TIDMSMWH
RNS Number : 4456J
WH Smith PLC
27 April 2022
27 April 2022
WH SMITH PLC
INTERIM RESULTS ANNOUNCEMENT
For the six months ended 28 February 2022
The Group has emerged from the pandemic operationally stronger
and with significantly enhanced growth opportunities
-- Successfully navigated the business through the pandemic - recovery well underway
-- Group well positioned to benefit from new store opening
opportunities in the global travel market
-- Total Travel revenue in the 8 week period to 23 April 2022 at 114% of 2019
-- New store pipeline of over 125 stores won in Travel,
including 63 in North America and 31 in Spain; 28 new InMotion
technology stores now open in UK airports; global rollout of
InMotion continues
-- Focused plan on customer conversion, increasing average
transaction value (ATV) and category development continues to drive
performance as passenger numbers recover
-- Headline profit before tax and non-underlying items* of GBP14m (2021: loss of GBP19m)
-- Total Travel trading profit* of GBP10m (2021: loss of GBP28m)
-- High Street trading profit* of GBP26m (2021: GBP24m)
-- Continued investment across the business funded from cash flow and strong balance sheet
Carl Cowling, Group Chief Executive, commented:
"The Group has delivered a good performance with a strong
rebound in profitability. We have seen a recovery across all our
travel markets despite the impact of the Omicron variant in Q2, and
we are in a strong position to capture growth as the recovery
continues. I would like to thank all our colleagues around the
world who have worked extremely hard to help the business make such
good progress and deliver these results.
"Across the globe, we continue to roll out our Travel stores
across all our formats. Since the start of the financial year, we
have won 74 stores, including a significant tender win in Spain,
bringing the total pipeline to over 125 stores. We expect more
space to become available, particularly in North America, as our
markets continue to recover.
"In addition, we have opened 28 new technology stores in the UK
under our InMotion brand, including our recently opened flagship
store at Heathrow Terminal 5. These stores have received excellent
feedback from landlords and customers. Outside of the US and the
UK, we have opened and won a further 11 InMotion stores across 6
countries and we see significant potential to grow the brand
globally.
"Our High Street business delivered a resilient and profitable
performance in the period, despite the challenges facing the UK
high street. During the period, our online businesses continued to
perform well against a strong pandemic-related performance in the
prior year.
"Looking ahead, we continue to invest in the business where we
see attractive growth opportunities and have positioned the Group
well to benefit from the return of passenger numbers. We have
improved the scale and footprint of the business and are
operationally stronger than prior to the pandemic. While there are
some uncertainties in the broader global economy, the Group is well
positioned to capitalise on the ongoing recovery in our key markets
and take advantage of the many opportunities ahead."
* Pre-IFRS 16
Group financial summary:
IFRS Headline
--------------------------
pre-IFRS 16(2)
------------ ------------ -----------------------------------
6 months to 6 months to 6 months to
Feb 2022 Feb 2021 Feb 2022 6 months to Feb 2021
Travel UK trading profit/(loss)(1) GBP9m GBP(19)m GBP3m GBP(19)m
North America trading profit/(loss)(1) GBP8m GBP(4)m GBP8m GBP(3)m
Rest of the World trading loss(1) GBP(2)m GBP(8)m GBP(1)m GBP(6)m
------------ ------------ ------------ ---------------------
Total Travel trading profit/(loss)(1) GBP15m GBP(31)m GBP10m GBP(28)m
High Street trading profit(1) GBP35m GBP33m GBP26m GBP24m
----------------------------------------------------- ------------ ------------ ------------ ---------------------
Group profit/(loss) from trading operations(1) GBP50m GBP2m GBP36m GBP(4)m
----------------------------------------------------- ------------ ------------ ------------ ---------------------
Group profit/(loss) before tax and non-underlying GBP24m GBP(17)m GBP14m GBP(19)m
items(1)
Earnings / (loss) per share before non-underlying
items(1) 13.0p (12.9)p 6.9p (13.6)p
----------------------------------------------------- ------------ ------------ ------------ ---------------------
Non-underlying items(1) GBP(6)m GBP(21)m GBP(3)m GBP(18)m
----------------------------------------------------- ------------ ------------ ------------ ---------------------
Group profit/(loss) before tax GBP18m GBP(38)m GBP11m GBP(37)m
Basic earnings/(loss) per share 9.2p (26.7)p 5.3p (26.0)p
Diluted earnings/(loss) per share 9.2p (26.5)p 5.3p (25.8)p
----------------------------------------------------- ------------ ------------ ------------ ---------------------
Revenue performance:
% change
GBPm vs 6 months
to Feb 2021
Travel UK 189 139%
North America 116 111%
Rest of the World 33 106%
------------------- ------- -------------
Total Travel 338 125%
High Street 270 -%
-------
Group 608 45%
------------------- ------- -------------
(1) Alternative Performance Measure (APM) defined and explained
in the Glossary on page 41.
(2) The Group adopted IFRS 16 'Leases' with effect from 1
September 2019. The Group continues to monitor performance and
allocate resources based on pre-IFRS 16 information (applying the
principles of IAS 17), and therefore the results for the periods
ended 28 February 2022 and 28 February 2021 have been presented on
both an IFRS 16 and a pre-IFRS 16 basis.
Measures described as 'Headline' are presented pre-IFRS 16.
For the purposes of narrative commentary on the Group's
performance and financial position, both pre-IFRS 16 and IFRS 16
measures are provided. Reconciliations from pre-IFRS 16 measures to
IFRS 16 measures are provided in the Glossary on page 41. Group
revenue was not affected by the adoption of IFRS 16, and therefore
all references to and discussion of revenue are based on statutory
measures.
WEBCAST:
A live webcast will be held today at 9.00am BST for investors
and analysts and will be available on our website at
www.whsmithplc.co.uk .
ENQUIRIES:
WH Smith PLC
Nicola Hillman Media Relations 01793 563354
-------------------- -------------
Mark Boyle Investor Relations 07879 897687
-------------------- -------------
Brunswick
--------------------- -------------
020 7404
Tim Danaher 5959
-------------
WH Smith PLC's Interim Results 2022 are available at
www.whsmithplc.co.uk .
GROUP OVERVIEW
Strategic Initiatives
In the first few months of the financial year, we saw a steady
improvement in Travel's trading performance as vaccination rates
increased and travel restrictions eased. This improving trend was
interrupted by the emergence of the Omicron variant in December. We
acted quickly to ensure we kept stores trading, managed inventory
levels and continued to recruit colleagues, anticipating the impact
of Omicron would be relatively short. Since February, as travel
restrictions have been further eased, we have seen the recovery in
our travel markets continue with a strong performance over the
Easter holiday period.
Throughout the pandemic, we have continued to focus on a number
of key strategic initiatives, including:
-- Driving ATV and sales per passenger
-- Developing our formats in Travel to better meet customer and
landlord requirements by repositioning our stores as one-stop-shops
for travel essentials
-- Working with landlords, building on our strong relationships, to create opportunities for:
i. Winning new business
ii. Extending categories
iii. Renewing key contracts, and
iv. Improving the quality and location of the space where we
operate.
-- Investing capex in strategically important projects which set
us up well for the future, such as our new Travel store formats in
the UK, North America and the Rest of the World
-- Building our internet proposition by extending ranges,
investing in the websites, marketing, fulfilment and building
customer engagement through social media
-- Forensic focus on returns on investment, costs and cash.
Group Summary
Total Group revenue in the first half was GBP608m (2021:
GBP420m), up 45% on last half year.
Travel saw a steady recovery from September to November. This
was interrupted by the Omicron variant for a short period from
December to February. Since then, we have seen a relaxing of
restrictions around the world. Travel revenue for the half was at
82% of 2019(3) , compared to 63% in Q4 of the previous financial
year. In the 8 week period to 23 April 2022, Travel revenue has
been 114% of 2019(3) which demonstrates the strength of the
recovery. Over the Easter holiday period, Travel revenue was at
126% of 2019, giving us confidence for the key summer trading
period.
We saw a consistently good performance in High Street throughout
the half with the important December trading period at 90% of
2019.
The Headline Group profit from trading operations (1) for the
period was GBP36m (2021: loss of GBP4m) with Headline Group profit
before tax and non-underlying items(1) at GBP14m (2021: loss of
GBP19m).
Including non-underlying items, the Headline Group profit before
tax (1) was GBP11m (2021: loss of GBP37m). Group profit before tax,
on a statutory basis (after non-underlying items and including the
effect of IFRS 16), was GBP18m (2021: loss of GBP38m).
The Group's financing arrangements include a GBP250m Revolving
Credit Facility (RCF) which matures in 2025, GBP327m of convertible
bonds which mature in 2026 and GBP133m of term loan with a maturity
in 2025. The Group pays a fixed coupon at 1.625% on the convertible
bonds and the term loan is interest bearing at a margin over SONIA
and is due to mature on 28 April 2025.
(3) Equivalent month in 2019
The Group has the following cash, committed facilities and drawn
debt as at 28 February 2022:
28 February 2022 Maturity
Cash and cash equivalents GBP88m(4)
---------------------------- --------------------
Revolving Credit Facility(5) GBP250m April 2025
---------------------------- --------------------
Term Loan GBP133m April 2025
---------------------------- --------------------
Convertible bond GBP327m April 2026
---------------------------- --------------------
(4) Cash and cash equivalents comprises cash on deposit of
GBP65m and cash in transit of GBP23m
(5) Undrawn as at 28 February 2022 and 26 April 2022
As at 28 February 2022, Headline net debt(1) was GBP336m (2021:
GBP336m) with access to GBP315m of liquidity (GBP65m cash on
deposit and GBP250m undrawn RCF). We continue to focus on cash.
Group free cash flow(1) was an outflow of GBP29m (2021: outflow of
GBP13m), largely driven by capital investment of GBP38m (2021:
GBP22m).
The Group's approach to capital allocation remains
unchanged:
-- investing in our existing business and in new opportunities
where we see attractive rates of return, ahead of the cost of
capital;
-- re-establishing a dividend for our shareholders;
-- undertaking attractive value-creating acquisitions in strong and growing markets;
-- returning surplus capital to shareholders by way of share buybacks
In normalised conditions, we have a leverage target of between
0.75X and 1.25X EBITDA.
Outlook
The Group has continued to manage the business well in an
evolving trading environment. We continue to invest in new Travel
stores and have the financial capacity to capitalise on the ongoing
recovery in our Travel markets and the significant medium term new
store opening opportunities.
Our High Street business has delivered another robust
performance and is well placed to continue to generate cash from
its portfolio of well-located stores and internet businesses.
Given our low ticket-value categories and strong supplier
relationships, we are managing the impact of current inflationary
pressures.
Since the period end, and following the further relaxing of
travel restrictions, we have continued to see a good recovery
across all our travel markets and channels. We remain well placed
for the ongoing Travel recovery and the key summer trading period
which gives the Board confidence in the outlook for the remainder
of the financial year.
Looking further ahead, while the broader global economy remains
uncertain, the Group is well positioned to capitalise on the
ongoing recovery in our key markets and take advantage of the many
new store opening opportunities ahead.
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America
(NA) and Rest of the World (ROW).
Total revenue was GBP338m (2021: GBP150m), up 125% compared to
the previous year resulting in a Total Travel Headline trading
profit(1) in the period of GBP10m (2021: loss of GBP28m).
Trading profit/(loss) (1) Headline trading profit/(loss) (1)
GBPm (IFRS 16) (pre-IFRS 16) Revenue
6 months to 6 months to Feb 2021 6 months to 6 months to Feb 2021 6 months to 6 months to
Feb 2022 Feb 2022 Feb 2022 Feb 2021
------------ --------------------- ------------- ---------------------- ------------- -------------
Travel UK 9 (19) 3 (19) 189 79
North America 8 (4) 8 (3) 116 55
Rest of the
World (2) (8) (1) (6) 33 16
------------ --------------------- ------------- ---------------------- ------------- -------------
Total Travel 15 (31) 10 (28) 338 150
------------ --------------------- ------------- ---------------------- ------------- -------------
In all our markets, we have continued to focus on initiatives
that position us well as our markets recover :
-- Business development and winning new business
We do this through building and managing relationships with all
our landlord partners to win new space, improve the quality and
amount of space, develop new formats and extend contracts.
-- ATV growth and spend per passenger
We do this through our forensic analysis of the return on our
space, cross category promotions, merchandising, store layouts and
store refits.
-- Category development
We do this by developing adjacent product categories relevant
for our customers, such as health and beauty and electrical
accessories ranges; and expanding existing categories, e.g. premium
food ranges.
-- Minimising costs
We remain focused on cost control and minimising our cost base
to reflect the level of sales whilst retaining our ability to trade
as recovery occurs.
As restrictions have eased, we have seen an encouraging
improvement in passenger numbers, led first by domestic travel and
then short-haul. Whilst there are some uncertainties in the global
economy and the speed and shape of the recovery, we are confident
in the recovery of Travel, further supported by the consensus of
industry forecasts including the Airports Council International
(ACI) which expect passenger numbers to return to 2019 levels by
2024.
Despite the challenging trading environment during the pandemic,
we are more optimistic about the prospects for a full recovery and
further growth than ever before.
As at 28 February 2022, our global Travel business, including
MRG and InMotion, operated from 1,162 units (31 August 2021: 1,166
units). Outside of the UK, as at 28 February 2022 we were present
in over 100 airports and 29 countries.
Division Number of stores
UK 581
-----------------
North America 288
-----------------
Rest of World 293
-----------------
Total 1,162
-----------------
Excluding franchise units, Travel occupies 1.0m square feet (31
August 2021: 1.0m square feet)
TRAVEL UK
Our Travel UK business continues to recover strongly with a
small impact in the half from the Omicron variant.
