Interim Results for the 6 months ended 29 Feb 2012
Smiths News PLC
Unaudited Interim Results for the six months ended 29 February 2012
Smiths News PLC (or "the Group"), the UK's leading wholesaler of newspapers and magazines and a leading wholesaler of books, is pleased to announce its interim results for the six months ended 29 February 2012.
|
Underlying results |
HY 2012 |
HY 2011 |
Change |
|
Revenue |
£893.2m |
£872.3m |
2.4% |
|
Underlying (1) profit before tax |
£21.5m |
£19.2m |
12.0% |
|
Underlying (1) earnings per share |
8.9p |
7.8p |
14.1% |
|
Statutory results |
|
|
|
|
Revenue |
£893.2m |
£872.3m |
2.4% |
|
Statutory profit before tax |
£18.8m |
£18.7m |
0.5% |
|
Statutory earnings per share |
7.6p |
7.6p |
- |
|
Dividend per share |
2.8p |
2.6p |
7.7% |
|
Free cash flow (3) |
£6.0m |
£2.5m |
140.0% |
|
Net debt (6) |
£74.0m |
£57.0m |
(29.8%)
|
Operating highlights:
· Delivered another strong financial performance
o Underlying PBT of £21.5m, up 12.0%
o Generated free cash flow of £6.0m
· Continued resilience in the core business
o Smiths News underlying operating profit up 5%
o Bertram Group operating profit up 33% benefiting from Dawson's initial contribution
· Dawson integration delivering synergy and cost savings targets
o Profitability of acquired businesses on track
o On track to deliver £2.5m integration efficiencies in FY2012
· Strong shareholder returns:
o Underlying EPS(2) of 8.9p, up 14%
o Declared interim dividend of 2.8p up 8%
· On track to meet full year market expectations
· Acquisition of The Consortium for enterprise value ("EV") of £44m
o A leading distributor of education and care products
o Adding £64m of revenue and £7.0m EBITDA to the Group
o Immediately earnings enhancing
Mark Cashmore, Group Chief Executive, commented:
"This is another strong set of results, demonstrating further financial and strategic progress. Our plans for the integration of the Dawson businesses are firmly on track and delivering the expected profits, synergies and cost savings. The acquisition of The Consortium is an important step in our diversification strategy, consolidating our position as a leading distributor in specialist markets. With the support of the Group, The Consortium operates in markets in structural growth and can capitalise on the significant growth opportunities in the education, care and adjacent markets."
The following definitions have been applied consistently throughout this interim results announcement:
(1) Underlying 2012 and 2011 results exclude non-recurring and other items, which are described further on page 13.
(2) Underlying earnings per share for 2012 and 2011 are calculated using underlying profit before tax and an estimated tax rate that reflects the expected underlying full year charge.
(3) Free cash flow is cash flow excluding the following; payment of dividends, acquisition costs, purchase of own shares, repayments of obligations under finance leases, repayment of bank loans and cash flows relating to non-recurring items.
(4) Smiths News, Bertram Group (comprising Bertram Trading and Dawson Books) and Dawson Media Direct and Dawson Marketing Services are also referred to as the Newspaper and Magazine wholesaling division, the Book wholesaling division and the Media and Marketing division respectively.
(5) Like-for-like revenue growth excludes newspaper, magazine and book contract gains and losses during the year, and the annualised impact of gains and losses in the prior year.
(6) Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases.
Enquiries:
|
Smiths News PLC Mark Cashmore, Group Chief Executive Nick Gresham, Chief Financial Officer |
Today: 020 7466 5000 Thereafter: 01793 563641 |
|
|
|
|
Buchanan Jeremy Garcia |
020 7466 5000 |
A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 24 April 2012 commencing at 9.30am.
Smiths News PLC's Interim Results 2012 are available at www.smithsnews.co.uk
About Smiths News PLC:
Smiths News PLC comprises Smiths News, the UK's leading wholesaler of newspapers and magazines, and the Bertram Group, a leading UK book wholesaler.
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.
Bertram, which was acquired on 20 March 2009, supplies books to a mix of independent booksellers, on-line and multiple retailers, and libraries. Bertram has an approximate 45% share of the wholesale book market.
In August 2011 the company acquired Dawson Holdings plc and is currently integrating its businesses into the Smiths News Group. The principal asset, Dawson Books is a leading supplier of academic books in the UK and internationally.
Notes to Editors
Forward-looking statements
This announcement contains certain forward-looking statements with respect to Smiths News PLC's and/or The Consortium's financial condition, 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 and statements other than statements of historical fact, identify forward-looking statements. These forward-looking statements are not guarantees of future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this announcement and are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Unless otherwise required by applicable law, regulation or accounting standard, neither Smiths News PLC nor The Consortium undertake responsibility to publicly update any of these forward-looking statements whether as a result of new information, future developments or otherwise.
Not a profit forecast
Nothing in this announcement should be construed as a profit forecast or profit estimate. This announcement 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.
Synergies
The proposals referred to in this announcement represent Smiths News PLC's current intentions and are subject to ongoing review as Smiths News PLC becomes more familiar with the operational detail of The Consortium's business following completion of the acquisition. It should therefore be noted that the expected synergies referred to in this announcement relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. As a result the synergies referred to in this announcement may not be achieved and those achieved could be materially different from those estimated.
INTERIM MANAGEMENT REPORT
OPERATING REVIEW
INTRODUCTION
We are pleased to report a strong performance in the first half of the financial year and significant further progress on a number of key strategic objectives.
Group underlying profit before tax increased 12.0% to £21.5m from revenues of £893.2m, up 2.4%.
Smiths News continues to perform strongly generating £19.2m of operating profit, an increase of 4.9% on the prior year driven by underlying cost savings and solid newspaper sales. The Group remains on track to meet its stated efficiency target of £30m by 2014.
The Bertram Group performed well in what are challenging trading conditions for book retailers, increasing like for like UK sales by 2.1% in the period. The Library Services division shows signs of recovery increasing like for like sales by 13%. The academic books market served by the recently acquired Dawson Books business performed to expectations, increasing sales through its e-book platform by 52% whilst UK print sales remained broadly flat.
The integration of Dawson Books into Bertram was a key priority and is being delivered to plan. The closure of Dawson's head office and other PLC functions are now complete saving £1.1m per annum and by the end of the current financial year we will have secured a total of £2.5m of annualised synergies out of a total of £3.8m targeted by 2014.
Today we announced the acquisition of The Consortium, a leading independent distributor to the education and care sectors. The acquisition for £38m (£32m in cash, £6m deferred) will strengthen the Group, builds on our core skills, and provides access to new and growing markets. It represents an important milestone in our strategy to diversify by entering carefully chosen specialist distribution markets.
In the light of these results we are increasing the interim dividend by 7.7% to 2.8p, highlighting our continued confidence in the Group's strong cash generation and future prospects.
NEWSPAPER, MAGAZINE & BOOK MARKETS
The newspaper market remains resilient driven by a steady increase in cover price inflation. During the period 14 major titles announced increases amounting to 6% in price inflation. This resulted in an improvement in the overall market decline to -1.2% from -3% in H1 2011.
The much publicised closure of the News of the World in July 2011 resulted in an immediate rebalancing of sales within the Sunday market. The net effect will be broadly neutral following the launch of the Sunday edition of the Sun in February.
The decline in the magazine market slowed slightly during the period to -6.8% driven by improvements in one-shot and part-work sales, and we expect further improvement in the second half as products come through for the Olympics, Euro 2012 and Diamond Jubilee.
