TIDMSNWS
RNS Number : 0573F
Smiths News PLC
12 November 2020
This announcement contains inside information
Smiths News plc
('The Company')
Audited Preliminary Results Announcement for the 52 weeks ended
29 August 2020
Strong performance delivering on all strategic objectives,
returning focus to our core strengths
Headlines
-- Performance ahead of revised full year expectations issued on 14 July 2020
-- Uninterrupted service to customers and communities across the UK
-- Trading resilience throughout lockdown and good recovery in fourth quarter
-- All major publisher contracts now secured to at least 2024
-- Robust cost control delivering sustainable operating efficiencies of GBP6.7m
-- Disposal of Tuffnells removing drag on profits and distraction of loss-making operation
-- New GBP120.0m three year bank facility agreed in November 2020
-- Bank net debt of GBP79.5m equivalent to leverage of 2 X EBITDA at the year end
Financial performance
Adjusted continuing results(7) FY2020 FY2019 % Change
restated
Revenue GBP1,164.5m GBP1,303.5m -10.7%
EBITDA (excluding IFRS16)
(4) GBP39.1m GBP48.8m -19.9%
Profit before tax GBP27.9m GBP37.6m -25.8%
Earnings per share 9.7p 11.5p -15.7%
Free cash flow GBP10.9m GBP33.2m -67.2%
Bank Net debt (5) GBP79.5m GBP73.9m 7.6%
Continuing statutory results(7)
Revenue GBP1,164.5m GBP1,303.5m -10.7%
Profit before tax GBP14.8m GBP30.3m -51.2%
Earnings per share 4.9p 9.0p -45.6%
Net debt (5) GBP112.9m GBP73.9m 52.8%
Dividend per share nil p 1.0p
--------------------------------- ------------ ------------ ---------
Priorities for shareholder value
We are focused on the delivery of four clear priorities.
-- COVID-19 - continuing to proactively manage through the period of uncertainty, meeting our responsibilities to all stakeholders while protecting our long-term capability
-- Sustainable efficiencies - reducing our operational cost base
through a combination of network and process optimisation,
accompanied with a material reduction in central costs
-- Supply Chain leadership - maintaining our track record of
service excellence and process re-engineering that delivers value
for all
-- Capital management - leveraging our cash generative and
capital light model to substantially reduce net debt and deliver
shareholder returns
Capital management
The Company's new three year banking facility of GBP120m
underpins our plans to strengthen the capital profile of the
business, with an amortisation schedule of GBP15m per annum that is
aligned to reducing net debt to a level of 1x EBITDA by 2023 and
margin that reduces as the Company deleverages. More broadly, the
agreement also provides the necessary scope to meet the investment
needs of the business, while delivering shareholder value through a
stronger balance sheet and the restoration of a future
dividend.
Outlook and current trading
Despite continued wider economic uncertainty our core markets
remain relatively stable. The actions we have taken to reduce costs
and the application of operational best practice, together with the
lessons we have learned in managing successfully through the last
eight months provides a resilient foundation for the year ahead.
Trading in the year to date is in line with the Board's
expectations having maintained the momentum from the last quarter
of FY2020.
Jonathan Bunting, CEO , commenting on today's results said,
' Despite uniquely challenging circumstances we have returned a
strong performance by meeting all our strategic objectives,
resetting our business to focus on its core strengths and deliver
value for our stakeholders. Inevitably, our financial results were
impacted by COVID-19 but we have seen a gradual recovery with good
momentum in the last quarter, demonstrating the resilience of our
markets, our business model and our people.'
Enquiries:
Smiths News plc Via Buchanan below
Jonathan Bunting, Chief Executive
Officer
Tony Grace, Chief Financial Officer
Investor.relations@smithsnews.co.uk
www.corporate.smithsnews.co.uk
Buchanan
Richard Oldworth/ Jamie Hooper/Toto
Berger
smithsnews@buchanan.com
www.buchanan.uk.com 020 7466 5000
Smiths News plc's Preliminary Results 2020 are available at
www.corporate.smithsnews.co.uk
A video of a presentation for analysts is available to view at
https://vimeo.com/478090543/6cb8825e09
A pdf copy of the presentation will be available from the
Company's website from 7am today at
https://corporate.smithsnews.co.uk/investors
Definitions
Notes
The Company uses certain performance measures for internal
reporting purposes and employee incentive arrangements. The terms
'bank net debt', 'free cash flow', 'Adjusted revenue', 'Adjusted
operating profit', 'Adjusted profit before tax', 'Adjusted earnings
per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined
terms under IFRS and may not be comparable with similar measures
disclosed by other companies.
(1) The following are key non-IFRS measures identified by the
Group in the consolidated financial statements as Adjusted
results:
Continuing Adjusted operating profit - is defined as operating
profit including the operating profit of businesses from the date
of acquisition and excludes adjusted items and operating profit of
businesses disposed of in the year or treated as held for sale.
Continuing Adjusted profit before tax - is defined as Continuing
Adjusted operating profit less finance costs attributable to
Continuing Adjusted operating profit and before adjusted items;
including amortisation of intangibles and network and
reorganisation costs.
Continuing Adjusted earnings per share - is defined as
continuing adjusted PBT, less taxation attributable to adjusted PBT
and including any adjustment for minority interest to result in
adjusted PAT attributable to shareholders; divided by the basic
weighted average number of shares in issue.
Adjusted items; are items of income or expense that are
considered significant, in nature or value, and are excluded in
arriving at Adjusted operating profit. The purpose of excluding
these items from adjusted measures is to provide additional
performance metrics to users of the financial statements that
exclude the impact of the items the directors consider to have a
significant impact on reported results and do not relate to the
underlying trading activity of the Group. The specific items vary
between financial years, and may include certain disposal related
costs, legal provisions, amortisation of intangibles, integration
costs, business restructuring costs and network re-organisation
costs including those relating to strategy changes which are not
normal operating costs of the underlying business. They are
disclosed and described separately in Note 4 of the financial
statements to provide further understanding of the financial
performance of the Group. A reconciliation of adjusted profit to
statutory profit is presented on the income statement
(2) Free cash flow - is defined as cash flow excluding the
following: payment of the dividend, acquisitions and disposals, the
repayment of bank loans, EBT share purchases and cash flows
relating to pension deficit repair. Free cash flow (excluding
Adjusted items) is Free cash flow to equity adding back Adjusted
cash costs.
(3) Operating cash flow is defined as operating profit adding
back non-cash items amortisation, depreciation, share based
payments, share of profits of jointly controlled entities, and
non-cash pension costs, adjusting the increase/ decrease in working
capital then deducting pension contributions and tax payments in
accordance with presentation in Note 27.
(4) Adjusted EBITDA - is calculated as Adjusted operating profit
before depreciation and amortisation. In line with loan agreements
Adjusted Bank EBITDA used for covenant calculations is calculated
as Adjusted operating profit before depreciation, amortisation,
Adjusted items and share based payments charge but after adjusting
for the last 12 months of profits/(losses) for any acquisitions or
disposals made in the year. Adjusted EBITDA (excluding IFRS16)
excludes the impact of IFRS16 lease accounting in FY2020 to aid
comparability to FY2019
(5) Bank net debt - is calculated as total debt less cash and
cash equivalents. Total debt includes loans and borrowings,
overdrafts and obligations under finance leases (excluding the
adoption of IFRS16 lease accounting standards), as bank covenants
are tested under frozen GAAP. Net debt is calculated as total debt
less cash and cash equivalents. Total debt includes loans and
borrowings, overdrafts and obligations under leases.
(6) FY2020 - refers to the 52 weeks ended 29 August 2020. FY2019
refers to the full year ended 31 August 2019.
(7) The Preliminary results have been prepared and presented on
a continuing operations basis after adjusting for the discontinued
operations of the Tuffnells business. The prior year period has
been restated accordingly.
(8) External revenue excludes intercompany sales, see Note 3: Segmental Analysis of Results for reconciliation.
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 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 29 August 2020 which
can be found on the Investor Relations section of the Smiths News
plc website - www.corporate.smithsnews.co.uk. However, the contents
of Smiths News plc's website are not incorporated into and do not
form part of this document.
A robust performance in a uniquely challenging year
In the context of unprecedented external challenge, we have
delivered a strong underlying performance, successfully addressing
all our strategic priorities, with our continuing operations
trading profitably through the most disruptive economic period in
decades.
The health and wellbeing of our colleagues and customers has
been our overriding priority in managing through recent months. We
are proud to have maintained a full service to communities across
the UK in the most difficult of circumstances - and by doing so, to
have protected the long term capability and interest of the
business.
The resilience of our markets and flexibility of our business
model, together with our continued control of costs, has resulted
in a financial performance ahead of revised expectations.
Strategically, the sale of Tuffnells in May 2020, the securing of
all our major publisher contracts and the renewal of our banking
facilities, provides the foundations for a strategy that is focused
on strengthening the financial base of the business to deliver
value to all our stakeholders.
Building on a solid first half performance, Smiths News has
remained profitable and cash generative throughout the COVID-19
crisis. Sales of newspapers and magazines, like many consumer
products, were initially severely impacted by the measures taken to
control the virus, but returned more strongly than anticipated in
the last quarter of the year. Our actions to control cost will flow
into the current year, underpinning our flexibility to manage
through continued uncertainty in FY2021.
In this regard, the securing of our last remaining major
publisher contracts provides surety of our territories and high
visibility of revenue and cash flows through to at least 2024. More
immediately, the sale of Tuffnells in May 2020 opens the way to
simplify the former Group central services and actions in hand will
deliver benefits in the current year.
In November 2020 the Company reached agreement for new banking
facilities through to 2023. It is our intention to prioritise a
significant reduction of net debt over the period of the agreement,
delivering value through the combination of reduced leverage and
the prudent allocation of surplus free cash to serve the long term
interests of our stakeholders.
The strategy to focus on our leadership in newspaper and
magazine wholesaling was underlined in November 2020 by the change
of the Company's name to Smiths News plc. With the drag and
distraction of former loss making operations behind us now we have
clarity of purpose that aligns to our core competencies and we are
well placed to successfully manage through the continued
uncertainty while improving the underlying strength of the
Company.
Financial performance impacted by COVID-19
Trading in our continuing operations was materially impacted by
the COVID-19 crisis, the subsequent reduction in sales and changes
to operating procedures that followed the imposition of the UK wide
lockdown on 23 March 2020. Year on year comparisons do not
therefore reflect like for like trading conditions nor are they
necessarily representative of current trends as market conditions
continue to vary in response to ongoing measures and
uncertainty.
Adjusted EBITDA (excluding IFRS16) of GBP39.1m was down by
GBP9.7m over the full year (2019: GBP48.8m) of which GBP2.6m
related to H1 and GBP7.1m to H2. Key factors include:
-- In H1 the reduction was primarily driven by the adverse
trading items which included: lower waste paper revenues from
recycling unsold copies; a national discount retailer removing the
newspaper and magazine category from its stores; the impact of the
loss of DMD's contract with British Airways in June 2019.
-- In H2, the impact of these trading items continued but was
largely offset by central overhead savings.
-- Over the full year, the impact on margin from the established
structural decline in newspaper and magazine sales is estimated to
have been approximately GBP6m (based on the continuation of H1
trends over the 12 months) - however, this was fully offset by
GBP6.7m of network and operational cost savings.
-- In H2 trading in Smiths News, DMD and other propositions was
adversely impacted by circa GBP7.5m as a consequence of the
measures taken to limit the spread of COVID-19. This impact on
trading reflects margin loss partially offset by incremental cost
savings from lower volumes and government furlough receipts of
GBP1.3m.
Adjusted profit before tax from continuing operations of
GBP27.9m is down by 25.8% (FY2019: GBP37.6m) and Adjusted Earnings
per Share of 9.7p is down 15.7% (FY2019:11.5p).
Continuing Free cash flow of GBP10.9m (FY2019: GBP33.2m)
reflects cash movements from the trading impact of COVID-19
including the temporary closure and return of unsold supplies from
a significant number of retail outlets during the lockdown. Working
capital has subsequently reverted to a more standard monthly
working capital cycle during the first few months of FY2021.
Bank Net Debt of GBP79.5m (FY2019: GBP73.9m) is impacted by the
working capital loan of GBP6.5m provided to the purchaser of
Tuffnells, but which has subsequently been repaid in October 2020
and the proceeds used to reduce debt under our banking
facilities.
Continuing Statutory profit before tax of GBP14.8m (FY2019:
GBP30.3m) is impacted by two key items: an impairment charge
relating to goodwill and assets in DMD of GBP5.7m (FY2019:GBPnil)
and the impact of COVID-19 on trading of circa GBP7.5m.
Resilient sales and markets
Newspaper sales were down 6.3% and magazine sales were down 9.6%
in the year. Both categories were materially impacted in the second
half of the year by the COVID-19 pandemic and subsequent
restrictions on social movement, retail closures and suppressed
economic activity.
Immediately following the introduction of the lockdown in March
2020, circa 10% of retail news outlets closed, including most high
street and travel stores which represent some of our highest sales
volume customers. In addition, the restrictions on personal
movement had a severe impact on shopping, travel and commuting
patterns, further impacting demand for newspapers and
magazines.
In April 2020, sales of newspapers had fallen by 18% and
magazines by 49% vs year-on-year comparisons. However, from May
2020 onward, sales and retail openings swiftly returned towards
previous patterns and overall performance in the last quarter was
stronger than anticipated. There was considerable fluctuation over
this period as returning retailers restocked, however, by October
2020 sales had settled in more stable patterns, with newspapers
down 7.5% and magazines down 16.4% in the month compared to the
prior year.
Driving the recovery in sales has been the reopening of retail
outlets as restrictions have eased, together with a shift in
consumer purchasing towards smaller local stores. At 29 August 2020
only 2.5% of our retail outlets were still closed, equating to
approximately 600 stores, and by October 2020 this had reduced
further to approximately 360 outlets, predominately in high street
and travel point locations. Following the implementation of a
second lockdown in England starting on 5 November 2020 and
scheduled to end on 2 December 2020, only a further 115 stores that
we serve have temporarily closed.
The measures to combat the COVID-19 pandemic are ongoing, and
the market continues to be affected by restrictions on social
movement, changes to consumer behaviour, travel and commuting
patterns. For long term strategic purposes we continue to plan on
the basis of a core revenue decline in the range of 3% and 5% per
annum, however, we expect year-on-year sales declines to be greater
over the next 12 months, as a consequence of the ongoing impacts of
COVID-19.
Proactively managing through COVID-19
As the sole supplier of newspapers and magazines to over half of
the UK our frontline colleagues and service delivery partners were
designated as key workers recognising our wider social
responsibility to supply communities in our distribution
territories across the UK.
Operationally, the imperatives of ensuring the safety of
colleagues, service partners and customers, while maintaining a
full service, were both complex and costly. By working
collaboratively with our supply chain partners and through the
commitment and courage of our frontline workforce and contractors
we ensured communities across the UK continued to receive
uninterrupted supplies. The robust control of costs and swift
action to consolidate routes in the light of lower volumes provided
some mitigation for the reduced sales and there are lessons and
efficiency opportunities which will be carried forward.
Financially, the Smiths News business model proved exceptionally
resilient in what was a significant stress test for any company. In
particular, our multiple revenue streams of sales margin,
distribution service charges and other incomes from recycling of
unsold returned magazines has underpinned continued profitably and
cash generation despite the materially reduced volumes. Working
capital was impacted by the need to credit unsold copies of
magazine returns from those retailers which had closed without a
subsequent restock of titles. As the restrictions have eased and
more retailers return to trading, this is unwinding, and working
capital returned to normal levels in October 2020.
Since March 2020 colleagues in support roles have been asked to
work from home and most have continued to do so. Where appropriate,
colleagues were placed on furlough, primarily from central
functions and our ancillary businesses DMD and Instore, the
operations of which were temporarily suspended. All furloughed
colleagues returned to work between July 2020 and 31 August 2020,
at which time the Company ended any use of the furlough scheme.
Throughout the period of disruption and in planning for the
future our actions have been guided by four principles:
Safety - the safety and wellbeing of our colleagues and
customers is paramount
Service - we have a responsibility to maintain as full a service
as possible
Capability - mitigating actions must not damage our long-term
capability
Sustainability - working with our partners to support the
interests of the supply chain
These guiding principles remain central to our plans to
pro-actively manage operations through the continuing restrictions
and the uncertain arrangements for the winter months. While we are
hopeful of a gradual return to normality in 2021, we are also fully
prepared should restrictions remain or be strengthened, and
confident that we can trade profitably through all reasonably
foreseeable outcomes.
Good progress on cost and efficiency
Operational cost savings from network and distribution
efficiencies amounted to GBP6.7m, more than offsetting the margin
impact of the long term decline in core sales, prior to this year's
further impact of the COVID-19 pandemic.
Sustainable efficiencies included: a detailed review and
retendering of our routing and trunking arrangements; new totes
that allow for additional fill capacity in vehicles, central cost
reductions and network restructure; the automation of call handling
and the increased take-up of online order management by
customers.
The Company's outsourced support services in India have bedded
in. Our UK customer service facilities have now reduced from three
locations to one. Annualised savings of GBP4.0m from the
restructure of central functions (following the sale of Tuffnells
in May 2020) will flow through into the current year.
The opportunity to simplify layers of management in line with
the more focused strategy and simpler corporate model has been
taken. Several former senior executive roles and associated 'Group'
functions have been removed. The new Executive team is directly
responsible for the day to day management of Smiths News, blending
deep experience with some fresh and diverse perspectives. Headcount
at our head office and support functions has materially reduced
since the sale of Tuffnells, enabling a resizing of our office
facilities.
Looking ahead, now that our all our major publisher contracts
are in place, we can return our full attention to network and
process opportunities. In parallel, we plan on the basis of
continuing incremental efficiency improvements while delivering
great service that minimises rectification costs.
All contracts now secured
The completion of a new 5-year agreement in October 2020 with
Associated Newspapers means we now have over 95% of our current
publisher volumes and all our territories secured to at least 2024,
with the remainder of smaller publishers operating on a rolling
contractual basis. Our publisher contracts provide us with the
necessary certainty to make investments in our network that will
support further efficiency gains. They are also endorsement of
Smiths News' leading service and positive relationships with our
key trading partners.
Ancillary operations
The restrictions to international travel continue to have a
material impact on the sales and distribution income of DMD, our
ancillary business supplying airlines and travel points. Operations
were suspended during the national lockdown and although these
recommenced in July 2020 the outlook for the immediate future
remains uncertain. Similarly, the demand for field marketing
services through our Instore business was compromised by the
measures to limit the spread of COVID-19, with retailers cancelling
any non-critical visits by external parties to their stores. We are
confident that the underlying business models can deliver value in
future, however, our expectations for overall Company performance
are not dependent on the recovery of these ancillary
operations.
Successful disposal of Tuffnells
On 2 May 2020 in line with conclusions of a strategic review the
Company sold the Tuffnells parcel freight business for an aggregate
deferred consideration of GBP15 million, payable in three
instalments between 18 months and three years from Completion. The
disposal followed the earlier Sale and Leaseback of eight Tuffnells
properties in Quarter 1 FY2020, with net proceeds of GBP14.6m.
As part of the sale agreement the Company made available a
temporary working capital loan to the purchaser of which GBP6.5m
was drawn down. In October 2020 the loan was repaid in full and the
proceeds used to reduce net debt.
The sale of Tuffnells was achieved in the most challenging of
circumstances due to the onset of the COVID-19 pandemic, impacting
both market interest in the acquisition as well as challenges
around potential purchasers accessing financing in the credit
markets. In removing the ongoing operating losses its disposal has
played a major part in our ability to manage through the current
uncertainty, materially reducing net cash outflows - this, in turn,
has aided the successful renegotiation of the Company's banking
arrangements in November 2020.
By removing the distraction of an underperforming business,
management is now able to focus on our core strengths and expertise
in newspaper and magazine distribution. Furthermore, the sale has
an immediate positive impact on the Company's adjusted earnings per
share on a restated basis, and facilitates the Board's priority to
reduce net debt.
The net cash impact of Tuffnells in the year was an outflow of
GBP15.9m (FY2019:GBP25.2m) comprising of losses from operations,
the secured loan to the new owners, disposal costs and partially
offset by the proceeds from the sale and leaseback of
properties.
Focused strategy and priorities
Looking ahead, our strategy is clear. We will concentrate on our
strength in newspaper and magazine wholesaling, delivering
excellent service while continuing to drive efficiencies through
network restructuring and the further reduction of central support
costs. Our publisher contracts underpin a predictable and highly
resilient business model from which we aim to deliver fair
shareholder value in tandem with meeting the needs of other
stakeholders.
Smiths News has an excellent track record of delivering on its
core objectives. For the foreseeable future, improving
profitability through a return to the basics of great service and
robust cost control will be our focus. We recognise the challenge
of long term revenue growth and will remain alert to discreet
opportunities in our core market - however, we do not plan on
diversification through acquisition.
Our operational priorities for the coming year are:
1. Proactively managing through current uncertainty:
- maintaining service and safety standards
- robustly controlling costs without damage to long term
capability
- positively applying the lessons from the first lockdown into
our business model
- capitalising on sales opportunities as markets return towards
normal trends
2. Operational and central cost reduction in the year sufficient
to offset the margin impact of the decline in core sales
3. Progressing the next generation of network restructuring and
efficiencies in the supply chain that will deliver ongoing savings
over the lifetime of our contracts
Refinancing
The Company's new banking arrangements provide facilities of
GBP120.0m, comprised of three parts.
-- Term loan A of GBP45.0m- amortising at GBP15.0m p.a. over the lifetime of the facility
-- Term loan B of GBP35.0m - non amortising but subject to agreed repayments from the deferred consideration due from the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Company's defined benefit pension scheme.
-- A revolving credit facility of GBP40.0m
These facilities and their terms align to the Board's strategy
of prudent capital management with a focus on significantly
reducing net debt. The agreement precludes the payment of a
dividend in relation to FY2020 but includes provisions for
attractive shareholder returns through the payment of future
dividends, subject to covenant tests and a cap of GBP4.0m relating
to FY2021 and GBP6.0m in the following year.
Bank Net Debt
Bank Net Debt at year end was GBP79.5m (FY2019:GBP73.9m), up
GBP5.6m as a consequence of a working capital loan of GBP6.5m to
Tuffnells new owners, which was subsequently repaid in October 2020
and the proceeds used to reduce bank debt. Given the exceptional
circumstances of the year and the initial impact of COVID-19 on
working capital this is ahead of our revised expectations.
Dividend
There will be no dividend for FY2020 (FY2019:1.0p), however, the
Board expects to return to the payment of a dividend for
FY2021.
Outlook
While the immediate outlook for our markets and the UK economy
remains uncertain, we are confident that in applying the lessons of
the last eight months we can continue to trade profitably with
positive cash generation in all reasonably foreseeable scenarios.
The trading momentum from the last quarter of FY2020 has flowed
through to the current financial year and we are pressing ahead
with our plans to further improve operational efficiency and reduce
net debt. Trading in the year to date has been in line with the
Board's expectations.
FINANCIAL REVIEW
OVERVIEW
Overall performance has been resilient in an unprecedented year,
including the disposal of Tuffnells in May 2020 and the need for
the business to quickly adapt to the impact of COVID-19 on margins
and costs. Smiths News demonstrated the strength of its business
model as it rapidly flexed its cost base to adapt to the reduction
in newspaper and magazine volumes during the COVID-19 national
lockdown in the spring and summer of 2020, while remaining focused
on continuing to deliver its annual network costs saving target to
maintain margins.
The financial position of the Group benefited from positive
continuing free cash flow in the year of GBP10.9m. Although Bank
Net Debt at year end increased to GBP79.5m (FY2019: GBP73.9m) as
the positive continuing free cash flow from Smiths News was offset
by discontinued cash outflows in the year including a working
capital loan of GBP6.5m provided to the new owners of Tuffnells.
The loan was fully repaid in October 2020, with the proceeds used
to reduce net debt.
CONTINUING ADJUSTED RESULTS
GROUP
Continuing Adjusted results GBPm 2020 2019 Change
restated
---------------------------------- -------- ---------- --------
Revenue 1,164.5 1,303.5 (10.7%)
EBITDA 45.7 48.8 (6.4%)
Operating profit 35.1 43.6 (19.5%)
Net finance costs (7.2) (6.0) (20.0%)
---------------------------------- -------- ---------- --------
Profit before tax 27.9 37.6 (25.8%)
Taxation (4.2) (9.3) 54.8%
---------------------------------- -------- ---------- --------
Effective tax rate 15.1% 24.7%
---------------------------------- -------- ---------- --------
Profit after tax 23.7 28.3 (16.3%)
---------------------------------- -------- ---------- --------
Continuing Adjusted operating profit of GBP35.1m was down
GBP8.5m (19.5%) on the prior year. The variance can be separated
into two components: core underlying trading in the full year and
the impact of COVID -19 on trading in H2 2020.
Core underlying trading was cGBP1m adverse in the year.
This was driven by a combination of:
-- The full year impact of three trading items highlighted in
the H1 2020 interim results. Lower waste paper rates; a national
discount retailer removing the newspaper and magazine category from
stores; and the full year impact of DMD's loss of the British
Airways contract in June 2019.
-- The full year impact of these three items and the normal
year-on-year structural decline in newspaper and magazine sales,
was largely offset by GBP6.7m of network cost savings and central
overhead savings.
In H2 2020 adjusted operating profit performance at Smiths News
was adversely impacted by a COVID-19 impact on trading of cGBP7.5m
compared to prior year. The reduction in newspaper and magazine
margins from lower sales volumes due to COVID-19 lockdowns was
partly mitigated by incremental cost saving initiatives implemented
in H2 2020.
Net finance charges of GBP7.2m (FY2019: GBP6.0m) were up on
prior year by GBP1.2m. Finance lease interest of GBP1.7m (FY2019:
GBP0.1m) includes the GBP1.7m impact of adopting IFRS16 lease
accounting in the year. Other net finance charges includes:
interest costs on borrowing of GBP4.7m (FY2019: GBP5.1m) a decrease
year-on-year as average gross borrowings fell in the year;
amortisation of bank arrangement fees GBP0.6m (FY2019: GBP0.5m);
and pension interest costs GBPnil (FY2019: GBP0.1m).