% of 2019 Revenue(3)
Air Hospitals Rail Total
----- ---------- ----- ------
September 2021 42% 87% 71% 60%
----- ---------- ----- ------
October 2021 59% 92% 74% 71%
----- ---------- ----- ------
November 2021 71% 91% 74% 78%
----- ---------- ----- ------
December 2021 65% 94% 69% 74%
----- ---------- ----- ------
January 2022 59% 83% 58% 66%
----- ---------- ----- ------
February 2022 75% 94% 71% 78%
----- ---------- ----- ------
March 2022 92% 98% 81% 90%
----- ---------- ----- ------
Second half to
date(6) 104% 98% 84% 97%
----- ---------- ----- ------
We have experienced periods of strong growth, particularly over
the school holidays, indicating good demand for a return to leisure
travel. In addition, tour operators have reported a healthy
recovery in holiday bookings for 2022 versus pre-Covid levels. We
have a robust plan in place to maximise these opportunities over
the key summer trading period.
We have worked hard across all our channels, focusing on key
priorities within our control. Total revenue in the period was
GBP189m which, along with improved margins, resulted in a Headline
trading profit1 of GBP3m (2021: loss of GBP19m). We have seen a
consistent double digit increase in ATV versus 2019 across our Air,
Hospital and Rail channels during the period.
As at 28 February 2022, Travel UK had 581 stores of which 535
were open and 46 were hibernated. We anticipate opening all of
these hibernated stores in time for the peak summer trading period.
In addition, over the next three years, we expect to win and open
an additional 10 to 15 stores each year in UK Travel.
Air
In Air, we saw another step up in revenue over the half-term
holiday in February and again over the Easter period, with sales
over the February half-term and Easter holiday periods at 86% and
119% respectively of the comparable periods in 2019.
Leisure passengers continue to be our most important customer
segment. We are expanding our proposition for leisure passengers by
investing in new store formats. This includes the repositioning of
our traditional news, books and convenience (NBC) format to a
unique one-stop-shop for travel essentials format across our larger
stores. Within these one-stop-shop travel essential stores, we have
extended categories, such as health and beauty, technology, food to
go and pharmacy products to provide time-pressed travelling
customers with a fast and convenient shopping experience, under one
roof. This enables us to expose a broader range of categories to
customers which has resulted in an increase in sales per square
metre and a higher ATV and spend per passenger. This delivers good
returns for us and attractive economics for our landlords.
We have opened this one-stop-shop format in 4 airports,
including Heathrow Terminal 2, Gatwick and Manchester as well as at
Euston Station. Customer and landlord feedback has been very
positive. Going forward, we expect more space to become available
for this format.
We have now opened 28 of the InMotion stores that we recently
won in UK Air, including a flagship store at London Heathrow
Terminal 5. Combining the learnings and expertise from our InMotion
stores in the US, as well as the results of extensive customer
research in the UK, these stores provide a first-class customer
service experience and showcase a range of premium brands, such as
Apple, Bose, Sony and Samsung, as well as an extensive range of
tech accessories.
We are very pleased with the performance of the stores to date
and early indications suggest that annual sales will be ahead of
our original forecast of around GBP80m of incremental sales in a
normalised travel market.
(6) 8 weeks to 23 April 2022
Hospitals
The Hospital channel is an important channel for us and is our
second largest channel by revenue in Travel UK. In the first six
months, we saw an improvement in revenue as restrictions eased and
these stores performed well. This strength in performance has
extended to the second half of the financial year with revenue in
March at 98% of 2019 levels.
The opportunities to increase our number of stores in the
hospital market continues to grow with additional government
investment in the health service. We are well placed to meet the
increased demand for retail services as hospitals extend operating
hours to tackle department backlogs.
Our Hospital channel is a good example of how we continue to
innovate with a strong proposition tailored to each location, and a
broad suite of formats and brands, including more recently, our
first WH Smith hospital format with a Post Office. We also have 46
M&S Simply Food or shared space stores across our hospital
estate.
In addition, there are considerable opportunities for us to open
new space in hospitals. As at 28 February 2022, we operated from
136 stores in around 100 hospitals and we believe there are a
further 200 hospitals which could support at least one of our three
store formats (a WH Smith format, a M&S Simply Food and a Costa
Coffee).
Over the medium-term, we would expect to open on average c.8-10
new stores each year in this channel.
Rail
Rail remains an attractive channel. According to the Department
for Transport, pre-pandemic rail had approximately 1.7bn passenger
journeys per year with leisure passengers accounting for around 40%
of these journeys.
We have seen a steady improvement in revenue as travel
restrictions have eased. Passenger numbers are now at 74% of 2019
levels with leisure and weekend passenger numbers recovering the
fastest. We know from our segmentation and return on space analysis
that this customer segment is most valuable to us.
As with our other channels in Travel, we continue to invest in
new formats and in new opportunities to meet customer and landlord
needs. During the period, we opened our first one-stop-shop format
in Rail at London's Euston Station. This store combines our
traditional news, books and convenience offer with electrical
accessories, health and beauty products and a pharmacy. We have
received positive feedback from customers and it is performing
strongly.
In addition, we have opened a new standalone bookshop at
Edinburgh Waverley Station and our first rail store with a combined
M&S food offer at Bristol Temple Meads Station. Again, early
customer and landlord reaction has been positive.
NORTH AMERICA
We saw a strong performance from North America where, despite a
small impact from Omicron, there has been a steady recovery in air
passenger numbers and visitors to Las Vegas. Total revenue for the
period in NA was GBP116m (2021: GBP55m), with a Headline trading
profit(1) of GBP8m (2021: loss of GBP3m), reflecting the recovery
in passenger numbers and improved margins.
The growth opportunities in North America are substantial. The
US is the largest travel retail market in the world with annual
sales, pre-pandemic, at $3.2bn. Approximately 85% of passengers are
domestic, with leisure passengers being the biggest segment. TSA
(Transportation Security Administration) data continues to show the
gradual recovery in passenger numbers week on week, with passenger
numbers at the end of March 2022 at 90% of 2019 levels.
MRG currently have 120 and InMotion 122 stores open or won in
airports. Our analysis of the North America market pre-pandemic
shows that there were a total of 1,885 news and gift and specialty
retail stores in the top 50 airports, giving our North America
business a small market share of c.13%. With MRG's success rate of
winning new tenders and our expectation of the amount of space
likely to come to the market for tender over the medium-term, we
are well placed to grow our North America business.
We continue to invest in digital technology to enhance the
customer experience in our stores and, during the period, we opened
our first frictionless, checkout-free store at LaGuardia Airport,
New York. The WH Smith branded store, our first in the US, provides
US customers with a quick and easy way to shop using Amazon's Just
Walk Out technology and early customer and landlord feedback has
been very positive.
Outside of the airport business, the Resorts channel continues
to be resilient. MRG is a leading player in this channel in Las
Vegas with very longstanding relationships and a significant amount
of expertise. The Resorts channel has similar dynamics to our
Travel business with a high number of short stay visitors who tend
to stay around the Las Vegas Strip and Fremont Street areas, where
most of our stores are located. We saw a small impact from Omicron
on the number of visitors to Las Vegas but this has recovered in
March with conferences and events returning to the city. Passenger
numbers in Las Vegas' Harry Reid International Airport were in line
with 2019 by the end of March 2022, the best performance since
October 2021.
Our revenue performance has reflected these trends with overall
revenue in North America at 104%(7) of 2019 levels for the month of
March 2022. We currently have 273 stores open and trading (158 MRG
and 115 InMotion).
REST OF THE WORLD
Total revenue for the first six months in ROW was GBP33m (2021:
GBP16m). The Headline trading loss(1) for the period was GBP1m
(2021: loss of GBP6m) with the improvement driven by the higher
sales. The pace of recovery has varied by geography, as expected,
with Europe the best performing region. As we have done in Travel
UK, we remain focused on areas within our control, including
increasing ATV.
As this market recovers, we expect to see more space become
available. Our strong and compelling proposition and our very low
market share means there is significant opportunity to grow this
business in new and existing territories through NBC and with
technology tenders under the InMotion brand.
We continue to build on areas where we already have stores, for
example, in Spain which is one of the most popular destinations for
the UK leisure traveller. We know from our experience of operating
19 stores in Spain that our brand and offer resonates well in this
market. During the half, we won a significant and highly competed
tender in Spain which included 31 additional stores in locations
including Madrid, Barcelona, Majorca and Ibiza. We entered this
market 6 years ago with a single store in Alicante and have since
grown our presence to now become the market leading NBC operator in
Spanish airports with a total of over 50 stores. We expect to open
these 31 additional directly-run stores by 2023.
We have also won 6 stores in Australia as well as a further 8
stores in Malaysia, Finland, Bahrain and Sweden making a total of
52 stores won (including InMotion) since the start of the financial
year.
We continue to see good opportunities to win new business in the
technology market under our InMotion brand. During the period, we
have won 7 InMotion stores in Dublin, Milan and Stockholm and
Gothenburg. We now have a total of 11 InMotion stores outside of
the UK and North America of which 4 are open. We remain well
positioned to benefit from further opportunities as more space
becomes available.
We opened 12 stores in ROW in the half, including stores in
Australia, Spain and Germany, giving us a total of 293 stores now
open and a further 65 won and yet to open. Of the 293 stores open,
41% are directly-run, 9% are joint venture and 50% are franchise.
We will continue to use these three economic models flexibly in
order to create value and win new business.
Region Number of stores
Europe 86
-----------------
Middle East and India 86
-----------------
Asia Pacific 121
-----------------
(7) Includes proforma MRG for 2019. Constant currency
HIGH STREET
During the period, High Street delivered a resilient performance
with Headline trading profit(1) of GBP26m (2021: profit of GBP24m
which included GBP17m benefit from rates) with revenue of GBP270m,
in line with last year. We managed the business tightly, keeping
focused on costs and cash generation.
The market has changed significantly during the pandemic
resulting in a shift in consumer behaviour over the past two years.
Footfall on the UK high street is down c.20% versus 2019 levels
with internet retailing growing. The speed of this change has
accelerated during the pandemic.
As a consequence, we have acted quickly to this changing market
in a number of ways:
-- Reviewing our categories and extending them where appropriate
to ensure we have greater relevance in this market and where
competitors have closed. Additional categories include working from
home ranges and tech accessories, and we have increased our ranges
of cards where competition has weakened
-- Making best use of space in our well located portfolio, for
example, our trial with Deliveroo across 10 stores to deliver
products direct to door in under 20 minutes
-- Investing in our whsmith.co.uk, funkypigeon.com and
cultpens.com websites to position them for growth over the medium
term
-- We restructured the cost base to reduce costs and increase
the level of flexibility in our business model for example labour
costs in stores, head offices and the distribution centres, and in
occupancy costs reducing rent and keeping leases short and
flexible
The strategy we have in place in our High Street business
remains as relevant today as it has ever been: space and category
management, increasing margins and reducing costs.
We consider retail space as a strategic asset and we utilise our
space to maximise returns in the current year, in ways that are
sustainable for future years. We have extensive and detailed space
and range elasticity data for every store, built up over many years
and we utilise our space to maximise the return on every metre drop
of display space in every store. This approach remains as
appropriate today.
Driving efficiencies remains a core part of our strategy and we
continue to focus on all areas of cost in the business. We are on
track to deliver savings of GBP41m in the year. These savings come
from right across the business, including rent savings at lease
renewal (on average 50%) which continue to be a significant
proportion, marketing efficiencies and productivity gains from our
distribution centres. We have, for many years, actively hedged our
energy costs in stores well in advance of consuming the energy. We
are currently hedged to August 2023. The hedge was put in place 12
months ago.
Over the years, we have actively looked to put as much
flexibility into our store leases as we can, and this leaves us
well positioned in the current environment. The average lease
length in our High Street business, including where we are
currently holding over at lease end, is 2 years. We only renew a
lease where we are confident of delivering economic value over the
life of that lease. We have c.450 leases due for renewal over the
next three years, including 160 where we are holding over and in
negotiation with our landlord.
As at 28 February 2022, the High Street business operated from
537 WH Smith stores (2021: 544) which occupy 2.6m square feet
(2021: 2.6m square feet). 7 WH Smith stores were closed in the
period (2021: 7).
Specialist websites
During the period, we increased our investment and focus on
whsmith.co.uk and have seen good growth through investing in the
site. This has included improving customer conversion, product
presentation and broadening our approach to marketing. Our
specialist pen website, c ultpens.com , has continued to perform
well, particularly over the Christmas trading period. We have
extended our ranges to broaden our customer offer and introduced
related categories such as filing and storage and we are seeing
good results.
Following a very strong prior year and a period of exceptional
growth, Funkypigeon.com delivered, as expected, total revenue of
GBP21m (2021: GBP29m) and EBITDA of GBP4m (2021: GBP9m). We
therefore expect the current year will see lower sales and Headline
EBITDA(1) as a result of annualising lockdowns last year and
ongoing investment in the business. However, we remain confident of
the substantial opportunities to grow the platform further and
significantly grow revenue and profits over the medium-term.
The market for greetings cards in the UK is substantial and
estimated at GBP1.6bn(8) with online penetration estimated at
c.15%(8) with OC&C forecasting online growth of single cards
over the next three years, taking penetration to c.20%(8) of the
card market by 2024. The UK greetings card market has been stable
with adults sending on average 20(8) greetings cards per person
each year.
While the pandemic accelerated the growth of online shopping, it
is still apparent that this is an underpenetrated market with
plenty of opportunity to develop this business further and we
therefore see significant growth opportunities with
funkypigeon.com.
We continue to invest, both in the site and in strengthening the
management team. During the period, we have developed the
funkypigeon.com app to improve customer conversion by extending our
fulfilment centre, and we have also launched a new next day
delivery service, which operates seven days a week to further
enhance our customer proposition. Orders placed before 9:30pm will
be fulfilled the following day. This has received very positive
customer feedback.
Update on the Funky Pigeon Cyber Security Incident
Further to our recent announcement regarding a cyber security
incident impacting Funky Pigeon, the team is working to ensure we
can securely resume services for our customers, and we expect the
site to be live imminently.
No customer payment data, such as bank account or credit card
details, has been placed at risk - all of this data is processed
securely via accredited third parties and is securely encrypted. We
also do not believe any customer account passwords have been placed
at risk.