The book market has varied considerably by sector. The value of the total UK consumer market is down by -8.4% over the period, however, this obscures a rebalancing of sales from High Street to Internet retailers, an area of growing strength for the Bertram Group. In contrast, total sales for Bertram Group were up 25% and like for sales were up 2.1%.
SMITHS NEWS
Smiths News has performed strongly through a combination of solid performance on sales and continued focus on sustainable efficiencies.
The business is on track to deliver £5 million efficiency savings for the current financial year, a cumulative £25m in two years. Our previously increased target of £30m will be fully delivered by FY2013 and we continue to examine ways to maximise further saving opportunities in advance of the next contract round.
In March 2012 we opened a flagship depot in Birmingham, merging five operations into one facility; it currently services over 2300 customers. The investment will deliver scale economies, process efficiency and service improvement. In March we also announced the amalgamation of our Manchester and Stockport operations, giving a further indication of our network strategy.
Our service and efficiency programme is not only based on managing our network. Our early adoption of SAP has been fundamental to re-engineering the business and we have committed to investing £5m in a major upgrade which will unlock further technology and process efficiencies.
Finally, the Office of Fair Trading's announcement in February 2012 that the industry would not face a further review was a welcome end to many years of uncertainty. It was pleasing to note the OFT's assessment that the industry's supply chain continues to work to high levels of efficiency and in the interests of consumers.
BERTRAM GROUP
Despite a challenging UK consumer books market we continue to see resilience in overall sales, helped by our diverse customer base and sector focus. Whilst traditional booksellers continue to experience tough trading we have benefited from servicing the growing online market. Like for like sales in Bertram are up 2.1% and sales through Bertram's UK Wholesale operation were up by +0.8%.
Public library sales experienced a recovery as the funding position of Local Authorities is clarified. Sales were up 13% in the period and in March the business won new contracts to serve Dublin, Worcestershire, and Norfolk, with a value of £1.2m.
International sales were down by -3.1% but continue to offer strong future growth prospects. We will be refocusing our efforts on this sector following the integration of Dawson Books.
The Dawson academic libraries business traded in line with expectations being flat against pre acquisition comparisons during a period of potential major disruption whilst we migrated the operation to our Norwich site. The much publicised increase in student tuition fees has not affected demand for academic books and we are pleased with the continued year on year growth in our e-book platform, in excess of 50%.
The market for UK internet fulfilment remains a further opportunity. Building on our already strong market position we are developing our customer offering in the UK and internationally.
DAWSON INTEGRATION
The integration of Dawson Books into Bertram's main facility at Norwich is well underway. Our target of £2.5m annualised synergies and head office savings will be achieved this year, and we are on track to achieve the full £3.8m by 2014.
The Dawson Holdings head office closedown is complete and by early May 2012 the Rushden warehouse operation will be fully integrated into our Norwich facility. The Dawson operation holds minimal stock which has enabled its servicing operation to be moved without impacting on space in the Norwich warehouse.
With the integration almost complete we will now operate with one management team and a coordinated strategy across both Bertram and Dawson. Graeme Underhill who is leading the business has appointed a new Executive team, blending operational experience with new sales and marketing talent. The team is now focused on winning new business, developing the e-books platform and delivering service enhancements to our customers. Recognising that international and e-book sales are key growth drivers we are anticipating further investment in systems, people and branding in order to maximise these opportunities.
MEDIA AND MARKETING DIVISION
The Media and Marketing division of the Group comprises DMD, a provider of newspapers, magazines and digital in-flight entertainment to airlines and DMS, a marketing services and fulfilment business. Both were acquired by the Group in August 2011 as part of Dawson Holdings plc.
DMD had a positive six months winning new contracts with Ryanair and Cathay Pacific. In the emerging market for digital in-flight entertainment, the business has now completed the rollout of 1,000 ipads to British Airways and 3,000 units to Jetstar; and in March 2012 agreed a contract for 650 units with Thai Airways.
DMS secured contract wins with the Daily Mail and together with our Instore merchandising business the opportunity to service both Morrisons and Sainsburys stores.
We remain encouraged by the performance of both businesses since acquisition and believe they are well positioned for continued future growth.
ACQUISITION OF THE CONSORTIUM
We are pleased to announce the acquisition of The Consortium for £44.1m enterprise value. This represents a pro forma EV/EBITDA multiple of 6.3x and 5.5x including annualised synergies. This reflects a consideration of £38m, £32m of which is payable in cash on completion with up to a further £6m deferred consideration payable following completion, comprising up to £2m in cash payable in January 2013 and up to £4m in Smiths News PLC shares payable in January 2014.
This acquisition is an important step in establishing our position as a leading specialist distributor. The Group plans to diversify into carefully chosen markets with a medium term aim of delivering over 30% of its profits from markets outside of newspapers and magazines by FY14.
The Consortium is the leading independent distributor of consumable supplies to the education sector and an emerging player in the care and early years sectors. It has a strong and experienced management team based at its head office and primary distribution centre in Trowbridge, Wiltshire and a second distribution site located in Shrewsbury following The Consortium's recent acquisition of the catalogue business of West Mercia Supplies.
The Consortium currently services over 25,000 customers supplying the consumables they require to operate on a daily basis, including stationery, hygiene products and teaching materials. The business has an extensive product range, supported by strong customer service and product promotion through catalogues and online ordering.
The Group plans to leverage its skills in operational efficiency, service excellence and information technology to unlock the significant opportunities in the education and care sectors. The education and care markets are large and have shown consistent growth with strong fundamentals - £1bn of the education market and a £160m of the residential care market is immediately addressable - both with tangible opportunities to grow supported by well documented demographic changes. The Group will also support investment to grow acquisitively and to expand into adjacent markets where opportunities are identified.
The acquisition will add £64m of revenue to the Group and a profitable, growing business generating £7.0m of EBITDA on a pro forma basis in FY12.
The acquisition will be immediately earnings enhancing adding 1.3p or 7% on a pro forma basis to EPS.
The consideration will be financed from existing bank facilities. The Consortium is a cash generative business with low investment intensity.
BANK FACILITIES
The Group has a bank facility of £135m through to November 2014 with further committed facilities of £35m secured against Group assets. Net debt as at 29 February 2012 is £74.0m representing a net debt:EBITDA ratio of 1.4x. Post acquisition of The Consortium pro forma net debt/EBITDA is 1.9x. The Group continues to operate well within its banking covenants and continues to build strong relationships with its syndicate of 5 major lenders.
OUTLOOK
Smiths News PLC remains a well-balanced business, focused on growing profits, generating significant levels of free cash and maintaining a progressive dividend policy.
Our core markets continue to show resilience despite the challenging consumer environment. The Group continues to develop and deliver sustainable efficiency and synergy plans that will more than offset market declines as we invest to support our strategy going forward. Looking to the second half of the year we will capitalise on the short term opportunity of the Olympics, Euro 2012 and Diamond Jubilee and will continue to maximize other sales and strategic opportunities across the Group's businesses.
The Group remains on track to grow profits in the current financial year and is trading in line with market expectations. This is reflected in the 7.7% dividend increase announced today.
The future strategic direction of the Group is clear:
· To further grow its position as a leading specialist distributor in carefully chosen markets.
· Smiths News will continue to seek revenue and organic growth opportunities whilst managing the core network effectively and driving continuous improvement.
· Bertram Group, following the Dawson Books integration, will continue to develop its UK book business, expand internationally and grow its digital platform.
· Media and Marketing will seek airline, rail and fulfillment contract opportunities whilst targeting the growing in-flight entertainment market.
· The acquisition of The Consortium is in line with our diversification strategy and is a significant move in establishing the Group as a leading specialist distributor. By providing access to new growing markets, it will further broaden the Group's revenues and profits meeting our stated aim of delivering in excess of 30% of our total profits from areas outside of newspapers and magazines by FY14.
