TIDMSMWH
RNS Number : 0194S
WH Smith PLC
11 November 2021
11 November 2021
WH SMITH PLC
PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE YEARED 31 AUGUST 2021
Improving trends in Travel; well positioned for the
recovery;
successfully won all technology stores in UK airports
-- Good start to new financial year; well positioned to return to meaningful profit in 2022
-- Improving trends in Travel over recent months with total
Travel revenue at 84% of October 2019
-- Focused plan on customer conversion, increasing average
transaction value (ATV), category development and cost management
continues to drive performance
-- Strong position to benefit from growth opportunities with
over 100 new stores won and planned to open in Travel over the next
three years with 58 in North America
-- Successfully won all 30 technology stores across UK airports;
InMotion brand is now the global leader in this category in travel
locations with further growth opportunities
-- Good recovery in North America. Trading profit(*) of GBP6m
and significant new business wins at major US airports
-- High Street trading profit(*) of GBP19m with good cash
generation; record performance from funkypigeon.com
-- Headline loss before tax and non-underlying items(*) of
GBP55m, reflecting global travel restrictions
-- Strong balance sheet following refinancing announced in April
2021; free cash generation of GBP14m; access to over GBP350m of
liquidity as at 31 August 2021
Carl Cowling, Group Chief Executive, commented:
"The Group has delivered a good performance in the evolving
trading environment. Thanks to the outstanding efforts of all our
colleagues across the business, we have continued to adapt
successfully to the changing environment and we are now in a strong
position to grow our business as our markets continue to recover,
returning to meaningful profitability in the current financial
year.
"In Travel UK, we are delighted to have won all 30 of the
technology stores across UK airports. This is a significant win for
the Group and we look forward to showcasing the very best of our US
brand, InMotion, in these locations. These latest wins mean
InMotion is now the largest technology retailer in travel locations
in the world, and we see plenty more opportunity to grow the brand
globally.
"In addition to the InMotion stores in the UK, we have a very
strong pipeline of new store openings with over 100 stores already
won and due to open in Travel over the next three years - the
majority of these in North America. We expect more space to become
available as our markets recover and we are very well positioned to
benefit from these opportunities.
"Despite the challenges of the UK high street, more generally,
our High Street business has delivered a resilient and profitable
performance. Our online businesses have delivered strong growth in
the year, including a record performance from funkypigeon.com.
"I would like to take this opportunity to thank the entire team
for their outstanding contribution in another challenging year. We
have made excellent progress and none of this would be possible
without their hard work and commitment.
"We are a financially strong and resilient Group with
significant opportunities to grow. While we continue to plan with
caution, the Group is well positioned to capitalise on the recovery
in our key markets and take advantage of the many exciting
opportunities ahead."
* Pre-IFRS 16
Group financial summary:
Headline
IFRS 16 pre-IFRS 16(2)
---------------------- ----------------------
Aug 2021 Aug 2020 Aug 2021 Aug 2020
Travel UK trading loss(1) GBP(29)m GBP(1)m GBP(32)m GBP(1)m
North America trading profit/(loss)(1) GBP2m GBP(14)m GBP6m GBP(18)m
Rest of the World trading loss(1) GBP(17)m GBP(12)m GBP(13)m GBP(14)m
--------------------------------------------------- ---------- ---------- ---------- ----------
Total Travel trading loss(1) GBP(44)m GBP(27)m GBP(39)m GBP(33)m
High Street trading profit/(loss)(1) GBP36m GBP(4)m GBP19m GBP(10)m
--------------------------------------------------- ---------- ---------- ---------- ----------
Group loss from trading operations(1) GBP(8)m GBP(31)m GBP(20)m GBP(43)m
Group loss before tax and non-underlying items(1) GBP(51)m GBP(68)m GBP(55)m GBP(69)m
Loss per share before non-underlying items(1) (22.1)p (43.3)p (23.7)p (44.2)p
Non-underlying items(1) GBP(65)m GBP(212)m GBP(49)m GBP(157)m
---------- ---------- ----------
Group loss before tax GBP(116)m GBP(280)m GBP(104)m GBP(226)m
Basic loss per share (62.6)p (199.2)p (54.2)p (160.0)p
Diluted loss per share (62.6)p (199.2)p (54.2)p (160.0)p
--------------------------------------------------- ---------- ---------- ---------- ----------
Revenue performance:
GBPm Total
% change
vs Aug
2020
Travel UK 195 (43)%
North America 166 43%
Rest of the World 40 (57)%
------------------- ------ ----------
Total Travel 401 (27)%
High Street 485 4%
------
Group 886 (13)%
------------------- ------ ----------
(1) Alternative Performance Measure (APM) defined and explained
in the Glossary on page 51.
(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 2021 and 31 August 2020 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 51. 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 2021 are available at
whsmithplc.co.uk .
GROUP OVERVIEW
Impact of Covid-19 pandemic:
Covid-19 continues to have a significant impact on the
performance of the Group. Over the last year, we have worked hard
throughout the world to navigate our way through the changing
government restrictions in each country. The imposition and
subsequent easing of lockdowns and restrictions has meant we have
developed a flexible and dynamic approach to operating our stores,
opening up when we had sufficient customer traffic to generate
incremental cash or, in line with government guidelines, remaining
open to provide essential products and services to our
customers.
As at 31 October 2021, we had 1,540 stores open around the world
out of a total portfolio of 1,711 stores.
Our overriding priority during the year has been the health and
wellbeing of all our colleagues and customers. All stores,
distribution centres and head offices had appropriate safety
measures in place in line with the relevant government guidance,
including social distancing measures, PPE for colleagues' use,
protective screens and guidelines to limit the number of customers
in store. In addition, all head office staff, having initially
worked at home, are now operating a hybrid model, combining home
and office working.
Strategic Initiatives
Throughout the year, the trading environment remained impacted
by Covid-19 with extensive restrictions in place. We focused on
initiatives within our control that have supported us in the
immediate term and put us in a good position to emerge
operationally stronger as our markets continue to recover.
These key areas of focus are:
-- Securing our financial position through the new banking
arrangements and convertible bond issuance announced in April 2021.
This gives us a strong balance sheet, extends maturity dates to
2025 and increases our revolving credit facility to GBP250m
-- Driving ATV and sales per passenger
-- Extending our categories and ranges to reflect the specific
needs of our customers in each location where we operate. For
example, health and beauty products across our Travel stores and
working from home and electrical accessories ranges across our High
Street stores
-- Working with landlords, building on our strong relationships
to create opportunities for winning new business, extending
categories, renewing key contracts and improving the quality and
location of the space where we operate. The expansion of InMotion
into the UK through the winning of every technology store in UK
airports is a good example of this in practice, reflecting the
combination of our core travel retail expertise, strong brand and
landlord relationships, and builds on the learnings from operating
InMotion in the US
-- Investing capex in strategically important projects which set
us up well for the future, such as our refitted stores at London
Heathrow Terminal 5 and our stores at the new terminal at
Manchester Airport
-- Building our internet proposition by extending ranges,
investing in the websites, marketing, fulfilment and building
customer engagement through social media
-- Forensic focus on costs and cash, minimising discretionary
spend and managing our cash burn resulting in cash on deposit of
GBP107m and access to GBP357m of liquidity as at the end of October
2021
Group Summary
Total Group revenue as a percentage of 2019 total revenue has
been:
% of 2019 Revenue(3)
FY 2021 FY 2022
---------------------- ------------
Q1 Q2 Q3 Q4 9 weeks to
30 October
2021
---- ---- ---- ---- ------------
High Street 88% 83% 86% 87% 88%
---- ---- ---- ---- ------------
Travel 39% 35% 45% 63% 79%
---- ---- ---- ---- ------------
Group 59% 58% 61% 71% 82%
---- ---- ---- ---- ------------
(3) Equivalent month in 2019
Covid-19 continued to have a significant impact on the Group.
Total Group revenue at GBP886m (2020: GBP1,021m) was down 13%
compared to last year (which included six months pre-pandemic) and
was 62% of 2019(3) . Travel remained impacted by the government
enforced travel restrictions throughout the year. However, we saw
an improved performance across all channels in the second half as
restrictions were eased in most countries where we operate and
which has continued into Q1 of the current financial year. We saw a
consistently robust performance in High Street throughout the year,
despite footfall declines, with the important December trading
period at 92% of 2019. Our internet businesses have continued to
perform strongly.
The Headline Group loss from trading operations (1) for the year
was GBP20m (2020: loss of GBP43m) with Headline Group loss before
tax and non-underlying items (1) at GBP55m (2020 : loss of GBP69m).
This includes a second half performance over GBP110m better than
the prior year. Including non-underlying items, the Headline Group
loss before tax (1) was GBP104m (2020: loss of GBP226m).
The Group loss before tax, after non-underlying items and
including IFRS 16, was GBP116m (2020: loss of GBP280m).
On 28 April 2021, the Group announced new financing arrangements
which included a GBP250m Revolving Credit Facility (RCF) (increased
from GBP200m) with maturity extended to 2025. At the same time, the
Group launched an offering of convertible bonds which mature in
2026. The bonds raised GBP327m, of which GBP50m was retained by the
Group to fund new and existing growth opportunities, with over 100
stores won and yet to open in Travel, including the InMotion stores
won in the UK. The remaining GBP267m was used to pay down a
significant proportion of the Group's term debt with its commercial
banks, which now stands at GBP133m with a maturity in 2025.
The Group has the following cash, committed facilities and drawn
debt as at 31 August 2021:
31 August 2021 Maturity
Cash and cash equivalents GBP130m
-------------------------- --------------------
Revolving Credit Facility(4) GBP250m April 2025
-------------------------- --------------------
Term Loan GBP133m April 2025
-------------------------- --------------------
Convertible bond GBP327m April 2026
-------------------------- --------------------
(4) Undrawn as at 10 November 2021
As at 31 August 2021, Headline net debt(1) was GBP291m (2020:
GBP301m). We continued to focus on cash. Group free cash flow(1)
was an inflow of GBP14m (2020: outflow of GBP41m).
As at 31 October 2021, access to liquidity was GBP357m being
cash on deposit of GBP107m and the undrawn RCF.
The Board has announced that it will not be paying a dividend in
respect of the financial year ending 31 August 2021.
The Group's approach to capital allocation remains
unchanged:
-- investing in our existing business and in new opportunities
where we see attractive rates of return ahead of the cost of
capital;
-- re-establishing a dividend for our shareholders;
-- undertaking attractive value-creating acquisitions in strong and growing markets;
-- returning surplus capital to shareholders by way of share buybacks.
In normalised conditions, we have a leverage target of between
0.75X and 1.25X EBITDA.
Outlook
The Group has responded quickly to the changing trading
environment despite the challenges and uncertainties faced during
the year. We have managed our cash position well, refinanced our
debt, and have sufficient liquidity to capitalise on the
significant growth opportunities that have become available as a
result of the pandemic.
We continue to make good progress in winning new space in Travel
both in the UK, North America and the Rest of the World. In UK Air,
we have now won 30 technology stores. These stores will trade under
the brand InMotion, further strengthening our presence in this
category in Travel. As well as the 117 stores in North America,
these 30 InMotion stores in the UK, including at London Heathrow,
London Gatwick and London Stansted airports, will make InMotion the
leading technology retailer in travel locations. In addition, we
are delighted to have been awarded preferred bidder status for a
further two InMotion stores at Dublin Airport.
We have also made good progress investing in our existing
stores, opening new formats and winning new business. We anticipate
further growth opportunities across all our markets. All this puts
us in a robust position to continue to recover and emerge
operationally stronger from the pandemic.
We are financially strong and are an important retail partner
for our travel landlords. As a result, we are well positioned to
benefit from further opportunities, including extending our user
clauses to drive spend per passenger.
Our High Street business has delivered a robust performance and
is well placed to continue to generate cash from its portfolio of
well-located stores and growing internet businesses. Across our
digital channels over the medium-term we expect to see strong
growth, particularly from funkypigeon.com, and we are well
positioned to grow this platform further.
Subject to uncertainties in our markets, which continue to be
impacted by government actions, we are optimistic that we will be
able to achieve 2019 sales levels in the current financial year(5)
.
TOTAL TRAVEL
Our Travel business comprises three divisions: UK, North America
(NA) and Rest of the World (ROW). Going forward we will split
Travel into these three segments when reporting our results.
Covid-19 continued to significantly impact the business across
all our markets. This has resulted in a Total Travel Headline
trading loss(1) in the year of GBP39m (2020: loss of GBP33m). Total
revenue was GBP401m (2020: GBP553m), down 27% compared to the
previous year.
Trading (loss)/profit (1) Headline trading (loss)/profit (1)
GBPm (IFRS 16) (pre-IFRS 16) Revenue
2021 2020 2021 2020 2021 2020
------------- ------------- ------------------ ----------------- ----- -----
Travel UK (29) (1) (32) (1) 195 344
North America 2 (14) 6 (18) 166 116
Rest of the World (17) (12) (13) (14) 40 93
------------- ------------- ------------------ ----------------- ----- -----
Total Travel (44) (27) (39) (33) 401 553
------------- ------------- ------------------ ----------------- ----- -----
In all our markets, we have focused on initiatives within our
control which support us in the immediate term and put us in a good
position to emerge operationally stronger as our markets recover
:
-- Business development and winning new business
We do this through building and managing relationships with all
our landlord partners to win new space, improve the quality and
amount of space, develop new formats and extend contracts. As at 31
October 2021, we had over 100 stores won and yet to open across our
global Travel business, including 22 InMotion stores in UK Air.
(5) Includes acquisitions and new wins
-- ATV growth and spend per passenger
We do this through our forensic attention to space, cross
category promotions, merchandising, store layouts and store
refits.
-- Category development
We do this by developing adjacent product categories relevant
for our customers, such as health and beauty and electrical
accessories ranges; and expanding existing categories, e.g. premium
food ranges.
-- Minimising costs
We remain focused on cost control and minimising our cost base
to reflect the level of sales in each channel and country whilst
retaining our ability to trade as recovery occurs.
As restrictions have eased, we have seen a gradual improvement
in passenger numbers, led first by domestic travel and then
short-haul. We expect long-haul travel to return last. Consensus of
industry forecasts including the Airports Council International
(ACI) expect passenger numbers to return to 2019 levels by 2024,
although the speed and shape of the recovery remains unclear and
variable. We concur with this view of the recovery.
As at 31 August 2021, our global Travel business, including MRG
and InMotion, operated from 1,166 units (31 August 2020: 1,174
units). Of these, 996 were open as at 31 October 2021. Outside of
the UK, as at 31 August 2021 we are present in over 100 airports
and 30 countries with 291 stores in North America, 84 stores in
Europe, 98 in the Middle East and India and 122 in Asia Pacific.
Excluding franchise units, Travel occupies 1.0m square feet.
