TIDMSMWH
RNS Number : 9079F
WH Smith PLC
10 November 2022
10 November 2022
WH SMITH PLC
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEARED 31 AUGUST 2022
Group now in its strongest ever position as a global travel
retailer;
Dividend reinstated
-- Significant recovery in Group performance with Group revenue of GBP1,400m (2021: GBP886m)
-- Strong performance from Travel; momentum continuing into new
financial year; total Travel revenue in 10 week period to 5
November 2022 at 148% of 2019
-- Final dividend of 9.1p per share reflecting confidence in future and strong current trading
-- New store pipeline of 150 stores won and yet to open in
Travel, including 70 in North America, with over 125 stores due to
open this financial year
-- Headline profit before tax and non-underlying items* of GBP73m (2021: loss of GBP55m)
-- Total Travel trading profit* of GBP89m (2021: loss of GBP39m)
-- High Street trading profit* of GBP33m (2021: GBP19m)
-- Investing for growth with capex in the current financial year expected to be around GBP150m
-- Strong balance sheet with leverage now at 2x with further strengthening expected
Carl Cowling, Group Chief Executive, commented:
"2022 has been a successful year for WHSmith and we enter the
new financial year with the Group in its strongest ever position as
a global travel retailer with multiple growth opportunities across
the world.
"We have opened 98 new stores in the year and we have a pipeline
of 150 new stores yet to open across 16 countries and in airports
as varied as Los Angeles, Salt Lake City, Brussels, Oslo and
Melbourne.
"We continue to grow our North America business at pace and we
have a very strong pipeline of new store openings. In the current
financial year, our North America business is set to become larger,
in profit terms, than our UK High Street business and we see
significant opportunities to grow this business further.
"Our InMotion technology stores have had a very good year. We
now have over 150 InMotion stores open, including 36 outside of the
US. Our recently opened stores in the UK are trading ahead of our
initial expectations and we have received excellent feedback from
customers and landlords. We see significant scope to grow the brand
globally.
"Our High Street division, including our online businesses,
delivered another resilient and profitable performance. These
businesses continue to generate strong cash flow allowing us to
invest across the Group.
"The achievements of the last year are due to the tremendous
efforts of the entire team around the world for which I am
sincerely grateful.
"The resumption of the dividend announced today reflects our
strong current trading and the Board's confidence in the future
prospects of the Group.
"We have started the year well and, while there is economic
uncertainty, travel patterns globally continue to improve and this,
combined with the strength of the Group's growth opportunities,
means that we are well positioned for a year of significant
progress in 2023."
* Pre-IFRS 16
Group financial summary:
Headline
IFRS 16 pre-IFRS 16(2)
--------------------- ---------------------
Aug 2022 Aug 2021 Aug 2022 Aug 2021
Travel UK trading profit/(loss)(1) GBP60m GBP(29)m GBP54m GBP(32)m
North America ('NA') trading profit(1) GBP33m GBP2m GBP31m GBP6m
Rest of the World ('ROW') trading profit/(loss)(1) GBP3m GBP(17)m GBP4m GBP(13)m
------------------------------------------------------------------ --------- ---------- --------- ----------
Total Travel trading profit/(loss)(1) GBP96m GBP(44)m GBP89m GBP(39)m
High Street trading profit(1) GBP45m GBP36m GBP33m GBP19m
------------------------------------------------------------------ --------- ---------- --------- ----------
Group profit/(loss) from trading operations(1) GBP141m GBP(8)m GBP122m GBP(20)m
Group profit/(loss) before tax and non-underlying items(1) GBP83m GBP(51)m GBP73m GBP(55)m
Diluted earnings/(loss) per share before non-underlying items(1) 47.7p (22.1)p 41.7p (23.7)p
Non-underlying items(1) GBP(20)m GBP(65)m GBP(12)m GBP(49)m
--------- ---------- ---------
Group profit/(loss) before tax GBP63m GBP(116)m GBP61m GBP(104)m
Basic earnings/(loss) per share 36.2p (62.6)p 35.4p (54.2)p
Diluted earnings/(loss) per share 35.6p (62.6)p 34.8p (54.2)p
------------------------------------------------------------------ --------- ---------- --------- ----------
Revenue performance:
Total
% change
GBPm vs Aug
2021
Travel UK 521 167%
North America 288 73%
Rest of the World 118 195%
------------------- ------- ----------
Total Travel 927 131%
High Street 473 (2)%
-------
Group 1,400 58%
------------------- ------- ----------
(1) Alternative Performance Measure (APM) defined and explained
in the Glossary on page 47.
(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 years
ended 31 August 2022 and 31 August 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 47. 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.
ENQUIRIES:
WH Smith PLC
Nicola Hillman Media Relations 01793 563354
Mark Boyle Investor Relations 07879 897687
Brunswick
Tim Danaher 020 7404 5959
WH Smith PLC's Preliminary Results 2022 are available at
whsmithplc.co.uk .
GROUP OVERVIEW
The Group has had a strong year and is now trading ahead of 2019
levels. We continue to capitalise on multiple growth opportunities
by utilising our broad suite of brands, new store opening programme
and continuing to win new stores throughout the world. The Group is
now in its strongest ever position as a global travel retailer.
We have had another very successful year in winning new
business. Across North America, Rest of the World and the UK we won
99 stores in the year and now have 150 stores won and due to open,
with over 125 stores scheduled to open in the current financial
year.
Despite some disruption from Covid-19 in the first half, it has
been a year of substantial progress supported by the key pillars of
our strategy and our ongoing forensic approach to retailing across
each of our businesses. These include:
-- Space growth:
o Opening new stores;
o Winning new business;
o New, better quality space;
o Extending contracts;
o Developing formats and brands
-- ATV growth:
o Space management;
o Refitting stores;
o Range development
-- Category development:
o One-stop-shop travel essentials format;
o Developing the InMotion brand;
o Improving ranges, e.g. health and beauty, food to go, and
tech
-- Cost and cash management:
o Flexible rent model;
o Investing for growth (capex in the current financial year
expected to be around GBP150m);
o Productivity and efficiencies
-- Maintain profitability of UK High Street business and grow our digital businesses
-- Disciplined capital allocation, supporting investment in growth and shareholder returns
Group summary
The Group saw a strong recovery during the year which has
continued into the current financial year. Total Group revenue as a
percentage of 2019 total revenue by quarter has been:
% of 2019 Revenue(3)
FY 2022 FY 2023
------------------------ ------------
Q1 Q2 Q3 Q4 10 weeks to
5 November
2022
---- ---- ----- ----- ------------
Travel UK 69% 72% 102% 113% 118%
North America(4) 91% 91% 110% 116% 117%
Rest of the World(5) 41% 48% 87% 116% 131%
---- ---- ----- ----- ------------
Total Travel(6) 83% 81% 122% 135% 148%(8)
---- ---- ----- ----- ------------
High Street(7) 87% 84% 79% 81% 87%
---- ---- ----- ----- ------------
Group 85% 83% 106% 117% 125%
---- ---- ----- ----- ------------
Second half revenue for the Group was 113% of 2019 on a total
basis and 89% on a like-for-like(1) ('LFL') basis as shown in the
table below. LFL revenue in Travel was 92% of 2019.
FY 2022 H2
% of 2019 Revenue(3)
Total LFL(1)
----------- ------------
Travel UK 109% 94%
North America(4) 113% 94%
Rest of the World(5) 103% 82%
----------- ------------
Total Travel(6) 130% 92%
----------- ------------
High Street(7) 82% 83%
----------- ------------
Group 113% 89%
----------- ------------
Total Group revenue at GBP1,400m (2021: GBP886m) was up 58%
compared to the prior year and slightly ahead of 2019. It was the
highest annual revenue generated by the Group since its creation in
its current form in 2006.
In Travel, while the first half was impacted by the Omicron
variant from December 2021 to February 2022, we saw thereafter a
robust recovery across all our travel markets and a strong rebound
in profitability. Travel revenue for the second half was at 130%
(6) of 2019 (92% on a LFL(1) basis) and over the key summer trading
period from June to August, Travel revenue was at 135% of 2019 (96%
on a LFL(1) basis).
In the 10 week period to 5 November 2022, Travel revenue has
been 148% (8) of 2019 which demonstrates the intrinsic strength of
our business and the markets in which we operate.
We saw a consistently good performance in High Street throughout
the year with the important December 2021 trading period at 90% of
2019.
Total Travel delivered a substantial increase in trading
profit(1) to GBP89m (2021: loss of GBP39m) and High Street a
trading profit(1) of GBP33m (2021: GBP19m).
Headline Group profit from trading operations (1) for the year
was GBP122m (2021: loss of GBP20m) with Headline Group profit
before tax and non-underlying items (1) at GBP73m (2021 : loss of
GBP55m). Including non-underlying items, the Headline Group profit
before tax (1) was GBP61m (2021: loss of GBP104m).
(3) Equivalent month in 2019
(4) Pro forma, constant currency
(5) Constant currency
(6) As reported (excludes pro forma North America
adjustment)
(7) Includes internet businesses
(8) 141% on constant currency basis
The Group profit before tax, including non-underlying items and
on an IFRS 16 basis, was GBP63m (2021: loss of GBP116m).
The Group has a strong balance sheet, is very cash generative
and has substantial liquidity. In addition to GBP327m of
convertible bonds which mature in 2026 and GBP133m of term loan
with a maturity in 2025, the Group has an undrawn GBP250m Revolving
Credit Facility ('RCF') which matures in 2025.
The Group has the following cash, committed facilities and drawn
debt as at 31 August 2022:
31 August 2022 Maturity
Cash and cash equivalents(9) GBP132m
-------------------------- --------------------
Revolving Credit Facility(10) GBP250m April 2025
-------------------------- --------------------
Term loan GBP133m April 2025
-------------------------- --------------------
Convertible bonds GBP327m May 2026
-------------------------- --------------------
(9) Cash and cash equivalents comprises cash on deposit of
GBP101m and cash in transit of GBP31m
(10) Undrawn as at 31 August 2022 and 9 November 2022
As at 31 August 2022, Headline net debt(1) was GBP296m (2021:
GBP291m) with access to over GBP350m of liquidity (GBP101m cash on
deposit and GBP250m undrawn RCF) . We have a clear focus on cash
generation. Group free cash flow(1) was an inflow of GBP41m (2021:
GBP14m) , reflecting the strong trading performance as well as our
investment in growth opportunities with capital investment in the
year of GBP83m (2021: GBP44m).
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. As a
consequence, around 70% of our debt is at fixed interest rates. The
Group places surplus cash in overnight interest bearing accounts,
ensuring immediate liquidity. As at 31 August 2022, the Group had
GBP101m placed in interest bearing deposit accounts.
On 8 August 2022, the Group announced that the Trustee of the
WHSmith Pension Trust, (the 'Trust'), had purchased a bulk annuity
insurance policy from Standard Life, insuring all liabilities to
pay all future defined benefit pensions to the Trust's 12,950
members and any eligible dependants. The insurance policy was
purchased using most of the existing assets held within the Trust,
without the need for the Group to make any additional cash
contributions. As a result of this comprehensive risk removal, the
Group will not be required to make any future cash contributions
into the Trust regarding defined benefit liabilities.
The Board today announces that it will be reinstating the
dividend and is proposing a final dividend of 9.1p per share in
respect of the financial year ending 31 August 2022 which is
payable on 26 January 2023. This reflects our strong start to the
year and our confidence in the future prospects of the Group.
Assuming a 1/3:2/3 split between interim and final dividends, this
implies a cover ratio of 3 times earnings for the full year. Our
intention is to return, in time, to a cover ratio of around 2.5
times normalised earnings paid on an interim and final basis on a
1/3:2/3 split.
The Group's disciplined approach to capital allocation remains
unchanged:
-- investing in our existing business and in new opportunities
where we see rates of return ahead of the cost of capital;
-- paying a dividend to our shareholders;
-- undertaking attractive value-creating acquisitions in strong and growing markets;
-- returning surplus cash to shareholders.
Leverage at 31 August 2022 was 2.0x Headline EBITDA(1) . We have
a leverage target of between 0.75x and 1.25x Headline EBITDA(1) and
we anticipate achieving this level within the next 12 to 18 months,
including this year's significant investment programme.
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America
and Rest of the World.
Total revenue was GBP927m (2021: GBP401m), up 131% compared to
the previous year generating a Total Travel Headline trading
profit(1) in the period of GBP89m (2021: loss of GBP39m).
Trading profit/(loss) (1) Headline trading profit/(loss) (1)
GBPm (IFRS 16) (pre-IFRS 16) Revenue
2022 2021 2022 2021 2022 2021
-------------- ------------- ------------------ ------------------ ----- -----
Travel UK 60 (29) 54 (32) 521 195
North America 33 2 31 6 288 166
Rest of the World 3 (17) 4 (13) 118 40
-------------- ------------- ------------------ ------------------ ----- -----
Total Travel 96 (44) 89 (39) 927 401
-------------- ------------- ------------------ ------------------ ----- -----
In Travel, we have continued to focus on initiatives that
position us well for future growth :
-- Business development and winning new business
Through building and managing relationships with all our
landlord partners, we look to win new space, improve the quality
and amount of space, develop new formats and extend contracts.
During the year, we have opened 98 stores and now have a store
pipeline of 150 stores which are due to open over the next three
years. Going forward, we expect to win around 50 to 60 new stores a
year.