FINANCIAL REVIEW
GROUP INCOME STATEMENT EXTRACTS - UNDERLYING
|
|
|
|
|
|
Change |
|
£m |
|
|
HY 2012
|
HY 2011
|
|
|
Total revenue |
|
|
893.2 |
872.3 |
2.4% |
|
Gross profit |
|
|
86.8 |
80.8 |
7.4% |
|
Operating costs |
|
|
(63.6) |
(60.1) |
(5.8%) |
|
Underlying operating profit |
|
|
23.2 |
20.7 |
12.1% |
|
Net finance costs |
|
|
(1.7) |
(1.5) |
(13.3%) |
|
Underlying profit before tax |
|
|
21.5 |
19.2 |
12.0% |
|
Taxation |
|
|
(5.4) |
(5.1) |
(5.9%) |
|
Tax rate |
|
|
25% |
27% |
- |
|
Underlying profit after tax |
|
|
16.1 |
14.1 |
14.2% |
Group revenues increased 2.4% to £893.2m driven by the inclusion of £39.7m of revenues from Dawson Holdings plc, not included in the corresponding period of the prior year.
Underlying Group operating profit of £23.2m was up 12.1% comprising £1.6m of profits from Dawson Holdings plc, sales initiatives and the ongoing cost efficiencies in Smiths News and Bertram.
Finance costs of £1.7m were up £0.2m as a result of increased borrowings to fund the Dawson Holdings plc acquisition from August 2011.
Underlying Group profit before tax of £21.5m was up 12.0%.
The tax charged for the 6 months of £5.4m represented an effective tax rate of 25% (HY 2011: 27%). Underlying profit after tax of £16.1m was up 14.2%.
On a statutory basis Group operating profit of £20.5m was up 1.5% on the same period in the prior year.
On a statutory basis profit before tax was £0.1m higher than the same period last year at £18.8m.
EPS AND DIVIDEND
|
|
Underlying |
Statutory |
||
|
|
HY 2012
|
HY 2011
|
HY 2012
|
HY 2011
|
|
|
|
|
|
|
|
Profit after tax (£m) |
16.1 |
13.8 |
13.8 |
13.7 |
|
Basic number of shares (millions) |
181.1 |
181.3 |
181.1 |
181.3 |
|
Basic EPS |
8.9p |
7.8p |
7.6p |
7.6p |
|
Diluted number of shares (millions) |
184.9 |
184.3 |
184.9 |
184.3 |
|
Diluted EPS |
8.7p |
7.7p |
7.5p |
7.4p |
|
Dividend per share |
2.8p |
2.6p |
2.8p |
2.6p |
The underlying profit after tax of £16.1m resulted in a basic EPS of 8.9p, up 1.1p or 14.1% on prior year.
Including non-recurring and other items, statutory profit after tax of £13.8m resulted in a basic EPS of 7.6p, in line with the prior year.
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes. This increased the number of shares in HY2012 by 3.8m to 184.9m and resulted in a diluted underlying EPS of 8.7p, up 1.0p or 13.0% on prior year.
The Board have approved an interim dividend of 2.8p, up 7.7% on last year, reflecting confidence in the future prospects of the Group. The growth in the interim dividend demonstrates the Group's progressive dividend policy, which means ongoing profit growth will be reflected in future dividend growth.
The interim dividend will be paid on 8 June 2012 to shareholders on the register at the close of business on 11 May 2012.
SMITHS NEWS INCOME STATEMENT
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HY 2012
|
HY 2011
|
Change
|
LFL(5) |
|
Newspapers |
|
466.2 |
462.9 |
0.7% |
(1.2%) |
|
Magazines |
|
277.6 |
295.6 |
(6.1%) |
(7.8%) |
|
Other |
|
40.5 |
40.3 |
0.5% |
- |
|
Total revenue |
|
784.3 |
798.8 |
(1.8%) |
(3.7%) |
|
Gross profit |
|
65.9 |
68.8 |
(4.2%) |
|
|
Operating costs |
|
(46.7) |
(50.5) |
7.5% |
|
|
Underlying operating profit |
|
19.2 |
18.3 |
4.9% |
|
|
|
|
|
|
|
|
|
Gross margin |
|
8.4% |
8.6% |
(20 bps) |
|
|
Cost ratio |
|
(6.0%) |
(6.3%) |
30 bps |
|
|
Operating margin |
|
2.4% |
2.3% |
10 bps |
|
|
|
|
|
|
|
|
Smiths News total revenues were down (1.8%) on the HY 2011 with like for like revenues down (3.7%).
Gross margin rate was down (20 bps) as a result of margin mix between magazines down (6.1%) versus newspapers up (0.7%).
The cost ratio improved by 30 bps reflecting ongoing achievement of cost efficiencies in network savings, operational savings and central cost savings.
Smiths News underlying operating profit of £19.2m was up 4.9% and resulted in an operating margin of 2.4%, up 10 bps versus the prior half year.
BERTRAM GROUP INCOME STATEMENT
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HY 2012
|
HY 2011
|
Change
|
LFL(5) |
|
Total revenue |
|
91.9 |
73.5 |
25.0% |
2.1% |
|
Gross profit |
|
16.8 |
12.0 |
40.0% |
|
|
Operating costs |
|
(13.6) |
(9.6) |
(41.7%) |
|
|
Underlying operating profit |
|
3.2 |
2.4 |
33.3% |
|
|
|
|
|
|
|
|
|
Gross margin |
|
18.3% |
16.3% |
200 bps |
|
|
Cost ratio |
|
(14.8%) |
(13.1%) |
(170 bps) |
|
|
Operating margin |
|
3.5% |
3.3% |
20 bps |
|
Bertram Group revenues were up 25.0% to £91.9m driven by the inclusion of Dawson Books which has added £22.7m to revenues.
Gross margin of 18.3% was up 200 bps driven by higher margin Library Services sales in Bertram and the addition of higher margin Digital and International sales within Dawson Books.
The cost ratio was adverse (170 bps) at 14.8% representing the different cost structure of the newly acquired Dawson Books.
Bertram Group underlying operating profit of £3.2m (HY 2011: £2.4m) was up 33.3% and resulted in an operating margin of 3.5%, up 20 bps.
MEDIA AND MARKETING INCOME STATEMENT
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HY 2012
|
HY 2011
|
Change
|
LFL(5) |
|
Total revenue |
|
17.0 |
- |
- |
- |
|
Gross profit |
|
4.1 |
- |
- |
|
|
Operating costs |
|
(3.3) |
- |
- |
|
|
Underlying operating profit |
|
0.8 |
- |
- |
|
|
|
|
|
|
|
|
|
Gross margin |
|
24.1% |
- |
- |
|
|
Cost ratio |
|
(19.4%) |
- |
- |
|
|
Operating margin |
|
4.7% |
- |
- |
|
The acquired media and marketing division has added £17m of revenue to the Group, and having completed in August 2011, does not have a comparison for our reporting purposes.
Gross profit of £4.1m has generated a margin of 24.1%.
Underlying operating profit of £0.8m has generated a margin of 4.7%.
NON-RECURRING AND OTHER ITEMS
|
£m |
|
|
|
|
|
|
HY 2012
|
HY 2011
|
|
Integration costs |
|
(0.9) |
- |
|
Network reorganisation costs |
|
(0.9) |
- |
|
Amortisation of acquired intangibles |
|
(0.9) |
(0.5) |
|
Loss before tax |
|
(2.7) |
(0.5) |
|
Taxation |
|
0.4 |
0.1 |
|
Loss after tax |
|
(2.3) |
(0.4) |
Non-recurring and other items totalled £2.7m before tax and £2.3m after tax.