TRAVEL UK
Our Travel UK business continued to be impacted by a significant
decline in passenger numbers as a result of government-imposed
travel restrictions in place throughout the financial year. Total
revenue in the year was GBP195m, (2020: GBP344m), down 43% on the
previous year. Compared to 2019(3) , revenue in Air was 17%, our
Hospital channel was 76%, and Rail was 32%. This resulted in a
Headline trading loss(1) of GBP32m (2020: loss of GBP1m).
While first half trading in Travel UK was impacted by lockdown
restrictions, quarantine measures and resultant reduced passengers
on public transport, we saw encouraging signs of recovery across
all our channels in the second half as restrictions were
progressively eased. This improved performance has continued into
the new financial year. Revenue in September 2021 was 60% of 2019
revenue. In October 2021, revenue was 71% of 2019, with Air at 59%,
Hospitals at 92% and Rail at 74%.
In Air, we saw a significant improvement in passenger numbers in
the second half as restrictions eased and more countries were added
to the UK Government's green list. We saw an improvement in our
hospital performance, with higher levels of visitors, as hospitals
returned to more general medical care with more elective surgeries.
Similarly, we saw an improved performance in our Rail business as
restrictions eased over the summer months and commuter traffic
increased. Since the beginning of the new financial year, we have
seen a notable shift in rail passenger numbers with strong
performances particularly over weekends and an improving weekday
performance albeit still below pre-pandemic levels.
We have worked hard across all our channels to deliver against
our plan, focusing on key priorities within our control. All three
channels saw a double digit increase in ATV during the year.
As at 31 August 2021, Travel UK operated from 571 stores of
which 518 were open as at 31 October 2021. Over the next three
years, we expect to open, on average, an additional 10 to 15 stores
each year.
Air
In Air, where leisure passengers have been the most important
customer segment before and during the pandemic, we have continued
to build on our strong position in this channel, including
successfully winning all the technology stores across UK airports,
including London Heathrow, London Gatwick and London Stansted
airports. These business wins comprise 30 stores and will trade
under the InMotion brand. Combining the learnings and expertise
from our InMotion stores in the US, these stores will provide a
first-class customer service experience and showcase a range of
premium brands, such as Apple, Bose and Samsung, as well as an
extensive range of tech accessories.
As at 31 October 2021, we have 8 InMotion stores trading in UK
airports. These include a combined WH Smith and InMotion store at
London Stansted airport which forms part of a format trial,
combining under one roof a news, books and convenience offer by WH
Smith with a technology range from InMotion. Similar to our
flagship store at London Heathrow Terminal 2, this store boasts a
large digital fascia which complements further digital signage
instore, creating an attractive look and feel while also promoting
key offers and products. While it is still early days, there is
scope to further develop this new combined format across our
existing large airport stores going forward. In addition, we will
launch a new reserve and collect service later this year in our new
InMotion stores to provide our customers with another quick and
convenient way to shop.
Technology and accessories is a strong growth market and in a
fully recovered travel market we would anticipate that these stores
will deliver c.GBP80m of incremental sales per year. Investment in
capex and working capital relating to these stores in the year
ending 31 August 2022 will be c.GBP18m. We expect most of the
remaining stores to open by the end of the first half of the
current financial year.
We have also continued to invest in our stores, develop new
formats and win new business in this channel. This has included:
major refits across London Heathrow Terminal 5 to our 'store of the
future' format during the year, the opening of three stores in the
new terminal at Manchester airport in October 2021, our first
shared space store with M&S Food at Liverpool Airport, the
opening of a new standalone Bookshop at Heathrow Terminal 2, and,
under a franchise agreement, new Costa Coffee stores in Aberdeen
and Southampton airports.
Our ongoing investment in format development puts us in a
stronger position to win more new business while benefitting from
higher levels of customer penetration, delivering a greater return
on our space. Going forward, we expect more space to become
available.
Category development remains a key part of the strategy and we
have made good progress in the year, extending our ranges into new
categories such as health and beauty, tech accessories, premium
souvenirs and premium food trials. The premium food trials include
YO! Sushi and Crussh which have delivered a 25% increase in ATV and
have been rolled out to further stores.
As expected, we have seen a faster return of leisure passengers
over the year. We saw another step change in sales over the
half-term holiday in October, with sales at 70% of the comparable
period in 2019.
During the year, we have also successfully extended a number of
key contracts.
Hospitals
The Hospitals channel is an important channel for us and,
pre-Covid, was our second largest channel by revenue in Travel UK.
While sales were clearly impacted in the first half of the
financial year, with no hospital visitors and elective surgeries
cancelled, we saw an improvement in the second half as restrictions
eased and these stores performed well. This strength in performance
has extended to the new financial year with sales in October at 92%
of 2019(3) levels.
The hospital market continues to grow with additional government
investment. We are well placed to service the increased demand for
retail services in hospitals resulting from the extended operating
times to compensate for department backlogs as part of the
government's commitment to additional investment in health spend.
In addition, there are considerable space opportunities for us to
improve the retail offer across UK hospitals.
As at 31 August 2021, we operate from 138 stores in 100
hospitals and we believe there is scope for around 300 hospitals in
the UK that are able to support at least one of our three store
formats (a WH Smith format, a M&S Food and a Costa Coffee).
This channel is a good example of how we continue to innovate
with a strong proposition tailored to each location, and a broad
suite of formats and brands, including most recently, our first WH
Smith format with a Post Office in Travel.
As at 31 August 2021, we operate 49 M&S standalone or shared
space stores across Hospitals, including a recently opened M&S
Café at St Thomas' hospital in London.
Looking ahead, we would expect to return to opening on average
c.10 new stores each year in this channel over the medium term.
Rail
Rail remains an attractive channel. According to the Department
for Transport, pre-pandemic rail had approximately 1.7bn passenger
journeys with leisure passengers accounting for around 40% of these
journeys.
During the year, we have seen a gradual improvement in sales as
restrictions have eased. Concourse data for October suggested
passenger numbers in October were 66% of 2019 levels. Revenue in
Rail in October was at 74% of 2019 levels.
As we have done across all our channels, we continue to focus on
driving ATV and we have seen some good results with a double-digit
increase from expanding categories (such as premium food as we have
in air) and changing store layouts.
We also continue to invest and develop new formats in this
channel. We have recently opened our first shared space store in
Rail with M&S at Bristol Templemeads Station. While it is still
early days, both customer and landlord feedback has been
positive.
In addition, we will be launching a new 'blended essentials'
store at Euston Station in London in December 2021. This store will
combine our traditional news, books and convenience offer with
electrical accessories, health and beauty products and a
pharmacy.
NORTH AMERICA
We saw a strong performance from North America, where there was
a steady recovery in passenger numbers and also visitors to Las
Vegas over the spring and summer months. Total revenue for the year
in NA was GBP166m (2020: GBP116m), with a Headline trading
profit(1) of GBP6m (2020: loss of GBP18m). The Headline trading
profit(1) of GBP6m reflects the recovery in passenger numbers and
tight cost control including the benefits from merging the MRG and
InMotion head offices into Las Vegas.
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 the biggest segment. TSA
(Transportation Security Administration) data continues to show the
gradual recovery in passenger numbers week on week, with passenger
numbers at the end of October 2021 at 84% of 2019 levels.
MRG has a strong track record of winning new business and we
have 58 new stores (including InMotion) won and due to open in
North America over the next three years with 17 stores won this
financial year, including significant wins at major US airports.
During the year, MRG opened 8 airport stores, including stores at
La Guardia and San Francisco airports. InMotion has an excellent
store portfolio with 117 stores located across 41 airports in North
America and three stores in Resorts. During the year, InMotion
opened seven units, including three InMotion stores in Resort
locations.
Differentiated from its competitors by its strategy of
developing highly customised retail experiences tailored to local
customers and landlords, which we also now use in tenders around
the world, MRG has a highly successful and proven business model.
The combination of WH Smith, MRG and InMotion now enables the Group
to participate in the entire North American airport specialty
retail market. We expect a substantial amount of retail space to be
offered for tender over the next ten years.
Outside of the airport business, the Resorts channel continues
to be resilient. MRG is a leading player in this channel in Las
Vegas with very longstanding relationships and a significant amount
of expertise. The Resorts channel has similar dynamics to our
Travel business with a high number of short stay visitors who tend
to stay around the Las Vegas Strip and Fremont Street areas, where
most of our stores are located. This market has proven resilient as
a leisure location over the summer with occupancy levels, according
to the Las Vegas Convention and Visitors Authority, at 87% of 2019
over July and August. Whilst many people drive to Las Vegas, we are
also seeing an increase in passenger numbers at McCarran
International Airport.
Our sales performance has reflected these trends with overall
sales in North America at 90%(6) of 2019 levels in October. We are
currently trading from 264 stores (151 MRG and 113 InMotion).
We continue to invest in digital technology to enhance the
customer experience in our stores and we will be opening our first
frictionless, checkout-free store in the coming weeks. The WH Smith
branded store will provide US customers with a quick and easy way
to shop using Amazon's Just Walk Out technology.
REST OF THE WORLD
Total revenue for the year in ROW was GBP40m (2020: GBP93m),
down 57% versus the previous year. The Headline trading loss(1) for
the year was GBP13m (2020: loss of GBP14m). The ROW has seen
broadly similar trends to the UK, with passenger numbers
significantly down year on year. The pace of recovery has varied by
geography, as expected, with Europe and the Middle East the best
performing regions in the second half. As we have done in Travel
UK, we remain focused on areas within our control, including
increasing ATV.
As this market recovers, we expect to see more space become
available. Our very low market share of the News Books and
Convenience market outside of the UK and NA means there is
significant opportunity to grow this business further. We also see
good opportunities to win new business in the technology market
under our InMotion brand. We are delighted to have been awarded
preferred bidder status for two InMotion stores at Dublin Airport.
This win in a significant European airport will bring the total
number of InMotion stores in ROW to 10.
As at 31 October 2021, we had 214 stores trading (c.70% of the
total).
During the year we opened 17 new stores. In addition, we won 21
new stores, including significant tenders at Adelaide Airport,
Melbourne Airport Terminal 1 and Bali Airport. In total, as at 31
August 2021, we operate 304 stores (2020: 307). 40% are directly
run, 52% are franchised with the balance being joint ventures. We
will continue to use these three economic models flexibly in order
to create value and win new business.
HIGH STREET
Our High Street business comprises our store portfolio on UK
high streets and includes our websites whsmith.co.uk, cultpens.com
and our personalised greeting cards and gifts business,
funkypigeon.com. During the year, High Street delivered a resilient
performance with Headline trading profit(1) of GBP19m (2020: loss
of GBP10m) on revenue of GBP485m, 4% higher than 2020. We managed
the business tightly in an uncertain trading environment, keeping
focused on costs and cash generation.
The market has changed significantly during the pandemic,
resulting in a shift in consumer behaviour over the past 18 months.
High street footfall is down 25% versus 2019(3) levels with
internet retailing growing. The speed of this change has
accelerated during the pandemic. As a consequence, we have acted
quickly to this changing market in a number of ways:
-- We have reviewed our categories and extended them where
appropriate to ensure we have greater relevance in this market and
where competitors have closed. New categories include working from
home ranges and tech accessories, and we have increased our ranges
of cards where competition has weakened.
-- We have invested in our whsmith.co.uk, funkypigeon.com and
cultpens.com websites where we are seeing significant growth .
(6) Includes proforma MRG for 2019
-- We restructured the cost base to reduce costs and also to
increase the level of flexibility in our business model, for
example labour costs in stores, head offices and the distribution
centres, and in occupancy costs reducing rent and keeping leases
short and flexible.
-- We closed 24 stores over the last 12 months where leases had
become uneconomic and now have a closure process where the costs of
closure are largely cash neutral. While closing stores is not an
easy decision to make for our colleagues or the communities we
serve, it is vital we retain a strong and cash generative high
street portfolio going forward.
The strategy we have in place in our High Street business
remains as relevant today as it has ever been: space and category
management, increasing margins and reducing costs. Our stores are
well located with 95% in prime pitch locations.
We consider retail space as a strategic asset and we utilise our
space to maximise return in the current year, in ways that are
sustainable for future years. We have extensive and detailed space
and range elasticity data for every store, built up over many years
and we utilise our space to maximise the return on every metre drop
of display space in every store. This approach remains as
appropriate today.
Driving efficiencies remains a core part of our strategy and we
continue to focus on all areas of cost in the business. We achieved
cost savings of GBP30m in the year. These savings come from right
across the business, including rent savings at lease renewal (on
average over 50%) which continue to be a significant proportion,
government business rates holiday, marketing efficiencies and
productivity gains from our distribution centres. An additional
GBP45m of cost savings have been identified over the next three
years of which GBP35m are planned for 2022.
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 2.5 years. We only
renew a lease where we are confident of delivering economic value
over the life of that lease. We have c.430 leases due for renewal
over the next three years, including 150 where we are holding over
and in negotiation with our landlord.
As at 31 August 2021, the High Street business operated from 544
WH Smith stores (2020: 568) which occupy 2.6m square feet (2020:
2.7m square feet). 24 WH Smith stores were closed in the year
(2020: eight).
Specialist websites
During the year, we have increased our investment and focus on
whsmith.co.uk and have seen rapid growth through investing in the
site. This has included improving customer conversion and product
presentation; broadening our approach to marketing; and investing
in fulfilment using our Swindon distribution centre. This enables
us to have a credible multi-channel offer which is complementary
for our customers. Our specialist pen website, c ultpens.com , has
continued to perform well. During the year, we have invested
further in the site, adding international functionality to build on
our existing international sales, and we have extended our
fulfilment centre to meet demand. In addition, we have continued to
focus on our luxury pen ranges with increased marketing investment
in ranges such as Montblanc.
Funkypigeon.com delivered a record performance in the year.
Total revenue was GBP54m with Headline EBITDA(1) of GBP14m for the
year.
The market for greetings cards in the UK is substantial and
estimated at GBP1.6bn(7) with online penetration estimated at
c.15%(7) with OC&C forecasting online growth of single cards
over the next three years, taking penetration to c.20%(7) of the
card market by 2024. The UK greetings card market has been stable
with adults sending on average 20(7) greetings cards per person
each year. We therefore see significant growth opportunities with
funkypigeon.com.
(7) Company estimates / OC&C 2019
We continue to invest in the site. During the year, we have
developed the funkypigeon.com app to improve customer conversion,
and invested in platform enhancements, including improving our
customer relationship management capability. We have further
extended the fulfilment capability to meet demand, supporting the
significant increase in new customers over the past 18 months, with
a new production facility in Swindon and leveraging the Group's
existing assets. In addition, we have strengthened the management
team, with a new Managing Director.
We have also recently launched a new next day delivery service,
operational seven days a week to further enhance our customer
proposition. Orders placed before 9:30pm will be fulfilled the
following day. This has received very positive customer
feedback.