We take the security of customer data extremely seriously and we
are currently investigating the extent to which any personal data,
specifically names, addresses, e-mail addresses, telephone numbers
and personalised card and gift designs has been accessed. Whilst we
have written to our customers, our work is ongoing, and we will be
in contact with any affected customers should we have a material
update that affects them.
Based on the analysis of the situation performed to date, this
incident is not expected to have a material impact on the financial
position of the WH Smith Group.
Environmental, Social and Corporate Governance ('ESG')
W e have continued to focus on our ESG performance. Our ultimate
goal is for net zero by 2050 at the latest. We recognise that we
cannot do this alone, and we are collaborating with our suppliers,
landlords and customers to work towards this goal.
We were delighted to be included in this year's Dow Jones
Sustainability Index for the second year as one of only 12
retailers, globally, to be included. In addition, we are currently
the highest performing specialty retailer in Morningstar's ESG
Sustainalytics benchmark.
Across the Group, we continue to focus on more environmentally
responsible sourcing practices and we have redesigned and removed
plastic packaging from our seasonal ranges wherever possible.
We continue to champion children's literacy through our
partnership with the National Literacy Trust by donating books and
additional funds to ensure we support children across the UK who
most need this support.
The Group responded quickly to the humanitarian crisis in
Ukraine. We have supported by donating funds to the British Red
Cross, sending product from our distribution centres and
international stores, installing donation points for customers
across every till point in our UK store estate, and supporting our
colleagues and their families should they welcome a Ukrainian
refugee or family into their home. We have also committed to
support with employment opportunities within the WH Smith Group for
any refugee residing with a WH Smith colleague.
(8) Company estimates / OC&C 2019
GROUP
The Group generated Headline profit before tax(1) of GBP 14m
(2021: loss of GBP19m) and, after non-underlying items and IFRS 16,
statutory profit before tax of GBP18m (2021: loss of GBP38m).
IFRS Headline
pre-IFRS 16
--------------------------------- ---------------------- ----------------------
6 months 6 months 6 months 6 months
to to to to
GBPm Feb 2022 Feb 2021 Feb 2022 Feb 2021
--------------------------------- ---------- ---------- ---------- ----------
Travel UK profit / (loss)
(1) 9 (19) 3 (19)
North America profit / (loss)
(1) 8 (4) 8 (3)
Rest of the World loss (1) (2) (8) (1) (6)
---------------------------------- ---------- ---------- ---------- ----------
Total Travel trading profit
/ (loss) (1) 15 (31) 10 (28)
High Street trading profit
(1) 35 33 26 24
Group profit / (loss) from
trading operations (1) 50 2 36 (4)
Unallocated central costs
(1) (10) (9) (10) (9)
---------------------------------- ---------- ---------- ---------- ----------
Group operating profit
/ (loss) before non-underlying
items (1) 40 (7) 26 (13)
Net finance costs (16) (10) (12) (6)
---------------------------------- ---------- ---------- ---------- ----------
Group profit / (loss) before
tax and non-underlying items
(1) 24 (17) 14 (19)
Non-underlying items (6) (21) (3) (18)
---------------------------------- ---------- ---------- ---------- ----------
Group profit / (loss) before
tax 18 (38) 11 (37)
---------------------------------- ---------- ---------- ---------- ----------
Non-underlying items(1)
Items which are not considered part of the normal operating
costs of the business, are non-recurring and are exceptional
because of their size, nature or incidence, are treated as
non-underlying items and disclosed separately. Non-underlying items
in the half mainly relate to amortisation of acquired intangible
assets and impairment of property, plant and equipment and
right-of-use assets, due to the ongoing impact of Covid-19 on the
business , and are all non-cash.
The Group has carried out an assessment for indicators of
impairment across the store portfolio. This assessment has
identified a small number of stores where, following the emergence
of the Omicron variant and subsequent changes to government
guidance, the trading performance in the first 6 months of the year
has been more negatively impacted than expected, and the
longer-term impact of Covid-19 has become more clear, driven by the
ongoing impact of Covid-19 on consumer shopping patterns.
As a result of this exercise, a charge of GBP4m was recorded
within non-underlying items, of which GBP1m relates to property,
plant and equipment and GBP3m relates to right-of-use assets.
IFRS Headline
pre-IFRS 16
----------------------------------- ---------------------- ----------------------
6 months 6 months 6 months 6 months
to to to to
GBPm Feb 2022 Feb 2021 Feb 2022 Feb 2021
----------------------------------- ---------- ---------- ---------- ----------
Items directly attributable to
Covid-19
Impairment 4 14 1 6
Onerous leases - - - 2
Stock provisions, write-offs and
other costs - 4 - 7
Other non-underlying items
Integration costs - 1 - 1
Amortisation 2 2 2 2
6 21 3 18
----------------------------------- ---------- ---------- ---------- ----------
The cash spend relating to non -underlying items in the first
half was GBP8m and mainly related to restructuring announced in
2020 and 2021 .
Net Finance Costs
IFRS Headline
pre-IFRS 16
--------------------------------- ---------------------- ----------------------
6 months 6 months 6 months 6 months
to to to to
GBPm Feb 2022 Feb 2021 Feb 2022 Feb 2021
--------------------------------- ---------- ---------- ---------- ----------
Interest payable on bank loans
and overdrafts 4 6 4 6
Interest on convertible bonds 7 - 7 -
Unwind of discount on onerous - - 1 -
lease provisions (pre-IFRS 16)
Interest on lease liabilities 5 4 - -
--------------------------------- ---------- ---------- ---------- ----------
Net finance costs 16 10 12 6
--------------------------------- ---------- ---------- ---------- ----------
Pre-IFRS 16 net finance costs for the half were GBP12m (2021:
GBP6m) with the year on year increase reflecting the refinancing
activity during the prior year.
The interest on the convertible bonds includes the accrued
coupon (a fixed coupon of 1.625%) and c.GBP4m of the non-cash debt
accretion charge.
Lease interest of GBP5m arises on lease liabilities recognised
under IFRS 16, bringing the total net finance costs under IFRS 16
to GBP16m (2021: GBP10m).
We expect finance costs on a pre-IFRS 16 basis for the full year
to be approximately GBP25m, with cash finance costs approximately
GBP10m lower than this.
Tax
The effective tax rate (1) was 22% on the profit for the half
(2021: 2%). Corporation tax payments in the period were GBP3m
(2021: GBPnil).
Fixed Charges Cover(1)
6 months to Year ended
------------------------------------------- -------------------- -----------
GBPm Feb 2022 Feb 2021 Aug 2021
------------------------------------------- --------- --------- -----------
Headline net finance charges(1) 12 6 16
Net operating lease rentals (pre-IFRS
16) (1) 96 58 151
Total fixed charges 108 64 167
Headline profit/(loss) before tax
and non-underlying items (1) 14 (19) (55)
------------------------------------------- --------- --------- -----------
Headline profit before tax, non-underlying
items and fixed charges 122 45 112
------------------------------------------- --------- --------- -----------
Fixed charges cover(1) - times 1.1x 0.7x 0.7x
------------------------------------------- --------- --------- -----------
Fixed charges, comprising property operating lease rentals and
net finance charges, were covered 1.1 times (2021: 0.7 times) by
Headline profit before tax and fixed charges.
Cash Flow
Free cash flow(1) reconciliation
pre-IFRS 16
------------------------------------------- --------------------
6 months to
------------------------------------------- --------------------
GBPm Feb 2022 Feb 2021
------------------------------------------- --------- ---------
Headline Group operating profit / (loss)
before non-underlying items (1) 26 (13)
Depreciation, amortisation and impairment
(pre-IFRS 16)(9) 24 25
Non-cash items 5 3
-------------------------------------------- --------- ---------
Operating cash flow(1, 9) 55 15
Capital expenditure (38) (22)
Working capital (pre-IFRS 16)(9) (36) (1)
Net tax paid (3) -
Net interest paid (pre-IFRS 16) (7) (4)
Other - (1)
-------------------------------------------- --------- ---------
Free cash flow (29) (13)
-------------------------------------------- --------- ---------
(9) Excludes cash flow impact of non-underlying items
The free cash outflow(1) for the period was GBP 29m . This
mainly reflects the return to profit of the business with the
operating cash inflow increasing by GBP40m to GBP55m and continued
investment in the Group as we both recover and open new stores.
We had a working capital outflow of GBP36m in the half relating
to timing from last year as expected; the launch of InMotion in the
UK; investment to support the recovery of trading in Travel; and
the impact of the trading cadence in the Group where the first half
is the least cash generative time of the year.
Net corporation tax payments in the period were GBP3m, compared
to GBPnil last year.
Capital expenditure was GBP38m (2021: GBP22m). We anticipate the
full year capex spend to be around GBP110m which includes the
additional spend from winning 31 stores in Spain.
6 months to
---------------------------------- ---------------------
GBPm Feb 2022 Feb 2021
----------------------------------- --------- ----------
New stores and store development 20 10
Refurbished stores 4 4
Systems 6 5
Other 8 3
----------------------------------- --------- ----------
Total capital expenditure 38 22
----------------------------------- --------- ----------
Reconciliation of Headline net debt (1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See
Note 9 of the Interim financial statements for the impact of IFRS
16 on net debt.
As at 28 February 2022, the Group had Headline net debt(1) of
GBP336m comprising GBP 132 m term loan, GBP288m convertible bond,
GBP 4 m finance lease liabilities and cash of GBP 88 m, of which
GBP 65 m was on deposit (31 August 2021: Headline net debt of
GBP291m, comprising GBP132m term loan, GBP283m convertible bond,
GBP6m finance lease liabilities and cash of GBP130m ).
Headline
pre-IFRS 16
6 months to Year ended
GBPm Feb 2022 Feb 2021 Aug 2021
--------------------------------------------- --------- --------- -----------
Opening Headline net debt(1) (291) (301) (301)
Movement in period
Free cash flow (29) (13) 14
Pensions (1) (1) (3)
Non-underlying items (8) (22) (38)
Net purchase of own shares for employee
share schemes (2) - (2)
Equity component of convertible bond - - 41
Non-cash movements relating to convertible
bond (4) - (2)
Other (1) 1 -
--------------------------------------------- --------- --------- -----------
Closing Headline net debt(1) (336) (336) (291)
--------------------------------------------- --------- --------- -----------
Cash 88 72 130
Term Loans (net of fees) (132) (400) (132)
Convertible bond (288) - (283)
Finance leases (pre-IFRS 16) (4) (8) (6)
--------------------------------------------- --------- --------- -----------
(336) (336) (291)
--------------------------------------------- --------- --------- -----------
The Group's Headline net debt has increased by GBP45m since year
end. In addition to the free cash outflow of GBP29m, the Group has
incurred GBP8m of cash spend on non-underlying items which mainly
relate to restructuring costs as previously reported and charged to
the income statement in the prior year. This restructuring is now
complete.
We expect full year net debt to be around GBP335m.
Balance sheet
Headline
IFRS pre-IFRS 16
--------------------------- ------------------------------- -------------------------------
GBPm Feb 2022 Aug 2021 Feb 2021 Feb 2022 Aug 2021 Feb 2021
--------------------------- --------- --------- --------- --------- --------- ---------
Goodwill and other
intangible assets 483 473 471 484 474 472
Property, plant and
equipment 189 174 182 182 167 178
Right-of-use assets 330 328 370 - - -
Investments in joint
ventures 2 2 2 2 2 2
--------------------------- --------- --------- --------- --------- --------- ---------
1,004 977 1,025 668 643 652
--------------------------- --------- --------- --------- --------- --------- ---------
Inventories 153 135 123 153 135 123
Payables less receivables (195) (214) (148) (216) (237) (181)
--------------------------- --------- --------- --------- --------- --------- ---------
Working capital (42) (79) (25) (63) (102) (58)
--------------------------- --------- --------- --------- --------- --------- ---------
Derivative financial
liability - - (1) - - (1)
Net current and deferred
tax asset 55 56 32 45 46 20
Provisions (14) (14) (14) (28) (28) (27)
--------------------------- --------- --------- --------- --------- --------- ---------
Operating assets employed 1,003 940 1,017 622 559 586
Net debt (793) (755) (837) (336) (291) (336)
--------------------------- --------- --------- --------- --------- --------- ---------
Net assets excluding
pension liability 210 185 180 286 268 250
Pension liability (2) (3) (4) (2) (3) (4)
Deferred tax asset
on pension liability - 1 1 - 1 1
--------------------------- --------- --------- --------- --------- --------- ---------
Total net assets 208 183 177 284 266 247
--------------------------- --------- --------- --------- --------- --------- ---------
The Group had Headline net assets of GBP286m before pension
liabilities and associated deferred tax assets, GBP18m higher than
last year end reflecting the profit in the period. Headline net
assets after the pension liability and associated deferred tax
asset were GBP284m compared to GBP266m at 31 August 2021. Under
IFRS the Group had net assets of GBP208m.
Pensions
The latest actuarial valuation of the main defined benefit
pension scheme, the WHSmith Pension Trust, was at 31 March 2020 at
which point the deficit was GBP9m. The Group agreed a continuation
of the annual funding schedule with the Trustees from March 2020
for the following five years, which includes the deficit recovery
contributions and other running costs of just under GBP3m per
annum. During the period ended 28 February 2022, the Group made a
contribution of GBP1m to the scheme.
The scheme has been closed to new members since 1996 and closed
to defined benefit service accrual since 2007. The Liability Driven
Investment (LDI) policy adopted by the scheme continues to perform
well with approximately 100% of the inflation and interest rate
risks hedged.
As at 28 February 2022, the Group had an IFRIC 14 minimum
funding requirement in respect of the WHSmith Pension Trust of
GBP2m (31 August 2021: GBP2m) and an associated deferred tax asset
of GBPnil (2021: GBP1m) based on the latest schedule of
contributions agreed with the Trustees. As at 28 February 2022, the
scheme had an IAS 19 surplus of GBP357m (31 August 2021: surplus of
GBP284m) which the Group has continued not to recognise. There is
an actuarial deficit due to the different assumptions and
calculation methodologies used compared to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined
benefit pension scheme was GBPnil (31 August 2021: GBP1m).