The costs of integrating Dawson Holdings plc divisions incurred in the six month period were £0.9m of the total expected integration cost of £4m over 3 years. The largest element of the costs incurred in the period, £0.6m related to redundancies.
During the period we have spent a further £0.9m of network re-organisation costs, bringing the total to £3.6m against the expected £5m announced in October 2010 that would be required to deliver the £30m of cost savings over 3 years. Key activities in the period include the Birmingham re-site and the announced closure of the Manchester depot. Of the costs in the period the largest amount relates to redundancy costs of £0.5m.
Amortisation of acquired intangibles have increased to £0.9m from £0.5m in HY 2011 due to the inclusion of intangible assets relating to the acquisition of Dawson Holdings plc.
FREE CASH FLOW
|
£m |
|
|
|
|
HY 2012
|
HY 2011
|
|
Underlying profit before interest and tax |
23.2 |
20.7 |
|
Depreciation & amortisation |
3.3 |
3.6 |
|
Underlying EBITDA |
26.5 |
24.3 |
|
|
|
|
|
Working capital |
(13.2) |
(17.5) |
|
Capital expenditure |
(0.4) |
(1.5) |
|
Net interest paid |
(1.4) |
(1.5) |
|
Taxation |
(3.0) |
1.3 |
|
Ongoing pension funding |
(3.1) |
(3.1) |
|
Other movements |
0.6 |
0.5 |
|
Free cash flow(3) |
6.0 |
2.5 |
The Group continued to generate strong free cash flow, delivering £6m (HY 2011: £2.5m).
The improved trading performance of the Group increased EBITDA £2.2m, or 9.1%, to £26.5m.
A working capital outflow of £13.2m is a timing impact which mostly reverses in the second half.
Capital expenditure was £0.4m in the 6 months, a reduction of (£1.1m) on HY 2011, benefiting from the sale of the ex Bertram library services property for £0.9m.
Taxation represents a normal tax cash outflow of (£3.0m). The prior year having benefited from a tax rebate.
Ongoing pension deficit funding of £3.1m for the 6 months related to the annual pension deficit funding of £5.8m agreed at the last triennial valuation in March 2009.
NET DEBT
|
£m |
|
|
|
|
HY 2012
|
HY 2011
|
|
|
|
|
|
Opening net debt(6) |
(63.3) |
(48.0) |
|
Free cash flow |
6.0 |
2.5 |
|
Dividend paid |
(9.8) |
(9.1) |
|
Non-recurring items |
(4.8) |
(1.7) |
|
Finance leases |
(1.3) |
(0.7) |
|
Share purchase |
(0.8) |
- |
|
Closing net debt(6) |
(74.0) |
(57.0) |
Group closing net debt was £74.0m (HY 2011: £57m) due to the inclusion of £17.9m for the acquisition of Dawson Holdings plc funding in August 2011.
The Group has a syndicated facility of £135m through to November 2014, with additional committed facilities of £35m secured against Group assets. We remain comfortably within our banking covenants with net debt:EBITDA at 1.4x versus 1.3x at 31 August 2011 and a covenant test of 2.5x.
Post The Consortium acquisition pro forma net debt/EBITDA is 1.9x.
PENSION
The defined benefit pension scheme had an IAS 19 surplus at 29 February 2012 of £69.2m (Feb 2011: £31.9m). However as the pension scheme is closed to further accrual, this IAS 19 surplus is not available as a reduction of future contributions or through a funding holiday, and as a result the Group has not recognised this surplus on the balance sheet.
The actuarial deficit, last valued at 31 March 2009 at £50m, continues to be managed through the Liability Driven Investment policy, which minimises volatility through the hedging of interest and inflation. The Group has committed to make annual payments of £5.8m into the scheme for ten years.
RISKS AND UNCERTAINTIES
The Group operates in large and stable markets. Strong cost control is a core competency and, given the relative predictability of sales, the Group is well placed to mitigate any major risks. The Board and Executive Management Team have assessed the Group's appetite for risk and continue to monitor the key risks on an ongoing basis.
The Group's key businesses have relatively secure revenues. Smiths News has agreements with the major newspaper and magazine publishers for the next three to four years covering the vast majority of its revenues. The Bertram Group has contracts for its library business that run for an average of three years, whilst the remainder of trading is with established customers. Dawson Media Direct has similar characteristics with the vast majority of revenues secured by contractual agreements.
The Group has robust internal procedures to monitor sales, costs, profits and risks. The Executive and Risk Committees review the principal strategic and financial risks on a quarterly basis. The Audit Committee oversees the overall risk process and reviews the outcome of this process twice a year. The business completes a detailed reforecast at least twice a year and more regularly if any significant issues arise and these forecasts are reviewed by the Board.
Our assessments of the principal risks are as follows.
· Contract renewal
At the time of contract renewal, publishers could seek alternative routes to market in some of Smiths News' current territories, which would result in lower sales. There also remains the risk of contract renewals at lower margin.
Smiths News has the majority of its major contract revenues secured until at least 2015 and is well positioned to renegotiate its contracts as and when they come up for renewal. We are the UK's leading wholesaler of newspapers and magazines with a strong service performance and our combination of scale, specialist services and category expertise is difficult for new entrants to replicate. Smiths News has long standing commercial relationships throughout the supply chain and continues to work closely with publishers and retailers to ensure our plans and objectives are aligned.
· Digital media
The increasing penetration of e-book readers and tablet devices (such as the Apple ipad and Amazon Kindle), together with publishers' increased investment in digital publishing could lead to a sharper than anticipated decline in sales of traditional newspapers, magazines and books. More generally, the move from traditional printed media to digital alternatives could have an adverse effect on sales and growth opportunities.
The Group is aware that digital media will have an impact on traditional markets. However, it supports the view that the impact on newspapers, magazines and books is likely to be an evolutionary rather than revolutionary process. Printed media continues to represent the vast majority of revenues in newspapers and magazines. The Group's e-book platform, Dawsonera, will facilitate our entry into the growing market for digital books, especially in the academic sector.
The majority of publishers are heavily reliant on revenues from traditional channels and have strong incentives for the continued support of these formats and brands. There is evidence from recent investments made by publishers that they believe these have considerable life expectancy.
The Group will continue to monitor market developments closely.
· Consumer confidence and spending
The economic environment remains uncertain, and Government spending cuts have also contributed to reduced consumer confidence and discretionary spending, including the sales of newspapers, magazines and books.
Whilst consumer confidence has a clear correlation with retail sales, the habitual nature of newspapers and magazines helps to limit the impact. Demand for books is similarly resilient and the Group strategy remains to increase sales by targeting growth sectors such as the internet and international sales. The vast majority of newspapers, magazines and books have a relatively low cover price; nonetheless, it remains possible that consumers seeking to economise could regard these as discretionary items and either stop or reduce the frequency of purchasing.
· Impact of passive sales
Following guidance issued by the Office of Fair Trading ("OFT"), our magazine contracts make allowance for sales outside of the designated territories in response to unsolicited requests from retailers (so-called passive sales). Previously, contracts could be more restrictive, generally being granted on the basis of 'absolute territorial exclusivity'. These passive sales arrangements could create an incentive for retailers to seek alternative suppliers, with a consequent impact on sales, margins and costs.
In February 2012 Smiths News was supplying 176 retailers under a passive sales arrangement. The business has received 11 requests from existing retailers to transfer to another supplier.