Adjusted profit before tax was GBP27.9m, down 25.8% on last
year.
Taxation of GBP4.2m was a lower effective tax rate of 15.1% than
prior year (2019: 24.7%), due to the loss in Tuffnells being
absorbed as group relief.
STATUTORY CONTINUING RESULTS
GROUP
Statutory continuing results GBPm 2020 2019 Change
restated
----------------------------------- -------- ---------- --------
Revenue 1,164.5 1,303.5 (10.7%)
Operating profit 21.1 36.3 (41.9%)
Net finance costs (6.3) (6.0) (5.0%)
----------------------------------- -------- ---------- --------
Profit before tax 14.8 30.3 (51.2%)
Taxation (2.8) (8.4) (66.7%)
----------------------------------- -------- ---------- --------
Effective tax rate 18.9% 27.8%
----------------------------------- -------- ---------- --------
Profit after tax 12.0 21.9 (45.2%)
----------------------------------- -------- ---------- --------
Statutory continuing profit before tax of GBP14.8m, GBP15.5m
down on the prior year (FY2019: GBP30.3m). The decline was
primarily driven by: the impact of COVID-19 on trading in H2 2020
at Smiths News which was circa GBP7.5m, an impairment charge
relating to goodwill and assets at DMD GBP5.7m (FY2019: GBPnil);
and an increase in network and reorganisation costs of GBP0.9m to
GBP6.8m (FY2019: GBP5.9m).
The effective statutory income tax rate for continuing
operations was 18.9% (FY2019: 27.8%), as the tax deduction
available for Adjusted items was higher at GBP1.4m (FY2019:
GBP0.9m) and Group relief relating to the losses in Tuffnells.
Statutory continuing profit after tax of GBP12.0m is down by
GBP9.9m (FY2019: GBP21.9m), and statutory continuing profit per
share of 4.9p is down 4.1p (FY2019: 9.0p).
The continuing profit after tax of GBP12.0m was offset by losses
from discontinued operations relating to Tuffnells of GBP18.7m
(FY2019: GBP53.4m - loss). This has led to an overall loss
attributable to equity shareholders in the year of GBP6.7m (FY19:
GBP31.5m loss). This resulted in the net liabilities on the balance
sheet increasing GBP6.7m to a reported net liability at 29 August
2020 of GBP81.6m (FY2019: GBP74.3m).
The Smiths News plc company entity balance sheet continues to
have distributable reserves of GBP129.1m to allow future dividend
payments.
EARNINGS PER SHARE
Continuing Adjusted Continuing Statutory
----------------------------------------- ---------------------- -----------------------
2020 2019 restated 2020 2019 restated
restated
----------------------------------------- ------ -------------- ------- --------------
Earnings attributable to ordinary
shareholders (GBPm) 23.7 28.3 12.0 21.9
Basic weighted average number of shares
(millions) 244.5 246.4 244.5 246.4
Basic Earnings per share 9.7p 11.5p 4.9p 9.0p
Diluted weighted number of shares
(millions) 247.2 247.1 247.2 247.1
Diluted Earnings per share 9.6p 11.5p 4.9p 9.0p
----------------------------------------- ------ -------------- ------- --------------
Earnings attributable to shareholders on a continuing Adjusted
basis of GBP23.7m resulted in an Adjusted EPS of 9.7p, a decrease
of 1.8p on last year, driven by COVID-19 trading impacts despite a
resilient underlying core performance at Smiths News.
The fully diluted weighted number of shares was 247.2m (FY2019:
247.1m). Fully diluted shares include a 2.6m diluted share
adjustment for employee incentive schemes (FY2019: 0.7m).
Including Adjusted items, statutory continuing earnings per
share is down 4.1p to 4.9p (FY2019: 9.0p per share).
DIVID
2020 2019
-------------------------------------- ------ -----
Dividend per share (paid & proposed) nil 1.0p
Dividend per share (recognised) 1.0p nil
-------------------------------------- ------ -----
The Board remain confident in future positive cash flows and the
immediate trading priorities of the business. However, after
careful consideration of: the Group's overall performance in the
year; the ongoing uncertainty in relation to COVID-19 on the
trading environment; and the newly signed three year refinancing
facility, the Board has resolved not to propose a final dividend
(FY2019: 1.0p).
SMITHS NEWS (including DMD)
Adjusted figures - GBPm 2020 2019 Change
------------------------- -------- -------- --------
Revenue 1,164.5 1,303.5 (10.7%)
Operating profit 35.1 43.6 (19.5%)
------------------------- -------- -------- --------
Operating margin 3.0% 3.3% (30bps)
------------------------- -------- -------- --------
Revenue was GBP1,164.5m (FY2019: GBP1,303.5m) down 10.7%.
In H1 2020 revenue was down 4.5% compared to prior year, but in
H2 2020 revenue decline increased following COVID-19 lockdowns and
was down 16.9%.
Newspaper and magazine sales in H1 2020 continued to perform in
line with long term trends, with a relatively stronger performance
than expected from newspapers helping to offset weaker magazine
sales. In H2 2020 newspaper and magazine sales were significantly
disrupted by COVID-19. In the twelve weeks following national
lockdown newspaper and magazine sales were down 25% as a result of
restriction on customers' movements and the temporary closure of
high street and travel location shops. Approximately 10% of news
and magazine retail outlets closed as part of the national
lockdown. Revenues recovered in the fourth financial quarter as
lockdown restrictions eased but remain below pre-lockdown
levels.
Overall, newspaper sales for FY20 were down 6.3% and magazine
sales were down 9.6%. However, the split between H1:H2 2020
newspaper and magazine sales better illustrates the impact of
COVID-19 on revenue. Newspaper sales in H2 2020 were 11.4% down on
prior year (H1 2020: 2.1% down). Magazine sales in H2 were 24.7%
down (H1 2020: 8.5% down).
The DMD business unit revenue of GBP10.5m (FY19: GBP24.1m) was
down GBP13.6m (56%), primarily as a consequence of COVID-19
impacting its travel customers at airlines and airports, compounded
by the annualised impact of the loss of the British Airways
contract in FY2019.
Good progress has been made with the renewal of publisher
contracts in the year. In September 2019, a new contract with the
Telegraph was confirmed and on 13 October 2020, the renewal of the
Associated Newspapers publisher agreement was announced. Over 95%
of Smiths News' newspaper and magazine current contractual revenues
are now secured until 2024. All our existing territories have been
retained, providing the necessary certainty to unlock supply chain
efficiencies over the contract periods.
Adjusted operating profit of GBP35.1m (FY2019: GBP43.6m) was
down GBP8.5m (19.5%) which can be separated into two distinct
categories: underlying trading impacts for the full year (excluding
COVID-19) and H2 2020 impact of COVID-19.
The underlying impacts (excluding COVID-19) in the year resulted
in adjusted operating profit being down by cGBP1m.
-- The Smiths News network saving programme generated GBP6.7m of
savings in year from the labour and the distribution cost base
which fully mitigated the core structural margin decline in sales
of newspapers and magazines. Network savings were generated from
final mile route reductions and the annualised benefits of depot
consolidation.
-- Reduction in waste paper rates by 50% compared to the prior
year period resulted in GBP1.8m less margin.
-- A national discount retailer removed the newspaper and
magazine category earlier in the year from its stores impacting
GBP2.2m of margin.
-- DMD Adjusted operating profits fell by GBP0.9m in the period
following the loss of the British Airways contract in June
2019.
-- Central cost overheads were reduced by GBP3.5m from
continuation of cost saving initiatives, implementation of shared
service model and rationalisation of back office costs following
the disposal of Tuffnells in May 2020.
The impact of COVID-19 on profits in H2 2020 was to reduce
adjusted operating profits by cGBP7.5m. The impact of COVID-19 and
the sharp fall in H2 2020 revenue and margin was the single largest
event in the year with a combined impact of cGBP7.5m on profits:
Smiths News margins were impacted cGBP5m, DMD cGBP2m and other
business propositions cGBP0.5m. The reduced profits were after:
-- the Smiths News COVID-19 cost response programme which
generated incremental savings in H2 2020 as result of rapidly
flexing the contractor cost base for lower volumes and changes to
final mile delivery routes.
-- The Group furloughed approx. 550 colleagues between March
2020 and July 2020 during the height of the national lockdown at
Smiths News, DMD and Instore and received a GBP1.3m furlough
subsidy from the government towards their employment costs.
After the standard network savings actions plus the incremental
COVID-19 cost mitigating actions were delivered, the operating
margin in the year declined only 30bps to 3.0% (FY19: 3.3%).
ADJUSTED ITEMS
The Group incurred a total of GBP15.1m (2019: GBP60.8m) of
Adjusted items, after tax GBP17.3m (2019: GBP50.9m). Adjusting
items before tax were split between continuing operations: GBP13.1m
(2019: GBP7.3m) and discontinued operations: GBP2.0m (2019:
GBP53.5m).
Adjusting items are defined in the accounting policies in note 1
and in the glossary on page 45, in the directors' opinion the
impact of removing these items from the adjusted profit give the
true underlying performance of the Group.
Adjusting items before tax for discontinued operations all
related to the Tuffnells business. The charges in the current year
of GBP2m related to: asset impairments GBP0.6m; the net impact of
the sale and leaseback of properties of GBP1.0m; the net profit of
GBP0.6m following the strategic review and sale of Tuffnells; and
depot closures and executive redundancies of GBP1m prior to
disposal. In the prior year costs of GBP53.5m related primarily to
the impairment of Tuffnells goodwill of GBP45.5m and amortisation
of acquired intangibles of GBP6.6m. Tax charges on discontinued
adjusting items totalled GBP3.6m (2019 credit of GBP9.0m).
The tables below and commentary provide a summary of the
adjusting items impacting continuing operations. Full details of
these and those impacting discontinued items can be found in note
4.
Continuing Operations GBPm 2020 2019
------------------------------------- ------- ------
Network and re-organisation costs (6.8) (5.9)
Asset impairments (6.4) -
Pensions (0.9) (2.0)
Other 0.1 0.6
Total before tax and interest (14.0) (7.3)
Finance income - unwind of deferred 0.9 -
consideration
------------------------------------- ------- ------
Total before tax (13.1) (7.3)
Taxation 1.4 0.9
------------------------------------- ------- ------
Total after taxation (11.7) (6.4)
Adjusted items from continuing operations before tax were a
charge of GBP13.1m (2019: GBP7.3m).
The largest component of this was network and reorganisation
costs of GBP6.8m. This can be broken down into three major
components. Firstly, the outsourcing of central functions to our
outsourcing partner in India; which began in 2019. In 2020, total
costs were GBP1m (2019:GBP3.2m). Secondly, the restructuring of our
magazine hubs in our network incurring GBP1.9m of mainly redundancy
costs. Thirdly, as a consequence of both the disposal of Tuffnells
and due to the impact of Covid-19 lockdowns on our trading, we have
significantly reduced heads in both our DMD and Instore business
and in our central functions incurring GBP2.7m of costs. The
balance of costs was related to changes in the group's executive
team.
The impact on trading of the lockdowns associated with the
COVID-19 pandemic also triggered impairment reviews of a number of
the group's trading assets. These reviews led the group to write
down assets by GBP6.4m in total for the year. The largest component
of this related to the full write down of the goodwill in the DMD
business of GBP5.7m reflecting the significant reduction in trading
of that business which trades primarily in the global travel
market; which has been significantly adversely impacted.
The tax credit on continuing adjusted items was GBP1.4m
(2019:GBP0.9m)
FREE CASH FLOW
Free cash flow generation remains one of the Group's key
strengths. Free cash flow includes lease payments, Adjusted items,
interest and tax; but it excludes pension deficit recovery
payments.
GBPm 2020 2019 restated
------------------------------------------------- ------ --------------
Operating profit continuing (including Adjusted
items) 21.1 36.3
Adjusted items 14.0 7.3
Depreciation & amortisation 10.6 5.2
------------------------------------------------- ------ --------------
Adjusted EBITDA 45.7 48.8
Working capital movements (5.7) (0.7)
Capital expenditure (7.0) (2.8)
Lease payments (6.8) (1.5)
Net interest and fees (6.5) (5.1)
Taxation (2.2) (2.2)
Other 0.7 1.2
------------------------------------------------- ------ --------------
Free cash flow (excluding adjusted items) 18.2 37.7
------------------------------------------------- ------ --------------
Adjusted items - cash effect (7.3) (4.5)
Continuing Free cash flow 10.9 33.2
------------------------------------------------- ------ --------------
There has been a clear focus on cash performance and liquidity
in the year with the Group still generating free cash flow of
GBP10.9m (FY19: GBP33.2m) down 67.2%, in what has been an
unprecedented period with both the disposal of Tuffnells and the
tumultuous impact of COVID-19 on the second half of the financial
year.
Adjusted EBITDA of GBP45.7m is down by GBP3.1m 6.6%, compared to
FY2019 of GBP48.8m. The primary drivers are H2 2020 COVID-19 impact
of circa GBP7.5m and the underlying trading, offset by the
transition to IFRS16 'Lease' accounting with the rental charges of
GBP6.6m being removed from EBITDA.
The decrease in working capital in the period was GBP5.7m
(FY2019: decrease GBP0.7m) primarily reflecting the timing of
working capital movements across year end.
Cash capital expenditure in the year was GBP7.0m (FY2019:
GBP2.8m) an increase of GBP4.2m. This was as a result of the
capital commitments and the capital creditor unpaid from the end of
the last financial year of GBP2.3m and GBP2.0m respectively. Depot
and network investments were GBP3.9m (FY2019: GBP2.6m) and
technology investment was GBP3.1m (FY2019: GBP1.7m).
Lease payments of GBP6.8m (FY2019: GBP1.5m) have increased by
GBP5.3m. This comprises GBP5.9m of IFRS 16 lease payments (formerly
treated as operating leases) offset by GBP0.6m decrease in other
former IT finance lease payments that expired in the year.
Net interest and fees of GBP6.5m (FY2019: GBP5.1m) has increased
by GBP1.4m. Bank interest fell by GBP0.3m as average gross bank
borrowings fell during the year. However, this was offset by the
adoption of IFRS 16 leases which accounted for the GBP1.7m increase
in interest payments (formerly treated as operating lease
rentals).
Cash tax outflow of GBP2.2m (FY2019: GBP2.2m outflow).
The total net cash impact of Adjusted items was GBP7.3m (FY2019:
GBP4.5m). This comprised: GBP6.4m (FY2019: GBP4.0m) of network
reorganisation and restructuring costs; and pension buy-in costs
GBP0.9m (FY2019: GBP2.0m).
NET DEBT
GBPm 2020 2019
restated
----------------------------------------------------- -------- ----------
Opening net debt (73.9) (83.4)
Continuing operations Free cash flow 10.9 33.2
Discontinued operations Free cash flow (4.9) (24.9)
----------------------------------------------------- -------- ----------
Free cash flow 6.0 8.3
Lease creditor & other movement 2.5 2.4
Dividend paid (2.4) -
Purchase of own shares for employee share schemes (0.7) -
Disposal costs (3.7) -
Continuing operations - pension deficit recovery - (0.9)
Discontinued operations - pension deficit recovery (0.8) (0.3)
Discontinued operations - Tuffnells working capital (6.5) -
loan
Bank net debt (79.5) (73.9)
----------------------------------------------------- -------- ----------
IFRS16 leases (33.4) -
----------------------------------------------------- -------- ----------
Closing net debt (112.9) (73.9)
----------------------------------------------------- -------- ----------
Bank net debt (excluding IFRS16 'Leases') closed the period at
GBP79.5m compared to GBP73.9m at August 2019 an increase of
GBP5.6m. Smiths News continued to generate positive free cash flow
in the year of GBP10.9m, despite the impact of COVID-19 in H2 2020.
However, bank net debt rose by GBP5.6m primarily as a result of
discontinued cash out flows and disposal costs of GBP15.9m
following the disposal of Tuffnells in May 2020. The secured
working capital loan of GBP6.5m provided to the new owners of
Tuffnells in May 2020 was fully repaid in October 2020.
The Group's Bank net debt/EBITDA ratio rose to 2.0x, (FY2019:
1.9x) due to the decline in EBITDA following the impact of COVID-19
in H2 2020 and the advance of a secured working capital loan to the
new owners of Tuffnells in May 2020 which was fully repaid in
October 2020. The bank net debt to EBITDA covenant of 2.0x remains
within our main leverage covenant ratio of 2.75x (covenant testing
is based on frozen GAAP in the bank facility agreement).We remained
comfortably within all our other bank covenant tests at year
end.
The intra-month working capital cash flow cycle at Smiths News
generates a routine and predictable cash swing of up to GBP40m
within the overall bank facility of GBP120m. This results in a
predictable fluctuation of net debt during the course of the month
compared to the closing net debt position. Our average gross
borrowing (excluding net cash balances) during FY2020 were GBP105m
(FY2019: GBP112m).
Free cash flow generation (after Adjusted items) of GBP10.9m in
the year went towards the repayment of debt and the funding of a
final FY19 announced dividend of GBP2.4m (FY2019: GBPnil).
Tuffnells had a net cash outflow of GBP16.0m in the period
(FY2019: GBP18.7m outflow) after net proceeds from the sale and
leaseback of eight Tuffnells properties generated GBP14.6m which
offset other cash outflows of GBP22.6m in the period.
Discontinued pension funding costs increased to GBP0.8m (FY2019:
GBP0.3m) for the Tuffnells defined pension scheme. Pension deficit
repair payments are considered as a non-free cash flow item.
The adoption of the new IFRS16 'Leases' accounting standard has
the impact of recognising a right-of-use asset of GBP32.8m and
lease liability of GBP33.4m at the 29 August 2020. At the
transition date of 1 September 2019 (including discontinued
operations) a right-of-use asset of GBP73.4m and lease liability of
GBP73.6m was recognised. Closing net debt (including IFRS16
'Leases') is GBP112.9m at 29 August 2020 an increase of GBP39.0m on
prior year.
REFINANCING
On 6 November 2020, the Group signed a new three-year GBP120
million facility, comprises a GBP45m amortising term loan (Facility
A), a GBP35m bullet repayment term loan (Facility B) and a GBP40
million multicurrency revolving credit facility (RCF). The
agreement is with a syndicate of banks comprising existing lenders
HSBC, Barclays, Santander, AIB and Clydesdale and one new lender,
Shawbrook Bank.
The facility is available at an initial margin of 5.5% per annum
over LIBOR (in respect of Facility A and the RCF) and 6% per annum
over LIBOR (in respect of Facility B). This pricing is higher than
current levels but remains competitive and reflective of the more
difficult market conditions and tightened credit markets. The
margin is subject to reduction as the Group reduces its net
leverage in line with its stated strategic priorities.
Consistent with the Group's stated strategic priorities to
reduce net debt, the terms of the new facility agreement include:
an amortisation schedule of GBP15m per annum for the repayment of
Facility A; agreed repayments against Facility B arising from funds
received in relation to both deferred consideration received
following the sale of Tuffnells and any cash surplus arising from
the proposed move to buy-out of the Group's defined benefit pension
scheme; and an absolute preclusion of payments of dividends in
respect of FY2020 and capped dividend payments thereafter for
FY2021 (up to GBP4m) and FY2022 onwards (up to GBP6m per year). As
part of the terms of the refinancing, the Group and its principal
trading subsidiaries have also agreed to provide security over
their assets to the lenders.
As part of the terms of the refinancing, the Group and its
principal trading subsidiaries have agreed to provide security over
their assets to the lenders.
The refinancing replaces the Group's existing facility agreement
(which comprises a term loan facility of GBP50 million and a
multicurrency revolving loan facility of GBP125 million) which was
due to mature on 31 January 2021. The final maturity date of the
new facility is 6 November 2023.
PENSION SCHEMES
The Group operates a defined benefit scheme, which is both
closed to new entrants and closed to future accrual.
The Smiths News defined benefit pension scheme (the WH Smith
Pension Trust) which as at 29 August 2020 had an IAS 19 surplus of
GBP15.2m (31 August 2019: GBP15.8m - restated for a prior period
increase of GBP8.2m in the defined benefit obligation of the WH
Smith Pension Trust in 2019 for equalisation of retirement age).
The Group does not recognise the surplus in the accounts as the
Group does not have an unconditional right to a refund of the
surplus on closure of the scheme.
In October 2018, the Trust entered into an insurance backed
annuity to the 'buy-in' of the Scheme assets within the section of
the Trust sponsored by Smiths News. This 'buy-in' annuity is
recognised as a plan asset and the difference in value is
considered an actuarial re-measurement. The Smiths News section of
the WH Smith Pension Trust completed the actuarial triennial
valuation as at 31 March 2018 and concluded it no longer required
funding.
The total cash contribution for both defined benefit schemes,
which include pension administration fees and disclosed within the
cash flow statement, amounted to GBP0.8m for FY2020 (FY2019:
GBP1.6m).
DISCONTINUED OPERATIONS
On the 2 May 2020, the Group completed the sale of the Tuffnells
business for GBP15.0m of cash, which is deferred and payable in
three tranches between eighteen months and thirty-six months from
date of disposal. The Group made a working capital loan available
to the new owners of GBP10.5m (which was secured against the
Tuffnells' properties) of which GBP6.5m was drawn at year end. On
the 1(st) October 2020 the full loan was repaid and the security
over the Tuffnells' properties released.
Tuffnells reported an Adjusted operating loss for the period to
2 May 2020 of GBP11.7m (FY19: GBP14.1m loss) and adjusted loss
before tax of GBP13.3m (FY19: GBP14.4m loss).
The disposal of Tuffnells resulted in a profit on disposal of
GBP1.8m and disposal costs of GBP3.7m were incurred.
Discontinued statutory loss before tax was GBP15.3m (FY2019:
GBP67.9m)
There were no discontinued operations in the prior year. Further
details of the strategic review and impact of the sale of Tuffnells
are provided in note 11 of the financial statements.
PRINCIPAL AND EMERGING RISKS
The Group has a clear framework in place to continuously
identify and review both the principal and emerging risks it faces.
This includes, amongst others, a detailed assessment of business
and functional teams' principal risks and regular reporting to and
robust challenge from both the Executive Team and Audit Committee.
The directors' assessment of the these principal risks is aligned
to the strategic business planning process.
Specifically, key risks are plotted on risk maps with
descriptions, owners, and mitigating actions, reporting against a
level of materiality (principally relating to impact and
likelihood) consistent with its size. These risk maps are reviewed
and challenged by the Executive Team and Audit Committee and
reconciled against the Group's risk appetite. As part of the
regular principal risk process, a review of emerging risks
(internal and external) is also conducted and a list of emerging
risks is maintained and rolled-forward to future discussions by the
Executive Team and Audit Committee. Where appropriate, these
emerging risks may be brought into the principal risk registers.
Additional risk management support is provided by external experts
in areas of technical complexity to complete our bottom-up and
top-down exercises.
As part of the Board's ongoing assessment of the principal and
emerging risks, the Board has considered the performance of the
business, its markets, the changing regulatory landscape and the
Group's future strategic direction and ambition.
Risks are still subject to ongoing monitoring and appropriate
mitigation.
The table below details each principal business risk, those
aspects that would be impacted were the risk to materialise, our
assessment of the current status of the risk and how each is
mitigated.
Principal risks Change Potential impact Mitigating actions and assurance
during the
year
1 . Deterioration Increasing Reductions in
of the macro discretionary * Annual budgets and forecasts take into account the
economic spending may impact current macro-economic environment to set
environment - sales of newspapers expectations internally and externally, allowing for
The risk of or magazines. or changing objectives to meet short and medium term
volatility Uncertainty financial targets.
and/or from either the
prolonged COVID-19 pandemic or
economic the EU Exit may * A thorough EU Exit planning exercise has been
downturn causes affect the business undertaken and accountability for the associated
a decline in in both the short actions and risks has been assigned to the relevant
demand for our and medium term on Executive Team members.
services trade arrangements,
including the future capital
uncertainty investment * Business scenario planning for the different evolving
associated strategies, debt social movement restrictions and 'lockdown' exit is
with either the refinancing underway to address the business risks posed by the
COVID-19 and resourcing COVID-19 pandemic.
pandemic or EU costs.
Exit. Cash liquidity and
This impacts available headroom * The Group forecasts cash flows weekly and continually
current and/or within the new bank monitors treasury liquidity and headroom within the
projected facility could bank facility.
business diminish in the
performance, event
cash liquidity of a protracted * The Group continues to be significantly cash
and bank deterioration of the generating which supports opportunities for
facility macro economic refinancing and investment.
headroom above environment or a
that included sharp deterioration
in the business in
planning and sales or working
review process. capital as a result
of COVID-19
lockdowns.
---------------- ----------- --------------------- -----------------------------------------------------------------
2. Failure to Reducing Sales and/or profit
refine, execute expectations may not * Disposal of the Tuffnells business in May 2020 and
and/or monitor be met and/or the the completion of the refinancing in November 2020
the Group's Company's reputation reduces the execution risk of Group strategy
strategy and and stakeholders'
direction - The support for a
risk of recovery plan may be * Performance to the business plan and budget is
not challenged. reviewed regularly using a balanced framework. This
establishing The change ensures effective and timely monitoring of
business plans management culture performance with action to be taken in the event of
and a clear required in the shortfalls to expectations.
vision for the short term for
Group impacts restructuring may
employee result in reduced * Financial and operational metrics are considered
engagement, performance and along with risk assessments and management impact
financial financial returns. before remedial action is taken.
returns,
external
confidence and
stakeholders'
perception.
---------------- ----------- --------------------- -----------------------------------------------------------------
3. Failing to No change Impact on the
attract, engage ability to address * We seek to offer market competitive terms to ensure
and retain the strategic talent remains engaged.
talent within a priorities and to
high deliver the forecast
performance and performance * We undertake workforce planning; performance, talent
values-based for the Group. and succession initiatives; learning and development
culture programmes; and promote the Group's culture and core
- The risk that values.
we do not
attract or
retain the * Retention plans are being reviewed to address key
people and the risk areas, and attrition across each business is
skills we need regularly monitored.
to take the
Group forward
and that * Regular surveys are undertaken to monitor the
employees are engagement of employees.
not motivated
towards, or are
disengaged
from, the task
in hand.