Principal Risks and Uncertainties
The Group's Annual Report and Accounts 2021, a copy of which is
available on the Group's website at www.whsmithplc.co.uk, sets out
the principal risks and uncertainties which could impact the Group
for the remainder of the current financial year along with
mitigating activities relevant to each risk (see Annual Report and
Accounts 2021 pages 21 to 28). These include:
-- economic, political, competitive and market risks;
-- brand and reputation;
-- key suppliers and supply chain management;
-- store portfolio;
-- business interruption (including pandemics);
-- reliance on key personnel;
-- international expansion;
-- treasury, financial and credit risk management; and
-- cyber risk, data security and GDPR compliance; and
-- environment and sustainability.
The Annual Report and Accounts 2021 also identified specific
changes to our risk profile as a consequence of the Covid-19
pandemic following the Board's assessment of the ongoing impact of
Covid-19 as a significant risk facing the Group, due to uncertainty
around the timing and extent of recovery on our ability to re-open
and operate our Travel and High Street stores, both in the UK and
internationally, and its impact upon the levels of global and
domestic travel.
Ukrainian Conflict
We are saddened and horrified at the conflict in Ukraine, where
our thoughts are with those who have been impacted by this
conflict. WH Smith is supporting the victims of the war in several
ways, through charitable donations and measures aimed at supporting
refugees where they are being sponsored by our colleagues. WH Smith
has no direct operations in Russia, Ukraine or Belarus, nor do we
have any product suppliers located in these territories. In line
with many businesses, we do however anticipate that this conflict
may impact us, through increasing competition and costs of shipping
goods internationally from the Far East, and from increasing
inflationary pressures on our sourcing and supply chain. These
risks will continue to be monitored through our ongoing risk
management framework and principal risk reporting.
This announcement contains inside information which is disclosed
in accordance with the Market Abuse Regulations.
This announcement contains certain forward-looking statements
with respect to the operations, performance and financial condition
of the Group. By their nature, these statements involve uncertainty
since future events and circumstances can cause results to differ
from those anticipated. Nothing in this announcement should be
construed as a profit forecast. We undertake no obligation to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
WH Smith PLC
Condensed Group Income Statement
For the 6 months to 28 February 2022
6 months to 28 Feb 6 months to 28 Feb 12 months to 31
2022 2021 Aug 2021
(unaudited) (unaudited) (audited)
----------- ----- ------------------------------------- --------------------------------------- ------------------------------------------
Before Before Before
non-underlying Non-underlying non-underlying Non-underlying non-underlying Non-underlying
GBPm Note items(1) items(2) Total items(1) items(2) Total items(1) items(2) Total
----------- ----- -------------- -------------- ----- -------------- -------------- ------- -------------- -------------- -------
Revenue 2 608 - 608 420 - 420 886 - 886
Group
operating
profit /
(loss) 2 40 (6) 34 (7) (21) (28) (27) (65) (92)
Finance
costs 5 (16) - (16) (10) - (10) (24) - (24)
Profit /
(loss)
before tax 24 (6) 18 (17) (21) (38) (51) (65) (116)
Income tax
(expense)
/ credit 6 (5) 1 (4) - 3 3 24 12 36
----------- ----- -------------- -------------- ----- -------------- -------------- ------- -------------- -------------- -------
Profit /
(loss)
for the
period 19 (5) 14 (17) (18) (35) (27) (53) (80)
----------- ----- -------------- -------------- ----- -------------- -------------- ------- -------------- -------------- -------
Attributable to
equity
holders of the
parent 17 (5) 12 (17) (18) (35) (29) (53) (82)
Attributable to
non-controlling
interests 2 - 2 - - - 2 - 2
------------------ -------------- -------------- ----- -------------- -------------- ------- -------------- -------------- -------
19 (5) 14 (17) (18) (35) (27) (53) (80)
Earnings /
(loss)
per share
Basic 7 9.2p (26.7)p (62.6)p
Diluted 7 9.2p (26.5)p (62.6)p
(1) Alternative Performance Measure. The Group has defined and
explained the purpose of its alternative performance measures in
the Glossary on page 41.
(2) See Note 3 for an analysis of Non-underlying items. See
Glossary on page 41 for definition of alternative performance
measures.
WH Smith PLC
Condensed Group Statement of Comprehensive Income
For the 6 months to 28 February 2022
12 months
to
6 months 6 months
to 28 Feb to 28 Feb 31 Aug
2022 2021 2021
GBPm Note (unaudited) (unaudited) (audited)
-------------------------------------------------- ----- ------------- ------------- -----------
Profit / (loss) for the period 14 (35) (80)
-------------------------------------------------- ----- ------------- ------------- -----------
Other comprehensive (loss) / income:
Items that will not be reclassified subsequently
to the income statement:
Actuarial losses on defined benefit pension
schemes 4 (1) (1) (1)
(1) (1) (1)
Items that may be reclassified subsequently
to the income statement:
(Losses) / gains on cash flow hedges
- (1) -
* Net fair value losses
Exchange differences on translation of
foreign operations 11 (16) (13)
-------------------------------------------------- ----- ------------- ------------- -----------
11 (17) (13)
Other comprehensive income / (loss) for
the period, net of tax 10 (18) (14)
-------------------------------------------------- ----- ------------- ------------- -----------
Total comprehensive income / (loss) for
the period 24 (53) (94)
-------------------------------------------------- ----- ------------- ------------- -----------
Attributable to equity holders of the
parent 22 (53) (96)
Attributable to non-controlling interests 2 - 2
-------------------------------------------------- ----- ------------- ------------- -----------
24 (53) (94)
-------------------------------------------------- ----- ------------- ------------- -----------
WH Smith PLC
Condensed Group Balance Sheet
As at 28 February 2022
At At At
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm Note (unaudited) (unaudited) (audited)
------------------------------------ ----- ------------ ------------ -----------
Non-current assets
Goodwill 8 416 402 406
Other intangible assets 8 67 69 67
Property, plant and equipment 8 189 182 174
Right-of-use assets 8 330 370 328
Investments in joint ventures 2 2 2
Deferred tax assets 54 26 57
Trade and other receivables 6 8 6
------------------------------------ ----- ------------ ------------ -----------
1,064 1,059 1,040
------------------------------------ ----- ------------ ------------ -----------
Current assets
Inventories 153 123 135
Trade and other receivables 48 44 45
Current tax receivable 1 8 -
Cash and cash equivalents 9 88 72 130
------------------------------------ ----- ------------ ------------ -----------
290 247 310
------------------------------------ ----- ------------ ------------ -----------
Total assets 1,354 1,306 1,350
------------------------------------ ----- ------------ ------------ -----------
Current liabilities
Trade and other payables (249) (200) (265)
Retirement benefit obligations 4 (1) (1) (1)
Lease liabilities 9 (105) (119) (108)
Derivative financial liabilities - (1) -
Short-term provisions (2) (5) (2)
(357) (326) (376)
Non-current liabilities
Retirement benefit obligations 4 (1) (3) (2)
Bank loans and other borrowings 9 (420) (400) (415)
Long-term provisions (12) (9) (12)
Lease liabilities 9 (356) (390) (362)
Deferred tax liabilities - (1) -
------------------------------------ ----- ------------ ------------ -----------
(789) (803) (791)
------------------------------------ ----- ------------ ------------ -----------
Total liabilities (1,146) (1,129) (1,167)
------------------------------------ ----- ------------ ------------ -----------
Total net assets 208 177 183
------------------------------------ ----- ------------ ------------ -----------
Shareholders' equity
Called up share capital 11 29 29 29
Share premium 316 316 316
Capital redemption reserve 13 13 13
Translation reserve (16) (30) (27)
Other reserves (242) (280) (240)
Retained earnings 97 124 82
------------------------------------ ----- ------------ ------------ -----------
Total equity attributable to equity
holders of the parent 197 172 173
------------------------------------ ----- ------------ ------------ -----------
Non-controlling interests 11 5 10
------------------------------------ ----- ------------ ------------ -----------
Total equity 208 177 183
------------------------------------ ----- ------------ ------------ -----------
WH Smith PLC
Condensed Group Cash Flow Statement
For the 6 months to 28 February 2022
6 months to 12 months
to
GBPm 28 Feb 2022 28 Feb 2021 31 Aug 2021
Note (unaudited) (unaudited) (audited)
------------------------------------------- ---- ------------ ------------ -----------
Operating activities
Cash generated from operating activities 10 55 34 113
Interest paid(1) (12) (7) (13)
------------------------------------------- ---- ------------ ------------ -----------
Net cash inflow from operating activities 43 27 100
------------------------------------------- ---- ------------ ------------ -----------
Investing activities
Purchase of property, plant and equipment (33) (16) (37)
Purchase of intangible assets (5) (6) (7)
Acquisition of subsidiaries, net of
cash acquired - 1 1
Net cash outflow from investing activities (38) (21) (43)
------------------------------------------- ---- ------------ ------------ -----------
Financing activities
Distributions to non-controlling interests (1) - -
Issue of new shares for employee share
schemes - 1 1
Purchase of own shares for employee
share schemes (2) - (2)
Proceeds from issuance of convertible
bonds - - 327
Repayment of borrowings - - (267)
Financing arrangement fees - (1) (8)
Repayments of obligations under leases (44) (42) (86)
Net cash outflow from financing activities (47) (42) (35)
------------------------------------------- ---- ------------ ------------ -----------
Net (decrease) / increase in cash
and cash equivalents in the period (42) (36) 22
------------------------------------------- ---- ------------ ------------ -----------
Opening cash and cash equivalents 130 108 108
Effect of movements in foreign exchange - - -
rates
------------------------------------------- ---- ------------ ------------ -----------
Closing cash and cash equivalents 88 72 130
------------------------------------------- ---- ------------ ------------ -----------
(1) Includes interest payments of GBP5m on lease liabilities (28
February 2021: GBP5m)
WH Smith PLC
Condensed Group Statement of Changes in Equity
For the 6 months to 28 February 2022
Called Total
up equity
share attributable
capital to equity
and Capital holders
share redemption Translation Other Retained of the Non-controlling Total
GBPm premium reserve reserves reserves(1) earnings parent interest equity
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Balance at 1
September
2021 345 13 (27) (240) 82 173 10 183
Profit for the
period - - - - 12 12 2 14
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial losses
on
defined benefit
pension
schemes - - - - (1) (1) - (1)
Exchange
differences
on translation
of
foreign
operations - - 11 - - 11 - 11
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Total
comprehensive
income for the
period - - 11 - 11 22 2 24
Non-controlling
interest
distributions - - - - - - (1) (1)
Recognition of
share-based
payments - - - - 4 4 - 4
Employee share
schemes - - - (2) - (2) - (2)
Balance at 28
February
2022
(unaudited) 345 13 (16) (242) 97 197 11 208
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Balance at 1
September
2020 344 13 (14) (279) 158 222 5 227
Loss for the
period - - - - (35) (35) - (35)
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial losses
on
defined benefit
pension
schemes - - - - (1) (1) - (1)
Cash flow hedges - - - (1) - (1) - (1)
Exchange
differences
on translation
of
foreign
operations - - (16) - - (16) - (16)
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Total
comprehensive
loss for the
period - - (16) (1) (36) (53) - (53)
Recognition of
share-based
payments - - - - 2 2 - 2
Issue of shares 1 - - - - 1 - 1
Balance at 28
February
2021
(unaudited) 345 13 (30) (280) 124 172 5 177
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Balance at 1
September
2020 344 13 (14) (279) 158 222 5 227
Loss for the
year - - - - (82) (82) 2 (80)
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Other
comprehensive
income / (loss):
Actuarial losses
on
defined benefit
pension
schemes - - - - (1) (1) - (1)
Exchange
differences
on translation
of
foreign
operations - - (13) - - (13) - (13)
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
Total
comprehensive
loss for the
year - - (13) - (83) (96) 2 (94)
Issue of shares 1 - - - - 1 - 1
Issue of
convertible
bonds - value
of conversion
rights - - - 40 - 40 - 40
Deferred tax on
share-based
payments - - - - 1 1 - 1
Employee share
schemes - - - (1) 6 5 - 5
Non cash
movement
on
non-controlling
interests - - - - - - 3 3
Balance at 31
August
2021 (audited) 345 13 (27) (240) 82 173 10 183
----------------- -------- ------------ ------------ ------------ --------- ------------- ---------------- -------
(1) Other reserve includes Revaluation reserve of GBP2m (August
2021: GBP2m), ESOP reserve of GBP(5)m (August 2021: (GBP(5)m),
hedging reserve of GBPnil (August 2021: GBPnil), convertible bond
reserve of GBP40m (August 2021: GBP40m) and Other reserves of
GBP(279)m (August 2021: GBP(277)m). The 'Other' reserve includes
reserves created in relation to the historical capital
reorganisation and proforma restatement of GBP(238)m (2021:
GBP(238)m), the demerger from Smiths News PLC in 2006 of GBP69m
(2021: GBP69m) and cumulative amounts relating to employee share
schemes of GBP(110)m (2021: GBP(108)m).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval
of Interim Statement
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards (IFRS), with future changes
being subject to endorsement by the UK Endorsement Board. WH Smith
PLC transitioned to UK-adopted International Accounting Standards
in its consolidated financial statements on 1 September 2021. This
change constitutes a change in accounting framework. However, there
is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework.
This Condensed Interim Financial Statements for the 6 months
ended 28 February 2022 have been prepared in accordance with the
UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report should be read in conjunction with the Group's Annual Report
and Accounts 2021, which were prepared in accordance with both
"International Accounting Standards in conformity with the
requirements of the Companies Act 2006" and "International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union", and any public
announcements made by WH Smith PLC during the interim reporting
period.
