WH Smith PLC

Good morning, everyone. I'm Carl Cowling, Group CEO, and I'm here with Robert Moorhead, our Group CFO and COO. Thank you all for joining. It's great to see those of you who are here in person, and welcome to everyone who has joined the webcast. As usual, we'll give you an update on our performance for the 12 months ending 31st of August 2022, and we'll also run through the highlights and important strategic tenders we have won across the globe. So in a moment, I'll hand over to Robert, who'll take you through the numbers, including a brief update on current trading, and then I will take you through the operational performance of the business, and we'll end with your questions. So before handing over to Robert, a quick overview from me and turning to slide three. So we've had a strong year, and the group is trading ahead of 2019 levels. As a result of the actions we have taken, the group is now in its strongest ever position as a global travel retailer. We continue to capitalise on the multiple growth opportunities using our broad suite of brands and global expansion programme. And the resumption of the dividend reflects the strength of our current trading and a high level of confidence going forward. As you'll hear as I go through the presentation, we have had another very successful year in winning new business in North America, across the rest of the world and in the UK. We now have 150 stores, one are due to open, with over 125 of these scheduled to open in the current financial year. It has been a year of intense activity, and at the core of everything we do, and a key driver of our success, is our ongoing forensic approach to retailing across each of our divisions. Turning to the next slide. Before I hand over to Robert, I thought it'd be helpful to talk you through the shape of the group as it stands today. First and foremost, we are now a global travel retailer. As you all know, we do have a robust and cash-generative UK high street business. However, the growth engine of the group is our global travel business. When I was appointed CEO just over three years ago, we had a very good travel business, which was growing fast. Fast forward three years, and despite the pandemic, the group is now in an even stronger position. Though the pandemic was very challenging, we used the time well in terms of strengthening our travel business internationally. Firstly, we have been able to harness the MRG and InMotion acquisitions made in 2018 and 2019, and since acquiring these businesses, we have already won a further 63 stores in the US. These businesses have not only allowed us to establish an important presence in the US, the world's largest travel retail market, but they have also improved our international position. The launch of InMotion across all major UK airports is a standout example. More generally, we are confident of seeing consistent market share growth across travel retail as we continue to capitalise on the many opportunities across the globe. And we are now realising both the international capability of our WHSmith branded travel business, as well as the broad suite of brands we continue to roll out. Most importantly, we also continue to benefit across all our divisions from our forensic approach to retailing. I'll now hand over to Robert, who will run through the numbers.

Good morning, everyone. Let's start off with the group financial summary. And as usual, the numbers I'm going to refer to are pre-IFRS 16. And there's some bridges to IFRS 16 in the appendix. We had a good year and saw a significantly improved performance in 2022, with headline profit for the year coming in at 73 million, which was slightly ahead of company compiled consensus, and an improvement on last year of some 128 million. Revenue at 1.4 billion was up 58% on last year. It was also ahead of 2019, driven by a second half where revenue was 13% ahead of 2019. The free cash inflow was 41 million, reflecting the additional profit and the significant uplift in investment in the year, and I'll come onto that later. We finished the year with cash on deposit of 101 million and available liquidity facilities of 250 million, giving us significant capacity for the investment opportunities we see across all geographies, but with a notable emphasis on the US. CapEx in the year was 85 million, and this year we expect it to be around 150 million, reflecting the size of the growth opportunities we have. Reflecting our strong current trading and our confidence in the outlook, we have reinstated our dividend. The Board is recommending a final dividend of 9.1p per share for FY22, which implies a cover of 3.0 times. Our dividend policy is to return in time to a cover of 2.5 time, and more on our capital allocation policy later too. Moving on to revenue on the next slide. Total group revenue was 1.4 billion, significantly ahead of last year, driven by travel, and for the year as a whole, slightly ahead of 2019. This is in fact the highest revenue number the current group has reported since its creation in 2006, which really shows the progress that we've made. This has come from a very strong recovery in travel across all three divisions, particularly in the second half, when the group was 113% to 2019 and travel 130% to 2019. This performance came with passenger numbers still well below 2019 and with our light-for-light revenue for travel at 92% of 2019, demonstrating there is still recovery to come. Travel was two-thirds of group revenue in the year, and this year we expect it to be over 70% of group revenue as it continues its strong growth. Before moving on to our UK travel business, I want to update you first on our North American business, where we see continued strong performance both in airports and in Las Vegas. TSA data