· OFT Prioritisation Review
In Februray 2012 the OFT announced the results of its 'prioritisation review' to assess developments in the newspaper and magazine supply chain. The review arose from the OFT's 2009 report (Newspaper & Magazine Distribution in the UK/OFT 1121) which gave a commitment to consider, after two years, if any further review was required. The review could have resulted in a further industry enquiry and was identified as a risk in October 2011.
In its February 2012 announcement the OFT concluded the industry does not require further review and that recent developments have been to the benefit of consumers. The OFT noted the developments in industry self-regulation through the Press Distribution Forum ("PDF"). Smiths News supports the PDF's retailer charter, and the associated Press Distribution Review Panel. The Group continues to work with its industry partners to improve service and efficiency for retailers, to the benefit of overall consumer welfare.
· Accelerated declines in sales impacting on newspaper and magazine and book publishers
An accelerated decline in sales of newspapers, magazines or books could have an adverse effect on revenues and undermine the business model of publishers. This could lead to title closures, reduced investment in products and promotions, or even the failure of some publishers.
National newspapers have a long-term trend of price increases mostly offsetting the impact of volume declines; they have shown resilience in the recent economic downturn and publishers have continued to invest in traditional print. Nonetheless, we are planning on the basis of limited price inflation and our contracts provide protection to margins in the event of promotional price discounting.
Magazines sales have been more impacted by the recession and there has been some shakeout in the market with a small number of title closures. Magazine launches and closures are a feature of the market with new titles replacing those which no longer reflect consumer lifestyles. Despite recent closures, more than 3,500 consumer magazines are in circulation in the UK and publishers continue to regard these as valuable brands.
Our comprehensive understanding of sales and market dynamics help us to anticipate and plan for any worsening of conditions, enabling us to take appropriate action to protect profits.
· Impact of Public Sector policy on libraries
The Government's plans to reduce and contain spending for public libraries reducing the value of ongoing expenditure and future contracts. It is possible that the impact of such cuts will lead to further budget reductions and library closures over time. In the academic sector, the changes to student funding could also, over time, reduce the number of students with a consequential impact on library purchases.
The Group recognises that available funds in the public sector will be more limited and has planned accordingly. Orders were particularly volatile immediately following the Government's announcement of the budget cuts. Whilst overall sales remain below the level prior to the cuts, sales to public libraries have increased when compared to the same period last year. The pending change to student fees and academic funding has not reduced demand for academic books and the integration of Dawson Books into Bertram facility at Norwich has reduced total overheads and created scale efficiencies.
The Group will continue to monitor public and academic library markets and respond accordingly.
· 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 2006 Demerger Agreement with WH Smith PLC, any other 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 Group's share of these leases has an estimated future cumulative gross rental commitment at 29 February 2012 of £12.5m (31 August 2011 £13.9m).
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 been renegotiated such that any liability has been extinguished. The maximum potential lease liability will continue to decline, with an estimated maximum liability of below £5m by August 2015.
The cash impact resulting from the estimated future cumulative gross rental commitment would spread over more than 10 years.
· Financial exposure to key retailers and publishers
The failure of one or more of the Group's major retailers or publishers could affect the ability of the Group's profitability and cash flows.
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 these products means that settlement of our invoice is generally prioritised.
The Group's largest credit exposure is to some of the UK's major retailers who have strong credit ratings. Of our larger retailer 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 retail chains. The average credit period taken on sale of goods is 21 days (2011: 21 days). We continue to manage our credit risk tightly to ensure our customers comply with payment terms.
The failure of one or more of our publisher / distributor suppliers could result in exposure to a significant cash shortfall if the credits due to retailers for unsold copies are greater than any outstanding payments due to the failed publisher.
The Group monitors stock and unsold levels on a regular basis and where appropriate it phases payments to publishers to ensure any exposure is minimised; we also use external data to monitor credit ratings on a regular basis. Our largest suppliers are large companies, and in some cases part of larger quoted companies, with established and stable business models. The Group operates in large and stable markets. Strong cost control is a core competency and, given the relative predictability of sales, the Group is well placed to mitigate any major risks. The Board and Executive Management Team have assessed the Company's appetite for risk and continue to monitor the key risks on an ongoing basis.
Smiths News PLC
Condensed Consolidated Income Statement (Unaudited)
For the 6 months to 29 February 2012
|
|
|
6 months to 29 Feb 2012 |
6 months to 28 Feb 2011 |
Audited 12 months to 31 Aug 2011 |
||||||
|
£m |
Note |
|||||||||
|
|
|
Under-lying |
Non-recurring and other items
|
Total |
Under-lying |
Non-recurring and other items
|
Total |
Under-lying |
Non-recurring and other items
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
3 |
893.2 |
- |
893.2 |
872.3 |
- |
872.3 |
1,734.4 |
- |
1,734.4 |
|
Operating profit |
3 |
23.2 |
(2.7) |
20.5 |
20.7 |
(0.5) |
20.2 |
41.7 |
(6.5) |
35.2 |
|
Investment revenues |
|
0.6 |
- |
0.6 |
0.6 |
- |
0.6 |
1.2 |
- |
1.2 |
|
Finance costs |
|
(2.3) |
- |
(2.3) |
(2.1) |
- |
(2.1) |
(4.3) |
- |
(4.3) |
|
Profit before tax |
|
21.5 |
(2.7) |
18.8 |
19.2 |
(0.5) |
18.7 |
38.6 |
(6.5) |
32.1 |
|
Taxation |
6 |
(5.4) |
0.4 |
(5.0) |
(5.1) |
0.1 |
(5.0) |
(10.4) |
0.2 |
(10.2) |
|
Profit for the period |
|
16.1 |
(2.3) |
13.8 |
14.1 |
(0.4) |
13.7 |
28.2 |
(6.3) |
21.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
Basic |
8 |
8.9p |
|
7.6p |
7.8p |
|
7.6p |
15.5p |
|
12.1p |
|
Diluted |
8 |
8.7p |
|
7.5p |
7.7p |
|
7.4p |
15.3p |
|
11.9p |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity dividends per share |
7 |
|
|
2.8p |
|
|
2.6p |
|
|
8.0p |
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the 6 months to 29 February 2012
|
|
|
6 months to |
6 months to |
Audited 12 months to |
|
£m |
Note |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
Gains/ (losses) on cash flow hedges |
|
- |
0.2 |
(1.6) |
|
Actuarial gains/ (losses) on defined benefit pension scheme |
|
38.8 |
(12.8) |
(21.7) |
|
Effect of asset limit on defined benefit pension scheme |
|
(42.4) |
9.3 |
14.4 |
|
Tax relating to components of other comprehensive income |
|
1.1 |
1.0 |
2.4 |
|
Other comprehensive income for the period |
|
(2.5) |
(2.3) |
(6.5) |
|
|
|
|
|
|
|
Profit for the period |
|
13.8 |
13.7 |
21.9 |
|
Total comprehensive income for the period |
|
11.3 |
11.4 |
15.4 |
Total comprehensive income for the period was fully attributable to the equity holders of the parent company.