Whilst the current year will see a lower sales and Headline
EBITDA(1) as we anniversary the lockdowns, we believe there are
substantial opportunities to grow the platform further and
significantly grow sales and profits.
Environmental, Social and Corporate Governance ('ESG')
During the first half of the financial year, we launched our new
sustainability strategy, 'Our journey to a better business', and we
have continued to focus on our ESG performance.
During the year, we have met our target to reach carbon
neutrality for our UK operations, reducing our energy consumption
by over 60% since 2007, switching to 100% renewable electricity and
investing in tree planting projects to neutralise residual
emissions.
Over the next few years, we intend to extend this approach to
our international operations and encourage our supply chain to join
us on the pathway to net zero. We will be seeking independent
assessment and approval of our carbon targets from the Science
Based Target Initiative in the next year.
We continue to focus on more environmentally responsible
sourcing practices and we have removed plastic glitter from all our
own-brand ranges. This is in addition to our work to redesign and
remove plastic packaging from our seasonal ranges wherever
possible.
One of the greatest impacts of the pandemic has been the
increasing gap in children's literacy levels. We are therefore
proud to continue our partnership with the National Literacy Trust
at such an important time.
We are committed to continuing to play our part to address some
of the key challenges facing society and the environment over the
years ahead.
GROUP
The Group generated a Headline loss before tax and
non-underlying items(1) of GBP55m (2020: GBP69m) and, after
non-underlying items and IFRS 16, a Group loss before tax of
GBP116m (2020: GBP280m). During the year, the Group received a
total of GBP11m from the UK Government's Job Retention Scheme and
similar schemes in other countries. The Group also benefited from
the business rates holiday implemented by the UK Government which
was worth GBP40m in the year.
Headline
IFRS pre-IFRS 16
------------------------------------ -------------- --------------
GBPm 2021 2020 2021 2020
------------------------------------ ------ ------ ------ ------
Travel UK trading loss(1) (29) (1) (32) (1)
North America trading profit
/ (loss)(1) 2 (14) 6 (18)
Rest of the Wold trading loss(1) (17) (12) (13) (14)
------------------------------------ ------ ------ ------ ------
Total Travel trading loss(1) (44) (27) (39) (33)
High Street trading profit
/ (loss)(1) 36 (4) 19 (10)
Group loss from trading operations
(1) (8) (31) (20) (43)
Unallocated costs(1) (19) (17) (19) (17)
------------------------------------ ------ ------ ------ ------
Group operating loss before
non-underlying items (1) (27) (48) (39) (60)
Net finance costs (24) (20) (16) (9)
------------------------------------ ------ ------ ------ ------
Group loss before tax and
non-underlying items (1) (51) (68) (55) (69)
Non-underlying items(1) (65) (212) (49) (157)
------------------------------------ ------ ------ ------ ------
Group loss before tax (116) (280) (104) (226)
------------------------------------ ------ ------ ------ ------
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 and incidence, are treated as
non-underlying items and disclosed separately. As in 2020, most
non-underlying items are directly attributable to Covid-19, and are
detailed in the table below. Most do not impact cash.
The cash spend relating to non-underlying items in the 2021
financial year was GBP38m and mainly related to activity announced
in 2020.
pre-IFRS pre-IFRS
IFRS 16 IFRS 16
------------------------------------ ----- ----- --------- ----- ---------
GBPm Ref. 2021 2021 2020 2020
------------------------------------ ----- ----- --------- ----- ---------
Items directly attributable to
Covid-19
Impairment (1) 42 18 135 55
Onerous leases (2) - 5 - 13
Stock provisions, write-offs and
other costs (3) 3 6 15 15
Restructuring (4) 9 9 25 25
Other property costs (2) - - - 12
Costs associated with refinancing
activity (5) 6 6 - -
Other non-underlying items
Transaction costs (6) - - 11 11
Integration costs (6) 2 2 9 9
Amortisation (7) 3 3 3 3
Pension past service cost (8) - - 14 14
65 49 212 157
------------------------------------ ----- ----- --------- ----- ---------
Items 1-5 in the above table have arisen as a direct consequence
of Covid-19, and reflect the impact of lost revenues as a result of
store closures, and downward revisions to budgeted revenues based
on expectations of the rate of return to pre-pandemic levels of
footfall and passenger numbers.
(1) Impairment of Property, plant and equipment and Right-of-use
assets
The impact on the Group's operations of Covid-19 is expected to
continue during the next year and beyond. As a result, the Group
has carried out a review for potential impairment across the entire
store portfolio. 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
2021. Following this review, a charge of GBP18m (2020: GBP55m) was
recorded for impairment of retail store assets on a pre-IFRS 16
basis, and GBP42m (2020: GBP135m) on an IFRS 16 basis which
includes an impairment of right-of-use assets of GBP28m (2020:
GBP95m).
(2) Onerous leases and other property costs
As a result of the impact of Covid-19, the Group has carried out
a review of leases where the obligations of those leases exceed the
potential economic benefits expected to be received under them.
This resulted in a charge for the year of GBP5m (2020: GBP13m).
This concept relates to pre-IFRS 16 numbers only and does not exist
under IFRS 16.
Other property costs of GBP12m (pre-IFRS 16) in the prior year
relate to reinstatement liabilities for stores where the long-term
viability has been impacted by Covid-19. Under IFRS 16 these costs
are included in right-of-use assets and are therefore included
within the impairment figure of GBP95m.
(3) Stock provisions, write-offs and other
During the year, non-underlying provisions of GBP5m have been
recorded against inventory, and relates to dated and perishable
stock and stock subject to obsolescence where the sell through rate
has significantly reduced due to store closures and lower footfall.
Other costs relate to international franchisees, and under IFRS 16
only, the derecognition of lease liabilities relating to the
disposal of WH Smith France.
(4) Restructuring costs
The charge of GBP9m (2020: GBP25m) is principally attributable
to redundancies and restructuring costs following a review of store
operations across our High Street business, as a result of the
impact of Covid-19 on footfall on the UK high street. These costs
are presented as a non-underlying item as they are part of a
Board-agreed restructuring programme, and are considered material
and one-off in nature.
(5) Costs associated with refinancing activity
Costs associated with refinancing include GBP1m of non-cash
charges relating to unamortised fees connected with extinguished
liabilities, GBP3m of fees incurred in relation to amendment and
extension of the Group's previous financing arrangements incurred
in March 2021 prior to the issuance of the convertible bond, and
GBP2m of professional fees relating to refinancing and debt
structuring activity required as a result of Covid-19. Other fees
incurred relating to refinancing activity have been recognised in
underlying finance costs or recognised as a deduction from the
value of liabilities recognised, and will be amortised over the
period of the arrangement through underlying finance costs.
(6) Integration costs
During the year, the Group incurred further costs of GBP2m in
relation to the integration of MRG into the Group, and the merging
of the InMotion and MRG corporate offices into Las Vegas, which has
now been completed. In the prior year, transaction and integration
costs of GBP20m were incurred in relation to the acquisition of
MRG.
(7) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands.
(8) Pension past service cost
Past service cost of GBP14m was recognised in the prior year.
This related to the equalisation of pension benefits between men
and women for the period from 1 April 1992 to 29 July 1993 ('Barber
equalisation').
A tax credit of GBP12m (2020: GBP25m) has been recognised in
relation to the above items (GBP9m pre-IFRS 16 (2020: GBP18m)).
Net Finance Costs
Headline
IFRS pre-IFRS 16
------------------------------------- ------------ --------------
GBPm 2021 2020 2021 2020
------------------------------------- ----- ----- ------ ------
Interest payable on bank loans and
overdrafts 10 9 10 9
Interest on convertible bonds 4 - 4 -
Unwind of discount on onerous lease - - 2 -
provisions (pre-IFRS 16)
Interest on lease liabilities 10 11 - -
------------------------------------- ----- ----- ------ ------
Net finance costs 24 20 16 9
------------------------------------- ----- ----- ------ ------
Pre-IFRS 16 net finance costs for the year were GBP16m (2020:
GBP9m) with the year on year increase reflecting the refinancing
activity during the year.
The interest on the convertible bonds includes the accrued
coupon and c.GBP2m of the non-cash debt accretion charge. Looking
forward, in the current financial year ending 31 August 2022, net
finance costs will include the coupon on the convertible bonds and
c.GBP8m of non-cash debt accretion charges.
The GBP2m non-cash unwind of discount on onerous lease
provisions relates to onerous lease provisions recognised in the
current and 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 GBP10m arises on lease liabilities recognised
under IFRS 16, bringing the total net finance costs under IFRS 16
to GBP24m (2020: GBP20m).
We expect finance costs on a pre-IFRS 16 basis to be
approximately GBP25m in the current year, with cash finance costs
approximately GBP10m lower than this. These costs are considerably
lower than had the April refinancing not occurred.
Tax
The effective tax rate(1) was 47% (2020: 23%) on the loss
incurred in the year. The effective tax rate is higher than the
prior year rate due to the profile of losses incurred in the UK and
overseas, and includes a credit of GBP8m arising on the substantive
enactment of a change in UK tax rate from 19 to 25 per cent. This
new law was substantively enacted on 24 May 2021. The tax rate on
the IFRS 16 Group statutory loss was 31 per cent (2020: 15 per
cent).
During the year, the Group received a corporation tax refund of
GBP10m following the carry back of 2020 losses against prior year
profits.
Fixed Charges Cover(1)
pre-IFRS 16
------------------------------------------- --------------
GBPm 2021 2020
------------------------------------------- ------ ------
Headline net finance charges(1) 16 9
Net operating lease rentals (pre-IFRS
16) (1) 151 210
Total fixed charges 167 219
Headline (loss)/profit before tax
and non-underlying items (1) (55) (69)
-------------------------------------------- ------ ------
Headline profit before tax, non-underlying
items and fixed charges 112 150
-------------------------------------------- ------ ------
Fixed charges cover - times 0.7x 0.7x
-------------------------------------------- ------ ------
Fixed charges, comprising property operating lease rentals and
net finance charges, were covered 0.7 times (2020: 0.7 times) by
Headline loss/profit before tax, non-underlying items and fixed
charges.
Cash Flow
Free cash flow (1) reconciliation
pre-IFRS 16
-------------------------------------------- ---------------------
GBPm 2021 2020
-------------------------------------------- ---- ------ ------
Headline Group operating loss before
non-underlying items(1) (39) (60)
Depreciation, amortisation and impairment
(pre-IFRS 16)(8) 50 60
Non-cash items 8 3
-------------------------------------------- ---- ------ ------
19 3
Capital expenditure (44) (79)
Working capital (pre-IFRS 16)(8) 37 40
Net tax refunded / (paid) 10 5
Net interest paid (pre-IFRS 16) (8) (7)
Other - (3)
-------------------------------------------- ---- ------ ------
Free cash flow(1) 14 (41)
-------------------------------------------- ---- ------ ------
(8) Excludes cash flow impact of non-underlying items
The free cash inflow(1) for the year was GBP14m. The operating
cash inflow was GBP19m (2020: GBP3m) driven by a good trading
performance from High Street. We continued to focus on managing our
working capital, making appropriate buying decisions for stores we
have open, and generated an inflow of GBP37m in the year, which
also includes the working capital benefit from the improved trading
over the summer.
Net corporation tax refunded in the year was GBP10m (2020: GBP5m
) following the carry back of 2020 losses against prior year
profits.
Capital expenditure was GBP44m (2020: GBP79m). We continue to
invest in strategically important projects, such as London Heathrow
Airport Terminal 5 and the new terminal at Manchester Airport, as
well as opening stores around the world. We expect capex spend for
the current financial year to be around GBP100m.
GBPm 2021 2020
---------------------------------- ----- -----
New stores and store development 17 34
Refurbished stores 17 17
Systems 9 14
Other 1 14
---------------------------------- ----- -----
Total capital expenditure 44 79
---------------------------------- ----- -----
Reconciliation of Headline net debt (1)
Headline net debt is presented on a pre-IFRS 16 basis. See Note
9 of the Financial statements for the impact of IFRS 16 on net
debt.
As at 31 August 2021 the Group had Headline net debt(1) of
GBP291m comprising convertible bonds of GBP283m, term loans of
GBP132m (net of fees), GBP6m of finance lease liabilities and net
cash of GBP130m (2020: GBP301m, comprising term loan of GBP400m
relating to the acquisition of InMotion and MRG, GBP9m of finance
lease liabilities and net cash of GBP108m ).
Headline
pre-IFRS 16
GBPm 2021 2020
Opening Headline net debt(1) (301) (180)
Movement in year
Free cash flow 14 (41)
Dividends - (47)
Pensions (3) (3)
Non-underlying items (38) (20)
Net purchase of own shares for employee share
schemes (2) (2)
Acquisition of businesses, net of cash acquired
- MRG/InMotion 1 (316)
Net proceeds from placings - 312
Equity component of convertible bond 41 -
Other (3) (4)
------------------------------------------------- ------ -------
Closing Headline net debt(1) (291) (301)
------------------------------------------------- ------ -------
Cash 130 108
Term Loans (net of fees) (132) (400)
Convertible bond (283) -
Finance leases (pre-IFRS 16) (6) (9)
------------------------------------------------- ------ -------
(291) (301)
------------------------------------------------- ------ -------
The Group had closing Headline net debt(1) of GBP291m at the
year end. In addition to the free cash flow, the Group paid defined
benefit pension funding of GBP3m (see Note 16 on pensions); and
GBP38m 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 the
prior year. In addition, there were costs associated with
integration of the US businesses and the refinancing in April.
As part of the Group's refinancing in April 2021, the Group
issued convertible bonds maturing in 2026. The convertible bonds
raised GBP327m which was used to partially pay down the existing
GBP400m of term loans from both the MRG and InMotion acquisitions.
The convertible bond is a compound financial instrument, which
includes an equity option. As a consequence, the debt is bifurcated
into an equity component, reported in equity, and a debt component.
The debt component accretes up to par over the life of the bond, so
for each 12 month period we will have c.GBP8m non-cash debt
accretion in finance costs. In addition, the Group increased the
RCF from GBP200m to GBP250m and extended its tenor to April
2025.
On an IFRS 16 basis, net debt was GBP755m, which includes an
additional GBP464m of lease liabilities.