-- ATV growth and spend per passenger
We aim to grow ATV through our forensic analysis of the return
on our space, cross-category promotions, merchandising, store
layouts and store refits. During the year, we have continued to
focus on re-engineering our ranges and we continue to see double
digit ATV growth across all our channels.
-- Category development
We do this by developing adjacent product categories relevant
for our customers, such as health and beauty and tech ranges, and
expanding existing categories, e.g. premium food ranges. Throughout
the year, we have focused on identifying opportunities where we can
reposition our traditional news, books and convenience ('NBC')
format to a one-stop-shop travel essentials format.
-- Minimising costs
We remain focused on cost efficiency and productivity, and
making value creating investments.
The strong momentum that we saw in Q4 has continued into the new
financial year with the Group now in its strongest position ever as
a global travel retailer. Passenger numbers have recovered
strongly, albeit with further recovery to go, and we are very well
positioned to capitalise on the significant space growth
opportunities across each of our markets.
TRAVEL UK
All our channels in Travel UK have seen a sustained and strong
recovery across the year with the division delivering sales of 113%
of 2019 in Q4 and 118% in the first 10 weeks of the current
financial year.
Total revenue in the year was GBP521m which, together with
improved margins, resulted in a Headline trading profit(1) of
GBP54m (2021: loss of GBP32m). We have seen a consistent double
digit increase in ATV versus 2019 across our Air, Hospital and Rail
channels during the period as a result of our work to broaden our
categories and extend our ranges.
% of 2019 Revenue(3)
Air Hospitals Rail Total
------ ---------- ----- ------
H1 FY22 60% 90% 70% 71%
------ ---------- ----- ------
Q3 FY22 111% 102% 87% 102%
------ ---------- ----- ------
Q4 FY22 124% 110% 90% 113%
------ ---------- ----- ------
Year to 31 August 2022 93% 98% 79% 90%
------ ---------- ----- ------
10 weeks to 5 November
2022 132% 114% 92% 118%
------ ---------- ----- ------
As at 31 August 2022, Travel UK had 587 stores. In addition,
over the next three years, we expect to win and open an additional
10 to 15 stores each year in UK Travel, with the majority of the
new stores in the Hospital channel.
Air
In Air, we saw a significant step up in revenue over the key
summer trading period, with sales in July and August 2022 at 121%
and 126% respectively of the comparable months in 2019. This was
during a period of disruption and passenger caps at some UK
airports which limited the number of passengers travelling.
As was the case pre-pandemic, leisure passengers are our most
important customer segment. We continue to focus on expanding our
proposition and identifying opportunities where we can reposition
our traditional NBC format to a unique one-stop-shop for travel
essentials. By extending our categories such as health and beauty,
tech, food to go and pharmacy products, we are able to provide
time-pressed travelling customers with a fast and convenient
shopping experience, under one roof. This enables us to expose
customers to a broader range of categories which has resulted in an
increase in sales per square metre, a higher ATV and spend per
passenger. This delivers good returns for us with improved margins
and attractive economics for our landlords. Customer and landlord
feedback has been very positive.
We have now opened all 30 of the InMotion stores that we
recently won in UK Air, positioning us as the market-leading
technology retailer in travel locations globally. We are pleased
with the performance of our new InMotion stores in UK Air, which
are trading above our initial expectations. 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.
Hospitals
The Hospital channel is an important channel for us and is our
second largest channel currently by revenue in Travel UK. During
the year, we have seen a consistent improvement in revenue as
restrictions eased.
Our Hospital channel is a good example of how we continue to
innovate with a strong proposition tailored to each location. We
are able to offer hospital trusts a broad suite of formats and
brands including WHSmith, M&S Simply Food, Costa Coffee and the
Post Office. We now have 49 M&S Simply Food or shared space
stores across our hospital estate, 11 Costa Coffee shops and 3 Post
Offices.
In addition, there are considerable opportunities for us to open
new space in hospitals. As at 31 August 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 four store
formats. The government continues to invest in both infrastructure
and staff numbers in the health sector as the sector emerges from
Covid.
Over the medium-term, we would expect to open on average eight
to ten new stores each year in the Hospital channel.
Rail
Rail remains an attractive channel with opportunities to grow.
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.
During the year, we have seen a steady improvement in revenue as
travel restrictions eased and this momentum has continued into the
new financial year, despite the disruption caused by the recent
rail strikes. Passenger numbers are now at 80% of 2019 levels with
leisure and weekend passenger numbers recovering the fastest. We
know from our segmentation and return on space analysis in Rail
that this customer segment is the most valuable to us.
As with our other channels in Travel, we continue to invest in
re-engineering our ranges and broadening our categories to meet
customer and landlord needs. In the first half of the year, 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 tech, health and beauty products and a
pharmacy. We have received positive feedback from customers and the
store is performing strongly. During the current financial year, we
will be trialling our one-stop-shop for travel essentials format in
Rail across a further eight major Network Rail locations, including
London Paddington, London Victoria and London Liverpool Street
stations. Across these stores, we will be investing in new store
layouts and enhancing the space afforded to categories such as
health and beauty.
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. Early customer
and landlord reaction has been positive.
NORTH AMERICA
We saw a strong performance from North America. Given its
domestic focus, the North American market recovered the fastest
from the pandemic. Transportation Security Administration ('TSA')
data and visitor numbers in Las Vegas have continued to improve
during the year. Total revenue for the year in NA was GBP288m
(2021: GBP166m), an increase of 73% of which 10% was due to changes
in exchange rates. Headline trading profit(1) was GBP31m (2021:
GBP6m), reflecting the recovery in passenger numbers and improved
margins. In the current financial year, we expect our North America
business to become an increasingly significant part of the Group
and the second largest in profit terms, after Travel UK. The Group
is exposed to movements in the GBP:USD exchange rate. A 10 cent
move in this rate results in a c.GBP3m movement in annual profit.
Current consensus suggests an average exchange rate of GBP:USD of
1.30.
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 largest segment. TSA
data continues to show the gradual recovery in passenger numbers
week on week, with passenger numbers at the end of October 2022 at
95% of 2019 levels.
Given the similar customer dynamic and high footfall
environments to our Travel UK business, we have applied our
forensic approach to retailing from the UK to the US market and we
are seeing some good results. This includes, space management,
category development to higher margin products such as health and
beauty and tech, enhanced promotional activity and increased
operational efficiencies, for example self-scan tills which we
introduced in September 2022.
Including the 22 store openings in the year, MRG now have 78 and
InMotion 118 stores trading in airports. We continue to grow our
North America business at pace and we have a very strong pipeline
of new store openings, including some significant tender wins at
Los Angeles and Salt Lake City airports. During the year, we have
won an additional 22 stores and we expect to open 49 in the current
financial year.
So far this financial year, we have won a further 5 stores
including Jacksonville and Boston airports. Our analysis of the
North American market pre-pandemic shows that there were a total of
2,004 news and gift and specialty retail stores in the top 70
airports, giving our North America business a market share of
c.12%(11) . With our continued 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.
Outside of the airport business, the Resorts channel continues
to be attractive. MRG is a leading player in this channel in Las
Vegas with stores located at key visitor locations of the Strip and
Fremont Street. MRG has very longstanding relationships with resort
landlords and a significant amount of expertise built up over an
extended period. The Resorts channel has similar dynamics to our
Travel UK business with a high number of short stay visitors who
tend to remain close to their hotel. Visitors to Las Vegas were
approximately 3.4m in the month of September 2022, c.4% below
2019.
In addition, we have won and opened our first store in Rail in
North America. This store opened in February 2022 at Moynihan Train
Hall, New York. While it is still early days, this store is
performing well and in line with our expectations. We have also won
a further store at neighbouring Penn Station.
Our revenue performance in the current financial year has
reflected these trends with overall revenue in North America at
130%(12) of 2019 levels for the 10 weeks to 5 November 2022 (of
which 13% relates to currency movements, giving growth of 117% at
constant currencies).
REST OF THE WORLD
Total revenue for the year in ROW was GBP118m (2021: GBP40m).
Headline trading profit(1) was GBP4m (2021: loss of GBP13m). As
anticipated, the pace of recovery has varied by geography with the
strongest recovery in Europe and, more recently, notable
improvements in Australia and Asia. As we have done in Travel UK,
we have remained focused on areas within our control, including
increasing ATV. Revenue in the first 10 weeks of the current
financial year was at 131% of 2019(5) levels reflecting the ongoing
recovery and opening of new stores.
As this market continues to recover, we expect to see more space
become available. Our strong and compelling proposition and our
very low market share currently means there is significant
opportunity to grow this business in new and existing territories
through our traditional NBC retail proposition and with technology
tenders under the InMotion brand. We continue to use our three
operating models of directly run, joint venture and franchise in
order to create value and win new business.
We made good progress in the year opening 38 new stores and we
have won a further 64 stores, with significant tender wins in
Spain, Belgium, Italy, Sweden, Norway and Australia. Utilising our
experience from our North America business, we have created a
localised store design concept for each airport, drawing on local
landmarks and popular cultural references. This has been very well
received by landlords and gives us confidence in winning more
stores in new territories as space becomes available.
In addition, 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. In the first half, we
won an additional 31 stores across Spanish airports, of which we
have opened 23 to date. These stores are performing well and we
know from our prior experience of operating in the country that our
brand and offer resonates well. We successfully executed this store
opening programme at pace to ensure over half the stores were
trading throughout the peak summer period.
We also continue to see good opportunities to win new business
in the tech market under our InMotion brand. During the year, we
have won 8 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 6 are open. We remain well
positioned to benefit from further opportunities as more space
becomes available.
(11) Based on store numbers; including stores won and yet to
open
(12) Includes pro forma MRG for 2019
We now have 311 stores and a further 76 won and yet to open. Of
the 311 stores open, 45% are directly-run, 8% are joint venture and
47% are franchise.
Region Number of stores
Europe 109
-----------------
Middle East and India 84
-----------------
Asia Pacific 118
-----------------
Total Travel stores
During the year, we opened 98 stores in Travel. As at 31 August
2022, our global Travel business operated from 1,196 units (31
August 2021: 1,166 units). As at 31 August 2022, we are present in
over 100 airports and 30 countries with 298 stores in North
America, 109 in Europe, 84 in the Middle East and India and 118 in
Asia Pacific. As part of our strategy to improve the quality of our
space, we closed 68 stores in the period, largely in marginal
locations. Excluding franchise units, Travel occupies 1.0m square
feet.
HIGH STREET
During the year, High Street delivered a resilient performance
with Headline trading profit(1) of GBP33m, as expected (2021:
GBP19m - which included GBP30m of UK Government support on rates),
with revenue of GBP473m (2021: GBP485m). We managed the business
tightly, keeping focused on costs and cash generation. We are
pleased with the start to the new financial year with LFL(1)
revenue up 2% on the prior year for the 10 weeks to 5 November
2022.
The strategy we have in place in our High Street business
remains as relevant today as it has ever been and ensures that the
cash flow and profits of this business are robust and
sustainable.
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 over the longer-term. 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.
Driving efficiencies remains a core part of our strategy and we
continue to focus on all areas of cost in the business. During the
year, we have delivered savings of GBP42m and we are on track to
deliver savings of GBP24m over the next 3 years, of which GBP12m
are planned in the current financial year. These savings come from
right across the business, including rent savings at lease renewal
(on average 53%) which continue to be a significant proportion,
marketing efficiencies and productivity gains from our distribution
centres. We have, for many years, actively fixed our energy costs
in stores well in advance of consuming the energy. Our energy costs
are currently fixed to August 2023 at rates that were 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 under 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 over 150 where we are holding
over and in negotiation with our landlord. The store closure
process is cash neutral.
As at 31 August 2022, the High Street business operated from 527
stores (2021: 544) which occupy 2.5m square feet (2021: 2.6m square
feet). 17 stores were closed in the period (2021: 24).
Specialist websites
Funkypigeon.com delivered, as expected, total revenue of GBP35m
(2021: GBP54m) and Headline EBITDA(1) of GBP8m (2021: GBP14m)
reflecting the cyber incident in April. Funkypigeon.com is
recovering well and we are confident of the substantial
opportunities to grow the platform further, and significantly grow
revenue and profits over the medium-term.
The market for greeting cards in the UK is substantial and
estimated at GBP1.6bn(13) with online penetration continuing to
grow. The UK greeting card market has been stable with adults
sending on average 20(13) greeting cards per person each year.
(13) Company estimates / OC&C 2019
We have redeveloped the funkypigeon.com app to improve customer
conversion and we have also launched a next day delivery service
which operates seven days a week to further enhance our customer
proposition. This has received very positive customer feedback.
During the year, we increased our investment and focus on
whsmith.co.uk. This has included focusing on customer conversion,
product presentation and broadening our approach to marketing. Our
specialist pen website, c ultpens.com , has continued to outperform
the UK market with growing sales internationally. We have extended
our ranges to broaden our customer offer and, during the year, we
launched product personalisation to further develop the gifting
category. This includes laser engraving of pens and notebook
embossing. We are seeing good results.
ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE ('ESG')
We have excellent sustainability credentials and we have made
good progress over the past 12 months. We were the top performing
specialty retailer in Morningstar's Sustainalytics ESG Benchmark in
the year, and were included, once again, in the Dow Jones World
Sustainability Index.
We have set our target to achieve net zero. As a first step to
this long-term goal, we have set near term targets to help track
our performance against our overall climate target over time, and
these have been validated by the Science Based Targets Initiative.
We have continued to invest in energy saving measures, such as LED
and chiller replacements, and have reduced Scope 1 and 2 emissions
by around 60% since 2007.
