Source - LSE Regulatory
RNS Number : 7086S
Smiths News PLC
08 November 2023
 

This announcement contains inside information

 

Smiths News plc

(Smiths News or the Company)

 

Audited Financial Results for the 52 weeks ended 26 August 2023

 

Performance ahead of expectations with further debt reduction and contract renewals

Headlines

·     

Performance ahead of full year market expectations

·     

Revenues benefiting from strong cover price rises, FIFA World Cup and Royal Succession

·     

Cost reduction programme and management actions substantially mitigating the ongoing impacts of inflation in the year

·     

Contract renewals securing 65% of our current publisher revenue streams to at least 2029

·     

Additional new national and regional newspaper contract awards in FY2024, with a combined sales value of c.£32m p.a.

·     

Roll out of Smiths News Recycle - growing to c.4,000 customers following successful trials

·     

Free cash flow of £21.8m in line with expectations after one-off benefits in FY2022

·     

Further strong reductions in both Average and Bank Net Debt

·     

Proposed total dividend payment maintained at £10m, the maximum payable under our banking agreements that run to August 2025

 

 

FY2023

FY2022

% Change

Adjusted continuing results  

 




Revenue

£1,091.9m

£1,089.3m

+0.2%

Operating profit

£38.8m

£38.1m

+1.8%

Profit before tax

£32.3m

£31.1m

+3.9%

Earnings per share

10.8p

10.8p

-





Cash flow and net debt




Free cash flow

£21.8m

 

£48.2m

 

-54.8%

Bank Net Debt

£4.2m

£14.2m

-70.4%

Average Bank Net Debt

£25.0m

£49.9m

-49.9%





Statutory continuing results




Revenue

£1,091.9m

£1,089.3m

+0.2%

Operating profit

£38.3m

£32.4m

+18.2%

Profit before tax

£31.8m

£27.9m

+14.0%

Earnings per share

10.6p

9.8p

+8.2%

Statutory Net Debt   

 

£26.1m

£39.4m

-33.8%





Dividend per share

4.15p

4.15p

-

 

A good performance in a challenging economy

 

Despite wider economic uncertainty and continued inflationary pressures, the business has delivered a good performance, exceeding market expectations while making progress on all key metrics, including the accelerated renewal of our publisher contracts. Core revenues and margin continued to benefit from strong cover price rises and buoyant collectables sales together with a further boost from the Royal Succession. Meanwhile, our well-established approach to cost management has delivered £5.8m of sustainable savings making a substantial contribution to offsetting margin decline as well as the impact of inflation in the year. While it remains early days, our workstreams to grow complementary revenues, including Smiths News Recycle and the delivery of DVDs and books to selected large retailers, have also made progress, returning a modest contribution to operating profit in the year.

 

As previously announced, the business has re-secured 65% of its current publisher contract revenues through to at least 2029. This provides good visibility of future cashflows, whilst allowing our teams to plan with greater certainty for both future cost management initiatives and complementary profit streams.

 

Financial progress is headlined by Adjusted Operating Profit that is up by 1.8% while Average Net Debt, which best reflects the day-to-day requirements of the business, is down by 49.9%. Free cash flow of £21.8m is in line with our ongoing expectations, supporting a second year of total dividend payments amounting to £10m, the maximum allowable under our banking facilities, which continue through to August 2025.

 

Outlook

 

The new financial year has started well.  Our critical drivers of sales, margin and sustainable cost reduction are being closely managed and we remain attentive to ongoing inflationary pressures which remain above historic levels. Cost reduction initiatives are well underway and progress continues to be made with our growth strategy.  We are confident in delivering results for the current financial year in line with market expectations. 

 

Jonathan Bunting, CEO, said:

 

"Smiths News has delivered another good performance against a challenging macro-economic backdrop. We have worked tirelessly to maintain service, find sustainable cost savings and secure new long-term publisher contracts. As a result, we are well placed to continue delivering reliable profits and cash, meeting the needs of all stakeholders, through a combination of market leadership, sound finances and exceptional people."

 

Enquiries:


Smiths News plc

Via Buchanan below

Jonathan Bunting, Chief Executive Officer


Paul Baker, Chief Financial Officer


Investor.relations@smithsnews.co.uk


www.smithsnews.co.uk




Buchanan


Richard Oldworth / Jamie Hooper / Toto Berger

020 7466 5000

smithsnews@buchanan.uk.com


www.buchanan.uk.com


 

Smiths News plc's Preliminary Results 2023 are available at www.smithsnews.co.uk

 

A recording of the presentation for analysts will be made available on the Investor Zone of the Company's website after midday on 8 November 2023.  See www.smithsnews.co.uk/investors.

Notes

The Company uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted earnings per share', 'Adjusting items', 'free cash flow', 'Bank Net Debt' and 'Bank EBITDA', are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies.

(1)   The following are key non-IFRS measures identified by the Company in the consolidated financial statements as Adjusted results:

a.     Adjusted operating profit - is defined as operating profit excluding Adjusted items.

b.     Adjusted profit before tax (PBT) - is defined as Adjusted operating profit less finance costs and including finance income attributable to Adjusted operating profit and before Adjusting items.

c.     Adjusted earnings per share - is defined as Adjusted PBT, less taxation attributable to Adjusted PBT and including any adjustment for minority interest to result in adjusted profit after tax attributable to shareholders; divided by the basic weighted average number of shares in issue.

d.     Adjusting items - Adjusting items of income or expense are excluded in arriving at Adjusted operating profit to present a further measure of the Company's performance. Each adjusting item is considered to be significant in nature and/or quantum, non-recurring in nature and/or considered to be unrelated to the Company's ordinary activities or are consistent with items treated as adjusting in prior periods. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team. They are disclosed and described separately in Note 4 of the Consolidated Financial Statements to provide further understanding of the financial performance of the Company. A reconciliation of adjusted profit to statutory profit is presented on the income statement.

(2) Free cash flow - is defined as cash flow excluding the following: payment of the dividend, the repayment of bank loans and EBT share purchases.

(3) Bank Net Debt - represents the net position drawn under the Company's banking facilities and is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings and overdrafts but excludes unamortised arrangement fees and excludes IFRS16 lease liabilities.

(4) Bank EBITDA - is calculated in line with loan agreements and is used for covenant calculations, being Adjusted operating profit before depreciation, amortisation, excluding the impact of IFRS16 lease accounting, excluding Adjusting items and excluding share based payments charge.

(5) FY2023 refers to the 52-week period ending 26 August 2023 and FY2022 refers to the 52-week period ended 27 August 2022.

(6) The Consolidated Results have been prepared and presented on a Continuing Operations basis after adjusting for the Discontinued Operations of the Tuffnells business, which was sold in May 2020.

Cautionary Statement

This document contains certain forward-looking statements with respect to Smiths News plc's financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as 'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of Smiths News plc's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war, pandemic and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Smiths News plc undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise. Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Smiths News plc. For more detailed information, please see the Preliminary Financial Results and/or the Annual Report and Accounts, each for the 52-week period ended 26 August 2023 which can be found on the Investor Zone section of the Smiths News plc website - www.smithsnews.co.uk. However, the contents of Smiths News plc's website are not incorporated into and do not form part of this document.

 

 

OPERATING REVIEW

Overview

Despite uncertainty in the wider economy and continued inflationary pressures, the business has performed well, driving a typically robust result that is founded on sound operating principles, well-executed plans and maintaining close attention to our strategic priorities. The fundamentals of excellent service, cost control and our ability to adapt to market trends, remain signature qualities of our business model and its continued resilience.

We have exceeded market expectations for the full year by ensuring the benefit of stronger revenue was able to flow through to profitability. While top line sales were boosted by the FIFA World Cup, the Royal Succession and sustained price rises above historic norms, our performance was also driven by the mitigation of volume declines and inflationary impacts as a result of management actions and our ongoing programme of operational cost savings across the network. In this respect, the renewal of 65% of our publisher contracts to at least 2029 has given us the certainty required to proceed with network optimisation plans that will deliver savings over the lifetime of our agreements.

In parallel with our resilient profit performance, the underlying finances of the business have continued to strengthen, with Average Net Debt reducing to £25.0m. Free Cash of £21.8m and Earnings per Share of 10.8p are in line with our expectations, while a total dividend payment for the year of £10m is the maximum allowable under our banking arrangements, which run to August 2025.

More broadly, the easing in labour markets has aided recruitment, helping to ensure our market leading service metrics have been maintained. This underpins our relationships with publishers and retailers and further reduces cost by minimising waste and rectification expense. Drawing on a deep well of experience, we remain closely focused on operational efficiency and adapting to the structural decline in volumes in a way that maintains service for customers and performance for our stakeholders.

Our stated plans to explore adjacent market opportunities have progressed and we have learned a great deal in researching, testing and evaluating a range of initiatives that leverage our skills, technology and capacity. The regional trial and subsequent national launch of Smiths News Recycle is a highlight, and we remain optimistic about the prospects of supplying new categories to existing customers. Meanwhile, we continue to explore the potential for carefully targeted bolt-on acquisitions that provide greater scale to our new revenues while also complementing our core business and its customer relationships by adding value to our role and services.

In summary, our strategy and plans continue to achieve their objectives of strengthening the core while exploring appropriate platforms for future opportunity.  That we have met and surpassed the majority of our targets in such challenging economic conditions is testament to the resilience of our business model and its reliability in delivering for all our stakeholders.

Financial performance and key variables

Adjusted Operating Profit of £38.8m was up by 1.8% (FY2022: £38.1m) from Revenue of £1,091.9m that was up by 0.2%. Adjusted Profit before tax of £32.3m was up 3.9% (FY2022: £31.1m) as a result of lower financing charges and from the continued reduction in the Company's average debt requirements.  Adjusted EPS is maintained at 10.8p (FY2022: 10.8p).

Statutory Profit Before Tax of £31.8m is up by 14.0% (FY2022: £27.9m), the difference primarily due to the previous year's provision of £4.4m for bad debt risk associated with the administration of McColl's Retail Group in May 2022. 

The most significant variables in driving our financial performance were:

·      Overall revenue growth driven by strong cover price rises across the year

·      Additional sales from the Royal Succession and the FIFA World Cup

·      New revenues from ancillary contracts and ventures

·      Lower wholesale margin due primarily to magazine volumes declining in line with historic norms

·      Inflationary pressures on distribution costs, wages and third-party providers

·      Cost savings of £5.8m from our actions to improve operational efficiency

·      Lower depreciation costs reflecting sustained reductions in capital expenditure.

Newspaper and magazine sales performance and trends

Overall sales in our core markets showed marginal growth as a result of sustained inflationary price increases as publishers looked to recover higher production costs. Newspapers have performed more strongly than magazines for which greater volume declines have offset the benefit of increased cover prices. The continued strong year on year performance of higher margin trading cards and stickers (aided by the men's FIFA World Cup in H1) amounted to a further revenue boost of £8m. The Royal Succession had a broadly similar revenue impact, spread across newspapers magazines and special editions. 

As we start the current financial year sales continue to benefit from the remaining flow through of price rises in FY2023. We expect volumes to continue to decline and we are planning accordingly, taking the opportunity to reconfigure our network and operations as part of our cost reduction programme. Furthermore, while underlying patterns are relatively predictable and stable we are mindful that sales gains from the World Cup and Royal Succession will not repeat in FY2024.

Publisher contract success

By accelerating our contract renewals we have secured favourable agreements representing 65% of our current revenues through to at least 2029.   As previously announced, we concluded new agreements with each of Frontline, Seymour Distribution, Associated Newspapers, Telegraph Media Group and News UK in the year.  The renewed contracts not only give us security of territories but also enviable visibility of potential revenue and cash flows over their lifetime.

In addition to the renewal of existing contracts, in October 2023 the Company announced a supplementary agreement with News UK for newspaper distribution in our existing London territories (commencing in November 2023) and, also, secured a new contract with National World plc to distribute the Midland News Association regional press titles (expected to commence distribution in the Midlands in December 2023).  Taken together, these contract awards represent additional sales value of c.£32m p.a.

Our remaining publisher contracts continue to operate well and we would very much expect them to be renegotiated in line with their end dates, which are staggered over the next three years.

Smiths News Recycle

The first of our organic growth ventures, Smiths News Recycle is a new and convenient waste recycling service for our retail customers.  The service collects plastic and cardboard waste largely from our independent customers using our existing delivery runs and recycling facilities to transport and consolidate the waste. Starting as a regional trial in FY2022 we have moved from concept to launch across our network in February 2023. The service currently has c.4,000 subscribing customers, and the near-term potential in its current scope to make profits of c.£1.0m.  We plan to continue scaling the operation in a way that first leverages our existing capacity and have opened exploratory discussions with selected larger customers to explore its potential in new categories and outside the independent sector. 

New revenue streams

Our plans to develop new and ancillary revenues, announced in FY2023, are founded on finding opportunities to leverage our physical capability and spare capacity; our technology and market intelligence; and our supply chain relationships.  In adopting an agile approach to organic initiatives we were mindful of taking a prudent approach to long term investment, and clear that while some trials would succeed, others would likely prove less practical at scale.  Our plans also include exploring the potential for small scale bolt-on acquisitions that would complement our core business without risk to our dividend policy or commitment to maintaining a strong balance sheet.

The exploitation of spare warehouse capacity and new revenues arising from parcel sortation services for other non-competitor carriers continues to drive a welcome contribution to overheads and our national launch of Smiths News Recycle is a highlight of our organic opportunities.  In other areas we have started to pick, pack and deliver books and DVDs to major supermarkets and have maintained our investment in Love Media, a digital solution for the sale of single issue magazines. These further initiatives remain in their early stages.

We continue to explore opportunities for acquisitions of appropriate scale that would enhance our capabilities and add value to our role in the supply chain. While mindful of the current macro economic climate our ambition to grow in new areas is undiminished, however, we will only act when we have the identified the right combination strategic fit, timing and commercial opportunity. 

Cash Flow and Net Debt

Free cash flow of £21.8m (FY2022: £48.2m) represents a further good performance as the previous year had benefited from £22.1m of exceptional inflows. After removing these one-off factors and allowing for other timing and trading adjustments we are satisfied that our cash generation remains strong and appropriate to meeting the needs of all stakeholders.  Furthermore, the greater visibility of our publisher contract revenues and associated capital requirements, together with the relative predictability of such revenues, means we are confident that the levels of free cash flow can be maintained at or about current levels.

Bank Net Debt (excluding IFRS16 leases) of £4.2m is down by 70.4% (FY2022: £14.2m) representing just 0.1 x Bank Net Debt/EBITDA.  While this is excellent progress the figure can be impacted by the timing of publisher and retailer payments, hence a better indication of our ongoing requirements is Average Net Debt which at £25.0m is down 49.9% (FY2022: £49.9m).

The consistent progress we have made since FY2020 has reduced our interest payments, affording greater flexibility over future options and positioning us well to refinance our facilities, which run to August 2025.

Dividend

After considering the Company's financial progress and in line with our previously stated policy and the terms of our banking agreements, the Board proposes to use the full extent of the £10m distribution limits for the return of cash to shareholders. Consequently, the Board has proposed a final dividend of 2.75p, making a total dividend for the year of 4.15p (FY2022: 4.15p). The final dividend will be paid on 8 February 2024 to all shareholders who are on the register at the close of business on 12 January 2024; the ex-dividend date will be 11 January 2024.

Outlook

The new financial year has started well.  Our critical drivers of sales, margin and sustainable cost reduction are being closely managed and we remain attentive to ongoing inflationary pressures which remain above historic levels. Cost reduction initiatives are well underway and progress continues to be made with our growth strategy.  We are confident in delivering results for the current financial year in line with market expectations.

 

 

 

 

FINANCIAL REVIEW

 

Overview

 

The Company has continued to deliver a strong financial performance with both revenue and adjusted operating profit increasing since last year despite the ongoing pressures of inflation within the wider economy. Reliable cash generation has enabled the maximum dividend of £10m to be proposed by the Board and for average net debt to be reduced to £25m (FY2022: £50m).

 

Revenues of £1,091.9m were ahead of last year by 0.2% benefitting from sales associated with the Royal Succession and the FIFA World Cup, and from newspaper price increases which had a consequent adverse impact on volumes.  Adjusted operating profit of £38.8m was a £0.7m increase on the prior year (FY2022: £38.1m) due to both the additional revenue and to cost savings which delivered ahead of plan, although the overall cost base continued to be affected by higher levels of inflation. Adjusted profit before tax increased by £1.2m to £32.3m, with £0.5m lower financing charges on debt fees and leases. Adjusted profit after tax decreased by £0.1m to £25.6m due to a £1.3m higher tax charge which included a higher headline rate in FY2023. Adjusted EPS remained at 10.8p (FY2022: 10.8p).

 

Average Bank Net Debt for the year fell by £24.9m (50%) to £25.0m, with good continuing cash flow across both years assisted by the one-off pension surplus (£8.1m) and Tuffnells deferred consideration receipts (£14.0m) in 2022. Free cash flow of £21.8m was £26.3m lower than last year due to those one-off receipts (£22.1m) and to the £5.4m timing impact of trade receivables at the end of August 2023, which fell into the first week of FY2024. Bank Net Debt on 26 August 2023 was £4.2m compared to £14.2m 52 weeks earlier. At two points during the second half of the year, the Company was in a net cash position, the first time since demerger from WH Smith in 2006.