Balance sheet
Headline
IFRS pre-IFRS 16
------------------------------- -------------- --------------
GBPm 2021 2020 2021 2020
------------------------------- ------ ------ ------ ------
Goodwill and other intangible
assets 473 493 474 495
Property, plant and equipment 174 192 167 190
Right of use assets 328 413 - -
Investments in joint ventures 2 2 2 2
------------------------------- ------ ------ ------ ------
977 1,100 643 687
------------------------------- ------ ------ ------ ------
Inventories 135 150 135 150
Payables less receivables (214) (183) (237) (226)
------------------------------- ------ ------ ------ ------
Working capital (79) (33) (102) (76)
------------------------------- ------ ------ ------ ------
Derivative financial asset - - - -
Net current and deferred tax
asset 56 28 46 17
Provisions (14) (14) (28) (27)
------------------------------- ------ ------ ------ ------
Operating assets employed 940 1,081 559 601
Net debt (755) (851) (291) (301)
------------------------------- ------ ------ ------ ------
Net assets excluding pension
liability 185 230 268 300
Pension liability (3) (4) (3) (4)
Deferred tax asset on pension
liability 1 1 1 1
------------------------------- ------ ------ ------ ------
Total net assets 183 227 266 297
------------------------------- ------ ------ ------ ------
The Group had Headline net assets of GBP268m before pension
liabilities and associated deferred tax assets, GBP32m lower than
last year end reflecting the lower level of capex and the impact of
impairment reviews as a result of Covid-19. Headline net assets
after the pension liability and associated deferred tax asset were
GBP266m compared to GBP297m at 31 August 2020. Under IFRS the Group
had net assets of GBP183m.
Pensions
The latest actuarial revaluation of the main defined benefit
pension scheme, the WH Smith Pension Trust, was at 31 March 2020 at
which point the deficit was GBP9m (31 March 2017 actuarial
revaluation deficit of GBP11m). The Group has agreed a continuation
of the annual funding schedule with the Trustees from March 2020
for the next five years, which includes the deficit recovery
contributions and other running costs, of just under GBP3m per
annum. During the year ended 31 August 2021, the Group made a
contribution of GBP3m to the scheme.
The scheme has been closed to new members since 1996 and closed
to defined benefit service accrual since 2007. The Liability Driven
Investment (LDI) policy adopted by the scheme continues to perform
well with 100% of the inflation and interest rate risks hedged.
As at 31 August 2021, the Group has an IFRIC 14 minimum funding
requirement in respect of the WH Smith Pension Trust of GBP2m
(2020: GBP3m) and an associated deferred tax asset of GBP1m (2020:
GBP1m) based on the latest schedule of contributions agreed with
the Trustees. As at 31 August 2021, the scheme had an IAS 19
surplus of GBP284m (2020: surplus of GBP268m) which the Group has
continued not to recognise. There is an actuarial deficit due to
the different assumptions and calculation methodologies used
compared to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined
benefit pension scheme was GBP1m (2020: GBP1m).
Principal and Emerging Risks and Uncertainties
The Board has undertaken a robust assessment of the principal
and emerging risks and uncertainties facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity. T he Board has assessed the ongoing impact
of Covid-19 as a significant risk facing the Group, due to
uncertainty around the timing and extent of recovery on our ability
to operate our Travel and High Street stores, both in the UK and
Internationally, and its impact upon the levels of global and
domestic travel. The Group has deployed a framework of operational
procedures, mitigating actions and business continuity plans as
outlined in this announcement and will continue to adapt these
plans as the situation evolves.
Changes to the risk profile due to Covid-19
Where the consequences of the Covid-19 pandemic may impact the
business, we have incorporated these considerations into our
assessment in relation to each of our principal risk headings. The
grid below explains where the potential risk implications of the
pandemic link with, and impact upon, our other principal risks.
A full disclosure of the Group's principal and emerging risks
and uncertainties including the factors which mitigate them will be
set out within the Strategic report of the 2021 Annual Report and
Accounts.
Relevant Principal Covid-19 Impact
Risk
Economic, political, The Group may fail to effectively respond to the
competitive & market pressures of an increasingly changing retail environment,
risks where Covid-19 materially changes consumer spending
patterns and habits, such as shifting from physical
to online shopping, and from any longer-term damage
to the travel industry and reductions in the level
of international travel.
-----------------------------------------------------------
Brand and reputation The reputation of the brand may be impacted in
the event that customers were to perceive that
our store environments are insufficiently safe
and secure in response to the continuing experience
of the virus.
-----------------------------------------------------------
Key suppliers and Given that large elements of our sourcing rely
supply chain management on factories and shipment from the Far East, these
supply chains and principal product flows could
be negatively impacted by any interruptions due
to any further shutdown of factories and supply
routes or international outbreaks.
-----------------------------------------------------------
Store portfolio The Group's performance is reliant upon trading
from our wide portfolio of premium shopping locations,
where our performance may be negatively impacted
in the event of further store closures, constraints
on trading and travel restrictions, or further
extensions in the scale and nature of local lockdowns.
-----------------------------------------------------------
Business interruption The business could be negatively impacted by any
concentration of illness in a particular location
such as Head Office, distribution centres or particular
stores, should these need to close temporarily,
and large numbers of staff were required to self-isolate.
-----------------------------------------------------------
Reliance on key The business could be negatively impacted in the
personnel event that any of the senior leadership team were
to fall ill or be personally impacted by the virus.
-----------------------------------------------------------
International expansion The business continues to grow outside of the UK.
Such ongoing growth could therefore be negatively
impacted by further enforced store closures, constraints
on trading and the longer-term continuation of
international travel restrictions or curtailment
in passenger numbers.
-----------------------------------------------------------
Treasury, financial Significantly reduced trading over an extended
and credit risk period from further outbreaks of new Covid strains
management and the inability for effective vaccines to be
distributed and keep pace with newly identified
variants could cause further negative impact on
the Group's financial position in the longer term.
-----------------------------------------------------------
Cyber risk, Data Further risks from significant increases in industry
Security and GDPR wide phishing activity and cyber threats could
compliance pose additional risks of potential systems interruption.
-----------------------------------------------------------
Environment and Continued uncertainty and business interruption
sustainability from the Covid-19 pandemic could provide further
challenges to the delivery of our ongoing sustainability
programme.
-----------------------------------------------------------
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 2021
2021 2020
------------------------- ----- ----------------------------------------- -----------------------------------------
Before Before
non-underlying Non-underlying non-underlying Non-underlying
GBPm Note items(1) items(2) Total items(1) items(2) Total
------------------------- ----- --------------- -------------- -------- --------------- -------------- --------
Revenue 2 886 - 886 1,021 - 1,021
Group operating loss 2, 3 (27) (65) (92) (48) (212) (260)
Finance costs 5 (24) - (24) (20) - (20)
Loss before tax (51) (65) (116) (68) (212) (280)
Income tax credit 6 24 12 36 16 25 41
------------------------- ----- --------------- -------------- -------- --------------- -------------- --------
Loss for the year (27) (53) (80) (52) (187) (239)
------------------------- ----- --------------- -------------- -------- --------------- -------------- --------
Attributable to equity holders
of the parent (29) (53) (82) (52) (187) (239)
Attributable to non-controlling
interests 2 - 2 - - -
-------------------------------- --------------- -------------- -------- --------------- -------------- --------
(27) (53) (80) (52) (187) (239)
Earnings per share
Basic 7 (62.6)p (199.2)p
Diluted 7 (62.6)p (199.2)p
(1) Alternative Performance Measure. The Group has defined and
explained the purpose of its alternative performance measures in
the Glossary on page 51.
(2) See Note 4 for an analysis of Non-underlying items. See
Glossary on page 51 for a definition of Alternative Performance
Measures.
WH Smith PLC
Group Statement of Comprehensive Income
For the year ended 31 August 2021
GBPm Note 2021 2020
---------------------------------------------------------- ----- ----- ------
Loss for the year (80) (239)
---------------------------------------------------------- ----- ----- ------
Other comprehensive loss:
Items that will not be reclassified subsequently
to the income statement:
Actuarial (losses) / gains on defined
benefit pension schemes 16 (1) 11
(1) 11
Items that may be reclassified subsequently
to the income statement:
(Losses) / gains on cash flow hedges
* Net fair value losses - (8)
* Reclassified and recognised in inventories - (1)
* Reclassified and recognised in goodwill - 8
* Reclassified and reported in the income statement - (1)
Exchange differences on translation of
foreign operations (13) (22)
---------------------------------------------------------- ----- ----- ------
(13) (24)
Other comprehensive loss for the year,
net of tax (14) (13)
---------------------------------------------------------- ----- ----- ------
Total comprehensive loss for the year (94) (252)
---------------------------------------------------------- ----- ----- ------
Attributable to equity holders of the
parent (96) (252)
Attributable to non-controlling interests 2 -
---------------------------------------------------------- ----- ----- ------
(94) (252)
---------------------------------------------------------- ----- ----- ------
WH Smith PLC
Group Balance Sheet
As at 31 August 2021
GBPm Note 2021 2020
------------------------------------- ---- ------- -------
Non-current assets
Goodwill 11 406 418
Other intangible assets 11 67 75
Property, plant and equipment 12 174 192
Right-of-use assets 13 328 413
Investments in joint ventures 2 2
Deferred tax assets 57 23
Trade and other receivables 6 9
------------------------------------- ---- ------- -------
1,040 1,132
------------------------------------- ---- ------- -------
Current assets
Inventories 135 150
Trade and other receivables 45 49
Current tax receivable - 8
Cash and cash equivalents 9 130 108
------------------------------------- ---- ------- -------
310 315
------------------------------------- ---- ------- -------
Total assets 1,350 1,447
------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (265) (241)
Retirement benefit obligations 16 (1) (1)
Lease liabilities 14 (108) (130)
Short-term provisions (2) (5)
(376) (377)
Non-current liabilities
Retirement benefit obligations 16 (2) (3)
Bank overdrafts and other borrowings 9 (415) (400)
Long-term provisions (12) (9)
Lease liabilities 14 (362) (429)
Deferred tax liabilities - (2)
------------------------------------- ---- ------- -------
(791) (843)
------------------------------------- ---- ------- -------
Total liabilities (1,167) (1,220)
------------------------------------- ---- ------- -------
Total net assets 183 227
------------------------------------- ---- ------- -------
Shareholders' equity
Called up share capital 29 29
Share premium 316 315
Capital redemption reserve 13 13
Translation reserve (27) (14)
Other reserves (240) (279)
Retained earnings 82 158
------------------------------------- ---- ----------- -------
Total equity attributable to equity
holders of the parent 173 222
------------------------------------- ---- ----------- -------
Non-controlling interest 10 5
------------------------------------- ---- ----------- -------
Total equity 183 227
------------------------------------- ---- ----------- -------
WH Smith PLC
Group Cash Flow Statement
For the year ended 31 August 2021
GBPm Note 2021 2020
------------------------------------------- ---- ----- -----
Operating activities
Cash generated from operating activities 10 113 94
Interest paid(1) (13) (13)
------------------------------------------- ---- ----- -----
Net cash inflow from operating activities 100 81
------------------------------------------- ---- ----- -----
Investing activities
Purchase of property, plant and equipment (37) (67)
Purchase of intangible assets (7) (12)
Acquisition of subsidiaries, net of
cash acquired 1 (316)
Net cash outflow from investing activities (43) (395)
------------------------------------------- ---- ----- -----
Financing activities
Dividend paid 8 - (47)
Distributions to non-controlling interests - 1
Proceeds from share placings - 312
Issue of new shares for employee share
schemes 1 -
Purchase of own shares for employee
share schemes (2) (2)
Proceeds from issuance of convertible
bonds 9 327 -
Proceeds from borrowings 9 - 200
Repayment of borrowings 9 (267) (15)
Financing arrangement fees (8) (3)
Repayments of obligations under leases 9 (86) (72)
Net cash (outflow) / inflow from financing
activities (35) 374
------------------------------------------- ---- ----- -----
Net increase in cash and cash equivalents
in the year 22 60
------------------------------------------- ---- ----- -----
Opening cash and cash equivalents 108 49
Effect of movements in foreign exchange
rates - (1)
------------------------------------------- ---- ----- -----
Closing cash and cash equivalents 130 108
------------------------------------------- ---- ----- -----
(1) Includes interest payments of GBP5m on lease liabilities (2020: GBP6m).
WH Smith PLC
Group Cash Flow Statement (continued)
For the year ended 31 August 2021
Reconciliation of net cash flow to movement in net debt(1)
GBPm Note 2021 2020
------------------------------------------- ---- ----- -----
Net debt at beginning of the year (851) (180)
Net increase in cash and cash equivalents 22 60
Impact of adoption of IFRS 16 - (479)
Lease liability acquired through business
combinations - (106)
Increase in borrowings 9 (15) (185)
Net decrease in lease liability 84 32
Effect of movements in foreign exchange
rates 5 7
------------------------------------------- ---- ----- -----
Net debt at end of the year 9 (755) (851)
------------------------------------------- ---- ----- -----
(1) Net debt is an Alternative Performance Measure defined and
explained in the Glossary on page 51. Further information on the
items in the above reconciliation are provided in Note 9.
WH Smith PLC
Group Statement of Changes in Equity
For the year ended 31 August 2021
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
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 16) - - - - (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 9) - - - 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
----------------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
Balance at 31
August
2019 33 13 8 (274) 455 235 2 237
Impact of
adoption
of IFRS 16 - - - - (22) (22) - (22)
----------------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
Adjusted balance
at 1 September
2019 33 13 8 (274) 433 213 2 215
Loss for the
year - - - - (239) (239) - (239)
Other
comprehensive
income / (loss):
Actuarial gains
on defined
benefit
pension schemes
(Note 16) - - - - 11 11 - 11
Cash flow hedges - - - (2) - (2) - (2)
Exchange
differences
on translation
of foreign
operations - - (22) - - (22) - (22)
----------------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
Total
comprehensive
loss for the
year - - (22) (2) (228) (252) - (252)
Issue of shares 311 - - - - 311 - 311
Dividends paid
(Note 8) - - - - (47) (47) - (47)
Net cash flows
from
non-controlling
interests - - - - - - 1 1
Employee share
schemes - - - (3) - (3) - (3)
Non-controlling
interest
arising
on acquisition
(Note 17) - - - - - - 2 2
----------------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
Balance at 31
August
2020 344 13 (14) (279) 158 222 5 227
----------------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation
Whilst the information included in the consolidated financial
statements has been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union, 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 2020 have been
delivered to the Registrar of Companies and those for 2021 will be
delivered following the Company's Annual General Meeting. The
Annual Report for the year ending 31 August 2021 and this full year
results statement were approved by the Board on 11 November 2021.
The auditors have reported on the Annual Report for the years ended
on 31 August 2021 and 2020 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 2021 have 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 2020 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 2021. The Group has considered the
below new standards and amendments and has concluded that, with the
exception of the Amendments to IFRS 16, they are either not
relevant to the Group or they do not have a significant impact on
the Group's consolidated financial statements.
Amendments to references to Conceptual Framework in IFRS standards
Amendments to IFRS 16 Covid-19 related rent concessions
Amendment to IFRS 9, IAS Interest rate benchmark reform - Phase
39 and IFRS 7 1
Amendments to IFRS 3 Definition of a business
Amendments to IAS 1 and Definition of material
IAS 8
The impact of the amendment to IFRS 16 is described in Note
14.