The need for literacy support for disadvantaged children
continues and we continue to invest in our partnership with the
National Literacy Trust. During the year, we have been delighted to
see a resurgence in children's books, with a particularly strong
World Book Day.
In addition, we have enhanced our sustainability governance,
introducing an ESG Committee of the Board, and we have included ESG
measures into our senior executive short and long-term incentive
plans.
FINANCIAL REVIEW
The Group generated a Headline profit before tax and
non-underlying items(1) of GBP73m (2021: loss of GBP55m) and, after
non-underlying items and IFRS 16, a Group profit before tax of
GBP63m (2021: loss of GBP116m).
Headline
IFRS pre-IFRS 16(1)
------------------------------------ ------------- -----------------
GBPm 2022 2021 2022 2021
------------------------------------ ----- ------ ------- --------
Travel UK trading profit/(loss)
(1) 60 (29) 54 (32)
North America trading profit
(1) 33 2 31 6
Rest of the World trading
profit/(loss) (1) 3 (17) 4 (13)
------------------------------------ ----- ------ ------- --------
Total Travel trading profit/(loss)
(1) 96 (44) 89 (39)
High Street trading profit
(1) 45 36 33 19
Group profit/(loss) from
trading operations (1) 141 (8) 122 (20)
Unallocated central costs
(1) (24) (19) (24) (19)
------------------------------------ ----- ------ ------- --------
Group operating profit/(loss)
before non-underlying items
(1) 117 (27) 98 (39)
Net finance costs (34) (24) (25) (16)
------------------------------------ ----- ------ ------- --------
Group profit/(loss) before
tax and non-underlying items
(1) 83 (51) 73 (55)
Non-underlying items (1) (20) (65) (12) (49)
------------------------------------ ----- ------ ------- --------
Group profit/(loss) before
tax 63 (116) 61 (104)
------------------------------------ ----- ------ ------- --------
Unallocated central costs increased in the year due to higher
share-based payment charges and GBP2m of costs in relation to a new
payroll system which previously would have been treated as capex
and now is treated as opex under the new accounting guidelines for
software as a service.
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 year are detailed in the table below, and most do not impact
cash.
The cash spend relating to non-underlying items in the 2022
financial year was GBP16m and mainly related to activity announced
in 2020 and 2021.
Headline Headline
pre-IFRS pre-IFRS
IFRS 16(1) IFRS 16(1)
------------------------------------------- ----- ------- ------------ -------- ----------
GBPm Ref. 2022 2022 2021 2021
------------------------------------------- ----- ------- ------------ -------- ----------
Impairment of Property, plant and
equipment and Right-of-use assets (1) 13 5 42 18
Amortisation of acquired intangible
assets (2) 3 3 3 3
Costs related to cyber incident (3) 4 4 - -
Onerous leases - - - 5
Stock provisions, write-offs and
other costs - - 3 6
Restructuring costs - - 9 9
Costs associated with refinancing - - 6 6
Cost relating to business combinations - - 2 2
20 12 65 49
------------------------------------------- ----- ------- ------------ -------- ----------
(1) 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 number of stores where experience and expectations of
the longer-term impact of Covid-19 is more negative than previously
assumed, primarily driven by the impact of Covid-19 on consumer
shopping patterns.
The impairment review compared the value-in-use of individual
store cash-generating units, based on managements' assumptions
regarding likely future trading performance, taking into account
the effect of Covid-19, to the carrying values at 31 August 2022.
Following this review, a non-cash charge of GBP5m (2021: GBP18m)
was recorded for impairment of retail store assets on a pre-IFRS 16
basis, and GBP13m (2021: GBP42m) on an IFRS 16 basis which includes
an impairment of right-of-use assets of GBP8m (2021: GBP28m).
(2) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands. This is a non-cash charge.
(3) Costs related to cyber incident
Costs of GBP4m were incurred in relation to the funkypigeon.com
cyber security incident and include impairment of software assets,
third party consultancy support and legal and other costs.
Other non-underlying items in the prior year included stock
provisioning and impairment relating to the impact of Covid-19,
restructuring costs following a review of store operations across
our High Street business, costs associated with the refinancing
activity in April 2021 and further integration costs in relation to
the acquisition of MRG which completed in December 2019.
A tax credit of GBP4m (2021: GBP12m) has been recognised in
relation to the above items (GBP3m pre-IFRS 16 (2021: GBP9m)).
Net finance costs
Headline
IFRS pre-IFRS 16(1)
------------------------------------- ------------ -----------------
GBPm 2022 2021 2022 2021
------------------------------------- ----- ----- -------- -------
Interest payable on bank loans and
overdrafts 9 10 9 10
Interest on convertible bonds 14 4 14 4
Unwind of discount on onerous lease
provisions (pre-IFRS 16) - - 2 2
Interest on lease liabilities 11 10 - -
------------------------------------- ----- ----- -------- -------
Net finance costs 34 24 25 16
------------------------------------- ----- ----- -------- -------
Pre-IFRS 16 net finance costs for the year were GBP25m (2021:
GBP16m) with the year on year increase reflecting the refinancing
undertaken in the prior year. Cash costs in relation to this
financing cost were GBP10m lower at GBP15m.
The interest on the convertible bonds includes the accrued
coupon (a fixed coupon of 1.625%) and c.GBP8m of the non-cash debt
accretion charge.
The GBP2m non-cash unwind of discount on onerous lease
provisions relates to onerous lease provisions recognised in the
prior year as a result of Covid-19. This relates to pre-IFRS 16
only and does not exist under IFRS 16.
Lease interest of GBP11m arises on lease liabilities recognised
under IFRS 16, bringing the total net finance costs under IFRS 16
to GBP34m (2021: GBP24m).
Tax
The effective tax rate(1) was 17% (2021: 47%) on the profit for
the year. Corporation tax payments in the year were GBP6m after all
possible loss relief for the current year has been used (2021:
refunds of GBP10m following the carry back of 2021 losses against
prior year profits). Based on current legislation, we expect the
tax rate in the current year to be 23%.
Fixed charges cover(1)
pre-IFRS 16(1)
------------------------------------------- -----------------
GBPm 2022 2021
-------------------------------------------- -------- -------
Headline net finance costs(1) 25 16
Net operating lease charges (pre-IFRS
16) (1) 241 151
Total fixed charges 266 167
Headline profit/(loss) before tax
and non-underlying items (1) 73 (55)
-------------------------------------------- -------- -------
Headline profit before tax, non-underlying
items and fixed charges 339 112
-------------------------------------------- -------- -------
Fixed charges cover - times 1.3x 0.7x
-------------------------------------------- -------- -------
Fixed charges, comprising property operating lease charges and
net finance costs, were covered 1.3 times (2021: 0.7 times) by
Headline profit/loss before tax, non-underlying items and fixed
charges.
Cash flow
Free cash flow (1) reconciliation
pre-IFRS 16(1)
------------------------------------- ------------- ---------------------------
GBPm 2022 2021
---------------------------------------------- ---------- ------ ---------
Headline Group operating profit / (loss)
before non-underlying items (1) 98 (39)
Depreciation, amortisation and impairment
(pre-IFRS 16) (14) 49 50
Non-cash items 8 8
---------------------------------------------- ---------- ------ ---------
Operating cash flow (1, 14) 155 19
Capital expenditure (83) (44)
Working capital (pre-IFRS 16)(14) (10) 37
Net tax (paid)/refunded (6) 10
Net finance costs paid (pre-IFRS 16) (15) (8)
Free cash flow (1) 41 14
---------------------------------------------- ---------- ------ ---------
The free cash inflow(1) for the year was GBP41m. This mainly
reflects the return to profit of the business with the operating
cash inflow increasing by GBP136m to GBP155m and continued
investment in the Group as we recover from the impact of the
pandemic and open new stores.
We had a working capital outflow of GBP10m in the year
reflecting the launch of InMotion in the UK and investment to
support the recovery of trading in Travel.
Net corporation tax payments in the period were GBP6m, compared
to refunds of GBP10m last year.
Capital expenditure was GBP83m (2021: GBP44m) which includes the
additional spend from opening 98 stores around the world.
GBPm 2022 2021
---------------------------------- ----- -----
New stores and store development 37 17
Refurbished stores 22 17
Systems 13 9
Other 11 1
---------------------------------- ----- -----
Total capital expenditure 83 44
---------------------------------- ----- -----
(14) Excludes cash flow impact of non-underlying items
Reconciliation of Headline net debt (1)
Headline net debt(1) is presented on a pre-IFRS 16 basis. See
Note 8 of the Financial statements for the impact of IFRS 16 on net
debt.
As at 31 August 2022, the Group had Headline net debt(1) of
GBP296m comprising convertible bonds of GBP292m, term loans of
GBP132m (net of fees), GBP4m of finance lease liabilities and net
cash of GBP132m (2021: GBP291m, convertible bonds of GBP283m, term
loans of GBP132m (net of fees), GBP6m of finance lease liabilities
and net cash of GBP130m ).
Headline(1)
pre-IFRS 16
GBPm 2022 2021
Opening Headline net debt(1) (291) (301)
Movement in year
Free cash flow(1) 41 14
Pensions (2) (3)
Non-underlying items(1) (16) (38)
Net purchase of own shares for employee share
schemes (7) (2)
Equity component of convertible bond - 41
Other (21) (2)
----------------------------------------------- ------ ------
Closing Headline net debt(1) (296) (291)
----------------------------------------------- ------ ------
Cash 132 130
Term loans (net of fees) (132) (132)
Convertible bond (292) (283)
Finance leases (pre-IFRS 16) (4) (6)
----------------------------------------------- ------ ------
(296) (291)
----------------------------------------------- ------ ------
The Group had closing Headline net debt(1) of GBP296m at the
year end. In addition to the free cash flow, the Group paid defined
benefit pension funding of GBP2m (see Note 15 on pensions) and
GBP16m of non-underlying items, which mainly relate to
restructuring following the review of store and head office
operations, as previously reported and charged to the income
statement in prior years.
On an IFRS 16 basis, net debt was GBP869m, which includes an
additional GBP573m of lease liabilities.
Balance sheet
Headline(1)
IFRS pre-IFRS 16
------------------------------- -------------- --------------
GBPm 2022 2021 2022 2021
------------------------------- ------ ------ ------ ------
Goodwill and other intangible
assets 543 473 544 474
Property, plant and equipment 219 174 211 167
Right-of-use assets 446 328 - -
Investments in joint ventures 2 2 2 2
------------------------------- ------ ------ ------ ------
1,210 977 757 643
------------------------------- ------ ------ ------ ------
Inventories 198 135 198 135
Payables less receivables (269) (214) (284) (237)
------------------------------- ------ ------ ------ ------
Working capital (71) (79) (86) (102)
------------------------------- ------ ------ ------ ------
Derivative financial assets 1 - 1 -
Net current and deferred tax
assets 54 56 54 46
Provisions (14) (14) (26) (28)
------------------------------- ------ ------ ------ ------
Operating assets employed 1,180 940 700 559
Net debt (869) (755) (296) (291)
------------------------------- ------ ------ ------ ------
Net assets excluding pension
liability 311 185 404 268
Pension liability - (3) - (3)
Deferred tax asset on pension
liability - 1 - 1
------------------------------- ------ ------ ------ ------
Total net assets 311 183 404 266
------------------------------- ------ ------ ------ ------
The Group had Headline net assets of GBP404m, GBP138m higher
than last year end reflecting the investment in store openings and
exchange differences on translation of goodwill. Under IFRS the
Group had net assets of GBP311m.
Pensions
In August 2022, the main defined benefit pension scheme, the
WHSmith Pension Trust, purchased a bulk annuity insurance policy
from Standard Life, part of Phoenix Group, insuring all liabilities
to pay all future defined benefit pensions to the Trust's 12,950
members and any eligible dependants.
The insurance policy was purchased using most of the existing
assets held within the Trust, without the need for the Group to
make any additional cash contributions. The bulk annuity policy
matches the Trust's cash flow benefit obligations to its members,
removing longevity and other demographic risks as well as
investment, interest rate and inflation risks. As a result of this
comprehensive risk-removal, the Group will not be required to make
any future cash contributions into the Trust regarding defined
benefit liabilities, therefore the previously recognised minimum
funding liability (GBP2m as at 31 August 2021) has been
derecognised. During the year ended 31 August 2022, prior to the
completion of the buy-in transaction, the Group made a contribution
of GBP2m to the scheme (2021: GBP3m).
As at 31 August 2022, the scheme had an IAS 19 surplus of
GBP120m (2021: surplus of GBP284m), representing the remaining
assets of the scheme after the bulk annuity policy purchase above.
The Group has continued not to recognise this surplus under the
requirements of IFRS 14.
The IAS 19 pension deficit on the relatively small UNS defined
benefit pension scheme was GBPnil (2021: GBP1m).
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
The Board regularly reviews and monitors the risks and
uncertainties that could have a material effect on the Group's
financial results. The principal risks and uncertainties that could
lead to a material impact have not significantly changed from those
listed in the Annual Report and Accounts 2021. No new principal
risks were identified in the year, however there were five risks
where the potential impact had increased over the year, with the
remaining risks having no change in their overall impact. We
believe that the overall level of risk of Covid-19 has reduced. We
have also recognised that the ongoing conflict in Ukraine has
created further uncertainty in the macro economy. A summary of the
principal risks has been provided below:
Risk Impact
Economic, The Group operates in highly competitive markets and in
political, the event of failing to compete effectively with travel,
competitive convenience and other similar product category retailers,
and market this may affect revenues obtained through our stores.
risks - increased Failure to keep abreast of market developments, including
the use of new technology, could threaten our competitive
position. Factors such as the economic climate, levels
of household disposable income, seasonality of sales,
changing demographics and customer shopping patterns,
and raw material costs could impact on profit performance.
