
----- ----
29. Post balance sheet events
The directors have considered the period between the balance
sheet date and the date when the accounts are authorised for issue
for evidence of conditions that existed at the balance sheet date,
either adjusting or non-adjusting post balance sheet events and
have concluded that there are no such events in the current
period.
30. Related party transactions
Transactions between businesses within the Group which are
related parties have been eliminated on consolidation and are not
disclosed in this note.
Transactions with the Group's pension schemes are disclosed in
Note 6.
Trading transactions
Sales to related Amounts owed by related
parties parties
-------------------
GBPm 2023 2022 2023 2022
--------- -------- ------------
Joint ventures 0.4 0.4 - 0.1
--------- -------- ------------
Sales to related parties are for management fees, payment is due
on the last day of the month following the date of invoice.
Non-trading transactions
Loans to related
parties
GBPm 2023 2022
--------
Joint ventures 0.3 0.1
--------
In the prior period, GBP0.1m of the balances above were secured
against the assets of Fresh on the Go Limited.
Tuffnells Deferred Consideration
On 2 November 2021, the Group received GBP6.5m (the first
tranche) of the total amount of unsecured consideration due of
GBP15m. Following receipt of this payment, the Board agreed revised
terms with Tuffnells Holdings Limited (formerly Palm Bidco Limited)
regarding the outstanding deferred consideration payable, such that
it would accept GBP7.5m in full and final settlement of the
outstanding amount due, were it received on or before 2 August
2022. This amount was received in full during the prior period. The
Chairman of Tuffnells Holdings Limited was also a non-executive
director of Smiths News plc and recused himself from all
discussions relating to this matter.
Directors' remuneration
GBPm 2023 2022
Salaries 0.8 0.9
Bonus 0.5 0.6
Non-executive director fees 0.4 0.3
1.7 1.8
Information concerning directors' remuneration, interest in
shares and share options are included in the Directors'
Remuneration report in the Annual Report.
There are 2 (2022: 2) directors to whom retirement benefits are
accruing in respect of qualifying services under money purchase
schemes.
Directors made gains on share options of GBPnil (2022:
GBPnil).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who
are the key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 'Related
Party Disclosures'.
GBPm 2023 2022
Short-term employee benefits 2.9 2.8
Share based payments 1.0 1.1
3.9 3.9
31. Subsidiary and associated undertakings
The below table summarises interests of the Group as at 26
August 2023:
Company name/ Share Group Company name/ Share Group
(number) Class % (number) Class %
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon
SN2 8UH
Martin Lavell
Connect Limited Ordinary Limited Ordinary
02008952 Shares 100% 02654521 (*) Shares 100%
Connect Logistics Pass My Parcel
Limited Ordinary Limited Ordinary
09172965 Shares 100% 09172022 Shares 100%
Connect News & Media Phantom Media
Limited Ordinary Limited Ordinary
08572634 Shares 100% 03805661 (*) Shares 100%
Connect Parcel Freight Smiths News Holdings
Limited Ordinary Limited Ordinary
09295023 Shares 100% 04236079 Shares 100%
Connect Parcels Smiths News Instore
Limited Ordinary Limited Ordinary
09172850 Shares 100% 03364589 Shares 100%
Connect Services Ordinary Smiths News Investments Ordinary
Limited Shares 100% Limited (*) Shares 100%
08522170 06831284
Connect Specialist
Distribution Group Smiths News Distribution
Limited Ordinary Limited Ordinary
08458801 Shares 100% 08506961 Shares 100%
Smiths News Trading
Connect2U Limited Ordinary Limited Ordinary
03920619 Shares 100% 00237811 Shares 100%
Dawson Media Services Ordinary Dawson Limited Ordinary
Limited 06882722 Shares 100% 03433262 Shares 100%
Dawson Guarantee
Company Limited Ordinary Dawson Media Direct Ordinary
06882393 Shares 100% Limited (*) 06882366 Shares 100%
Dawson Holdings Ordinary
Ltd (*) Shares 100%
00034273
Germany
Dawson Media Direct Ordinary 100% Johannstr. 39 40476 Dusseldorf,
GmbH Shares Germany
HRB 96649
Turkey
Dawson Media Direct Ordinary 100% Park Plaza, No:14/24 Resitpasa
Anonim Sirketi Shares Mahallesi Istanbul Turkey
14449
Australia
Dawson Media Direct Ordinary 100% C/O Grant Thornton Australia
Australia Pty Limited Shares Level 17, 383 Kent Street,
615545545 Sydney NSW 2000, Australia
Hong Kong
Dawson Media Direct Ordinary 100% Flat/Rm 5008 50/F, Central
China Limited Shares Plaza, 18 Harbour Road, Wanchai,
1167911 Hong Kong
Thailand
Dawson Media Direct Ordinary 48.9% 87 M Thai Tower, All Seasons
Company Limited Shares Place, 23rd Floor, Wittayu
105558138385 Road, Lumpini Sub-District,
Pathumwan District, Bangkok,
Thailand
* Audit exemption statement
For the 52 weeks ended 26 August 2023, the companies as
indicated in the table by '(*)' above were entitled to exemption
from audit under section 479A of the Companies Act 2006 relating to
subsidiary companies. As such, Smiths News plc (formerly Connect
Group PLC) has provided a guarantee against all debts and
liabilities in these subsidiaries as at 26 August 2023. The members
of these companies have not required them to obtain an audit of
their financial statements for the 52 weeks ended 26 August
2023.