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:
IFRS 17 Insurance Contracts
Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IFRS 9, IAS Interest Rate Benchmark Reform - Phase
39 and IFRS 7, IFRS 4 and 2
IFRS 16
Amendments to IAS 1 Presentation of financial statements on
classification of liabilities
Amendments to IAS 16 Proceeds before intended use
Amendments to IAS 37 Onerous contracts - cost of fulfilling
a contract
Amendments to IAS 12 and Deferred tax related to assets and liabilities
IFRS 1 arising from a single transaction
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Annual improvements to IFRS Standards 2018-2020
Amendments to IAS 1 Disclosure of accounting policies
Amendments to IAS 8 Definition of accounting estimate
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
The Group has identified certain Alternative Performance
Measures ("APMs") that it believes will assist the understanding of
the performance of the business. These APMs are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The APMs are
not defined by IFRS and therefore may not be directly comparable
with other companies' APMs.
The key APMs that the Group uses include: measures before
non-underlying items, Headline profit before tax, Headline earnings
per share, trading profit, Headline trading profit, Headline Group
profit from trading operations, like-for-like revenue, gross
margin, fixed charges cover, EBITDA, Net debt/funds and Headline
net debt/funds and free cash flow. These APMs are set out in the
Glossary on page 51 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 2021
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 may exclude the financial
effect of non-underlying items which are considered exceptional or
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, costs relating to business
combinations, impairment charges and other property costs,
significant items relating to pension schemes, and impairment
charges and items meeting the definition of non-underlying
specifically related to the Covid-19 pandemic, and the related tax
effect of these items. In addition, non-underlying 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 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 2023. Based on this
assessment, which is outlined below, it is appropriate to adopt the
going concern basis of accounting in preparing these financial
statements.
The Strategic report describes the Group's financial position,
cash flows and borrowing facilities and also highlights the
principal risks and uncertainties facing the Group. As a result of
the Group's refinancing, announced on 28 April 2021, the balance
sheet has been significantly strengthened.
The refinancing arrangements included a GBP250m multi-currency
revolving credit facility ('RCF') increased from GBP200m with an
extended maturity from December 2023 to April 2025 and provided by
an expanded syndicate of lending banks. As at 31 October 2021, the
Group is not drawn down on the RCF and has GBP107m cash on
deposit.
As part of the refinancing, the Group also raised GBP327m from
the issue of convertible bonds, of which GBP50m was retained by the
Group to fund the opening of c.100 new Travel stores won and yet to
open over the next three years, including thirty new InMotion
stores in UK Travel. The remainder of the proceeds, net of costs,
were used to partially pay down the term loans from both the
Marshall Retail Group ('MRG') and InMotion acquisitions, leaving
the Group with GBP133m of term loans. The maturity of the remaining
term loan has also been extended from 2023 to 2025 in line with the
RCF.
In making the going concern assessment, the directors have
modelled a number of scenarios for the period to February 2023. The
base case scenario is consistent with the Board approved 2022
Budget and the three year plan. Under this scenario the Group has
significant liquidity and comfortably complies with all covenant
tests to February 2023.
A severe but plausible scenario has also been modelled which
assumes a further three-month lockdown over the period December
2021 to February 2022 across the group, with High Street store
sales down over 40 per cent across December to February versus the
equivalent months in the year ending August 2019. Sales are assumed
to recover gradually from March 2022 at around 35 per cent below
the equivalent month in the year ending August 2019 to down 30 per
cent at February 2023. In Travel UK we have also assumed a lockdown
over the December 2021 to February 2022 period, with sales down 76
per cent versus the equivalent months in the year ending August
2019. We then assume a gradual recovery, reflecting our experience
of the post-lockdown recovery period from 2020 and earlier in the
year, to a position in February 2023 where Travel UK sales are
forecast to be down between zero and 12 per cent, depending on the
channel, versus February 2019. In the US we have assumed a lockdown
over the December 2021 to February 2022 period followed by a
gradual recovery, reflecting our experience of the post-lockdown
period from earlier in the year. The severe but plausible scenario
does not assume any further government financial support despite
the continuation of lockdowns. However, the severe but plausible
scenario includes a number of mitigating actions including savings
in
store and head office payrolls and rent relief in Travel UK, to
mitigate the impact of lockdown with lower sales.
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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
The covenants on the above facilities are tested half-yearly.
The covenant tests at 31 August 2021, 28 February 2022 and 31
August 2022 are based on minimum liquidity and under the base case
and severe but plausible scenarios the Group would meet these
covenant tests. The covenant test as at 28 February 2023 is 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. In addition, we have received excellent support
from our banks who have granted covenant waivers throughout the
pandemic. 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.
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.
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, determination of the
incremental borrowing rate, valuation of retirement benefit
obligations, determination of operating segments and allocation of
goodwill, valuation of other non-current assets and inventory
valuation.
Critical accounting judgements
Non-underlying items
The Group has chosen to present a measure of profit and earnings
per share which excludes certain items that are considered
non-underlying and exceptional due to their size, nature or
incidence, and are not considered to be part of the normal
operations of the Group. These measures may exclude the financial
effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, amortisation of acquired intangibles
assets, 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. The Group believes that they
provide additional useful information to users of the financial
statements to enable a better understanding of the Group's
underlying financial performance. The classification of items as
non-underlying requires significant 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.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
Critical accounting judgements (continued)
Initial recognition of convertible bond
On initial recognition of the convertible bond, judgement is
required in respect of the accounting treatment of embedded
derivatives. The fixed principal amount of each bond is convertible
into a fixed number of shares and as a result management has
determined that the conversion feature meets the fixed-for-fixed
criterion for equity classification. The bonds include
anti-dilution provisions to ensure that the holder's potential
interest in the equity of the Company is not diluted in specified
circumstances. If these provisions are triggered, the number of
shares that will be delivered to the holder is adjusted. Management
considers that the provisions are anti-dilutive and exist to ensure
that the holder's potential interest in the equity of the Company
is not diluted under each of these circumstances. These provisions
are not deemed to breach the fixed-for-fixed criterion therefore
the conversion feature is accounted for as equity.
Determination of operating segments
During the year the Group has reviewed its assessment of its
operating segments, as a result of internal reorganisation and
changes to the composition of information used by the Board to
monitor the performance of the Group. This review has resulted in a
change to the reportable segments identified, and prior year
comparatives have been restated. There is no change to the total
revenue or Group profit from trading operations.
Further information in respect of the Group's operating segments
is included in Note 2.
Sources of estimation uncertainty
Retirement benefit obligation
The Group recognises and discloses its retirement benefit
obligation in accordance with the measurement and presentational
requirement of IAS 19 'Retirement Benefit Obligations'. The
calculations include a number of judgements and estimations in
respect of the discount rate, inflation assumptions, the rate of
increase in salaries, and life expectancy, among others. Changes in
these assumptions can have a significant effect on the value of the
retirement benefit obligation. Further information and sensitivity
analysis in respect of the Group's retirement benefit obligation is
included in Note 16.
Valuation of goodwill
As a result of the change to the Group's identified operating
segments described above, the goodwill previously allocated to the
Travel operating segment has been allocated to the new operating
segments using a relative value approach. This method of allocation
requires the determination of value-in-use of each of the new
segments. The key assumptions in the value-in-use calculations
include growth rates of revenue and expenses, and discount
rates.
A sensitivity analysis of the goodwill impairment calculation
has shown that no reasonably possibly change in assumptions would
lead to an impairment of goodwill in the next financial year.
Further to this sensitivity analysis, an assessment of the goodwill
allocation was performed which showed that an impairment assessment
under the previous allocation of goodwill to the Travel operating
segment, or under any other reasonable split of the goodwill
balance, would not have resulted in an impairment of goodwill.
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 expenses, discount rates and likelihood
of lease renewal. Due to the ongoing 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 12 and
13 respectively.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
1. Basis of preparation (continued)
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.
2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same
basis as that used by the Chief Operating Decision Maker for
assessing performance and allocating resources. The Group's
operating segments are based on the reports reviewed by the Board
of Directors who are collectively considered to be the chief
operating decision maker.
During the year the Group has reviewed its assessment of its
operating segments, as a result of internal reorganisation and
changes to the composition of information used by the Board to
monitor the performance of the Group. This review has resulted in a
change to the reportable segments identified, and prior year
comparatives have been restated. There is no change to the total
revenue or Group profit from trading operations.
For management and financial reporting purposes, the Group is
organised into two operating divisions and which comprise four
reportable segments - Travel UK, North America, Rest of the World
within the Travel division, and High Street. The North America
operating segment includes both MRG and InMotion from the dates of
acquisition. For further information in relation to the acquisition
of MRG in the prior year, see Note 17.
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 51 (Note
A2).
a) Group revenue
GBPm 2021 2020
----------------------- ----- ---------------
Travel UK 195 344
North America 166 116
Rest of the World (1) 40 93
------------------------ ----- ---------------
Total Travel 401 553
High Street 485 468
Group revenue 886 1,021
------------------------ ----- ---------------
(1) Rest of the World revenue includes revenue from Australia of
GBP20m (2020: GBP38m). No other country has individually material
revenue.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
2. Segmental analysis of results (continued)
b) Group results
2021 2020
------------------------------ ----------------------------------------- ---------------------------------- -----
Headline
Headline
Headline Non-underlying Non-underlying
(1) items (1) Headline(1) items (1)
(Pre-IFRS IFRS (Pre-IFRS IFRS
GBPm 16) (Pre-IFRS16) 16 Total 16) (Pre-IFRS16) 16 Total
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Travel UK trading
(loss) / profit (32) - 3 (29) (1) - - (1)
North America trading
profit / (loss) 6 - (4) 2 (18) - 4 (14)
Rest of the World
trading (loss) /
profit (13) - (4) (17) (14) - 2 (12)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Total Travel trading
(loss)/ profit (39) - (5) (44) (33) - 6 (27)
High Street trading
profit / (loss) 19 - 17 36 (10) - 6 (4)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Group (loss) / profit
from trading operations (20) - 12 (8) (43) - 12 (31)
Unallocated central
costs (19) - - (19) (17) - - (17)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Group operating (loss)
/ profit before
non-underlying
items (39) - 12 (27) (60) - 12 (48)
Non-underlying items
(Note 4) - (49) (16) (65) - (157) (55) (212)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Group operating loss (39) (49) (4) (92) (60) (157) (43) (260)
Finance costs (16) - (8) (24) (9) - (11) (20)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Loss before tax (55) (49) (12) (116) (69) (157) (54) (280)
Income tax credit 26 9 1 36 16 18 7 41
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
Loss for the period (29) (40) (11) (80) (53) (139) (47) (239)
------------------------------ ---------- --------------- ---- ------ ----------- --------------- ---- -----
(1) Presented on a pre-IFRS 16 basis. Alternative Performance
Measures are defined and explained in the Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
2. Segmental analysis of results (continued)
c) Other segmental items
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 44 (48) (2) - -
Headline non-underlying
items (pre-IFRS 16) - (3) (18) - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, after non-underlying
items 44 (51) (20) - -
Impact of IFRS 16 - 1 - (84) -
Non-underlying items (IFRS
16) - - 4 - (28)
Group 44 (51) (16) (84) (28)
-------------------------------- ---------- ----------------- ---------- ------------ ----------
2020
-------------------------------- -------------------------------------------------------------------
Non-current assets(1) Right-of-use assets
-------------------------------- ----------------------------------------- ------------------------
Capital Depreciation
GBPm additions and amortisation Impairment Depreciation Impairment
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Travel UK 18 (16) - - -
North America 26 (10) - - -
Rest of the World 4 (6) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Total Travel 48 (32) - - -
High Street 24 (23) - - -
Unallocated - (5) - - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, before non-underlying
items 72 (60) - - -
Headline non-underlying
items (pre-IFRS 16) - (3) (55) - -
-------------------------------- ---------- ----------------- ---------- ------------ ----------
Headline, after non-underlying
items 72 (63) (55) - -
Impact of IFRS 16 - 8 - (110) -
Non-underlying items (IFRS
16) - - 15 - (95)
Group 72 (55) (40) (110) (95)
-------------------------------- ---------- ----------------- ---------- ------------ ----------
(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 2021
3. Group operating profit
2021 2020
------------------------ ---- --------------------------------------- --------------------------------------
Before Before
non-underlying Non-underlying non-underlying Non-underlying
GBPm Note items items Total items items Total
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Revenue 886 - 886 1,021 - 1,021
Cost of sales (358) - (358) (441) - (441)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Gross profit 528 - 528 580 - 580
Distribution costs(1) (419) - (419) (538) - (538)
Administrative expenses (140) - (140) (92) - (92)
Other income(2) 4 - 4 2 - 2
Non-underlying items 4 - (65) (65) - (212) (212)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
Group operating loss (27) (65) (92) (48) (212) (260)
------------------------ ---- --------------- -------------- ------ --------------- -------------- -----
(1) During the year there was an impairment charge of GBP2m
(2020: GBPnil) for property, plant and equipment and other
intangible assets included in distribution costs. Impairment
charges related to Covid-19 are included in non-underlying items.
See Note 4.
(2) Other income relates to profit on disposal and remeasurement
of right-of-use assets, and profit attributable to property.
GBPm 2021 2020
------------------------------------------- ----- -----
Cost of inventories recognised as
an expense 358 441
Write-down of inventories in the
year(3) 7 14
Depreciation of property, plant and
equipment 36 43
Depreciation of right-of-use assets
- land and buildings 80 105
- other 4 5
Amortisation of intangible assets 14 12
Impairment of property, plant and
equipment 16 39
Impairment of right-of-use assets 28 95
Impairment of Intangibles - 1
(Income) / expenses relating to leasing:
- expense relating to short-term
leases 14 22
- expense relating to variable lease
payments not included in the measurement
of the lease liability 27 12
- Income relating to Covid-19 rent
reductions (23) (15)
Other occupancy costs 27 49
Staff costs 232 217
Government grant income (11) (22)
-------------------------------------------- ----- -----
(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 2021
4. Non-underlying items
Items which are not considered part of the normal operating
costs of the business are non-recurring and are considered
exceptional because of their size, nature and incidence, are
treated as non-underlying items and disclosed separately. Further
details of the non-underlying items are included in Note 1, and in
the Group Overview on page 12.
GBPm 2021 2020
---------------------------------------------------- ----- -----
Costs relating to business combinations
* Transaction costs - 11
* Integration costs 2 9
Amortisation of acquired intangible
assets 3 3
Pension past service cost - 14
Costs directly attributable to Covid-19
* Impairment of property, plant and equipment 14 39
* Impairment of intangible assets - 1
* Impairment of right-of-use assets 28 95
* Write-down of inventories 5 14
* Restructuring costs 9 25
6 -
* Costs associated with refinancing
* Other (2) 1
----------------------------------------------------- ----- -----
Non-underlying items, before tax 65 212
Tax credit on non-underlying items (12) (25)
----------------------------------------------------- ----- -----
Non-underlying items, after tax 53 187
----------------------------------------------------- ----- -----
Non-underlying items recognised in the year are as follows:
Costs relating to business combinations
During the year, the Group incurred further integration costs of
GBP2m in relation to the acquisition of Marshall Retail Group
('MRG'), which completed on 20 December 2019. In the prior year
transaction and integration costs of GBP20m were incurred in
relation to the acquisition of MRG.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to
the MRG and InMotion brands (see Note 11).