Condensed Consolidated Balance Sheet (Unaudited)
As at 29 February 2012
|
|
|
At |
At |
Audited |
|
|
£m |
Note |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
Non-current assets |
|
|
|
|
|
|
Intangible assets |
|
35.9 |
11.3 |
36.9 |
|
|
Property, plant and equipment |
|
17.8 |
19.6 |
18.7 |
|
|
Interest in joint venture and associate |
|
4.0 |
3.7 |
3.9 |
|
|
Investments |
|
0.1 |
- |
0.1 |
|
|
Deferred tax assets |
|
2.1 |
1.5 |
3.0 |
|
|
|
|
59.9 |
36.1 |
62.6 |
|
Current assets |
|
|
|
|
|
|
Inventories |
|
36.4 |
33.3 |
34.7 |
|
|
Trade and other receivables |
|
107.5 |
105.2 |
109.7 |
|
|
Cash and cash equivalents |
|
4.8 |
0.1 |
4.2 |
|
|
Assets held for sale |
|
- |
0.9 |
0.8 |
|
|
|
|
148.7 |
139.5 |
149.4 |
|
Total assets |
|
208.6 |
175.6 |
212.0 |
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
|
(167.0) |
(165.4) |
(181.4) |
|
|
Current tax liabilities |
|
(9.1) |
(5.3) |
(7.6) |
|
|
Obligations under finance leases |
|
(1.3) |
(1.3) |
(1.1) |
|
|
Bank overdrafts and other borrowings |
|
(37.2) |
(15.7) |
(26.0) |
|
|
Provisions |
|
(5.7) |
(2.3) |
(4.1) |
|
|
Derivative financial instruments |
|
(0.8) |
(0.3) |
(0.6) |
|
|
|
|
(221.1) |
(190.3) |
(220.8) |
|
Non-current liabilities |
|
|
|
|
|
|
Bank loans and other borrowings |
|
(39.0) |
(38.4) |
(39.2) |
|
|
Retirement benefit obligation |
5 |
- |
- |
- |
|
|
Deferred tax liabilities |
|
(2.9) |
(1.5) |
(4.1) |
|
|
Long-term provisions |
|
(1.5) |
(2.6) |
(4.9) |
|
|
Obligations under finance leases |
|
(1.2) |
(1.7) |
(1.2) |
|
|
Derivative financial instruments |
|
(1.3) |
- |
(1.5) |
|
|
Other non-current liabilities |
|
(0.4) |
(0.6) |
(0.5) |
|
|
|
|
(46.3) |
(44.8) |
(51.4) |
|
Total liabilities |
|
(267.4) |
(235.1) |
(272.2) |
|
Total net liabilities |
|
(58.8) |
(59.5) |
(60.2) |
|
|
|
|
At |
At |
Audited |
|
£m |
Note |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
Equity |
|
|
|
|
|
Called up share capital |
|
9.2 |
9.2 |
9.2 |
|
Share Premium Account |
|
0.5 |
0.4 |
0.5 |
|
ESOP reserve |
|
(2.4) |
(2.2) |
(2.6) |
|
Other reserve |
|
(280.1) |
(280.1) |
(280.1) |
|
Hedging reserve |
|
(2.1) |
(0.3) |
(2.1) |
|
Retained earnings |
|
216.1 |
213.5 |
214.9 |
|
Total equity |
|
(58.8) |
(59.5) |
(60.2) |
|
|
|
|
|
|
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the 6 months to 29 February 2012
|
£m |
Share Capital |
Share Premium Account |
ESOPReserve |
Other1 Reserve |
Hedging Reserve |
Retained Earnings |
Total |
|
Balance at 1 September 2010 |
9.2 |
0.4 |
(2.4) |
(280.1) |
(0.5) |
211.0 |
(62.4) |
|
Profit for the period |
- |
- |
- |
- |
- |
13.7 |
13.7 |
|
Gain on cash flow hedges |
- |
- |
- |
- |
0.2 |
- |
0.2 |
|
Actuarial loss on defined benefit pension scheme |
- |
- |
- |
- |
- |
(12.8) |
(12.8) |
|
Effect of asset limit on defined benefit pension scheme |
- |
- |
- |
- |
- |
9.3 |
9.3 |
|
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
- |
1.0 |
1.0 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
0.2 |
11.2 |
11.4 |
|
Dividends paid |
- |
- |
- |
- |
- |
(9.1) |
(9.1) |
|
Employee share schemes |
- |
- |
0.2 |
- |
- |
(0.2) |
- |
|
Recognition of share based payments |
- |
- |
- |
- |
- |
0.6 |
0.6 |
|
Balance at 28 February 2011 |
9.2 |
0.4 |
(2.2) |
(280.1) |
(0.3) |
213.5 |
(59.5) |
|
Profit for the period
|
- |
- |
- |
- |
- |
8.2 |
8.2 |
|
Loss on cash flow hedges |
- |
- |
- |
- |
(1.8) |
- |
(1.8) |
|
Actuarial loss on defined benefit pension scheme |
- |
- |
- |
- |
- |
(8.9) |
(8.9) |
|
Effect of asset limit on defined benefit pension scheme |
- |
- |
- |
- |
- |
5.1 |
5.1 |
|
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
- |
1.4 |
1.4 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
(1.8) |
5.8 |
4.0 |
|
Issue of share capital |
- |
0.1 |
- |
- |
- |
- |
0.1 |
|
Dividends paid |
- |
- |
- |
- |
- |
(4.7) |
(4.7) |
|
Employee share schemes |
- |
- |
(0.4) |
- |
- |
- |
(0.4) |
|
Recognition of share based payments |
- |
- |
- |
- |
- |
0.3 |
0.3 |
|
Balance at 31 August 2011 |
9.2 |
0.5 |
(2.6) |
(280.1) |
(2.1) |
214.9 |
(60.2) |
|
£m |
Share Capital |
Share Premium Account |
ESOPReserve |
Other1 Reserve |
Hedging Reserve |
Retained Earnings |
Total |
|
Balance at 1 September 2011 |
9.2 |
0.5 |
(2.6) |
(280.1) |
(2.1) |
214.9 |
(60.2) |
|
Profit for the period |
- |
- |
- |
- |
- |
13.8 |
13.8 |
|
Actuarial gain on defined benefit pension scheme |
- |
- |
- |
- |
- |
38.8 |
38.8 |
|
Effect of asset limit on defined benefit pension scheme |
- |
- |
- |
- |
- |
(42.4) |
(42.4) |
|
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
- |
1.1 |
1.1 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
- |
11.3 |
11.3 |
|
Dividends paid |
- |
- |
- |
- |
- |
(9.8) |
(9.8) |
|
Employee share schemes |
- |
- |
0.2 |
- |
- |
(1.0) |
(0.8) |
|
Recognition of share based payments |
- |
- |
- |
- |
- |
0.7 |
0.7 |
|
Balance at 29 February 2012 |
9.2 |
0.5 |
(2.4) |
(280.1) |
(2.1) |
216.1 |
(58.8) |
1 The 'Other reserve' includes reserves created in relation to the proforma restatement and the demerger of WH Smith PLC.
Condensed Consolidated Group Cash Flow Statement (Unaudited)
For the 6 months to 29 February 2012
|
|
|
6 months to |
6 months to |
Audited 12 months to |
|
|
£m |
Note |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
|
Net cash from operating activities |
9 |
2.9
|
3.8 |
25.2 |
|
|
Investing activities |
|
|
|
|
|
|
Interest received |
|
- |
- |
0.1 |
|
|
Acquisition of investment in Dawson Holdings PLC |
|
- |
- |
(17.9) |
|
|
Purchase of property, plant and equipment |
|
(0.1) |
(1.2) |
(2.3) |
|
|
Purchase of intangible assets |
|
(0.3) |
(0.3) |
(0.8) |
|
|
Net cash used in investing activities |
(0.4) |
(1.5) |
(20.9) |
|
|
|
Financing activities |
|
|
|
|
|
|
Interest paid |
|
(1.4) |
(1.5) |
(4.9) |
|
|
Dividends paid |
|
(9.8) |
(9.1) |
(13.8) |
|
|
Repayments of obligations under finance leases |
|
(1.1) |
(0.9) |
(1.6) |
|
|
Proceeds on issue of shares |
|
- |
- |
0.1 |
|
|
Purchase of shares for Employee Benefit Trust |
|
(0.8) |
- |
(0.3) |
|
|
Drawdown of borrowings |
|
- |
5.0 |
6.0 |
|
|
Increase in short term borrowings |
|
11.2 |
0.3 |
10.4 |
|
|
Net cash used in financing activities |
|
(1.9) |
(6.2) |
(4.1) |
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
0.6 |
(3.9) |
0.2 |
|
|
Opening net cash and cash equivalents |
|
4.2 |
4.0 |
4.0 |
|
|
Closing net cash and cash equivalents |
|
4.8 |
0.1 |
4.2 |
|
Notes to the Condensed Unaudited Interim Financial Statements
For the 6 months to 29 February 2012
|
1 |
General information |
These Interim Financial Statements are unaudited and not reviewed.