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have
adopted various alternative performance measures (APMs).
These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' APMs, including those in the
Group's industry.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing
additional useful measures of the Group's performance. They provide
readers with additional information on the performance of the
business across periods which is consistent with how the business
performance is planned by, and reported to, the Board and the
Executive Team.
Consequently, APMs are used by the directors and management for
performance analysis, planning, reporting and incentive-setting
purposes.
The key APMs that the Group has focused on and changes to APMs
within the period can be found in Note 1.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS to IFRS for
measure measure reconciliation
Income Statement
Adjusting No direct N/A Note 4 Adjusting items of income
Items equivalent or expenses are excluded
in arriving at Adjusted
operating profit to present
a further measure of the
Group's performance. Each
of these items is considered
to be significant in nature
and/or quantum, non-recurring
in nature and /or are considered
to be unrelated to the Group's
ordinary activities or are
consistent with items treated
as adjusting in prior periods.
Excluding these items from
profit metrics provides
readers with helpful additional
information on the performance
of the business across periods
because it is consistent
with how the business performance
is planned by, and reported
to, the Board and the Executive
Team.
Adjusted Operating Adjusting Income statement/ Adjusted operating profit
operating profit* items Note 4 is defined as operating
profit profit from continuing operations,
excluding the impact of
adjusting items (defined
above). This is the headline
measure of the Group's performance
and is a key management
incentive metric.
Adjusted Profit Adjusting Income statement/ Adjusted profit before tax
profit before items Note 4 is defined as profit before
before tax (PBT) tax from continuing operations,
tax excluding the impact of
adjusting items (defined
above).
Adjusted Profit Adjusting Income statement/ Adjusted profit after tax
profit after items Note 4 is defined as profit after
after tax (PAT) tax from continuing operations,
tax excluding the impact of
adjusting items (defined
above).
Adjusted Operating Depreciation Note 3 This measure is based on
EBITDA profit* and amortisation business unit operating
Adjusting profit from
items Continuing operations. It
excludes depreciation, amortisation
and adjusting items. This
is the headline measure
of the Group's performance
and is a key management
incentive metric.
Adjusted Earnings Adjusting Note 10 Adjusted earnings per share
earnings per share items is defined as continuing
per adjusted PBT, less taxation
share attributable to adjusted
PBT and including any adjustment
for minority interest to
result in adjusted
PAT attributable to shareholders;
divided by the basic weighted
average number of shares
in issue.
Cash flow Statement
Free Net movement Dividends, See Free Free cash flow is defined
cash in cash acquisitions Cash Flow as cash flow excluding the
flow and cash and disposals, in Financial following: payment of the
equivalents Repayment Review section dividend, acquisitions and
of bank disposals, the repayment
loans, of bank loan principal amounts,
EBT share EBT share purchases and
purchases, cash flows relating to pension
Pension deficit repair. This measure
deficit reflects the cash available
repair payments to shareholders.
Free Net movement Dividends, See Free Free cash flow (excluding
cash in cash acquisitions Cash Flow Adjusting items) is Free
flow and cash and disposals, in Financial cash flow adding back Adjusting
(excluding equivalents Repayment Review section cash costs.
adjusting of bank
items) loans,
EBT share
purchases,
Pension
deficit
repair payments
Adjusting
items
Balance Sheet
Bank Borrowings Cash flow Bank Net Debt is calculated
Net less cash statement as total debt less cash
Debt and cash equivalents. Total
debt includes loans and
borrowings, overdrafts and
obligations under finance
leases as defined by IAS
17.
Net Borrowings Cash flow Net debt is calculated as
debt less cash statement total debt less cash and
cash equivalents. Total
debt includes loans and
borrowings, overdrafts and
obligations under leases.
* Operating profit is presented on the Group income statement.
It is not defined per IFRS, however, is a generally accepted profit
measure.
Reconciliation of Free cash flow to net movement in cash and
cash equivalents
A reconciliation between free cash flow and the net increase in
cash and cash equivalents are shown below:
GBPm 2023 2022
Net increase in cash and cash equivalents 2.0 16.0
Decrease in borrowings and overdrafts 8.0 23.0
Movement in borrowings and cash 10.0 39.0
Dividend paid 9.8 6.1
Investment in joint venture 0.3 -
Outflow for EBT shares 1.7 2.6
Continuing free cash flow 21.8 47.7
Discontinued free cash flow - 0.5
Total free cash flow 21.8 48.2
Reconciliation of Bank net debt to reporting net debt
GBPm 2023 2022
Bank net debt (4.2) (14.2)
Unamortised arrangement fees (Note 18) 1.3 2.4
IFRS 16 lease liabilities (Note 19) (23.2) (27.6)
Net debt (Note 17) (26.1) (39.4)
Ends.
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FR UBSARONUARUA
(END) Dow Jones Newswires
November 08, 2023 02:00 ET (07:00 GMT)
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