Costs directly attributable to Covid-19
As described in the Strategic report the Covid-19 pandemic
continues to have a substantial impact on the Group's operations.
As a result, the Group continues to incur significant costs which
have been separately recognised in non-underlying items, in
accordance with the Group's accounting policy. The charges have
arisen as a direct consequence of Covid-19, and reflect the impact
of lost revenues as a result of ongoing store closures and travel
restrictions, and downward revisions to budgeted revenues based on
expectations of the rate of return to pre-pandemic levels of
footfall and passenger numbers.
Impairment of property, plant and equipment and right-of-use
assets
The impact on the Group's operations of Covid-19 is expected to
continue during the next year and beyond. As a result, the Group
has carried out a review for potential impairment across the entire
store portfolio. 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 effect of Covid-19) to the carrying values at 31
August 2021. Following this review, a charge of GBP42m (2020:
GBP135m) was recorded within non-underlying items for impairment of
retail store assets, of which GBP14m (2020: GBP39m) relates to
property, plant and equipment, GBPnil (2020: GBP1m) relates to
intangible assets and GBP28m (2020: GBP95m) relates to right-of-use
assets. Refer to Note 12 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 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
4. Non-underlying items (continued)
Write-down of inventories
The Group assesses the recoverability of the carrying value of
inventories at every reporting period and, where the expected
recoverable amount is lower than the carrying value, a provision is
recorded. During the year non-underlying provisions of GBP5m have
been recorded against inventory, in addition to underlying
provisions held of GBP13m, which relate to dated and perishable
stock and stock subject to obsolescence where the sell through rate
has significantly reduced due to store closures and lower footfall.
The Group has recognised these charges as non-underlying as they
meet the Group's definition of non-underlying.
Restructuring costs
The charge of GBP9m (2020: GBP21m) is principally attributable
to redundancies and restructuring costs following a review of store
operations across our High Street business, as a result of the
impact of Covid-19 on footfall on the UK high street. These costs
are presented as a non-underlying item as they are part of a
Board-agreed restructuring programme, and are considered material
and one-off in nature. In addition, in the prior year the Group
incurred costs of GBP4m relating to exiting the Paris bookshop and
the Brazil joint venture.
Costs associated with refinancing
Costs associated with refinancing include GBP1m of non-cash
charges relating to unamortised fees connected with extinguished
liabilities, GBP3m of fees incurred in relation to amendment and
extension of the Group's previous financing arrangements incurred
in March 2021 prior to the issuance of the convertible bond, and
GBP2m of professional fees relating to refinancing and debt
structuring activity required as a result of Covid-19. Other fees
incurred relating to refinancing activity have been recognised in
underlying finance costs or recognised as a deduction from the
value of liabilities recognised, and will be amortised over the
period of the arrangement through underlying finance costs.
Other prior year non-underlying items
Pension past service cost
Past service cost of GBP14m was recognised in the year ended 31
August 2020. This relates to equalisation of pension benefits
between men and women over the period from 1 April 1992 to 29 July
1993 ('Barber equalisation'). The WHSmith Pension Trust has
historically been administered assuming gender equalisation was
achieved on 1 April 1992, and thus a Barber equalisation window of
17 May 1990 to 1 April 1992 applied. A new Trust Deed and Rules
reflecting the equalisation of normal retirement ages at 65 was
executed on 29 July 1993. It has since been determined that Barber
equalisation was not effective until 29 July 1993. Accordingly,
this past service cost is the expected cost of providing these
benefits based on a normal retirement age of 60 rather than 65 for
the period between 1 April 1992 and 29 July 1993. See Note 16.
A tax credit of GBP12m (2020: GBP25m) has been recognised in
relation to the above items.
5. Finance costs
GBPm 2021 2020
------------------------------------------ ----- -----
Interest payable on bank loans and
overdrafts 10 9
Interest of convertible bonds 4 -
Interest on lease liabilities 10 11
Net interest cost on the defined benefit - -
pension liabilities
24 20
------------------------------------------ ----- -----
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
6. Income tax
GBPm 2021 2020
------------------------------------------------ ----- -----
Tax on loss - (5)
Adjustment in respect of prior years (1) (6)
------------------------------------------------ ----- -----
Total current tax credit (1) (11)
------------------------------------------------ ----- -----
Deferred tax - current year (11) (7)
Deferred tax - prior year (4) 2
Deferred tax - adjustment in respect of change (8) -
in tax rates
------------------------------------------------ ----- -----
Tax on loss before non-underlying items (24) (16)
------------------------------------------------ ----- -----
Tax on non-underlying items - current tax - (9)
Tax on non-underlying items - deferred tax (12) (16)
------------------------------------------------ ----- -----
Total tax on loss (36) (41)
------------------------------------------------ ----- -----
Reconciliation of the taxation credit
GBPm 2021 2020
------------------------------------------------ ----- -----
Tax on loss at standard rate of UK corporation
tax 19.00% (2020: 19.00%) (22) (53)
Tax effect of items that are not deductible
or not taxable in determining taxable loss 1 15
Unrecognised tax losses (1) 4
Differences in overseas tax rates (1) (3)
Adjustment in respect of prior years (5) (4)
Adjustment in respect of change in tax rates (8) -
------------------------------------------------ ----- -----
Total income tax credit (36) (41)
------------------------------------------------ ----- -----
The effective tax rate, before non-underlying items, was 47 per
cent (2020: 23 per cent).
The UK corporation tax rate is 19 per cent effective from 1
April 2017. In the Spring Budget 2020, 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 of this change is an increase to the deferred
tax assets and an increase in the current year tax income statement
credit of approximately GBP8m.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
7. Loss per share
a) Loss / earnings
GBPm 2021 2020
----------------------------------------- ----- ------
Loss for the year, attributable to
equity holders of the parent (82) (239)
------------------------------------------ ----- ------
Non-underlying items (Note 4) 53 187
------------------------------------------ ----- ------
Loss for the year before non-underlying
items, attributable to equity holders
of the parent (29) (52)
------------------------------------------ ----- ------
b) Weighted average share capital
Millions 2021 2020
----------------------------------------- ----- -----
Weighted average ordinary shares
in issue 131 120
Less weighted average ordinary shares - -
held in ESOP Trust
----------------------------------------- ----- -----
Weighted average shares in issue
for loss per share 131 120
Add weighted average number of ordinary - -
shares under option
Weighted average ordinary shares
for diluted loss per share 131 120
------------------------------------------ ----- -----
c) Basic and diluted loss per share
Pence 2021 2020
-------------------------------- ------- --------
Basic loss per share (62.6) (199.2)
---------------------------------- ------- --------
Adjustments for non-underlying
items 40.5 155.9
---------------------------------- ------- --------
Basic loss per share before
non-underlying items (22.1) (43.3)
---------------------------------- ------- --------
Diluted loss per share (62.6) (199.2)
---------------------------------- ------- --------
Adjustments for non-underlying
items 40.5 155.9
---------------------------------- ------- --------
Diluted loss per share before
non-underlying items (22.1) (43.3)
---------------------------------- ------- --------
Diluted loss 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 has incurred a loss in the years ending 31 August 2021 and 31
August 2020, the impact of its potential dilutive ordinary shares
have been excluded as they would be anti-dilutive.
At 31 August 2021 the convertible bond has no dilutive effect as
the inclusion of these potentially dilutive shares would improve
loss per share.
The calculation of EPS on a pre-IFRS 16 basis is provided in the
Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
8. Dividends
Amounts paid and recognised as distributions to shareholders in
the period are as follows:
GBPm 2021 2020
-------------------------------------------------- ------ -----
Dividends
Final dividend for the year ended 31 August 2019
of 41.0p per ordinary share - 47
- 47
--------------------------------------------------------- -----
The Board of Directors have not declared an interim dividend and
do not propose a final dividend in respect of the year ending 31
August 2021.
9. Analysis of net debt
Movement in net debt can be analysed as follows:
Sub-total
Liabilities
Revolving from
Term Convertible credit financing Cash and
GBPm loans bonds facility Leases activities cash equivalents Net debt
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
At 1 September
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)
---------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
Sub-total
Liabilities
Revolving from
Term Convertible credit financing Cash and
GBPm loans bonds facility Leases activities cash equivalents Net debt
------------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
At 1 September
2019 (200) - (15) (14) (229) 49 (180)
Recognised on
adoption of IFRS
16 - - - (479) (479) - (479)
Movement on acquisition
of subsidiaries (115) - - (106) (221) 1 (220)
Proceeds from
borrowings (200) - - - (200) 200 -
Repayments of
borrowings - - 15 - 15 (15) -
Other non-cash
movements 115 - - (46) 69 - 69
Other cash movements - - - 78 78 (126) (48)
Currency translation - - - 8 8 (1) 7
------------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
At 31 August 2020 (400) - - (559) (959) 108 (851)
------------------------- ------- ----------- ---------- ------ ------------- ------------------ ---------
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
9. 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 51.
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
On 28 April the Group announced new financing arrangements.
These included the issuance of GBP327m of convertible bonds, the
repayment of the existing GBP400m term loans and replacement with a
new GBP133m term loan, and an increased revolving credit facility
of GBP250m.
At 31 August 2021 the Group has in place a five-year committed
multi-currency revolving credit facility of GBP250m with Santander
UK PLC, BNP Paribas, HSBC UK Bank PLC, JP Morgan Securities PLC and
Barclays Bank PLC. The revolving credit facility is due to mature
on 28 April 2025. The utilisation is interest bearing at a margin
over SONIA. As at 31 August 2021, the Group has drawn down GBPnil
on this facility (2020: GBPnil drawn down on previous
facility).
As part of the new financing arrangements the additional
multi-currency revolving credit facility of GBP120m, which was
undrawn and due to expire in November 2021, was cancelled.
The Group has a four-year committed GBP133m term loan with Banco
Santander S.A., London Branch, Barclays Bank PLC, BNP Paribas and
HSBC UK Bank PLC, that was drawn down at the time of the
refinancing in April 2021. This loan is interest bearing at a
margin over SONIA and is due to mature on 28 April 2025.
Transaction costs of GBP1m relating to the term loan are
amortised to the Income statement through the effective interest
rate method. Transaction costs of GBP1m relating to the RCF have
been capitalised and are amortised to the Income statement on a
straight-line basis.
Convertible bonds
On 28 April 2021, the Group announced the launch of an offering
of GBP327m of guaranteed senior unsecured convertible bonds due in
2026. Settlement and delivery of convertible bonds took place on 7
May 2021. The total bond offering of GBP327m covers a five-year
term beginning on 7 May 2021 with a 1.625% per annum coupon payable
semi-annually in arrears in equal instalments. The bonds are
convertible into new and/or existing ordinary shares of WH Smith
PLC. The initial conversion price was set at GBP24.99 representing
a premium of 40% above the reference share price on 28 April 2021
(GBP17.85). If not previously converted, redeemed or purchased and
cancelled, the Bonds will be redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument,
consisting of a financial liability component and an equity
component, representing the value of the conversion rights. The
initial fair value of the liability portion of the convertible bond
is determined using a market interest rate for an equivalent
non-convertible bond at the issue date. The liability is
subsequently recognised on an amortised cost basis using the
effective interest rate method until extinguished on conversion or
maturity of the bonds. The remainder of the proceeds is allocated
to the conversion option and recognised in equity (Other reserves),
and not subsequently remeasured. As a result, GBP286m was initially
recognised as a liability in the balance sheet on issue and the
remainder of the proceeds of GBP41m, which represents the option
component, was recognised in equity.
Transaction costs 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 2021
10. Cash generated from operating activities
GBPm 2021 2020
------------------------------------------------ ----- ------
Group operating loss (92) (260)
Depreciation of property, plant and equipment 36 43
Impairment of property, plant and equipment 16 39
Amortisation of intangible assets 14 12
Impairment of intangible assets - 1
Depreciation of right-of-use assets 84 110
Impairment of right-of-use assets 28 95
Non-cash change in lease liabilities (23) (15)
Non-cash movement in pension - 14
Share-based payments 6 -
Gain on disposal and remeasurement of leases (3) -
Other non-cash items (2) 2
Decrease in inventories 14 35
Decrease in receivables 4 27
Increase/(decrease) in payables 24 (10)
Pension funding (3) (3)
Income taxes paid - (32)
Income taxes refunded 10 37
Movement on provisions (through utilisation
or income statement) - (1)
Cash generated from operating activities 113 94
------------------------------------------------ ----- ------
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
11. Intangible assets
Brands
and franchise Tenancy
GBPm Goodwill contracts rights Software Total
----------------------------- --------- --------------- -------- --------- ------
Cost:
At 1 September 2020 418 43 13 96 570
Acquisitions (Note 17) (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
----------------------------- --------- --------------- -------- --------- ------
Cost:
At 1 September 2019 176 16 13 109 314
Additions - - - 11 11
Acquisitions (Note 17) 258 29 - 1 288
Disposals - - - (25) (25)
Foreign exchange (16) (2) - - (18)
-----------------------------
At 31 August 2020 418 43 13 96 570
----------------------------- --------- --------------- -------- --------- ------
Accumulated amortisation:
At 1 September 2019 - 1 8 80 89
Amortisation charge - 3 - 9 12
Impairment charge - - - 1 1
Disposals - - - (25) (25)
Foreign exchange - - - - -
----------------------------- --------- --------------- -------- --------- ------
At 31 August 2020 - 4 8 65 77
----------------------------- --------- --------------- -------- --------- ------
Net book value at 31 August
2020 418 39 5 31 493
----------------------------- --------- --------------- -------- --------- ------
Adjustments to goodwill include an adjustment of GBP1m to the
consideration paid in relation to the acquisition of Marshall
Retail Group (MRG). Additions to goodwill in the prior year relate
to the acquisition of MRG. See Note 17 for further information.
Goodwill of USD $77m (GBP56m) relating to the acquisition of
InMotion in 2018 is expected to be deductible for tax purposes in
the future.
As a result of changes to the Group's reportable segments (as
discussed in Note 2), goodwill previously attributable to the
Travel operating segment has been reallocated to the new operating
segments based on a relative value approach.
The carrying value of goodwill is allocated to the segmental
businesses as follows:
GBPm 2021 2020
--------------- ----- -----
Travel UK 253
North America 113
Rest of World 25
--------------- ----- -----
Total Travel 391 403
High Street 15 15
--------------- ----- -----
406 418
--------------- ----- -----
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
11. Intangible assets (continued)
Included within Tenancy rights are certain assets that are
considered to have an indefinite life of GBP4m (2020: 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 Company 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 and taking into account the projected
impact of Covid-19. 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. Forecasts have taken into account the
immediately quantifiable impacts of climate change, with no
material impact on cash flows. Forecasts beyond the initial
forecast period do not include a quantitative assessment of the
impact of climate change on cash flows.