The financial information set out in this report does not
constitute statutory accounts within the meaning of section 435 of
the Companies Act 2006. The Annual Report and Accounts 2021 have
been filed with the Registrar of Companies. The auditors' report on
those accounts was unqualified, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain statements under
s498(2) or s498(3) of the Companies Act 2006.
The Condensed Interim Financial Statements have been prepared in
accordance with the accounting policies set out in the 2021 Annual
Report and Accounts and it is these accounting policies which are
expected to be followed in the preparation of the full financial
statements for the financial year ended 31 August 2022, except as
outlined below.
Taxes on income in the interim period are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
The Group has adopted the following standards and
interpretations which became mandatory for the first time during
the current financial year. The adoption of these standards has had
no material impact on the Group.
Amendments to IFRS 9, IAS Interest Rate Benchmark Reform - Phase 2
39, IFRS 7, IFRS 4 and
IFRS 16
At the balance sheet date, the following standards and
interpretations, which have not been applied in these financial
statements, were in issue but not yet effective (and in some cases
had not yet been endorsed by the UK):
I FRS 17 Insurance contracts
Amendments to IAS 1 Presentation of financial statements on
classification of liabilities
Amendments to IAS 12 and IFRS Deferred tax related to assets and liabilities
1 arising from a single transaction
Annual Improvements 2018-2020
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8
The directors anticipate that the adoption of these standards
and interpretations will have no material impact on the Group's
financial statements.
Alternative performance measures
The Group has identified certain Alternative Performance
Measures ("APMs") that it believes will assist the understanding of
the performance of the business. These APMs are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The APMs are
not defined by IFRS and therefore may not be directly comparable
with other companies' APMs.
The key APMs that the Group uses include: measures before
non-underlying items, Headline profit before tax, Headline earnings
per share, trading profit, Headline trading profit, Headline Group
profit from trading operations, like-for-like revenue, gross
margin, fixed charges cover, EBITDA, Net debt/funds and Headline
net debt/funds and free cash flow.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval of Interim
Statement (continued)
Alternative performance measures (continued)
These APMs are set out in the Glossary on page 41 including
explanations of how they are calculated and how they are reconciled
to a statutory measure where relevant.
Non-underlying items
The Group has chosen to present a measure of profit and earnings
per share which excludes certain items, that are considered
non-underlying and exceptional due to their size, nature or
incidence, and are not considered to be part of the normal
operations of the Group. These measures may exclude the financial
effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, costs relating to business
combinations, impairment charges and other property costs,
significant items relating to pension schemes, and impairment
charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax
effect of these items. In addition, measures before non-underlying
items exclude the income statement impact of amortisation of
intangible assets acquired in business combinations, which are
recognised separately from goodwill. This amortisation is not
considered to be part of the underlying operating costs of the
business and has no associated cash flows.
The Group believes that the separate disclosure of these items
provides additional useful information to users of the financial
statements to enable a better understanding of the Group's
underlying financial performance.
Further details of the non-underlying items are provided in Note
3.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of condensed interim financial statements in
conformity with generally accepted accounting principles requires
management to make judgements, estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results
could differ from these estimates and any subsequent changes are
accounted for with an effect on income at the time such updated
information becomes available.
The most critical accounting judgements and sources of
estimation uncertainty in determining the financial condition and
results of the Group are those requiring the greatest degree of
subjective or complex judgement. These relate to the classification
of items as non-underlying, assessment of lease substitution
rights, determination of the lease term, determination of the
incremental borrowing rate, valuation of retirement benefit
obligations, valuation of goodwill and other non-current assets and
inventory valuation.
The key areas where the judgments, estimates and assumptions
applied have a significant risk of causing a material adjustment to
the carrying value of assets and liabilities are consistent with
those applied in the Group's financial statements for the year
ended 31 August 2021, as set out on pages 111 to 112 of those
financial statements.
For details of changes to significant estimates for impairment
of property, plant and equipment and right-of-use assets in the
current period, refer to Notes 3 and 8.
Going concern
The condensed interim financial statements have been prepared on
a going concern basis.
The directors are required to assess whether the Group can
continue to operate for at least the 12 months from the date of
approval of these financial statements, and to prepare the
financial statements on a going concern basis. The directors report
that they have assessed the principal risks, reviewed current
performance and forecasts, combined with expenditure commitments,
including capital expenditure, and borrowing facilities and any
mitigating actions in the control of the directors. The directors
have concluded that it is appropriate to adopt the going concern
basis of accounting in preparing these financial statements, having
undertaken a rigorous assessment of the financial forecasts, for
the reasons set out below.
In making the going concern assessment, the directors have
modelled two scenarios for a 16 month period to August 2023 in
order to assess the impact on the covenants which are also measured
at this date. The base case scenario is based on a Board approved
forecast for the year ending August 2022 and the three year plan
for the period ending 31 August 2023 adjusted for the latest view
of sales in our High Street business. In High Street we have
assumed that rents are paid as normal across the period and on a
monthly basis. In all Travel segments, rents are based on agreed
concessions or contractual agreements with landlords and our
reasonable assessment of extending those agreements where necessary
to incorporate the 16 month review period.
A downside scenario has also been modelled, applying severe but
plausible assumptions to the base case. This replicates the Group's
performance in the year ending August 2022, by applying the sales
experienced to January 2022 and forecast for the remainder of the
financial year, to the period December 2022 to August 2023.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
1. Basis of preparation, Accounting policies and Approval of Interim
Statement (continued)
Going concern (continued)
This includes a recurrence of another Covid-19 variant with no
mitigating actions, increasing the severity of the scenario. It
does not assume a full national lock down.
In both the base case and severe but plausible scenarios the
Group would continue to have sufficient liquidity headroom on its
existing facilities and meet its covenant tests, as described
below.
The covenants tests on the above facilities for August 2022 are
based on a minimum liquidity test. The covenant tests for February
2023 and August 2023 are based on leverage and fixed charge cover.
In the base case and severe but plausible scenarios, the Group
meets the conditions of all its covenant tests up to and including
August 2023.
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same
basis as that used by the Chief Operating Decision Maker for
assessing performance and allocating resources. The Group's
operating segments are based on the reports reviewed by the Board
of Directors who are collectively considered to be the chief
operating decision maker.
During the year ended 31 August 2021, the Group reviewed its
assessment of its operating segments, as a result of internal
reorganisation and changes to the composition of information used
by the Board to monitor the performance of the Group. This review
resulted in a change to the reportable segments identified, and
prior year comparatives have been restated. There is no change to
the total revenue or Group profit from trading operations.
For management and financial reporting purposes, the Group is
organised into two operating divisions and which comprise four
reportable segments - Travel UK, North America, Rest of the World
within the Travel division, and High Street. The North America
operating segment includes both MRG and InMotion.
The information presented to the Board is prepared in accordance
with the Group's IFRS accounting policies, with the exception of
IFRS 16, and is shown below as Headline information in Section b).
A reconciliation to statutory measures is provided below in
accordance with IFRS 8, and in the Glossary on page 41 (Note
A1)
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
2. Segmental analysis of results (continued)
a) Group revenue
6 months to 12 months
to
----------------------- ---------------------------- ------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
----------------------- ------------- ------------- ------------
Travel UK 189 79 195
North America 116 55 166
Rest of the World (1) 33 16 40
----------------------- ------------- ------------- ------------
Total Travel 338 150 401
High Street 270 270 485
Group revenue 608 420 886
----------------------- ------------- ------------- ------------
(1) Rest of the World revenue includes revenue from Australia of
GBP11m (28 February 2021: GBP9m). No other country has individually
material revenue.
Seasonality
Sales in the High Street business are subject to seasonal
fluctuations, with peak demand in the Christmas trading period,
which falls in the first half of the Group's financial year. Sales
in the Travel business are also subject to seasonal fluctuations,
with higher demand during peak travel periods particularly during
the summer holiday months.
b) Group results
6 months to 28 Feb 2022 6 months to 28 Feb 2021
(unaudited) (unaudited)
---------------- ------------------------------------------------- -------------------------------------------------
Headline Headline
non-underlying non-underlying
items items
Headline (pre-IFRS IFRS Headline (pre-IFRS IFRS
GBPm (pre-IFRS16)(1) 16) 16 Total (pre-IFRS16)(1) 16) 16 Total
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
Travel UK
trading
profit /
(loss) 3 - 6 9 (19) - - (19)
North America
trading profit
/ (loss) 8 - - 8 (3) - (1) (4)
Rest of the
World
trading loss (1) - (1) (2) (6) - (2) (8)
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
Total Travel
trading
profit /
(loss) 10 - 5 15 (28) - (3) (31)
High Street
trading
profit 26 - 9 35 24 - 9 33
Group profit /
(loss) from
trading
operations 36 - 14 50 (4) - 6 2
Unallocated
central
costs (10) - - (10) (9) - - (9)
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
Group operating
profit /
(loss)
before
non-underlying
items 26 - 14 40 (13) - 6 (7)
Non-underlying
items (Note 3) - (3) (3) (6) - (18) (3) (21)
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
Group operating
profit /
(loss) 26 (3) 11 34 (13) (18) 3 (28)
Finance costs (12) - (4) (16) (6) - (4) (10)
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
Group profit /
(loss) before
tax 14 (3) 7 18 (19) (18) (1) (38)
Income tax
(expense)
/ credit (3) 1 (2) (4) 1 2 - 3
Profit/ (loss)
for the period 11 (2) 5 14 (18) (16) (1) (35)
---------------- ---------------- ---------------- ----- ------ ---------------- ---------------- ----- ------
(1) Presented on a pre-IFRS 16 basis. Alternative Performance
Measures are defined and explained in the Glossary on page 41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
2. Segmental analysis of results (continued)
c) Other segmental items
6 months to 28 Feb 2022
Non-current assets(1) Right-of-use assets
-------------------------------- ----------------------------------------- ------------------------
Capital Depreciation
GBPm additions and amortisation Impairment Depreciation Impairment
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Travel UK 17 (8) - - -
North America 9 (5) - - -
Rest of the World 2 (1) - - -
Total Travel 28 (14) - - -
High Street 11 (7) (2) - -
Unallocated - (1) - - -
Headline, before non-underlying
items 39 (22) (2) - -
Headline non-underlying
items (pre-IFRS 16) - (2) (1) - -
Headline, after non-underlying
items 39 (24) (3) - -
Impact of IFRS 16 - - - (36) -
Non-underlying items (IFRS
16) - - - - (3)
Group 39 (24) (3) (36) (3)
6 months to 28 Feb 2021
Non-current assets(1) Right-of-use assets
-------------------------------- ----------------------------------------- ------------------------
Capital Depreciation
GBPm additions and amortisation Impairment Depreciation Impairment
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Travel UK 4 (8) - - -
North America 8 (6) - - -
Rest of the World 1 (2) - - -
Total Travel 13 (16) - - -
High Street 8 (9) - - -
Unallocated - (2) - - -
Headline, before non-underlying
items 21 (27) - - -
Headline non-underlying
items (pre-IFRS 16) - (2) (6) - -
Headline, after non-underlying
items 21 (29) (6) - -
Impact of IFRS 16 - 2 - (43) -
Non-underlying items (IFRS
16) - - 1 - (9)
Group 21 (27) (5) (43) (9)
(1) Non-current assets including property, plant and equipment
and intangible assets, but excluding right-of-use assets.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
3. Non-underlying items
Items which are not considered part of the normal operating
costs of the business are non-recurring and are considered
exceptional because of their size, nature or incidence, are treated
as non-underlying items and disclosed separately. Further details
of the non-underlying items are included in Note 1, and in the
Group Overview on page 11.
6 months to 12 months
to
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
Costs directly attributable to Covid-19
* Impairment of property, plant and equipment 1 5 14
* Impairment of right-of-use assets 3 9 28
* Write-down of inventories - 5 5
* Restructuring costs - 2 9
* Costs associated with refinancing - - 6
* Other - (3) (2)
Costs relating to business combinations - 1 2
Amortisation of acquired intangible
assets 2 2 3
Non-underlying items, before tax 6 21 65
Tax credit on non-underlying items (1) (3) (12)
Non-underlying items, after tax 5 18 53
Costs directly attributable to Covid-19
As described in the Group Overview the Covid-19 pandemic has
continued to impact on the Group's operations during the period. As
a result, the Group has incurred further costs which have been
separately recognised in non-underlying items, in accordance with
the Group's accounting policy. The charges have arisen as a direct
consequence of Covid-19.
Impairment of Property, plant and equipment and Right-of-use
assets
The Group has carried out an assessment for indicators of
impairment across the store portfolio. This assessment has
identified a small number of stores where, following the emergence
of the Omicron variant and subsequent changes to government
guidance, the trading performance in the first 6 months of the year
has been more negatively impacted than expected, and the
longer-term impact of Covid-19 has become more clear, driven by the
ongoing impact of Covid-19 on consumer shopping patterns.
The impairment review compares the value-in-use of individual
store cash-generating units to their carrying value, based on
managements' assumptions regarding likely future trading
performance. As a result of this exercise, a charge of GBP4m was
recorded within non-underlying items, of which GBP1m relates to
property, plant and equipment and GBP3m relates to right-of-use
assets.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands in both the current and prior
periods.
A tax credit of GBP1m has been recognised in relation to the
above items (28 February 2021: GBP3m).
Prior year non-underlying items
Costs directly attributable to Covid-19
Impairment of Property, plant and equipment and Right-of-use
assets
In the prior year, the Group carried out a review for potential
impairment across the entire store portfolio, as Covid-19 was
considered to be an over-arching indicator of impairment. Following
this review, a charge of GBP14m was recorded within non-underlying
items for impairment of retail store assets, of which GBP5m relates
to property, plant and equipment and GBP9m relates to right-of-use
assets. Refer to Note 8 for details of impairment of store
cash-generating units.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
3. Non-underlying items (continued)
Prior year non-underlying items (continued)
Costs directly attributable to Covid-19 (continued)
Write-down of inventories
The Group assesses the recoverability of the carrying value of
inventories at every reporting period and, where the expected
recoverable amount is lower than the carrying value, a provision is
recorded. In the prior period, provisions of GBP4m were recorded
against inventory, which related to dated and perishable stock and
stock subject to obsolescence. In addition, as a result of the
government lockdowns, the Group has incurred stock write-offs of
GBP1m mainly relating to perishable and dated product. The Group
has recognised these charges as non-underlying as they meet the
Group's definition of non-underlying.