The information for the year ended 31 August 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
Going Concern
The Group meets its day to day working capital requirements through its committed bank facilities, as set out below:
· a £40m term loan which is repayable in November 2014;
· a £95m revolving credit facility is in place which is also repayable in November 2014;
· a committed asset backed facility of £15m, secured against the debtors of Bertram; and
· a further committed asset backed facility of £20m, secured against the debtors of Smiths News was signed on 5 April 2012.
The Group's forecasts, taking into account the board's future expectations of the Group's performance, indicate that there is substantial headroom within these bank facilities and the Group will continue to operate well within the covenants attaching to those facilities. These bank facilities together with renewed long term contracts with a number of publishers mean that the group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.
|
2 |
Significant accounting policies |
The unaudited condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in these unaudited condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 August 2011.
|
3 |
Segmental analysis of results |
The information presented to the Board for the purpose of resource allocation and assessment of segment performance was focused on the type of product sold. The principal activities of the Group reported to the Board were split into three categories of products sold:
- Newspaper and Magazine wholesaling (referred to as Smiths News).
- Book wholesaling (referred to as Bertram).
- Media and marketing services (referred to as DMD and DMS).
The following is an analysis of the Group's revenue and results by reportable segment in the six months ended 29 February 2012:
|
Continuing operations |
|
Newspaper & Magazine wholesaling |
Book wholesaling |
Media & Marketing |
Consolidated |
|||||||||||
|
£m |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
HY 2012 |
HY 2011 |
FY 2011 |
HY 2012 |
HY 2011 |
FY 2011 |
HY 2012 |
HY 2011 |
FY 2011 |
HY 2012 |
HY 2011 |
FY 2011 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Revenue |
|
784.3 |
798.8 |
1,600.7 |
91.9 |
73.5 |
132.9 |
17.0 |
- |
0.8 |
893.2 |
872.3 |
1,734.4 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Underlying operating profit |
|
19.2 |
18.3 |
38.0 |
3.2 |
2.4 |
3.7 |
0.8 |
- |
- |
23.2 |
20.7 |
41.7 |
|||
|
Non-recurring and other items |
|
(1.2) |
- |
(4.9) |
(1.1) |
(0.5) |
(1.6) |
(0.4) |
- |
- |
(2.7) |
(0.5) |
(6.5) |
|||
|
Operating profit |
|
18.0 |
18.3 |
33.1 |
2.1 |
1.9 |
2.1 |
0.4 |
- |
- |
20.5 |
20.2 |
35.2 |
|||
|
Other Segment information
£m |
|
|
|
|
|
Assets |
Liabilities |
|||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
HY 2012 |
HY 2011 |
FY 2011 |
HY 2012 |
HY 2011 |
FY 2011 |
|
|
Newspaper & Magazine wholesaling |
|
|
|
|
152.1 |
128.8 |
150.2 |
(211.4) |
(205.2) |
(212.1) |
||||
|
Book wholesaling |
|
|
|
|
|
|
|
43.4 |
46.8 |
47.8 |
(45.5) |
(29.9) |
(48.2) |
|
|
Media & Marketing |
|
|
|
|
|
|
|
13.1 |
- |
14.0 |
(10.5) |
- |
(11.9) |
|
|
Consolidated |
|
|
|
|
|
|
|
208.6 |
175.6 |
212.0 |
(267.4) |
(235.1) |
(272.2) |
|
|
3 |
Segmental analysis of results (continued) |
|
|
Geographic Analysis |
|
£m |
Revenue by destination |
Non-current assets by location of operation |
||||||
|
|
6 months to |
12 months to |
6 months to |
12 months to |
||||
|
|
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
||
|
United Kingdom |
865.7 |
861.4 |
1703.7 |
57.7 |
36.1 |
60.3 |
||
|
Europe |
19.4 |
5.6 |
16.8 |
2.2 |
- |
2.3 |
||
|
Rest of the world |
8.1 |
5.3 |
13.9 |
- |
- |
- |
||
|
Consolidated |
893.2 |
872.3 |
1734.4 |
59.9 |
36.1 |
62.6 |
||
Having considered the geographic split of revenue and assets the Group considers its exposure to the Eurozone to be minimal.
|
4 |
Non-recurring and other items |
|
|
6 months to 29 Feb 2012 |
6 months to 28 Feb 2011 |
|||
|
£m |
Network reorganisation |
Integration |
Amortisation of acquired intangibles |
Total |
Total |
|
Operating loss |
(0.9) |
(0.9) |
(0.9) |
(2.7) |
(0.5) |
|
Non-recurring loss before tax |
(0.9) |
(0.9) |
(0.9) |
(2.7) |
(0.5) |
|
Taxation |
0.2 |
0.2 |
- |
0.4 |
0.1 |
|
Non-recurring loss after tax |
(0.7) |
(0.7) |
(0.9) |
(2.3) |
(0.4) |
Non-recurring and other items totalled £2.7m before tax and £2.3m after tax.
The costs of integrating Dawson Holdings plc divisions incurred in the six month period were £0.9m of the total expected integration cost of £4m over 3 years. The largest element of the costs incurred in the period, £0.6m related to redundancy.
During the period we have spent a further £0.9m of network re-organisation costs, bringing the total to £3.6m against the expected £5m that was announced in October 2010 would be required to deliver the £30m of cost savings over 3 years. Key activities in the period include the Birmingham re-site and the announced closure of the Manchester depot. Of the costs in the period the largest amount relates to redundancy costs of £0.5m.
Amortisation of acquired intangibles have increased to £0.9m from £0.5m in HY 2011 due to the inclusion of intangible assets relating to the acquisition of Dawson Holdings plc.
|
5 |
Retirement benefit obligation |
The pension arrangements for employees are operated through the Smiths News PLC sections of the WH Smith PLC pension schemes. There is a defined benefit scheme, WH Smith Pension Trust ("Pension Trust"), and a defined contribution scheme, WH Smith Retirement Savings Plan.
The amounts recognised in the balance sheet within non-current liabilities in relation to these plans are as follows:
|
£m |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
Present value of the obligation |
(365.6) |
(344.3) |
(348.3) |
|
Fair value of plan assets |
434.8 |
376.2 |
375.1 |
|
Surplus |
69.2
|
31.9
|
26.8 |
|
Amounts not recognised due to asset limit |
(69.2) |
(31.9) |
(26.8) |
|
Retirement benefit obligation recognised in the balance sheet |
- |
- |
- |
The pension scheme had an IAS 19 surplus at 29 February 2012 of £69.2m (Feb 2011: £31.9m). The pension scheme is closed to further accrual and given the LDI policy adopted by the Pension Trustee, the value of this surplus available on a reduction of future contributions is £nil (2010: £nil). As a result the Group has not recognised this IAS 19 surplus on the balance sheet.