 

Adjusting items reduced by £1.8m to £0.5m in FY2023 as the prior year included the provision for McColls receivables (£3.6m cost after tax) and the unwind of a discount on the Tuffnells deferred consideration (£2m benefit after tax). Statutory profit after tax increased from £23.4m in FY2022 to £25.1m and statutory EPS from 9.8p in FY2022 to 10.6p in FY2023.

 

A final dividend of 2.75p per share (£6.7m) is proposed by the Board, due to be paid in February 2024. Combined with the interim dividend of 1.4p paid in July 2023, total dividends for the year are 4.15p or £10m, consistent with last year.

 

The financial results evidence the ability of the Company to deliver value in what is otherwise considered a declining sector and with a background of instability in the wider economy. While the Company does not expect the one-offs events which have benefitted FY2023 to repeat in FY2024, the Company's financial performance and balance sheet provide a stable basis for delivering future value to shareholders.

 

Adjusted Results

 

Adjusted results £m

2023

2022

Change

 

Revenue

1,091.9

1,089.3

0.2%

Operating profit

38.8

38.1

1.8%

Net finance costs

(6.5)

(7.0)

7.1%

Profit before tax

32.3

31.1

3.9%

Taxation

(6.7)

(5.4)

(24.1%)

Effective tax rate

20.7%

17.4%

(19.0%)

Profit after tax

25.6

25.7

(0.4%)

 

Revenue

 

Revenue was £1,091.9m (FY2022: £1,089.3m), up 0.2% on the prior year (FY2022: down -1.8%) compared to the historic revenue trend of c.-3% to -5%.  This was aided by the 2022 FIFA World Cup, Premier League and Pokémon trading cards and by newspaper cover price increases.

 

Newspaper revenues were up 0.6%, benefitting from newsworthy events and ongoing cover price increases since the second half of FY2022, which had an impact on volumes. Magazine revenue was down 5.1%, broadly in line with historic trends. Revenue from collectibles was up 43% (FY2022 43%), supported by World Cup football collections and by a continuation of strong Premier League and Pokémon trading card performance.

 

Operating profit

 

The increase in Adjusted operating profit of £0.7m to £38.8m (FY2022: £38.1m) can be attributed to:

 

·      The benefit to wholesale margin (£1.5m) from sales associated with the Royal Succession and the FIFA World Cup;

·      A reduction in other wholesale margin (£3.4m), driven primarily by magazine revenue declines, in line with historic trends;

·      Cost-out plans, which are designed to offset reductions in wholesale margin and inflation as part of the Company's business model, which reduced costs by £5.8m and were ahead of plan;

·      The impact of inflation on the depot and support functions' cost bases of £4.7m, a greater level than experienced historically;

·      New ancillary revenue contracts which contributed £0.7m; and

·      Lower depreciation on owned assets £1.0m reflecting lower capex over the last 3 years than previously.

 

Profit after tax

 

Net finance charges of £6.5m (FY2022: £7.0m) were lower than the prior year due to £0.6m lower amortisation of bank arrangement fees following the amendment and extension of banking facilities in December 2021 and £0.3m lower interest on leases and other items. Interest on bank debt was higher by £0.4m than the prior year (FY2022: £3.5m) as lower average net debt was more than offset by increased interest rates.

Adjusted profit before tax was £32.3m, up 3.9% on FY2022.

Taxation of £6.7m includes a higher effective tax rate of 20.7% compared to the prior year (FY2022: 17.4%) due to the increase in the corporation tax rate from 19% to 25% from April 2023 and beneficial one-off adjustments in FY2022 relating to capital allowances. 

As a result of the £1.3m increase to the tax charge which partially offset the £1.2m increase in profit before tax, profit after tax decreased by £0.1m to £25.6m.

 

Statutory Results

 

£m

2023

2022

Change

 

Revenue

1,091.9

1,089.3

0.2%

Operating profit

38.3

32.4

18.2%

Net finance costs

(6.5)

(4.5)

(44.4%)

Profit before tax

31.8

27.9

14.0%

Taxation

(6.7)

(4.5)

(48.9%)

Effective tax rate

21.1%

16.1%

(31.1%)

Profit attributable to equity shareholders

25.1

23.4

7.3%

 

Statutory profit includes the impact of adjusting items, which had a less significant impact on the FY2022 result than on the current year. Adjusting items are covered in more detail below.

 

Statutory operating profit of £38.3m was £5.9m higher than in FY2022, owing to £0.7m higher adjusted operating profit and £5.2m lower adjusting items, including the provision for McColls bad debt risk in FY2022 (£4.4m).

 

Net finance costs of £6.5m were £2.0m higher than FY2022 as the prior year statutory result benefitted from a £2.5m credit from the unwind of discount on the Tuffnells deferred consideration.

 

Statutory profit after tax of £25.1m was a £1.7m increase on the prior year, largely due to a decrease in the impact of adjusting items after tax.

 

The Company has net liabilities of £16.3m on its balance sheet (FY2022: £32.0m). The net liabilities arose largely because of impairments to the assets and goodwill of the Tuffnells business prior to its sale in May 2020.

 

Earnings Per Share

 


Continuing Adjusted

Continuing Statutory


2023

2022

2023

2022

Earnings attributable to ordinary shareholders (£m)

25.6

25.7

25.1

23.4

Basic weighted average number of shares (millions)

237.3

238.5

237.3

238.5

Basic Earnings per share

10.8

10.8

10.6

9.8

Diluted weighted number of shares (millions)

249.9

252.0

249.9

252.0

Diluted Earnings per share

10.2

10.2

10.0

9.3

 

Continuing Adjusted basic earnings per share of 10.8p, is consistent with the prior year driven by the higher profit after tax and by the reduction in the average number of shares due to Employee Benefit Trust's share purchases.

 

Statutory continuing basic earnings per share, which includes adjusting items, is up 0.8p to 10.6p (FY2022: 9.8p) due to lower level of adjusting items and a reduction in the weighted number of shares.

 

Dividend

 


2023

2022

Dividend per share (paid and proposed)

4.15p

4.15p

Dividend per share (recognised)

4.15p

2.55p

 

The Board is proposing a final dividend of 2.75p per share (FY2022: 2.75p), taking the full period dividend to 4.15p (FY2022: 4.15p). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 31 January 2024 and has not been included as a liability in these accounts. The dividend recommendation represents the maximum permissible sum that can be paid under the distribution cap limits within our banking arrangements (£10m per annum) and is based on the forecast number of shares in issue at the record date.

 

The proposed final dividend will be paid on 8 February 2024 to shareholders on the register at close of business on 12 January 2024. The ex-dividend date will be 11 January 2024.

 

Adjusting Items

 

£m

2023

2022

Aborted acquisition costs

(0.6)

-

Tuffnells insurance provision

(0.4)

-

Network and re-organisation credits

0.5

0.2

Impairment of receivables - McColls

-

(4.4)

Pension

-

(1.8)

Transformation programme planning costs

-

(0.9)

Impairment reversal of investment in joint ventures

-

1.2

Total before tax and interest

(0.5)

(5.7)

Finance income - unwind of deferred consideration

-

2.5

Total before tax

(0.5)

(3.2)

Taxation

-

0.9

Total after taxation

(0.5)

(2.3)

 

Adjusting items before tax of £0.5m (net cost) were a £2.7m decrease on the prior year (FY2022: £3.2m).

 

In the current year, the Company incurred £0.6m of costs for due diligence and legal activity associated with exploring a potential acquisition aligned to our adjacent opportunities strategy. While the target entity was complementary to our core business, aligned with our markets and synergised with elements of our business, macro-economic challenges in the latter half of 2022 led to the decision to abort the opportunity.

 

The Tuffnells insurance provision costs of £0.4m were recognised as a result of Tuffnells' administration in June 2023. The provision relates to incidents arising during the Company's period of ownership of Tuffnells up to May 2020.

 

The above costs were offset by £0.5m of network and re-organisation credits relating to provision releases which were the result of a contract renewal with our shared service centre partner.

 

In the prior year, the Company provided for £4.4m impairment loss on receivables as a result of McColl's going into administration. This represented 80% of the total receivable of £5.5m due from McColl's at the point of administration and is in line with the administrator's estimated expected payment to unsecured creditors. During the reporting period no further impairment charge or reversal has been recognised.

 

Pension costs in the prior year related to the buy-out of the Company's defined benefit pension scheme.

 

The Company also incurred professional fees of £0.9m in the prior year in relation to transformation programme planning.

 

An asset impairment reversal of £1.2m was recognised in the prior period in respect of the joint venture investment in Rascal Solutions Limited ("Rascal"). During the reporting period, no further impairment charge or reversal has been recognised.

 

The finance income credit in the prior period of £2.5m is the unwind of the discount on the Tuffnells deferred consideration which was settled by the end of April 2022.

 

The tax on adjusting items was £nil (FY2022: a credit of £0.9m).

 

Further information on these items can be found in Note 4 of the Group Financial Statements. Adjusting items are defined in the Glossary to the Group Financial Statements and present a further measure of the Group's performance. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across years because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team. Alternative Performance Measures (APMs) should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

 

Free Cash Flow

 

Free cash flow of £21.8m was £26.4m lower than FY2022 (£48.2m) due to the £8.1m pension surplus receipt and £14.0m deferred consideration received from Tuffnells in FY2022 and a £5.9m increase in the working capital movement in FY2023.

 

£m

2023

2022

Adjusted operating profit

38.8

38.1

Depreciation & amortisation

9.2

10.5

Adjusted EBITDA

48.0

48.6

Working capital movements

(4.9)

(0.6)

Capital expenditure

(3.4)

(1.9)

Lease payments

(6.1)

(6.4)

Net interest and fees

(5.3)

(8.0)

Taxation

(6.6)

(5.3)

Other

1.1

1.2

Free cash flow (excluding Adjusting items)

22.8

27.6

Adjusting items (cash effect) - return of pension surplus

-

8.1

Adjusting items (cash effect) - receipt of deferred consideration

-

14.0

Adjusting items (cash effect) - Other

(1.0)

(1.5)

Free cash flow

21.8

48.2

 

The increase in working capital reflects from the timing of £5.4m due before the end of August 2023 from a major supermarket which was received on Thursday 31 August 2023 (the first week of FY2024). These working capital cycles led to average intra-month working capital movements of £28.7m (FY2022: £28.4m).

 

Cash capital expenditure in the year was £3.4m (FY2022: £1.9m), an increase of £1.5m due to depot refurbishments which were initiated at the end of FY2022.

 

Lease payments of £6.1m (FY2022: £6.4m) decreased by £0.3m due to the exit of a depot lease in the second half of the last financial year and the non-renewal of a further depot lease in H2 FY2022.

 

Net interest and fees of £5.3m (FY2022: £8.0m) decreased by £2.7m, as the prior year included the payment of £2.9m arrangement fees in relation to the Company's refinancing of its banking facilities.

 

Cash tax outflow of £6.6m was a £1.3m increase on the prior year (FY2022: £5.3m outflow) due to the increase in corporation tax rate from 19% to 25% in April 2023 and lower taxable profit in FY2022 due to the £4.4m provision for the McColls debtor.

 

Other items relate predominantly to the non-cash share-based payment expense.

 

In the prior year, the wind-up of the Company's defined benefit pension scheme (detailed further below) resulted in the receipt of £8.1m and settlement of deferred consideration due from Tuffnells (£14.0m).

 

The total net cash impact of other Adjusting items was a £1.0m outflow (FY2022: £1.5m outflow). In the reporting period, amounts related to aborted acquisition costs (£0.6m), payments in respect of legacy Tuffnells insurance matters (£0.2m) and reorganisation costs (£0.2m). In the prior year, adjusting items comprised: £1.3m of Transformation programme planning costs and £0.2m of Pension related costs.

 

A reconciliation of free cash flow to the net movement in cash and cash equivalents is given in the Glossary.

 

Net Debt

 

£m

2023

2022

Opening Bank Net Debt

(14.2)

(53.2)

Continuing operations free cash flow (excluding adjusting items)

22.8

27.6

Continuing operations free cash flow (adjusting items)

(1.0)

20.6

Discontinued operations free cash flow

-

(0.5)

Free cash flow

21.8

47.7

Dividend paid

(9.8)

(6.1)

Investment in joint venture

(0.3)

-

Purchase of shares for employee benefit trust

(1.7)

(2.6)

Bank Net Debt

(4.2)

(14.2)

 

Bank Net Debt closed the year at £4.2m compared to £14.2m at August 2022, a decrease of £10.0m. Average daily net debt reduced from £49.9m last year to £24.9m this year, a reduction of £25.0m.

 

The reduction in both reported and average daily bank net debt was driven by the Company's ongoing cash flow generation and aided by £21.1m of one-off receipts in FY2022, being the pension receipt of £8.1m in December 2021 and deferred consideration receipts from Tuffnells of £6.5m in November 2021 and £7.5m in April 2022.

 

The Company's Bank Net Debt/EBITDA ratio decreased to 0.1x (FY2022: 0.3x). The year end fell just before major publisher payments of c.£18m were made, which benefitted reported Bank Net Debt. Bank Net Debt rose to £19.5m on 5 September 2023 after the year end.

 

The intra-month working capital cash flow cycle generates a routine and predictable cash swing averaging £28.7m (FY2022 £28.4m) within the overall bank facility of £64.0m at the year end (FY2022: £79.5m). This results in a predictable fluctuation of net debt during the month compared to the closing net debt position.

 

Discontinued items cash flow in the prior year relates to insurance settlements for incidents which occurred during the Company's ownership of Tuffnells prior to 2 May 2020.

 

Total dividends paid during the year amounted to £9.8m (FY2022 £6.1m) an increase of £3.7m. The FY2022 final dividend of £6.5m was paid in February (FY2022: £2.8m), bringing the total dividend paid in respect of FY2022 to £9.8m (FY2022: £6.1m). The Company also paid an interim dividend in July 2023 of £3.3m (FY2022: £3.3m). The Company invested £0.3m during the year in LoveMedia, a joint venture for retailing single copy electronic versions of newspapers and magazines.

 

A reconciliation of Bank Net Debt (which excludes the IFRS16 lease creditor and unamortised arrangement fees) to the balance sheet is provided in the Glossary.

 

Going Concern

 

Having considered the Company's banking facility, the ongoing impact of inflationary pressures within the macro economy and the funding requirements of the Group and Company, the directors are confident that headroom under our bank facility remains adequate, future covenant tests can be met and there is a reasonable expectation that the business can meet its liabilities as they fall due for a year of greater than 12 months (being an assessment period of 16 months) from the date of approval of the Group Financial Statements. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements and no material uncertainty has been identified.

 

Pension Schemes

 

On 3 December 2021, the Company received the sum of £8.1m in respect of the net cash surplus held by the Trustee from the finalisation of the buy-out of the defined benefit liabilities in the News Section of the WH Smith Pension Scheme.  As agreed with the Trustee of the Scheme, the return of surplus preceded the formal winding up steps of the News Section - the winding up of the News Section being formally completed on 25 February 2022 through the purchase of insurance run-off cover and the payment of taxes owed to HMRC, which were settled by the Trustee. 

 

 

 

 

PRINCIPAL AND EMERGING RISKS                                                   

The Company has a clear framework in place to continuously identify and review both the principal and emerging risks it faces. This includes, amongst others, a detailed assessment of business and functional teams' principal and emerging risks and regular reporting to, and robust challenge from, both the Executive Team and Audit Committee. The directors' assessment of these risks is aligned to the strategic business planning process and regulatory landscape. 

Specifically, key risks are plotted on risk maps with descriptions, owners and mitigating actions, reporting against a level of materiality (principally relating to impact and likelihood) consistent with its size. These risk maps are reviewed and challenged by the Executive Team and Audit Committee and reconciled against the Company's risk appetite. As part of the regular principal risk process, a review of emerging risks (internal and external) is also conducted, and a list of emerging risks is maintained and rolled-forward to future discussions by the Executive Team and Audit Committee.  Where appropriate, these emerging risks may be brought into the principal risk registers. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercises. 

As part of the Board's ongoing assessment of the principal and emerging risks, the Board has considered the performance of the business, its markets, the changing regulatory and macro-economic landscape, the Company's future strategic direction and ambition as well as the heightened climate-related risk environment. The directors have carried out a robust assessment of the Group's emerging and principal risks, including those that could threaten its business model, future performance, solvency or liquidity. Following those assessments, one emerging risk has been elevated to principal risks in our risk register and relates to the risk of a major newspaper title/s potentially exiting the market and/or moving to digital only editions.

Risks are still subject to ongoing scrutiny, monitoring and appropriate mitigation.

The table below details each principal business risk, those aspects that would be impacted were the risk to materialise, our assessment of the current status of the risk and how each is mitigated.

Principal risks and potential impact

Mitigations

Strategic Link/ Change

 

1. Cyber Security

 

To meet the needs of our stakeholders, our IT infrastructure and data processes need to be flexible, reliable and secure from cyber-attacks.

Secure infrastructure acts as a deterrent to and helps prevent and/or mitigate the impact of external cyber-attack, internal threat or supplier-related breach, which could cause service interruption and/or the loss of Company and customer data.

Cyber incidents could lead to major adverse customer, financial, reputational and regulatory impacts.

 

•       Defined risk-based approach to the information security roadmap and technology strategy which is aligned to the strategic plans.

•       Regular tracking of key programs against spend targets and delivery dates.

•       The Company assesses cyber risk on a day-to-day basis, using proactive and reactive information security controls to detect and mitigate common threats.