Risk that the
level of change
affects staff
and retention
levels.
---------------- ----------- --------------------- -----------------------------------------------------------------
4. Increased No Change In the event of any
labour market legal claim as to * The Group regularly reviews its legal terms of
constraints and worker status by engagement with contractors and consultants and has
costs - The consultants, appropriate contractual and operational arrangements
risk of subcontractors or in place. Self-employed service delivery partners
legislative agency have clearly articulated agreements which define
changes or workers, the tasks they are contracted to provide, whether
interpretation, business could be personally or by a substitute.
coupled with liable for increased
the EU Exit and costs (PAYE and
political undeclared National * Known increases to employment cost associated with
uncertainty, Insurance National Living Wage/Apprenticeship Levy/ Auto
impacts the contributions) and Enrolment have been factored into latest budgets.
ability to liabilities (such as Future changes in this area as a result of political
recruit and employee rights). changes / decisions and the full impact of EU Exit on
retain The inability to employment risks are unknown at the current time but
warehouse and pass on such are being tracked.
delivery statutory
contractors increases to our
resulting in customers could * Commercial contracts permit the renegotiation of long
higher impact term supply agreements in the event of changes in law
attrition risk profitability, and which impact the status of the Group's self-employed
in warehousing affect the cost of service delivery partners.
and future efficiency
distribution programmes.
and/or The implications of * Legal developments are monitored to ensure that the
increasing EU Exit include a business maintains compliance with legislation and
liabilities and decreasing pool of best practice.
costs. available, suitably
qualified employees
and subcontractors. * Workforce planning initiatives including
apprenticeship and training programmes, such as
Warehouse to Wheels, are supporting the longer term
mitigation of driver shortage.
* Contractor processes, including monitoring compliance,
are well established.
---------------- ----------- --------------------- -----------------------------------------------------------------
5. Failing to meet Reducing In addition to the
high health & danger to staff or * Safety is a key priority of the Group. Health and
safety the public, the Safety performance is reviewed by the Board, Audit
standards - The impact of a health Committee and Executive Team.
risk of an and safety failure
inadequate negatively impacts
health & safety operations, * A dedicated Health & Safety team executes improvement
framework and profitability and/or programmes, undertakes audits and promotes a safety
insufficiently corporate culture.
enforcing a reputation, together
health & safety with the
culture results risk of possible * The Group continues to invest in H&S improvements,
in serious enforcement action. including the role of H&S Director and better
injury The risk of management reporting.
to employees transport compliance
and/or the failures may impact
public, and/or consistent service * The risk is considered to be well managed and the
a breach of standards and/or the ambition continues to promote consistency in
relevant health ability to deliver standards and culture.
& safety the forecast
legislation. performance for the
This includes Group. * Established a COVID- 19 working group to promote and
the risk of monitor a safe working environment for colleagues.
failing to
establish
COVID-19 social
distancing
within depots
and
the resultant
risk of a COVID
19 outbreak on
service
delivery and
KPI
performance.
The risk of
failing to
adhere to
external laws
and regulations
by employees,
---------------- ----------- --------------------- -----------------------------------------------------------------
Smiths News plc
Group Income Statement for the 52 week period ended 29 August
2020
GBPm 2020 2019(*1)
---------------------------- ---- ------------------------------ -------------------------------------
Note Adjusted* Adjusted Total Adjusted* Adjusted Total
items items
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Revenue 2 1,164.5 - 1,164.5 1,303.5 - 1,303.5
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Cost of Sales 3 (1,091.4) (0.2) (1,091.6) (1,217.5) (0.1) (1,217.6)
Gross profit 3 73.1 (0.2) 72.9 86.0 (0.1) 85.9
Administrative
expenses 3 (38.1) (13.8) (51.9) (42.9) (7.2) (50.1)
Income from joint
ventures 0.1 - 0.1 0.5 - 0.5
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Operating profit 2,3 35.1 (14.0) 21.1 43.6 (7.3) 36.3
Finance costs 7 (7.4) - (7.4) (6.0) - (6.0)
Finance income 7 0.2 0.9 1.1 - - -
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Profit before tax 27.9 (13.1) 14.8 37.6 (7.3) 30.3
Income tax credit/(expense) 8 (4.2) 1.4 (2.8) (9.3) 0.9 (8.4)
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Profit for the
year from continuing
operations 23.7 (11.7) 12.0 28.3 (6.4) 21.9
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
Discontinued operations
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
(Loss) for the
year from discontinued
operations 11 (13.1) (5.6) (18.7) (8.9) (44.5) (53.4)
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
(Loss)/Profit attributable
to equity shareholders
continuing and
discontinued operations 10.6 (17.3) (6.7) 19.4 (50.9) (31.5)
---------------------------- ---- --------- -------- --------- ---------------- -------- ---------
(Loss)/earnings per
share from continuing
operations
Basic 10 9.7 4.9 11.5 9.0
Diluted 10 9.6 4.9 11.5 9.0
Earnings per share
total
Basic 10 4.3 (2.7) 8.0 (12.9)
Diluted 10 4.3 (2.7) 7.9 (12.9)
Equity dividends
per share (paid
and proposed) 9 nil 1.0p
--------------------- --- ----- ---- ------
* This measure is described in note 1(4) of the accounting
policies and the Glossary to the Accounts on page 45. Adjusted
items are set out in note 4 to the Group Accounts.
(*1) the income statement has been restated to show the results
of Tuffnells as a discontinued operation
Group Statement of Comprehensive Income for the 52 week period
ended 29 August 2020
GBPm Note 2020 2019
Continuing
-------------------------------------------------- ---- ------ -------
Items that will not be reclassified to
the Group Income Statement
Actuarial Gain/(loss) on defined benefit
pension scheme 6 (0.7) (132.9)
Impact of IFRIC 14 on defined benefit
pension scheme 6 0.9 135.6
Tax relating to components of other comprehensive
income that will not be reclassified 8 - 0.6
-------------------------------------------------- ---- ------ -------
0.2 3.3
Items that may be subsequently reclassified
to the Group Income Statement
Currency translation differences 0.1 0.1
Other comprehensive result for the year
- continuing 0.3 3.4
Profit for the year - continuing 12.0 21.9
-------------------------------------------------- ---- ------ -------
Total comprehensive income for the year
- continuing 12.3 25.3
Other comprehensive income/(loss) for
the period discontinued 0.3 (0.6)
Loss for the year - discontinued (18.7) (53.4)
-------------------------------------------------- ---- ------ -------
Total comprehensive (expense) for the
year - discontinued (18.4) (54.0)
-------------------------------------------------- ---- ------ -------
Total comprehensive (expense) for the
year (6.1) (28.7)
-------------------------------------------------- ---- ------ -------
Group Balance Sheet at 29 August 2020
GBPm Note 2020 2019
----------------------------------- ---- ------- -------
Non-current assets
Intangible assets 13 4.0 10.1
Property, plant and equipment 14 9.4 10.9
Right of use assets 21 32.8 -
Interest in joint ventures 15 4.9 5.3
Other receivables 17 14.6 -
Deferred tax assets 23 0.8 5.2
66.5 31.5
----------------------------------- ---- ------- -------
Current assets
Inventories 16 14.1 16.2
Trade and other receivables 17 101.2 124.2
Cash and bank deposits 19 50.6 24.0
Current tax asset - -
Assets classified as held for sale 11 - 16.8
----------------------------------- ---- ------- -------
165.9 181.2
----------------------------------- ---- ------- -------
Total assets 232.4 212.7
----------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 18 (139.5) (173.7)
Current tax liabilities (1.7) -
Bank loans and other borrowings 19 (130.1) (46.1)
Lease liabilities(1) 21 (5.8) (2.2)
Retirement benefit obligations 6 - (0.4)
Provisions 24 (6.8) (7.3)
(283.9) (229.7)
----------------------------------- ---- ------- -------
Non-current liabilities
Retirement benefit obligations 6 - (2.5)
Bank loans and other borrowings 19 - (49.3)
Lease liabilities(1) 21 (27.6) (0.3)
Other non-current liabilities 22 - (1.2)
Non-current provisions 24 (2.5) (4.0)
----------------------------------- ---- ------- -------
(30.1) (57.3)
----------------------------------- ---- ------- -------
Total liabilities (314.0) (287.0)
----------------------------------- ---- ------- -------
Total net liabilities (81.6) (74.3)
----------------------------------- ---- ------- -------
1. The Group has applied IFRS 16 using the modified
retrospective approach as a result the Obligation under finance
leases has been replaced with Lease liabilities which is wider in
scope see Note 36 for details.
Group Balance Sheet at 29 August 2020 (continued)
GBPm Note 2020 2019
---------------------------- ----- ------- -------
Equity
Called up share capital 28(a) 12.4 12.4
Share premium account 28(c) 60.5 60.5
Demerger reserve 29(a) (280.1) (280.1)
Own shares reserve 29(b) (1.8) (1.7)
Translation reserve 29(c) 0.4 0.3
Retained earnings 30 127.0 134.3
---------------------------- ----- ------- -------
Total shareholders' deficit (81.6) (74.3)
---------------------------- ----- ------- -------
The accounts were approved by the Board of Directors and
authorised for issue on 11 November 2020 and were signed on its
behalf by:
Jonathan Bunting Anthony Liam Grace
Chief Executive Officer Chief Financial Officer
Registered number - 05195191
Group Statement of Changes in Equity for the 52 week period
ended 29 August 2020
GBPm Note Share Share Demerger Own shares Hedging Retained Total
capital premium reserve reserve & translation earnings
account reserve
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- --------
Balance at 31
August 2018 12.4 60.5 (280.1) (2.1) 0.2 163.2 (45.9)
Loss for the
year - - - - - (31.5) (31.5)
Actuarial loss
on defined benefit
pension scheme - - - - - (136.1) (136.1)
Impact of IFRIC
14 on defined
benefit pension
scheme - - - - - 139.7 139.7
Currency translation
differences - - - - 0.1 - 0.1
Tax relating
to components
of other comprehensive
income - - - - - (0.7) (0.7)
Total comprehensive
income for the
year - - - - 0.1 (28.6) (28.5)
Issue of share 28 - - - - - - -
capital
Purchase of - - - - - - -
own shares
Dividends paid 9 - - - - - - -
Employee share
schemes - - - 0.4 - (0.4) -
Recognition
of share based
payments net
of tax - - - - - 0.1 0.1
Balance at 31
August 2019 12.4 60.5 (280.1) (1.7) 0.3 134.3 (74.3)
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- --------
IFRS 16 transition
adjustment - - - - - 1.4 1.4
Restated Balance
at 31 August
2019(1) 12.4 60.5 (280.1) (1.7) 0.3 135.7 (72.9)
Loss for the
year - - - - - (6.7) (6.7)
Actuarial Gain/(loss)
on defined benefit
pension scheme 6 - - - - - 0.1 0.1
Impact of IFRIC
14 on defined
benefit pension
scheme 6 - - - - - 0.9 0.9
Currency translation
differences - - - - 0.1 - 0.1
Tax relating
to components
of other comprehensive
income - - - - - (0.5) (0.5)
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- --------
Total comprehensive
expense for
the year - - - - 0.1 (6.2) (6.1)
Dividends paid 9 - - - - - (2.4) (2.4)
Employee share
schemes purchases - - - (0.7) - - (0.7)
Employee share
scheme awards - - - 0.6 - (0.6) -
Recognition
of share based
payments net
of tax - - - - - 0.4 0.4
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- --------
Balance at 29
August 2020 12.4 60.5 (280.1) (1.8) 0.4 127.0 (81.6)
------------------------- ----- --------- --------- --------- ----------- --------------- ---------- --------
1. The Group has applied IFRS 16 using the cumulative catch up
approach as a result the Obligation under finance leases has been
replaced with Lease liabilities which is wider in scope see Note 36
for details.
Group Cash Flow Statement for the 52 week period ended 29 August
2020
GBPm Note 2020 2019
------------------------------------------ ---- ------ ------
Net cash inflow from operating activities 27 23.4 23.0
------------------------------------------ ---- ------ ------
Investing activities
Dividends received from joint ventures 0.2 0.1
Purchase of property, plant and equipment (6.9) (7.4)
Purchase of intangible assets (2.4) (1.2)
Net proceeds on sale of property, plant
and equipment 14.6 0.5
Loans advances 11 (6.5) -
Net cost of disposal of subsidiary 12 (3.7) -
------------------------------------------ ---- ------ ------
Net cash (used in) investing activities (4.7) (8.0)
------------------------------------------ ---- ------ ------
Financing activities
Interest paid (8.0) (5.1)
Dividend paid 9 (2.4) -
Repayments of lease principal (15.6) (2.8)
Net increase/(decrease) in revolving
credit facility and overdrafts 50.8 (8.0)
Purchase of shares for employee benefit
trust (0.7) -
Net cash generated /(used in) financing
activities 24.1 (15.9)
------------------------------------------ ---- ------ ------
Net increase/(decrease) in cash and cash
equivalents 42.8 (0.9)
Effect of foreign exchange rate changes (0.1) 0.1
------------------------------------------ ---- ------ ------
42.7 (0.8)
Opening net cash and cash equivalents 7.9 8.7
Closing net cash and cash equivalents 19 50.6 7.9
------------------------------------------ ---- ------ ------
During the year, cash outflow from operating activities
attributed to discontinued operations amounted to GBP10.3m (2019:
GBP10.9m outflow) and paid GBP9.1m inflow (2019: GBP5.8m outflow)
in respect of investing activities. There were GBP7.3m (2019:
GBP6.9m) cash outflows associated with financing activities
attributable to discontinued operations.
Notes to the accounts
1. Accounting policies
(1) Basis of consolidation
Smiths News plc (formerly Connect Group PLC) ('the Company') is
a company incorporated in England UK under Companies Act 2006. The
Group accounts for the 52 week period ended 29 August 2020 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 29 August and are
included in the Group Accounts.
Unless otherwise noted references to 2019 and 2020 relate to a
52 week period ended 31 August 2019 and 29 August 2020 as opposed
to calendar year.
The accounts were authorised for issue by the directors on 11
November 2020.
(2) Accounting basis of preparation
The financial information contained within this preliminary
announcement for the 52 weeks to 29 August 2020 and year to 31
August 2019 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 (formerly
Connect Group Plc) for the year to 31 August 2019 have been filed
with the Registrar of Companies and those for the 52 weeks to 29
August 2020 will be filed following the Company's annual general
meeting. The auditor's reports on the accounts for both the 52
weeks to 29 August 2020 and year to 31 August 2019 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 2020.
3) Going concern
The Group currently has a net liability position of GBP81.6m as
at 29 August 2020. All bank covenant tests were met at year end
with the key bank net debt: EBITDA ratio of 2x, below the facility
agreement covenant test threshold of 2.75x.
The intra-month working capital cash flow cycle at Smiths News
generates a routine and predictable cash swing of up to GBP40m
which utilised the existing Revolving Credit Facility (RCF) of
GBP125m available at year end. This results in a predictable
fluctuation of bank net debt during the course of the month
compared to the closing net debt position. Our average drawn gross
borrowings (excluding cash balances) during FY20 were GBP105m
(FY19: GBP112m).
Given this position and the lockdowns brought on by Covid-19,
including the most recent lockdown announced by the Government on 1
November 2020 the directors have carefully considered the ability
of the Group to meet its debts as they fall due.
3i) New bank facility
The Group's old banking facility was considered to have surplus
headroom, with a total facility of GBP175m and a balance undrawn of
GBP86.0m at the 29 August 2020.The Group signed a new facility
agreement on the 6 November 2020 to replace the Group's existing
facility agreement (which comprised a term loan facility of GBP50
million and a multicurrency revolving loan facility of GBP125
million) and was due to mature on 31 January 2021.
The new three-year GBP120 million facility, comprises a GBP45
million amortising term loan (Facility A), a GBP35m million bullet
repayment term loan (Facility B) and a GBP40 million revolving
credit facility (RCF). Term Loan (facility B) is also repayable
from any proceeds received from the deferred consideration as part
of the sale of Tuffnells and receipt of any pension surplus. The
agreement is with a syndicate of banks comprising existing lenders
HSBC, Barclays, Santander, AIB and Clydesdale and one new lender,
Shawbrook Bank.
The facility is available at an initial margin of 5.5% per annum
over LIBOR (in respect of Facility A and the RCF) and 6% per annum
over LIBOR (in respect of Facility B). The margin is subject to
reduction should the Company reduce its net leverage in line with
its stated strategic priorities.
Consistent with the Company's stated strategic priorities to
reduce net debt, the terms of the new facility agreement include:
an amortisation schedule of GBP15m per annum for the repayment of
Facility A; agreed repayments against Facility B arising from funds
received in relation to both deferred consideration received
following the sale of Tuffnells and any cash surplus arising from
the proposed move to buy-out of the Company's defined benefit
pension scheme; and an absolute preclusion of payments of dividends
in respect of FY2020 and capped dividend payments thereafter for
FY2021 (up to GBP4m) and FY2022 onwards (up to GBP6m per year). As
part of the terms of the refinancing, the Company and its principal
trading subsidiaries have also agreed to provide security over
their assets to the lenders.
The final maturity date of the new facility is 5 November
2023.
3ii) COVID 19 effect
COVID 19 had a material impact on the business during H2 2020,
while the Company continued to trade profitably and generate cash
throughout the period. There was a temporary impact on working
capital during the national lockdown in March 2020 to June 2020
when retailers who had closed their stores returned unsold
newspapers and magazines to receive a refund from the Group; this
refund was paid prior to the group obtaining the corresponding
refund from the publisher.
At its peak in May 2020 the COVID-19 there remanded significant
headroom within the existing bank facility. There were further
mitigating actions available to management that the Company could
have taken but there was sufficient headroom liquidity for these
actions not to be required at that time. Post year end there has
been a series of local lockdowns and the announcement of a full
national lockdown in England. The impact of these has been
considered in the Groups forecasts and projections.
3iii) Reverse stress testing
The directors have prepared their base case forecast which
represents their best estimate of cash flows over the going concern
period and in accordance with FRC guidance have prepared a reverse
stress test that would create a covenant break scenario which could
lead to the facilities being repayable on demand.
The break scenario would occur in August 2021 if EBITDA were to
be 31% below base case. The directors consider the likelihood of
this level of downturn to be remote based on:
-- Current trading which is ahead of base case;
-- The year-on-year declines in revenues being significantly over historical trends;
-- The contracts secured with publishers until 2024; and
-- The impact is more severe than the first national lockdown in March 2020.
3iv) 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 of c. GBP40m. Utilising
existing vendor management finance arrangements with retailers and
optimising contractual payment cycles to suppliers which would
improve liquidity headroom:
-- 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.
3 v) Assessment
Having considered the above the Directors are therefore
confident that headroom under the new bank facility remains
adequate and future covenant tests can be met and there is a
reasonable expectation that the group has adequate resources to
continue in operational existence for the foreseeable future. For
this reason, the Directors continue to adopt the going concern
basis in preparing the financial statements.
(4) Alternate performance measures
The Company uses a number of Alternative Performance Measures
(APMs) in addition to those reported in accordance with IFRS. The
directors believe that the APMs, listed in the glossary on page 45,
are important when assessing the underlying financial and operating
performance of the Group and its segments. The APMs do not have
standardised meaning prescribed by IFRS and therefore may not be
directly comparable to similar measures presented by other
companies.
(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 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.
Estimated impairment of intangibles, right of use assets and
property plant and equipment (PPE)
The Group tests intangibles (note 13), right of use assets (note
21) and PPE (note 14) when impairment indicators exist in
accordance with the accounting policy.
The carrying amounts of cash-generating units (CGU's) have been
determined based on value in use calculations. The value determined
on the cash generating units has been compared against the assets
of the division to calculate impairments. These calculations
require the use of estimates (note 13).
Provisions
The Group holds a number of provisions which are subject to
estimates. The key provisions established in the year relate to
restructuring provisions as a result of the Tuffnells disposal and
operational restructuring projects; for further details see note
24.
Tuffnells
This estimate relates to the financial year to 31 August 2019.
In the prior financial year Tuffnells made an adjusted operating
loss of GBP14.1m (Tuffnells has been disposed of in the current
year). The losses in the prior year resulted in the Group
performing an impairment assessment of goodwill, intangibles and
PPE. As a result of the review: the goodwill; acquired intangibles;
and PPE were impaired. The value of the remaining assets in the
division were written down to their fair value less costs to sell,
as the value in use does not support them.
In the prior financial year an impairment charge of GBP6.0m,
GBP26.4m and GBP13.2m arose to goodwill, intangibles and PPE
respectively. The assets were valued based on the fair value less
cost to sell and is based on the best estimates. Note 13 and 14
include details of directors' assumptions and impact of changing
these.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue
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 GBP995.5m
(2019: GBP1,111.0m).
Tuffnells Deferred consideration
The Tuffnells business unit was disposed on 2 May 2020; the
Group is due GBP15.0m as deferred consideration payable over 3
years. The Group has calculated the fair value of the deferred
consideration on disposal at GBP7.1m and has subsequently
recognised the receivable at amortised cost. The fair value was
calculated by discounting the deferred consideration at 30% which
is considered the key judgement. A +/-5% change in the discount
rate would result in a decrease/increase of the fair value of the
deferred consideration by +/-GBP1.0m which would change the profit
and loss on disposal. For more information see note 11.
The recoverability of the Tuffnells deferred consideration is
also a key estimate management have assessed its recoverability and
have concluded no impairment is necessary based on:
-- The loan receivable due from the purchaser was repaid early
proving the new management's ability to refinance,
-- Management do not believe there has been a significant
increase in the risk of recoverability of the deferred
consideration since inception.
This was assessed using a number of scenarios such as delays in
payments and non-recovery of the balance, changes in these
assumptions may lead to an impairment to the balance.
Onerous contracts
-- Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the
unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received from the
contract. The calculation of onerous contract provisions includes
estimates of all future costs. Significant judgement is applied in
the determination of when contracts become onerous. Management
concluded that as result of the disposal of Tuffnells a number of
contracts were onerous. See note 24 for further details.
Dawson Media Direct (DMD) - Impairment of goodwill
The impact of Covid-19 on DMD has been significant as the
business primary source of revenue is from the airline industry and
its operations were suspended. This has resulted in significant
uncertainty around the future trading performance of the business.
The value in use of the business unit is extremely sensitive to
changes in estimations of future performance. As a result of the
trading suspension and the uncertain outlook, the Directors
considered that the goodwill relating to the business unit was no
longer supportable. This has resulted in a GBP5.7m impairment
charge. In the opinion of the directors the Goodwill was impaired
to GBPnil in February 2020. For details of the sensitivities and
the assumptions used to calculate the value in use, see note
13.
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 warehouses, retail stores and equipment, the
following factors are normally the most relevant:
-- If there are significant penalties to terminate (or not
extend), the Group is typically reasonably certain to extend (or
not terminate);
-- If any leasehold improvements are expected to have a
significant remaining value, the Group 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 that are excluded in
arriving at Adjusted operating profit. This enhances the users
understanding of the Group's performance as it aids the
comparability of information between reporting periods and business
units by adjusting for non-recurring or uncontrollable factors
which affect IFRS measures, adjusted measures are defined with
other APM's in the glossary on page 45.
Based on the nature of the transactions that it had Adjusting
items after tax totalling GBP17.3m (2019: GBP50.9m) and a breakdown
is included within note 4.
Sale and leaseback Tuffnells properties
The Group entered into several sale and leaseback transactions
in relation to the Tuffnells Property Portfolio, for further
information see note 11. On all transactions a sale was considered
to have occurred as control of all properties had transferred to
the purchaser based on the following:
-- The Group has no option to repurchase the properties;
-- The title of the land and property passed to purchaser;
-- The Group received payment for all of the properties sold and leased backed; and
-- The majority of the risks and rewards relating to the
properties had transferred to the purchaser.
Discontinued operations - Tuffnells
On 28 February 2020, the Board concluded the Tuffnells division
had met the criteria as being held for sale and should be
classified as a discontinued operation in accordance with
International Financial Reporting Standards (IFRS) 5 'Non-current
Assets Held for Sale and Discontinued Operations'. The Tuffnells
division was sold on 2 May 2020 and the net results of discontinued
operations are presented separately in the Group income
statement.
The facts that supported this judgement were as follows:
-- the Tuffnells business was actively being marketed;
-- Tuffnells was considered held for immediate sale;
-- a sale was considered to be highly probable;
-- as a result of receiving several competitive offers for
Tuffnells, the Board concluded that a disposal of Tuffnells was the
option that would offer the best opportunity to maximise
Shareholder value; and
-- a proposed timeline for the sale was within the current financial year.
The date that Tuffnells became a discontinued operation is
considered a key judgement and the conclusion reached by the
Directors was based on the weight of facts surrounding each
criterion, for further details see note 11.
Held for sale assets
This estimate relates to the financial year to 31 August 2019.
In January 2019, the Group took the decision to actively market the
Tuffnells freehold, long leasehold property and related assets.
Post-sale, the Group would then leaseback these properties. Given
the above, the Group considered that the following criteria for
recognition of assets held for sale had been met:
-- The properties were available for immediate sale;
-- The properties were being actively marketed;
-- The sale was considered highly probable; and
-- The sale was expected to conclude within 1 year of January 2020.
Therefore these properties were reclassified as assets held for
sale. For further details see note 11.
Retirement benefits
Following the completion of the 'buy-in' in October 2018 where
the WH Smith Pension Trust entered into an insurance backed annuity
of the Scheme assets within the section of the Trust sponsored by
Smiths News, the pension schemes actuary notified the Group that
future cash contributions by the Group to address the deficit would
no longer be required and the Group has released the IFRIC 14
liability. The 'buy-in' annuity is recognised as a plan asset and
the difference in value between the value of the insurance asset
received of GBP425m at the date of transaction and the asset
transferred in exchange for the policy GBP555m was considered an
actuarial remeasurement recognised within other comprehensive
income and is offset by the release of the IFRIC 14 liability.