The Group may also be impacted in the UK and internationally,
by any future pandemics, escalation of global conflict,
political developments such as regulatory and tax changes,
increasing scrutiny by competition authorities, and other
changes in the general condition of retail and travel
markets.
------------------------------------------------------------------
Brand and The WHSmith brand is an important asset and failure to
reputation protect it from unfavourable publicity could materially
- no change damage its standing and the wider reputation of the business,
adversely affecting revenues. As the Group continues to
expand its convenience food offer in travel locations,
associated risks include compliance with food hygiene
and health and safety procedures, product and service
quality, environmental and ethical sourcing and associated
legislative and regulatory requirements, including the
latest allergen and calorie labelling regulations.
------------------------------------------------------------------
Key suppliers The Group has agreements with key suppliers in the UK,
and supply Europe and the Far East and other countries in which it
chain management operates. The interruption or loss of supply of core category
- increased products from these suppliers to our stores may affect
our ability to trade. Quality of supply issues may also
impact the Group's reputation and impact our ability to
trade. Further escalation of geo-political risks may cause
disruption to the supply chain which may necessitate the
diversification of sourcing own brand products from the
Far East.
------------------------------------------------------------------
Store portfolio The quality and location of the Group's store portfolio
- no change are key contributors to the Group's strategy. Retailing
from a portfolio of good quality real estate in prime
retail areas and key travel hubs at commercially reasonable
rates remains critical to the performance of the Group.
All of High Street's stores are held under operating leases,
and consequently the Group is exposed, to the extent that
any store becomes unviable as a result of rental costs.
Most Travel stores are held under concession agreements,
on average for 5 to 10 years, although there is no guarantee
that concessions will be renewed or that Travel will be
able to bid successfully for new contracts.
------------------------------------------------------------------
Business interruption An act of terrorism or war, or an outbreak of a further
- increased pandemic disease, could reduce the number of customers
visiting WHSmith outlets, causing a decline in revenue
and profit. In the past, our Travel business has been
impacted by geopolitical events such as major terrorist
attacks, which have led to reductions in customer traffic.
Closure of travel routes both planned and unplanned, such
as the disruption caused by natural disasters or weather-related
events, may also have a material effect on business. The
Group operates from a number of distribution centres and
the closure of any one of them may cause disruption to
the business. In common with most retail businesses, the
Group also relies on a number of important IT systems,
where any system performance problems, cyber risks or
other breaches in data security could affect our ability
to trade.
------------------------------------------------------------------
Reliance on The performance of the Group depends on its ability to
key personnel continue to attract, motivate and retain key head office
- no change and store staff. The retail sector is very competitive
and the Group's personnel are frequently targeted by other
companies for recruitment.
------------------------------------------------------------------
International The Group continues to expand internationally. In each
expansion country in which the Group operates, the Group may be
- increased impacted by political or regulatory developments, or changes
in the economic climate or the general condition of the
travel market.
------------------------------------------------------------------
Cyber risk The Group is subject to the risk of systems breach or
and data security data loss from various sources including external hackers
- increased or the infiltration of computer viruses. Theft or loss
of Company or customer data or potential damage to any
systems from viruses, ransomware or other malware, or
non-compliance with data protection legislation, could
result in fines and reputational damage to the business
that could negatively impact our sales.
------------------------------------------------------------------
Treasury, The Group's exposure to and management of capital, liquidity,
financial credit, interest rate and foreign currency risk are analysed
and credit further in Note 22 on page 137 of the Annual Report and
risk management Accounts 2021. The Group also has credit risk in relation
- no change to its trade, other receivables and sale or return contracts
with suppliers. The Group is exposed to interest rate
changes and movements in foreign currencies.
------------------------------------------------------------------
Environment Our investors, customers and colleagues expect us to conduct
and sustainability our business in a responsible and sustainable way. Climate
- no change change is now recognised as a global emergency. Failure
to deliver our stated sustainability commitments could
damage our reputation and introduce higher costs and impact
our ability to meet strategic objectives.
------------------------------------------------------------------
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
Group Income Statement
For the year ended 31 August 2022
2022 2021
----------------------------- ---- --------------------------------------- ----------------------------------------
Before Before
non-underlying Non-underlying non-underlying Non-underlying
GBPm Note items(1) items(2) Total items(1) items(2) Total
----------------------------- ---- --------------- -------------- ------ --------------- -------------- -------
Revenue 2 1,400 - 1,400 886 - 886
2,
Group operating profit/(loss) 3 117 (20) 97 (27) (65) (92)
Finance costs 5 (34) - (34) (24) - (24)
Profit/(loss) before
tax 83 (20) 63 (51) (65) (116)
Income tax (expense)/credit 6 (14) 4 (10) 24 12 36
----------------------------- ---- --------------- -------------- ------ --------------- -------------- -------
Profit/(loss) for the
year 69 (16) 53 (27) (53) (80)
----------------------------- ---- --------------- -------------- ------ --------------- -------------- -------
Attributable to equity holders
of the parent 63 (16) 47 (29) (53) (82)
Attributable to non-controlling
interests 6 - 6 2 - 2
----------------------------------- --------------- -------------- ------ --------------- -------------- -------
69 (16) 53 (27) (53) (80)
Earnings/(loss) per
share
Basic 7 36.2p (62.6)p
Diluted 7 35.6p (62.6)p
All results relate to continuing operations of the Group.
(1) Alternative performance measure. The Group has defined and
explained the purpose of its alternative performance measures in
the Glossary on page 47.
(2) See Note 4 for an analysis of non-underlying items. See
Glossary on page 47 for a definition of Alternative Performance
Measures.
WH Smith PLC
Group Statement of Comprehensive Income
For the year ended 31 August 2022
GBPm Note 2022 2021
--------------------------------------------- ----- ----- -----
Profit/(loss) for the year 53 (80)
--------------------------------------------- ----- ----- -----
Other comprehensive income/(loss):
Items that will not be reclassified
subsequently to the income statement:
Actuarial losses on defined benefit pension
schemes 15 - (1)
- (1)
Items that may be reclassified subsequently
to the income statement:
Gains on cash flow hedges
3 -
* Net fair value gains
Exchange differences on translation of
foreign operations 71 (13)
--------------------------------------------- ----- ----- -----
74 (13)
Other comprehensive income/(loss) for
the year, net of tax 74 (14)
--------------------------------------------- ----- ----- -----
Total comprehensive income/(loss) for
the year 127 (94)
--------------------------------------------- ----- ----- -----
Attributable to equity holders of the
parent 120 (96)
Attributable to non-controlling interests 7 2
--------------------------------------------- ----- ----- -----
127 (94)
--------------------------------------------- ----- ----- -----
WH Smith PLC
Group Balance Sheet
As at 31 August 2022
GBPm Note 2022 2021
------------------------------------- ------- -------- --------- ---------
Non-current assets
Goodwill 10 471 406
Other intangible assets 10 72 67
Property, plant and equipment 11 219 174
Right-of-use assets 12 446 328
Investments in joint ventures 2 2
Deferred tax assets 55 57
Trade and other receivables 9 6
------------------------------------- ------- -------- --------- ---------
1,274 1,040
------------------------------------- ------- -------- --------- ---------
Current assets
Inventories 198 135
Trade and other receivables 87 45
Derivative financial assets 1 -
Cash and cash equivalents 8 132 130
------------------------------------- ------- -------- --------- ---------
418 310
------------------------------------- ------- -------- --------- ---------
Total assets 1,692 1,350
------------------------------------- ------- -------- --------- ---------
Current liabilities
Trade and other payables (365) (265)
Bank overdrafts and other borrowings 8 (20) -
Retirement benefit obligations 15 - (1)
Lease liabilities 13 (131) (108)
Current tax liability (1) -
Short-term provisions - (2)
(517) (376)
Non-current liabilities
Retirement benefit obligations 15 - (2)
Bank loans and other borrowings 8 (404) (415)
Long-term provisions (14) (12)
Lease liabilities 13 (446) (362)
(864) (791)
------------------------------------- ------- -------- --------- ---------
Total liabilities (1,381) (1,167)
------------------------------------- ------- -------- --------- ---------
Total net assets 311 183
------------------------------------- ------- -------- --------- ---------
Shareholders' equity
Called up share capital 29 29
Share premium 316 316
Capital redemption reserve 13 13
Translation reserve 43 (27)
Other reserves (244) (240)
Retained earnings 138 82
------------------------------------- ------- -------- --------- ---------
Total equity attributable to equity
holders of the parent 295 173
------------------------------------- ------- -------- --------- ---------
Non-controlling interests 16 10
------------------------------------- ------- -------- --------- ---------
Total equity 311 183
------------------------------------- ------- -------- --------- ---------
WH Smith PLC
Group Cash Flow Statement
For the year ended 31 August 2022
GBPm Note 2022 2021
------------------------------------------- ---- ----- -----
Operating activities
Cash generated from operating activities 9 213 113
Interest paid(1) (26) (13)
------------------------------------------- ---- ----- -----
Net cash inflow from operating activities 187 100
------------------------------------------- ---- ----- -----
Investing activities
Purchase of property, plant and equipment (70) (37)
Purchase of intangible assets (13) (7)
Acquisition of subsidiaries, net of
cash acquired - 1
Net cash outflow from investing activities (83) (43)
------------------------------------------- ---- ----- -----
Financing activities
Distributions to non-controlling interests (1) -
Issue of new shares for employee share
schemes - 1
Purchase of own shares for employee
share schemes (7) (2)
Proceeds from issuance of convertible
bonds 8 - 327
Repayment of borrowings 8 - (267)
Financing arrangement fees - (8)
Capital repayments of obligations
under leases 8 (96) (86)
Net cash outflow from financing activities (104) (35)
------------------------------------------- ---- ----- -----
Net increase in cash and cash equivalents
in the year - 22
------------------------------------------- ---- ----- -----
Opening cash and cash equivalents 130 108
Effect of movements in foreign exchange 2 -
rates
------------------------------------------- ---- ----- -----
Closing cash and cash equivalents 132 130
------------------------------------------- ---- ----- -----
(1) Includes interest payments of GBP11m on lease liabilities
(2021: GBP5m).
WH Smith PLC
Group Statement of Changes in Equity
For the year ended 31 August 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 earnings parent interests equity
----------------- -------- ------------ ------------ --------- ----------- ------------- ---------------- -------
Balance at 1
September
2021 345 13 (27) (240) 82 173 10 183
Profit for the
year - - - - 47 47 6 53
----------------- -------- ------------ ------------ --------- ------ ------------------ ---------------- -------
Other
comprehensive
income:
Cash flow hedges - - - 3 - 3 - 3
Exchange
differences
on translation
of foreign
operations - - 70 - - 70 1 71
Total
comprehensive
income for the
year - - 70 3 47 120 7 127
Employee share
schemes - - - (7) 9 2 - 2
Non cash
movement
on
non-controlling
interests - - - - - - (1) (1)
Balance at 31
August 2022 345 13 43 (244) 138 295 16 311
----------------- -------- ------------ ------------ --------- ------ ------------------ ---------------- -------
Balance at 1
September
2020 344 13 (14) (279) 158 222 5 227
Loss for the
year - - - - (82) (82) 2 (80)
----------------- -------- ------------ ------------ --------- ------ ------------------ ---------------- -------
Other
comprehensive
loss:
Actuarial losses
on defined
benefit
pension schemes
(Note 15) - - - - (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 new
shares 1 - - - - 1 - 1
Issue of
convertible
bonds - value
of
conversion
rights
(Note 8) - - - 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 345 13 (27) (240) 82 173 10 183
----------------- -------- ------------ ------------ --------- ------ ------------------ ---------------- -------
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
1. Basis of preparation
Whilst the information included in the consolidated financial
statements has been prepared in accordance with UK-adopted
International Accounting Standards in conformity with the
requirements of the Companies Act 2006, this announcement does not
itself contain sufficient information to comply with IFRSs. The
financial information in this full year results statement does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006.
Statutory accounts for the year ending 31 August 2021 have been
delivered to the Registrar of Companies and those for 2022 will be
delivered following the Company's Annual General Meeting. The
Annual Report for the year ending 31 August 2022 and this full year
results statement were approved by the Board on 10 November 2022.
The auditors have reported on the Annual Report for the years ended
on 31 August 2022 and 2021 and neither report was qualified and
neither contained a statement under Section 498(2) or (3) of the
Companies Act 2006.
The consolidated financial information for the year ended 31
August 2022 has been prepared on a consistent basis with the
financial accounting policies set out in the Accounting Policies
section of the WH Smith PLC Annual Report and Accounts 2021 except
as described below. The Group has adopted the following standards
and interpretations which became mandatory for the first time
during the year ended 31 August 2022. The Group has considered the
below new standards and amendments and has concluded that they are
either not relevant to the Group or they do not have a significant
impact on the Group's consolidated financial statements.
Amendment to IFRS 9, IAS Interest rate benchmark reform - Phase
39, IFRS 7, IFRS 4 and IFRS 2
16
At the Group balance sheet date, the following standards and
interpretations, which have not been applied in these condensed
financial statements, were in issue but not yet effective:
Amendments to IAS 16 Proceeds before intended use
Amendments to IAS 37 Onerous contracts - cost of fulfilling
a contract
Narrow scope amendments to IAS 1 and IAS 8
The directors anticipate that the adoption of these standards
and interpretations in future years will have no material impact on
the Group's condensed financial statements.