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 10.4%.
-- The long-term growth rate assumptions are between 0% and 2%.
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 (2020: 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 significant
uncertainty surrounding the impact of Covid-19 on the Group's
operations and on the global economy, 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.
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 2021
12. Property, plant and equipment
Freehold Leasehold Fixtures Equipment
GBPm Properties improvements and fittings and vehicles Total
----------------------------------- ------------- -------------- -------------- -------------- ------
Cost or valuation:
At 1 September 2020 15 272 198 108 593
Additions 3 12 15 7 37
Acquisitions (Note 17) - (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
------------------------------------ ------------ -------------- -------------- -------------- ------
Cost or valuation:
At 31 August 2019 15 236 168 120 539
Adjustment on initial application
of IFRS 16 - (3) (5) (22) (30)
------------------------------------ ------------ -------------- -------------- -------------- ------
At 1 September 2019 15 233 163 98 509
Additions - 28 23 10 61
Acquisitions (Note 17) - 18 14 2 34
Disposals - (5) (1) (1) (7)
Foreign exchange - (2) (1) (1) (4)
------------------------------------ ------------ -------------- -------------- -------------- ------
At 31 August 2020 15 272 198 108 593
------------------------------------ ------------ -------------- -------------- -------------- ------
Accumulated depreciation:
At 31 August 2019 10 147 103 78 338
Adjustment on initial application
of IFRS 16 - 1 (1) (12) (12)
------------------------------------ ------------ -------------- -------------- -------------- ------
At 1 September 2019 10 148 102 66 326
Depreciation Charge - 22 12 9 43
Impairment Charge - 20 14 5 39
Disposals - (5) (1) (1) (7)
------------------------------------ ------------ -------------- -------------- -------------- ------
At 31 August 2020 10 185 127 79 401
------------------------------------ ------------ -------------- -------------- -------------- ------
Net book value at 31 August
2020 5 87 71 29 192
------------------------------------ ------------ -------------- -------------- -------------- ------
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that
each store is a separate CGU. Each CGU is tested for impairment at
the balance sheet date if any indicators of impairment have been
identified. The significant disruption to trading as a result of
the Covid-19 pandemic has been identified as an indicator of
impairment, and therefore all CGUs have been tested for impairment
as at the balance sheet date.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
12. Property, plant and equipment (continued)
Impairment of property, plant and equipment (continued)
Property, plant and equipment and right-of-use assets have been
tested for impairment by comparing the carrying amount of each CGU
with its recoverable amount determined from value-in-use
calculations. It was determined that value in use was higher than
fair value less costs to sell as a result of the significant impact
on fair values as a result of Covid-19. The value-in-use of each
CGU has been calculated using discounted cash flows derived from
the Group's latest Board-approved budget and three-year plan,
taking into account the projected impact of Covid-19, and reflects
historic performance and knowledge of the current market, together
with the Group's views on the future achievable growth. Cash flows
beyond this three-year 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 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 reductions 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 forecasts for the year for our High Street business assume
that store like-for-like sales will be lower by around 20 per cent
during the year ended 31 August 2022. In Travel UK, revenue is
assumed to be initially down around 50 per cent recovering to
around 5 per cent down by the end of that year. This is an average
across all formats, with Hospitals recovering more quickly than
Air. Our International locations outside of North America assume
that like-for-like sales will be lower by around 75 per cent
initially, and recovering to down around 25 per cent by the end of
August 2022.
In North America, revenue is assumed to be down around 25 per
cent in the early part of the next financial year, improving to
around 2019 levels by the end of the August 2022 financial year.
This is an average across all formats, with Resorts recovering more
quickly than Air. The second and third years of the three year plan
include further gradual recoveries across all locations
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 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 GBP56m, which is their carrying value
at year end. The Group has recognised an impairment charge of
GBP16m to property, plant and equipment and GBP28m to right-of-use
assets as a result of impairment testing. Impairments of GBP42m
have been presented as non-underlying items in the current year
(see Note 4), and impairments of 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 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 of changes in key
assumptions. The most significant assumption is the revenue
assumption. The impact of a potential slower recovery from the
pandemic has been modelled by incorporating a further 10% reduction
in revenue in High Street stores and a delay in recovery of one
year in Travel UK and North America, with no change to subsequent
forecast revenue growth rate assumptions. This would result in a
GBP21m increase in the impairment charge of retail store assets in
the year ended 31 August 2021. An increase or decrease of 1 per
cent in the discount rate would result in an increase or decrease
in the impairment charge of around GBP2m.
Other changes in assumptions have been modelled and have shown
that any reasonably possible changes would not lead to a
significant impact on the impairment charge. Other modelled
assumption changes include margin reductions and long-term growth
rate reductions across all formats.
The impairment assessment has also been performed on a pre-IFRS
16 basis. See Glossary on page 51.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
13. Right-of-use assets
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
Land and
GBPm buildings Equipment Total
At 1 September 2019 439 18 457
Additions 98 - 98
Acquisitions (Note 17) 108 - 108
Modifications and remeasurements (35) - (35)
Disposals (2) - (2)
Depreciation charge (105) (5) (110)
Impairment charge (95) - (95)
Effect of movements in foreign exchange
rates (8) - (8)
Net book value at 31 August 2020 400 13 413
Impairment of right-of-use assets
Right-of-use assets of 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 12, Property,
plant and equipment.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
14. Lease liabilities
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
Land and
GBPm buildings Equipment Total
At 31 August 2019 - 14 14
Adjustment on initial application
of IFRS 16 476 3 479
At 1 September 2019 476 17 493
Additions 87 - 87
Acquisitions (Note 17) 106 - 106
Interest 11 - 11
Payments (72) (6) (78)
Modifications and remeasurements (50) - (50)
Disposals (2) - (2)
Effect of movements in foreign exchange
rates (8) - (8)
At 31 August 2020 548 11 559
GBPm 2021 2020
Analysis of total lease liabilities:
Non-current 362 429
Current 108 130
Total 470 559
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 or 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 2021
14. 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 GBP23m for the year ended 31
August 2021.
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 13. Interest expense
incurred on lease liabilities is presented in Note 5.
The total cash outflow for leases in the financial year was
GBP123m. This includes cash outflow for short-term leases of GBP14m
and variable lease payments (not included in the measurement of
lease liability) of GBP18m. The total future income from
sub-leasing the right-of-use assets is GBP1m.
15. Contingent liabilities and capital commitments
GBPm 2021 2020
----- -----
Bank guarantees and guarantees in respect of
lease agreements 31 31
Other potential liabilities that could crystallise are in
respect of previous assignments of leases where the liability could
revert to the Group if the lessee defaulted. Pursuant to the terms
of the Demerger Agreement with Connect Group PLC (formerly Smiths
News PLC), any such contingent liability which becomes an actual
liability, will be apportioned between the Group and Connect Group
PLC in the ratio 65:35 (provided that the actual liability of
Connect Group PLC in any 12 month period does not exceed GBP5m).
The Group's 65 per cent share of these leases has an estimated
future rental commitment at 31 August 2021 of GBP1m (2020: GBP1m).
The movement in the future rental commitment is due to the
crystallisation of lease liabilities, lease expiries and the
effluxion of time.
Contracts placed for future capital expenditure approved by the
directors but not provided for amount to GBP26m (2020: GBP18m).
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
16. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit schemes
(which are closed to new entrants and future service accrual) and
defined contribution pension schemes. The main pension arrangements
for employees are operated through a defined contribution scheme,
WH Smith Retirement Savings Plan, and a defined benefit scheme,
WHSmith Pension Trust. The most significant scheme is the defined
benefit WHSmith Pension Trust.
The retirement benefit obligations recognised in the balance
sheet for the respective schemes at the relevant reporting dates
were:
GBPm 2021 2020
WHSmith Pension Trust (2) (3)
United News Shops Retirement Benefits
Scheme (1) (1)
Retirement benefit obligation recognised
in the balance sheet (3) (4)
Recognised as:
Current liabilities (1) (1)
Non-current liabilities (2) (3)
WHSmith Pension Trust
The amounts recognised in the balance sheet under IAS 19 in
relation to this plan are as follows:
GBPm 2021 2020
Present value of the obligations (1,172) (1,144)
Fair value of plan assets 1,456 1,412
Surplus before consideration of asset
ceiling 284 268
Amounts not recognised due to effect
of asset ceiling (284) (268)
Additional liability recognised due to
minimum funding requirements (2) (3)
Retirement benefit obligation recognised
in the balance sheet (2) (3)
In accordance with the requirements of IFRIC 14 we have
recognised the schedule of contributions as a liability of GBP2m
(2020: GBP3m). The defined benefit pension schemes are closed to
further accrual. The Group does not have an unconditional right to
derive economic benefit from any surplus, as the Trustees retain
the right to enhance benefits under the Trust deed, and therefore
the present value of the economic benefits of the IAS 19 surplus in
the pension scheme of GBP284m (2020: GBP268m) available as a
reduction of future contributions is GBPnil (2020: GBPnil). As a
result, the Group has not recognised this IAS 19 surplus on the
balance sheet. There is an ongoing actuarial deficit primarily due
to the different assumptions and calculation methodologies used
compared to those on interpretation of IAS 19.
Income Statement
The amounts recognised in the income statement were as
follows:
GBPm 2021 2020
Net interest cost on the defined benefit - -
liability
Past service cost - (14)
- (14)
The net interest cost has been included in finance costs (Note
5). Actuarial gains and losses have been reported in the statement
of comprehensive income.
In the prior year, past service costs of GBP14m were recognised
in relation to equalisation of pension benefits relating to a
period between 1 April 1992 and 29 July 1993 ('Barber
equalisation'). This past service cost was disclosed within
non-underlying items, in accordance with the accounting policy in
Note 1.
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
16. Retirement benefit obligations (continued)
Statement of comprehensive income
Total (expense) / income recognised in the Statement of
Comprehensive Income ("SOCI"):
GBPm 2021 2020
Total actuarial loss before consideration
of asset ceiling (50) (43)
Return on plan assets excluding amounts
included in net interest cost 58 (38)
(Loss) / gain resulting from changes
in amounts not recognised due to effect
of asset ceiling excluding amounts recognised
in net interest cost (11) 92
Gain resulting from changes in additional
liability due to minimum funding requirements
excluding amounts recognised in net
interest cost 1 -
Total actuarial gain / (loss) recognised
in other comprehensive income (2) 11
Actuarial gains recognised in the statement of comprehensive
income on the United News Shops Retirement Benefits Scheme were
GBP1m in the year to 31 August 2021 (2020: GBPnil).
Balance sheet
Movement in net retirement benefit liability during the
period:
GBPm 2021 2020
At beginning of period (3) (3)
Current service cost - -
Past service cost - (14)
Contributions from the sponsoring companies 3 3
Actuarial gains / (losses) on defined
benefit pension schemes (2) 11
At end of period (2) (3)
A full actuarial valuation of the Scheme is carried out every
three years with interim reviews in the intervening years. The
latest full actuarial valuation of the Pension Trust was carried
out as at 31 March 2020 by independent actuaries using the
projected unit credit method and has been completed. At 31 March
2020 the deficit was GBP9m. The Group has agreed a continuation of
the annual funding schedule with the Trustees from March 2020 for
the following 5 years, which includes the deficit recovery
contributions and other running costs of just under GBP3m.
During the year, the Group made a contribution of GBP3m to the
WHSmith Pension Trust (2020: GBP3m) in accordance with the agreed
pension deficit funding schedule, being GBP1m of deficit funding
payable to the Trustee and GBP2m in relation to investment
management costs.
The principal long-term assumptions used in the IAS 19 valuation
were:
% 2021 2020
Rate of increase in pension payments 3.35 3.04
Rate of increase in deferred pensions 2.55 2.30
Discount rate 1.75 1.75
RPI Inflation assumption 3.45 3.10
CPI Inflation assumption 2.55 2.30
WH Smith PLC
Notes to the Financial Statements
For the year ended 31 August 2021
17. Acquisitions
Prior year acquisitions
On 20 December 2019, the Group acquired the entire issued share
capital of Marshall Retail Group ('MRG'), for a total cash payment
of USD $402m (GBP317m) comprising $243m enterprise value, $146m
repayment of loans, $12m working capital, and $1m cash and
restricted cash. During the year ended 31 August 2021, the Group
received GBP1m as an adjustment to the consideration paid.
MRG is an independent travel retailer operating in high footfall
airport and tourist locations in the United States. The acquisition
builds further on the acquisition of InMotion in November 2018 and
significantly strengthens the Group's offering in the United
States, the world's largest travel retail market.
Included within the fair value of the net identifiable assets on
acquisition is an intangible asset of GBP29m (US$37m) representing
the MRG brand. The Board believes that the excess of consideration
paid over the net assets on acquisition of GBP257m is best
considered as goodwill on acquisition representing future operating
synergies. This amount is not tax deductible.
The provisional goodwill calculation included significant
estimates that may be refined for a period of 12 months from the
acquisition date. During the year ended 31 August 2021, final fair
value adjustments were recognised of GBP1m to property, plant and
equipment and GBP1m to goodwill.
Transaction and integration costs totalling GBP20m were incurred
in the year to 31 August 2020 in respect of the acquisition. A
further GBP2m integration costs have been incurred in the year
ended 31 August 2021.
WH Smith PLC
Glossary (unaudited)
Alternative Performance Measures
In reporting financial information, the Group presents
Alternative Performance Measures, 'APMs', which are not defined or
specified under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally. The
Alternative Performance Measures are not defined by IFRS and
therefore may not be directly comparable with other companies'
alternative performance measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings
per share which excludes certain items that are considered
non-underlying and exceptional due to their size, nature or
incidence, and are not considered to be part of the normal
operations of the Group. These measures may exclude the financial
effect of non-underlying items which are considered exceptional and
occur infrequently such as, inter alia, restructuring costs linked
to a Board agreed programme, amortisation of acquired intangibles
assets, 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. The Group believes that they
provide additional useful information to users of the financial
statements to enable a better understanding of the Group's
underlying financial performance.
IFRS 16
The Group adopted IFRS 16 in the prior year. IFRS 16 superseded
the lease guidance under IAS 17 and the related interpretations.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model as the
distinction between operating and finance leases is removed. The
only exceptions are short-term and low-value leases. At the
commencement date of a lease, a lessee will recognise a lease
liability for the future lease payments and an asset (right-of-use
asset) representing the right to use the underlying asset during
the lease term. Lessees are required to separately recognise the
interest expense on the lease liability and the depreciation
expense on the right-of-use asset.