•       Dedicated information security investments and access to third-party cyber security specialists, including 24/7 security monitoring, incident response and specialist testing.

•       The Company encourages a cyber-aware culture by undertaking exercises, such as computer-based training and simulated phishing attacks and regular communications about specific cyber threats.

•       We have successfully secured Cyber Essentials and Cyber Essential Plus certification.

Strategic Link:

Technology

 

Change: Increasing - this risk has been re-evaluated following enhancement of the Company's IT Infrastructure and now focuses exclusively on cyber security related risks.   That said, despite ongoing investment in the Company's IT infrastructure and IT security (notably gaining Cyber Essentials Plus certification), the backdrop remains heightened, leading to an increased risk assessment.

 

2. Macro-economic uncertainty

Deterioration in the macro-economic environment results in supply side cost inflation and/or a reduction in demand-side sales volumes.

Supply-side macro-economic pressures present the Company with additional cost challenges e.g. increased competition in the distribution labour market and rises in fuel and utility prices.  Adverse changes to economic conditions result in reduced consumer demand for newspapers and magazines and/or reduction in titles/editions. These cost increases and sales pressures present a risk when they cannot be fully mitigated through increased prices or other productivity gains.

This results in deterioration in the level of profitability in both the short and medium-term and impacts on the Company's ability to execute its strategies, including level of debt and liquidity objectives.

•       Annual budgets and forecasts take into account the current macro-economic environment to set expectations internally and externally, allowing for or changing objectives to meet short and medium-term financial targets.

•       Weekly cost monitoring enables oversight and action on a timely basis.

•       Cover price increases in magazine and newspaper titles provide some offset against the impact of volume decline.

•       Predictable level of volume decline within the core business enables cost optimisation planning.

•       Use of fixed term contracts as a hedge against rapidly rising prices, e.g. energy costs

•       The Company continues to be significantly cash generating to support its strategic priorities.

 

Strategic Link:

Cost and efficiencies, Operations

 

Change:

 

Stable

 

3. Changes to retailers' commercial environment

 

Our largest retailers (e.g. grocers and symbol group members) remain under significant pressure to maximise sales and profitability by channel within their retail stores and at associated sale outlets, such as at petrol forecourt stores. This could result at any time in a category review of the newspaper and/or magazine channel, leading to a significant reduction in newspapers' and/or magazines' selling space instore (or its location) in favour of other higher margin products and/or the delisting of all/particular titles of newspapers and/or magazines.

A reduction in (or change in location of) sales space and/or full delisting of newspapers and/or magazines by our largest retailers (or a high number of other retailers) could materially reduce the Company's revenue, profitability and cash flow.

·      Our EPoS-based returns (EBR) solution has been introduced instore with our largest retailers, improving staff efficiency in managing the magazine category, thereby reducing cost to the retailer.

·      Potential to extend EBR to newspapers in order to broaden efficiency-benefits to retailers.

·      Form stronger partnerships with emerging retailers to stock magazines and newspapers.

Expand retail offering to include single copy digital downloads of newspapers and/or magazines to supplement physical print and category range instore.

Strategic link:

Cost and efficiencies

 

Change:

 

Stable

 

4. Acquisition and retention of labour

Due to the current competition in the distribution labour market, an increased risk of being unable to recruit and retain warehouse colleagues and support staff.

The same pressures are also being felt in sourcing and retaining delivery sub-contractors as well as filling in-house roles within our central support functions.

A failure to maintain an appropriate level of resourcing could result in increased costs, employee disengagement and/or loss of management focus and underpins our ability to address the strategic priorities and to deliver forecasted performance.

•       We seek to offer market competitive terms to ensure talent remains engaged.

•       We offer long-term contracts with our sub-contracted delivery partners.

•       We use a variety of platforms to recruit employees and contractors.

•       The level of vacancies across warehouse and delivery contractors are monitored daily.

•       We undertake workforce planning; performance, talent and succession initiatives; learning and development programs; and promote the Company's culture and core values.

•       Retention plans are reviewed to address key risk areas, and attrition across the business is regularly monitored.

•       Regular surveys are undertaken to monitor the engagement of colleagues.

 

Strategic Link:

People first,

Culture and values,

Costs and efficiencies

 

Change:

Stable

 

5. Growth and diversification

 

A successful growth and diversification strategy is essential to the long-term success of the Company. At the same time, maintaining the Company's outstanding and sector-leading standards of service in newspaper and magazine wholesaling is paramount to help fund growth and diversification opportunities and support publisher contract renewals, each of which deliver shareholder value.

 

Implementing new business growth opportunities without detrimentally impacting the Company's core newspaper and magazine wholesaling carries an execution risk to both the new initiative and ensuring the Company remains able to deliver sector-leading support to publisher clients.

 

·      Strong project management and governance in place to sign-off growth initiatives and oversee their implementation. 

·      A Growth Business Development Group and Growth Operations Delivery Steering Committee have been established to review and control new business opportunities and then plan and measure the impact of these opportunities on core operations.

·      Experimentation through trials of new business opportunities have been deployed to assess the demand and potential economic benefit of such opportunities and any likely impact on maintaining the Company's outstanding and sector-leading standards of service in newspaper and magazine wholesaling.

·      The Executive Team's balanced scorecard of key performance indicators ensures sub-optimal performance is tracked and monitored on a regular basis and allows appropriate interventions to be made.

Strategic link:

Cost and efficiencies

 

Change:

 

Stable

 

6. Sustainability and Climate Change

 

Climate change is a widely acknowledged global emergency. In the UK, government and regulatory changes in response to a drive to 'net zero' carbon emissions and increasingly stringent air quality targets for UK towns and cities could make it more difficult and costly for the Company to undertake newspaper and magazine wholesaling activities within the UK or particular towns and cities. In addition to these transitional risks associated with moving to a low carbon future, there are also a range of ongoing physical risks. These include an increase in the frequency of extreme weather events which may result in power outages, disruption to our service operations and/or impact our ability to serve our customers in an efficient and cost-effective manner.

 

In common with all major organisations, there is a risk of reputational damage and/or loss of revenue if the Company fails to meet stakeholder expectations for action on climate change.

 

·      Sustainability Steering Committee established (chaired by the Chief Financial Officer) to coordinate the Company's action on climate change.

·      Emissions and air quality targets in UK towns and cities are monitored by a central team in the Operations function which ensures the Company can fulfil its obligations to customers and remain compliant with legal requirements.

·      Operational sites are reviewed for their resilience to extreme weather events, such as floodings, with upgrades and interventions made where these are cost-effective. Depots are relocated to new sites (e.g. during lease break windows) where this represents a better option than adapting an existing location.

·      Working with suppliers to ensure they share the Company's vision to act on climate change.

Strategic link:

Cost and efficiencies,

Operations,

Sustainability

 

Change:

 

Stable

 

7. Major newspaper titles exit the market or move to digital only editions

 

Significant decline in advertising and/or circulation, together with rising production costs, lead to one or more national newspaper titles exiting the market and/or publications being taken fully digital. This could lead to a significant deterioration in the Company's profitability and cash flow in both the short and medium-term as well as impacting on its ability to execute its strategies.

 

·      We seek to ensure full availability of alternative newspaper titles to maximise substitution opportunities for customers.

·      Partial mitigation against newspaper title closures is built into our contracts with major publishers.

·      Ongoing successful execution of our growth and diversification strategy provides longer-term mitigation though alternative profitable revenue streams.

Strategic link:

Costs and efficiencies

 

Change:

New risk

 

 

8. Legal and regulatory compliance

 

The Company is required to be compliant with all applicable laws and regulations. Failure to adhere to these could result in financial penalties, third party redress and/or reputational damage.

Key areas of legal and regulatory compliance include:

·      GDPR

·      Health and Safety

·      Tax compliance

·      Environmental legislation

·      Employment law

•       Changes in laws and regulations are monitored, with policies and procedures being updated as required.

•       Business-wide mandatory training programmes for higher-risk regulatory areas.

•       External experts are used where applicable.

•       All major policies are reviewed by the Board or Audit Committee on an annual basis.

·      Operational auditing and monitoring systems for higher risk areas.

Strategic link:

Technology,

Sustainability,

Operations

 

Change:

Stable

 

 

 

 

 

 

GROUP FINANCIAL STATEMENTS

 

Group Income Statement for the 52-week period ended 26 August 2023

 

£m

 

2023

2022

 

Note

Adjusted*

Adjusting

 items

Total

Adjusted*

Adjusting items

Total

 








Revenue

2

1,091.9

-

1,091.9

1,089.3

-

1,089.3

Cost of Sales

3

(1,019.4)

-

(1,019.4)

(1,016.6)

-

(1,016.6)

Gross profit

3

72.5

-

72.5

72.7

-

72.7

Administrative expenses

3

(33.7)

(0.5)

(34.2)

(35.0)

(2.5)

(37.5)

Net impairment loss on trade receivables

4

(0.1)

-

(0.1)

-

(4.4)

(4.4)

Other income


-

-

-

0.1

-

0.1

Income from joint ventures

13

0.1

-

0.1

0.3

-

0.3

Impairment reversal of joint venture investment

13

 

-

-

-

-

1.2

1.2

Operating profit

2,3

38.8

(0.5)

38.3

38.1

(5.7)

32.4

Finance costs

7

(6.5)

-

(6.5)

(7.0)

-

(7.0)

Finance income

7

-

-

-

-

2.5

2.5

Profit/(loss) before tax

 

32.3

(0.5)

31.8

31.1

(3.2)

27.9

Income tax (expense)/credit

8

(6.7)

-

(6.7)

(5.4)

0.9

(4.5)

Profit/(loss) for the year attributable to equity shareholders

 

25.6

(0.5)

25.1

25.7

(2.3)

23.4

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

Basic

10

10.8

 

10.6

10.8

 

9.8

Diluted

10

10.2

 

10.0

10.2

 

9.3

Equity dividends per share (paid and proposed)

9

4.15

 

4.15

4.15

 

4.15

 

*This measure is described in Note 1(4) of the accounting policies and the Glossary to the Accounts. Adjusting items are set out in Note 4 to the Group Financial Statements.

 

 

 

Group Statement of Comprehensive Income for the 52-week period ended 26 August 2023

 

£m

Note

2023

2022

Items that will not be reclassified to the Group Income Statement

 

 

 

Reassessment as to recoverability of retirement benefit scheme surplus

6

-

14.8

Tax relating to components of other comprehensive income that will not be reclassified

6

-

(5.1)

 

 

-

9.7



 


Other comprehensive result for the year

 

-

9.7

Profit for the year


25.1

23.4

Total comprehensive income for the year

 

25.1

33.1

 

 

Group Balance Sheet as at 26 August 2023

 

£m

Note

2023

2022

Non-current assets




Intangible assets

11

1.9

1.7

Property, plant and equipment

12

8.8

8.6

Right of use assets

19

21.8

26.3

Interest in joint ventures

13

4.4

4.2

Deferred tax assets

20

1.7

1.1



38.6

41.9

Current assets




Inventories

14

17.7

15.6

Trade and other receivables

15

101.1

95.7

Cash and bank deposits

17

37.3

35.3

Corporation tax receivable


0.6

0.9



156.7

147.5

Total assets


195.3

189.4

Current liabilities


 

 

Trade and other payables

16

(141.5)

(140.3)

Bank loans and other borrowings

17

(10.0)

(8.0)

Lease liabilities

19

(4.9)

(5.9)

Provisions

21

(2.5)

(3.0)



(158.9)

(157.2)

Non-current liabilities


 


Bank loans and other borrowings

17

(30.2)

(39.1)

Lease liabilities

19

(18.3)

(21.7)

Non-current provisions

21

(4.2)

(3.4)



(52.7)

(64.2)

Total liabilities


(211.6)

(221.4)

Total net liabilities


(16.3)

(32.0)



 


Equity


 


Called up share capital

25(a)

12.4

12.4

Share premium account

25(c)

60.5

60.5

Demerger reserve

26(a)

(280.1)

(280.1)

Own shares reserve

26(b)

(4.4)

(4.6)

Translation reserve

26(c)

0.4

0.4

Retained earnings

27

194.9

179.4

Total shareholders' deficit


(16.3)

(32.0)

 

The accounts were approved by the Board of Directors and authorised for issue on 7 November 2023 and were signed on its behalf by:

 

                            

 

 

 

Jonathan Bunting                                                  Paul Baker

Chief Executive Officer                                          Chief Financial Officer

 

Registered number - 05195191

 

 

 

 

Group Statement of Changes in Equity for the 52-week period ended 26 August 2023

 

£m

Note

Share capital

Share premium account

Demerger reserve

Own shares reserve

Hedging & translation reserve

*Retained earnings

*Total

Balance at 28 August 2021

 

12.4

60.5

(280.1)

(3.9)

0.4

153.0

(57.7)

Profit for the year


-

-

-

-

-

23.4

23.4

Actuarial gain on defined benefit pension scheme

6

-

-

-

-

-

14.8

14.8

Tax relating to components of other comprehensive income


-

-

-

-

-

(5.1)

(5.1)

Total comprehensive expense/income for the year

 

-

-

-

-

-

33.1

33.1

Dividends paid

9

-

-

-

-

-

(6.1)

(6.1)

Employee share schemes purchases


-

-

-

(2.2)

-

-

(2.2)

Employee share scheme awards


-

-

-

1.5

-

(1.5)

-

Recognition of share-based payments net of tax


-

-

-

-

-

1.2

1.2

Current tax recognised in equity


-

-

-

-

-

(0.1)

(0.1)

Deferred tax recognised in equity


-

-

-

-

-

(0.2)

(0.2)

Balance at 27 August 2022

 

12.4

60.5

(280.1)

(4.6)

0.4

179.4

(32.0)

Profit for the year


-

-

-

-

-

25.1

25.1

Total comprehensive expense/income for the year

 

-

-

-

-

-

25.1

25.1

Dividends paid

9

-

-

-

-

-

(9.8)

(9.8)

Employee share schemes purchases


-

-

-

(1.7)

-

-

(1.7)

Employee share scheme awards


-

-

-

1.9

-

(1.9)

-

Recognition of share-based payments net of tax


-

-

-

-

-

1.5

1.5

Deferred tax recognised in equity


-

-

-

-

-

0.6

0.6

Balance at 26 August 2023

 

12.4

60.5

(280.1)

(4.4)

0.4

194.9

(16.3)

 

 

 

Group Cash Flow Statement for the 52-week period ended 26 August 2023

 

£m

Note

2023

2022

Net cash inflow from operating activities

24

36.4

49.8

Investing activities




Dividends received from joint ventures


0.2

0.2

Purchase of property, plant and equipment


(2.6)

(1.3)

Purchase of intangible assets


(0.8)

(0.7)

Investment in joint venture

13

(0.3)

-

Net proceeds on sale of property, plant and equipment

 

-

0.1

Deferred consideration receipts

 

-

14.0

Net cash (used in)/generated from investing activities

 

(3.5)

12.3

Financing activities




Interest paid


(5.3)

(5.1)

Arrangement fees paid


-

(2.9)

Dividend paid

9

(9.8)

(6.1)

Repayments of lease principal


(6.1)

(6.4)

Repayment of term loan


(8.0)

(83.0)

New loans issued


-

60.0

Purchase of shares for employee benefit trust


(1.7)

(2.6)

Net cash (used in)/generated from financing activities

 

(30.9)

(46.1)





Net increase in cash and cash equivalents

 

2.0

16.0



2.0

16.0

Opening net cash and cash equivalents


35.3

19.3

Closing net cash and cash equivalents

17

37.3

35.3

 

 

 

 


Notes to the Accounts

 

1.  Accounting policies

 

(1)           Basis of consolidation

 

Smiths News plc ('the Company') is a company incorporated in England UK under the Companies Act 2006. The Group accounts for the 52-week period ended 26 August 2023 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interests in joint ventures and associates. Subsidiary undertakings are included in the Group Accounts from the date on which control is obtained. They are deconsolidated from the date on which control ceases. All significant subsidiary accounts are made up to 26 August 2023 and are included in the Group Accounts.

 

Unless otherwise noted references to 2022 and 2023 relate to a 52-week period ended 27 August 2022 and 26 August 2023 as opposed to calendar year.

 

The Accounts were authorised for issue by the directors on 7 November 2023.

 

(2)              Accounting basis of preparation

 

The financial information contained within this preliminary announcement for the 52 weeks to 26 August 2023 and the 52 weeks to 27 August 2022 does not comprise statutory financial statements for the purpose of the Companies Act 2006 but is derived from those statements. The statutory accounts for Smiths News PLC for the 52 weeks to 27 August 2022 have been filed with the Registrar of Companies and those for the 52 weeks to 26 August 2023 will be filed following the Company's annual general meeting. The auditor's reports on the accounts for both the 52 weeks to 26 August 2023 and the 52 weeks to 27 August 2022 were unqualified, did not draw attention to any matters by way of emphasis, and did not include a statement under Section 498 (2) or (3) of the Companies Act 2006. The Annual Report and Accounts will be available for shareholders in December 2023.

 

The Accounts are prepared on the historical cost basis with the exception of certain financial instruments and are presented in Pound Sterling and rounded to £0.1m, except where otherwise indicated.

 

The Group Accounts have been prepared in accordance with UK-adopted International Accounting Standards (IAS) in conformity with the requirements of the Companies Act 2006.

 

Intra-group balances and unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group Accounts. Unrealised gains and losses arising from transactions with joint ventures are eliminated to the extent of the Group's interest in these entities.

