Annual Report 2009 & Associat
Smiths News PLC
Annual Report 2009 and Associated Documents
Smiths News PLC has submitted two copies of the following documents to the UK Listing Authority:
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Annual Report and Financial Statements 2009
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Notice of Annual General Meeting on 15 January 2010
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Proxy Form
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Highlights 2009
These documents will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:
The Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Telephone number: 020 7066 1000
The Annual Report and Financial Statements 2009 and the Notice of Annual General Meeting are also available to view at www.smithsnews.co.uk
In compliance with DTR 6.3.5, the following information is extracted from the Annual Report and Financial Statements 2009 and should be read in conjunction with the Company's
preliminary results announcement issued on 22 October 2009, both of which can be found at www.smithsnews.co.uk. Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the Annual Report and Financial Statements 2009 in full.
Responsibility Statement
The following responsibility statement is extracted from the Directors' Responsibilities Statement on page 64 of the Annual Report 2009 and is repeated here solely for the purpose of complying with DTR 6.3.5. Responsibility is for the full Annual Report not the extracted information presented in this announcement or the preliminary results announcement.
We confirm that to the best of our knowledge:
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the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
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the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Risks and Uncertainties
The following description of the principal risks and uncertainties is extracted from pages 19 to 21 of the Annual Report 2009 and is provided in unedited full text in accordance with DTR 6.3.5.
Risks and Uncertainties
The Group operates in large and generally stable markets. Our revenues are relatively predictable and, with strong cost control, we can mitigate the risks to the achievement of targeted profits. We have robust internal procedures to monitor costs and revenues: the Risk Committee reviews the principal strategic and financial risks on a regular basis and the Audit Committee reviews the risk process - the findings are reviewed by the Board twice each year.
Our assessment of the principal risks is listed below.
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Integration of new contract gains
The integration of the new depots following the contract gains encompasses a wide range of operational and technical issues, in particular the installation of the SAP information system at all new locations. A failure to meet key deadlines could result in rectification costs, reduced efficiency and failure to achieve contractual KPIs.
Smiths News manages one of the UK's largest and well-established SAP installations with over 10 years experience of implementing the system within the business. The Board has identified the integration as the Group's top priority in the coming year and the necessary resources have been allocated to manage the project effectively - progress will be monitored on a continual basis. -
Impact of passive sales
In line with guidance issued by the OFT, the new contracts awarded by magazine publishers make allowance for sales outside of the designated territories in response to requests from retailers. Previous contracts were more restrictive, generally being granted on the basis of 'absolute territorial exclusivity'. The new arrangements could create an incentive for retailers to seek alternative suppliers, with a consequent impact on sales, margins and costs.
The combination of a leading service and most efficient operation means Smiths News is well placed to respond to any such requests. -
Retail sales
A reduction in retail sales would have an adverse effect on revenues and lower circulations could also undermine the business model of publishers leading to title closures.
National newspapers have a long-term trend of price increases offsetting the impact of volume declines. Magazines sales are more variable by sector and recent performance has seen a reduction in volume and value. The extent to which this decline is a temporary response to recent economic downturn, or is more 'structural' in nature, is at this stage uncertain.
In the medium term Smiths News is well placed to mitigate these risks. The contract wins have resulted in significant increases in market share and sales revenues; they also create opportunities for efficiency gains. The relative stability of the markets helps us to anticipate and plan for any worsening of conditions, enabling us to take appropriate action to protect profits.
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Digital media
The potential for consumers to move from traditional newspapers, magazines and books to digital media could have an adverse effect on sales and growth opportunities.
We recognise that the consumption of digital media will increase but believe there remains a strong future for traditional printed publications. Publishers increasingly see the channels as complimentary and they continue to invest in print and production facilities. The vast majority of publishers do not make substantial profits from stand-alone digital alternatives so there are strong incentives for continued investment in traditional channels.
The Group will continue to closely monitor developments in the digital market. -
Property and lease commitments
Potential liabilities could crystallise 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, any such contingent liability, 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 31 August 2009 of £26.6m (2008: £34.4m).
Although the total liability is significant, many of the leases were assigned to retail companies that continue to trade well and are financially robust. Given the expiry of time, it is also likely that many of the leases included within the contingent liability have expired or been regeared.For those leases that revert to the Group it is possible they can be re-assigned or sublet within a short time period.
The cash impact resulting from the estimated future cumulative gross rental commitment would spread over more than 10 years.
- Continued difficult economic environment
Continued difficult financial conditions could affect the ability of the Group's customers to pay on time.
The Group monitors payments carefully and has a strong track record of cash collection from its customer base. Payment for newspapers and magazines from smaller retailers is generally received on a weekly basis and their reliance on this product means that settlement of our invoice is generally prioritised.
Of our larger customers, the top five are major UK PLCs with good payment records and credit ratings. We also have credit insurance against a number of smaller multiple retail chains.
The failure of one or more of our key customers could result in exposure to a significant cash shortfall.
The Group's largest credit risk is to some of the UK's major retailers who have strong credit ratings. The average credit period taken on sale of goods is 21 days (2008: 21 days). We continue to manage our credit risk tightly to ensure our customers comply with payment terms.
Reduced liquidity could put at risk our ability to meet loan and other trading commitments.
The Group continues to generate strong free cash flow and is operating well within its existing banking covenants. The Company's bank facilities consist of a £40m term loan, a £50m revolving credit facility and an asset backed facility of up to £20m on the debtors of Bertrams; these are in place until June 2011, subject to a £5m term loan repayment in June 2010. We continually monitor any variance between forecast and actual cash flows in managing our liquidity risk.
Enquiries:
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Smiths News PLC Debbie Nicholas, Investor Relations |
01793 563641 |
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Buchanan Communications Mark Edwards / Jeremy Garcia |
020 7466 5000 |
About Smiths News PLC:
Smiths News PLC comprises Smiths News, the UK's leading wholesaler of newspapers and magazines and Bertrams, a leading UK book wholesaler. The Group was formed on 1 September 2006 following the demerger of WH Smith PLC.
Smiths News distributes newspapers and magazines on behalf of all the major national publishers as well as a large number of regional publishers. The business serves approximately 30,000 customers across England and Wales, supplying large general retailers as well as smaller independent newsagents. Smiths News has an approximate 55% share of the newspaper and magazine wholesaling market in the UK. In addition to its distribution activities, Smiths News collects and processes returns, supplies sales information to publishers and provides a range of services for its retail customers.
Bertrams, which was acquired on 20 March 2009, supplies books to a mix of independent booksellers, on-line and multiple retailers, and libraries. Bertrams has an approximate 45% share of the wholesale book market.
Smiths News PLC operates from 64 distribution centres across England and Wales, and employs 6,100 staff.
This information is provided by RNS
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