If this was not considered to be an actuarial re-measurement the
resulting difference of GBP130m would need to be recognised as a
charge in the FY2019 income statement. The offsetting GBP130m,
being the release of the restriction, would continue to be included
within other comprehensive income.
(6) Non-current assets held for sale and disposal groups
Non-current assets held for sale and disposal groups are
classified as assets held for sale when their carrying amount is to
be recovered principally through a sale transaction and a sale is
considered highly probable. They are stated at the lower of their
carrying amount or fair value less costs to sell.
Held for sale as assets are assets that have met all the
criteria required by IFRS 5 to be classified as held for sale, at
which point they are derecognised as non-current assets.
(7) Discontinued operations
In accordance with IFRS 5 'Non-current assets held for sale and
Discontinued operations', the net results of discontinued
operations are presented separately in the Group Income statement
(and the comparatives restated) and the assets and liabilities of
operations are presented separately in the Group balance sheet if
they meet the held for sale criteria at the balance sheet date.
A cash generating unit would meet the classification of a
discontinued operation when considered a material to the Group's
overall results.
(8) Revenue
Smiths News - Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of
the products has transferred, that is, when the products are
delivered to the retailer and there is no unfulfilled obligation
that could affect the retailer's acceptance of the products, the
risks of obsolescence and loss have been transferred to the
retailer. Goods are sold to retailers on a sale or return
basis.
Revenue for goods supplied with a right of return is stated net
of the value of any returns. Newspapers and magazines are often
sold with retrospective volume discounts based on aggregate sales.
Revenue from these sales is recognised based on the price specified
in the contract, net of the estimated volume discounts. Accumulated
experience is used to estimate and provide for the discount and
returns', using the expected value method and revenue is only
recognised to the extent that it is highly probable that a
significant reversal will not occur. A returns reserve accrual and
discount accrual (included in trade and other payables) is
recognised for expected volume discounts and refunds payable to
customers in relation to sales made until the end of the reporting
period. A right to the returned goods (included in other debtors)
are recognised for the products expected to be returned. 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.
Tuffnells - Delivery revenue
Delivery revenue is recognised on delivery when there are no
unfulfilled obligations. Retrospective volume discounts based on
aggregate sales are often given based on the aggregate sales over a
short period. Revenue is only recognised to the extent that it is
highly probable and a significant reversal will not occur.
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.
Accrued income on all revenue is recognised when a service has
been performed but an invoice has not been raised, the Group
accrued income is short term and invoiced close to the service
being provided.
(9) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of
inventories recognised as an expense, net impairment losses on
financial assets and distribution costs as these are considered to
represent for the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of
sales.
(10) Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement, except to
the extent it relates to items recognised in other comprehensive
income or directly in equity. Current tax is the expected tax
payable based on the taxable profit for the year, using tax rates
enacted, or substantively enacted at the balance sheet date and any
adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred tax
provided is calculated using tax rates enacted or substantively
enacted at the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax
liability is settled. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be
available against which these temporary differences can be
utilised.
(11) Dividends
Interim and final dividends are recorded in the financial
statements in the period in which they are paid.
(12) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group
is able to demonstrate all of the following: the technical
feasibility of the resulting asset; the ability (and intention) to
complete the development and use it; how the asset will generate
probable future economic benefits; and the ability to measure
reliably the expenditure attributable to the asset during its
development. Subsequent to initial recognition, internally
generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
(13) Joint ventures
The Group Accounts include the Group's share of the total
recognised gains and losses in its joint ventures on an equity
accounted basis.
Investments in joint ventures are carried in the balance sheet
at cost adjusted by post-acquisition changes in the Group's share
of the net assets of the joint ventures, less any impairment
losses. The carrying values of investments in joint ventures
include acquired goodwill. Losses in joint ventures that are in
excess of the Group's interest in the joint venture are recognised
only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint
venture.
(14) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account
for business combinations. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued,
liabilities incurred or assumed at the date of exchange.
Acquisition related costs are recognised in profit or loss as
incurred. Any deferred or contingent purchase consideration is
recognised at fair value over the period of entitlement. If the
contingent purchase consideration is classified as equity, it is
not remeasured and settlement is accounted for in equity. Any
deferred or contingent payment deemed to be remuneration as opposed
to purchase consideration in nature is recognised in profit or loss
as incurred, and excluded from the acquisition method of accounting
for business combinations. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business
combination are measured, initially, at their fair values at the
acquisition date, irrespective of the extent of any non-controlling
interest. The non-controlling interest is measured, initially, at
the non-controlling interest's proportion of the net fair value of
the assets, liabilities and contingent liabilities recognised.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquire, 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 not
be recoverable.
(15) Property, plant and equipment
Property, plant and equipment assets are stated at cost less
accumulated depreciation and any recognised impairment losses. No
depreciation has been charged on freehold land. Other assets are
depreciated, to a residual value, on a straight-line over their
estimated useful lives, as follows:
Freehold and long term leasehold properties - over 20 years
Short term leasehold properties - shorter of the lease period
and the estimated remaining economic life
Fixtures and fittings - 3 to 15 years
Equipment - 5 to 12 years
Computer equipment - up to 5 years
Vehicles - up to 5 years
Assets held under leases are depreciated over their expected
useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease. All property, plant and
equipment is reviewed for impairment in accordance with IAS 36
'Impairment of Assets' when there are indications that the carrying
value may not be recoverable.
(16) Leasing
The Group has changed its accounting policy for leases where the
Group is the lessee. The new policy is described below and the
impact of the change in note 36. Leases of property, plant and
equipment where the Group, as lessee, had substantially all the
risks and rewards of ownership were classified as finance
leases.
Finance leases were capitalised at the lease's inception at the
fair value of the leased property or, if lower, the present value
of the minimum lease payments. The corresponding rental
obligations, net of finance charges, were included in other
short-term and long-term payables.
Each lease payment was allocated between the liability and
finance cost. The finance cost was 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.
The property, plant and equipment acquired under finance leases was
depreciated over the asset's useful life, or over the shorter of
the asset's useful life and the lease term if there is no
reasonable certainty that the Group will obtain ownership at the
end of the lease term.
Leases in which a significant portion of the risks and rewards
of ownership were not transferred to the Group as lessee were
classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) were
charged to profit or loss on a straight-line basis over the period
of the lease.
Lease income from operating leases where the Group is a lessor
is recognised in income on a straight-line basis over the lease
term. Initial direct costs incurred in obtaining an operating lease
are added to the carrying amount of the underlying asset and
recognised as expense over the lease term on the same basis as
lease income. The respective leased assets are included in the
balance sheet based on their nature. The Group did not need to make
any adjustments to the accounting for assets held as lessor as a
result of adopting the new leasing standard.
The Group leases various offices, distribution depots, equipment
and vehicles. Rental contracts are typically made for fixed periods
of 12 months to 20 years, but may have extension options as
described below.
Contracts may contain both lease and non-lease components. The
Group allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone
prices.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions.
The lease agreements do not impose any covenants other than the
security interests in the leased assets that are held by the
lessor.
Leased assets may not be used as security for borrowing
purposes.
From 1 September 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date ;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
To determine the incremental borrowing rate, the Group:
-- where possible, uses recent third-party financing received by
the individual lessee as a starting point, adjusted to reflect
changes in financing conditions since third party financing was
received;
-- uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases held by the
Group, which does not have recent third party financing; and
-- Makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- Restoration costs.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT equipment and small items of office
furniture.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These are used to
maximise operational flexibility in terms of managing the assets
used in the Group's operations. The majority of extension and
termination options held are exercisable only by the Group and not
by the respective lessor.
Modifications
When the group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted using a revised
discount rate. The carrying value of lease liabilities is similarly
revised when the variable element of future lease payments
dependent on a rate or index is revised, except the discount rate
remains unchanged. In both cases an equivalent adjustment is made
to the carrying value of the right-of-use asset, with the revised
carrying amount being amortised over the remaining (revised) lease
term. If the carrying amount of the right-of-use asset is adjusted
to zero, any further reduction is recognised in profit or loss.
(17) Inventories
Inventories comprise goods held for resale and are stated at the
lower of cost or net realisable value. Inventories are valued using
a weighted average cost method. Costs comprise direct materials
and, where applicable, direct labour costs and those overheads that
have been incurred in bringing the inventories to their present
location and condition.
(18) Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group becomes a party to the
contractual provisions of the instrument. The Group derecognises
financial assets and liabilities only when the contractual rights
and obligations are transferred, discharged or expire.
Financial assets comprise trade and other receivables and cash
and cash equivalents. Financial liabilities comprise trade
payables, financing liabilities, bank borrowings.
(19) Financial assets
The group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through OCI or through profit or loss); and
-- those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual terms of the cash
flows.
Trade receivables
Trade receivables are initially measured at fair value, which
for trade receivables is equal to the consideration expected to be
received from the satisfaction of performance obligations, plus any
directly attributable transaction costs. Subsequent to initial
recognition these assets are measured at amortised cost less any
provision for impairment losses including expected credit losses.
In accordance with IFRS 9 the Group applies the simplified approach
to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables. To measure the expected
credit losses, trade receivables have been grouped based on shared
credit risk characteristics such as the ageing of the debt and the
credit risk of the customers. An historical credit loss rate is
then calculated for each group and then adjusted to reflect
expectations about future credit losses. The Group does not have
any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies and
the calculation of the loss allowance are provided in note 17.
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
Other receivables
Other receivables are recognised on trade date, being the date
on which the Group has the right to the asset. Other receivables
are derecognised when the rights to receive cash flows from the
other receivables have expired or have been transferred and the
group has transferred substantially all the risks and rewards of
ownership.
At initial recognition, the Group measures other receivable at
their fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed
in profit or loss.
Subsequent measurement of other receivables depends on the
Group's business model for managing the asset and the cash flow
characteristics of the asset. The group classifies its other
receivables at amortised cost.
Assets that are held for collection of contractual cash flows,
where those cash flows represent solely payments of principal and
interest, are measured at amortised cost. Interest income from
these financial assets is included in finance income using the
effective interest rate method. Any gain or loss arising on
derecognition is recognised directly in profit or loss and
presented in other gains/ (losses) together with foreign exchange
gains and losses. Impairment losses are presented as separate line
item in the note 3.
The group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- the asset is held within a business model whose objective is
to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are solely
payments of principal and interest.
The Group applies the general approach to impairment under IFRS
9 based on significant increases in credit risk rather than the
simplified approach for trade receivables using lifetime ECL.
(20) Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year which
are unpaid. The amounts are unsecured and are usually paid within
30 days of recognition. Trade and other payables are presented as
current liabilities unless payment is not due within 12 months
after the reporting period. They are recognised initially at their
fair value and subsequently measured at amortised cost using the
effective interest method.
(21) Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short term deposits with an original maturity
of three months or less. In the consolidated balance sheet, bank
overdrafts are shown within borrowings in current liabilities. Cash
and cash equivalents in the cash flow statement comprise cash at
bank and in hand and bank overdrafts which form part of the groups
cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued are recorded at the
proceeds received, net of direct issue costs.
Bank borrowings
Interest bearing bank loans and overdrafts are initially
measured at fair value (being proceeds received, net of direct
issue costs), and are subsequently measured at amortised cost,
using the effective interest rate method. Finance charges,
including premiums payable on settlement or redemptions and direct
issue costs are accounted for on an accruals basis and taken to the
income statement using the effective interest rate method and are
added to the carrying value of the instrument to the extent that
they are not settled in the period in which they arise.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition of a
foreign entity are treated as assets and liabilities of the foreign
entity and are translated at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations
are translated at an average rate for the period where this rate
approximates to the foreign exchange rates ruling at the dates of
the transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are translated at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are
recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated
in foreign currencies that are stated at fair value are translated
at foreign exchange rates ruling at the dates the fair value was
determined.
(22) Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are measured at the directors'
best estimate of the expenditure required to settle the obligation
at the balance sheet date and if this amount is capable of being
reliably estimated. If such an obligation is not capable of being
reliably estimated, no provision is recognised and the item is
disclosed as a contingent liability where material. Where the
effect is material, the provision is determined by discounting the
expected future cash flows.
(23) Retirement benefit costs
The Group operates a number of defined contribution schemes for
the benefit of its employees. Payments to the Group's schemes are
recognised as an expense in the income statement as incurred.
Following the disposal of Tuffnells, the Group operates one defined
benefit pension scheme, The WH Smith Pension Trust which is closed
to further accrual. The charge to the Group of providing benefits
for this scheme is determined by the Projected Unit Credit Method,
with actuarial calculations being carried out at the balance sheet
date. Actuarial gains and losses are recognised in full in the
period in which they occur in the group statement of comprehensive
income. The retirement benefit obligation recognised in the balance
sheet represents the present value of the defined benefit, reduced
by the fair value of scheme assets. An asset ceiling cap is applied
in accordance with IFRIC 14 with an additional liability recognised
where there is a contractual obligation to make further payments
into the scheme. The Group do not recognise any surplus unless
there is an unconditional right to do so.
(24) Employee Benefit Trust
Smiths News Employee Benefit Trust
The shares held by the Smiths News Employee Benefit Trust are
valued at the historical cost of the shares acquired. This value is
deducted in arriving at shareholders' funds and presented as the
own share reserve in line with IAS 32 'Financial Instruments:
Disclosure and Presentation'.
(25) Share schemes
Share based payments
The Group operates several share-based payment schemes, being
the Sharesave Scheme, the Executive Share Option Scheme, the LTIP
and the Deferred Bonus Plan. Details of these are provided in the
Directors' Remuneration report and in note 31.
Equity-settled share-based schemes are measured at fair value at
the date of grant. The fair value is expensed with a corresponding
increase in equity on a straight-line basis over the period during
which employees become unconditionally entitled to the options. The
fair values are calculated using an appropriate option pricing
model. The income statement charge is then adjusted to reflect
expected and actual levels of vesting based on non-market
performance related criteria.
Administrative expenses and distribution and marketing expenses
include the cost of the share-based payment schemes.
(26) Government grants
Grants from the government are recognised at their fair value
where there is a reasonable assurance that the grant will be
received and the group will comply with all attached
conditions.
Government grants relating to costs including furlough are
deferred and recognised in profit or loss over the period necessary
to match with the costs that they are intended to compensate. They
are also presented with the costs they are matched with.
Government grants relating to the purchase of property, plant
and equipment are included in non-current liabilities as deferred
income and they are credited to profit or loss on a straight-line
basis over the expected lives of the related assets.
(27) Changes in accounting policies
The Group has applied the following standards and amendments for
the first time for their annual reporting period commencing 1
September 2019:
-- IFRS 16 Leases;
-- IFRIC 23 Uncertainty over Tax Treatments;
-- Amendments to IFRS 9 - Prepayment Features with Negative Compensation;
-- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement;
-- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures; and
-- Annual Improvements to IFRS Standards 2015-2017 Cycle.
The Group had to change its accounting policies and make certain
opening balance adjustments following the adoption of IFRS 16. This
is disclosed in note 36. Most of the other amendments listed above
did not have any impact on the amounts recognised in prior periods
and are not expected to significantly affect the current or future
periods.
New Standards and Interpretations not yet applied
At the date of authorisation of these financial statements, the
following Standards and Interpretations that are potentially
relevant to the Group and which have not been applied in these
financial statements were in issue but not yet effective (and in
some cases had not yet been adopted by the EU):
-- IFRS 17 Insurance Contracts;
-- Amendments to IFRS 3 Business Combinations;
-- Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate
-- Benchmark Reform;
-- Amendments to IAS 1 and IAS 8: Definition of Material; and
-- Amendments to references to the Conceptual Framework in IFRS Standards.
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.
(28) Restatement of Income Statement
The prior year income statement has been restated, to present
the results of Tuffnells within discontinued operations, this has
no impact on overall result for the period.
(29) Restatement of Pension liability
As a result of the buy-in of the W.H.Smith Pension Trust in
October 2018, a thorough review of the effectiveness of the steps
taken to equalise the retirement age of pensioners was undertaken
in the current financial year. Previously equalisation of
retirement age was considered to have been effective from 1 April
1992 when communicated to employees. However, the Trust Deed
approving this equalisation was not signed until 29 July 1993, this
is now considered the equalisation date.
The information reviewed which caused this change was available
in past periods and given the same information was available; it is
considered a similar review would have led to the same conclusion
in earlier periods. It is considered a prior year error which has
been corrected by restating Note 6 Retirement benefit obligation
only. there was no/no material effect on the income statement,
earning per share, statement of other comprehensive income or the
balance sheet for 2019 and therefore a third balance sheet has not
been presented. There is no overall impact on net assets and the
income statement in any period presented from reflecting this prior
year adjustment.
As a result this has increased the pension scheme liabilities by
GBP8.2m as at 1 September 2018, the opening position in these
accounts. The increased liability is offset by a decrease in the
restriction of the surplus which now stands at GBP15.2m (2019
restated: GBP15.8m) (1 September 2018 restated: GBP151.4m).The
pension scheme surplus is not recognised as there is not an
unconditional right for the Group to receive the surplus.
2. Segmental analysis
In accordance with IFRS 8 'Operating Segments', management has
identified its operating segments. The performance of these
operating segments is reviewed, on a monthly basis, by the Board.
The Board primarily uses a measure of Adjusted operating profit
before tax to assess the performance of the operating segments.
However, the Board also receives information about the segments'
revenue.
The continuing operating segments are:
Smiths News
Smiths News segment consists of the following:
Smiths News Core
The UK market leading distributor of newspapers and magazines to
approximately 24,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to
airlines and travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers
across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths
News.
Smiths News Core is considered the only reportable segment of
the above given the size of the others and they are consolidated
into one reportable segment based on size.
Tuffnells
A leading provider of next day B2B delivery of mixed and
irregular freight consignments.
As explained in Note 11, Tuffnells was disposed of in the
current year and therefore considered to be a discontinued
operation in the current financial year. The division is presented
as a discontinued operation and is included below, where necessary,
for the purpose of reconciliation.
The following is an analysis of the Group's revenue and results
by reportable segment:
Revenue
----------------------------------- --------------------
GBPm 2020 Restated*
2019
----------------------------------- -------- ----------
Smiths News 1,164.5 1,303.3
Continuing operations 1,164.5 1,303.3
Discontinued operations 98.2 164.6
Total continuing and discontinued
operations 1,262.7 1,467.9
------------------------------------ -------- ----------
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in note 1.
2020 Restated*
2019
------------------- ------------------------------------------- -------------------------------------------
GBPm Adjusted Adjusted Statutory Adjusted Adjusted Statutory
operating items operating operating items operating
profit/(loss) profit/(loss) profit/(loss) profit/(loss)
------------------- --------------- --------- --------------- --------------- --------- ---------------
Smiths News 35.1 (14.0) 21.1 43.6 (7.3) 36.3
--------------- --------- ---------------
Continuing
operations 35.1 (14.0) 21.1 43.6 (7.3) 36.3
--------------- --------- ---------------
Net finance
expense (7.2) 0.9 (6.3) (6.0) - (6.0)
-------------------- --------------- --------- ---------------
Continuing
profit before
tax 27.9 (13.1) 14.8 37.6 (7.3) 30.3
--------------------
Discontinued
operations
profit before
tax* (13.3) (2.0) (15.3) (14.4) (53.5) (67.8)
--------------------
Total continuing
and discontinued
operations
Profit before
taxation 14.6 (15.1) 0.5 23.2 (60.8) (37.6)
-------------------- --------------- --------- --------------- --------------- --------- ---------------
Discontinued operations in the table above are pre-tax measures.
Presentations in the Group income statement for discontinued
operations are post tax measures.
*The above tables have been restated to present the results of
Tuffnells within discontinued operations; this has no impact on
overall result for the period.
Information about major customers
Included in revenues arising from Smiths News are revenues of
approximately GBP125.2m (2019: GBP136.5m) which arose from sales to
the Group's largest customer. No other single customer contributed
6.0% or more of the Group's revenue in 2020 (2019: 6.0%).
Segment depreciation, amortisation and non-current asset
additions
Depreciation Amortisation Impairment Additions to non-current assets
------------------------ ----------------- ----------------- ----------------- ----------------------------------
GBPm 2020 Restated* 2020 Restated* 2020 Restated* 2020 Restated*
2019 2019 2019 2019
------------------------ ----- ---------- ----- ---------- ----- ---------- ----------- ---------------------
Smiths News (2.6) (2.8) (2.0) (2.4) (6.0) - 5.0 5.4
------------------------ ----- ---------- ----- ---------- ----- ---------- ----------- ---------------------
Continuing operations (2.6) (2.8) (2.0) (2.4) (6.0) - 5.0 5.4
Discontinued operations (0.4) (4.1) - (6.8) (2.5) (45.5) 2.4 4.8
Consolidated total (3.0) (6.9) (2.0) (9.2) (8.5) (45.5) 7.4 10.2
------------------------ ----- ---------- ----- ---------- ----- ---------- ----------- ---------------------
Additions to non-current assets include intangible assets and
property, plant and equipment.
* The above tables have been restated to present the results of
Tuffnells within discontinued operations.
Geographical analysis
GBPm Revenue by destination Non-current assets
by location of operation
2020 2019 2020 2019
-------------------------- ------------ ----------- ------------- -------------
United Kingdom 1,158.3 1,290.5 66.5 31.5
Spain 0.2 0.5 - -
France 0.4 1.2 - -
Germany 1.4 2.9 - -
Netherlands 2.1 4.1 - -
Rest of World 2.1 4.3 - -
--------------------------- ------------ ----------- ------------- -------------
Continuing operations 1,164.5 1,303.5 66.5 31.5
--------------------------- ------------ ----------- ------------- -------------
Discontinued operations 98.2 164.6 - -
--------------------------- ------------ ----------- ------------- -------------
Total Continuing and
discontinued operations 1,262.7 1,467.9 66.5 31.5
--------------------------- ------------ ----------- ------------- -------------
IFRS 8 requires that a measure of segment assets should be
disclosed only if that amount is regularly provided to the chief
operating decision maker and consequently no segment assets are
disclosed.
3. Operating profit/(loss)
The Group's results are analysed as follows:
GBPm 2020 Restated*
2019
Continuing operations Note Adjusted Adjusted Total Adjusted Adjusted Total
items items
---------------------- ---- --------- -------- --------- --------- -------- ---------
Revenue 1,164.5 - 1,164.5 1,303.5 - 1,303.5
---------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of inventories
recognised as an
expense (995.5) - (995.5) (1,111.0) - (1,111.0)
Net impairment
losses on financial
assets (0.3) (0.2) (0.5) (0.1) - (0.1)
Distribution costs (95.6) - (95.6) (106.4) (0.1) (106.5)
---------------------- ---- --------- -------- --------- --------- -------- ---------
Cost of sales (1,091.4) (0.2) (1,091.6) (1,217.5) (0.1) (1,217.6)
---------------------- ----
Gross profit 73.1 (0.2) 72.9 86.0 (0.1) 85.9
---------------------- ---- --------- -------- --------- --------- -------- ---------
Other administrative
expenses (35.8) (7.8) (43.6) (40.1) (7.2) (47.3)
Share-based payment
expense 31 (0.3) - (0.3) (0.4) - (0.4)
Amortisation of
intangibles 13 (2.0) - (2.0) (2.4) - (2.4)
Impairment - (6.0) (6.0) - - -
Administrative
expenses (38.1) (13.8) (51.9) (42.9) (7.2) (50.1)
---------------------- ---- --------- -------- --------- --------- -------- ---------
Share of profits
from joint ventures 15 0.1 - 0.1 0.5 - 0.5
---------------------- ---- --------- -------- --------- --------- -------- ---------
Operating profit 35.1 (14.0) 21.1 43.6 (7.3) 36.3
---------------------- ---- --------- -------- --------- --------- -------- ---------
* The above tables have been restated to present the results of
Tuffnells within discontinued operations.
The operating profit/ (loss) are stated after charging/
(crediting):
GBPm Note 2020 2019
---------------------------------------- ----- ---------------------------------- ----------------------------------
Continuing Discontinued Total Continuing Discontinued Total
Depreciation on
property, plant
& equipment 14 2.6 0.4 3.0 2.8 4.1 6.9
Amortisation of
intangible assets 13 2.0 - 2.0 2.4 6.8 9.2
Depreciation on
right use assets 6.0 5.0 11.0 - - -
Operating lease
charges
* occupied land and buildings 0.9 0.4 1.3 7.1 3.0 10.1
* equipment and vehicles 0.3 1.8 2.1 1.3 14.2 15.5
Operating lease
rental income -
land and buildings 0.2 - 0.2 (0.3) - (0.3)
Write down of inventories - - - - - -
recognised as an
expense
(Loss)/gain on
disposal of non-current
assets - 1.7 1.7 (0.3) - (0.3)
Staff costs (excluding
share based payments) 5 49.0 44.7 93.7 65.2 69.7 124.5
---------------------------------------- ----- ----------- ------------- ------ ----------- ------------- ------
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 2020 2019
--------------------------------------------- ----- -----
Fees payable to the Company's auditor for
the audit of the Company's subsidiaries
- Deloitte LLP - 0.1
Fees payable to the Company's auditor for
the audit of the Company's annual accounts
- BDO LLP 0.3 0.2
Fees payable to the Company's auditor for
the audit of the Company's subsidiaries
- BDO LLP 0.2 0.2
--------------------------------------------- ----- -----
Total non-audit fees 0.2 0.1
--------------------------------------------- ----- -----
Total fees 0.7 0.6
--------------------------------------------- ----- -----
Details of the Company's policy on the use of auditors for
non-audit services and how the auditor's independence and
objectivity was safeguarded are set out in the Audit Committee
report.