Alternative Performance Measures (APM's)
The Group has identified certain measures 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, Headline EBITDA, Net debt/funds and
Headline net debt/funds and free cash flow. These APMs are set out
in the Glossary on page 47 including explanations of how they are
calculated and how they are reconciled to a statutory measure where
relevant.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
1. Basis of preparation (continued)
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 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, these measures 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
4.
Going concern
The consolidated financial statements have been prepared on a
going concern basis. The directors are required to assess whether
the Group can continue to operate for the 12 months from the date
of approval of these financial statements, and to prepare the
financial statements on a going concern basis.
The Group overview describes the Group's financial position,
cash flows and borrowing facilities and also highlights the
principal risks and uncertainties facing the Group. The Group
overview also sets out the Group's business activities together
with the factors that are likely to affect its future developments,
performance and position.
The directors report that they have undertaken a rigorous
assessment of current performance and forecasts, including
expenditure commitments, capital expenditure and borrowing
facilities, and have concluded that the Group is able to
adequately manage its financing and principal risks, and that
the Group will be able to operate within the level of its
facilities and meet the required covenants for the period to
February 2024. Based on this assessment, which is outlined below,
it is appropriate to adopt the going concern basis of accounting in
preparing these financial statements.
In making the going concern assessment, the directors have
modelled a number of scenarios for the period to February 2024. The
base case scenario is consistent with the Board approved 2023
Budget and the three year plan. Under this scenario the Group has
significant liquidity and comfortably complies with all covenant
tests to February 2024.
As a result of inherent uncertainties due to the impact of
Covid-19 and challenges in the macroeconomic
environment, a severe but plausible scenario has also been
modelled which assumes a 10 per cent reduction in revenue versus
base case across all our businesses (Travel UK, North America, Rest
of the World and High Street). We have also assumed a 5 per cent
increase in labour costs against base case and a 50 per cent
increase in energy costs against base case where energy costs have
not been fixed. Apart from an equal reduction in turnover rents in
our Travel businesses, we have not assumed any decrease in other
variable costs.
In both the base case and severe but plausible scenarios the
Group would continue to have sufficient liquidity headroom on its
existing facilities, as described above.
The covenants on the above facilities are tested half-yearly.
The covenant test at 31 August 2022 is based on minimum liquidity.
The covenant tests as at 28 February 2023, 31 August 2023 and 28
February 2024 are based on fixed charges cover and net borrowings.
Under both the base case and the severe but plausible scenarios,
the Group would meet these covenant tests.
As a result of the above analysis, the directors believe that
the Group has sufficient financial resources to continue in
operation and meet its obligations as they fall due for the 12
months from the date of approval of these financial statements.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
1. Basis of preparation (continued)
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of 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, and other non-current
assets and inventory valuation.
Critical accounting judgements
Non-underlying items
The definition of non-underlying items is shown on page 25. The
classification of items as non-underlying requires management
judgement. The definition of non-underlying items has been applied
consistently year on year. Further details of non-underlying items
are provided in Note 4.
IFRS 16 Lease accounting
Substantive substitution rights
Judgement is required in determining whether a contract meets
the definition of a lease under IFRS 16. Management has determined
that certain retail concession contracts give the landlord
substantive substitution rights because the contract gives the
landlord rights to relocate the retail space occupied by the Group.
In such cases, management has concluded that there is not an
identified asset and therefore such contracts are outside the scope
of IFRS 16. For these contracts, the Group recognises the payments
as an operating expense on a straight-line basis over the term of
the contract unless another systematic basis is more representative
of the time pattern in which economic benefits from the underlying
contract are consumed.
Determination of lease term
In determining the lease term for contracts that have options to
extend or terminate early, management has applied judgement in
determining the likelihood of whether such options will be
exercised. This is based on the length of time remaining before the
option is exercisable, performance of the individual store and the
trading forecasts.
Intangible assets, property, plant and equipment and
right-of-use asset impairment reviews
Property, plant and equipment, right-of-use assets and
intangible assets are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount may not be
recoverable. When a review for impairment is conducted, the
recoverable amount of an asset or a cash-generating unit is
determined based on value-in-use calculations prepared on the basis
of management's assumptions and estimates.
The key assumptions in the value-in-use calculations include
growth rates of revenue and the pre-tax discount rate. Due to the
effects of the Covid-19 global pandemic, there is an increased
level of uncertainty in all of the above assumptions such that a
reasonably possible change in these assumptions could lead to a
material change in the carrying value of assets.
Further information in respect of the Group's property, plant
and equipment and right-of-use assets is included in Notes 11 and
12 respectively.
Inventory valuation
Inventory is carried at the lower of cost and net realisable
value which requires the estimation of sell through rates, and the
eventual sales price of goods to customers in the future. Any
difference between the expected and the actual sales price achieved
will be accounted for in the period in which the sale is made. A
sensitivity analysis has been carried out on the calculation of
inventory provisions, including consideration of the uncertainties
arising from Covid-19. The key assumption driving the stock
provision calculation is forecast revenue. A 10 per cent change in
the revenue assumptions applied in the provision calculation,
representing a reasonably possible outcome, would reduce the net
realisable value of inventories by GBP 2m.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
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.
For management and financial reporting purposes, the Group is
organised into two operating divisions which comprise four
reportable segments - Travel UK, North America, Rest of the World
within the Travel division, and High Street.
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 47 (Note
A2).
a) Revenue
GBPm 2022 2021
----------------------- ------ ---------------
Travel UK 521 195
North America 288 166
Rest of the World (1) 118 40
------------------------ ------ ---------------
Total Travel 927 401
High Street 473 485
Group revenue 1,400 886
------------------------ ------ ---------------
(1) Rest of the World revenue includes revenue from Australia of
GBP40m (2021: GBP20m). No other country has individually material
revenue.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
2. Segmental analysis of results (continued)
b) Group results
2022 2021
------------------ --------------- ------------------------------ --------------------------------------- ------
Headline
Headline
before Headline
non-underlying Headline before non-underlying
items non-underlying non-underlying items
(1) items (1) items(1) (1)
(pre-IFRS IFRS (pre-IFRS IFRS
GBPm 16) (pre-IFRS16) 16 Total 16) (pre-IFRS16) 16 Total
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Travel UK trading
profit/(loss) 54 - 6 60 (32) - 3 (29)
North America
trading
profit/(loss) 31 - 2 33 6 - (4) 2
Rest of the World
trading
profit/(loss) 4 - (1) 3 (13) - (4) (17)
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Total Travel
trading
profit/(loss) 89 - 7 96 (39) - (5) (44)
High Street
trading
profit 33 - 12 45 19 - 17 36
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Group
profit/(loss)
from trading
operations 122 - 19 141 (20) - 12 (8)
Unallocated
central
costs (24) - - (24) (19) - - (19)
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Group operating
profit/(loss)
before
non-underlying
items 98 - 19 117 (39) - 12 (27)
Non-underlying
items
(Note 4) - (12) (8) (20) - (49) (16) (65)
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Group operating
profit/(loss) 98 (12) 11 97 (39) (49) (4) (92)
Finance costs (25) - (9) (34) (16) - (8) (24)
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Profit/(loss)
before
tax 73 (12) 2 63 (55) (49) (12) (116)
Income tax
(expense)/credit (12) 3 (1) (10) 26 9 1 36
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
Profit/(loss) for
the year 61 (9) 1 53 (29) (40) (11) (80)
------------------ --------------- --------------- ----- ------ --------------- --------------- ----- ------
(1) Presented on a pre-IFRS 16 basis. Alternative Performance
Measures are defined and explained in the Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
2. Segmental analysis of results (continued)
c) Other segmental items
2022
-------------------------------- -------------------------------------------------------------------
Non-current assets(1) Right-of-use assets
-------------------------------- ----------------------------------------- ------------------------
Capital Depreciation
GBPm additions and amortisation Impairment Depreciation Impairment
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Travel UK 30 (16) - - -
North America 22 (11) - - -
Rest of the World 13 (2) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Total Travel 65 (29) - - -
High Street 25 (15) (2) - -
Unallocated - (3) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, before non-underlying
items (pre-IFRS 16) 90 (47) (2) - -
Headline non-underlying
items (pre-IFRS 16) - (3) (6) - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, after non-underlying
items (pre-IFRS 16) 90 (50) (8) - -
Impact of IFRS 16 - - - (81) -
Non-underlying items (IFRS
16) - - - - (8)
Group 90 (50) (8) (81) (8)
-------------------------------- ---------- ----------------- ---------- ------------ ----------
2021
-------------------------------- -------------------------------------------------------------------
Non-current assets(1) Right-of-use assets
-------------------------------- ----------------------------------------- ------------------------
Capital Depreciation
GBPm additions and amortisation Impairment Depreciation Impairment
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Travel UK 11 (14) - - -
North America 15 (10) - - -
Rest of the World 2 (3) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Total Travel 28 (27) - - -
High Street 16 (17) (2) - -
Unallocated - (4) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, before non-underlying
items (pre-IFRS 16) 44 (48) (2) - -
Headline non-underlying
items (pre-IFRS 16) - (3) (18) - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, after non-underlying
items (pre-IFRS 16) 44 (51) (20) - -
Impact of IFRS 16 - 1 - (84) -
Non-underlying items (IFRS
16) - - 4 - (28)
Group 44 (50) (16) (84) (28)
-------------------------------- ---------- ----------------- ---------- ------------ ----------
(1) Non-current assets including property, plant and equipment
and intangible assets, but excluding right-of-use assets.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
3. Group operating profit
2022 2021
------------------------ ---- --------------------------------------- --------------------------------------
Before Before
non-underlying Non-underlying non-underlying Non-underlying
GBPm Note items items Total items items Total
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Revenue 1,400 - 1,400 886 - 886
Cost of sales (538) - (538) (358) - (358)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Gross profit 862 - 862 528 - 528
Distribution costs(1) (588) - (588) (419) - (419)
Administrative expenses (161) - (161) (140) - (140)
Other income(2) 4 - 4 4 - 4
Non-underlying items 4 - (20) (20) - (65) (65)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Group operating profit 117 (20) 97 (27) (65) (92)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
(1) During the year there was an underlying impairment charge of
GBP2m (2021: GBP2m) for property, plant and equipment and other
intangible assets included in distribution costs. Other impairment
charges related to Covid-19 are included in non-underlying items.
See Note 4.
(2) Other income relates to remeasurement of right-of-use
assets, and profit attributable to property.
GBPm 2022 2021
------------------------------------------- ----- -----
Cost of inventories recognised as
an expense 538 358
Write-down of inventories in the
year(3) 2 7
Depreciation of property, plant and
equipment 37 36
Depreciation of right-of-use assets
- land and buildings 78 80
- other 3 4
Amortisation of intangible assets 13 14
Impairment of property, plant and
equipment 7 16
Impairment of right-of-use assets 8 28
Impairment of intangibles 1 -
(Income)/expenses relating to leasing:
- expense relating to short-term
leases 17 14
- expense relating to variable lease
payments not included in the measurement
of the lease liability 29 27
- income relating to Covid-19 rent
reductions (5) (23)
Other occupancy costs 59 27
Staff costs 293 232
Government grant income - (11)
-------------------------------------------- ----- -----
(3) Write-down of inventories in the year are included within
the amounts disclosed as Cost of inventories recognised as an
expense, and recognised in Cost of sales.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
4. Non-underlying items
Items which are not considered part of the normal operating
costs of the business, are non-recurring or 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
Financial Review on page 12.
GBPm 2022 2021
---------------------------------------- ----- -----
Amortisation of acquired intangible
assets 3 3
Costs related to cyber incident 4 -
Store impairments
* property, plant and equipment 5 14
* right-of-use assets 8 28
Write-down of inventories - 5
Restructuring costs - 9
Costs associated with refinancing - 6
Costs associated business combinations - 2
Other - (2)
----------------------------------------- ----- -----
Non-underlying items, before tax 20 65
Tax credit on non-underlying items (4) (12)
----------------------------------------- ----- -----
Non-underlying items, after tax 16 53
----------------------------------------- ----- -----
Non-underlying items recognised in the year are as follows:
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands (see Note 10).
Costs related to cyber incident
Costs of GBP4m incurred due to a cyber security incident in
relation to one of the Group's websites include impairment of
software assets of GBP1m, third party consultancy support and
legal and other costs.
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 number of stores where experience and expectations of
the longer-term impact of Covid-19 is more negative than previously
assumed, primarily driven by the ongoing impact of Covid-19 on
consumer shopping patterns.
The impairment review compared the value-in-use of individual
store cash-generating units, based on management's assumptions
regarding likely future trading performance, taking into account
the latest view of the recovery from Covid-19, to the carrying
values at 31 August 2022. As a result of this exercise, a charge of
GBP13m (2021: GBP42m) was recorded within non-underlying items for
impairment of retail store assets, of which GBP5m (2021: GBP14m)
relates to property, plant and equipment and GBP8m (2021: GBP28m)
relates to right-of-use assets. Refer to Note 11 for details of
impairment of store cash-generating units. The impairment
recognised on a pre-IFRS 16 basis is provided in the Glossary on
page 47.
A tax credit of GBP4m (2021: GBP12m) has been recognised in
relation to non-underlying items.