The valuation of the defined benefit pension scheme used for the IAS 19 disclosures is based upon the most recent actuarial valuation. Scheme assets are stated at their market value at the relevant reporting date.
Movements in the present value of the defined benefit scheme obligations in the period were as follows:
|
|
6 months to |
6 months to |
12 months to |
|
£m |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
At beginning of period |
(348.3) |
(367.4) |
(367.4) |
|
Current service cost |
(0.1) |
(0.1) |
(0.1) |
|
Interest cost |
(9.2) |
(8.8) |
(17.6) |
|
Actuarial (losses)/ gains |
(14.3) |
25.7 |
24.1 |
|
Benefits paid |
6.3 |
6.3 |
12.7 |
|
At end of period |
(365.6) |
(344.3) |
(348.3) |
Movements in the fair value of defined benefit scheme assets in the year were as follows:
|
|
6 months to |
6 months to |
12 months to |
|
£m |
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
At beginning of period |
375.1 |
408.6 |
408.6 |
|
Expected return on scheme assets |
9.8 |
9.3 |
18.7 |
|
Actuarial gains/ (losses) |
53.1 |
(38.5) |
(45.8) |
|
Contributions |
3.1 |
3.1 |
6.3 |
|
Benefits paid |
(6.3) |
(6.3) |
(12.7) |
|
At end of period |
434.8 |
376.2 |
375.1 |
|
6 |
Income tax expense |
|
£m |
6 months to 29 Feb 2012 |
6 months to 28 Feb 2011 |
12 months to 31 Aug 2011 |
|
Current tax |
6.3 |
5.4 |
11.3 |
|
Current tax - non-recurring items |
(0.4) |
(0.1) |
(1.1) |
|
Adjustment in respect of prior year UK corporation tax |
(0.4) |
- |
0.4 |
|
Total current tax charge |
5.5 |
5.3 |
10.6 |
|
Deferred tax - current year |
(0.6) |
(0.3) |
(0.4) |
|
Deferred tax - prior year |
0.1 |
- |
-
|
|
Total tax on profit |
5.0 |
5.0 |
10.2 |
|
Effective tax rate |
27% |
27% |
32% |
The tax rate for the six month period was 26.6% (Feb 2011: 26.7%) This represents the UK corporation tax rate of 26%, adjustments include a £0.4m tax credit relating to non-recurring items (Feb 2011: £0.1m).
Reconciliation of the tax charge
|
£m |
6 months to 29 Feb 2012 |
6 months to 28 Feb 2011 |
12 months to 31 Aug 2011 |
|
Profit before tax |
18.8 |
18.7 |
32.1 |
|
Tax on profit at the standard rate of UK corporation tax 26% (HY2011, 28%; FY2011 27%) |
4.9 |
5.2 |
8.7 |
|
Permanent differences |
0.5 |
0.1 |
1.2 |
|
Share schemes |
(0.1) |
(0.3) |
(0.1) |
|
Adjustment in respect of prior year UK deferred tax |
0.1 |
- |
- |
|
Adjustment in respect of prior year UK corporation tax |
(0.4) |
- |
0.4 |
|
Total tax charge |
5.0 |
5.0 |
10.2 |
|
7 |
Dividends |
During the six month period to 29 February 2012, the final dividend for the year ended 31 August 2011 of 5.0p (2010: 4.6p) per ordinary share was paid to shareholders.
In addition, the directors are recommending an interim dividend in respect of the period ended 29 February 2012 of 2.8p per ordinary share (2011: 2.6p). This has not been included as a liability in these condensed financial statements. This will be paid on 8 June 2012 to shareholders registered at the close of business on 11 May 2012.
|
8 |
Earnings per share |
|
|
6 months to |
6 months to |
12 months to |
|
|
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
|
£m |
£m |
£m |
|
Profit for the period |
13.8 |
13.7 |
21.9 |
|
Add back non-recurring items |
2.3 |
0.4 |
6.3 |
|
Underlying profit for the period |
16.1 |
14.1 |
28.2 |
|
|
|
|
|
|
|
Number m |
Number m |
Number m |
|
Weighted average number of shares in issue |
183.5 |
183.4 |
183.4 |
|
Shares held by Employee Benefit Trust (weighted) |
(2.4) |
(2.1) |
(2.0) |
|
Weighted average number of shares in issue for basic earnings per share |
181.1 |
181.3 |
181.4 |
|
Shares issuable (weighted) |
3.8 |
3.0 |
2.9 |
|
Weighted average number of shares in issue for diluted earnings per share |
184.9 |
184.3 |
184.3 |
|
|
|
|
|
|
Earnings per share: |
Pence |
Pence |
Pence |
|
Basic |
7.6 |
7.6 |
12.1 |
|
Diluted |
7.5 |
7.4 |
11.9 |
|
Adjusted earnings per share: |
|
|
|
|
Basic |
8.9 |
7.8 |
15.5 |
|
Diluted |
8.7 |
7.7 |
15.3 |
|
9 |
Net cash inflow from operating activities |
|
|
|
6 months to |
6 months to |
12 months to |
|
£m |
|
29 Feb 2012 |
28 Feb 2011 |
31 Aug 2011 |
|
Operating profit |
|
20.5 |
20.2 |
35.2 |
|
Pension funding |
|
(3.1) |
(3.1) |
(6.2) |
|
Depreciation of property, plant and equipment |
|
2.3 |
2.8 |
5.3 |
|
Amortisation of intangible assets |
|
1.0 |
1.3 |
2.4 |
|
Share based payments |
|
0.7 |
0.6 |
0.9 |
|
(Increase)/ decrease in inventories |
|
(1.7) |
4.8 |
3.7 |
|
Decrease/ (increase) in receivables |
|
2.2 |
(6.0) |
1.8 |
|
Decrease in payables |
|
(14.2) |
(16.3) |
(19.0) |
|
Income tax (paid)/ received |
|
(3.0) |
1.3 |
(1.7) |
|
(Decrease)/ increase in provisions |
|
(1.8) |
(1.8) |
2.8 |
|
Net cash inflow from operating activities |
2.9 |
3.8 |
25.2 |
|
|
10 |
Contingent Liability |
The Group has a potential liability that 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 (the actual liability of Smiths News PLC in any 12 month period is limited to £5m). The company's share of these leases has an estimated future cumulative gross rental commitment at 29 February 2012 of £12.5m (31 August 2011: £13.9m).
|
11 |
Related Party Transactions |
There have been no material changes to or material transactions with related parties as disclosed in Note 30 of the Annual report and Accounts for the year ended 31 August 2011.
|
12 |
Post Balance Sheet Events |
On 23 April 2012, Smiths News PLC acquired 100% of the share capital of Hedgelane Limited. Its principal subsidiary, The Consortium for Purchasing and Distribution Limited, is the leading independent distributor of consumable products to the education and care markets. A maximum Consideration of £38m is payable comprising:
· £32m of initial cash Consideration to be financed through existing available bank facilities;
· Up to £2m deferred Consideration payable in cash in January 2013 dependent on certain conditions and to be financed through existing available bank facilities; and
· Up to £4m of deferred Consideration payable in Smiths News PLC shares in January 2014 dependent on certain conditions
In FY11 the acquired business had gross assets of £26.8m and pre tax profits of £6.3m. Post the acquisition the Group's pro forma net debt/EBITDA is 1.9x.
The proximity of the acquisition date to the announcement date is such that the initial accounting for the business combination is incomplete.
|
13 |
Responsibility statement |
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting'
- the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
- the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board.
|
Mark Cashmore |
Nick Gresham |
|
Group Chief Executive |
Chief Financial Officer |
|
24 April 2012 |
24 April 2012 |
This information is provided by RNS
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