 

(3)              Going concern

 

The Group accounts have been prepared on a going concern basis. 

 

When assessing the going concern of the Group, the directors have reviewed the year to date financial actuals, as well as detailed financial forecasts for the period up to 28 February 2025, the going concern period.

 

The Group currently has a net liability position of £16.3m as at 26 August 2023. All bank covenant tests were met at the year end. The key bank net debt: EBITDA (ex. IFRS 16) ratio of 0.1x, was below the covenant test threshold of 1.75x. The threshold reduces to 1.5x from 25 February 2024.

 

The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing averaging £28.7m during 2023. This results in a predictable fluctuation of bank net debt during the course of the month compared to the closing net debt position. The Group's average net borrowings during 2023 were £25.0m (2022: £49.8m). The Company utilises the Revolving Credit Facility (RCF) to manage the cash swing. At the year end, £21.0m of the RCF was available and the Company had £37.3m of cash on hand, giving headroom of £58.3m.

 


3i) Bank facility

 

The Group has a facility of £64.0m at the balance sheet date, comprising a £41.5m amortising term loan and a revolving credit facility (RCF) with a limit of £22.5m. The Group's banking facility was amended and extended in December 2021 and has a final maturity date of 31 August 2025. The facility comprised an initial £60m amortising term loan, of which the Group has since repaid £18.5m as at the balance sheet date and a RCF comprising an initial £30m, of which £22.5m is available less committed letters of credit amounting to £1.5m (see Note 17). The agreement is with a syndicate of banks comprising HSBC, Barclays, Santander and Clydesdale.

 

The facility's current margin is 4% per annum over SONIA.

 

Consistent with the Company's stated strategic priorities to reduce net debt, the terms of the facility agreement include: an amortisation schedule of £10m per annum for the repayment of the term loan; a reduction in the RCF of £5m per year after the first year; and capped dividend payments at £10m per year.

 

The final maturity date of the facility is 31 August 2025.

 

3ii) Reverse stress testing

 

The directors have prepared their base case forecast which represents their best estimate of cash flows over the going concern period which is up to 28 February 2025 and in accordance with FRC guidance have prepared a reverse stress test that would create a covenant break scenario which could lead to the facilities being repayable on demand.

 

The break scenario would occur in February 2025 if EBITDA was 48% below the Board approved three year plan. Facility headroom of £3m would still exist at this point. The directors consider the likelihood of this level of downturn to be remote based on:

 

·          current trading, which is in line with expectations

·          year-on-year declines in revenues would have to be significantly greater than historical trends

·          the publisher contracts are secured for 65% of revenue until 2029; and

·          the Company continues to trade with adequate profit to service its debt covenants.

 

3iii) Mitigating actions

 

In the event the break environment scenario went from being remote to possible then management would seek to take mitigating actions to maintain liquidity and compliance with the bank facility covenants. The options within the control of management would be to:

 

·          optimise liquidity by working capital management of the peak-to-trough intra-month movement averaging £28.7m in 2023;

·          utilising existing vendor management finance arrangements with retailers and optimising contractual payment cycles to suppliers which would improve liquidity headroom;

·          not pay planned dividends;

·          delay non-essential capex projects,

·          cancel discretionary annual bonus payments; and

·          identify other overhead and depot savings.

 

More extreme mitigating actions would also be available if the scenario arose.

 

The Company has vendor finance arrangements in place where it has the ability to request early payment of invoices at a small discount, the payments are non-recourse and the invoices are considered settled from both sides once payment is received. The Company has not made use of this facility in 2023 nor 2022 or since the Balance Sheet date.



 

3iv) Assessment

 

Having considered the above and the funding requirements of the Group and Company, the directors are confident that headroom under the bank facility remains adequate, future covenant tests can be met and there is a reasonable expectation that the business can meet its liabilities as they fall due for a period of greater than 12 months (being an assessment period of 16 months) from the date of approval of the Group Financial Statements. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements and no material uncertainty has been identified.

 

(4)           Alternate performance measures

 

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

 

The Group believes that these APMs (listed in the glossary), are not considered to be a substitute for, or superior to, IFRS measures but provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board and Executive Team.

 

The APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.

 

(5)           Estimates and judgements

 

The preparation of these accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

Key accounting judgements

 

The significant judgements made in the accounts are:

 

Revenue recognition

 

The Group recognises the wholesale sales price for its sales of newspapers and magazines. The Group is considered to be the principal based on the following indicators of control over its inventory: discretion to establish prices; it holds some of the risk of obsolescence once in control of the inventory; and has the responsibility of fulfilling the performance obligation on delivery of inventory to its customers. If the Group were considered to be the agent, revenue and cost of sales would reduce by £926.5m (2022: £921.3m).

 

Determining lease terms

 

In determining lease terms, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

 

For leases of distribution centres and equipment, the following factors are the most relevant:

 

·          the Company continually considers the optimal network structure in its judgement over lease terms;

·          if there are significant penalties to terminate (or not extend), the Company is typically reasonably certain to extend (or not terminate);

·          if any leasehold improvements are expected to have a significant remaining value, the Company is typically reasonably certain to extend (or not terminate); and

·          otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options in vehicles leases have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption.

 

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

 

Adjusting items

 

Adjusting items of income or expense are excluded in arriving at Adjusted operating profit to present a further measure of the Group's performance. Each adjusting item is considered to be significant in nature and/or quantum, non-recurring in nature and/or are considered to be unrelated to the Group's ordinary activities or are consistent with items treated as adjusting in prior periods. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team.

 

The classification of adjusting items requires significant management judgement after considering the nature and intentions of a transaction. Adjusted measures are defined with other APM's in the glossary.

 

Based on the nature of the transactions Adjusting items after tax totalled £0.5m (2022: £2.3m) and a breakdown is included within Note 4.

 

Key sources of estimation uncertainty

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The key assumption concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

 

Impairment of investments in joint ventures

 

Investments in joint ventures are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined using value in use calculations. The value in use method requires the Company to determine appropriate assumptions in relation to the cash flow projections over the three-year plan period (which is a key source of estimation uncertainty), the terminal growth rate to be applied beyond this three-year period and the risk-adjusted post-tax discount rate used to discount the assumed cash flows to present value.  The assumption that cash flows continue into perpetuity is a source of significant estimation uncertainty.

 

During the prior period ended 27 August 2022, the Company had reviewed the business plan for the Rascal Joint Venture, and it was determined that the potential challenges anticipated to arise in 2021 had not materialised, with the successful renewal of contracts previously considered to be at risk. The Company therefore chose to reverse the impairment previously booked by £1.2m. In the period ended 26 August 2023, a value-in-use of £4.3m was calculated based on the future cash flows of the Rascal business, which were discounted at a rate of 13% and a terminal growth rate applied of 0%. As a result, there was no further adjustment to the carrying value of the investment in the Rascal Joint Venture in the current period. Refer to Note 13 for further details.

 

Property provision

 

The Group holds a property provision which estimates the future liabilities to restore leased premises to an agreed standard at the date the lease is terminated. The provision is calculated based on key assumptions including the length of time properties will be occupied, the future costs of restoration and the condition of the property at the future exit date.  

 

The property provision represents the estimated future cost of the Group's potential dilapidation costs on properties across the Group. As the current economic outlook is for increased inflation, the Group has assessed the effect of inflation as material on the provisions in the current year. The provisions have therefore been adjusted for the effect of inflation in the current year. These provisions have been discounted to present value and this discount will be unwound over the life of the leases.

 

A change in any of these assumptions could materially impact the provision balance. Refer to Note 21 for further details on the sensitivity of the assumptions used to calculate the property provision. The property provision's carrying value at the year end is £4.9m (2022: £4.4m).

 

Net impairment loss on trade receivables

 

During the prior period ended 27 August 2022 McColl's Retail Group had gone into administration and an impairment loss provision of £4.4m was recognised. During the current period the administrators issued an update, stating that unsecured creditors can be expected to receive between 20-50% of approved claims (2022: 20-40%). Management has determined that a best estimate of only 20% of the outstanding balance remains recoverable. The Company has therefore continued to hold a net impairment loss of £4.4m (2022: £4.4m), representing 80% of the total balance of £5.5m (2022: £5.5m) in the current financial period. If the Company had considered 50% of the total balance of £5.5m to be recoverable in line with the upper range of the administrator's estimate, the provision recognised would have been £2.8m (2022: 40%, £3.3m).

 

In the prior period, the net impairment loss of £4.4m was disclosed separately as a specific provision for doubtful debts and presented in adjusting items as it did not have an impact on the Group's assessment of its expected credit losses in respect of its remaining trade receivables.  

 

(6)                           Discontinued operations

 

On 2 May 2020, the Company completed the sale of Tuffnells and assumed liability to settle certain pre-disposal insurance and legal claims relating to employer's liability, public liability, motor accident claims and legal claims, held as provisions. During the current period, the Company is no longer presenting cash outflows from these provisions as discontinued operations, comparatives have not been restated.

 

(7)           Revenue

 

Smiths News - Sales of Newspapers and Magazines

 

Sales of Newspapers and Magazines are recognised when control of the products has transferred, that is, when the products are delivered to the retailer and there is no unfulfilled obligation that could affect the retailer's acceptance of the products, the risks of obsolescence and loss have been transferred to the retailer. Goods are sold to retailers on a sale or return basis.

 

Distribution income

 

Distribution income is recognised when the products such as newspapers and magazines are delivered to the retailer and there are no unfulfilled obligations that could affect the retailer's acceptance of the products.

 

Voucher income

 

Voucher income represents the margin income received from managing the process of collecting voucher payments from retailers and passing them on to voucher processing centres. The Group is primarily responsible for fulfilling the service.

 

Sales and marketing

 

The Group supplies marketing services to both retailers and suppliers. This includes services such as shelf stacking, stock checking and merchandising. The Group is primarily responsible for fulfilling the services.


Sale of waste

 

Income from the sale of recyclable waste represents the amount received per tonne of newspapers and magazines returns sold on for recycling. The Group has primary responsibility for fulfilling the service.

 

Return Reserve

 

Newspapers and Magazines sales are made on a sale or return basis, therefore the Group is required to estimate a value relating to expected returns from retailers. Likewise, as the publishers are required to provide the Group with credit for any purchase returns, so a purchase returns reserve is also required. The key estimates used in calculating the period end reserve are rates of returns (based on historical tends), average shelf life of the product types and average price of each product type. These estimates are similarly applied to calculate the credit for purchase returns.

 

Revenue for goods supplied with a right of return is stated net of the value of any returns. Newspapers and magazines are often sold with retrospective volume discounts based on aggregate net sales. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discount and returns, using the expected value method and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A returns reserve accrual and discount accrual (included in trade and other payables) is recognised for expected volume discounts and refunds payable to customers in relation to sales made until the end of the reporting period. A right to the returned goods (included in other debtors) are recognised for the products expected to be returned.

 

No element of financing is deemed present because the sales are made with short credit terms, which is consistent with market practice.

 

A receivable is recognised when the goods are delivered, since this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

 

(8)           Cost of Sales and Gross profit

 

The Group considers cost of sales to equate to cost of inventories recognised as an expense and distribution costs as these are considered to represent for the Group direct costs of making a sale.

 

The Group considers gross profit to equal revenue less cost of sales.

 

(9)           Taxation

 

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent it relates to items recognised in other comprehensive income or directly in equity. Current tax is the expected tax payable based on the taxable profit for the year, using tax rates enacted, or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.

 

Deferred tax is provided on the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is calculated using tax rates enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary differences can be utilised.



(10)         Dividends

 

Interim and final dividends are recorded in the financial statements in the period in which they are paid.

 

(11)         Capitalisation of internally generated development costs

 

Expenditure on developed software is capitalised when the Group is able to demonstrate all of the following: the technical feasibility of the resulting asset; the ability (and intention) to complete the development and use it; how the asset will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use the software are available; and the ability to measure reliably the expenditure attributable to the asset during its development. Software costs are also capitalised if they can be hosted on another server, are portable and the Group has sole rights to the software. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

 

(12)         Joint ventures

 

The Group Financial Statements include the Group's share of the total recognised gains and losses in its joint ventures on an equity accounted basis.

 

Investments in joint ventures are carried in the balance sheet at cost adjusted by post-acquisition changes in the Group's share of the net assets of the joint ventures, less any impairment losses. The carrying values of investments in joint ventures include acquired goodwill. Losses in joint ventures that are in excess of the Group's interest in the joint venture are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

 

(13)         Business combinations goodwill and intangibles

 

The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued, liabilities incurred or assumed at the date of exchange. Acquisition related costs are recognised in profit or loss as incurred. Any deferred or contingent purchase consideration is recognised at fair value over the period of entitlement. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for in equity. Any deferred or contingent payment deemed to be remuneration as opposed to purchase consideration in nature is recognised in profit or loss as incurred and excluded from the acquisition method of accounting for business combinations.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The non-controlling interest is measured, initially, at the non-controlling interest's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

 

Goodwill arising on all acquisitions is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.


The carrying value is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets arising under a business combination (acquired intangibles) are capitalised at fair value as determined at the date of exchange and are stated at fair value less accumulated amortisation and impairment losses. Amortisation of acquired intangibles is charged to the income statement on a straight-line basis over the estimated useful lives as follows:

 

Customer relationships                         - 2.5 to 7.5 years

Trade name                                           - 5 to 10 years

Software and development costs         - 3 to 7 years

 

Computer software and internally generated development costs which are not integral to the related hardware are capitalised separately as an intangible asset and stated at cost less accumulated amortisation and impairment losses.

 

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

 

All intangible assets are reviewed for impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may be higher than its recoverable value. The recoverable value used is the value in use. The value in use is determined by estimating the future cash inflows and outflows to be derived from continuous use of the asset and applying the appropriate discount rate to those future cash flows. Where the carrying value is higher than the calculated value in use, an impairment loss will be recognised.

 

(14)         Property, plant and equipment

 

Property, plant and equipment assets are stated at cost less accumulated depreciation and any recognised impairment losses. No depreciation has been charged on freehold land. Other assets are depreciated, to a residual value, on a straight-line over their estimated useful lives, as follows:

 

Freehold and long term leasehold properties      - over 20 years

Short term leasehold properties          - shorter of the lease period and the estimated remaining economic life

Fixtures and fittings                              - 3 to 15 years

Equipment                                            - 5 to 12 years

Computer equipment                            - up to 5 years

Vehicles                                                - up to 5 years

 

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. All property, plant and equipment is reviewed for impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may not be recoverable.

 

(15)         Leasing

 

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 

·          fixed payments (including in-substance fixed payments) less any lease incentives receivable;

·          variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

·          amounts expected to be payable by the Group under residual value guarantees;

·          the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

·          payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

 

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.



The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

 

To determine the incremental borrowing rate, the Group:

 

·          where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

·          uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing; and

·          makes adjustments specific to the lease, e.g. term, country, currency and security.

 

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

 

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

Right-of-use assets are measured at cost comprising the following:

 

·          the amount of the initial measurement of lease liability;

·          any lease payments made at or before the commencement date less any lease incentives received;

·          any initial direct costs; and

·          Restoration costs.

 

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

 

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

 

Extension and termination options

 

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

 

Modifications

 

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged.  In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

 

(16)         Inventories

 

Inventories comprise goods held for resale and are stated at the lower of cost or net realisable value. Inventories are valued using a weighted average cost method. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition.

 

(17)         Financial instruments

 

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises financial assets and liabilities only when the contractual rights and obligations are transferred, discharged or expire.

 

Financial assets comprise trade and other receivables and cash and cash equivalents. Financial liabilities comprise trade payables, financing liabilities, bank borrowings.

 

(18)         Financial assets

 

The group classifies its financial assets in the following measurement categories:

 

·          those to be measured subsequently at fair value (either through OCI or through profit or loss); and

·          those to be measured at amortised cost.

 

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

 

Trade receivables

 

Trade receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and then adjusted to reflect expectations about future credit losses. The Group does not have any significant contract assets.

 

Classification as trade receivables

 

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method. Details about the Group's impairment policies and the calculation of the loss allowance are provided in Note 15.

 

Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.

 

Other receivables

 

Other receivables are recognised on trade date, being the date on which the Group has the right to the asset. Other receivables are derecognised when the rights to receive cash flows from the other receivables have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership.



At initial recognition, the Group measures other receivable at their fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

 

Subsequent measurement of other receivables depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. The group classifies its other receivables at amortised cost.

 

Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in Note 3.

 

The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:

 

·          the asset is held within a business model whose objective is to collect the contractual cash flows; and

·          the contractual terms give rise to cash flows that are solely payments of principal and interest.

 

The Group applies the general approach to impairment under IFRS 9 based on significant increases in credit risk rather than the simplified approach for trade receivables using lifetime ECL.

 

(19)         Trade and other payables

 

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

 

(20)         Treasury

 

Cash and bank deposits

 

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. BACS and next day payments are recognised at the settlement date, rather than when they are initiated, to reflect the nature of these transactions. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and bank overdrafts which form part of the Group's cash management.

 

Financial liabilities and equity

 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued are recorded at the proceeds received, net of direct issue costs.

 

Bank borrowings

 

Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and are subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.

 

Modification/Derecognition of financial liabilities

 

Financial liabilities are derecognised only when there is extinguishment of the original financial liability and recognition of a new financial liability. Equally, modification of the terms of existing financial liability is accounted for as an extinguishment of the original financial liability and recognition of a new financial liability takes place.