Other prior year non-underlying items
Other non-underlying items in the prior year included stock
provisioning and impairment relating to the impact of Covid-19,
restructuring costs following a review of store operations across
our High Street business, costs associated with the refinancing
activity in April 2021 and further integration costs in relation to
the acquisition of MRG which completed in December 2019.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
5. Finance costs
GBPm 2022 2021
------------------------------------ ----- -----
Interest payable on bank loans and
overdrafts 9 10
Interest on convertible bonds 14 4
Interest on lease liabilities 11 10
34 24
------------------------------------ ----- -----
6. Income tax
GBPm 2022 2021
------------------------------------------------ ----- -----
Tax on profit/loss 6 -
Standard rate of UK corporation tax 19% (2021:
19%)
Adjustment in respect of prior years - (1)
------------------------------------------------ ----- -----
Total current tax expense/(credit) 6 (1)
------------------------------------------------ ----- -----
Deferred tax - current year 8 (11)
Deferred tax - prior year - (4)
Deferred tax - adjustment in respect of change
in tax rates - (8)
------------------------------------------------ ----- -----
Tax expense/(credit) on profit/loss before
non-underlying items 14 (24)
------------------------------------------------ ----- -----
Tax on non-underlying items - current tax - -
Tax on non-underlying items - deferred tax (4) (12)
------------------------------------------------ ----- -----
Total tax expense/(credit) on profit/loss 10 (36)
------------------------------------------------ ----- -----
Reconciliation of the taxation charge/(credit)
GBPm 2022 2021
---------------------------------------------- ----- -----
Tax on profit/loss at standard rate of UK
corporation tax 19% (2021: 19%) 12 (22)
Tax effect of items that are not deductible
or not taxable in determining taxable loss - 1
Unrecognised tax losses (1) (1)
Differences in overseas tax rates (1) (1)
Adjustment in respect of prior years - (5)
Adjustment in respect of change in tax rates - (8)
---------------------------------------------- ----- -----
Total income tax expense/(credit) 10 (36)
---------------------------------------------- ----- -----
The effective tax rate, before non-underlying items, is 17 per
cent (2021: 47 per cent). The effective tax rate is lower than the
prior year rate and the UK corporation tax rate of 19 per cent
primarily due to the recognition of brought forward previously
unrecognised tax losses and the prior year effective tax rate
included a credit arising on the UK tax rate change which was
substantively enacted on the 24 May 2021 from 19 to 25 per
cent.
The UK corporation tax rate is 19 per cent. In the Spring Budget
2021, the UK Government announced that 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 the main impact has been
factored into 31 August 2021 year end financial statements.
The OECD has published a framework for the introduction of a
global minimum effective tax rate of 15 per cent, applicable to
large multinational groups. On 20 July 2022, HM Treasury released
draft legislation to implement these 'Pillar 2' rules with effect
for accounting periods beginning on or after 31 December 2023. The
Group is reviewing these draft rules to determine any potential
impact.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
7. Earnings per share
a) Earnings/(loss)
GBPm 2022 2021
------------------------------------------ ----- -----
Profit/(loss) for the year, attributable
to equity holders of the parent 47 (82)
------------------------------------------- ----- -----
Non-underlying items (Note 4) 16 53
------------------------------------------- ----- -----
Profit/(loss) for the year before
non-underlying items, attributable
to equity holders of the parent 63 (29)
------------------------------------------- ----- -----
Weighted average share capital
b)
Millions 2022 2021
----------------------------------------- ----- -----
Weighted average ordinary shares
in issue 130 131
Less weighted average ordinary shares - -
held in ESOP Trust
----------------------------------------- ----- -----
Weighted average shares in issue
for earnings per share 130 131
Add weighted average number of ordinary 2 -
shares under option
Weighted average ordinary shares
for diluted earnings per share 132 131
------------------------------------------ ----- -----
c) Basic and diluted earnings/(loss) per share
Pence 2022 2021
------------------------------- ----- -------
Basic earnings/(loss) per
share 36.2 (62.6)
--------------------------------- ----- -------
Adjustment for non-underlying
items 12.3 40.5
--------------------------------- ----- -------
Basic earnings/(loss) per
share before non-underlying
items 48.5 (22.1)
--------------------------------- ----- -------
Diluted earnings/(loss) per
share 35.6 (62.6)
--------------------------------- ----- -------
Adjustment for non-underlying
items 12.1 40.5
--------------------------------- ----- -------
Diluted earnings/(loss) per
share before non-underlying
items 47.7 (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. As the
Group incurred a loss in the year ended 31 August 2021, the impact
of its potential dilutive ordinary shares was excluded as they
would have been anti-dilutive.
As at 31 August 2022 the convertible bond has no dilutive effect
as the inclusion of these potentially dilutive shares would improve
earnings per share (31 August 2021: improve loss per share).
The calculation of earnings per share on a pre-IFRS 16 basis is
provided in the Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
8. Analysis of net debt
Movement in net debt can be analysed as follows:
Sub-total
Liabilities
Revolving from
Term Convertible credit financing Cash and Net
GBPm loans bonds facility Leases activities cash equivalents debt
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ------
At 1 September
2021 (132) (283) - (470) (885) 130 (755)
Other non-cash
movements - (9) - (184) (193) - (193)
Other cash movements - - - 107 107 - 107
Currency translation - - - (30) (30) 2 (28)
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ------
At 31 August
2022 (132) (292) - (577) (1,001) 132 (869)
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ------
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)
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
8. Analysis of net debt (continued)
An explanation of Alternative Performance Measures, including
Net debt on a pre-IFRS 16 basis, is provided in the Glossary on
page 47.
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
Non-cash movements in lease liabilities mainly relate to new
leases, modifications and remeasurements in the year.
Term loans and revolving credit facilities
In the prior year, 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.
The Group has in place a four 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 31 August 2022, the Group has drawn down GBPnil on
this facility (2021: GBPnil).
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.
Instalments due within the next 12 months are recorded in current
liabilities.
Transaction costs of GBP1m (2021: GBP1m) relating to the term
loan are amortised to the Income statement through the effective
interest rate method. Transaction costs of GBP1m (2021: GBP1m)
relating to the RCF were capitalised in the previous financial year
and are amortised to the Income statement on a straight-line
basis.
Convertible bonds
In the prior year, the Group issued GBP327m of guaranteed senior
unsecured convertible bonds due in 2026. The bond of GBP327m covers
a five-year term beginning on 7 May 2021 with a 1.625 per cent 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 per cent 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
was 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 was 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 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 Financial Statements
For the year ended 31 August 2022
9. Cash generated from operating activities
GBPm 2022 2021
------------------------------------------------ ----- -----
Group operating profit/(loss) 97 (92)
Depreciation of property, plant and equipment 37 36
Impairment of property, plant and equipment 7 16
Amortisation of intangible assets 13 14
Impairment of intangible assets 1 -
Depreciation of right-of-use assets 81 84
Impairment of right-of-use assets 8 28
Non-cash change in lease liabilities (5) (23)
Share-based payments 9 6
Gain on remeasurement of leases (4) (3)
Other non-cash items (incl. foreign exchange) (12) (2)
(Increase)/decrease in inventories (56) 14
(Increase)/decrease in receivables (42) 4
Increase in payables 88 24
Pension funding (2) (3)
Income taxes paid (6) -
Income taxes refunded - 10
Movement on provisions (through utilisation (1) -
or income statement)
Cash generated from operating activities 213 113
------------------------------------------------ ----- -----
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
10. Intangible assets
Brands
and franchise Tenancy
GBPm Goodwill contracts rights Software Total
---------------------------- --------- --------------- -------- --------- ------
Cost:
At 1 September 2021 406 42 13 102 563
Additions - - - 13 13
Disposals - - - (2) (2)
Foreign exchange 65 8 - 1 74
At 31 August 2022 471 50 13 114 648
Accumulated amortisation:
At 1 September 2021 - 7 8 75 90
Amortisation charge - 3 - 10 13
Impairment charge - - - 1 1
Disposals - - - (2) (2)
Foreign exchange - 2 - 1 3
At 31 August 2022 - 12 8 85 105
Net book value at 31
August 2022 471 38 5 29 543
Cost:
At 1 September 2020 418 43 13 96 570
Acquisitions (1) - - - (1)
Additions - - - 7 7
Disposals - - - (1) (1)
Foreign exchange (11) (1) - - (12)
At 31 August 2021 406 42 13 102 563
Accumulated amortisation:
At 1 September 2020 - 4 8 65 77
Amortisation charge - 3 - 11 14
Disposals - - - (1) (1)
At 31 August 2021 - 7 8 75 90
Net book value at 31 August
2021 406 35 5 27 473
Goodwill of USD $70m (GBP60m) relating to the acquisition of
InMotion in 2018 is expected to be deductible for tax purposes in
the future.
The carrying value of goodwill is allocated to the segmental
businesses as follows:
GBPm 2022 2021
----- -----
Travel UK 295 253
North America 132 113
Rest of the World 29 25
Total Travel 456 391
High Street 15 15
471 406
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
10. Intangible assets (continued)
Included within Tenancy rights are certain assets that are
considered to have an indefinite life of GBP4m (2021: GBP4m),
representing certain rights under tenancy agreements, which include
the right to renew leases, therefore no amortisation has been
charged. Management has determined that the useful economic life of
these assets is indefinite because the Group can continue to occupy
and trade from certain premises for an indefinite period. These
assets are reviewed annually for indicators of impairment.
Impairment of goodwill and intangible assets
The Group tests goodwill for impairment annually or where there
is an indication that goodwill might be impaired. For impairment
testing purposes, the Group has determined that each store is a
separate CGU, and goodwill is allocated to groups of CGUs in a
manner that is consistent with our operating segments, as this
reflects the lowest level at which goodwill is monitored. All
goodwill has arisen on acquisitions of groups of retail stores.
These acquisitions are then integrated into the Group's operating
segments as appropriate. Acquired brands are considered together
with goodwill for impairment testing purposes, and are therefore
considered annually for impairment.
Goodwill and acquired brands have been tested for impairment by
comparing the carrying amount of each group of CGUs, including
goodwill and acquired brands, with the recoverable amount
determined from value-in-use calculations. The value-in-use of each
group of CGUs has been calculated using cash flows derived from the
Group's latest Board-approved budget and three year plan, initially
extrapolated to five years. The forecasts reflect knowledge of the
current market, together with the Group's expectations on the
future achievable growth and committed store openings. Cash flows
beyond the initial forecast period are extrapolated using estimated
long-term growth rates.
For certain groups of CGUs, additional adjustments to cash flows
have been made during the extrapolation process for an extended
period of up to 15 years before calculating a terminal value. This
extended period of time is required to establish a normalised cash
flow base on which a terminal value calculation can be
appropriately calculated. The main reasons for cash flow
adjustments include the need to forecast lease renewals under IFRS
16, and the unwinding of certain cash flow benefits arising from
acquisitions in North America.
The key assumptions on which forecast three-year cash flows of
the CGUs are based include revenue growth, product mix and
operating costs, long-term growth rates and the pre-tax discount
rate:
-- The values assigned to each of the revenue growth, product
mix and operating cost assumptions were determined based on the
extrapolation of historical trends within the Group and external
information on expected future trends in the travel and high street
retail sectors.
-- The pre-tax discount rates are derived from the Group's
weighted average cost of capital, which has been calculated using
the capital asset pricing model, the inputs of which include a
country risk-free rate, equity risk premium, Group size premium and
a risk adjustment (beta). The pre-tax discount rate used in the
calculation was 11.9 per cent (2021: 10.4 per cent).
-- The long-term growth rate assumptions are between 0 per cent and 2 per cent.
The immediately quantifiable impacts of climate change and costs
expected to be incurred in connection with our net zero
commitments, are included within the Group's budget and three year
plan which have been used to support the impairment reviews, with
no material impact on cash flows.
The value-in-use estimates indicated that the recoverable amount
of goodwill exceeded the carrying value for the groups of CGUs. As
a result, no impairment has been recognised in respect of the
carrying value of goodwill in the year (2021: GBPnil).
As disclosed in Note 1, Accounting policies, the forecast cash
flows used within the impairment model are based on assumptions
which are sources of estimation uncertainty and it is possible that
significant changes to these assumptions could lead to an
impairment of goodwill and acquired brands. Given the inherent
uncertainties due to challenges in the macroeconomic environment
and the continued recovery from Covid-19, management have
considered a range of sensitivities on each of the key assumptions,
with other variables held constant. The sensitivities include
applying increases in the discount rate by 1 per cent and
reductions in the long-term growth rates to 0 per cent. Under these
severe scenarios, the estimated recoverable amount of goodwill and
acquired brands still exceeded the carrying value.
Furthermore, outputs of quantitative climate change scenario
analysis have also been taken into consideration in the sensitivity
analysis, and has shown that climate change is not considered to be
a key driver in determining the outcome.