improved to down 9% by August and has stepped forward again in October. Our North American business is now our second biggest business by profit after UK travel, with significant scope for further growth. Rest of the world saw the strongest pickup as markets opened up and we opened new stores. And there is more to come here too, as Asia and Australia are still well below 2019 passenger numbers. In total for travel, we opened 98 stores in the year. High Street, including our internet businesses, generated revenue of 473 million. Our store business was pretty consistent over the year compared to 2019 and was slightly ahead of 2021. Funky Pigeon generated revenue of 35 million. And we're pleased with the start to the new financial year with travel after the first 10 weeks at 148% of 2019. This does include currency benefits from the weakness of Sterling of around seven percentage points. High Street has also had a good start. So let's look at UK travel in a bit more detail on the next slide. UK travel remains our biggest division, and as I'm sure you all know, pre-pandemic, air was our biggest channel, with hospitals having overtaken rail to be the second biggest. Hospitals and rail have remained resilient, and we saw a marked pickup in air over the key summer period. Rail was at 90% of 2019 in Q4, a notable performance compared to some views on the future of this channel in the midst of the pandemic. The performance in air reflects our successful focus on ATV, category expansion, and the rollout of the 30 in motion stores. And we now believe this brand can deliver annual sales of around 80 to 90 million in the UK alone. The air performance also includes the airport and airline disruption over the summer, as well as passenger numbers still well down on 2019. So there is more to come in this channel. During the year, we opened 38 stores, and on an ongoing basis, we see 10 to 15 new stores each year in the UK travel, which will be across all three channels. So turning now to the income statement on the next slide. So headline profit before tax for the year was 73 million compared to a loss of 55 million last year. Travel delivered a profit of 89 million compared to a loss of 39 million last year, an improvement of 128 million. We're particularly pleased with this performance, given it included disruption from Omicron-related travel restrictions over last winter and logistical problems in airlines and airports over the summer. In UK travel, profit improved by 86 million to 54 million, driven by the recovery in sales and stronger margins. In North America, we saw an improvement of 25 million to a profit of 31 million. Like the UK, this was driven by sales and improved margins. The group is exposed to movements in the dollar exchange rate when translating the results of the US operations into sterling. Current consensus suggests an exchange rate of around 130 to the pound. A 10 cent move results in a change to full year profit of around 3 million. In the rest of the world, likewise, we saw a good improvement and a swing of 17 million, benefiting from an improving performance, particularly in Europe. As the revenue of the businesses recover, the operational fixed cost impact will result in an improvement in margins and profitability. High Street delivered a profit of 33 million, as expected, an increase of 14 million on the prior year. And don't forget that the prior year included 30 million of government support on rates. The benefits of the restructuring undertaken during the pandemic and our continued focus on all cost lines, for example, rent, drove this performance. We still see significant scope for cost savings, and the business is on track to deliver around 12 million of cost savings in this financial year. Funky Pigeon generated an EBITDA of 8 million in the year. Overall then, group profit from trading operations was 122 million. Central costs are higher. This reflects increased share-based payment costs, as well as 2 million of costs relating to the implementation of our new payroll system, which previously would largely have been capex and now has to be treated as opex under the new accounting guidelines for software as a service. Financing costs are 25 million, includes non-cash amortization costs of 8 million relating to the convertible, which, let me remind you, has a fixed coupon of 1.65%. So that left headline profit before tax at 73 million. So turning now to cash flow on the next slide. Our overall free cash inflow for the year was 41 million. There are two key stories here. First, we generated 155 million of operating cash flows as the business returned to profit in the year. This demonstrates the continuing cash-generative nature of the group. Second, the significant investment in growing the business. CapEx in the year was 83 million, including the new store opening program. We opened 98 new stores, including a further 22 in North America. We anticipate CapEx spend for this year to be around 150 million, which includes opening over 125 new stores, reflecting both the opportunities we have, plus our confidence in the markets in which we operate. We had a small working capital outflow, which was primarily the investment to launch InMotion in the UK and also in the recovering travel business. We paid six million in tax in the year, and based on current tax legislation, expect the group tax rate for the current year to be around 23%. So looking now at our net debt on slide 11. Net debt at the end of the year was 296 million, reflecting an overall outflow in the period of five million. After the 41 million of free cash generation, we then had a 46 million outflow on non-trading items. Of this, 16 million related, as I said at the interims, to non-underlying items as we completed the restructuring announced