 

Foreign currencies

 

Financial statements of foreign operations

 

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.

 

Foreign currency transactions

 

Transactions in foreign currencies are recorded using the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.

 

(21)         Provisions

 

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the directors' best estimate of the expenditure required to settle the present obligation at the balance sheet date and if this amount is capable of being reliably estimated. If such an obligation is not capable of being reliably estimated, no provision is recognised and the item is disclosed as a contingent liability where material. Where the effect is material, the provision is determined by discounting the expected future cash flows.

 

(22)         Retirement benefit costs

 

Defined contribution schemes

 

The Group operates two defined contribution schemes for the benefit of its employees. Payments to the Group's schemes are recognised as an expense in the income statement as incurred.

 

Defined benefit scheme

 

The Group previously operated one defined benefit pension scheme, the news section of The WH Smith Pension Trust. On 3 December 2021, the Group received the sum of £8.1m in respect of the net cash surplus held by the Trustee following finalisation of the buy-out of the defined benefit liabilities in the News Section of the Trust. As agreed with the Trustee, the return of surplus preceded the formal winding up steps of the News Section of the Trust, the winding up of the News Section of the Trust being formally completed on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC. The IAS 19 pre-tax surplus of £14.8m has been recognised through other comprehensive income in the prior financial period after the Trustee confirmed its intention to return the surplus cash to the employer giving the Company an unconditional right to the surplus.



(23)         Employee Benefit Trust

 

Smiths News Employee Benefit Trust

 

Where any Group company purchases the Company's shares, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity as 'own shares reserve' until those shares are either cancelled or reissued.

 

The shares held by the Smiths News Employee Benefit Trust are valued at the historical cost of the shares acquired. This value is deducted in arriving at shareholders' funds and presented as the own share reserve in line with IAS 32 'Financial Instruments: Disclosure and Presentation'.

 

(24)         Share schemes

 

Share based payments

 

The Group operates several share-based payment schemes, being the Sharesave Scheme, the Executive Share Option Scheme, the LTIP and the Deferred Bonus Plan. Details of these are provided in the Directors' Remuneration report and in Note 28.

 

Equity-settled share-based schemes are measured at fair value at the date of grant. The fair value is expensed with a corresponding increase in equity on a straight-line basis over the period during which employees become unconditionally entitled to the options. The fair values are calculated using an appropriate option pricing model. The income statement charge is then adjusted to reflect expected and actual levels of vesting based on non-market performance related criteria.

 

Administrative expenses and distribution and marketing expenses include the cost of the share-based payment schemes.

 

(25)         Changes in accounting policies

 

The Group has not applied any new standards or amendments for the annual reporting period commencing 28 August 2022.

 

New Standards and Interpretations not yet applied

 

At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group and which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the UK):

 

·          Classification of Liabilities as Current or Non-current - Amendments to IAS 1;

·          Definition of Accounting Estimates - Amendments to IAS 8;

·          Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement; and

·          Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12.

·          Lease liability in a Sale and Leaseback - IFRS 16 Leases

 

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.


2. Segmental analysis

 

In accordance with IFRS 8 'Operating Segments', management has identified its operating segments based wholly on the overall activities of the Group. The Group has therefore determined that it has only one reportable operating segment under IFRS 8, which is that of a 'UK market leading distributor of newspapers and magazines', referred to as 'Smiths News'. The performance of Smiths News is reviewed, on a monthly basis, by the Board. The Board primarily uses a measure of Adjusted operating profit before tax to assess its performance. The Board also receives information about the segments' revenue.

 

The Smiths News continuing operating segment consists of the following:

 

Smiths News Core

 

The UK market leading distributor of newspapers and magazines to approximately 23,000 retailers across England and Wales.

 

Dawson Media Direct (DMD)

 

Supplies newspapers, magazines and inflight entertainment to airlines and travel points worldwide.

 

Instore

 

Supplies field marketing services to retailers and suppliers across the UK.

 

Other businesses

 

A number ancillary business which are adjacent to Smiths News.

 

The Company derives revenue from the transfer of goods and services in the following major product line and geographical regions:

 

 

 

Revenue

£m

 

2023

2022

Smiths News

 

1,091.9

1,089.3

Total revenue from contracts with customers

 

1,091.9

1,089.3

 

The Company's revenue by geographical location is UK 99.8% (2022: 99.9%) and Rest of World 0.2% (2022: 0.1%).

 

Information about major customers

 

Included in revenues arising from Smiths News are revenues of approximately £99.5m (2022: £102.5m) which arose from sales to the Group's largest customer. Three other customers contributed 13.1% or more of the Group's revenue in 2023 (2022: 13.3%).

 

 

3. Operating profit

 

The Group's results are analysed as follows:

 

£m


2023

2022

 

Note

Adjusted

Adjusting items

Total

Adjusted

Adjusting items

Total

 

Revenue

 

1,091.9

-

1,091.9

1,089.3

-

1,089.3

 

Cost of inventories recognised as an expense


(926.5)

-

(926.5)

(921.3)

-

(921.3)

 

Distribution costs


(92.9)

-

(92.9)

(95.3)

-

(95.3)

 

Cost of sales


(1,019.4)

-

(1,019.4)

(1,016.6)

-

(1,016.6)

 

Gross profit

 

72.5

-

72.5

72.7

-

72.7

 

Other administrative expenses


(23.4)

(0.5)

(23.9)

(23.3)

(2.5)

(25.8)

 

Share-based payment expense

28

(1.1)

-

(1.1)

(1.2)

-

(1.2)

 

Net impairment loss on trade receivables


(0.1)

-

(0.1)

-

(4.4)

(4.4)

 

Impairment reversal of joint venture investment


-

-

-

-

1.2

1.2

 

Other income


-

-

-

0.1

-

0.1

 

Share of profits from joint ventures

13

0.1

-

0.1

0.3

-

0.3

 

EBITDA

 

48.0

(0.5)

47.5

48.6

(5.7)

42.9

 

Depreciation on property, plant and equipment

12

(2.2)

-

(2.2)

(2.3)

-

(2.3)

 

Depreciation on right use assets

19

(6.4)

-

(6.4)

(6.9)

-

(6.9)

 

Amortisation of intangibles

11

(0.6)

-

(0.6)

(1.3)

-

(1.3)

 

Operating profit

 

38.8

(0.5)

38.3

38.1

(5.7)

32.4

 

 

Operating profit is stated after charging/(crediting):

 

£m

Note

2023

2022

 



 

 

Total


Total


 

Depreciation on property, plant and equipment

12

 

 

2.2


2.3


Amortisation of intangible assets

11

 

 

0.6


1.3


Depreciation on right use assets

19

 

 

6.4


6.9


Short term and low value lease charges on equipment and vehicles


 

 

0.4


0.3


Lease rental income - land and buildings


 

 

(0.4)


(0.4)


Staff costs (excluding share-based payments)

5

 

 

44.1


43.7


 

 

Included in administrative expenses are amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services which are as follows:

 

£m

2023

2022

Fees payable to the Company's auditor for the audit of the Company's annual accounts - BDO LLP

0.2

0.2

Fees payable to the Company's auditor for the audit of the Company's subsidiaries - BDO LLP

0.4

0.4

Total non-audit fees

0.1

0.1

Total fees

0.7

0.7

 

Details of the Company's policy on the use of auditors for non-audit services and how the auditor's independence and objectivity was safeguarded are set out in the Audit Report.

 

 

4. Adjusting items

 

£m

 

2023

2022

Aborted acquisition costs

(a)

(0.6)

-

Tuffnells provision

(b)

(0.4)

-

Network and re-organisation credits

(c)

0.5

0.2

Pension

(d)

-

(1.8)

Transformation programme planning costs

(e)

-

(0.9)

Administrative expenses

 

(0.5)

(2.5)

Net impairment loss on trade receivables

(f)

-

(4.4)

Asset impairment reversal/(charge)

(g)

-

1.2

Total before tax and interest

 

(0.5)

(5.7)

Finance income - unwind of deferred consideration

(h)

-

2.5

Total before tax

 

(0.5)

(3.2)

Taxation

 

-

0.9

Total after taxation

 

(0.5)

(2.3)

 

The Group incurred a total of £0.5m (2022: £3.2m) of adjusting items before tax and £0.5m (2022: £2.3m) after tax respectively. All adjusting items relate to continuing operations.

 

Adjusting items are defined in the accounting policies in Note 1 and in the glossary. In the directors' opinion, the impact of removing these items from the adjusted profit provide a relevant analysis of the trading results of the Group because it is consistent with how the business performance is planned by, and reported to the Board and Executive Team. However, these additional measures are not intended to be a substitute for, or superior to, IFRS measures. They comprise:

 

Administrative expenses £0.5m (2022: £2.5m)

 

(a) Aborted acquisition costs: £0.6m (2022: £nil)

During the period the Company incurred due diligence and legal costs associated with an aborted acquisition. The cash impact of these items was an outflow of £0.6m (2022: £nil).

 

(b) Tuffnells provision: £0.4m (2022: £nil)

As part of the sale of Tuffnells Parcels Express Limited (Tuffnells) in May 2020, a contractual agreement was put in place in respect of the future treatment and responsibility of certain insurance claims brought or notified to insurers. This agreement extinguished the Group's exposure to new accident and insurance claims brought after the sale of Tuffnells but which related to the Group's period of ownership of Tuffnells up to May 2020. However, as a result of Tuffnells Parcel Express Limited (Tuffnells) falling into administration in June 2023, the enforceability of, and subsequent recoverability under, this contractual agreement has been negatively impacted and the Company's insurers have looked to the Company to stand behind the excess/deductible limit of such claims.

 

Costs of £0.4m were incurred to increase the existing insurance provisions, which represents a best estimate of claims brought in relation to the period which Tuffnells was part of the Group and that therefore are now probable to be paid by the Group as a result. The cash impact of utilisations on existing claims was a £0.2m outflow (2022: £0.5m, presented as discontinued operations).

 

(c) Network and re-organisation: £0.5m credit (2022: £0.2m credit)

During the period, there has been a reversal of accrued amounts of £0.6m relating to projects in connection with our outsourced Shared Service Centre (SSC) in India, where accrued costs relating to overheads on projects will no longer materialise. These amounts have been released to the income statement. The projects were concluded in 2022. This is partially offset by £0.1m of costs incurred in respect of simplifying the DMD group structure.

 

During the prior period, the Company restructured its support functions and put in place a reorganisation provision. This arose in 2021 as a result of the disposal of the Tuffnells business in May 2020, and subsequent lockdowns associated with the COVID-19 pandemic. The Company has released £0.2m of this provision in the prior period.

 

The cash impact of network and re-organisation was a £0.2m outflow (2022: £0.1m).

 

(d) Pensions: £nil (2022: £1.8m)

In the prior period the Trust completed the wind-up of the news section of the WH Smiths Pension Trust (the Company's defined benefit pension scheme), with a Deed of Termination signed by the Company and the Trustee on 25 February 2022.

 

As part of the wind up, £1.3m was paid to an escrow account in December 2021 for the Trustee to purchase indemnity insurance and to cover future claims from members owed amounts following the Lloyds GMP equalisation ruling in November 2020. This amount has been accounted for as an adjusted item through the income statement.

 

The winding up of the News Section was formally completed on 25 February 2022 through the purchase of insurance run-off cover, plus other associated professional fees at a total cost of £0.6m. £0.3m of these costs were funded from the total pre-tax pension surplus received of £14.8m, see Note 6 for further details. A refund of £0.1m due to the Company in relation to the total amount previously held in escrow, has been credited against these costs. In the prior period, the Company incurred £1.0m in pension administrative expenses and other professional fees as a result of the winding up process.

 

These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are unrelated to the Group's ordinary activities.

 

The total impact on net cash inflow from operating activities in the prior period was a £7.9m inflow. An £8.1m inflow was received in the prior period from the return of the pension surplus, less a net £0.2m outflow in respect of the insurance run-off cover, see Note 24 for further details.

 

(e) Transformation programme planning costs: £nil (2022: £0.9m)

During the prior period the Company incurred professional fees in relation to transformation programme planning projects. These projects were concluded in the current period.

 

These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are considered to be non-underlying items.

 

The total impact on net cash inflow from operating activities was £nil (2022: outflow of £1.3m), see Note 24 for further details.

 

(f) Net impairment loss on trade receivables £nil (2022: loss of £4.4m)

On 9 May 2022 ("the administration date"), McColl's Retail Group went into administration. A statement of claim form was filed with the Administrators for an amount of £5.5m. The latest issued notification from the administrators on 8 June 2023 states that unsecured creditors can be expected to receive between 20-50% of approved claims, previously 20-40%. Management has maintained a best estimate that only 20% of the outstanding balance is recoverable and that the level of provision in place is adequate. The Company has therefore maintained a net impairment loss of £4.4m, representing 80% of the total balance of £5.5m in the current financial period.

 

The Company continues to trade with McColl's as acquired by Wm Morrison Supermarkets Ltd ("Morrisons") under a pre-packaged insolvency agreement with the administrator. The Company's bad debt exposure relates solely to the outstanding trade receivable balance as at the administration date.

 

This cost is reported as an adjusting item on the basis that they are significant in nature and quantum, are considered non-underlying items, outside the normal course of activity and aid comparability from one period to the next. The bad debt from McColl's has limited predictive value given the historic low level of bad debts incurred in the ordinary course of business.

 

(g) Asset impairment: impairment reversal £nil (2022: £1.2m)

During the prior period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated to arise in the prior period, had not materialised, with the successful renewal of contracts previously considered to be at risk. The Company has therefore chosen to reverse the impairment previously booked by £1.2m. During the current period, no further impairment charge or reversal has been recognised.

 

The Group considers the impact of the above to be adjusting given the impairment charges were significant in both quantum and nature to the results of the Group.

 

(h)           Finance Income - Deferred consideration £nil (2022: £2.5m credit)

During the prior period, £2.5m has been recognised in finance income as the unwind of discount on the original total deferred consideration due of £15.0m. This is offset by the £1.0m agreed reduction in deferred consideration due that was then received. The deferred consideration relates to the disposal of Tuffnells that took place in May 2020 and for that reason has been classified as adjusting because it does not relate to the Group's ordinary activities.

 

 

5. Staff costs and employees

 

(a)    Staff costs

 

The aggregate remuneration of employees (including executive directors) was:

 

£m

Note

2023

2022

Wages and salaries


39.2

39.2

Social security


3.7

3.4

Pension costs

6

1.2

1.1

Share-based payments expense


1.1

1.2

Total

 

45.2

44.9

 

Pension costs shown above exclude charges and credits for pension scheme financing and actuarial gains and losses arising on the pension schemes. 

 

(b)    Employee numbers

 

The average total monthly number of employees relating to operations (including directors) was:

 

Number

2023

2022

Operations

1,368

1,425

Support functions

140

149

Total

1,508

1,574

 

 

6. Retirement benefit obligation

 

Defined contribution schemes

 

The Group operates two defined contribution schemes. For the 52 weeks ended 26 August 2023, contributions from the respective employing company for continuing operations totalled £1.2m (2022: £1.1m) which is included in the Income Statement.

 

A defined contribution plan is a pension plan under which the Group pays contributions to an independently administered fund - such contributions are based upon a fixed percentage of employees' pay. The Group has no legal or constructive obligations to pay further contributions to the fund once the contributions have been paid. Members' benefits are determined by the amount of contributions paid by the Company and the member, together with investment returns earned on the contributions arising from the performance of each individual's chosen investments and the type of pension the member chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk (that assets invested in will not perform in line with expectations) fall on the employee.

 

Defined benefit pension schemes

 

During the prior period, the Group operated one defined benefit scheme, the news section of the WH Smith Pension Trust (the 'Pension Trust').

 

On 25 February 2022 the scheme was wound-up with a Deed of Termination being signed by the Company and the Trustee at that date.

 

In the prior period to February 2022, £14.8m was recognised through other comprehensive income after the previously unrecognised IAS19 pension asset was received in cash, net of £5.1m tax and administrative expenses of £1.6m.

 

An asset was not previously recognised as the Company did not have an unconditional right to the surplus and, therefore, the surplus in the scheme was restricted with an IFRIC 14 asset ceiling. This was reversed during the prior financial period, enabling the Company to receive the sum of £8.1m (net of tax and costs) following finalisation of the buy-out of the defined benefit liabilities in the News Section of the Pension Trust.

 

The return of the surplus preceded the formal winding up steps of the News Section, the winding up of the News Section being formally completed during the prior year on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC.

 

A summary of the movements in the net balance sheet asset / (liability) and amounts recognised in the Company Income Statement and Other Comprehensive Income in the prior period are as follows:

 

£m

Fair value of scheme assets

Defined benefit obligation

Impact of IFRIC 14 on defined benefit pension schemes

Total

At 29 August 2021

14.9

(0.1)

(14.8)

-

Purchase of indemnity insurance

(1.3)

-

-

(1.3)

Other administration expenses

(0.3)

-

-

(0.3)

Total amount recognised in income statement

(1.6)

-

-

(1.6)

Change in surplus not previously recognised

(0.1)

0.1

14.8

14.8

Tax relating to the repayment of pension surpluses

-

-

(5.1)

(5.1)

Amount recognised in other comprehensive income

(0.1)

0.1

9.7

9.7

Tax paid

(5.1)

-

5.1

-

Refund of surplus to Company

(8.1)

-

-

(8.1)

Amounts included in cash flow statement

(13.2)

-

5.1

(8.1)

At 27 August 2022

-

-

-

-

At 26 August 2023

-

-

-

-

 

On winding up of the News Section of the Pension Trust, the Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at £6.5m over the following 60 years.