4. Adjusted items
GBPm 2020 2019
------------------------- ----- ----------------------------------- -----------------------------------
Continuing Discontinued Total Continuing Discontinued Total
------------------------- ----- ----------- ------------- ------- ----------- ------------- -------
Network and
re-organisation
costs (a) (6.8) (1.0) (7.8) (5.9) (0.5) (6.4)
Asset impairments (b) (6.4) (0.6) (7.0) - (45.5) (45.5)
Pension (c) (0.9) - (0.9) (2.0) (0.2) (2.2)
Other (d) 0.1 - 0.1 0.6 (6.6) (6.0)
Review and
sale of Tuffnells (e) - 0.6 0.6 - - -
Sale and Leaseback (f) - (1.0) (1.0) - (0.7) (0.7)
Total before
tax and interest (14.0) (2.0) (16.0) (7.3) (53.5) (60.8)
Finance income
- unwind of
deferred consideration (g) 0.9 - 0.9 - - -
------------------------- ----- ----------- ------------- ------- ----------- ------------- -------
Total before
tax (13.1) (2.0) (15.1) (7.3) (53.5) (60.8)
Taxation 1.4 (3.6) (2.2) 0.9 9.0 9.9
-------------------------------- ----------- ------------- ------- ----------- ------------- -------
Total after
taxation (11.7) (5.6) (17.3) (6.4) (44.5) (50.9)
The Group incurred a total of GBP15.1m (2019: GBP60.8m) of
Adjusted items, after tax GBP17.3m (2019: GBP50.9m). The above
adjusted tax charge is the tax effect of the adjusted items.
Adjusted items are defined in the accounting policies in note 1,
in the directors' opinion the impact of removing these items from
the adjusted profit give the true underlying performance of the
Group and comprises:
Continuing operations
(a) Network and re-organisation costs GBP6.8m (2019: GBP5.9m)
These are analysed as follows:
GBPm 2020 2019
================================== ===== =====
Executive team redundancies 1.2 0.9
Outsourcing of central functions 1.0 3.0
Business restructuring 2.7 1.2
Network reorganisation 1.9 0.8
---------------------------------- ----- -----
Total 6.8 5.9
================================== ===== =====
Executive Team redundancies
Costs of GBP0.5m have been incurred as a result of the departure
of the CEO in November 2019. Separately, following the disposal of
Tuffnells, the Group incurred GBP0.7m streamlining the Group's
Executive Team. In the prior year the Group incurred GBP0.9m of
costs when the Groups Executive team was restructured.
These costs are considered to be adjusting given the size and
they enable comparability between years with equivalent costs of
the Executive Team.
Outsourcing central functions
GBP1.0m of costs (2019: GBP3.0m) in the current year cost
relates to the off-shoring of selected technology, customer
services and finance functions. This comprises a provision of
GBP0.5m (2019: GBP2.5m) related to redundancy costs as part of this
transition and GBP1.4m (2019: GBP0.5m) related to set up costs
which include the cost of parallel running when the shared service
centre whilst transitioning. The costs were offset by a GBP0.9m
release of the prior year redundancy provision (2019: GBPnil).
These costs are considered adjusting as the impact of the
transition to an off shored central function is considered a one
off. The running costs of the parts of the centre which are fully
operational are being treated as non-adjusting.
Business Restructuring
The disposal of the Tuffnells business and lockdowns associated
with the Covid-19 Pandemic have led to the group restructuring its
support functions and two of its business units (DMD and Instore)
and incurring incremental costs. In total these costs were GBP2.7m
(2019:GBP1.2m).
GBP0.4m was incurred from the restructure DMD. The Covid-19
pandemic has had a significant impact on the DMD business and as a
result the business was streamlined to have a lower and more
variable cost base. In the previous year costs of GBP1.2m were
incurred on redundancies and transferring operations into the
Smiths News Slough depot, this was triggered when DMD's biggest
contract with British Airways was ended.
The social distancing restrictions imposed by large retailers as
a result of the Covid-19 pandemic has meant that the Instore
business is unable to continue with the same business model and as
a result a number of colleagues were notified prior to the year end
that their the roles would be made redundant, a provision of
GBP0.4m has been incurred as a result (2019: nil).
GBP1.5m of redundancy costs have been recognised as a result of
the Groups restructure of its support functions following the
disposal of Tuffnells (2019: nil).
The impact of the COVID-19 pandemic also triggered a one off
increase of costs of GBP0.4m (2019: GBPnil) relating to incremental
onshore shared service centre (SSC) cover staff and related items.
The Groups SSC in India was put under an overnight lockdown and to
ensure business as usual, extra onshore resource was brought in
until a working from home strategy could be implemented.
These costs are considered to be adjusting given the size and
they enable comparability between years with equivalent costs of
the day to day operations of the business. Ongoing incremental
costs incurred as a result of COVID-19 have been recognised with
non-adjusted amounts.
Network reorganisation
GBP1.9m costs relating to the restructuring of the Smiths News
network have been incurred. The costs incurred primarily relate to
redundancies as a result of the decision to further consolidate its
magazine hubs.
GBP0.8m was incurred in the prior year in redundancy and other
re-organisation in streamlining the Smiths News network in the
prior year.
Costs associated with the reorganisation programmes are
considered Adjusting items given they are part of a strategic
programme to drive future cost savings and therefore the impact of
the costs in the current year distorts the true underlying
performance of the Group.
(b) Asset impairments GBP6.4m (2019: GBPnil)
The impact of the lockdowns associated with the COVID-19
pandemic triggered impairment reviews of a number of the group's
assets:
The Covid-19 pandemic has and continues to have a significant
impact on the global travel industry and consequently the trading
of the DMD business. As a result, the Goodwill relating to DMD has
been written off to GBPnil incurring a GBP5.7m impairment charge
(2019:GBPnil). For further details of this review see Note 14.
The pandemic has also increased risk of recovery of DMD's
receivables. This has been further evidenced as a number of key
customers requested extensions and delayed payment terms which are
consistent. As a consequence, to reflect the Group's underlying
risk of collection, the Group recognised an increased provision
resulting in a charge of GBP0.2m (2019:GBPnil)
A further GBP0.2m (2019: nil) charge has been incurred as a
result of the write down of a balance with one of the Groups joint
ventures.
The impact of the COVID-19 pandemic also triggered a review of
the viability of Bluebox Avionics Limited (Bluebox); a joint
venture of the Group. As a result, the outlook of Bluebox remains
uncertain and the investment has been written off completely
incurring a GBP0.3m (2019: GBPnil) impairment charge.
The Group consider the impact of the above to be adjusting given
the unprecedented situation.
(c) Pensions: GBP0.9m (2019: GBP1.5m)
GBP0.9m of professional costs were incurred rationalising the
Groups pension portfolio which was triggered by the buy-in of an
insurance backed annuity relating to WH Smith Pension Trust. The
impact should streamline the cost of administrating the Group's
defined contribution schemes.
In 2019, the Group incurred GBP1.5m, as a result of the WH Smith
Pension Trust (one of the Group's defined benefit pension schemes)
entering into an insurance backed annuity 'buy-in' of the Scheme
assets, within the section of the Trust sponsored by Smiths News,
which minimises the Group's exposure to future pension
obligations.
These pension charges are not considered to be part of normal
operations due to their size and nature and are therefore
considered to be adjusting.
(d) Other; GBP0.1m income (2019: GBP0.6m income)
At 31 August 2019 a provision of GBP0.5m remained of a provision
for onerous contracts related to the closed Pass My Parcel
business. A ll residual contracts had been terminated and GBP0.3m
of that provision was released, leaving a small provision to cover
any remaining costs. As no further costs were incurred by 29 August
2020, the remaining provision of GBP0.2m was released. This is
considered adjusting as it matches the treatment of the cost.
Amortisation of acquired intangibles: GBP0.1m (2019: GBP0.2m).
The Group incurred amortisation of continuing intangibles for
acquisitions, for which there is no associated cash cost, of
GBP0.1m (2019: GBP0.2m), there is no cost in the current year. This
is considered an adjusting item as it allows comparison between
segments and therefore consistency of results at a consolidated
level.
IPR settlement income: GBPnil (2019: GBP0.5m income). In 2019,
the Group received GBP0.5m of one-off income in relation to the
settlement of an IPR dispute concerning the proposed use of a
similar brand to one of the Group's brands. This is considered
adjusting given its size and one-off nature.
(g) Finance Income - Deferred consideration GBP0.9m income (2019: GBPnil)
GBP0.9m has been recognised as unwind of discount on deferred
consideration. The deferred consideration relates to the disposal
of Tuffnells and for that reason has been classified as adjusting
because it does not relate to the underlying trade of the
business.
Discontinued operations
(a) Network and re-organisation costs: GBP1.0m (2019: GBP0.5m)
These are analysed as follows:
-- Executive Team redundancies of GBP0.4m (2019: GBPnil)
-- Network reorganisation costs of GBP0.6m (2019: GBP0.3m)
-- Outsourcing of central functions of GBPnil (2019:GBP0.2m)
Executive Team redundancies GBP0.4m (2019: GBPnil)
These costs have been incurred as a result of the restructure of
the Tuffnells executive team as part of the strategic review. These
costs are considered to be adjusting given the size. As the
business is expected to be disposed of these costs are not expected
to reoccur.
Network Reorganisation GBP0.6m (2019: GBPnil)
These costs have been incurred as a result of depot closures.
The depot closures were identified as a cost saving measure from
the strategic review; the depot closure enables greater flexibility
with minimal impacts on the businesses.
Outsourcing of central functions GBPnil (2019: GBP0.2m)
These costs have been incurred as a result of the outsourcing of
central functions in the prior year.
These costs are considered to be adjusting given the size and
allow comparability between years.
(b) Impairment of Tuffnells assets: GBP0.6m (2019: GBP45.5m)
Impairments of Tuffnells assets of GBP0.6m (H1 2019: GBPnil)
were recognised by the Group in the current financial year against
property plant and equipment.
The bids received for Tuffnells indicated that the net book
value of the Tuffnells was above its fair value less costs to sell,
indicating an impairment was required. Accordingly, impairments
totalling GBP0.6m were recognised to reflect the updated value of
the business.
Due to the sale process, it was considered that the deferred tax
asset recognised on impairments was no longer recoverable and an
amount of GBP3.5m was released creating an additional tax
charge.
During the prior financial year, management reviewed the
carrying value of the Tuffnells business unit and concluded that an
impairment charge of GBP45.5m was required. This comprised GBP6.0m
Goodwill, GBP26.4m acquired intangibles, GBP0.4m other intangibles
and GBP12.7m property, plant and equipment.
The impairment of Goodwill in the prior year had no tax impact,
the impairment of acquired intangibles resulted in the release of
GBP4.5m deferred tax liability as a credit to adjusted items income
tax. A deferred tax asset of GBP2.5m was recognised in the prior
year which credited adjusted items income tax as a result of the
impairment of the other assets.
It is considered adjusting due to its significant value and aids
comparability between years to show the underlying performance of
the Group.
(c) Pensions: GBP0.0m (2019: GBP0.2m)
In 2019 GBP0.2m in relation to equalisation of Guaranteed
Minimum Payments (GMP) of the Tuffnells Parcel Express pension
scheme. This is considered to be an Adjusting item as it was due to
a one off change in the interpretation of the law relating to
previously recognised cost, this is considered out of control of
management and therefore is considered an Adjusting item.
(d) Other: GBP0.0m (2019: GBP6.6m)
The following costs were all incurred in Tuffnells in 2019; no
costs were incurred in 2020 related to these matters:
The Group incurred GBP0.1m of insurance settlement costs in
relation to a fatality at its Brierley Hill depot that occurred in
January 2016. The Group had previously recognised the cost of the
fine and legal costs in relation to this - see note 16. Given the
magnitude, one-off nature and to ensure consistent treatment with
previously reported costs it is considered to be an adjusting
item.
The Group released GBP0.1m of the provision held in respect of
potential National Minimum Wage regulatory compliance fines. This
was recognised as an adjusting item to be consistent with prior
periods and due to its one-off nature and magnitude.
A charge of GBP6.6m was recognised in 2019 relating to
amortisation of acquired intangibles in Tuffnells. This is
considered an Adjusting item as it allows comparison between
segments and, therefore, consistency in the performance of the
Group at a consolidated level.
(e) Review and sale of Tuffnells: GBP0.6m income (2019:GBPnil)
These comprise:
GBPm 2020 2019
---------------------------- ------ -----
Costs of the strategic (0.3) -
review
Profit on sale of Tuffnells 1.8 -
Onerous Contract provision (0.9) -
Total Income 0.6 -
---------------------------- ------ -----
On 6 November 2019, the Board announced a strategic review of
Tuffnells in order to determine its longer term role and prospects
within the Group.
During the review period, alongside actions to improve the
efficiency of operations, the Board undertook a careful review of
the prospects for Tuffnells' turnaround within the Group's
ownership as well as its potential impact on the Group. The review
involved evaluating a number of options in order to maximise value
for Shareholders, including:
-- continuing to support the continuing Tuffnells turnaround under the Group's ownership;
-- the potential for and consequences of closing the business; and
-- a possible disposal to a third party.
The costs incurred as a result of this review were GBP0.3m.
The Board subsequently concluded that a sale to a third party
would generate the most value for shareholders. For further
information on the sale, see Note 11.
Following the strategic review, Tuffnells was sold on the 2 May
2020 and a profit of GBP1.8m was generated see note 11 for
details.
As part of the disposal agreement with Tuffnells, Tuffnells were
provided services under a transitional service agreement. Tuffnells
notified the Group that it intends to terminate a number of
services early within the transitional service agreement. A number
of these services are provided under contract by third party
suppliers. Where the Group is unable to coterminate these contracts
with its suppliers, it considers these onerous contracts. As a
result, an onerous contract provision of GBP0.9m has been
recognised at the lower of the cost of exiting contracts or the
expected contractual outflows.
This is considered adjusting as it no longer represents the
underlying cost of running the business.
(f) Sale and leaseback: GBP1.0m (H1 2019: GBP0.5m)
In January 2019, the Group took the decision to enter into a
sale and leaseback arrangement for the "Tuffnells property
portfolio" and recognised the assets as held for sale. See note 9
for further details. The Group disposed of 8 of the properties in
the portfolio during the period. However, as a result of the
Tuffnells strategic review, the Board took the decision to pause
the process on the sale and leaseback until the outcome of the
strategic review was certain.
As a result of the above the following were incurred:
GBPm 2020 2019
---------------------------- ------- ------ ------
Sale & leaseback
Profit on disposal of (i) 1.5 -
Tuffnells properties
Rectification costs (ii) (0.6) -
Abortive transaction costs (iii) - (0.5)
Impairment (iv) (1.9) -
Total (1.0) (0.5)
------------------------------------- ------ ------
(i) Profit on loss on disposal of Tuffnells properties GBP1.5m (2019: GBPnil)
In line with IFRS 16, a profit of GBP1.5m (2019 GBPnil) has been
recognised.
(ii) Rectification costs GBP0.6m (2019: GBPnil)
As part of the terms of the disposal the Group agreed to
undertake rectification works to the disposed of properties within
2 years. A provision totalling GBP0.6m was recognised in relation
to this obligation.
(iii) Abortive transaction costs GBPnil (2019: GBP0.5m)
In 2019, the Group incurred GBP0.5m of costs relating to the
sale and leaseback the Tuffnells property portfolio. However, due
to the market conditions and outlook at the time, the proposals
received did not meet the Board's expectations in respect of value,
economic return and timings. As a consequence the process was
stopped and the abortive costs written off. The process was then
restarted and completed this financial year.
(iv) Impairment GBP1.9m (2019: GBPnil)
In November 2019, the remaining unsold properties were valued at
the lower of fair value less costs to sell or historic cost. On one
property the bids received did not support the cost and as a result
an impairment charge of GBP1.9m has been recognised when the assets
were classified back into property plant and equipment.
Given the magnitude of the sale and leaseback and one-off nature
is considered to be an adjusting item.
5. Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive
directors) was:
GBPm Note 2020 2019
Continuing
------------------------------- ----- ------ ------
Wages and salaries 44.9 48.3
Furlough (0.9) -
------------------------------- ----- ------ ------
Net wages and salaries 44.0 48.3
Social security 3.7 4.1
Pension costs 6 1.3 1.4
------------------------------- ----- ------ ------
Continuing operations total 49.0 53.8
------------------------------- ----- ------ ------
Discontinued operations
Wages and salaries 41.4 65.3
Furlough (0.5) -
------------------------------- ----- ------ ------
Wages and salaries 40.9 65.3
Social security 3.5 5.3
Pension costs 6 0.3 0.5
------------------------------- ----- ------ ------
Discontinued operations total 44.7 71.1
------------------------------- ----- ------ ------
Total 93.7 124.9
------------------------------- ----- ------ ------
Pension costs shown above exclude charges and credits for
pension scheme financing and actuarial gains and losses arising on
the pension schemes. Wages and salaries shown above exclude amounts
related to share based payment charges. On a continuing basis there
was a charge of GBP0.3m in 2020 (2019: GBP0.4m) relating to share
based payments (refer to note 3).
(b) Employee numbers
The average total monthly number of employees relating to
operations (including directors) was:
Number 2020 2019
------------------------------- ------ ------
Continuing operations
Operations 1,787 1,038
Support functions 268 1,242
Continuing operations total 2,055 2,280
------------------------------- ------ ------
Discontinued operations
Operations 2,380 2,225
Support functions 74 521
------------------------------- ------ ------
Discontinued operations total 2,454 2,746
------------------------------- ------ ------
Total 4,509 5,026
------------------------------- ------ ------
6. Retirement benefit obligation (Restated)
Defined benefit pension schemes
The Group operated two defined benefit schemes, the WH Smith
Pension Trust (the 'Pension Trust') and the Tuffnells Parcels
Express Pension Scheme.
Following the completion of the 'buy-in' in October 2018 where
the WH Smith Pension Trust entered into an insurance backed annuity
of the Scheme assets within the section of the Trust sponsored by
Smiths News, the annuity matches the liabilities that it guarantees
resulting in no further payments due for that portion of the
scheme. During the year a thorough review of the effectiveness of
the steps taken to equalise the retirement age of pensioners was
undertaken in the current financial year. Previously equalisation
of retirement age was considered to have been effective from 1
April 1992 when communicated to employees. However, the Trust Deed
approving this equalisation was not signed until 29 July 1993, this
is now considered the equalisation date, as a result the opening
liability on the pension scheme has increased by GBP8.2m and this
note has been restated. This has reduced the surplus not recognised
by GBP8.2m to GBP15.2m (2019: 15.8m)
The Group has no liability relating to the Tuffnells Parcels
Express Pension Scheme following the disposal of Tuffnells in May
2020.
The Group's defined benefit pension plans are final salary
pension plans, which provide benefits to members in the form of a
guaranteed level of pension payable for life. The level of benefits
provided depends on members' length of service and their salary in
the final years leading up to retirement. Benefits are paid to
members from trustee-administered funds. The trustees are
responsible for ensuring that the plan is sufficiently funded to
meet current and future benefit payments. If investment experience
is worse than expected, the Group's obligations are increased.
The trustees must agree a funding plan with the sponsoring
company such that any funding shortfall is expected to be met by
additional contributions and investment performance. In order to
assess the level of contributions required, triennial valuations
are carried out with plan's obligations measured using prudent
assumptions (relative to those used to measure accounting
liabilities). The trustees' other duties include managing the
investment of plan assets, administration of plan benefits and
exercising of discretionary powers.
The amounts recognised in the balance sheet are as follows:
GBPm WH Smith Tuffnells 2020 *Restated Tuffnells *Restated
Pension Parcels WH Smith Parcels 2019
Trust Express Pension Express
Trust
-------------------- -------- --------- ------- --------- --------- ---------
Present value
of defined
benefit obligation (481.2) - (481.2) (478.4) (13.4) (491.8)
Fair value
of assets 496.4 - 496.4 494.2 10.5 504.7
-------------------- -------- --------- ------- --------- --------- ---------
Net surplus/
(loss) 15.2 - 15.2 15.8 (2.9) 12.9
Amounts not
recognised
due to asset
limit (15.2) - (15.2) (15.8) - (15.8)
-------------------- -------- --------- ------- --------- --------- ---------
Pension liability - - - - (2.9) (2.9)
-------------------- -------- --------- ------- --------- --------- ---------
*The above table has been restated to reflect the increased
position of the defined benefit obligation of the WH Smith pension
Trust in 2019 by GBP8.2m this increase has decreased unrecognised
surplus due to asset limit by the same amount, no other changes
have been made. For more information see Note 1 (29).
The primary defined benefit pension scheme (the Smiths News
Section of the WH Smith Pension Trust) has an IAS 19 surplus of
GBP15.2m at 29 August 2020 (2019 restated: GBP15.8m in surplus)
which the Group does not recognise in the accounts as the Group do
not have an unconditional right to either a reduction of future
contributions or right to a refund on closure of the scheme. The
valuation of the defined benefit schemes for the IAS 19 disclosures
have been carried out by independent qualified actuaries based on
updating the most recent funding valuations of the respective
schemes, adjusted as appropriate for membership experience,
equalisation and changes in the actuarial assumptions.
WH Smith Pension Trust
The actuarial valuation of the Smiths News section of the WH
Smith Pension Trust at 31 March 2018 was completed and resulted in
no further funding being required from the Group at this time.
Following the completion of the 'buy-in' in October 2018 where the
WH Smith Pension Trust entered into an insurance backed annuity of
the Scheme assets within the section of the Trust sponsored by
Smiths News. The 'buy-in' annuity is recognised as a plan asset and
the difference in value between the value of the insurance asset
received of GBP425m at the date of transaction and the asset
transferred in exchange for the policy GBP555m is considered an
actuarial remeasurement recognised within other comprehensive
income and is offset by the release of the IFRIC 14 liability.
Tuffnells Parcels Express scheme
The triennial actuarial valuation of the Tuffnells Parcels
Express scheme as at 1 April 2019 was a scheme deficit of GBP5.3m.
Deficit recovery contributions to the scheme have been agreed at
GBP0.5m per annum. GBP1.4m of pension liabilities were disposed of
on completion of the sale of the Tuffnells division on 2 May
2020.
The weighted average duration of the schemes is 16 years for the
W H Smith Pension Trust.
The principal long-term assumptions used to calculate scheme
liabilities on all Group schemes are:
% p.a. 2020 2019
--------------------------------------- -------------- --------------
Discount rate 1.5 1.8
Inflation assumptions - CPI 2.1 2.2
Inflation assumptions - RPI 3.1 3.2
Demographic assumptions for WH 2020 2019
Smith Pension Trust:
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 21.7 23.6 21.5 23.3
Member currently aged 45 22.7 24.8 22.5 24.5
--------------------------------------- ----- ------- ----- -------
Demographic assumptions for Tuffnells 2020 2019
Parcels Express scheme:
--------------------------------------- -------------- --------------
Life expectancy at age 65 Male Female Male Female
Member currently aged 65 N/A N/A 22.1 24.1
Member currently aged 45 N/A N/A 23.3 25.4
--------------------------------------- ----- ------- ----- -------
Inflation assumptions
Pension increases in deferment in both Schemes are granted in
line with CPI for all deferred members. RPI inflation is used to
determine the increases for pensions currently in payment, subject
to any annual caps and floors.
A summary of the movements in the net balance sheet asset/
(liability) and amounts recognised in the Group Income Statement
and Other Comprehensive Income are as follows:
GBPm Fair value *Restated *Restated Total
of scheme Defined Impact of
assets benefit IFRIC 14 on
obligation defined benefit
pension schemes
------------------------------------------ ----------- ------------ ----------------- -------
At 31 August 2018 592.7 (448.6) (151.4) (7.3)
------------------------------------------ ----------- ------------ ----------------- -------
Current service cost - - - -
Net interest cost 14.9 (11.0) (4.1) (0.2)
Past service cost - (0.1) (0.1)
Administration expenses (0.4) - - (0.4)
Total amount recognised in income
statement 14.5 (11.1) (4.1) (0.7)
------------------------------------------ ----------- ------------ ----------------- -------
Actual return on scheme assets
(excluding amounts included in
net interest expense) (83.0) - 5.2 (77.8)
Actuarial gains arising from experience - 7.3 - 7.3
Actuarial gains arising from changes
in financial assumptions - (60.1) - (60.1)
Actuarial gains arising from changes
in demographic assumptions - (0.4) - (0.4)
Change in surplus not recognised - - 134.5 134.5
Amount recognised in other comprehensive
income (83.0) (53.2) 139.7 3.5
Employer contributions 1.6 - - 1.6
Employee contributions - - - -
Benefit payments (21.1) 21.1 - -
------------------------------------------ ----------- ------------ ----------------- -------
Amounts included in cash flow
statement (19.5) 21.1 - 1.6
------------------------------------------ ----------- ------------ ----------------- -------
At 31 August 2019 504.7 (491.8) (15.8) (2.9)
------------------------------------------ ----------- ------------ ----------------- -------
Net interest cost 8.5 (8.2) (0.3) -
Administration expenses (0.3) - - (0.3)
Total amount recognised in income
statement 8.2 (8.2) (0.3) (0.3)
------------------------------------------ ----------- ------------ ----------------- -------
Actual return on scheme assets
(excluding amounts included in
net interest expense) 14.8 - - 14.8
Actuarial gains/(loss) arising - - - -
from experience
Actuarial gains/(loss) arising
from changes in financial assumptions - (12.6) - (12.6)
Actuarial gains/(loss) arising
from changes in demographic assumptions - (2.1) (2.1)
Change in surplus not recognised - - 0.9 0.9
Amount recognised in other comprehensive
income 14.8 (14.7) 0.9 1.0
Employer contributions 0.8 - - 0.8
Employee contributions - - - -
Benefit payments (21.8) 21.8 - -
------------------------------------------ ----------- ------------ ----------------- -------
Amounts included in cash flow
statement (21.0) 21.8 - 0.8
------------------------------------------ ----------- ------------ ----------------- -------
Disposal of business (10.3) 11.7 - 1.4
------------------------------------------ ----------- ------------ ----------------- -------
At 29 August 2020 496.4 (481.2) (15.2) -
------------------------------------------ ----------- ------------ ----------------- -------
Included within Current liabilities -
Included within Non-current liabilities -
------------------------------------------ ----------- ------------ ----------------- -------
*The above table has been restated to reflect the increased
opening position of the defined benefit obligation by GBP8.2m this
has decreased the IFRIC 14 restriction at 1 September 2018 and 31
August 2019 no other changes have been made. For more information
see Note 1 (29).