Restructuring costs
In the prior year, the charges of GBP9m was principally
attributable to redundancies and restructuring costs following a
review of store operations across our High Street business, as a
result of the impact of Covid-19 on footfall on the UK high street.
These costs were presented as a non-underlying item as they are
part of a Board-agreed restructuring programme, and are considered
material one-off in nature.
Other
Other non-underlying items in the prior year relate to costs in
relation to international franchisees, and derecognition of lease
liabilities relating to the disposal of WHSmith France.
Costs relating to business combinations
During the year ended 31 August 2021, the Group incurred further
integration costs of GBP2m in relation to the acquisition of
Marshall Retail Group ('MRG'), which completed on 20 December
2019.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
4. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit schemes
(which are closed to new entrants and future service accrual) and
defined contribution pension schemes. The main pension arrangements
for employees are operated through a defined contribution scheme,
WH Smith Retirement Savings Plan, and a defined benefit scheme,
WHSmith Pension Trust. The most significant scheme is the defined
benefit WHSmith Pension Trust.
The retirement benefit obligations recognised in the balance
sheet for the respective schemes at the relevant reporting dates
were:
At At At
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
WHSmith Pension Trust (2) (3) (2)
United News Shops Retirement Benefits
Scheme - (1) (1)
Retirement benefit obligation recognised
in the balance sheet (2) (4) (3)
Recognised as:
Current liabilities (1) (1) (1)
Non-current liabilities (1) (3) (2)
WHSmith Pension Trust
The market value of the assets and the present value of the
liabilities in the scheme at the relevant reporting dates were:
GBPm At At At
28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
Present value of the obligations (1,047) (1,121) (1,172)
Fair value of plan assets 1,404 1,319 1,456
Surplus before consideration of asset
ceiling 357 198 284
Amounts not recognised due to effect
of asset ceiling (357) (198) (284)
Additional liability recognised due
to minimum funding requirements (2) (3) (2)
Retirement benefit obligation recognised
in the balance sheet (2) (3) (2)
Total loss recognised in the Statement of Comprehensive Income
("SOCI"):
12 months
6 months to to
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
Total actuarial gain / (loss) before
consideration of asset ceiling 115 13 (50)
(Loss) / return on plan assets excluding
amounts included in net interest cost (46) (86) 58
(Loss) / gain resulting from changes
in amounts not recognised due to effect
of asset ceiling excluding amounts
recognised in net interest cost (70) 72 (11)
Gain resulting from changes in additional
liability due to minimum funding requirements
excluding amounts recognised in net
interest cost - - 1
Total actuarial loss recognised in
other comprehensive income (1) (1) (2)
Actuarial losses recognised in the statement of comprehensive
income on the United News Shops Retirement Benefits Scheme were
GBPnil in the period to 28 February 2022 (28 February 2021:
GBPnil).
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
4. Retirement benefit obligations (continued)
Movement in net retirement benefit liability during the
period:
12 months
6 months to to
GBPm 28 Feb 2022 28 Feb 2021 31 Aug 2021
(unaudited) (unaudited) (audited)
At beginning of period (2) (3) (3)
Current service cost - - -
Contributions from sponsoring companies 1 1 3
Actuarial losses on defined benefit
pension schemes (1) (1) (2)
At end of period (2) (3) (2)
In accordance with the requirements of IFRIC 14 management has
recognised the net present value of the schedule of contributions
as a liability of GBP2m (28 February 2021: GBP3m). The defined
benefit pension schemes are closed to further accrual. The Group
does not have an unconditional right to derive economic benefit
from any surplus, as the Trustees retain the right to enhance
benefits under the Trust deed, and therefore the present value of
the economic benefits of the IAS 19 surplus in the pension scheme
of GBP357m (28 February 2021: GBP198m) available as a reduction of
future contributions is GBPnil (28 February 2021: GBPnil). As a
result, the Group has not recognised this IAS 19 surplus on the
balance sheet. There is an ongoing actuarial deficit primarily due
to the different assumptions and calculation methodologies used
compared to those on interpretation of IAS 19.
A full actuarial valuation of the scheme is carried out every
three years with interim reviews in the intervening years. The
latest full actuarial valuation of the Pension Trust was carried
out as at 31 March 2020 by independent actuaries using the
projected unit credit method. At 31 March 2020 the deficit was
GBP9m. The Group has agreed a continuation of the annual funding
schedule with the Trustees from March 2020 for the following 5
years, which includes the deficit recovery contributions and other
running costs of just under GBP3m.
During the period, the Group made a contribution of GBP1m to the
WHSmith Pension Trust (28 February 2021: GBP1m) in accordance with
the agreed pension deficit funding schedule. The Group expects the
cash payments for the year ended 31 August 2022 to be approximately
GBP3m in total in relation to the scheme (year ended 31 August
2021: GBP3m).
The principal long-term assumptions used in the IAS 19 valuation
were:
6 months to 12 months
to
28 Feb 2022 28 Feb 2021 31 Aug 2021
% (unaudited) (unaudited) (audited)
Rate of increase in pension payments 3.56 3.22 3.35
Rate of increase in deferred pensions 3.05 2.50 2.55
Discount rate 2.65 2.00 1.75
RPI Inflation assumption 3.75 3.30 3.45
CPI Inflation assumption 3.05 2.50 2.55
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
5. Finance costs
6 months to 12 months
to
----------------------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
------------- -------------
Interest payable on bank loans and
overdrafts 4 6 10
Interest on convertible bonds 7 - 4
Interest on lease liabilities 5 4 10
Net interest cost on the defined benefit - - -
pension liabilities
16 10 24
Interest on convertible bonds includes GBP3m accrued coupon and
GBP4m non-cash debt accretion charge.
6. Income tax expense
6 months to 12 months
to
----------------------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
------------- -------------
Tax on profit / (loss) 2 - -
Adjustment in respect of prior years - - (1)
Total current tax expense / (credit) 2 - (1)
Deferred tax - current year 4 - (11)
Deferred tax - prior year (1) - (4)
Deferred tax - adjustment in respect
of change in tax rates - - (8)
Tax on Headline (loss) / profit 5 - (24)
Tax on non-underlying items - deferred
tax (1) (3) (12)
Total tax on (loss) / profit 4 (3) (36)
The effective tax rate, before non-underlying items, was a
charge of 22 per cent (31 August 2021: credit of 47 per cent). The
22 per cent effective tax rate is higher than the statutory tax
rate of 19 per cent mainly due to differences in overseas tax
rates.
The tax charge is calculated by applying the full year estimated
tax rate to the profits made in the first half of the year.
The UK corporation tax rate is 19 per cent. From 1 April 2023
the corporation tax rate will increase to 25 per cent. This new law
was substantively enacted on 24 May 2021, and therefore the main
impact of this rate change on the deferred tax balances was
reflected in the 2021 financial statements which resulted in
increasing the effective tax rate credit in the prior year.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
7. Earnings / (loss) per share
a) Earnings
6 months to 12 months
to
---------------------------- ------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
------------- ------------- ------------
Profit / (loss) for the period attributable
to equity holders of the parent 12 (35) (82)
Non-underlying items (Note 3) 5 18 53
Headline profit / (loss) for the
period attributable to equity holders
of the parent 17 (17) (29)
b) Weighted average share capital
6 months to 12 months
to
---------------------------- ------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
(audited)
Millions (unaudited) (unaudited)
------------- ------------- ------------
Weighted average ordinary shares
in issue 131 131 131
Less weighted average ordinary shares - - -
held in ESOP Trust
Weighted average ordinary shares
for basic earnings per share 131 131 131
Add weighted average number of ordinary
shares under option - 1 -
Weighted average ordinary shares
for diluted earnings per share 131 132 131
c) Basic and diluted earnings / (loss) per share
6 months to 12 months
to
---------------------------- ------------
28 Feb 2022 28 Feb 2021 31 Aug 2021
(audited)
Pence (unaudited) (unaudited)
------------- ------------- ------------
Basic earnings / (loss) per
share 9.2 (26.7) (62.6)
Adjustments for non-underlying
items 3.8 13.7 40.5
Headline basic earnings /
(loss) per share 13.0 (13.0) (22.1)
Diluted earnings / (loss)
per share 9.2 (26.5) (62.6)
Adjustments for non-underlying
items 3.8 13.6 40.5
Headline diluted earnings
/ (loss) per share 13.0 (12.9) (22.1)
Diluted earnings per share takes into account various share
awards and share options including SAYE schemes, which are expected
to vest, and for which a sum below fair value will be paid.
At 28 February 2022 the convertible bond has no dilutive effect
as the inclusion of these potentially dilutive shares would improve
earnings per share (31 August 2021: No dilutive effect).
The calculation of EPS on a pre-IFRS 16 basis is provided in the
Glossary on page 41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
8. Non-current assets
During the 6 months to 28 February 2022, there were additions to
property, plant and equipment of GBP34m (28 February 2021: GBP15m).
There were no material disposals of tangible assets during the
period (28 February 2021: GBPnil). During the 6 months to 28
February 2022, there were additions right of use assets of GBP39m
(28 February 2021: GBP14m) through signing of new leases and lease
modifications.
Capital expenditure in respect of intangible assets totalled
GBP5m (28 February 2021: GBP6m) in the period. There were no
material disposals of intangible assets during the period (28
February 2021: GBPnil).
Goodwill increased by GBP10m in the period, as a result of
movements in exchange rates (28 February 2021: decrease of GBP16m,
as a result of movements in exchange rates).
Impairment of property, plant and equipment, right-of-use assets
and intangible assets
For impairment testing purposes, the Group has determined that
each store is a separate CGU. Each CGU is tested for impairment at
the balance sheet date if any indicators of impairment have been
identified. Following a review of available information, indicators
of impairment were identified in respect of a small number of High
Street CGUs and one CGU within the Rest of World segment. The
identified indicators include under-performance of individual
stores versus forecast as a result of slower than expected recovery
from Covid-19.
For these CGUs, Property, plant and equipment and right-of-use
assets have been tested for impairment by comparing the carrying
amount of each CGU with its recoverable amount determined from
value-in-use calculations. The value-in-use of each CGU has been
calculated using discounted cash flows derived from the Group's
latest forecasts, taking into account the projected impact of
Covid-19, and reflects historic performance and knowledge of the
current market, together with the Group's views on the future
achievable growth for these specific stores. Cash flows beyond the
forecast period are extrapolated using growth rates and inflation
rates appropriate to each store's location. Cash flows have been
included for the remaining lease life for the specific store. These
growth rates do not exceed the long-term growth rate for the
Group's retail businesses in the relevant territory. Where stores
have a relatively short remaining lease life, an extension to the
lease has been assumed where management consider it likely that an
extension will be granted. The discount rate applied to future cash
flows was 10.4% (31 August 2021: 10.4%)
Where the value-in-use was less than the carrying value of the
CGU, an impairment of property, plant and equipment and
right-of-use assets was recorded. The Group has recognised an
impairment charge of GBP3m to property, plant and equipment and
GBP3m to right-of-use assets as a result of impairment testing.
Impairments of GBP4m have been presented as non-underlying items in
the current year (see Note 3), and impairments of GBP2m have been
included in underlying results.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
9. Analysis of net debt
Movement in net debt can be analysed as follows:
Sub-total
Liabilities
Revolving from
Term Convertible credit financing Cash and
GBPm loans bonds facility Leases activities cash equivalents Net debt
At 1 September
2021 (132) (283) - (470) (885) 130 (755)
Other non-cash
movements - (5) - (31) (36) - (36)
Other cash movements - - - 44 44 (42) 2
Currency translation - - - (4) (4) - (4)
At 28 February
2022 (132) (288) - (461) (881) 88 (793)
Sub-total
Liabilities
Revolving from
Term Convertible credit financing Cash and
GBPm loans bonds facility Leases activities cash equivalents Net debt
At 1 September
2020 (400) - - (559) (959) 108 (851)
Proceeds from
borrowings - (327) - - (327) 327 -
Repayments of
borrowings 267 - - - 267 (267) -
Bifurcation of
convertible bond - 41 - - 41 - 41
Other non-cash
movements - (2) - (7) (9) - (9)
Other cash movements 1 5 - 91 97 (38) 59
Currency translation - - - 5 5 - 5
At 31 August 2021 (132) (283) - (470) (885) 130 (755)
An explanation of Alternative performance measures, including
Net debt on a pre-IFRS 16 basis is provided in the Glossary on page
41.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2021
9. Analysis of net debt (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates to their
fair value.
Lease liabilities
Other (non-cash) movements in lease liabilities mainly relate to
new leases, modifications and remeasurements in the year.
Term loans and revolving credit facilities
On 28 2021 April the Group announced new financing arrangements.
These included the issuance of GBP327m of convertible bonds, the
repayment of the existing GBP400m term loans and replacement with a
new GBP133m term loan, and an increased revolving credit facility
of GBP250m.
At 28 February 2022 the Group has in place a five-year committed
multi-currency revolving credit facility of GBP250m with Santander
UK PLC, BNP Paribas, HSBC UK Bank PLC, JP Morgan Securities PLC and
Barclays Bank PLC. The revolving credit facility is due to mature
on 28 April 2025. The utilisation is interest bearing at a margin
over SONIA. As at 28 February 2022, the Group has drawn down GBPnil
on this facility (28 February 2021: GBPnil drawn down on previous
facility).
As part of the new financing arrangements the additional
multi-currency revolving credit facility of GBP120m, which was
undrawn and due to expire in November 2021, was cancelled.
The Group has a four-year committed GBP133m term loan with Banco
Santander S.A., London Branch, Barclays Bank PLC, BNP Paribas and
HSBC UK Bank PLC, that was drawn down at the time of the
refinancing in April 2021. This loan is interest bearing at a
margin over SONIA and is due to mature on 28 April 2025.