 

 

7. Finance costs

 

£m

Note

2023

2022

Interest on bank overdrafts and loans


(3.9)

(3.5)

Amortisation of loan arrangement fees


(1.1)

(1.7)

Interest payable on leases


(1.4)

(1.6)

Total interest cost on financial liabilities at amortised cost


(6.4)

(6.8)

Unwinding of discount on provisions - trading

21

(0.1)

(0.2)

Finance costs

 

(6.5)

(7.0)

Interest income on loans and deferred consideration

4

-

2.5

Net Finance costs

 

(6.5)

(4.5)

 

 

8. Income tax expense

 

£m

2023

2022

 

Adjusted

Adjusting items

Total

Adjusted

Adjusting items

Total

Current tax

6.5

-

6.5

5.7

(0.9)

4.8

Adjustment in respect of prior year

0.2

-

0.2

(0.8)

-

(0.8)

Total current tax charge/(credit)

6.7

-

6.7

4.9

(0.9)

4.0

Deferred tax - current year

0.5

-

0.5

(0.3)

-

(0.3)

Deferred tax - prior year

(0.4)

-

(0.4)

0.6

-

0.6

Deferred tax - impact of rate change

(0.1)

-

(0.1)

0.2

-

0.2

Total tax charge/(credit)

6.7

-

6.7

5.4

(0.9)

4.5

Effective tax rate

20.7%

 

21.1%

17.4%

 

16.1%

 

The effective adjusted income tax rate in the year was 20.7% (2022: 17.4%). After the impact of Adjusting items of £nil (2022: £0.9m), the effective statutory income tax rate was 21.1% (2022: 16.1%).

Corporation tax is calculated at the main rates of UK corporation tax, those being a blended rate of 21.5% (2022: 19.0%). The UK Finance Act 2021 increased the corporate tax rate to 25% effective from 1 April 2023 and in the current period this results in a blended rate. The Group has assessed its deferred tax positions using the higher enacted rate of 25%. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

The tax charge for the year can be reconciled to the profit in the income statement as follows:

 

£m

2023

2022

Profit before tax

31.8

27.9

Tax on profit at the standard rate of UK corporation tax 21.5% (2022: 19.0%)

6.8

5.3

Income not subject to tax

0.1

(1.0)

Expenses not deductible for tax purposes

0.1

0.2

Adjustment in respect of prior years

(0.2)

(0.2)

Impact of change in UK tax rate

(0.1)

0.2

Tax charge

6.7

4.5

 

Income not subject to tax in the prior period comprised mainly of the tax effect of the Tuffnells discount unwind.

 

Amounts recognised directly in equity

 

Aggregate current tax and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly credited/(charged) to equity was as follows:

 

£m

2023

2022

Current tax: share-based payments

-

(0.1)

Deferred tax assets: share-based payments

0.6

(0.2)

 

 

9. Dividends

 

Amounts paid and proposed as distributions to equity shareholders in the years:

 

 

2023

2022

2023

2022

Paid and proposed dividends for the year

Per share

Per share

£m

£m

Interim dividend - paid

1.40p

1.40p

3.3

3.3

Final dividend - proposed

2.75p

2.75p

6.7

6.7


4.15p

4.15p

10.0

10.0

Recognised dividends for the year

 


 


Final dividend - prior year

2.75p

1.15p

6.5

2.8

Interim dividend - current year

1.40p

1.40p

3.3

3.3


4.15p

2.55p

9.8

6.1

 

A final 2.75p dividend per share is proposed for the 52 weeks ended 26 August 2023 (2022: 2.75p), which is expected to be paid on 8 February 2024 to all shareholders who are on the register of members at close of business on 12 January 2024. The ex-dividend date will be 11 January 2024.

 

 

10. Earnings per share

 


2023

2022


£m

Million

Pence

£m

Million

Pence


Earnings

Weighted average number of shares

per share

    Earnings

Weighted average number of shares

per share

Weighted average number of shares in issue


247.7



247.7


Shares held by the ESOP (weighted)


(10.4)



(9.2)


Basic earnings per share (EPS)







Adjusted earnings attributable to ordinary shareholders

25.6

237.3

10.8

25.7

238.5

10.8

Adjusting items

(0.5)

-

-

(2.3)

-

-

Earnings attributable to ordinary shareholders

25.1

237.3

10.6

23.4

238.5

9.8

Diluted earnings per share (EPS)

 

 

 




Effect of dilutive share options

 

12.6

 


13.5


Diluted adjusted EPS

25.6

249.9

10.2

25.7

252.0

10.2

Diluted EPS

25.1

249.9

10.0

23.4

252.0

9.3

 

Dilutive shares increase the basic number of shares at 26 August 2023 by 12.6m to 249.9m (27 August 2022: 252m).

 

The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 12.6m dilutive shares (27 August 2022: 13.5m). All earnings relate to continuing operations.

 

 

11. Intangible assets

 

 

Goodwill
Acquired Intangibles
Internally generated development costs
Computer software costs
Total

£m

 
Customer relationships
Trade name
 
 
 

 

Cost:







At 27 August 2022

5.7

2.4

0.2

3.2

7.4

18.9

Additions

-

-

-

0.5

0.3

0.8

Disposal

-

-

-

(1.9)

(4.9)

(6.8)

At 26 August 2023

5.7

2.4

0.2

1.8

2.8

12.9

Accumulated amortisation and impairment:







At 27 August 2022

(5.7)

(2.4)

(0.2)

(2.1)

(6.8)

(17.2)

Amortisation charge

-

-

-

(0.2)

(0.4)

(0.6)

Disposals

-

-

-

1.9

4.9

6.8

At 26 August 2023

(5.7)

(2.4)

(0.2)

(0.4)

(2.3)

(11.0)

Net book value at 26 August 2023

-

-

-

1.4

0.5

1.9

Cost:







At 29 August 2021

5.7

2.4

0.2

2.7

7.2

18.2

Additions

-

-

-

0.5

0.2

0.7

At 27 August 2022

5.7

2.4

0.2

3.2

7.4

18.9

 

Accumulated amortisation and impairment:







At 29 August 2021

(5.7)

(2.4)

(0.2)

(1.8)

(5.8)

(15.9)

Amortisation charge

-

-

-

(0.3)

(1.0)

(1.3)

At 27 August 2022

(5.7)

(2.4)

(0.2)

(2.1)

(6.8)

(17.2)

Net book value at 27 August 2022

-

-

-

1.1

0.6

1.7

 

Impairment of goodwill

 

Goodwill is not amortised but has been reviewed annually for impairment. As a result of these reviews goodwill is fully impaired at the end of 2023 and 2022.

 

 

12. Property, plant and equipment

 

£m

Land and Buildings




 


Long term leasehold improvements

Short term leasehold

improvements

Fixtures and fittings

Equipment and vehicles

Total

 

Cost:

 

 

 

 

 

At 27 August 2022

0.2

10.5

3.0

23.0

36.7

 

Additions

-

1.0

0.9

0.5

2.4

 

Disposals

-

(2.3)

(0.4)

(6.5)

(9.2)

 

At 26 August 2023

0.2

9.2

3.5

17.0

29.9

 

Accumulated depreciation:

 

 

 

 

 

 

At 27 August 2022

(0.2)

(8.7)

(1.8)

(17.4)

(28.1)

 

Depreciation charge

-

(0.4)

(0.5)

(1.3)

(2.2)

 

Disposals

-

2.3

0.6

6.3

9.2

 

At 26 August 2023

(0.2)

(6.8)

(1.7)

(12.4)

(21.1)

 

Net book value at 26 August 2023

-

2.4

1.6

4.8

8.8

 

Cost:






 

At 29 August 2021

0.2

10.2

2.9

22.1

35.4

 

Additions

-

0.3

0.1

1.2

1.6

 

Disposals

-

-

-

(0.3)

(0.3)

 

At 27 August 2022

0.2

10.5

3.0

23.0

36.7

 

Accumulated depreciation:

 

 

 

 

 

 

At 29 August 2021

(0.2)

(8.2)

(1.6)

(16.0)

(26.0)

 

Depreciation charge

-

(0.5)

(0.2)

(1.6)

(2.3)

 

Disposals

-

-

-

0.2

0.2

 

At 27 August 2022

(0.2)

(8.7)

(1.8)

(17.4)

(28.1)

 

Net book value at 27 August 2022

-

1.8

1.2

5.6

8.6

 

 

 

13. Interests in joint ventures

 

£m

2023

2022

At 28/27 August

4.2

2.9

Additions

0.3

-

Share of profit

0.1

0.3

Impairment reversal

-

1.2

Dividends received

(0.2)

(0.2)

At 26/27 August

4.4

4.2

 

The Joint ventures listed below have share capital consisting solely of ordinary shares, which are held directly by the Group.

 

Nature of investments in Joint Ventures

 

Company name/

(number)

Share Class

Group %

Registered address

Measurement method

Rascal Solutions Limited

05191277

Ordinary A Shares

50%

Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF

Equity method

Bluebox Systems Group Limited SC544863

Ordinary A Shares

36.1%

Estantia House, Pitreavie Drive, Pitreavie Business Park, Dunfermline, Fife KY11 8US

Equity method

Fresh On The Go Limited

08775703

Ordinary Shares

30%

61 Bridge Street, Kington, HR5 3DJ

Equity method

Lucid Digital Magazines Limited t/a LoveMedia

12738320

Ordinary Shares

50%

Rowan House Cherry Orchard North, Kembrey Park, Swindon, England, SN2 8UH

Equity method

 

The Group owns 50% of the ordinary shares of Rascal Solutions Limited, a company incorporated in England, which in turn owns 100% of the ordinary shares of Open-Projects Limited. The latest statutory accounts of Rascal Solutions Limited were drawn up to 31 August 2022. Rascal Solutions Limited provides retail support services and is a strategic partnership for the Group to provide additional services to its existing customers.

 

Bluebox Systems Group Limited, is the holding company of Bluebox Aviation Systems Ltd, the principal activity of which is the sale of innovative in-flight entertainment systems. This business is a strategic partnership with DMD which also provides inflight media to the aviation industry.

 

Fresh On The Go Limited provides retail outlets with coffee vending and other related products.

 

During the period, the Group purchased 50% of the ordinary shares in Lucid Digital Magazines Limited t/a LoveMedia, a company incorporated in England. LoveMedia provides single use downloads of newspapers and magazines to consumers.

 

The Group has also provided a working capital loan of £0.3m to LoveMedia, which is presented within other debtors. There are no other commitments relating to its joint ventures.

 

All joint ventures are private companies and there is no quoted market price available for their shares.

 

Dividends of £0.2m (2022: £0.2m) were received in the 52 weeks to 26 August 2023 from joint ventures.

 

Rascal Solutions Limited investment

 

During the period Rascal Solutions Limited (Rascal) recorded a profit of £0.5m (2022: £0.6m). The Group holds £4.2m on the balance sheet comprising a £1.8m (2022: £1.8m) share of net assets and £2.4m (2022: £2.4m) of Goodwill. Goodwill represents the difference between the fair value of the share of the net assets acquired and the amount paid, and forms part of the investment in the joint venture.

 

During the prior period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated to arise in 2021 had not materialised, with the successful renewal of contracts previously considered to be at risk. The Company reversed the impairment previously booked by £1.2m.

 

The current period impairment review was performed, resulting in a value in use of £4.3m being calculated based on future cash flows of the Rascal business. These cash flows were discounted at a post-tax discount rate of 13.6% and a pre-tax discount rate of 18.1% (2022: 13.0% post-tax discount rate and pre-tax discount rate of 15.2%) and a terminal growth rate applied of 0% (2022: 0%). As a result, there was no further adjustment (2022: reversal of £1.2m impairment loss) to the carrying value of the investment in the Rascal Joint Venture in the current period.

 

Sensitivities to assumptions

 

If the post-tax discount rate had been increased by 1.0%, there would be an impairment of £0.2m, and if the post-tax discount rate had been reduced by 1.0%, there would be headroom of £0.4m. 

 

 

14. Inventories

 

£m

2023

2022

Goods held for resale

17.5

15.5

Raw materials and consumables

0.2

0.1

Inventories

17.7

15.6

 

 

15. Trade and other receivables

 

£m

2023

2022

Trade receivables

73.5

69.0

Specific provision for doubtful debts(1)

(4.4)

(4.4)

Provision for expected credit losses

(0.1)

(0.1)


69.0

64.5




Other debtors

29.4

28.6

Prepayments

1.1

1.0

Accrued income

1.6

1.6

Trade and other receivables

101.1

95.7

 

(1)           Net impairment loss on trade receivables - McColl's Retail Group

 

During the prior period, the Company received notice that McColl's Retail Group had gone into administration. A statement of claim was filed with the Administrators for an amount of £5.5m. The latest notification issued from the administrators on 8 June 2023 states that unsecured creditors can be expected to receive between 20-50% of approved claims, previously 20-40%. Management has maintained a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore maintained a net impairment loss of £4.4m (2022: £4.4m), representing 80% of the total balance of £5.5m in the current and prior period. For more information see Note 4.

 

The net impairment loss of £4.4m (2022: £4.4m) has been allocated to the 91-120 days overdue ageing bucket (2022: £1.3m to 61-90 days, £3.0m to 90-120 days), matching the ageing profile of the £5.5m total receivable due.

 

If the Company had considered 50% (2022: 40%) of the total balance of £5.5m to be recoverable in line with the upper range of the administrator's estimate, the provision recognised would have been £2.8m (2022: £3.3m), allocated to the 91-120 days overdue ageing bucket (2022: £1.0m to 61-90 days, £2.3m to 91-120 days).

 

Trade receivables

 

The average credit period taken on sale is 27 days (2022: 23 days). Trade receivables are generally non-interest bearing.

 

The following table provides information about the Group's exposure to credit risk and ECLs against customer balances as at 26 August 2023 under IFRS 9:

 

£m

 

2023


2022


Gross

carrying

amount

Specific provision for doubtful debts

Loss

allowance

Net

carrying

amount

Gross

carrying

amount

Gross

carrying

amount

Loss allowance

Net

carrying

amount

Current (not overdue)

67.8

-

(0.1)

67.7

63.0

-

(0.1)

62.9

30-60 days overdue

-

-

-

-

0.2

-

-

0.2

61-90 days overdue

-

-

-

-

2.0

(1.4)

-

0.6

91-120 days overdue

0.2

-

-

0.2

3.8

(3.0)

-

0.8

Over 120 days overdue

5.5

(4.4)

-

1.1

-

-

-

-


73.5

(4.4)

(0.1)

69.0

69.0

(4.4)

(0.1)

64.5

 

 

The following table provides information about the Group's loss rates applied against customer balances as at 26 August 2023 under IFRS 9:

 

%

2023

2022

Current (not overdue)

<0.1

0.1

30-60 days overdue

<0.1

-

61-90 days overdue

<0.1

1.2

91-120 days overdue

<0.1

0.1

Over 120 days overdue

80.0

0.1

 

Of the trade receivables balance at the end of the year:

 

·    Three customers (2022: two) had individual balances that represented more than 10% of the total trade receivables balance. The total of these was £30.3m (2022: £16.9m); and

 

·    A further two customers (2022: three) had individual balances that represented more than 5% of the total trade receivables balance. The total of these was £9.0m (2022: £15.6m).

 

Movement in the allowance for doubtful debts:

 

£m

2023

2022

At 28/29 August

4.5

0.1

Impairment losses recognised

0.1

4.4

Amounts written off as uncollectible

(0.1)

-

At 26/27 August

4.5

4.5

 

The directors consider that the carrying amount of trade and other receivables approximates their fair value which is considered to be a level 2 methodology of valuing them. The inputs used to measure fair value are categorised into different levels of the fair value hierarchy (levels 1 to 3).  The fair value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement.

 

Default occurs when the debt becomes overdue by 90 days.

 

The Group performed sensitivity analysis on the expected credit loss (excluding losses in respect of McColl's Retail Group) and should the default rate change from expected.

 

·    An increase in default rate by 2% would increase the expected credit loss by £1.3m.

·    A decrease in default rate by 2% would result in no credit losses.

·    An increase in default rate by 5% would increase the expected credit loss by £3.3m.

·    A decrease in default rate would result in no credit losses.

 

Other debtors and prepayments

 

The largest items included within this balance are returns reserve asset of £16.8m (2022: £18.3m) (refer to Note 1, section 7) and £9.8m (2022: £7.9m) of publisher debtors. 

 

 

16. Trade and other payables

 

£m

2023

2022

Trade payables

(101.0)

(98.6)

Other creditors

(34.0)

(35.1)

Accruals

(6.4)

(6.5)

Deferred income

(0.1)

(0.1)

 

(141.5)

(140.3)

 

Included within other creditors is a balance of £19.7m (2022: £21.6m) relating to the returns reserve accrual. (Refer to Note 1, section 7).

 

Trade and other payables principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 32 days (2022: 31 days). No interest is charged on trade payables. The directors consider that the carrying amount of trade and other payables approximates to their fair value using a level 2 valuation.