For the purposes of narrative commentary on the Group's
performance and financial position in the Strategic report, the
effects of IFRS 16 have been excluded, in order to provide
meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income
statement and Segmental information is provided in Notes A1 and A2
below. There is no impact on cash flows, although the
classification of cash flows has changed, with an increase in net
cash inflows from operating activities being offset by a decrease
in net cash inflows from financing activities, as set out in Note
A9 below. The balance sheet as at 31 August 2021 both including and
excluding the impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are recognised as assets of the
Group at their fair value determined at the inception of the lease
or, if lower, at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. These assets are
depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, over the term of the relevant
lease. Lease payments are apportioned between finance charges and a
reduction of the lease obligations so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
charges are recognised directly in the income statement.
Rentals payable and receivable under operating leases are
charged to the income statement on a straight-line basis over the
term of the relevant lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread on a
straight-line basis over the lease term. The Group has a number of
lease arrangements in which the rent payable is contingent on
revenue. Contingent rentals payable, based on store revenues, are
accrued in line with revenues generated.
WH Smith PLC
Glossary (unaudited)
Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures
issued by the European Securities and Markets Authority ('ESMA'),
we have provided additional information on the APMs used by the
Group below, including full reconciliations back to the closest
equivalent statutory measure.
Reconciling
Closest equivalent items to
APM IFRS measure IFRS measure Definition and purpose
Income Statement Measures
Headline Various See Notes Headline measures exclude the impact
measures A1-A11 of IFRS 16 (applying the principles
of IAS 17). Reconciliations of all
Headline measures are provided in
Notes A1 to A11.
Group (loss)/profit Group (loss) See Note Group (loss)/profit before tax and
before tax / profit before A1 non-underlying items excludes the
and non-underlying tax impact of non-underlying items as
items described below. A reconciliation
from Group (loss)/profit before tax
and non-underlying items to Group
(loss)/profit before tax is provided
on the Group income statement on page
20, and on a Headline (pre-IFRS 16)
basis in Note A1.
Group (loss)/profit Group operating See Note Group (loss)/profit from trading operations
from trading (loss)/profit 2 and Note and segment trading (loss)/ profit
operations A2 are stated after directly attributable
and segment share-based payment and pension service
trading charges and before non-underlying
(loss)/ items, unallocated costs, finance
profit costs and income tax expense.
A reconciliation from the above measures
to Group operating (loss)/profit and
Group (loss)/profit 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 part
items definition of the normal operating costs of the
and see Note business, are non-recurring and considered
4 and Note exceptional because of their size,
A6 nature or incidence, are treated as
non-underlying items and disclosed
separately. The Group believes that
the separate disclosure of these items
provides additional useful information
to users of the financial statements
to enable a better understanding of
the Group's underlying financial performance.
An explanation of the nature of the
items identified as non-underlying
on an IFRS 16 basis is provided in
Note 4 to the financial statements,
and on a Headline (pre-IFRS 16) basis
in Note A6.
(Loss)/earnings (Loss)/ earnings Non-underlying (Loss)/profit for the year attributable
per share per share items, see to the equity holders of the parent
before non-underlying Note 10 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
10 and on a Headline (pre-IFRS 16)
basis in Note A4.
Headline Group operating Refer to Headline EBITDA is Headline Group
EBITDA (loss)/profit definition operating (loss)/profit before non-underlying
items adjusted for pre-IFRS 16 depreciation,
amortisation and other non-cash items.
See Group Overview on page 15.
Effective None Non-underlying Total income tax credit / charge excluding
tax rate items see the tax impact of non-underlying items
Notes A3 divided by Group Headline (loss) /
and A6 profit before tax and non-underlying
items. See Note 6 on an IFRS 16 basis,
and Notes A3 and A6 on a pre-IFRS
16 basis.
Fixed charges None Refer to This performance measure calculates
cover definition the number of times Profit before
tax covers the total fixed charges
included in calculating profit or
loss. Fixed charges included in this
measure are net finance charges (excluding
finance charges from IFRS 16 leases)
and net operating lease rentals stated
on a pre-IFRS 16 basis.
The calculation of this measure is
outlined in Note A5.
WH Smith PLC
Glossary (unaudited)
Reconciling
Closest equivalent items to
APM IFRS measure IFRS measure Definition and purpose
Income Statement Measures (continued)
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. As a result of the
exchange Covid-19 pandemic, this measure has
impact not been utilised in the current year.
Balance Sheet Measures
Headline Net debt Reconciliation Headline net debt is defined as cash
net debt of net debt and cash equivalents, less bank overdrafts
and other borrowings and both current
and non-current obligations under
finance leases as defined on a pre-IFRS
16 basis. Lease liabilities recognised
as a result of IFRS 16 are excluded
from this measure.
A reconciliation of Net debt on an
IFRS 16 basis provided in Note A8.
Other measures
Free cash Net cash inflow See Group Free cash flow is defined as the net
flow from operating Overview cash inflow from operating activities
activities before the cash flow effect of IFRS
16, non-underlying items and pension
funding, less net capital expenditure.
The components of free cash flow are
shown in Note A7 and on page 15, as
part of the Group Overview.
WH Smith PLC
Glossary (unaudited)
A1. Reconciliation of Headline to Statutory Group operating loss
and Group loss before tax
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 period (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)
2020
pre-IFRS 16 basis IFRS 16 Basis
Headline, before Headline
non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Revenue 1,021 - 1,021 - 1,021
Cost of sales (441) - (441) - (441)
Gross profit 580 - 580 - 580
Distribution costs (545) - (545) 7 (538)
Administrative expenses (97) - (97) 5 (92)
Other income 2 - 2 - 2
Non-underlying items - (157) (157) (55) (212)
Group operating loss (60) (157) (217) (43) (260)
Finance costs (9) - (9) (11) (20)
Loss before tax (69) (157) (226) (54) (280)
Income tax credit 16 18 34 7 41
Loss for the period (53) (139) (192) (47) (239)
Attributable to:
Equity holders of the parent (53) (139) (192) (47) (239)
Non-controlling interests - - - - -
(53) (139) (192) (47) (239)
WH Smith PLC
Glossary (unaudited)
A2. Reconciliation of Headline to Statutory Segmental trading
(loss) / profit and Group (loss) / profit from trading
operations
2021
pre-IFRS 16 basis IFRS 16 basis
Headline, before Headline
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 costs (19) - (19) - (19)
Group operating (loss) / profit (39) - (39) 12 (27)
Non-underlying items - (49) (49) (16) (65)
Group operating loss (39) (49) (88) (4) (92)
2020
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 (1) - (1) - (1)
North America trading (loss) /
profit (18) - (18) 4 (14)
Rest of the World trading (loss)
/ profit (14) - (14) 2 (12)
Total Travel trading (loss) /
profit (33) - (33) 6 (27)
High Street trading (loss) / profit (10) - (10) 6 (4)
Group (loss) / profit from trading
operations (43) - (43) 12 (31)
Unallocated costs (17) - (17) - (17)
Group operating (loss) / profit (60) - (60) 12 (48)
Non-underlying items - (157) (157) (55) (212)
Group operating loss (60) (157) (217) (43) (260)
WH Smith PLC
Glossary (unaudited)
A3. Reconciliation of Headline to Statutory tax (credit) /
expense
2021 2020
Headline Headline
(pre-IFRS IFRS 16 (pre-IFRS
GBPm 16) adjustments Total 16) IFRS 16 adjustments Total
Loss before tax and non-underlying
items (55) 4 (51) (69) 1 (68)
Tax on loss - - - (5) - (5)
Standard rate of UK corporation
tax 19.00% (2020: 19.00%)
Adjustment in respect of
prior year UK corporation
tax (1) - (1) (6) - (6)
Total current tax credit (1) - (1) (11) - (11)
Deferred tax - current
year (13) 2 (11) (7) - (7)
Deferred tax - prior year (4) - (4) 2 - 2
Deferred tax - adjustment
in respect of change in
tax rates (8) - (8) - - -
Tax on Headline (loss)
/ profit (26) 2 (24) (16) - (16)
Tax on non-underlying items
- current tax - - - (5) (4) (9)
Tax on non-underlying items
- deferred tax (9) (3) (12) (13) (3) (16)
Total tax on (loss) / profit (35) (1) (36) (34) (7) (41)
A4. Calculation of Headline and Statutory loss per share
2021
pre-IFRS 16 basis IFRS 16 basis
Headline, Headline
before non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Loss for the year, attributable
to equity holders of the parent (31) (40) (71) (11) (82)
Weighted average shares in issue
for basic earnings per share 131 131
Weighted average shares in issue
for diluted earnings per share 131 131
Basic loss per share (pence) (23.7)p (30.5)p (54.2)p (8.4)p (62.6)p
Diluted loss per share (pence) (23.7)p (30.5)p (54.2)p (8.4)p (62.6)p
2020
pre-IFRS 16 basis IFRS 16 basis
Headline,
before Headline
non-underlying non-underlying IFRS 16
GBPm items items Headline adjustments Total
Loss for the year, attributable
to equity holders of the parent (53) (139) (192) (47) (239)
Weighted average shares in issue
for basic earnings per share 120 120
Weighted average shares in issue
for diluted earnings per share 120 120
Basic loss per share (pence) (44.2)p (115.8)p (160.0)p (39.2)p (199.2)p
Diluted loss per share (pence) (44.2)p (115.8)p (160.0)p (39.2)p (199.2)p
WH Smith PLC
Glossary (unaudited)
A5. Fixed charges cover
GBPm 2021 2020
Headline net finance costs (pre-IFRS 16) 16 9
Net operating lease rentals (pre-IFRS 16) 151 210
Total fixed charges 167 219
Headline loss before tax and non-underlying items (55) (69)
Headline profit before tax, non-underlying items and
fixed charges 112 150
Fixed charges cover - times 0.7x 0.7x
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
2021 2020
Headline Headline
GBPm (pre-IFRS16) IFRS 16 (pre-IFRS16) IFRS 16
Costs relating to business
combinations
* Transaction costs - - 11 11
* Integration costs 2 2 9 9
Amortisation of acquired intangible
assets 3 3 3 3
Pension past service cost - - 14 14
Costs directly attributable
to Covid-19
* Impairment of property, plant and equipment 18 14 54 39
* Impairment of Intangible assets - - 1 1
* Impairment of right-of-use assets - 28 - 95
* Other property costs 5 - 25 -
* Write-down of inventories 5 5 14 14
* Restructuring costs 9 9 25 25
* Costs associated with refinancing 6 6 - -
* Other 1 (2) 1 1
Non-underlying items, before
tax 49 65 157 212
Tax credit on non-underlying
items (9) (12) (18) (25)
Non-underlying items, after
tax 40 53 139 187
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 GBP12m has been recognised in relation to the
above items (GBP9m under IAS 17).
Impairment of property, plant and equipment and right-of-use
assets
The impairment charge recognised on a pre-IFRS 16 basis differs
from that recognised under IFRS 16. This is mainly due to a lower
asset base pre-IFRS 16, coupled with lower expected store cash
flows, with rental expenses being included in the forecast cash
flows (treated as financing costs under IFRS 16), and a higher
discount rate. The calculation of the Group's weighted average cost
of capital differs under IFRS 16 versus pre-IFRS 16. The pre-tax
discount rate used in the IFRS 16 calculation was 10.4% and the
pre-tax discount rate used in the pre-IFRS 16 calculation was
13.9%.
Right-of-use assets are not recognised on a pre-IFRS 16
basis
WH Smith PLC
Glossary (unaudited)
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
(continued)
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions
for onerous lease contracts; on an IFRS 16 basis, onerous lease
contracts are recognised as an impairment of the right-of-use
asset. As a result of the impact of Covid-19, the Group has carried
out a review of leases where the obligations of those leases exceed
the potential economic benefits expected to be received under them.
We anticipate that a number of stores will not fully recover to
pre-Covid-19 sales levels and have accelerated our internal
forecasts for the rate of sales decline in those locations. As a
result, we have recognised onerous provisions of GBP5m for stores
where we now anticipate 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 2021 2020
Cash generated from operating activities 10 113 94
Interest paid (13) (13)
Net cash inflow from operating activities 100 81
Cash flow impact of IFRS 16 A9 (83) (66)
Add back:
* Cash impact of non-underlying items 38 20
* Pension funding 3 3
Deduct:
* Purchase of property, plant and equipment (37) (67)
* Purchase of intangible assets (7) (12)
Free cash flow 14 (41)
A8. Headline Net debt
GBPm Note 2021 2020
Borrowings
- -
* Revolving credit facility
* Convertible bonds (283) -
* Bank loans (132) (400)
* Lease liabilities 14 (470) (559)
Liabilities from financing activities (885) (959)
Cash and cash equivalents 130 108
Net debt (IFRS 16) 9 (755) (851)
* Add back lease liabilities recognised under IFRS
16(1) 464 550
Headline net debt (pre-IFRS 16) (291) (301)
(1) Excludes lease liabilities previously recognised as finance
leases on a pre-IFRS 16 basis.
WH Smith PLC
Glossary (unaudited)
A9. Cash flow disclosure impact of IFRS 16
There is no impact of IFRS 16 on cash flows, although the
classification of cash flows has changed, with an increase in net
cash inflows from operating activities being offset by a decrease
in net cash inflows from financing activities.
2021 2020
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 17 83 100 15 66 81
Net cash outflows from
investing activities (43) - (43) (395) - (395)
Net cash inflows/(outflows)
from financing activities 48 (83) (35) 440 (66) 374
Net increase in cash in
the period 22 - 22 60 - 60
A10. Balance sheet impact of IFRS 16
The balance sheet as at 31 August 2021 including and excluding
the impact of IFRS 16 is shows below:
2021 2020
Headline Headline
(pre-IFRS IFRS 16 (pre-IFRS IFRS 16 IFRS
GBPm 16) Adjustment IFRS 16 16) Adjustment 16
Goodwill and other intangible
assets 474 (1) 473 495 (2) 493
Property, plant and equipment 167 7 174 190 2 192
Right-of-use assets - 328 328 - 413 413
Investments in joint
ventures 2 - 2 2 - 2
643 334 977 687 413 1,100
Inventories 135 - 135 150 - 150
Payables less receivables (237) 23 (214) (226) 43 (183)
Working capital (102) 23 (79) (76) 43 (33)
Derivative financial - - - - - -
asset
Net current and deferred
tax asset 46 10 56 17 11 28
Provisions (28) 14 (14) (27) 13 (14)
Operating assets employed 559 381 940 601 480 1,081
Net debt (291) (464) (755) (301) (550) (851)
Net assets excluding
pension liability 268 (83) 185 300 (70) 230
Pension liability (3) - (3) (4) - (4)
Deferred tax asset on
pension liability 1 - 1 1 - 1
Total net assets 266 (83) 183 297 (70) 227
WH Smith PLC
Glossary (unaudited)
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a
pre-IFRS 16 basis are as follows:
GBPm 2021 2020
Net operating lease charges 151 210
In the prior year, 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 51.
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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