The sensitivity analysis showed that no reasonably possible
change in assumptions would lead to an impairment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
11. Property, plant and equipment
Land and buildings
Freehold Leasehold Fixtures Equipment
GBPm Properties improvements and fittings and vehicles Total
Cost or valuation:
At 1 September 2021 18 290 196 110 614
Additions - 32 29 16 77
Disposals - (3) (1) (1) (5)
Foreign exchange - 10 8 2 20
At 31 August 2022 18 329 232 127 706
Accumulated depreciation:
At 1 September 2021 10 206 140 84 440
Depreciation charge - 19 11 7 37
Impairment charge - 4 2 1 7
Disposals - (3) (1) (1) (5)
Foreign exchange - 4 3 1 8
At 31 August 2022 10 230 155 92 487
Net book value at 31 August
2022 8 99 77 35 219
Cost or valuation:
At 1 September 2020 15 272 198 108 593
Additions 3 12 15 7 37
Acquisitions - (1) - - (1)
Disposals - (5) (5) (2) (12)
Reclassifications - 14 (11) (3) -
Foreign exchange - (2) (1) - (3)
At 31 August 2021 18 290 196 110 614
Accumulated depreciation:
At 1 September 2020 10 185 127 79 401
Depreciation charge - 17 12 7 36
Impairment charge - 9 5 2 16
Disposals - (5) (5) (2) (12)
Reclassifications - - 2 (2) -
Foreign exchange - - (1) - (1)
At 31 August 2021 10 206 140 84 440
Net book value at 31 August
2021 8 84 56 26 174
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that
each store is a separate CGU. CGU's are tested for impairment at
the balance sheet date if any indicators of impairment have been
identified. The identified indicators include loss-making stores,
stores earmarked for closure, and under-performance of individual
stores versus forecast as a result of slower than expected recovery
from Covid-19.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
11. Property, plant and equipment (continued)
Impairment of property, plant and equipment (continued)
For those CGUs where an indicator of impairment has been
identified, property, plant and equipment and right-of-use assets
have been tested for impairment by comparing the carrying amount of
the CGU with its recoverable amount determined from value-in-use
calculations. It was determined that value-in-use was higher than
fair value less costs to sell.
The value-in-use of CGUs is calculated using discounted cash
flows derived from the Group's latest Board-approved budget and
three-year plan, taking into account the projected recovery from
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 immediately quantifiable impacts of
climate change and costs expected to be incurred in connection with
our net zero commitments, are included within the Group's budget
and three year plan which have been used to support the impairment
reviews, with no material impact on cash flows. The useful economic
lives of store assets are short in the context of climate change
scenario models therefore no medium to long-term effects have been
considered.
The key assumptions on which the forecast three-year cash flows
of the CGUs are based include revenue and the pre-tax discount
rate. Other assumptions in the model relate to gross margin, cost
inflation and longer-term growth rates. The forecasts used in the
impairment review are based on management's best estimate of
revenue recovery versus a 'pre-Covid' base, and the recovery in
revenue over the forecast period. In developing these forecasts,
management have used available information, including historical
knowledge of the store level cash flows, and knowledge gained
during the pandemic up to the year end date.
The pre-tax discount rates are derived from the Group's weighted
average cost of capital, which has been calculated using the
capital asset pricing model, the inputs of which include the
risk-free rate, equity risk premium, Group size premium and a risk
adjustment (beta). The pre-tax discount rate used in the
calculation was 11.9 per cent (2021: 10.4 per cent).
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. These stores were impaired to
their recoverable amount of GBP18m, which is their carrying value
at year end. The Group has recognised an impairment charge of GBP7m
(2021: GBP16m) to property, plant and equipment, GBP1m (2021:
GBPnil) to software and GBP8m (2021: GBP28m) right-of-use assets.
Impairments of GBP14m (2021: GBP42m) have been presented as
non-underlying items in the current year (see Note 4), and
impairments of GBP2m (2021: GBP2m) have been included in underlying
results.
As disclosed in Note 1, Accounting policies, the forecast cash
flows used within the impairment model are based on assumptions
which are sources of estimation uncertainty and changes to these
assumptions could lead to further impairments to assets. Given the
significant uncertainty regarding the impact of the continued
recovery from Covid-19 on the Group's operations and on the global
economy, management have considered sensitivities to the impairment
charge as a result of changes to the estimate of future revenues
achieved by the stores.
The Group has applied certain sensitivities in isolation to
demonstrate the impact on the impairment charge of changes in key
assumptions. The most significant assumption is the revenue
assumption. The impact of a 10 per cent reduction in revenue in the
relevant CGUs, with no change to subsequent forecast revenue growth
rate assumptions, has been modelled. This would result in a GBP15m
increase in the impairment charge of retail store assets in the
year ended 31 August 2022.
Other changes in assumptions, including an increase or decrease
of 1 per cent in the discount rate, have been modelled and have
shown that any reasonably possible changes would not lead to a
significant impact on the impairment charge .
The impairment assessment has also been performed on a pre-IFRS
16 basis. See Glossary on page 47.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
12. Right-of-use assets
Land and
GBPm buildings Equipment Total
At 1 September 2021 319 9 328
Additions 160 - 160
Modifications and remeasurements 25 - 25
Disposals (2) - (2)
Depreciation charge (78) (3) (81)
Impairment charge (8) - (8)
Effect of movements in foreign exchange
rates 24 - 24
Net book value at 31 August 2022 440 6 446
Land and
GBPm buildings Equipment Total
At 1 September 2020 400 13 413
Additions 45 - 45
Modifications and remeasurements (13) - (13)
Disposals (1) - (1)
Depreciation charge (80) (4) (84)
Impairment charge (28) - (28)
Effect of movements in foreign exchange
rates (4) - (4)
Net book value at 31 August 2021 319 9 328
Impairment of right-of-use assets
Right-of-use assets of GBP8m (2021: GBP28m) have been impaired
in the year, as a result of the impact of Covid-19. This impairment
charge has been presented in non-underlying items (see Note 4). The
approach to impairment testing is described in detail in Note 11,
Property, plant and equipment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
13. Lease liabilities
Land and
GBPm buildings Equipment Total
At 1 September 2021 463 7 470
Additions 159 - 159
Modifications and remeasurements 18 - 18
Disposals (4) - (4)
Interest 11 - 11
Payments (103) (4) (107)
Effect of movements in foreign exchange
rates 30 - 30
At 31 August 2022 574 3 577
Land and
GBPm buildings Equipment Total
At 1 September 2020 548 11 559
Additions 41 - 41
Modifications and remeasurements (37) - (37)
Disposals (7) - (7)
Interest 10 - 10
Payments (87) (4) (91)
Effect of movements in foreign exchange
rates (5) - (5)
At 31 August 2021 463 7 470
GBPm 2022 2021
Analysis of total lease liabilities:
Non-current 446 362
Current 131 108
Total 577 470
The Group leases land and buildings for its retail stores,
distribution centres, storage locations and office property. These
leases have an average remaining lease term of 4 years. Some leases
include an option to break before the end of the contract term or
an option to renew the lease for an additional term after the end
of the term. Management assess the lease term at inception based on
the facts and circumstances applicable to each property.
Other leases are mainly forklift trucks for the retail stores
and distribution centres, office equipment and vehicles. These
leases have an average remaining lease term of 3 years.
The Group reviews the retail lease portfolio on an ongoing
basis, taking into account retail performance and future trading
expectations. The Group may exercise extension options, negotiate
lease extensions or modifications. In other instances, the Group
may exercise break options, negotiate lease reductions or decide
not to negotiate a lease extension at the end of the lease term.
Certain property leases contain rent review terms that require rent
to be adjusted on a periodic basis which may be subject to market
rent or increases in inflation measurements.
Many of the Group's property leases, particularly in Travel
locations, also incur payments based on a percentage of revenue
(variable lease payments) achieved at the location. In line with
IFRS 16, variable lease payments which are not based on an index or
rate are not included in the lease liability. See Note 3 for the
expense charged to the Income statement relating to variable lease
payments not included in the measurement of the lease
liability.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
13. Lease liabilities (continued)
In response to the Covid-19 pandemic, an amendment was issued to
IFRS 16 in June 2020 and further extended in March 2021. This
amendment (practical expedient) allows the impact on the lease
liability of temporary rent reductions/waivers affecting rent
payments due on or before June 2022, to be recognised in the Income
statement in the period they are received, rather than as lease
modifications, which would require the remeasurement of the lease
liability using a revised discount rate with a corresponding
adjustment to the right-of-use asset. The Group has applied this
practical expedient to all Covid-19 rent reductions/waivers that
meet the requirements of the amendment. This has resulted in a
credit to the Income statement of GBP5m for the year ended 31
August 2022 (2021: GBP23m).
Details of Income statement charges and income for leases are
set out in Note 3. The right-of-use asset categories on which
depreciation is incurred are presented in Note 12. Interest expense
incurred on lease liabilities is presented in Note 5.
The total cash outflow for leases in the financial year was
GBP150m (2021: GBP123m). This includes cash outflow for short-term
leases of GBP16m (2021: GBP14m) and variable lease payments (not
included in the measurement of lease liability) of GBP28m (2021:
GBP18m). The total future income from sub-leasing the right-of-use
assets is GBP1m (2021: GBP1m).
14. Contingent liabilities and capital commitments
GBPm 2022 2021
----- -----
Bank guarantees and guarantees in respect of
lease agreements 51 31
Contracts placed for future capital expenditure approved by the
directors but not provided for in these financial statements amount
to GBP30m (2021: GBP26m).
GBPm 2022 2021
----- -----
Commitments in respect of property, plant and
equipment 28 25
Commitments in respect of other intangible
assets 2 1
30 26
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. 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 benefit scheme,
WHSmith Pension Trust and a defined contribution scheme, WH Smith
Retirement Savings Plan. 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:
GBPm 2022 2021
WHSmith Pension Trust - (2)
United News Shops Retirement Benefits
Scheme - (1)
Retirement benefit obligation recognised
in the balance sheet - (3)
Recognised as:
Current liabilities - (1)
Non-current liabilities - (2)
WHSmith Pension Trust
In August 2022 the WH Smith Pension Trust purchased a bulk
annuity insurance policy from Standard Life, part of
Phoenix Group, insuring all liabilities to pay all future
defined benefit pensions to the Trust's 12,950 members and any
eligible dependants.
The insurance policy was purchased using most of the existing
assets held within the Trust, without the need for the
Group to make any additional cash contributions. The bulk
annuity policy matches the Trust's cash flow benefit obligations to
its members, removing longevity and other demographic risks as well
as investment, interest rate and inflation risks. As the purchase
price of the annuity of GBP1.1bn was greater than the IAS 19
accounting value of the corresponding liabilities, an asset
remeasurement loss of GBP508m has been recorded in other
comprehensive income. This has been offset by actuarial gains on
the liabilities due to changes in financial assumptions and
experience of GBP337m, and gains relating to changes in amounts not
recognised due to the effect of the asset ceiling of GBP169m.
As a result of this comprehensive risk-removal, WH Smith will
not be required to make any future cash contributions into the
Trust regarding defined benefit liabilities, therefore the
previously recognised minimum funding liability (GBP2m as at 31
August 2021) has been derecognised. The prior year liability of
GBP2m relates to the recognition of the schedule of contributions
as a liability in accordance with the requirements of IFRIC 14.
During the year ended 31 August 2022, prior to the completion of
the buy-in transaction, the Group made a contribution of GBP2m to
the scheme (2021: GBP3m) in accordance with the agreed funding
schedule.
The amounts recognised in the balance sheet under IAS 19 in
relation to this plan are as follows:
GBPm 2022 2021
Present value of the obligations (813) (1,172)
Fair value of plan assets 933 1,456
Surplus before consideration of asset
ceiling 120 284
Amounts not recognised due to effect
of asset ceiling (120) (284)
Additional liability recognised due to
minimum funding requirements - (2)
Retirement benefit obligation recognised
in the balance sheet - (2)
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 GBP120m (2021: GBP284m) available as a reduction of
future contributions is GBPnil (2021: GBPnil). As a result, the
Group has not recognised this IAS 19 surplus on the balance
sheet.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. Retirement benefit obligations (continued)
Income statement
The amounts recognised in the income statement were as
follows:
GBPm 2022 2021
Net interest cost on the defined benefit - -
liability
Past service cost - -
- -
The net interest cost has been included in finance costs.
Actuarial gains and losses have been reported in the statement of
comprehensive income.
Statement of comprehensive income
Total (expense) / income recognised in the statement of
comprehensive income ("SOCI"):
GBPm 2022 2021
Asset remeasurement (losses)/gains arising
during the year (508) 58
Actuarial (loss)/gain on defined benefit
obligations arising from experience (13) 5
Actuarial gain/(loss) on defined benefit
obligations arising from changes in
financial assumptions 350 (56)
Actuarial gain on defined benefit obligations
arising from changes in demographic
assumptions - 1
Total actuarial (loss)/gain before consideration
of asset ceiling (171) 8
Gain/(loss) resulting from changes in amounts
not recognised due to effect of asset ceiling
excluding amounts recognised in net interest
cost 169 (11)
Gain resulting from changes in additional
liability due to minimum funding requirements
excluding amounts recognised in net interest
cost 2 1
Total actuarial loss recognised in other
comprehensive income relating to the WH
Smith Pension Trust - (2)
Actuarial gain recognised in other comprehensive
income relating to the UNS scheme - 1
Balance sheet
Movement in net retirement benefit liability during the
period:
GBPm 2022 2021
At beginning of year (2) (3)
Contributions from the sponsoring companies 2 3
Actuarial losses on defined benefit
pension schemes - (2)
At end of year - (2)
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2022
15. Retirement benefit obligations (continued)
The principal long-term assumptions used in the IAS 19 valuation
were:
% 2022 2021
Rate of increase in pension payments 3.30 3.35
Rate of increase in deferred pensions 3.30 2.55
Discount rate 4.20 1.75
RPI Inflation assumption 3.70 3.45
CPI Inflation assumption 3.30 2.55
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
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 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, these measures 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 separate disclosure of these items
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 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.