The charge for the current service cost is included within
administrative expenses. 'Net interest costs' are calculated by
applying a discount rate to the net defined benefit asset or
liability scheme assets and are included within finance income and
expense.
An analysis of the assets at the balance sheet date is detailed
below:
GBPm 2020 2019
--------------------------- --------------------- ------ ------
Gilts and swaps portfolio Quoted and Unquoted 10.9 10.8
Corporate bonds Quoted and Unquoted - -
Equity funds Unquoted - 10.5
Insurance policy Unquoted 473.0 470.2
Cash and other Unquoted 12.5 13.2
496.4 504.7
------------------------------------------------- ------ ------
The return on scheme assets during 2020 was a gain of GBP14.8m
(2019: a loss of GBP83.0m).
The value of the assets held by the Trust in Smiths News Plc
(formerly Connect Group PLC) issued financial instruments is GBPnil
(2019: GBPnil).
Sensitivity of results to changes in the main assumptions:
Assumption Change in assumption Impact on IAS 19 Effect on balance
liabilities sheet at 29
August 2020
------------------ --------------------- ----------------- ------------------
Discount rate - 0.5% +GBP42.1m GBPnil
Rate of inflation + 0.5% +GBP37.3m GBPnil
Life expectancy + 1 year +GBP22.2m GBPnil
------------------ --------------------- ----------------- ------------------
The sensitivity analysis for each significant actuarial
assumption has been determined based on reasonably possible changes
to the assumptions at the end of the reporting period. It is based
on a change in the key assumption while holding all other
assumptions constant. The effect of a change in more than one
assumption will be different to the sum of the individual changes.
When calculating the sensitivities, the same methodology used to
calculate the liability recognised in the balance sheet has been
applied. The methodology and types of assumptions used in preparing
the sensitivity analysis is consistent with the previous
period.
The Group's defined benefit pension plans have a number of areas
of risk, the most significant of which are set out below:
-- Life expectancy
The majority of the plans' obligations are to provide a pension
for the life of the member, so increases in life expectancy will
result in an increase in the plans' liabilities.
-- Inflation risk
The plans' benefit obligations are linked to inflation and
higher inflation will lead to higher liabilities.
-- Changes in bond yields
Falling bond yields tend to increase the funding and accounting
liabilities. The schemes both hold investments in corporate and
government bonds which offer a degree of matching, i.e. the
movement in assets arising from changes in bond yields partially
matches the movement in the funding or accounting liabilities. In
this way, the exposure to movements in bond yields is reduced.
However, as the WH Smith Pension Trust entered into an insurance
backed annuity 'buy-in' of the Scheme assets, within the section of
the Trust sponsored by Smiths News, which minimises the Group's
exposure to future pension obligations (note 32).
Defined contribution schemes
The Group operates a number of defined contribution schemes. For
the 52 weeks ended 29 August 2020, contributions from the
respective employing company for continuing operations totalled
GBP1.6m (2019: GBP1.9m) which is included in the Income
Statement.
A defined contribution plan is a pension plan under which the
group pays contributions to an independently administered fund -
such contributions are based upon a fixed percentage of employees'
pay. The group has no legal or constructive obligations to pay
further contributions to the fund once the contributions have been
paid. Members' benefits are determined by the amount of
contributions paid by the Company and the member, together with
investment returns earned on the contributions arising from the
performance of each individual's chosen investments and the type of
pension the member chooses to buy at retirement. As a result,
actuarial risk (that benefits will be lower than expected) and
investment risk (that assets invested in will not perform in line
with expectations) fall on the employee.
7. Finance costs
GBPm Note 2020 2019
--------------------------------------------- ----- ----- -----
Continuing operations
Interest on bank overdrafts and loans (4.7) (5.1)
Amortisation of loan arrangement fees (0.6) (0.5)
Interest payable on leases (1.7) -
--------------------------------------------- ----- ----- -----
Total interest cost on financial liabilities
at amortised cost (6.9) (5.6)
Net interest expense on defined benefit
obligation 6 - -.
Unwinding of discount on provisions
- trading 24 (0.5) (0.4)
Finance costs - continuing operations (7.4) (6.0)
Interest income on loans and deferred
consideration 1.1 -
--------------------------------------------- ----- ----- -----
Net Finance costs - continuing operations (6.3) (6.0)
Interest payable on leases (1.5) (0.1)
Net interest expense on defined benefit
obligation 6 - (0.1)
Unwinding of discount on provisions
- trading 24 (0.1) (0.1)
--------------------------------------------- ----- ----- -----
Net Finance costs - discontinued operations (1.6) (0.3)
--------------------------------------------- ----- ----- -----
Net Finance costs - continuing and
discontinued operations (7.9) (6.3)
--------------------------------------------- ----- ----- -----
8. Income tax expense
GBPm 2020 Restated*
2019
Continuing operations Adjusted Adjusted Total Adjusted Adjusted Total
items items
------------------------------ --------- --------- ------ --------- --------- ----------
Current tax 3.4 (1.4) 2.0 6.6 (0.9) 5.7
Adjustment in respect
of prior year 0.4 - 0.4 2.1 - 2.1
Total current tax charge 3.8 (1.4) 2.4 8.7 (0.9) 7.8
Deferred tax - current
year 0.1 - 0.1 0.3 - 0.3
Deferred tax - prior
year 0.4 - 0.4 0.1 - 0.1
Deferred tax - impact
of rate change (0.1) - (0.1) 0.2 - 0.2
------------------------------ --------- --------- ------ --------- --------- ----------
Total tax (credit)/charge
- continuing operations 4.2 (1.4) 2.8 9.3 (0.9) 8.4
------------------------------ --------- --------- ------ --------- --------- ----------
Effective tax rate 15.1% 18.9% 24.7% 27.7%
------------------------------ --------- --------- ------ --------- --------- ----------
Tax charge/(Credit)
- discontinued operations (0.2) 3.6 3.4 (5.5) (9.0) (14.5)
------------------------------ --------- --------- ------ --------- --------- ----------
Tax charge - continuing
and discontinued operations 4.0 2.2 6.2 3.8 (9.9) (6.1)
------------------------------ --------- --------- ------ --------- --------- ----------
The effective adjusted income tax rate for continuing operations
in the year was 15.1% (2019: 24.7%). After the impact of Adjusted
items of GBP13.1m (2019: GBP7.3m), the effective statutory income
tax rate for continuing operations was 18.9% (2019: 27.7%).
Corporation tax is calculated at the main rates of UK
corporation tax, those being 19.0% (2019: 19.0%). Taxation for
other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The impairment of DMD Goodwill in the current year creates a
disallowable expense to continuing operations tax.
In the prior year discontinued operations the impairment of
Tuffnells goodwill creates a disallowable expense; the prior
impairment of acquired intangibles has resulted in the release of
GBP4.5m deferred tax liability as a credit to adjusted items income
tax. A deferred tax asset of GBP2.5m has been recognised which has
credited adjusted items income tax as a result of the impairment of
the other assets. See note 4 and 13 for details relating to the
impairments.
The tax charge for the year can be reconciled to the loss in the
income statement as follows:
GBPm 2020 Restated*
2019
------------------------------------------ ------ ----------
Continuing Profit before tax 14.8 30.3
------------------------------------------ ------ ----------
Tax on profit at the standard rate of UK
corporation tax 19.0% (2019: 19.0%) 2.8 5.8
Expenses not deductible for tax purposes (1.1) 0.1
Group relief (discontinued operations) (1.8) -
Adjustment in respect of prior years 0.8 2.2
Impact of change in UK tax rate 0.1 0.2
Impact of higher overseas tax rates - 0.1
Tax (credit)/charge 2.8 8.4
------------------------------------------ ------ ----------
Expenses not deductible for tax purposes are comprised mainly of
the tax effect of the impairment of Goodwill in DMD. See note
4.
Tax charges to other comprehensive income and directly in
equity
GBPm 2020 2019
Continuing operations
--------------------------------------------------- ----- ------
Current tax relating to the defined benefit
pension scheme - (0.2)
Deferred tax relating to retirement benefit
obligations - 0.2
Deferred tax relating to share based payments - -
Tax charge/(credit) to other comprehensive - -
income and directly in equity - continuing
operations
--------------------------------------------------- ----- ------
Tax charge to other comprehensive income
and directly in equity - discontinued operations 0.5 0.7
--------------------------------------------------- ----- ------
Tax charge/(credit) to other comprehensive
income and directly in equity - continuing
and discontinued operations 0.5 0.7
--------------------------------------------------- ----- ------
9. Dividends
Amounts paid and proposed as distributions to equity
shareholders in the years:
2020 2019 2020 2019
Paid & proposed dividends Per share Per share GBPm GBPm
for the year
------------------------------ ---------- ---------- ----- -----
Interim dividend - paid - - - 2.4
Final dividend - proposed - 1.0 - -
- - - 2.4
------------------------------ ---------- ---------- ----- -----
Recognised dividends for the
year
Final dividend - prior year 1.0 - 2.4 -
Interim dividend - current - - - -
year
------------------------------ ---------- ---------- ----- -----
1.0 - 2.4 -
------------------------------ ---------- ---------- ----- -----
There is no proposed final dividend per share for the 52 weeks
ended 29 August 2020 (2019: 1.0p).
10. Earnings per share
2020 2019
GBPm Pence GBPm Pence
Earnings Weighted per share Earnings Weighted per share
average average
number number
of shares of shares
million million
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Weighted average number of
shares in issue 246.7 247.7
Shares held by the ESOP (weighted) (2.2) (1.3)
Basic earnings per share (EPS)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Continuing operations
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Adjusted earnings attributable
to ordinary shareholders 23.7 244.5 9.7 28.3 246.4 11.5
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Adjusted items (11.7) (6.4)
Earnings attributable to ordinary
shareholders 12.0 244.5 4.9 21.9 246.4 9.0
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Discontinued operations
Adjusted Losses attributable
to ordinary shareholders (13.1) 244.5 (5.3) (8.9) 246.4 (3.5)
Adjusted items (5.6) (44.5)
Losses attributable to ordinary
shareholders (18.7) 244.5 (7.7) (53.4) 246.4 (21.7)
Total - Continuing and discontinued
operations
Adjusted earnings attributable
to ordinary shareholders 10.6 244.5 4.3 19.4 246.4 7.9
Adjusted items (17.3) (50.9)
Earnings attributable to ordinary
shareholders (6.7) 244.5 (2.7) (31.5) 246.4 (12.9)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted earnings per share
(EPS)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Effect of dilutive share options
- continuing operations 2.6 0.7
Effect of dilutive share options
- adjusting continuing 2.6 0.7
Effect of dilutive share options - -
- discontinued operations
Effect of dilutive share options - -
- total
Continuing operations
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted adjusted EPS 23.7 247.2 9.6 28.3 247.1 11.5
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted EPS 12.0 247.2 4.9 (6.4) 247.1 9.0
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Discontinued operations -
Diluted EPS
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted adjusted EPS (13.1) 244.5 (5.3) (8.9) 247.1 (3.5)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted EPS (18.7) 244.5 (7.7) (53.4) 247.1 (21.7)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Total - Continuing and discontinued
operations
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted adjusted EPS 10.6 247.2 4.3 19.4 247.1 7.9
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Diluted EPS (6.7) 244.5 (2.7) (31.5) 246.4 (12.9)
------------------------------------- --------- ----------- ---------- --------- ----------- ----------
Dilutive shares increase the basic number of shares at 29 August
2020 by 2.6m to 244.5m (31 August 2019: 246.4m).
The calculation of diluted EPS reflects the potential dilutive
effect of employee incentive schemes of 2.6m dilutive shares (31
August 2019: 0.7m).
Dilutive shares are only dilutive for the purposes of the
Group's adjusted measure, where a profit is recognised. The
application of the dilutive shares to the adjusted profits measure
reduces the profit per share. Where the Group's statutory measures
are loss making, the potential dilutive effect of employee
incentive schemes is antidilutive, in that they would reduce the
loss per share. Accordingly, they are not applied to the statutory
calculation with basic and dilutive EPS being the same.
11. Discontinued Operations and assets held for sale
Discontinued operations - Tuffnells
On 6 November 2019, the Board announced a strategic review of
Tuffnells in order to determine its longer term role and future
within the Group.
The review involved evaluating a number of options in order to
assess which would be most likely to maximise value for
Shareholders including:
-- support the turnaround of the Tuffnells Group under the Group's ownership;
-- the potential for and consequences of closing the business; and
-- a possible disposal to a third party.
A competitive sales process was entered concurrently with
continuing to support the turnaround. On 12 February 2020 the Group
received several bids, the Board considered a number of these
represented a good economic return for the business continued to
pursue a sale.
On 28 of February 2020, the Board concluded that a sale of the
business was the most appropriate strategy to maximise shareholder
return committing to this strategy and concluded that the sale
process was progressed enough to conclude that the business would
be sold within the next year. The Board therefore concluded that
the requirements of IFRS 5 to classify Tuffnells as held for sale
and a discontinued operation had been met.
Subsequently on 14 April 2020, a share purchase agreement was
signed with Palm Bidco Limited to sell Tuffnells subject to
shareholder approval. At the Company's General Meeting held on 1
May 2020 shareholders approved the sale and completion concluded on
2 May 2020.
The key terms of the share purchase agreement are as
follows:
Unsecured consideration payable by Palm Bidco Limited to the
Group of GBP15.0m in cash, payable in three tranches as
follows:
-- GBP6.5m on the date 18 months following Completion;
-- GBP4.25m on or prior to the date 27 months following Completion; and
-- GBP4.25m on or prior to the date 36 months following Completion.
The Group have discounted the consideration at 30% and
recognised GBP7.1m on Completion.
Tuffnells being cash free debt free on Completion which
represented the Group repaying the Tuffnells overdraft and writing
off the intercompany loan at completion.
The Group agreed to make available a loan facility secured
against selected properties. The total facility available was
GBP10.5m and included a 10% coupon. The facility drawn on
Completion was GBP6.5m; a further GBP1.0m a month was available to
be drawn from 1 September 2020 up to the limit of GBP10.5m. After
Completion no further funds were drawn from the facility. On 1
October 2020, the full balance of the loan was repaid, included
accrued interest. On the same day, the facility was cancelled and
security the Group held over Tuffnells properties released.
The Group repaid GBP1.0m of lease creditors prior to Completion.
Tuffnells were covered under a Group insurance policy as part of
the disposal the decision was made that the Group would pay for any
pre-existing motor and employment liability claims that Tuffnells
incurred prior to disposal. These claims will be settled as they
arise, on Completion the total liability was estimated at GBP1.8m.
A balance of GBP1.6m remains at 29 August 2020.
The Group have recognised costs of disposal as incurred; the
total costs of disposal were GBP3.6m.
Accounting impact
On 28 February Tuffnells was considered to be held for sale, at
that date the fair value less cost to sell of Tuffnells was
negative GBP14.1m based on the bids received. Included within this
calculation were the discounted deferred consideration and the
forecast future cash trading losses of Tuffnells.
The net liabilities of Tuffnells were GBP13.5m at 29 February
2020; when compared to the fair value less costs to sell, this
indicated impairment and a charge of GBP0.6m was recognised against
property plant and equipment.
On disposal a profit of GBP1.8m was recorded as a result of the
non-cash losses generated between the half year and the 52 week
period end.
As part of the disposal agreement with Tuffnells, Tuffnells were
provided services under a transitional service agreement. Tuffnells
notified the Group that it intended to terminate a number of
services early within the transitional service agreement. A number
of these services are provided under contract by third party
suppliers. Where the Group is unable to co-terminate these
contracts with its suppliers, it considers these onerous contracts.
As a result, an onerous contract provision of GBP0.9m has been
recognised at the lower of the cost of exiting contracts or the
expected contractual outflows.
Tuffnells strategic review
The results of discontinued operations, have been included
within the consolidated income statement, are as follows:
GBPm 2020 2019
----------------------------------- ------------------------------------
Adjusted Adjusted items Total Adjusted Adjusted items Total
----------------------------------- --------- --------------- -------- --------- --------------- --------
Revenue 98.2 - 98.2 164.4 - 164.4
Cost of sales (102.5) - (102.5) (168.6) (1.0) (169.6)
------------------------------------ --------- --------------- -------- --------- --------------- --------
Gross profit (4.3) - (4.3) (4.2) (1.0) (5.2)
------------------------------------ --------- --------------- -------- --------- --------------- --------
Administrative expenses (7.4) (2.0) (9.4) (9.9) (52.5) (62.4)
------------------------------------ --------- --------------- -------- --------- --------------- --------
Operating loss (11.7) (2.0) (13.7) (14.1) (53.5) (67.6)
------------------------------------ --------- --------------- -------- --------- --------------- --------
Finance costs (1.6) - (1.6) (0.3) 0.0 (0.3)
------------------------------------ --------- --------------- -------- --------- --------------- --------
Loss before tax (13.3) (2.0) (15.3) (14.4) (53.5) (67.9)
Income tax expense 0.2 (3.6) (3.4) 5.5 9.0 14.5
------------------------------------ --------- --------------- -------- --------- --------------- --------
Loss from discontinued operations (13.1) (5.6) (18.7) (8.9) (44.5) (53.4)
------------------------------------ --------- --------------- -------- --------- --------------- --------
During the year, cash outflow from operating activities
attributed to discontinued operations amounted to GBP10.3m (2019:
GBP10.9m outflow) and paid GBP9.1m inflow (2019: GBP5.8m outflow)
in respect of investing activities. There were GBP7.3m (2019:
GBP6.9m) cash outflows associated with financing activities
attributable to discontinued operations.
Assets held for sale
Tuffnells Properties held for sale
In January 2019 the Group took the decision to enter into a sale
and leaseback arrangement for the Tuffnells freehold and long
leasehold property portfolio and related assets with a net book
value of GBP16.8m. These were reclassified as assets held for sale
in January 2019 as they were considered to meet the definition.
During the year 8 of the properties were sold and leased back
for a combined consideration GBP15.2m, with lease commitments of
GBP1.0m per annum.
The total impact of this disposal was to recognise GBP1.5m gain
on disposal.
An impairment review was performed on the remaining properties
as the bids received indicated that the one property was held at
cost in excess of its fair value less cost to sell. As a result of
this review, an impairment of GBP1.9m was recognised on this
property.
Following the strategic review and conclusion of Tuffnells being
held for sale on 29 February 2020, the remaining properties were
considered to form part of the Tuffnells disposal group and
subsequently transferred from assets held for sale.
GBPm 2020 2019
---------------------------------- ------ -----
Non-current assets held for sale - 16.8
---------------------------------- ------ -----
Jack's Beans
In January 2019, the Group sold the assets relating to the
Jack's Beans division for consideration of GBP0.5m. The division
was not considered to meet the definition of a discontinued
operation given the size of the operation making up less than 1% of
the Groups total revenue. The decision made to sell the division
was made in August 2018, to enable the Group to focus on its core
businesses, the bids received indicated an excess of net book value
of GBP1.0m, therefore, the Group impaired the assets down to
GBP0.5m in the financial year 2018 and moved them into non-current
assets held for sale.
12 Disposal of subsidiaries
The Group disposed of the Tuffnells business on 2 May 2020.
The net assets of the business at the date of disposal were:
2020
GBPm
Intangible assets 0.2
Property, plant and equipment 12.0
Right of use assets 36.5
Inventories 0.6
Trade and other receivables 15.2
Cash and bank balances -
Trade and other payables (17.3)
Lease creditor (41.6)
Retirement benefit creditor (1.4)
Provisions (2.6)
------------------------------------------------------ -------
Net assets disposed 1.6
Deferred consideration 7.1
Net cash outflow arising from disposal of Tuffnells
business (3.7)
Net assets disposed (1.6)
------------------------------------------------------ -------
Profit on disposal 1.8
Net cash outflow arising on disposal
Cash disposal costs (3.7)
------------------------------------------------------ -------
Net cash outflow arising from disposal of Tuffnells
business (3.7)
------------------------------------------------------ -------
*As part of the sale and purchase agreement a Group overdraft
balance and a lease was settled which was intrinsically linked to
the Tuffnells business.
13. Intangible assets
Acquired Intangibles Internally Computer
generated software
development costs
costs
----------------------------------- ------------- ----------
GBPm Goodwill Customer Trade Software Total
relationships name
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Cost:
At 1 September
2019 57.8 29.3 30.7 0.8 7.4 11.4 137.4
Additions - - - - 0.3 1.9 2.2
Disposal - - - - (4.4) (4.6) (9.0)
Disposal of
business (52.1) (26.9) (30.5) (0.8) (0.4) (1.2) (111.9)
At 29 August
2020 5.7 2.4 0.2 - 2.9 7.5 18.7
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Accumulated
amortisation:
At 1 September
2019 (52.1) (29.3) (30.7) (0.8) (6.0) (8.4) (127.3)
Amortisation
charge - - - - (0.4) (1.6) (2.0)
Disposals - - - - 4.2 4.6 8.8
Disposal of
business 52.1 26.9 30.5 0.8 0.3 0.9 111.5
Impairment (5.7) - - - - - (5.7)
At 29 August
2020 (5.7) (2.4) (0.2) - (1.9) (4.5) (14.7)
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Net book value
at 29 August
2020 - - - - 1.0 3.0 4.0
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Cost:
At 1 September
2018 57.8 29.3 30.7 0.8 7.1 12.5 138.2
Additions - - - - 0.4 1.0 1.4
Disposals - - - - (0.1) (2.1) (2.2)
At 31 August
2019 57.8 29.3 30.7 0.8 7.4 11.4 137.4
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Accumulated
amortisation:
At 1 September
2018 (46.1) (15.3) (11.4) (0.8) (5.4) (8.5) (87.5)
Amortisation
charge - (3.7) (3.1) - (0.6) (1.8) (9.2)
Disposals - - - - - 2.3 2.3
Impairment (6.0) (10.3) (16.2) - - (0.4) (32.9)
At 31 August
2019 (52.1) (29.3) (30.7) (0.8) (6.0) (8.4) (127.3)
---------------- --------- --------------- ------- --------- ------------- ---------- --------
Net book value
at 31 August
2019 5.7 - - - 1.4 3.0 10.1
---------------- --------- --------------- ------- --------- ------------- ---------- --------
The net book value of the Group's Goodwill and acquired
intangibles split by CGU is included in the table below.
Goodwill Acquired Intangibles Total
GBPm 2020 2019 On acquisition 2020 2019 On acquisition 2020 2019 On acquisition
------------- ------ ----- --------------- ----- ----- --------------- ----- ----- ---------------
DMD - 5.7 5.7 - - 2.6 - 5.7 8.3
Smiths News - - - - - 0.3 - - 0.3
Tuffnells - - 52.1 - - 58.1 - - 110.2
- 5.7 57.8 - - 61.0 - 5.7 118.8
----- ----- ----- ----- -----
Impairment tests goodwill
Goodwill is not amortised, but tested annually for impairment or
more frequently if there are indications that goodwill might be
impaired with the recoverable amount being determined from value in
use calculations. The recoverable amounts of the combined cash
generating units are determined from the value in use calculations.
The Group prepares cash flow forecasts derived from the most recent
plan for the following as approved by the Board and extrapolates
these cash flows on an estimated growth rate into perpetuity.
The rate used to discount the forecast cash flows is included in
the table below, being the Group's weighted average cost of capital
adjusted for industry and market risk.
DMD
The Covid-19 pandemic and the effects that had started to be
seen on the airline industry were considered an impairment
indicator and a full impairment review was performed in February
2020 on the Goodwill and other assets relating to this business
unit.
The table below includes the key assumptions used to calculate
the Group's cash generating unit value in use:
DMD
2020 2019
------ ---------
Average plan revenue growth 2.0%* 2.5%*(1)
------ ---------
Post tax discount rate 20.0% 10.5%
------ ---------
Pre-tax discount rate 37.8% 19.9%
------ ---------
Long term growth rate 0.0% 0.0%
------ ---------
(*Return of 80% of the market followed by 2% growth)
(*1Average growth of revenue relates to years FY2021-FY2023)
In generating these budgets the Board has considered the overall
strategy of the Group, the principal and emerging risks and
uncertainties inherent within the business, as well as making a
number of key strategic planning assumptions which are noted
below:
-- No significant impact on trading as a result of the EU Exit or other political change;
-- Continued decline in sales of printed media during the
assessment period offset by overhead efficiencies in the assessment
period.
-- Return of the airline industry within 14 months of April 2020
(the start of the lockdown in the UK) and a return of contracts to
80% in the industries activity
Given the risks inherent within the plan and the recovery of the
market a risk premium of 11.9% was applied to the Groups WACC of
8.1%.
Consistent with IAS 36, revenues in relation to enhancement of
assets have not been included.
Sensitivity to changes in key assumptions
Impairment testing is dependent on management's estimates and
judgements, particularly as they relate to the forecasting of
future cash flows, the discount rates selected and expected
long-term growth rates.
As goodwill is written down to GBPnil, any sensitivity is
considered to not have a material impact on the financial
statements.
DMD
The DMD CGU had a recoverable value of GBP0.2m, based on this
Goodwill has been impaired to GBPnil resulting in an impairment
charge of GBP5.7m.
Tuffnells
In the prior year the Group impaired the Goodwill and other
intangibles down to GBPnil. This was based on the following
assumptions:
Tuffnells
2019
----------
Average plan revenue growth 2.2%
----------
Post tax discount rate 11.5%
----------
Pre-tax discount rate 20.0%
----------
Long term growth rate 2.0%
----------
The prior year losses of GBP14.1m in the Tuffnells business unit
was a key indicator of impairment and impacted the future outlook,
which negatively impacted the value in use of the Tuffnells CGU and
resulted in the Group recording an impairment of GBP6.0m against
the value of the goodwill as it is considered to have no
recoverable basis.