Transaction costs incurred in the prior year of GBP1m relating
to the term loan are amortised to the Income statement through the
effective interest rate method. Transaction costs of GBP1m relating
to the RCF have been capitalised and are amortised to the Income
statement on a straight-line basis.
Convertible bonds
On 28 April 2021, the Group announced the launch of an offering
of GBP327m of guaranteed senior unsecured convertible bonds due in
2026. Settlement and delivery of convertible bonds took place on 7
May 2021. The total bond offering of GBP327m covers a five-year
term beginning on 7 May 2021 with a 1.625% per annum coupon payable
semi-annually in arrears in equal instalments. The bonds are
convertible into new and/or existing ordinary shares of WH Smith
PLC. The initial conversion price was set at GBP24.99 representing
a premium of 40% above the reference share price on 28 April 2021
(GBP17.85). If not previously converted, redeemed or purchased and
cancelled, the Bonds will be redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument,
consisting of a financial liability component and an equity
component, representing the value of the conversion rights. The
initial fair value of the liability portion of the convertible bond
is determined using a market interest rate for an equivalent
non-convertible bond at the issue date. The liability is
subsequently recognised on an amortised cost basis using the
effective interest rate method until extinguished on conversion or
maturity of the bonds. The remainder of the proceeds is allocated
to the conversion option and recognised in equity (Other reserves),
and not subsequently remeasured. As a result, GBP286m was initially
recognised as a liability in the balance sheet on issue and the
remainder of the proceeds of GBP41m, which represents the option
component, was recognised in equity.
Transaction costs incurred in the prior year of GBP6m were
allocated between the two components and the element relating to
the debt component of GBP5m is being amortised through the
effective interest rate method. The issue costs apportioned to the
equity component of GBP1m have been deducted from equity.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
10. Cash generated from operating activities
6 months to 12 months
to
-----------
GBPm 28 Feb 2022 28 Feb 2021 31 Aug 2021
(audited)
(unaudited) (unaudited)
Group operating profit / (loss) 34 (28) (92)
Depreciation of property, plant and
equipment 18 20 36
Impairment of property, plant and equipment 3 4 16
Amortisation of intangible assets 6 7 14
Depreciation of right of use assets 36 43 84
Impairment of right of use assets 3 9 28
Non-cash change in lease liabilities (5) (13) (23)
Share-based payments 4 2 6
Gain on disposal and re-measurement
of leases (2) (1) (3)
Other non-cash items - (3) (2)
(Increase) / decrease in inventories (17) 25 14
(Increase) / decrease in receivables (1) 8 4
(Decrease) / increase in payables (20) (39) 24
Pension funding (1) (1) (3)
Income taxes paid (3) - -
Income taxes refunded - - 10
Movement on provisions (through utilisation
or income statement) - 1 -
Cash generated from operating activities 55 34 113
11. Called Up Share Capital
28 Feb 2022 28 Feb 2021 (unaudited) 31 Aug 2021
(unaudited) (audited)
Number of shares Nominal value Number of shares Nominal value Number of shares Nominal value
(millions) GBPm (millions) GBPm (millions) GBPm
Equity
Ordinary shares
of 22 6/67p 131 29 131 29 131 29
Total 131 29 131 29 131 29
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 meetings of the Company.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
12. Contingent liabilities and capital
commitments
28 Feb 2022 28 Feb 2021 31 Aug 2021
(audited)
GBPm (unaudited) (unaudited)
Bank guarantees and guarantees in respect
of lease agreements 32 30 31
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 with Smiths News PLC, any such contingent
liability, which becomes an actual liability, will be apportioned
between the Group and Smiths News PLC in the ratio 65:35 (provided
that the actual liability of Smiths News PLC in any 12-month period
does not exceed GBP5m). The Group's 65 per cent share of these
leases has an estimated future rental commitment at 28 February
2022 of GBP1m (28 February 2021: GBP1m).
At 28 February 2022, contracts placed for future capital
expenditure approved by the directors but not provided for amounted
to GBP22m (28 February 2021: GBP9m).
13. Related Parties
Other than directors' remuneration, there have been no material
related party transactions during the interim period under
review.
14. Financial instruments
IFRS 13 requires disclosure of fair value measurements by level
based on the following measurement hierarchy:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices); and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
All fair value measurements made by the group are in the Level 2
category. The fair value of forward foreign exchange contracts has
been determined using forward currency exchange rates at the
balance sheet date. These have been provided by the individual
banking institutions with whom the contracts are held. There have
been no transfers of assets or liabilities between any levels of
the fair value hierarchy.
There were no material differences between the carrying value of
non-derivative financial assets and financial liabilities and their
fair values at the balance sheet date.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
14. Financial instruments (continued)
28 Feb 2022 28 Feb 2021 31 Aug
GBPm (unaudited) (unaudited) 2021 (audited)
Financial assets
Cash flow hedges:
Forward foreign currency contracts - - -
- - -
28 Feb 2022 28 Feb 2021 31 Aug 2021
GBPm (unaudited) (unaudited) (audited)
Financial liabilities
Cash flow hedges:
Forward foreign currency contracts - (1) -
- (1) -
15. Events after the balance sheet
date
WH Smith subsidiary, Funky Pigeon, the online greetings card and
gift retailer, was subject to a cyber security incident affecting
part of its systems on Thursday 14 April 2022.
No customer payment data, such as bank account or credit card
details, has been placed at risk - all of this data is processed
securely via accredited third-parties and is securely encrypted. We
are currently investigating the extent to which any personal data,
specifically names, addresses, e-mail addresses and personalised
card and gift designs has been accessed.
Based on the analysis of the situation performed to date, the
incident is not expected to have a material impact on the financial
position of the WH Smith Group.
WH Smith PLC
Notes to the Condensed Interim Financial Statements
For the 6 months to 28 February 2022
Statement of Directors' Responsibilities
The Directors confirm to the best of their knowledge that:
(a) The condensed financial statements have been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by
the UK; and
(b) This interim report includes a fair review of the
information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related parties' transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or the performance of the Group
during that period; and any changes in the related parties'
transactions described in the last annual report that could do
so.
The Directors of WH Smith PLC are listed on the website at
www.whsmithplc.co.uk/about-us/our-board .
By order of the Board
Carl Cowling Robert Moorhead
Group Chief Executive Chief Financial Officer and Chief Operating Officer
27 April 2022
Independent review report to WH Smith Plc
Report on the Consolidated Interim Financial Statements
Our conclusion
We have reviewed WH Smith Plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
Interim Results Announcement of WH Smith Plc for the 6 month period
ended 28 February 2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Condensed Group Balance Sheet as at 28 February 2022;
-- the Condensed Group Income Statement and Condensed Group
Statement of Comprehensive Income for the period then ended;
-- the Condensed Group Cash Flow Statement for the period then ended;
-- the Condensed Group Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
Announcement of WH Smith Plc have been prepared in accordance with
UK adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results Announcement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results Announcement, including the interim
financial statements, is the responsibility of, and has been
approved by the directors. The directors are responsible for
preparing the Interim Results Announcement in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results Announcement based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 April 2022
WH Smith PLC
Glossary (unaudited)
Alternative 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, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The
Alternative Performance Measures are not defined by IFRS and
therefore may not be directly comparable with other companies'
Alternative Performance Measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings
per share which excludes certain items that are considered
non-underlying and exceptional due to their size, nature or
incidence, and are not considered to be part of the normal
operations of the Group. These measures may exclude the financial
effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, costs relating to business
combinations, impairment charges and other property costs,
significant items related to pension schemes, and impairment
charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax
effect of these items. In addition, measures before non-underlying
items exclude the income statement impact of amortisation of
intangible assets acquired in business combinations, which are
recognised separately from goodwill. This amortisation is not
considered to be part of the underlying operating costs of the
business and has no associated cash flows.
The Group believes that they provide additional useful
information to users of the financial statements to enable a better
understanding of the Group's underlying financial performance.
IFRS 16
The Group adopted IFRS 16 in the financial year ended 31 August
2020. IFRS 16 superseded the lease guidance under IAS 17 and the
related interpretations. IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and
requires lessees to account for all leases under a single
on-balance sheet model as the distinction between operating and
finance leases is removed. The only exceptions are short-term and
low-value leases. At the commencement date of a lease, a lessee
will recognise a lease liability for the future lease payments and
an asset (right-of-use asset) representing the right to use the
underlying asset during the lease term. Lessees are required to
separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
For the purposes of narrative commentary on the Group's
performance and financial position in the Strategic report, the
effects of IFRS 16 have been excluded, in order to provide
meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income
statement and Segmental information is provided in Notes A1 and A2
below. There is no impact on cash flows, although the
classification of cash flows has changed, with an increase in net
cash inflows from operating activities being offset by a decrease
in net cash inflows from financing activities, as set out in Note
A9 below. The balance sheet as at 28 February 2022 both including
and excluding the impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are recognised as assets of the
Group at their fair value determined at the inception of the lease
or, if lower, at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. These assets are
depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, over the term of the relevant
lease. Lease payments are apportioned between finance charges and a
reduction of the lease obligations so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
charges are recognised directly in the income statement.
Rentals payable and receivable under operating leases are
charged to the income statement on a straight-line basis over the
term of the relevant lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term. The Group has a number of
lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are
accrued in line with revenues generated.
WH Smith PLC
Glossary (unaudited)
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures
issued by the European Securities and Markets Authority ('ESMA'),
we have provided additional information on the APMs used by the
Group below, including full reconciliations back to the closest
equivalent statutory measure.
APM Closest equivalent Reconciling Definition and purpose
IFRS measure items to
IFRS measure
Income Statement Measures
Headline Various See Notes Headline measures exclude the impact
measures A1-A11 of IFRS 16 (applying the principles
of IAS 17). Reconciliations of all
Headline measures are provided in
Notes A1 to A11.
Group profit Group profit See Note Group profit / (loss) before tax and
/ (loss) / (loss) before A1 and A2 non-underlying items excludes the
before tax tax impact of non-underlying items as
and non-underlying described below. A reconciliation
items from Group profit / (loss) before
tax and non-underlying items to Group
profit / (loss) before tax is provided
on the Group income statement on page
17, and on a Headline (pre-IFRS 16)
basis in Note A1 and A2.
Group profit Group operating See Note Group profit / (loss) from trading
/ (loss) profit / (loss) 2 and Note operations and segment trading profit
from trading A2 / (loss) are stated after directly
operations attributable share-based payment and
and segment pension service charges and before
trading non-underlying items, unallocated
profit / costs, finance costs and income tax
(loss) expense.
A reconciliation from the above measures
to Group operating profit / (loss)
and Group profit / (loss) before tax
on an IFRS 16 basis is provided in
Note 2 to the Condensed Interim Financial
Statements and on a Headline (pre-IFRS
16) basis in Note A2.
Non-underlying None Refer to Items which are not considered part
items definition of the normal operating costs of the
and see Note business, are non-recurring and considered
3 and Note exceptional because of their size,
A6 nature or incidence, are treated as
non-underlying items and disclosed
separately. The Group believes that
the separate disclosure of these items
provides additional useful information
to users of the financial statements
to enable a better understanding of
the Group's underlying financial performance.
An explanation of the nature of the
items identified as non-underlying
on an IFRS 16 basis is provided in
Note 3 to the Condensed Interim Financial
Statements , and on a Headline (pre-IFRS
16) basis in Note A6.
Earnings Earnings / Non-underlying Profit / (loss) for the year attributable
/ (loss) (loss) per items, see to the equity holders of the parent
per share share Note 7 and before non-underlying items divided
before non-underlying Note A4 by the weighted average number of
items ordinary shares in issue during the
financial year. A reconciliation is
provided on an IFRS 16 basis in Note
7 and on a Headline (pre-IFRS 16)
basis in Note A4.
Headline Group operating Refer to Headline EBITDA is Headline Group
EBITDA profit / (loss) definition operating profit / (loss) before non-underlying
items adjusted for pre-IFRS 16 depreciation,
amortisation and other non-cash items.
See Group Overview on page 13.
Effective None Non-underlying Total income tax charge / credit excluding
tax rate items see the tax impact of non-underlying items
Notes A3 divided by Group Headline profit /
and A6 (loss) before tax and non-underlying
items. See Note 6 on an IFRS 16 basis,
and Notes A3 and A6 on a pre-IFRS
16 basis.
Fixed charges None Refer to This performance measure calculates
cover definition the number of times Profit before
tax covers the total fixed charges
included in calculating profit or
loss. Fixed charges included in this
measure are net finance charges (excluding
finance charges from IFRS 16 leases)
and net operating lease rentals stated
on a pre-IFRS 16 basis.
The calculation of this measure is
outlined in Note A5.
Gross Gross profit Not applicable Where referred to throughout the Interim
margin margin financial statements, gross margin
is calculated as gross profit divided
by revenue.
WH Smith PLC
Glossary (unaudited)
APM Closest equivalent Reconciling Definition and purpose
IFRS measure items to
IFRS measure
Income Statement Measures (continued)
Like-for-like Movement in - Revenue Like-for-like revenue is the change
revenue revenue per change from in revenue from stores that have been
the income non like-for-like open for at least a year, with a similar
statement stores selling space at a constant foreign
- Foreign exchange rate. As a result of the
exchange Covid-19 pandemic, this measure has
impact not been utilised in the current year.
Balance Sheet Measures
Headline Net debt Reconciliation Headline net debt is defined as cash
net debt of net debt and cash equivalents, less bank overdrafts
and other borrowings and both current
and non-current obligations under
finance leases as defined on a pre-IFRS
16 basis. Lease liabilities recognised
as a result of IFRS 16 are excluded
from this measure.
A reconciliation of Net debt on an
IFRS 16 basis provided in Note A8.
Other measures
Free cash Net cash inflow See Group Free cash flow is defined as the net
flow from operating Overview cash inflow from operating activities
activities before the cash flow effect of IFRS
16, non-underlying items and pension
funding, less net capital expenditure.