Management have chosen to exclude the effects of IFRS 16 for the
purposes of narrative commentary on the Group's performance and
financial position in the Group Overview. The effect of IFRS 16 on
the Group income statement is to front-load total lease expenses,
being higher at the beginning of a lease contract, and lower
towards the end of a contract, and this is further influenced by
timing of renewals and contract wins, and lengths of contracts. As
a result of these complexities, IFRS 16 measures of profit and
EBITDA (used as a proxy for cash generation) do not provide
meaningful KPIs or measures for the purposes of assessing
performance, concession quality or for trend analysis, therefore
management continue to use pre-IFRS 16 measures internally.
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 flows from operating activities being offset by a decrease in
net cash flows from financing activities, as set out in Note A9
below. The balance sheet as at 31 August 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)
For the year ended 31 August 2022
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.
Reconciling
Closest equivalent items to
APM IFRS measure IFRS measure Definition and purpose
Income statement measures
Headline measures Various See Notes Headline measures exclude the
A1-A11 impact of IFRS 16 (applying the
principles of IAS 17). Reconciliations
of all Headline measures are provided
in Notes A1 to A11.
Group profit/(loss) Group profit/(loss) See Group Group profit/(loss) before tax
before tax before tax income statement and non-underlying items excludes
and non-underlying and Note the impact of non-underlying items
items A1 as described below. A reconciliation
from Group profit/(loss) before
tax and non-underlying items to
Group (loss)/profit before tax
is provided on the Group income
statement on page 19, and on a
Headline (pre-IFRS 16) basis in
Note A1.
Group profit/(loss) Group operating See Note Group profit/(loss) from trading
from trading profit/(loss) 2 and Note operations and segment trading
operations A2 profit/(loss) are stated after
and segment directly attributable share-based
trading profit/(loss) payment and pension service charges
and before non-underlying items,
unallocated costs, finance costs
and income tax 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 financial statements
and on a Headline (pre-IFRS 16)
basis in Note A2.
Non-underlying None Refer to Items which are not considered
items definition part of the normal operating costs
and see Note of the business, are non-recurring
4 and Note and considered exceptional because
A6 of their size, 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 4 to
the financial statements, and
on a Headline (pre-IFRS 16) basis
in Note A6.
Earnings/(loss) Earnings/(loss) Non-underlying Profit/(loss) for the year attributable
per share before per share items, see to the equity holders of the parent
non-underlying Note 7 and before non-underlying items divided
items Note A4 by the weighted average number
of 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 EBITDA Group operating Refer to Headline EBITDA is Headline Group
profit/(loss) definition operating profit/(loss) before
non-underlying items adjusted
for pre-IFRS 16 depreciation,
amortisation and impairment.
Effective tax None Non-underlying Total income tax charge/credit
rate items excluding the tax impact of non-underlying
items divided by Group Headline
profit/(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.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
Reconciling
Closest equivalent items to
APM IFRS measure IFRS measure Definition and purpose
Income statement measures (continued)
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 Preliminary
margin margin announcement statement, gross margin
is calculated as gross profit divided
by revenue.
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.
exchange
impact
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 Note Free cash flow is defined as the net
flow from operating A7 and Group cash inflow from operating activities
activities overview 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 14, as
part of the Financial Review.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A1. Reconciliation of Headline to Statutory Group operating
profit and Group profit before tax
2022
pre-IFRS 16 basis IFRS 16 Basis
Headline, Headline
before non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Revenue 1,400 - 1,400 - 1,400
Cost of sales (538) - (538) - (538)
Gross profit 862 - 862 - 862
Distribution costs (604) - (604) 16 (588)
Administrative expenses (160) - (160) (1) (161)
Other income - - - 4 4
Non-underlying items - (12) (12) (8) (20)
Group operating profit 98 (12) 86 11 97
Finance costs (25) - (25) (9) (34)
Profit before tax 73 (12) 61 2 63
Income tax (charge)/credit (12) 3 (9) (1) (10)
Profit for the year 61 (9) 52 1 53
Attributable to:
Equity holders of the parent 55 (9) 46 1 47
Non-controlling interests 6 - 6 - 6
61 (9) 52 1 53
2021
pre-IFRS 16 basis IFRS 16 Basis
Headline, before Headline
non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Revenue 886 - 886 - 886
Cost of sales (358) - (358) - (358)
Gross profit 528 - 528 - 528
Distribution costs (431) - (431) 12 (419)
Administrative expenses (136) - (136) (4) (140)
Other income - - - 4 4
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
Finance costs (16) - (16) (8) (24)
Loss before tax (55) (49) (104) (12) (116)
Income tax credit 26 9 35 1 36
Loss for the year (29) (40) (69) (11) (80)
Attributable to:
Equity holders of the parent (31) (40) (71) (11) (82)
Non-controlling interests 2 - 2 - 2
(29) (40) (69) (11) (80)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A2. Reconciliation of Headline to Statutory Segmental trading
profit/(loss) and Group profit/(loss) from trading operations
2022
pre-IFRS 16 basis IFRS 16 basis
Headline, Headline
before non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Travel UK trading profit 54 - 54 6 60
North America trading profit 31 - 31 2 33
Rest of the World trading profit/(loss) 4 - 4 (1) 3
Total Travel trading profit 89 - 89 7 96
High Street trading profit 33 - 33 12 45
Group profit from trading operations 122 - 122 19 141
Unallocated central costs (24) - (24) - (24)
Group operating profit before
non-underlying items 98 - 98 19 117
Non-underlying items - (12) (12) (8) (20)
Group operating profit/(loss) 98 (12) 86 11 97
2021
pre-IFRS 16 basis IFRS 16 basis
Headline, Headline
before non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Travel UK trading (loss)/profit (32) - (32) 3 (29)
North America trading profit/(loss) 6 - 6 (4) 2
Rest of the World trading loss (13) - (13) (4) (17)
Total Travel trading loss (39) - (39) (5) (44)
High Street trading profit 19 - 19 17 36
Group (loss)/profit from trading
operations (20) - (20) 12 (8)
Unallocated central costs (19) - (19) - (19)
Group operating (loss)/profit
before non-underlying items (39) - (39) 12 (27)
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A3. Reconciliation of Headline to Statutory tax
expense/(credit)
2022 2021
Headline Headline
(pre-IFRS IFRS 16 (pre-IFRS IFRS 16
GBPm 16) adjustments Total 16) adjustments Total
Profit/(loss) before tax
and non-underlying items 73 10 83 (55) 4 (51)
Tax on profit 5 1 6 - - -
Standard rate of UK corporation
tax 19.00% (2021: 19.00%)
Adjustment in respect of
prior years - - - (1) - (1)
Total current tax charge/(credit) 5 1 6 (1) - (1)
Deferred tax - current year 7 1 8 (13) 2 (11)
Deferred tax - prior year - - - (4) - (4)
Deferred tax - adjustment
in respect of change in tax
rates - - - (8) - (8)
Tax charge/(credit) on Headline
profit/loss 12 2 14 (26) 2 (24)
Tax on non-underlying items - - - - - -
- current tax
Tax on non-underlying items
- deferred tax (3) (1) (4) (9) (3) (12)
Total tax charge/(credit)
on profit/loss 9 1 10 (35) (1) (36)
A4. Calculation of Headline and Statutory earnings per share
2022 2021
Basic Diluted Diluted
millions EPS EPS Basic EPS EPS
Weighted average shares
in issue 130 132 131 131
2022 2021
Profit Profit
for the for the
year attributable year attributable
to equity to equity
holders holders
of the Basic Diluted of the Diluted
parent EPS EPS parent Basic EPS EPS
GBPm pence pence GBPm pence pence
Headline (pre-IFRS-16 basis)
* Before non-underlying items 55 42.3 41.7 (31) (23.7) (23.7)
* Non-underlying items (9) (6.9) (6.9) (40) (30.5) (30.5)
Total 46 35.4 34.8 (71) (54.2) (54.2)
IFRS 16 adjustments
* Before non-underlying items 8 6.2 6.0 2 1.6 1.6
* Non-underlying items (7) (5.4) (5.2) (13) (10.0) (10.0)
Total 1 0.8 0.8 (11) (8.4) (8.4)
IFRS 16 basis
* Before non-underlying items 63 48.5 47.7 (29) (22.1) (22.1)
* Non-underlying items (16) (12.3) (12.1) (53) (40.5) (40.5)
Total 47 36.2 35.6 (82) (62.6) (62.6)
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A5. Fixed charges cover
GBPm Note 2022 2021
Headline net finance costs (pre-IFRS 16) A1 25 16
Net operating lease charges (pre-IFRS 16) A11 241 151
Total fixed charges 266 167
Headline profit before tax and non-underlying
items A1 73 (55)
Headline profit before tax, non-underlying
items and fixed charges 339 112
Fixed charges cover - times 1.3x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
2022 2021
Headline Headline
GBPm (pre-IFRS16) IFRS 16 (pre-IFRS16) IFRS 16
Amortisation of acquired intangible
assets 3 3 3 3
Costs related to cyber incident 4 4 - -
Impairment
* property, plant and equipment 5 5 18 14
* right-of-use assets - 8 - 28
Other property costs - - 5 -
Write-down of inventories - - 5 5
Restructuring costs - - 9 9
Costs associated with refinancing - - 6 6
Costs associated with business
combinations - - 2 2
Other - - 1 (2)
Non-underlying items, before
tax 12 20 49 65
Tax credit on non-underlying
items (3) (4) (9) (12)
Non-underlying items, after
tax 9 16 40 53
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 GBP4m (2021: GBP12m) has been recognised in
relation to the above items (GBP3m pre-IFRS 16 (2021: GBP9m)).
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 11.9 per cent
(2021: 10.4 per cent) and the pre-tax discount rate used in the
pre-IFRS 16 calculation was 14.4 per cent (2021: 13.9 per
cent).
Right-of-use assets are not recognised on a pre-IFRS 16
basis.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
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. In the prior year, as a result of the impact of Covid-19,
the Group included a charge of GBP5m for stores where we anticipate
that we will make a cash loss over the remaining term of their
leases.
The Group's pre-IFRS 16 property provisions represent the
present value of unavoidable future net lease obligations and
related costs of leasehold property (net of estimated sublease
income and adjusted for certain risk factors) where the space is
vacant, loss-making or currently not planned to be used for ongoing
operations. The unwinding of the discount is treated as an imputed
interest charge. These provisions represent the best estimate of
the liability at the time of the balance sheet date, the actual
liability being dependent on future events such as economic
environment and marketplace demand. Expectations will be revised
each period until the actual liability arises, with any difference
accounted for in the period in which the revision is made.
A7. Free cash flow
GBPm Note 2022 2021
Cash generated from operating activities 9 213 113
Interest paid (26) (13)
Net cash inflow from operating activities 187 100
Cash flow impact of IFRS 16 A9 (93) (83)
Add back:
* Cash impact of non-underlying items 16 38
* Pension funding 2 3
* Other non-cash items 12 -
Deduct:
* Purchase of property, plant and equipment (70) (37)
* Purchase of intangible assets (13) (7)
Free cash flow 41 14
A8. Headline net debt
GBPm Note 2022 2021
Borrowings
- -
* Revolving credit facility
* Convertible bonds (292) (283)
* Bank loans (132) (132)
* Lease liabilities 13 (577) (470)
Liabilities from financing activities (1,001) (885)
Cash and cash equivalents 132 130
Net debt (IFRS 16) 8 (869) (755)
* Add back lease liabilities recognised under IFRS
16(1) 573 464
Headline net debt (pre-IFRS 16) (296) (291)
(1) Excludes lease liabilities previously recognised as finance
leases on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A9. Cash flow disclosure impact of IFRS 16
There is no impact of IFRS 16 on cash flows, although the
classification of cash flows has changed, with an increase in net
cash flows from operating activities being offset by a decrease in
net cash flows from financing activities.
2022 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 94 93 187 17 83 100
Net cash outflows from
investing activities (83) - (83) (43) - (43)
Net cash (outflows)/inflows
from financing activities (11) (93) (104) 48 (83) (35)
Net increase in cash
in the period - - - 22 - 22
A10. Balance sheet impact of IFRS 16
The balance sheet including and excluding the impact of IFRS 16
is shown below:
2022 2021
Headline Headline
(pre-IFRS IFRS 16 IFRS (pre-IFRS IFRS 16 IFRS
GBPm 16) Adjustment 16 16) Adjustment 16
Goodwill and other intangible
assets 544 (1) 543 474 (1) 473
Property, plant and
equipment 211 8 219 167 7 174
Right-of-use assets - 446 446 - 328 328
Investments in joint
ventures 2 - 2 2 - 2
757 453 1,210 643 334 977
Inventories 198 - 198 135 - 135
Payables less receivables (284) 15 (269) (237) 23 (214)
Working capital (86) 15 (71) (102) 23 (79)
Derivative financial 1 - 1 - - -
asset
Net current and deferred
tax assets 54 - 54 46 10 56
Provisions (26) 12 (14) (28) 14 (14)
Operating assets employed 700 480 1,180 559 381 940
Net debt (296) (573) (869) (291) (464) (755)
Net assets excluding
pension liability 404 (93) 311 268 (83) 185
Pension liability - - - (3) - (3)
Deferred tax asset on
pension liability - - - 1 - 1
Total net assets 404 (93) 311 266 (83) 183
WH Smith PLC
Glossary (unaudited)
For the year ended 31 August 2022
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a
pre-IFRS 16 basis are as follows:
GBPm 2022 2021
Net operating lease charges 241 151
In 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 47.
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.
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END
FR UKARRUWUARUA
(END) Dow Jones Newswires
November 10, 2022 02:00 ET (07:00 GMT)
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