14. Property, plant and equipment
GBPm Land & Buildings
----------------------------------------------
Freehold Long term Short Fixtures Equipment Total
properties leasehold term leasehold & fittings & vehicles
improvements improvements
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Cost:
At 1 September 2019 0.2 0.3 13.4 4.5 35.7 54.1
Additions 0.4 - 0.2 0.9 3.3 4.8
Disposals - (0.4) (0.4) (2.1) (2.9)
Transferred from held
for sale 13.0 - 0.2 1.1 - 14.3
Disposal of business (13.6) (0.1) (3.3) (3.4) (14.5) (34.9)
At 29 August 2020 - 0.2 10.1 2.7 22.4 35.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Accumulated depreciation:
At 1 September 2019 - (0.3) (11.1) (4.1) (27.7) (43.2)
Depreciation charge - - (0.5) (0.2) (2.3) (3.0)
Transferred from held
for sale (1.7) - (0.1) (0.8) (0.9) (3.5)
Disposals 0.3 - 0.3 0.4 2.3 3.3
Impairments (2.5) - - - - (2.5)
Disposal of business 3.9 0.1 3.2 3.0 12.7 22.9
At 29 August 2020 - (0.2) (8.2) (1.7) (15.9) (26.0)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Net book value at
29 August 2020 - - 1.9 1.0 6.5 9.4
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Cost:
At 1 September 2018 14.0 1.3 13.6 5.4 42.2 76.5
Additions 0.2 0.3 0.2 0.7 7.4 8.8
Disposals - - (0.2) (0.4) (11.3) (11.9)
Classified as held
for sale (14.0) (1.3) (0.2) (1.2) (2.6) (19.3)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
At 31 August 2019 0.2 0.3 13.4 4.5 35.7 54.1
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Accumulated depreciation:
At 1 September 2018 (0.2) (0.3) (8.7) (3.6) (24.9) (37.7)
Depreciation charge - (0.4) (0.6) (1.3) (4.6) (6.9)
Transfers between
asset classes - 0.3 (0.4) 0.6 (0.6) (0.1)
Disposals 0.1 - 0.2 0.4 10.9 11.6
Impairments (0.5) - (1.7) (0.9) (9.5) (12.6)
Classified as held
for sale 0.6 0.1 0.1 0.7 1.0 2.5
At 31 August 2019 - (0.3) (11.1) (4.1) (27.7) (43.2)
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Net book value at
31 August 2019 0.2 - 2.3 0.4 8.0 10.9
--------------------------- ------------ -------------- ---------------- ------------ ------------ -------
Tuffnells
In the current year an impairment charge of GBP1.9m was booked
against the value of one of the Tuffnells properties see Note 4 for
details. A further impairment charge of GBP0.6m was booked when the
Tuffnells business unit was classified as held for sale as the
value in use of the business was in excess of its value in use see
note 11 for further details.
In the prior year, the value in use calculation performed for
the Tuffnells business unit resulted in a value in use of negative
GBP0.6m, therefore the assets relating to the this business unit
were considered to be no longer supported, see note 13 for details
of the assumptions used and reason for this decline in value.
Therefore as fair value less costs to sell was higher than value
in use this was used. The property plant and equipment relating to
the Tuffnells business unit was valued at GBP1.6m in the prior year
therefore resulting in an impairment charge of GBP12.6m in the
prior year.
15. Interests in joint ventures
GBPm 2020 2019
------------------- ----- -----
At 1 September 5.3 5.1
Share of profit 0.1 0.3
Impairments (0.3) -
Dividends received (0.2) (0.1)
------------------- ----- -----
At 29/31 August 4.9 5.3
------------------- ----- -----
The Joint venture listed below has share capital consisting
solely of ordinary shares, which is held directly by the Group.
Nature of investments in Joint Ventures
Company name/ Share Class Group Company name/ Share Class Group
(number) % (number) %
Two Snowhill, Snow Hill, Birmingham, B4 6GA
Worldwide Magazine
Distribution Limited Ordinary FMD Limited Ordinary
01206287 Shares 50% 03729720 A shares 50%
------------- ------ ----------------- ------------ ------
27 Kings Road, Berkhamsted, Hertfordshire, HP4 3BH
Fresh On The Go
Limited Ordinary
08775703 Shares 30%
------------- ------ ----------------- ------------ ------
Estantia House, Pitreavie Drive, Pitreavie Business Park, Dunfermline,
Fife KY11 8US
Bluebox Aviation Bluebox Systems
Systems Ltd Ordinary Group Limited Ordinary
SC267388 Shares 36.1% SC544863 A Shares 36.1%
------------- ------ ----------------- ------------ ------
Inflight House, Hurricane Way, Langley, SL3 8AG
Bluebox Avionics
Limited Ordinary
05684001 Shares 36.1%
------------- ------ ----------------- ------------ ------
Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF
Rascal Solutions
Open-Projects Limited Ordinary Limited Ordinary
02422753 Shares 50% 05191277 A Shares 50%
------------- ------ ----------------- ------------ ------
The Group interest in 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 29
August 2020. 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, which the principal activity 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 , this business provides retail with
coffee other related products.
The Group investment in FMD Limited, is the holding company of
Worldwide Magazine Distribution Limited, a company incorporated in
England. The latest statutory accounts of FMD Limited were drawn up
to 31 July 2019. Both FMD Limited and Worldwide Magazine
Distribution Limited are currently in the process of
liquidation.
All Joint ventures are private companies and there is no quoted
market price available for their shares.
The Group has no commitments relating to its joint ventures
The Group's share of the results, assets and liabilities of
joint ventures is as follows:
GBPm 2020 2019
------------------------- ----------------------------------------- -----------------------------------------
Rascal solutions Limited Other Total Rascal solutions Limited Other Total
Revenue 6.9 4.3 11.2 9.1 2.4 11.5
Depreciation 1.4 0.1 1.5 0.8 - 0.8
Tax 0.1 - 0.1 0.3 0.9 1.2
Profit after tax 0.2 0.1 0.3 1.0 - 1.0
------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Non-current assets 3.1 - 3.1 2.8 0.9 3.7
Current assets 1.6 1.5 3.1 2.7 2.4 5.1
Cash 1.3 1.1 2.4 1.3 0.6 1.9
------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Total assets 6.0 2.6 8.6 6.8 3.9 10.7
Current liabilities (2.2) (0.9) (3.1) (2.8) (1.1) (3.9)
Non-current liabilities - (0.8) (0.8) - (1.1) (1.1)
------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Total liabilities (2.2) (1.7) (3.9) (2.8) (2.2) (5.0)
Net assets 3.8 0.9 4.7 4.0 1.7 5.7
Goodwill 2.9 - 2.9 2.9 - 2.9
Impairment - (0.3) (0.3) - - -
------------------------- ------------------------- ------ ------ ------------------------- ------ ------
Share of net assets 4.9 - 4.9 5.0 0.3 5.3
Dividends of GBP0.2m (2019: GBP0.1m) were received in the 52
weeks to 29 August 2020 from joint ventures.
Bluebox Systems Group Limited
An impairment of GBP0.3m (2019: GBPnil) was charge against the
value of the investment of Bluebox Aviation Limited see note 4 for
further details.
Rascal Solutions Limited investment
During the year the results of Rascal Solutions Limited declined
from a profit of GBP1.0m in 2019 to GBP0.2m in the current
financial year, this was partly linked to the onset of Covid-19. As
a result an impairment review has been performed.
A value in use of GBP5.9m has been calculated based on the
future cashflows of the business and have been discounted at a rate
of 15.0%. This leaves the business with GBP1.0m of headroom and no
impairment has been booked.
The value in use assumes the profits will return to levels seen
in 2019 based on new customer wins.
Sensitivities to assumptions
If profits continue at their current level the value in use has
been calculated at GBP1.4m requiring an impairment of GBP3.3m. A
delay in winning of new customers by one year would result in the
value in use dropping to GBP5.5m with GBP0.6m of headroom.
16. Inventories
GBPm 2020 2019
------------------------------
Goods held for resale 13.9 15.5
Raw materials and consumables 0.2 0.7
------------------------------
Inventories 14.1 16.2
------------------------------
17. Trade and other receivables
GBPm 2020 2019
Trade receivables 65.1 87.2
Provision for expected credit losses (0.4) (0.3)
-------------------------------------
64.7 86.9
Other debtors 30.9 32.1
Prepayments 4.1 2.8
Accrued income 1.5 2.4
Trade and other receivables 101.2 124.2
-------------------------------------
Trade receivables
The average credit period taken on sale is 23 days (2019: 22
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 29
August 2020 under IFRS 9:
GBPm 2020 2019(1)
Gross Loss Net Gross Loss allowance Net
carrying allowance carrying carrying carrying
amount amount amount amount
Current (not overdue) 64.3 (0.1) 64.2 84.5 (0.1) 84.4
30-60 days overdue 0.4 - 0.4 2.0 (0.1) 1.9
61-90 days overdue 0.1 - 0.1 0.4 - 0.4
91-120 days overdue - - - - - -
Over 120 days overdue 0.3 (0.3) - 0.3 (0.1) 0.2
65.1 (0.4) 64.7 87.2 (0.3) 86.9
The following table provides information about the Group's loss
rates applied against customer balances as at 29 August 2020 under
IFRS 9:
% 2020 2019
Current (not overdue) 0.1 0.1
30-60 days overdue 0.1 2.9
61-90 days overdue 4.0 6.1
91-120 days overdue 16.8 -
Over 120 days overdue 55.6 18.4
Of the trade receivables balance at the end of the year:
-- One customer (2019: one) had an individual balance that
represented more than 10% of the total trade receivables balance.
The total of this was GBP11.7m (2019: GBP13.0m); and
-- A further five customers (2019: three) had individual
balances that represented more than 5% of the total trade
receivables balance. The total of these was GBP22.7m (2019:
GBP17.0m).
Movement in the allowance for doubtful debts:
GBPm 2020 2019
At 1 September 0.3 0.5
Impairment losses recognised 0.4 0.2
Amounts written off as uncollectible (0.1) (0.2)
Amounts recovered during the year - (0.2)
Amounts released during the year - -
Disposal of business (0.2) -
At 29/31 August 0.4 0.3
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.
Default occurs when the debt becomes overdue by 90 days.
Other debtors and prepayments
The largest items included within this balance are GBP18.5m
(2019: GBP20.2m) returns reserve asset and GBP10.7m (2019: GBP7.9m)
of publisher debtors.
Non-Current - other receivables
GBPm 2020 2019
Deferred consideration 8.1 -
Loans receivable 6.5 -
14.6 -
The deferred consideration is related to the sale of Tuffnells
and is unsecured for more details see note 11.
The loan receivable was given as part of the deal to sell
Tuffnells see note 11 for further information. Was secured and
repaid in full on the 1 October 2020 after the year end.
18. Trade and other payables
GBPm 2020 2019
Trade payables (97.3) (114.4)
Other creditors (34.1) (47.0)
Accruals (8.0) (12.1)
Deferred income (0.1) (0.2)
(139.5) (173.7)
Included within other creditors is a balance of GBP21.4m (2019:
GBP23.4m) relating to the returns reserve accrual.
Trade and other payables principally comprise amounts
outstanding for trade purchases and on-going costs. The average
credit period taken for trade purchases is 26 days (2019: 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.
19. Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as
follows:
GBPm Sterling Euro US Dollar Other Total 2019
2020
Cash and bank deposits 48.4 1.4 0.4 0.4 50.6 24.0
Overdrafts - included
in cash and cash equivalents - - - - - (16.1)
Net Cash and cash equivalents 48.4 1.4 0.4 0.4 50.6 7.9
Overdrafts - included
in borrowings (41.3) - - - (41.3) -
Revolving credit facility
- disclosed within current
liabilities (39.0) - - - (39.0) (30.0)
Term loan - disclosed
within current liabilities (49.8) - - - (49.8) -
Term loan - disclosed
within non-current liabilities - - - - - (49.3)
Total borrowings (130.1) - - - (130.1) (95.4)
Net borrowings (81.7) 1.4 0.4 0.4 (79.5) (71.4)
Total borrowings
Amount due for settlement
within 12 months (130.1) - - - (130.1) (46.1)
Amount due for settlement
after 12 months - - - - - (49.3)
(130.1) - - - (130.1) (95.4)
Cash and bank deposits comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates their
fair value.
In October 2017, the Group entered into banking facilities of
GBP175.0m with six relationship banks with a term which runs until
January 2021. The Group has refinanced post year end, for more
details see note 32. The facility comprises of a term loan of
GBP50.0m with no amortisation and a revolving credit facility (RCF)
for GBP125.0m (see note 20). The GBP130.1m due for settlement
within 12 months relates to the term loan RCF and overdraft.
Available Group bank facilities are outlined in note 20.
Interest payable under the facility in place at 29 August 2020 is
calculated as the cost of one month LIBOR plus an interest margin
of between 1.35% and 2.35% dependent on the net debt/ adjusted
EBITDA covenant ratio. The weighted average interest rate for the
year was 5.8% (2019: 5.5%).
Post year end the Group refinanced see further details in note
32 post balance sheet events.
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 01/09/2019 Financing New leases Disposals Other changes 29/08/2020
cash flows
Term Loan 19 49.3 - - - 0.5 49.8
Revolving
credit facility 19 30.0 9.0 - - - 39.0
Overdrafts 19 - 41.3 - - - 41.3
Leases 2.5 (15.6) 82.6 (41.6) 5.5 33.4
Total 81.8 34.7 82.6 (41.6) 6.0 163.5
GBPm Note 01/09/2018 Financing New finance Other 31/08/2019
cash flows leases changes
Term Loan 19 48.8 - - 0.5 49.3
Revolving credit facility 19 38.0 (8.0) - - 30.0
Finance leases 5.3 (2.8) - - 2.5
Total 92.1 (10.8) - 0.5 81.8
Other changes include interest accruals, payments.
Analysis of net debt
GBPm Note 2020 2019
------
Cash and cash equivalents 19 50.6 7.9
Current borrowings 19 (130.1) (30.0)
Non-current borrowings 19 - (49.3)
------
Net borrowings (79.5) (71.4)
Lease liabilities 21 (33.4) (2.5)
Net debt (112.9) (73.9)
------
The movement in net debt in the period includes GBP0.5m loan fee
amortisation.
Cash and cash equivalents includes cash of GBP50.6m (2019:
GBP24.0m) offset by GBPnil (2019: GBP16.1m) of overdrafts, this is
due to the way the Group utilises its cash pooling, the cash and
cash equivalents after deducting overdrafts was GBP9.3m (2019:
GBP7.9m).
20. Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the
Group's funding requirements and financial risks in line with the
Board approved treasury policies and procedures and their delegated
authorities. Treasury's role is to ensure that appropriate
financing is available for running the businesses of the Group on a
day to day basis, whilst minimising interest cost. No transactions
of a speculative nature are undertaken. Dealings are restricted to
those banks with suitable credit ratings and counterparty risk and
credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to stakeholders through the optimisation of the debt and
equity balance. The capital structure of the Group consists of
debt, which includes the borrowings, cash and cash equivalents as
disclosed in note 19 and equity attributable to equity holders of
the parent, comprising issued capital, reserves and retained
earnings as disclosed in the Group Statement of Changes in
Equity.
The only externally imposed capital requirements for the Group
are debt to EBITDA, fixed charge cover and interest cover under the
terms of the bank facilities, which remain under the new banking
facilities which were entered into post year end. The Group has
fully complied during both the current year and the prior year. To
maintain or adjust its capital structure, the Group may adjust the
dividend payment to shareholders and/or issue new shares. There is
a future cap on dividends of GBP4.0m in 2021 and GBP6.0m in 2022
under the new banking facility, this is also subject to all the
covenants.
The Board regularly reviews the capital structure. As part of
this review, the Board considers the cost of capital and the risks
associated with each class of capital. The Group intends to take a
more prudent and disciplined approach to capital management. We
expect free cash from operations to be sufficient to reduce net
debt while also maintaining an attractive total shareholder return.
The Group is targeting a reduced net debt/EBITDA ratio of 1 x by
2023, with repayment achieved through surplus free cash from
operations. The Group's facilities include a frozen GAAP clause and
the net/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 29 August 2020, the Group had GBP175.0m committed bank
facilities in place (2019: GBP175.0m). Bank facilities
comprised:
-- a GBP50.0m syndicated term loan; and
-- a GBP125.0m syndicated revolving credit facility,
Which together expire in January 2021.
The facility described above is subject to the following
covenants which are subject to a frozen GAAP clause:
-- Leverage cover - the net debt: adjusted EBITDA ratio which
must remain below 2.75x. At 29 August 2020 the ratio was 2.0x
(2019: 1.9x);
-- Interest cover - the consolidated net interest: adjusted
EBITDA ratio which must remain above 4.0x. As at 29 August 2020 the
ratio was 10.1x (2019: 7.2x);
-- Fixed charge cover - the ratio of adjusted EBITDA to
consolidated fixed charges is not less than 1.75x to 1. As at 29
August 2020 the ratio was 4.0x (2019: 2.1x); and
-- Guarantor cover - The annual turnover, gross assets and
pre-tax profits of the Guarantors contribute at any time 80 per
cent or more of the annual consolidated turnover, gross assets and
pre-tax profits of the Group for each of its financial years. The
guarantors, which are all 100% owned or wholly owned subsidiaries
of the Smiths News Plc (formerly Connect Group PLC), are each of
Smiths News Plc, Smiths News Holdings Limited, and Smiths News
Trading Limited.
At 29 August 2020, the Group had available GBP86.0m (2019:
GBP95.0m) of undrawn committed borrowing facilities. There were no
breaches of loan agreements during either the current or prior
years.
The bank facility was refinanced on 6 November 2020 which
replaces the existing facility of GBP175.0m with a new facility of
GBP120.0m to November 2023 for more information see Note 32.
As the Group is cash generative its liquidity risk is considered
low. The Group's cash generation allows it to meet all loan
commitments as they fall due as well as sustain a negative working
capital position.
The Group invests significant resources in the forecasting and
management of its cash flows. This is critical given a routine cash
cycle at Smiths News that results in significant predictable swings
within each month of around GBP40.0m, the Groups average gross
borrowings for the past year was GBP105.0m (2019: GBP112.0m). The
Group has utilised the Revolving Credit Facility of GBP125.0m for
this.
The following is an analysis of the undiscounted contractual
cash flows payable under financial liabilities and derivatives. The
undiscounted cash flows will differ from both the carrying value
and fair value. Floating rate interest is estimated using the
prevailing rate at the balance sheet date.
GBPm Due within Due between Due between Greater than
1 Year 1 and 2 years 2 and 3 years 3 years
At 29 August 2020
Non derivative financial
liabilities
Bank and other borrowings (130.8) - - -
Trade and other payables (109.5) - - -
Leases (7.3) (7.1) (6.5) (18.3)
Total (247.6) (7.1) (6.5) (18.3)
At 31 August 2019
Non derivative financial
liabilities
Bank and other borrowings (38.0) (50.0) - -
Trade and other payables (135.9) - - -
Leases(1) (2.2) (0.3) - -
Total (176.1) (50.3) - -
1. The Group has applied IFRS 16 using the cumulative catch up
approach as a result the Obligation under finance leases has been
replaced with Lease liabilities which is wider in scope see Note 36
for details.
Counterparty risk
Dealings are restricted to those banks with suitable credit
ratings and counterparty risk and credit exposure is monitored.
Foreign currency risk
-- The majority of the Group's transactions are carried out in
the functional currencies of its operations, and so transactional
exposure is limited.
-- The majority of the Group's net liabilities are held in
Sterling, with only GBP0.7m (2019: GBP3.2m) of net assets held in
overseas currencies. Translation exposure arises on the
re-translation of overseas subsidiaries profits and net assets into
sterling for financial reporting purposes and is not seen as
significant.
-- Note 19 denote borrowings by currency.
-- There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the
Group's debt exposure, consideration of the macroeconomic
environment and sensitivity to potential interest rate rises. The
Group avoids the use of derivatives or other financial instruments
in circumstances when the outcome would effectively be largely
dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the
balance sheet date were outstanding for the whole year, if interest
rates had been 0.5% higher/lower and all other variables were held
constant, the Group's profit and equity for the 52 weeks ending 29
August 2020 would decrease/increase by GBP0.5m (2019: GBP0.5m).
Credit risk
The Group considers its exposure to credit risk at 29 August
2020 to be as follows:
GBPm 2020 2019
Bank deposits 50.6 24.0
Deferred consideration 8.1 -
Loans receivable 6.5 -
Trade and other receivables 100.7 124.2
165.9 148.2
Further detail on the Group's policy relating to trade
receivables and other receivables can be found in note 17.
21. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to
leases:
GBPm Equipment & vehicles Land & buildings Total
Cost:
At 31 August 2019 - - -
Transition adjustment 21.9 51.9 73.8
Additions 0.6 8.2 8.8
Disposals - (2.5) (2.5)
Disposal of business (20.7) (20.7) (41.4)
At 29 August 2020 1.8 36.9 38.7
Accumulated depreciation:
At 31 August 2019 - - -
Depreciation charge (4.1) (6.9) (11.0)
Disposals - 0.1 0.1
Disposal of business 3.7 1.3 5.0
At 29 August 2020 (0.4) (5.5) (5.9)
Net book value at 29 February 2020 1.4 31.4 32.8
Amounts recognised in the income statement
GBPm 2020 2019
Continuing operations
Interest expense (included in finance
cost) 1.7 -
Expense relating to short-term and low
value leases (included in cost of sales
and administrative expenses) 1.2 -
Property rental income 0.2 0.2
Total cash outflow from leases 9.7 10.0
Discontinued operations
Interest expense (included in finance
cost) 1.5 -
Expense relating to short-term and low
value leases (included in cost of sales
and administrative expenses) 2.3 -
Total cash outflow from leases 12.6 18.5
Gain on sale and leaseback 1.5 -
The Group has applied IFRS 16 using the cumulative catch up
approach as a result the expense relating to short term and low
value did not exist in the prior year, IFRS 16 which is wider in
scope see Note 36 for details.
GBPm 2020 2019
Lease Liabilities
Current (5.8) (2.2)
Non-current (27.6) (0.3)
Total (33.4) (2.5)
In the previous year, the Group only recognised lease assets and
lease liabilities in relation to leases that were classified as
'finance leases' under IAS 17 Leases. The assets were presented in
property, plant and equipment and the liabilities as part of the
Group's borrowings. For adjustments recognised on adoption of IFRS
16 on 1 September 2019, please refer to note 36.
22. Other non-current liabilities
GBPm 2020 2019
----------------- ------ ------
Other creditors - (1.2)
----------------- ------ ------
The balance disclosed as other creditors within non-current
liabilities relates to operating lease incentives which are being
recognised over the lease term these were only applicable under IAS
17.
23. Deferred tax
Deferred tax assets and liabilities are attributable to the
following:
GBPm Accelerated Other Share Intangible Retirement Total
tax depreciation based assets benefits
payments
At 1 September 2019 4.6 - 0.1 - 0.5 5.2
Charge to income (3.9) - - - - (3.9)
Charge to other comprehensive
income and directly
in equity - - - - (0.5) (0.5)
At 29 August 2020 0.7 - 0.1 - - 0.8
Deferred tax assets 0.8
Deferred tax liabilities -
At 1 September 2018 1.9 0.2 - (5.9) 1.3 (2.5)
Charge to income 2.7 (0.2) - 5.9 - 8.4
Charge to other comprehensive
income and directly
in equity - - 0.1 - (0.8) (0.7)
At 31 August 2019 4.6 - 0.1 - 0.5 5.2
Deferred tax assets 4.6 - 0.1 - 0.5 5.2
Deferred tax liabilities - - - - - -
The deferred tax assets have been deemed recoverable as the
Group forecasts that it will continue to make profits against which
the assets can be utilised.
The Group has capital losses carried forward of GBP23.9m (2019:
GBP28.2m). The Group has utilised GBP4.3m of taxable losses against
the taxable gain created from the sale and leaseback of the
Tuffnells properties. Deferred tax assets have not been recognised
in respect of the capital losses carried forward due to the
uncertainty of their utilisation.
The tax rate was due to reduce from 19% to 17% from 1 April
2020, following changes substantively enacted on 6 September 2016.
However the proposed reduction in corporation tax rate was removed
in the Budget in March 2020 and the 19% tax rate was substantively
enacted on 17 March 2020.
The deferred tax asset at the year-end has been calculated based
on the rate of 19% substantively enacted at the balance sheet
date.
24. Provisions
GBPm Provision for Re-organisation Insurance and legal Property provisions Total
onerous contracts provisions provision
At 1 September 2019 - (3.6) (2.3) (5.4) (11.3)
Charged to income
statement (0.9) (2.2) (1.3) (0.9) (5.3)
Credited to income
statement - 1.3 1.0 - 2.3
Utilised in period - 1.5 0.8 0.6 2.9
Unwinding of discount
utilisation - - - (0.5) (0.5)
Disposal of business - 0.3 - 2.3 2.6
At 29 August 2020 (0.9) (2.7) (1.8) (3.9) (9.3)
GBPm 2020 2019
Included within
current liabilities (6.8) (7.3)
Included within
non-current
liabilities (2.5) (4.0)
Total (9.3) (11.3)
Included within non-current liabilities is GBP2.5m (2019:
GBP4.0m) relating to Property provisions.
Re-organisation provisions of GBP2.5m relates to the
restructuring of Instore, DMD, the Smiths News network and the
Groups support functions, this was all announced prior to the year
end. In the prior year redundancy costs had been accrued as part of
the Group's strategy to offshore its shared service centres, the
transition had been announced prior to the year end and the GBP1.5m
has been utilised during the financial year (see note 4 for further
information).
Insurance & legal provisions represent the expected future
costs of employer's liability, public liability, motor accident
claims and legal claims, included within the total balance is
GBP1.6m relating to claims from the Tuffnells business prior to
disposal.
The property provision represents the estimated future cost of
the Group's onerous leases on non-trading properties and for
potential dilapidation costs across the Group. These provisions
have been discounted at a risk adjusted rate and this discount will
be unwound over the life of the leases. The provisions cover the
period to 2036, however, a significant portion of the potential
liability falls within five years.