The components of free cash flow are
shown in Note A7 and on page 13, as
part of the Group Overview.
A1. Reconciliation of Headline to Statutory Group operating
profit and Group profit before tax
6 months to
28 Feb 2022
pre-IFRS 16 basis IFRS 16 Basis
Headline, before Headline
non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Revenue 608 - 608 - 608
Cost of sales (240) - (240) - (240)
Gross profit 368 - 368 - 368
Distribution costs (264) - (264) 13 (251)
Administrative expenses (78) - (78) - (78)
Other income - - - 1 1
Non-underlying items - (3) (3) (3) (6)
Group operating profit /
(loss) 26 (3) 23 11 34
Finance costs (12) - (12) (4) (16)
Profit / (loss) before tax 14 (3) 11 7 18
Income tax (charge) / credit (3) 1 (2) (2) (4)
Profit / (loss) for the
period 11 (2) 9 5 14
Attributable to:
Equity holders of the parent 9 (2) 7 5 12
Non-controlling interests 2 - 2 - 2
11 (2) 9 5 14
WH Smith PLC
Glossary (unaudited)
A1. Reconciliation of Headline to Statutory Group operating
profit and Group profit before tax (cont'd)
6 months to
28 Feb 2021
pre-IFRS 16 basis IFRS 16 Basis
Headline, before Headline
non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Revenue 420 - 420 - 420
Cost of sales (169) - (169) - (169)
Gross profit 251 - 251 - 251
Distribution costs (196) - (196) 6 (190)
Administrative expenses (68) - (68) (1) (69)
Other income - - - 1 1
Non-underlying items - (18) (18) (3) (21)
Group operating loss (13) (18) (31) 3 (28)
Finance costs (6) - (6) (4) (10)
Loss before tax (19) (18) (37) (1) (38)
Income tax credit 1 2 3 - 3
Loss for the period (18) (16) (34) (1) (35)
Attributable to:
Equity holders of the parent (18) (16) (34) (1) (35)
Non-controlling interests - - - - -
(18) (16) (34) (1) (35)
A2. Reconciliation of Headline to Statutory Segmental trading
profit / (loss) and Profit / (loss) for the period
6 months to 6 months to
28 Feb 2022 28 Feb 2021
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
Non-underlying IFRS 16 Non-underlying IFRS 16
GBPm Headline items Total adjustments Total Headline items Total adjustments Total
Travel UK
trading
profit / (loss) 3 - 3 6 9 (19) - (19) - (19)
North America
trading
profit / (loss) 8 - 8 - 8 (3) - (3) (1) (4)
Rest of the
World
trading loss (1) - (1) (1) (2) (6) - (6) (2) (8)
Total Travel
trading
profit / (loss)
loss 10 - 10 5 15 (28) - (28) (3) (31)
High street
trading
profit 26 - 26 9 35 24 - 24 9 33
Group profit /
(loss)
from trading
operations 36 - 36 14 50 (4) - (4) 6 2
Unallocated
costs (10) - (10) - (10) (9) - (9) - (9)
Headline Group
operating
profit / (loss) 26 - 26 14 40 (13) - (13) 6 (7)
Non-underlying
items - (3) (3) (3) (6) - (18) (18) (3) (21)
Group operating
profit
/ (loss) 26 (3) 23 11 34 (13) (18) (31) 3 (28)
Finance costs (12) - (12) (4) (16) (6) - (6) (4) (10)
Profit / (loss)
before
tax 14 (3) 11 7 18 (19) (18) (37) (1) (38)
Income tax
(expense)
/ credit (3) 1 (2) (2) (4) 1 2 3 - 3
Profit / (loss)
for
the period 11 (2) 9 5 14 (18) (16) (34) (1) (35)
Attributable to:
Equity holders
of
the parent 9 (2) 7 5 12 (18) (16) (34) (1) (35)
Non-controlling
interests 2 - 2 - 2 - - - - -
11 (2) 9 5 14 (18) (16) (34) (1) (35)
WH Smith PLC
Glossary (unaudited)
A3. Reconciliation of Headline to Statutory tax (expense) /
credit
6 months to 6 months to
28 Feb 2022 28 Feb 2021
IFRS 16 IFRS IFRS 16
GBPm IAS 17 adjustments 16 IAS 17 adjustments IFRS 16
Headline profit / (loss)
before tax 14 10 24 (19) 2 (17)
Tax on profit 1 1 2 - - -
Adjustment in respect - - - - - -
of prior year UK corporation
tax
Total current tax charge 1 1 2 - - -
Deferred tax - current
year 3 1 4 (1) 1 -
Deferred tax - prior year (1) - (1) - - -
Tax on Headline profit
/ (loss) 3 2 5 (1) 1 -
Tax on non-underlying
items (1) - (1) (2) (1) (3)
Total tax on profit /
(loss) 2 2 4 (3) - (3)
A4. Calculation of Headline and Statutory earnings per share
6 months to 6 months to
28 Feb 2022 28 Feb 2021
IAS 17 Basis IFRS 16 Basis IAS 17 Basis IFRS 16 Basis
Non-underlying IFRS 16 Non-underlying IFRS 16
GBPm Headline items Total adjustments Total Headline items Total adjustments Total
Profit /
(loss)
for the
year,
attributable
to equity
holders
of the
parent 9 (2) 7 5 12 (18) (16) (34) (1) (35)
Weighted
average
shares in
issue
for earnings
per share 131 - 131 - 131 131 - 131 - 131
Weighted
average
shares in
issued
for diluted
earnings
per share 131 - 131 - 131 132 - 132 - 132
Basic
earnings
/ (loss) per
share 6.9p (1.6)p 5.3p 3.9p 9.2p (13.7)p (12.3)p (26.0)p (0.7)p (26.7)p
Diluted
earnings
/ (loss) per
share 6.9p (1.6)p 5.3p 3.9p 9.2p (13.6)p (12.2)p (25.8)p (0.7)p (26.5)p
WH Smith PLC
Glossary (unaudited)
A5. Fixed charges cover
GBPm 6 months to 6 months
28 Feb 2022 to
28 Feb 2021
Net finance costs (pre-IFRS 16) 12 6
Net operating lease rentals (pre-IFRS 16) 96 58
Total fixed charges 108 64
Headline profit / (loss) before tax 14 (19)
Headline profit / (loss) before tax and fixed
charges 122 45
Fixed charges cover - times 1.1x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
6 months to 6 months to
28 Feb 2022 28 Feb 2021
GBPm IAS 17 IFRS 16 IAS 17 IFRS 16
Costs relating to business combinations
- - - -
* Transaction costs
* Integration costs - - 1 1
Amortisation of acquired intangible
assets 2 2 2 2
Costs directly attributable
to Covid-19
* Impairment of property, plant and equipment 1 1 6 5
* Impairment of right-of-use assets - 3 - 9
* Other property costs - - 2 -
* Write-down of inventories - - 5 5
* Restructuring costs - - 2 2
* Other - - - (3)
Non-underlying items, before
tax 3 6 18 21
Tax credit on non-underlying
items (1) (1) (3) (3)
Non-underlying items, after
tax 2 5 15 18
Non-underlying items on a pre-IFRS 16 basis are calculated on a
consistent basis with IFRS 16, with the exception of the below
items.
A tax credit of GBP1m has been recognised in relation to the
above items (GBP1m under IAS 17).
Impairment of property, plant and equipment and right-of-use
assets
The impairment charge recognised on a pre-IFRS 16 basis differs
from that recognised under IFRS 16. This is mainly due to a lower
asset base pre-IFRS 16, coupled with lower expected store cash
flows, with rental expenses being included in the forecast cash
flows (treated as financing costs under IFRS 16), and a higher
discount rate. The calculation of the Group's weighted average cost
of capital differs under IFRS 16 versus pre-IFRS 16. The pre-tax
discount rate used in the IFRS 16 calculation was 10.4 per cent and
the pre-tax discount rate used in the pre-IFRS 16 calculation was
13.9 per cent.
Right-of-use assets are not recognised on a pre-IFRS 16
basis.
WH Smith PLC
Glossary (unaudited)
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases (continued)
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions
for onerous lease contracts; on an IFRS 16 basis, onerous lease
contracts are recognised as an impairment of the right-of-use
asset. As a result of the impact of Covid-19, the Group has carried
out a review of leases where the obligations of those leases exceed
the potential economic benefits expected to be received under them.
In the prior year, we have recognised onerous provisions of GBP2m
for stores where we now anticipate we will make a cash loss over
the remaining term of their leases.
A7. Free cash flow
Note 6 months 6 months
to to
2 8 Feb 28 Feb 2021
GBPm 2022
Cash generated from operating activities 10 55 34
Interest paid (12) (7)
Net cash inflow from operating activities 43 27
Impact of IFRS 16 (Note A9) (43) (41)
Add back:
* Cash impact of non-underlying items 8 22
* Pension funding 1 1
Deduct:
* Purchase of property, plant and equipment (33) (16)
* Purchase of intangible assets (5) (6)
Free cash flow (29) (13)
A8. Headline Net debt
6 months
to 6 months
2 8 Feb 202 to
GBPm Note 2 28 Feb 2021
Borrowings
- -
* Revolving credit facility
* Convertible bonds (288) -
* Bank loans (132) (400)
* Lease liabilities (461) (509)
Liabilities from financing activities (881) (909)
Cash and cash equivalents 88 72
Net debt (IFRS 16) 9 (793) (837)
* Add back lease liabilities recognised under IFRS
16(1) 457 501
Net debt (IAS 17) (336) (336)
(1) Excludes lease liabilities previously recognised as finance
leases on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
A9. Cash flow disclosure impact of IFRS 16
There is no impact on cash flows, although the classification of
cash flows has changed, with an increase in net cash inflows from
operating activities being offset by a decrease in net cash inflows
from financing activities.
6 months to 28 Feb 2022 6 months to 28 Feb 2021
Headline Headline
(pre-IFRS IFRS 16 (pre-IFRS IFRS 16
GBPm 16) Adjustment IFRS 16 16) Adjustment IFRS 16
Net cash inflows from
operating activities - 43 43 (14) 41 27
Net cash outflows from
investing activities (38) - (38) (21) - (21)
Net cash inflows/(outflows)
from financing activities (4) (43) (47) (1) (41) (42)
Net increase in cash in
the period (42) - (42) (36) - (36)
A10. Balance sheet impact of IFRS 16
The balance sheet as at 28 February 2022 including and excluding
the impact of IFRS 16 is shown below:
At 28 Feb 2022 At 28 Feb 2021
Headline Headline
(pre-IFRS IFRS 16 (pre-IFRS IFRS 16 IFRS
GBPm 16) Adjustment IFRS 16 16) Adjustment 16
Goodwill and other intangible
assets 484 (1) 483 472 (1) 471
Property, plant and equipment 182 7 189 178 4 182
Right-of-use assets - 330 330 - 370 370
Investments in joint
ventures 2 - 2 2 - 2
668 336 1,004 652 373 1,025
Inventories 153 - 153 123 - 123
Payables less receivables (216) 21 (195) (181) 33 (148)
Working capital (63) 21 (42) (58) 33 (25)
Derivative financial
liability - - - (1) - (1)
Net current and deferred
tax asset 45 10 55 20 12 32
Provisions (28) 14 (14) (27) 13 (14)
Operating assets employed 622 381 1,003 586 431 1,017
Net debt (336) (457) (793) (336) (501) (837)
Net assets excluding
pension liability 286 (76) 210 250 (70) 180
Pension liability (2) - (2) (4) - (4)
Deferred tax asset on
pension liability - - - 1 - 1
Total net assets 284 (76) 208 247 (70) 177
WH Smith PLC
Glossary (unaudited)
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a
pre-IFRS 16 basis are as follows:
GBPm 6 months 6 months
to 28 to 28
Feb 2022 Feb 2021
Net operating lease charges 96 58
For the year ended 31 August 2020, the Group adopted IFRS 16.
IFRS 16 requires lessees to account for all leases under a single
on-balance sheet model as the distinction between operating and
finance leases is removed. In order to provide comparable
information, the Group has chosen to present Headline measures of
operating profit/(loss) and profit/(loss) before tax, as explained
in Note 2 Segmental analysis.
The table above presents the pre-IFRS 16 net operating lease
charges, applying the principles of IAS 17, and Group accounting
policies as applicable prior to 1 September 2019, as described in
the Glossary on page 41.
The Group leases various properties under non-cancellable
operating lease agreements. The leases have varying terms,
escalation clauses and renewal rights. The Group has a number of
lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are
accrued in line with revenues generated.
The average remaining lease length across the Group is four
years.
Rentals payable and receivable under operating leases are
charged to the income statement on a straight-line basis over the
term of the relevant lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term.
Temporary rent reductions due to Covid-19, affecting rent
payments due on or before June 2022, have been recognised in the
Income statement in the period they are received.
A12. Analysis of retail stores and selling space
Number of High Street stores(1)
1 Sept 2021 Opened Closed 28 Feb
2022
Total 545 - (8) 537
(1) Excludes 100 WH Smith LOCAL franchised stores
Number of Travel units
A Travel store may consist of multiple units within one
location. On an individual unit basis, Travel stores can be
analysed as follows:
1 Sept 2021 Opened Closed 28 Feb
2022
Non franchise units 807 32 (31) 808
Joint Venture and Franchise
units(2) 359 12 (17) 354
Total 1,166 44 (48) 1,162
(2) Travel units include motorway and international franchise
units, and exclude kiosks in India, and Supanews and Wild Cards and
Gifts franchisees in Australia.
Retail selling square feet ('000s)
1 Sept Opened Closed 28 Feb
2021 2022
High Street 2,610 - (23) 2,587
Travel 995 58 (44) 1,009
------
Total 3,605 58 (67) 3,596
Total Retail selling square feet does not include franchise
units.
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END
IR KZGZDRVDGZZM
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April 27, 2022 02:01 ET (06:01 GMT)
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