 

 

17. Cash and borrowings

 

Cash and borrowings by currency (Sterling equivalent) are as follows:

 

£m

Sterling

Euro

US Dollar

Other

Total 2023

2022

Cash and bank deposits

36.2

0.7

0.3

0.1

37.3

35.3

Net Cash and cash equivalents

36.2

0.7

0.3

0.1

37.3

35.3

Term loan - disclosed within current liabilities

(10.0)

-

-

-

(10.0)

(8.0)

Term loan - disclosed within non-current liabilities

(31.5)

-

-

-

(31.5)

(41.5)

Unamortised arrangement fees - disclosed within non-current liabilities

1.3

-

-

-

1.3

2.4

Total borrowings

(40.2)

-

-

-

(40.2)

(47.1)

Net borrowings

(4.0)

0.7

0.3

0.1

(2.9)

(11.8)





 


Total borrowings





 


Amount due for settlement within 12 months

(10.0)

-

-

-

(10.0)

(8.0)

Amount due for settlement after 12 months

(30.2)

-

-

-

(30.2)

(39.1)


(40.2)

-

-

-

(40.2)

(47.1)

 

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

 

In December 2021, an agreement was signed to extend and amend the existing financing arrangements. The original facility, which was due to expire in November 2023, has been extended to a final maturity date of 31 August 2025. The facility comprised an initial £60 million amortising term loan ('Facility A') and a £30 million revolving credit facility ('RCF'). The agreement is with a syndicate of banks comprising lenders HSBC, Barclays, Santander and Clydesdale Bank.

 

The terms of the facility agreement include; agreed repayments against Facility A arising from funds received in relation to deferred consideration received following the sale of Tuffnells; repayments of £8m in FY2023 and then £10m in FY2024 and FY2025 respectively for the repayment of Facility A and a final bullet payment; and capped dividend payments of up to £10m in respect of any financial year.

 

At the year end, the Term Loan had reduced to £41.5m. The RCF was £22.5m at year end and will reduce by £2.5m every 6 months from February 2023 onwards. As part of the terms of the financing, the Company and its principal trading subsidiaries have agreed to provide security over their assets to the lenders. The current rate on the facility is 4% per annum over SONIA (in respect of Facility A and the RCF).

 

At 26 August 2023, the Company had £22.5m (2022: £30.0m) of fully undrawn committed borrowing and cash facilities in respect of which all conditions precedent had been met. This is partially reduced by letters of credit of £1.5m (2022: £2.4m), further details are included in Note 22.

 

Reconciliation of liabilities arising from financing activities

 

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

 

£m

Note

28 August 2022

Financing cash flows

New leases

Disposals

Other changes

26 August

2023

Term Loan

18

47.1

(11.9)

-

-

5.0

40.2

Leases


27.6

(7.5)

1.7

-

1.4

23.2

Total

 

74.7

(19.4)

1.7

-

6.4

63.4

 

 

£m

Note

29 August

2021

Financing cash flows

New leases

Disposals

Other changes

27 August

2022

Term Loan

18

71.3

(29.4)

-

-

5.2

47.1

Overdrafts

18

0.4

(0.4)

-

-

-

-

Leases


29.2

(8.0)

5.4

(0.6)

1.6

27.6

Total

 

100.9

(37.8)

5.4

(0.6)

6.8

74.7

 

Other changes include interest accruals and the amortisation of loan fees.

 

Analysis of net debt

 

£m

Note

2023

2022

Cash and cash equivalents

18

37.3

35.3

Current borrowings

18

(10.0)

(8.0)

Non-current borrowings

18

(30.2)

(39.1)

Net borrowings

 

(2.9)

(11.8)

Lease liabilities

20

(23.2)

(27.6)

Net debt


(26.1)

(39.4)

 

 

18. Financial instruments

 

Treasury policy

 

The Group operates a centralised treasury function to manage the Group's funding requirements and financial risks in line with the Board approved treasury policies and procedures and their delegated authorities. Treasury's role is to ensure that appropriate financing is available for running the businesses of the Group on a day-to-day basis, whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.

 

Capital risk management

 

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings, cash and cash equivalents as disclosed in Note 17 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Group Statement of Changes in Equity.

 

The only externally imposed capital requirements for the Group are net debt to EBITDA (ex. IFRS 16), fixed charge cover and interest cover under the terms of the banking facilities. The Group has fully complied during both the current year and the prior year. To maintain or adjust its capital structure, the Group may adjust the dividend payment to shareholders and/or issue new shares. There is a cap on dividends of £10.0m under the banking facility, this is also subject to all the covenants.

 

The Board regularly reviews the capital structure. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. We expect free cash from operations to be sufficient to reduce net debt while also maintaining an attractive total shareholder return. The Group is targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by 2023, with repayment achieved through surplus free cash from operations. The Group's facilities include a 'frozen GAAP' clause in relation to IAS 17 and the net debt/EBITDA is stated on this basis.

 

Liquidity risk

 

The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows. The facilities that the Group has at its disposal to further reduced liquidity risk are described below.

 

As at 26 August 2023, the Group had £64.0m committed bank facilities in place (2022: £79.5m). Bank facilities comprised:

 

·           £41.5m amortising term loan (Facility A); and 

·           £22.5m revolving credit facility (RCF)

 

which together expire on 31 August 2025.

 

The facility described above is subject to the following covenants which are subject to a 'frozen GAAP' clause:

 

·    Leverage cover - the net debt: adjusted EBITDA ratio which must remain below 1.75x, reducing to 1.5x at 24 February 2024. At 26 August 2023 the ratio was 0.1x (2022: 0.3x);

·    Interest cover - the consolidated net interest: adjusted EBITDA ratio which must remain above 4.0x. As at 26 August 2023 the ratio was 10.5x (2022: 12.0x);

·    Fixed charge cover - the ratio of adjusted EBITDA (less rental charges) to consolidated fixed charges is not less than 2.0x. As at 26 August 2023 the ratio was 4.0x (2022: 4.3x); and

·    Guarantor cover - The annual turnover, gross assets and pre-tax profits of the guarantors under the banking facilities contribute, at any time, 90% or more of the annual consolidated turnover, gross assets and pre-tax profits of the Group for each of its financial years. The guarantors, which are all 100% owned or wholly owned subsidiaries of the Smiths News plc, comprise Smiths News plc, Smiths News Holdings Limited, and Smiths News Trading Limited.

 

At 26 August 2023, the Group had available £21.0m (2022: £27.7m) of undrawn committed borrowing facilities comprising the £22.5m (2022: £30.0m) RCF above less letters of credit of £1.5m (2022: £2.4m) further details are included in Note 22. There were no breaches of loan agreements during either the current or prior years.

 

As the Group is cash generative its liquidity risk is considered low. The Group's cash generation allows it to meet all loan commitments as they fall due as well as sustain a negative working capital position.

 

The Group invests significant resources in the forecasting and management of its cash flows. This is critical given a routine cash cycle at Smiths News that results in significant predictable swings within each month of around £40.0m, the Group's average gross borrowings for the past year was £45.4m (2022: £62.3m). The Group has available funding via the undrawn RCF.

 

The following is an analysis of the undiscounted contractual cash flows payable under non derivative financial liabilities. The undiscounted cash flows will differ from both the carrying value and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date.

 

£m

Due within 1 Year

Due between 1 and 2 years

Due between 2 and 3 years

Greater than 3 years

At 26 August 2023





Bank and other borrowings

(10.0)

(10.0)

(21.5)

-

Trade and other payables

(141.5)

-

-

-

Leases

(6.1)

(5.1)

(4.4)

(12.0)

Total

(157.6)

(15.1)

(25.9)

(12.0)

At 27 August 2022





Bank and other borrowings

(8.0)

(10.0)

(10.0)

(21.5)

Trade and other payables

(140.3)

-

-

-

Leases

(7.3)

(5.8)

(4.8)

(14.5)

Total

(155.6)

(15.8)

(14.8)

(36.0)

 

Counterparty risk

 

Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored.

 

Foreign currency risk

 

·    The majority of the Group's transactions are carried out in the functional currencies of its operations, and so transactional exposure is limited.

·    The majority of the Group's net liabilities are held in Sterling, with only £0.6m (2022: £0.6m) of net assets held in overseas currencies. Translation exposure arises on the re-translation of overseas subsidiaries profits and net assets into sterling for financial reporting purposes and is not seen as significant.

·    Note 17 denotes borrowings by currency.

·    There are no material currency exposures to disclose.

 

Interest rate risk

 

The Group monitors its exposure to interest rate in light of the Group's debt exposure, consideration of the macroeconomic environment and sensitivity to potential interest rate rises. The Group avoids the use of derivatives or other financial instruments in circumstances when the outcome would effectively be largely dependent upon speculation on future rate movements.

 

Interest rate sensitivity analysis

 

Based on the assumption that the liabilities outstanding at the balance sheet date were outstanding for the whole year, if interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit and equity for the 52 weeks ending 26 August 2023 would decrease/increase by £0.2m (2022: £0.2m).

 

Credit risk

 

The Group considers its exposure to credit risk at 26 August 2023 to be as follows:

 

£m

2023

2022

Bank deposits

37.3

35.3

Trade and other receivables

98.4

93.1


135.7

128.4

 

Further detail on the Group's policy relating to trade receivables and other receivables can be found in Note 15.

 

 

19. Leases

 

Amounts recognised in the Right-of-use assets

 

The balance sheet shows the following amounts relating to leases:

£m

Equipment & vehicles

Land & buildings

Total

Cost:

 

 

 

At 28 August 2022

1.7

42.1

43.8

Additions

0.3

1.4

1.7

Disposals

-

(5.1)

(5.1)

At 26 August 2023

2.0

38.4

40.4

Accumulated depreciation:

 

 

 

At 28 August 2022

(1.0)

(16.5)

(17.5)

Depreciation charge

(0.4)

(6.0)

(6.4)

Disposals

-

5.3

5.3

At 26 August 2023

(1.4)

(17.2)

(18.6)

Net book value at 26 August 2023

0.6

21.2

21.8

Cost:

 

 

 

At 29 August 2021

1.6

38.6

40.2

Additions

0.1

5.3

5.4

Disposals

-

(1.8)

(1.8)

At 27 August 2022

1.7

42.1

43.8

Accumulated depreciation:

 

 

 

At 29 August 2021

(0.6)

(11.2)

(11.8)

Depreciation charge

(0.4)

(6.5)

(6.9)

Disposals

-

1.2

1.2

At 27 August 2022

(1.0)

(16.5)

(17.5)

Net book value at 27 August 2022

0.7

25.6

26.3

 

Lease commitments

 

The company have the following lease commitments:

 

 

2023

2022

Due within one year

4.9

5.9

Due in more than one year, but no more than five years

13.3

15.2

Due in more than five years

5.0

6.5

Total lease commitments

23.2

27.6

 

Amounts recognised in the income statement

 

£m


2023

2022

Interest expense (included in finance cost)

 

1.4

1.6

Expense relating to low value leases (included in cost of sales and administrative expenses)

 

0.4

0.3

Property rental income

 

(0.4)

(0.4)

Total cash outflow from leases

 

6.5

6.6

 

£m

2023

2022

Lease Liabilities



Current

(4.9)

(5.9)

Non-current

(18.3)

(21.7)

Total

(23.2)

(27.6)

 

 

20. Deferred tax

 

Deferred tax assets are attributable to the following:

 

£m

Fixed Assets

Share based payments

Other temporary differences

Total

At 28 August 2022

0.6

0.5

-

1.1

(Charge)/credit to income

(0.2)

(0.1)

0.3

-

Charge to equity

-

0.6

-

0.6

At 26 August 2023

0.4

1.0

0.3

1.7

 

 

 

 

 

Deferred tax assets

0.4

1.0

0.3

1.7






At 29 August 2021

1.4

0.4

-

1.8

(Charge)/credit to income

(0.8)

0.3

-

(0.5)

Charge to equity

-

(0.2)

-

(0.2)

At 27 August 2022

0.6

0.5

-

1.1

 

 

 

 

 

Deferred tax assets

0.6

0.5

-

1.1

 

The deferred tax assets have been deemed recoverable as the Group forecasts that it will continue to make profits against which the assets can be utilised for tax purposes. There were no deferred tax liabilities recognised in either reporting period.

 

The Group has capital losses carried forward of £20.2m (2022: £20.2m). Deferred tax assets of £5.1m (2022: £5.1m) have not been recognised in respect of the capital losses carried forward due to the uncertainty of their utilisation.

 

The UK Finance Act 2021 has been substantively enacted, increasing the corporate tax rate to 25% effective from 1 April 2023.    

 

The deferred tax asset at the period end has been calculated based on the rate of 25% substantively enacted at the balance sheet date on the basis that the temporary differences are expected to unwind when that rate applies.

 

 

21. Provisions

 

£m

Provision for onerous contracts and other provisions

Re-organisation provisions

Insurance and legal provisions

Property provisions

Total

At 28 August 2022

(0.5)

(0.9)

(0.6)

(4.4)

(6.4)

Charged to income statement

-

(0.7)

(0.4)

(0.4)

(1.5)

Credited to income statement

0.4

0.3

-

-

0.7

Utilised in period

0.1

0.3

0.2

-

0.6

Unwinding of discount utilisation

-

-

-

(0.1)

(0.1)

At 26 August 2023

-

(1.0)

(0.8)

(4.9)

(6.7)


 

 

 

 

 

At 29 August 2021

(0.7)

(0.8)

(1.3)

(3.8)

(6.6)

Charged to income statement

-

(0.1)

-

(1.0)

(1.1)

Credited to income statement

0.2

-

0.2

-

0.4

Utilised in period

-

-

0.5

0.6

1.1

Unwinding of discount utilisation

-

-

-

(0.2)

(0.2)

At 27 August 2022

(0.5)

(0.9)

(0.6)

(4.4)

(6.4)


 

 

 

 

 

£m




2023

2022

Included within current liabilities




(2.5)

(3.0)

Included within non-current liabilities




(4.2)

(3.4)

Total


 


(6.7)

(6.4)

 

Included within non-current liabilities is £4.2m (2022: £3.4m) relating to real estate property provisions.

 

Re-organisation provisions of £1.0m (2022: £0.9m) relates to the restructure of the DMD business, the Smiths News network and the Group's support functions, with new programmes announced during the period.

 

Insurance and legal provisions represent the expected future costs of employer's liability, public liability, motor accident claims and legal claims, included within the total balance is £0.8m (2022: £0.6m) relating to claims from the Tuffnells business prior to disposal.

 

The property provision represents the estimated future cost of dilapidation costs across the Group. These provisions have been discounted to present value and this discount will be unwound over the life of the leases. The provisions cover the period to 2034, however, a significant portion of the liability falls within ten years.

 

The Group has performed sensitivity analysis on property provision using possible scenarios below:

 

If the discount rate changes by +/- 0.5%, the property provision would change by +/- £0.1m (2022: +/- £0.1m).

 

If the repair cost per square foot changes by +/-£1.00p, the property provision would change by +/-£0.4m (2022: +/- £0.3m).

 

 

22. Contingent liabilities and capital commitments

 

£m

2023

2022

Bank and other guarantees

1.5

2.4

 

As reported in Note 4(b), following the administration of Tuffnells Parcels Express Limited (Tuffnells) in June 2023 a provision of £0.4m has been made in light of the probable outcome of certain insurance claims reverting to the Group which were previously being handled by Tuffnells. The Board has considered the administration and other associated processes in respect of Tuffnells and is not currently aware of any further provision which may be required.

 

Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC in 2006, any such contingent liability in respect of assignment prior to demerger, which becomes an actual liability, will be apportioned between Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that the actual liability of Smiths News plc in any 12-month period does not exceed £5m). The Company's share of these leases has an estimated future cumulative gross rental commitment at 26 August 2023 of £0.5m (2022: £0.5m).

 

Contracts placed for future capital expenditure approved by the directors but not provided for amount to: £nil (2022: £nil).

 

As at 26 August 2023, the Group had approved letters of credit of £1.5m (2022: £2.4m) to the insurers of the Group for the motor insurance and employer liability insurance policies. The letters of credit cover the employer deductible element of the insurance policy for insurance claims.

 

On winding up of the News Section of the WH Smith Pension Trust defined benefit pension scheme in December 2021, the Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at £6.5m over the following 60 years. The Group is not aware of any claims brought during either the current or prior reporting period.

 

 

23. Operating lease

 

The Group as lessor:

 

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

 

£m

2023

2022

Within one year

0.2

0.2

In the second to fifth years inclusive

0.6

0.3

 

0.8

0.5

 

 

24. Net cash inflow from operating activities

 

£m

Note

2023

 

2022

 

Operating profit

3

38.3

32.4

Impairment reversal of investment in joint venture

13

-

(1.2)

Share of profits of joint ventures

13

(0.1)

(0.3)

Adjustment for pension funding

6

-

8.1

Depreciation of property, plant and equipment

12

2.2

2.3

Depreciation of right of use assets

19

6.4

6.9

Amortisation of intangible assets

11

0.6

1.3

Share based payments


1.1

1.2

Increase in inventories


(2.1)

(2.4)

(Increase)/decrease in receivables


(5.5)

1.7

Increase in payables


1.9

3.9

Increase/(decrease) in provisions


0.2

(0.4)

Non-cash pension costs


-

1.6

Income tax paid


(6.6)

(5.3)

Net cash inflow from operating activities

 

36.4

49.8





Net cash flow from operating activities is stated after the following adjusting items:

4



Continuing operations




Aborted acquisition costs


(0.6)

-

Tuffnells provision


(0.2)

-

Network and re-organisation and transformation programme planning costs


(0.2)

(1.3)

Pension


-

(0.2)

Return of pension surplus


-

8.1



(1.0)

6.6

Discontinued operations(1)


 


Insurance cost


-

(0.5)



-

(0.5)

Total adjusting items cash flow


(1.0)

6.1


(1) On 2 May 2020, the Company completed the sale of Tuffnells and assumed liability to settle certain pre-disposal insurance and legal claims relating to employer's liability, public liability, motor accident claims and legal claims, held as provisions. During the current period, cash flows of £0.2m are presented within continuing operations.