25. Contingent liabilities and capital commitments
GBPm 2020 2019
Bank and other loans guaranteed 7.1 7.8
Other potential liabilities that could crystallise are in
respect of previous assignments of leases where the liability could
revert to the Group if the lessee defaulted. Pursuant to the terms
of the Demerger Agreement from WH Smith PLC, any such contingent
liability in respect of assignment prior to demerger, which becomes
an actual liability, will be apportioned between Smiths News Plc
and WH Smith PLC in the ratio 35:65 (provided that the actual
liability of Smiths News PLC in any 12 month period does not exceed
GBP5m). The Company's share of these leases has an estimated future
cumulative gross rental commitment at 29 August 2020 of GBP0.6m
(2019: GBP0.8m).
Contracts placed for future capital expenditure approved by the
directors but not provided for amount to: GBPnil (2019:
GBP2.3m).
As at 29 August 2020, the Group have an approved letter of
credit of GBP7.1m to the insurers of the Group for the motor
insurance and employer liability insurance policy. The letter of
credit covers the employer deductible element of the insurance
policy for insurance claims. On 25 September 2020, the Group were
notified that the letters of credit reduced by GBP2.1m to
GBP5.0m.
26. 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 2020 2019
Within one year 0.2 0.2
In the second to fifth years inclusive 0.4 0.7
More than five years 0.1 0.2
0.7 1.1
27. Net cash inflow from operating activities
GBPm Note 2020 2019
Operating (loss)/profit - continuing 3 21.1 36.3
Operating (loss)/profit - discontinued 3 (13.7) (67.6)
Operating (loss)/profit - total 7.4 (31.3)
(Profit)/Losses on disposal of
assets (1.4) 0.2
Impairment of Goodwill 4 5.7 -
Impairment of investments 0.3 -
Share of profits of joint ventures 15 0.1 (0.4)
Profit on disposal of subsidiary 12 (1.8) -
Adjustment for pension funding 6 (0.8) (1.2)
Depreciation of property, plant
and equipment 14 3.0 6.9
Depreciation of right of use assets 21 11.0
Amortisation of intangible assets 4 2.0 9.2
Impairment of Tuffnells assets 4 2.5 45.5
Share based payments 0.4 0.2
(Increase)/decrease in inventories 2.2 (2.8)
Decrease in receivables 23.0 5.3
Decrease in payables (31.3) (2.9)
Increase/(decrease) in provisions 0.8 (3.5)
Non cash pension costs 0.3 0.4
Income tax paid - (2.6)
Net cash inflow from operating
activities 23.4 23.0
----- -------
Net cash flow from operating activities
is stated after the following adjusted
items:
Continuing operations
Re-organisation & restructuring
costs (6.4) (2.2)
PMP exit costs - (0.8)
Pension (0.9) (2.0)
Other - -
IPR settlement - 0.5
----- -------
(7.3) (4.5)
Discontinued operations
Re-organisation & restructuring
costs (1.3) (1.8)
Strategic review (0.5) -
Sale and leaseback 14.3 -
Brierley Hill settlement - (1.7)
NMW settlement - (0.3)
----- -------
12.5 (3.8)
----- -------
Total adjusting items cash flow 5.2 (8.3)
----- -------
28. Share Capital
(a) Share capital
GBPm 2020 2019
-----
Issued, authorised and fully paid:
At 1 September 12.4 12.4
Shares issued during the year - -
-----
247.7m ordinary shares of 5p each (2019: 247.7m) 12.4 12.4
-----
(b) Movement in share capital
Number (m) Ordinary shares
of 5p each
31 August 2019 247.7
Shares issued during the year -
At 29 August 2020 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 29 August 2020 or
the year to 31 August 2019.
(c) Share premium
GBPm 2020 2019
Balance at 1 September 60.5 60.5
Premium arising on issue of equity shares - -
Balance at 29/31 August 60.5 60.5
29. Reserves
(a) Demerger reserve
GBPm 2020 2019
At 1 September (280.1) (280.1)
At 29/31 August (280.1) (280.1)
This relates to reserves created following the capital
re-organisation undertaken as part of the demerger of WH Smith PLC
in 2006. The balance represented the difference between the share
capital and reserves of the Group restated on a pro-forma basis as
at 31 August 2004 and the previously reported share capital.
(b) Own shares reserve
GBPm 2020 2019
Balance at 1 September (1.7) (2.1)
Acquired in the period (0.7) -
Disposed of on exercise of options 0.6 0.4
Balance at 29/31 August (1.8) (1.7)
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 31). The number of
ordinary shares held by the Trust as at 29 August 2020 was
2,630,591 (2019: 1,188,537). 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 2020 2019
-----------------------------------------
Balance at 1 September 0.3 0.2
Exchange differences on translating net
assets of foreign operations 0.1 0.1
-----------------------------------------
Balance at 29/31 August 0.4 0.3
30. Retained Earnings
GBPm
Balance at 31 August 2018 163.2
Amounts recognised in Total comprehensive
income (28.6)
Dividends paid -
Employee share schemes (0.4)
Equity-settled share based payments, net
of tax 0.1
Balance at 31 August 2019 134.3
IFRS 16 Adjustment(1) 1.4
Restated balance at 31 August 2019 135.7
Amounts recognised in Total comprehensive
expense (6.1)
Dividends paid (2.4)
Disposed of on exercise of options (0.6)
Equity-settled share based payments, net
of tax 0.4
Balance at 29 August 2020 127.0
1. The Group has applied IFRS 16 using the cumulative catch up
approach as a result the Obligation under finance leases has been
replaced with Lease liabilities which is wider in scope see Note 36
for details.
31. Share-based payments
In 2020, the Group recognised a total charge of GBP0.4m related
to equity-settled share-based payment transactions. In 2019 there
was a total charge of GBP0.4m. The average share price throughout
the year was 26.2p (2019: 37.4p).
The Group operates the following share incentive schemes:
Sharesave Scheme Under the terms of the Smiths News Group
Sharesave Scheme, the Board may grant options
to purchase ordinary shares in the Company
to eligible employees who enter into an
HM Revenue & Customs approved Save-As-You-Earn
('SAYE') savings contract for a term of
three years. Options are granted at a 20%
discount to the market price of the shares
on the day preceding the date of offer
and are normally exercisable for a period
of six months after completion of the SAYE
contract.
Executive Share Option Under the terms of the Smiths News Group
Scheme (ESOS) Executive Share Option Scheme, the Board
may grant options to purchase ordinary
shares in the Company to executives up
to an annual limit of 200% of base salary.
The exercise of options is conditional
on the achievement of adjusted profit after
a three year period, which is determined
by the Remuneration Committee at the time
of grant. Provided that the target is met,
options are normally exercisable until
the day preceding the 10(th) anniversary
of the date of grant.
LTIP Under the terms of the Smiths News Group
LTIP, executive directors and key senior
executives may be awarded each year conditional
entitlements to ordinary shares in the
Company (which may be in the form of nil
cost options or conditional awards) or,
in order to retain flexibility and at the
Company's discretion, a cash sum linked
to the value of a notional award of shares
up to a value of 200% of base salary. The
vesting of awards is subject to the satisfaction
of a three year performance condition,
which is determined by the Remuneration
Committee at the time of grant. Subject
to the satisfaction of the performance
condition, awards are normally exercisable
until the 10(th) anniversary of the date
of grant.
Deferred Bonus Plan Under the terms of the Smiths News Group
(DBP) Deferred Bonus Plan, executive directors
and key senior executives may be granted
each year share awards (in the form of
nil cost options) dependent on the achievement
of the Annual Bonus Plan performance targets.
Awards are normally exercisable after two
years subject to continued employment.
Details of the options/awards are as follows:
Sharesave ESOS LTIP DBP
Number of No of Weighted No of Weighted No of Weighted No of Weighted
options/ awards shares average shares average shares average shares average
exercise exercise exercise exercise
price price price price
(p) (p) (p)
At 31 Aug
2018 3,922,245 60.4 6,629,519 136.3 3,104,757 - 479,854 -
Granted 3,104,452 30.40 - - 8,561,924 - 416,378 -
Exercised - - - - - - (158,785) -
Expired
/Forfeited (1,908,532) 79.40 (2,290,577) 154.5 (1,786,330) - (92,297) -
At 31 Aug
2019 5,118,165 45.42 4,338,942 126.7 9,880,351 - 645,150 -
Granted 6,108,793 30.4 - - 4,970,279 - 1,716,731 -
Exercised - - - - - (480,892) -
Expired
/Forfeited (2,974,071) 45.8 (2,553,109) 126.7 (3,883,596) - (416,378) -
At 29 Aug
2020 8,252,887 34.2 1,785,833 126.7 10,967,034 - 1,464,611 -
Exercisable
at 29 Aug
2020 642,804 36.11 1,785,833 126.7 - - - -
Exercisable
at 31 Aug
2019 16,312 110.3 4,338,942 126.7 - - - -
The weighted average remaining contractual life in years of
options/awards is as follows:
Sharesave ESOS LTIP DBP
Outstanding at 29 August
2020 2.5 5.8 1.9 2.0
Outstanding at 31 August
2019 2.5 6.8 1.9 1.3
Details of the options/awards granted or commencing during the
current and comparative year are as follows:
Sharesave ESOS LTIP DBP
During 2020:
Effective date of grant or Jun 2021 - Dec 2020 Dec 2020
commencement date
Average fair value at date
of grant or scheme commencement
- pence 5.5 - 24.0 24.0
During 2019:
Effective date of grant or Jun 2020 - Dec 2019
commencement date May 2020
Average fair value at date
of grant or scheme commencement
- pence 8.0 - 36.5
The options outstanding at 29 August 2020 had exercise prices
ranging from nil to 189.5p (2019: nil to 189.5p).
The weighted average share price on the date of exercise was 37p
(2019: 108p).
The Sharesave options granted during each period have been
valued using the Black-Scholes model, the LTIP performance measures
include 50% 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 LTIP DBP
2020 options/awards:
Share price at grant
date - pence 18.0 30.0 30.0
TSR adjustment - pence - (6.0) -
Exercise price - pence 14.0 - -
Expected volatility -
per cent 97.0 - -
Expected life - years 3.0 - -
Risk free rate - per
cent (0.1) - -
Expected dividend yield
- per cent 10.0 - -
Weighted average fair
value - pence 5.5 24.0 -
2019 options/awards: Jun 19 May 19 Dec 18 Dec 18
Share price at grant
date - pence 38.0 37.4 36.25 36.25
Exercise price - pence 30.4 - - -
Expected volatility -
per cent 39% - - -
Expected life - years 3.0 - - -
Risk free rate - per
cent 0.4% - - -
Expected dividend yield
- per cent 2.6% - - -
Weighted average fair
value - pence 8.0 37.4 36.25 36.25
32. Post balance sheet events
Tuffnells working capital loan
On its disposal of Tuffnells in May 2020, the Group made
available a temporary working capital loan of up to GBP10.5m to the
purchaser, of which GBP6.5m was drawn down. The purchaser has
recently informed the Company of their successful refinancing and
has repaid the amount plus interest in full. As a result, the
remaining part of the loan has been cancelled and we have released
the security held over the 7 Tuffnells properties in England. The
funds received have been used to repay existing debt.
Letters of credit
The Group have approved letter of credit to the insurers of the
Group for the motor insurance and employer liability insurance
policy. The letter of credit covers the employer deductible element
of the insurance policy for insurance claims. After the year end
the Group were notified that the letters of credit reduced by
GBP2.1m to GBP5.0m.
Refinancing
A new three-year GBP120 million facility was agreed in November
2020, comprising a GBP45m amortising term loan (Facility A), a
GBP35m bullet repayment term loan (Facility B) and a GBP40 million
multicurrency revolving credit facility (RCF). The agreement is
with a syndicate of banks comprising existing lenders HSBC,
Barclays, Santander, AIB and Clydesdale and one new lender,
Shawbrook Bank.
The facility is available at an initial margin of 5.5% per annum
over LIBOR (in respect of Facility A and the RCF) and 6% per annum
over LIBOR (in respect of Facility B). This pricing is higher than
current levels but remains competitive and reflective of the more
difficult market conditions and tightened credit markets. The
margin is subject to reduction as the Company reduces its net
leverage.
Consistent with the Company's stated strategic priorities to
reduce net debt, the terms of the new facility agreement include:
an amortisation schedule of GBP15m per annum for the repayment of
Facility A; agreed repayments against Facility B arising from funds
received in relation to both deferred consideration received
following the sale of Tuffnells and any cash surplus arising from
the proposed move to buy-out of the Company's defined benefit
pension scheme; and an absolute preclusion of payments of dividends
in respect of FY2020 and capped dividend payments thereafter for
FY2021 (up to GBP4m) and FY2022 onwards (up to GBP6m per year).
As part of the terms of the refinancing, the Company and its
principal trading subsidiaries have agreed to provide security over
their assets to the lenders.
The refinancing replaces the Company's existing facility
agreement (which comprises a term loan facility of GBP50 million
and a multicurrency revolving loan facility of GBP125 million)
which was due to mature on 31 January 2021. The final maturity date
of the new facility is 6 November 2023.
33. 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 parties Amounts owed by related
parties
GBPm 2020 2019 2020 2019
------------
Joint ventures 0.4 2.6 0.2 0.5
------------
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 2020 2019
Joint ventures 0.4 0.6
The balance above is secured against the assets of Fresh on the
Go Limited.
Directors' remuneration
GBPm 2020 2019
Salaries 0.9 1.0
Bonus 0.1 -
Non-executive director fees 0.5 0.3
Post-employment benefits - 0.1
Termination benefits 0.4 0.6
1.9 2.0
Information concerning directors' remuneration, interest in
shares and share options are included in the Directors'
Remuneration report in the Annual Report. Jos Opdeweegh and Mark
Cashmore, the Group's former Chief Executive Officer's continued to
receive their basic salary, Mark Cashmore also received benefits
and pension. These were subject to offset against earnings received
elsewhere from any other executive role, until 31 October 2020 for
Jos Opdweweegh and 30 June 2019 for Mark Cashmore. This totalled
GBP0.4m for Jos Opdweweegh and for Mark Cashmore totalled GBPnil
(2019: GBP0.6m).
There are 2 directors to whom retirement benefits are accruing
in respect of qualifying services under money purchase schemes.
Directors made gains on share options of GBP0.1m (2019:
GBP0.1m).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who
are the key management personnel of the continuing Group, is set
out below in aggregate for each of the categories specified in IAS
24 'Related Party Disclosures.'
GBPm 2020 2019
Short-term employee benefits 2.5 2.9
Post-employment benefits - -
Termination benefits 0.6 0.3
Share based payments 0.2 0.2
3.3 3.4
34. Subsidiary and associated undertakings
Company name/ Share Class Group Company name/ Share Class Group
(number) % (number) %
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH
Martin-Lavell
Connect Limited Ordinary Limited Ordinary
02008952 Shares 100% 02654521 (*) Shares 100%
------------- ------ ------------------------ ------------ ------
Connect Logistics Pass My Parcel
Limited Ordinary Limited Ordinary
09172965 Shares 100% 09172022 Shares 100%
------------- ------ ------------------------ ------------ ------
Connect News & Phantom Media
Media Limited Ordinary Limited Ordinary
08572634 Shares 100% 03805661 (*) Shares 100%
------------- ------ ------------------------ ------------ ------
Connect Parcel Smiths News Holdings
Freight Limited Ordinary Limited Ordinary
09295023 Shares 100% 04236079 Shares 100%
------------- ------ ------------------------ ------------ ------
Connect Parcels Smiths News Instore
Limited Ordinary Limited Ordinary
09172850 Shares 100% 03364589 Shares 100%
------------- ------ ------------------------ ------------ ------
Connect Services Ordinary Smiths News Investments Ordinary
Limited Shares 100% Limited(*) Shares 100%
08522170 06831284
------------- ------ ------------------------ ------------ ------
Connect Specialist
Distribution Group
Limited Ordinary Smiths News Limited Ordinary
08458801 Shares 100% 08506961 Shares 100%
------------- ------ ------------------------ ------------ ------
Smiths News Trading
Connect2U Limited Ordinary Limited Ordinary
03920619 Shares 100% 00237811 Shares 100%
------------- ------ ------------------------ ------------ ------
Dawson Media Services Ordinary Dawson Limited Ordinary
Limited 06882722 Shares 100% 03433262 Shares 100%
------------- ------ ------------------------ ------------ ------
Dawson Guarantee Dawson Media Direct
Company Limited Ordinary Limited Ordinary
06882393 Shares 100% 06882366 Shares 100%
------------- ------ ------------------------ ------------ ------
Dawson Holdings Ordinary
Ltd (*) Shares 100%
00034273
------------- ------ ------------------------ ------------ ------
France
Dawson Media Direct Ordinary 100% 11 rue Léopold Bellan, 75000
SAS Shares Paris, France
450 101 340 RCS
Bobigny
------------- ------
Spain
Dawson Media Direct Ordinary 100% Avendida de la Industria 38, Nave
Iberica SL Shares C-17, 28223 Coslada, Spain
CIF-B84692904
------------- ------
Germany
Dawson Media Direct Ordinary 100% Auf der Roos 6-12, 65795 Hattersheim
GmbH Shares am Main, Germany
HRB 99445
------------- ------
Belgium
Dawson Media Direct Ordinary 99% Brixtonlaan 1E, 1930 Nossengem,
NV Shares Belgium
474.114323
------------- ------
Turkey
Dawson Media Direct Ordinary 100% Parima Plaza Maltepe Mahallesi
Anonim Sirketi Shares Eski Cirpici Yolu Sok No:8 K:14-176
14449-5 Merter-Zeytinburnu Istanbul Turkey
------------- ------
Australia
Dawson Media Direct Ordinary 100% C/O Grant Thornton Australia Level
Australia Pty Limited Shares 17, 383 Kent Street, Sydney NSW
615545545 2000, Australia
------------- ------
Hong Kong
Dawson Media Direct Ordinary 100% Flat/Rm 5008 50/F, Central Plaza,
China Limited Shares 18 Harbour Road, Wanchai, Hong
1167911 Kong
------------- ------
Thailand
Dawson Media Direct Ordinary 48.9% 87 M Thai Tower, All Seasons Place,
Co. Ltd Shares 23rd Floor, Wittayu Road, Lumpini
105558138385 Sub-District, Pathumwan District,
Bangkok, Thailand
------------- ------
United Arab Emirates
DMD Holdings Limited Ordinary 100% PO Box 7992, Dubai, United Arab
(JAFZA) Shares Emirates
OF3596
------------- ------
United States
Dawson Media Direct Common Stock 100% Corporation Trust Centre, 1209
Holdings Inc Orange Street, Wilmington IL DE19801,
4056281 United States
------------- ------
Dawson Media Direct Common Stock 100% 40 Wall Street, 28(th) Floor, New
Inc York, NY 10005, USA
4056283
------------- ------
* Audit exemption statement
For the 52 weeks ended 29 August 2020, 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 29 August 2020. The members
of these companies have not required them to obtain an audit of
their financial statements for the 52 weeks ended 29 August
2020.
35. Reconciliation of Free cash flow to net movement in cash and cash equivalents
A reconciliation between free cash flow and the net increase/
(decrease) in cash and cash equivalents are shown below:
GBPm 2020 2019
Net (decrease) /increase in cash
& cash equivalents 42.7 (0.8)
Increase in borrowings and overdrafts (50.8) 8.0
Movement in borrowings and cash (8.1) 7.2
Dividend paid 2.4 -
Tuffnells disposal costs 3.7 -
Adjustment for pension funding 0.8 1.2
Working capital loan to Tuffnells 6.5
Outflow for EBT shares 0.7 -
Dividends received - (0.1)
Total Free cash flow 6.0 8.3
Discontinued free cash outflow (4.9) (24.9)
Continuing free cash flow 10.9 33.2
36. Adoption of new accounting standards
IFRS 16 'Leases'
Requires a right-of-use asset and lease liability to be
recognised in respect of all leases other than those that are less
than one year in duration or of a low value. The effect of this for
the Group has been to recognise a right-of-use asset of GBP73.8m
and lease liability of GBP74.0m at the transition date of 1
September 2019.
Practical expedients
The Group has taken advantage of the practical expedients:
-- to grandfather previous conclusions (under IAS 17) on which contracts contain leases;
-- to apply the cumulative catch up approach rather than full retrospective application; and
-- to measure the right of use asset at an amount equal to the
lease liability (adjusted for accruals and prepayments) at
transition date.
-- applying a single discount rate to a portfolio of leases with
reasonably similar characteristics
-- relying on previous assessments on whether leases are onerous
as an alternative to performing an impairment review
-- accounting for operating leases with a remaining lease term
of less than 12 months as at 1 September 2019 as short-term
leases
-- excluding initial direct costs for the measurement of the
right-of-use asset at the date of initial application, and
-- using hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
The Group's IBR used to discount the liability on transition was
between 5.1% and 5.4% based on age and security. A reconciliation
of the previous disclosed commitments is as follows:
GBPm
Operating lease commitments disclosed as at 31 August 2019 79.3
Discounted using the lessee's incremental borrowing rate
of at the date of initial application (11.1)
(Less): short-term leases not recognised as a liability (1.7)
(Less): low-value leases not recognised as a liability (0.9)
Extension options reasonably certain to be exercised 8.4
Total Lease commitments recognised on 1 September 2019 74.0
The effect of the accounting policy changes on 1 September 2019
can be summarised as follows:
GBPm
Right-of-use assets 73.8
Change in total assets 73.8
Trade and other payables 0.4
Lease liabilities -- current (15.8)
Other non-current liabilities 1.2
Lease liabilities -- non -- current (58.2)
Change in total liabilities (72.4)
Change in total equity 1.4
37. Continuing Adjusted EBITDA reconciliation
GBPm 2020 2019
Operating profit 21.1 36.3
Adjusting items 14.0 7.3
Adjusted operating profit 35.1 43.6
Depreciation 2.6 2.8
Amortisation 2.0 2.4
Right of use asset depreciation(*1) 6.0 -
IFRS 16 adjusted EBITDA 45.7 N/A
IAS 17 lease charges(*1) (6.6) -
Adjusted EBITDA 39.1 48.8
(*1) The Group has adopted IFRS 16 from 1 September 2019, the
right of use depreciation the rental charges for the old IAS 17
lease accounting
Glossary - Alternative performance measures
Introduction
In the reporting of financial information, the directors have
adopted various APMs.
These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' APMs, including those in the
Group's industry.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing
additional useful information on the underlying trends, performance
and position of the Group.
APMs are also used to enhance the comparability of information
between reporting periods and business units by adjusting for
non-recurring or uncontrollable factors which affect IFRS measures,
to aid users in understanding the Group's performance.
Consequently, APMs are used by the directors and management for
performance analysis, planning, reporting and incentive-setting
purposes.
Glossary - Alternative performance measures (continued)
The key APMs that the Group has focused on and changes to APMs
within the period can be found in note 1.
APM Closest Adjustments Note/page Definition and purpose
equivalent to reconcile reference
IFRS measure to IFRS measure for
reconciliation
Income Statement
Adjusted No direct N/A Note 4 Are items of income or expense
Items equivalent that are excluded in arriving
at Adjusted operating profit.
This enhances users understanding
of the Group's performance as
it aids the comparability of information
between reporting periods and
business units by adjusting for
non-recurring or uncontrollable
factors which affect IFRS measures.
Adjusted Operating Adjusted items Income statement/ Adjusted operating profit is defined
operating profit* Note 4 as operating profit from continuing
profit operations, excluding the impact
of adjusting items (defined above).
This is the headline measure of
the Group's performance and is
a key management incentive metric.
Adjusted Profit Adjusted items Income statement/ Adjusted profit before tax is
profit before Note 4 defined as profit before tax from
before tax (PBT) continuing operations, excluding
tax the impact of adjusting items
(defined above).
Adjusted Profit Adjusted items Income statement/ Adjusted profit after tax is defined
profit after Note 4 as profit after tax from continuing
after tax (PAT) operations, excluding the impact
tax of adjusting items (defined above).
Adjusted Operating Depreciation Note 37 This measure is based on business
EBITDA profit* and amortisation unit operating profit from
Adjusted items Continuing operations. It excludes
depreciation, amortisation and
adjusting items. This is the headline
measure of the Group's performance
and is a key management incentive
metric.
Adjusted Earnings Adjusted items Note 10 Adjusted earnings per share is
earnings per share defined as continuing adjusted
per PBT, less taxation attributable
share to adjusted PBT and including
any adjustment for minority interest
to result in adjusted
PAT attributable to shareholders;
divided by the basic weighted
average number of shares in issue.
Cash flow Statement
Free Cash generated Dividends, Note 27 Free cash flow is defined as cash
cash from operating acquisitions flow excluding the following:
flow activities and disposals, payment of the dividend, acquisitions
Repayment and disposals, the repayment of
of bank loans, bank loans, EBT share purchases
EBT share and cash flows relating to pension
purchases, deficit repair. This measure reflects
Pension deficit the cash available to shareholders.
repair payments
Free Cash generated Dividends, Note 27 Free cash flow (excluding Adjusted
cash from operating acquisitions items) is Free cash flow adding
flow activities and disposals, back Adjusted cash costs.
(excluding Repayment
adjusting of bank loans,
items) EBT share
purchases,
Pension deficit
repair payments
Adjusted items
Balance Sheet
Bank Borrowings Cash flow Bank net debt is calculated as
net less cash statement total debt less cash and cash
debt equivalents. Total debt includes
loans and borrowings, overdrafts
and obligations under finance
leases as defined by IAS 17.
Net Borrowings Cash flow Net debt is calculated as total
debt less cash statement 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR KKDBPBBDBODD
(END) Dow Jones Newswires
November 12, 2020 02:00 ET (07:00 GMT)
Smiths News (AQSE:SNWS.GB)
Historical Stock Chart
From Feb 2025 to Mar 2025
Smiths News (AQSE:SNWS.GB)
Historical Stock Chart
From Mar 2024 to Mar 2025