 

 

25. Share Capital

 

(a)           Share capital

 

£m

2023

2022

Issued, authorised and fully paid:



247.7m ordinary shares of 5p each (2022: 247.7m)

12.4

12.4

 

(b)           Movement in share capital

 

Number (m)

 

Ordinary shares of 5p each

At 27 August 2022 and at 26 August 2023


247.7

 

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general meetings of the Company. The Company has one class of Ordinary shares, which carry no right to fixed income.

 

No shares were issued during the 52 weeks to 26 August 2023 or the period to 27 August 2022.

 

(c)            Share premium

 

£m

2023

2022

At 27 August 2022 and at 26 August 2023

60.5

60.5

 

 

26. Reserves

 

(a)           Demerger reserve

 

£m

2023

2022

At 27 August 2022 and at 26 August 2023

(280.1)

(280.1)

 

This relates to reserves created following the capital re-organisation undertaken as part of the demerger of WH Smith PLC in 2006. The balance represented the difference between the share capital and reserves of the Group restated on a pro-forma basis as at 31 August 2004 and the previously reported share capital.

 

(b)           Own shares reserve

 

£m

2023

2022

Balance at 28/29 August

(4.6)

(3.9)

Acquired in the period

(1.7)

(2.2)

Disposed of on exercise of options

1.9

1.5

Balance at 26/27 August

(4.4)

(4.6)

 

The reserve represents the cost of shares in Smiths News plc purchased in the market and held by the Smiths News Employee Benefit Trust to satisfy awards and options granted under the Group's Executive Share Schemes (see Note 28). The number of ordinary shares held by the Trust as at 26 August 2023 was 10,613,896 (2022: 12,084,239). In accordance with IAS 32, these shares are deducted from shareholders' funds. Under the terms of the Trust, the Trustee has waived all dividends on the shares it holds.

 

(c)            Translation reserve

 

£m

2023

2022

At 27 August 2022 and at 26 August 2023

0.4

0.4

 

 

27. Retained Earnings

 

 

 

£m

Balance at 28 August 2021

 

153.0

Amounts recognised in total comprehensive expense


33.1

Dividends paid


(6.1)

Disposed of on exercise of options


(1.5)

Equity-settled share-based payments, net of tax


1.2

Current tax recognised in equity


(0.1)

Deferred tax recognised in equity


(0.2)

Balance at 27 August 2022

 

179.4

Amounts recognised in total comprehensive expense


25.1

Dividends paid


(9.8)

Disposed of on exercise of options


(1.9)

Equity-settled share-based payments, net of tax


1.5

Deferred tax recognised in equity


0.6

Balance at 26 August 2023

 

194.9

 

 

28. Share-based payments

 

The Group recognised a total charge of £1.5m (2022: £1.2m) related to equity-settled share-based payment transactions. The average share price throughout the year was 44.6p (2022: 35.6p).

 

The Group operates the following share incentive schemes:

 

Sharesave Scheme

Under the terms of the Group Sharesave Scheme, the Board may grant options to purchase ordinary shares in the Company to eligible employees who enter into an HM Revenue & Customs approved Save-As-You-Earn ('SAYE') savings contract for a term of three years. Options are granted at up to a 20% discount to the market price of the shares on the day preceding the date of offer and are normally exercisable for a period of six months after completion of the SAYE contract.

Executive Share Option Scheme (ESOS)

Under the terms of the Group 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 10th anniversary of the date of grant.

LTIP

Under the terms of the Group LTIP, executive directors and key senior executives may be awarded each year conditional entitlements to ordinary shares in the Company (which may be in the form of nil cost options or conditional awards) or, in order to retain flexibility and at the Company's discretion, a cash sum linked to the value of a notional award of shares up to a value of 200% of base salary. The vesting of awards is subject to the satisfaction of a three-year performance condition, which is determined by the Remuneration Committee at the time of grant. Subject to the satisfaction of the performance condition, awards are normally exercisable until the 10th anniversary of the date of grant.

Deferred Bonus Plan (DBP)

Under the terms of the Group Deferred Bonus Plan, each year executive directors and key senior executives may be granted share awards (in the form of nil cost options) dependent on the achievement of the Annual Bonus Plan performance targets. Awards are immediately exercisable but a two-year hold-back period applies, during which the share certificate for such shares is held by the Company. Separately, key senior executives may also be granted share awards (in the form of nil cost options) under the DBP plan in respect of a (discounted) restricted share award (dependent on continued employment with the Company).

 

Details of the options/awards are as follows:

 

 

Sharesave

ESOS

LTIP

DBP

Number of options/ awards

No of shares

Weighted average exercise price (p)

No of shares

Weighted average exercise price (p)

No of shares

Weighted average exercise price (p)

No of shares

Weighted average exercise price (p)

At 28 Aug 2021

8,387,637

28.92

1,723,212

126.7

13,928,102

-

2,025,544

-

Granted

900,405

34.70

-

-

4,043,731

-

1,807,242

-

Exercised

(92,308)


-

-

(1,113,915)

-

(2,333,638)

-

Expired /Forfeited*

(1,616,651)

35.80

(666,468)

137.8

(5,964,046)

-

-

-

At 27 Aug 2022*

7,579,083

25.27

1,056,744

126.1

10,893,872

-

1,499,148

-

Granted

1,316,234

55.40

-

-

2,695,499


1,337,604


Exercised

(264,430)

-

-

-

(2,791,373)


(1,614,771)


Expired /Forfeited

(670,274)

30.01

(256,294)

137.8

(1,429,910)


-


At 26 Aug 2023

7,960,613


800,450


9,368,088


1,221,981











Exercisable at 26 Aug 2023

-

-

125.3

-

-

-

-

Exercisable at 27 Aug 2022

-

-

126.1

-

-

-

-

 

*During the current period, the opening number of options for the LTIP schemes were restated to amend disclosure errors made in the prior period.

 

The weighted average remaining contractual life in years of options/awards is as follows:

 


Sharesave

ESOS

LTIP

DBP

Outstanding at 26 August 2023

1.4

5.2

1.2

1.5

Outstanding at 27 August 2022

1.9

5.2

1.2

1.5

 

 

Details of the options/awards granted or commencing during the current and comparative year are as follows:

 

 

Sharesave

ESOS

LTIP

DBP

During 2023:





Effective date of grant or commencement date

Jul 2023

-

Jan 2023

Jan 2023

Average fair value at date of grant or scheme commencement - pence

21.5

-

34.9

50.6

During 2022:





Effective date of grant or commencement date

Jul 2022

-

Dec 2021

Dec 2020

Average fair value at date of grant or scheme commencement - pence

4.3

-

26.0

38.0

 

The options outstanding at 26 August 2023 had exercise prices ranging from nil to 139.5p (2022: nil to 167.8p).

 

The weighted average share price on the date of exercise was 48p (2022: 37p).

 

The Sharesave options granted during each period have been valued using the Black-Scholes model, the LTIP performance measures include 70% total shareholder return (TSR) metric this is valued by reference to the share price at date of grant less an adjustment for the TSR portion of the award. The DBP schemes are valued by reference to the share price at the date of grant.

 

The inputs to the Black-Scholes model are as follows:

 

 

Sharesave

LTIP

DBP

2023 options/awards:




Share price at grant date - pence

55.4

51

51

TSR adjustment - pence

-

(23)

-

Exercise price - pence

44.3

-

-

Expected volatility - per cent

121.5

-

-

Expected life - years

3

-

-

Risk free rate - per cent

4.7

-

-

Expected dividend yield - per cent

8.83

-

-

Weighted average fair value - pence

22

28

51





2022 options/awards:




Share price at grant date - pence

34.7

38

38

TSR adjustment - pence

-

(17)

-

Exercise price - pence

32.0

-

-

Expected volatility - per cent

40.3

-

-

Expected life - years

3

-

-

Risk free rate - per cent

1.7

-

-

Expected dividend yield - per cent

8.37

-

-

Weighted average fair value - pence

4.3

21

38

 

 

29. Post balance sheet events

 

The directors have considered the period between the balance sheet date and the date when the accounts are authorised for issue for evidence of conditions that existed at the balance sheet date, either adjusting or non-adjusting post balance sheet events and have concluded that there are no such events in the current period. 

 

 

30. Related party transactions  

 

Transactions between businesses within the Group which are related parties have been eliminated on consolidation and are not disclosed in this note.

 

Transactions with the Group's pension schemes are disclosed in Note 6.

 

Trading transactions

 

 

Sales to related parties

Amounts owed by related parties

£m

2023

2022

2023

2022

Joint ventures

0.4

0.4

-

0.1

 

Sales to related parties are for management fees, payment is due on the last day of the month following the date of invoice.

 

Non-trading transactions

 

 

 

Loans to related parties

£m

 

 

2023

2022

Joint ventures



0.3

0.1

 

In the prior period, £0.1m of the balances above were secured against the assets of Fresh on the Go Limited.

 

Tuffnells Deferred Consideration

On 2 November 2021, the Group received £6.5m (the first tranche) of the total amount of unsecured consideration due of £15m. Following receipt of this payment, the Board agreed revised terms with Tuffnells Holdings Limited (formerly Palm Bidco Limited) regarding the outstanding deferred consideration payable, such that it would accept £7.5m in full and final settlement of the outstanding amount due, were it received on or before 2 August 2022. This amount was received in full during the prior period. The Chairman of Tuffnells Holdings Limited was also a non-executive director of Smiths News plc and recused himself from all discussions relating to this matter.

 

Directors' remuneration                       

 

£m

2023

2022

Salaries

0.8

0.9

Bonus

0.5

0.6

Non-executive director fees

0.4

0.3

 

1.7

1.8

 

Information concerning directors' remuneration, interest in shares and share options are included in the Directors' Remuneration report in the Annual Report.

 

There are 2 (2022: 2) directors to whom retirement benefits are accruing in respect of qualifying services under money purchase schemes.

 

Directors made gains on share options of £nil (2022: £nil).

 

Key management personnel (including directors)             

 

The remuneration of the directors and the Executive Team, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.

 

£m

2023

2022

Short-term employee benefits

2.9

2.8

Share based payments

1.0

1.1

 

3.9

3.9

 

 

31. Subsidiary and associated undertakings

 

The below table summarises interests of the Group as at 26 August 2023:

 

Company name/

(number)

Share Class

Group %

Company name/

(number)

Share Class

Group %

United Kingdom

Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH

 

Connect Limited

02008952

Ordinary Shares

100%

Martin Lavell Limited

02654521 (*)

Ordinary Shares

100%

Connect Logistics Limited

09172965

Ordinary Shares

100%

Pass My Parcel Limited

09172022

Ordinary Shares

100%

Connect News & Media Limited

08572634

Ordinary Shares

100%

Phantom Media Limited

03805661 (*)

Ordinary Shares

100%

Connect Parcel Freight Limited

09295023

Ordinary Shares

100%

Smiths News Holdings Limited

04236079

Ordinary Shares

100%

Connect Parcels Limited

09172850

Ordinary Shares

100%

Smiths News Instore Limited

03364589

Ordinary Shares

 

100%

Connect Services Limited

08522170

Ordinary Shares

100%

Smiths News Investments Limited (*)

06831284

Ordinary Shares

100%

Connect Specialist Distribution Group Limited

08458801

Ordinary Shares

100%

Smiths News Distribution Limited

08506961

Ordinary Shares

100%

Connect2U Limited

03920619

Ordinary Shares

100%

Smiths News Trading Limited

00237811

Ordinary Shares

100%

Dawson Media Services Limited 06882722

Ordinary Shares

100%

Dawson Limited

03433262

Ordinary Shares

100%

Dawson Guarantee Company Limited 06882393

Ordinary Shares

100%

Dawson Media Direct Limited (*) 06882366

Ordinary Shares

100%

Dawson Holdings Ltd (*)

00034273

Ordinary Shares

100%




Germany

Dawson Media Direct GmbH

HRB 96649

Ordinary Shares

100%

Johannstr. 39 40476 Dusseldorf, Germany

Turkey

Dawson Media Direct Anonim Sirketi

14449

Ordinary Shares

100%

Park Plaza, No:14/24 Resitpasa Mahallesi Istanbul Turkey

Australia

Dawson Media Direct Australia Pty Limited

615545545

Ordinary Shares

100%

C/O Grant Thornton Australia Level 17, 383 Kent Street, Sydney NSW 2000, Australia

Hong Kong

Dawson Media Direct China Limited

1167911

Ordinary Shares

100%

Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong

Thailand

Dawson Media Direct Company Limited

105558138385

Ordinary Shares

48.9%

87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road, Lumpini Sub-District, Pathumwan District, Bangkok, Thailand

 

* Audit exemption statement

 

For the 52 weeks ended 26 August 2023, the companies as indicated in the table by '(*)' above were entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. As such, Smiths News plc (formerly Connect Group PLC) has provided a guarantee against all debts and liabilities in these subsidiaries as at 26 August 2023. The members of these companies have not required them to obtain an audit of their financial statements for the 52 weeks ended 26 August 2023.

 

 

Glossary - Alternative performance measures

 

Introduction

 

In the reporting of financial information, the directors have adopted various alternative performance measures (APMs).

 

These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.

 

APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

 

Purpose

 

The directors believe that these APMs assist in providing additional useful measures of the Group's performance. They provide readers with additional information on the performance of the business across periods which is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team.  

 

Consequently, APMs are used by the directors and management for performance analysis, planning, reporting and incentive-setting purposes.

 

The key APMs that the Group has focused on and changes to APMs within the period can be found in Note 1.

 

APM

 

Closest equivalent

IFRS measure

 

Adjustments to reconcile

to IFRS measure

 

Note/page reference for

reconciliation

 

Definition and purpose

Income Statement

Adjusting Items

No direct equivalent

N/A

Note 4

Adjusting items of income or expenses are excluded in arriving at Adjusted operating profit to present a further measure of the Group's performance. Each of these items is considered to be significant in nature and/or quantum, non-recurring in nature and /or are considered to be unrelated to the Group's ordinary activities or are consistent with items treated as adjusting in prior periods. Excluding these items from profit metrics provides readers with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is planned by, and reported to, the Board and the Executive Team.

Adjusted operating profit

Operating profit*

Adjusting items

Income statement/

Note 4

Adjusted operating profit is defined as operating profit from continuing operations, excluding the impact of adjusting items (defined above). This is the headline measure of the Group's performance and is a key management incentive metric.

Adjusted profit before tax

Profit before tax (PBT)

Adjusting items

Income statement/

Note 4

Adjusted profit before tax is defined as profit before tax from continuing operations, excluding the impact of adjusting items (defined above).

Adjusted profit after tax

Profit after tax (PAT)

Adjusting items

Income statement/

Note 4

Adjusted profit after tax is defined as profit after tax from continuing operations, excluding the impact of adjusting items (defined above).

Adjusted

EBITDA

Operating profit*

Depreciation and amortisation

Adjusting items

Note 3

This measure is based on business unit operating profit from

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 per share

Earnings per share

Adjusting items

Note 10

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.

 

Cash flow Statement

Free cash flow

Net movement in cash and cash equivalents

Dividends,

acquisitions and disposals,

Repayment of bank loans,

EBT share purchases,

Pension deficit repair payments

See Free Cash Flow in Financial Review section

Free cash flow is defined as cash flow excluding the following: payment of the dividend, acquisitions and disposals, the repayment of bank loan principal amounts, EBT share purchases and cash flows relating to pension deficit repair. This measure reflects the cash available to shareholders.

Free cash flow (excluding adjusting items)

Net movement in cash and cash equivalents

Dividends,

acquisitions and disposals,

Repayment of bank loans,

EBT share purchases,

Pension deficit repair payments

Adjusting items

See Free Cash Flow in Financial Review section

Free cash flow (excluding Adjusting items) is Free cash flow adding back Adjusting cash costs.

Balance Sheet

Bank Net Debt

Borrowings less cash


Cash flow statement

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 as defined by IAS 17.

Net debt

Borrowings less cash


Cash flow statement

Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under leases.

* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

 

 

Reconciliation of Free cash flow to net movement in cash and cash equivalents

 

A reconciliation between free cash flow and the net increase in cash and cash equivalents are shown below:

 

£m

2023

2022

Net increase in cash and cash equivalents

2.0

16.0

Decrease in borrowings and overdrafts

8.0

23.0

Movement in borrowings and cash

10.0

39.0

Dividend paid

9.8

6.1

Investment in joint venture

0.3

-

Outflow for EBT shares

1.7

2.6

Continuing free cash flow

21.8

47.7

Discontinued free cash flow

-

0.5

Total free cash flow

21.8

48.2

 

 

Reconciliation of Bank net debt to reporting net debt

 

£m

2023

2022

Bank net debt

(4.2)

(14.2)

Unamortised arrangement fees (Note 18)

1.3

2.4

IFRS 16 lease liabilities (Note 19)

(23.2)

(27.6)

Net debt (Note 17)

(26.1)

(39.4)

 

 

Ends.

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