in the summer of 2021 in the High Street. You will see that we contributed 2 million to our defined benefit pension scheme in the year. Following the purchase of a bulk annuity insurance policy from Standard Life using most of the scheme's assets announced in August, we have ensured the liabilities to pay all future defined benefit pensions, thereby reducing any potential volatility around the scheme. As a result, I'm pleased to say there is no longer any requirement to make any future contributions to the scheme. Other includes the non-cash convertible bond accretion and non-cash effects of foreign exchange. You'll remember that the bond is bifurcated into an equity and debt element where the debt element accretes to par over the life of the bond. This is around 8 million per annum. So that left us with net debt at the end of August of 296 million and with a good amount of cash of which 101 million was on deposit. And our financing arrangements give us the capacity to invest. We have the 327 million convertible bond, bank debts of 133 million, and the undrawn RCF of 250 million, a total of 710 million. And in a rising interest rate environment, it's worth pointing out that over 70% of that debt has a fixed coupon, with a convertible bond paying interest at 1.65%. And the term debt is floating at Sonia plus a margin. Finally, let me remind you of our capital allocation policy, and so turning to the next slide. We remain focused on our disciplined approach to capital allocation, and our capital allocation policy remains unchanged. Firstly, investing in capex, where returns are ahead of our cost of capital. Secondly, paying a dividend. You will have now seen we have recommended dividend payments. Our intention is to return in time to a policy of paying dividends based on a cover ratio of around 2.5 times. Thirdly, undertaking value creating acquisitions. And then returning surplus cash to shareholders via share buybacks. Our leverage at the end of August was 2.0 times EBITDA. We're targeting an efficient balance sheet and have a leverage target of between 0.75 times and 1.25 times EBITDA, reflecting the cash generative nature of our business. We expect to return to this over the next 12 to 18 months, including our significant CapEx program for this year. I'll now hand back to Carl to talk about the operational performance of the business.

Thank you, Robert. Let's start with travel, which, as I explained at the beginning of the presentation, is the growth engine of our business. So turning to the next slide. I know that many of you are familiar with our strategy, but let me reiterate the four key pillars that will continue to deliver sustainable growth. Firstly, increasing the quantity and quality of our space. This includes our ability to develop and evolve our formats, which we've been really successful at over the past couple of years. Secondly, increasing average transaction value and conversion. We do this by re-engineering our ranges and continue to see a double digit increase across all of our channels. Third, category development, where we continue to broaden our categories, for example, health and beauty and tech. And the final driver, of course, focuses on cost and cash management, particularly as we look to invest for the future. So turning now to our biggest opportunity in travel and starting with North America. As I said before, North America is a very attractive travel retail market and is the largest in the world. It now represents around 50% of our international store estate and there are significant opportunities for us to grow this business further, which I'll come on to. It is a robust market with 85% of US air travel being domestic and passenger data has shown a consistent and strong recovery compared to 2019 levels. Given the similar customer dynamic and high footfall environments to our UK travel business, we have applied our forensic approach to retailing from the UK into the US market, and we are seeing some really positive results. This includes space management and category development to higher margin products such as health and beauty and tech accessories, better promotional activity, and increased operational efficiency, such as introducing self-scanning tills, which reduce labor costs. Similarly, in the UK and the rest of the world, we can utilise MRG's expertise where appropriate, such as their localised store design concepts, which are a key factor in some of our new international business wins. As a result of the new business wins in the US, we expect this business to be larger in profit terms than our UK high street business by the end of this financial year, making it a much more significant part of the WH Smith Group. Finally, before I turn to the scale of the opportunity, it's worth mentioning that our resorts business in Las Vegas has also proven extremely resilient, with a good recovery driven by new conference centers and events attracting more visitors. Turning now to slide 17. We have continued with our strong track record of winning tenders in the US. What is becoming increasingly clear is that we can provide landlords with a very attractive proposition and our tailored approach to store design and localisation really does meet the individual needs of each landlord. All of this combined is therefore proving a very successful formula for us to continue to go on and win great tenders across the US. During the year, we've opened 22 new stores and we have won a further 22. This now takes the total number of stores won and due to open in North America to 70. Looking ahead to 2024, we expect to be trading around 350 stores in the US. And there is significant scope for us to win further new business, both under our MRG and InMotion brands. Our analysis of the North American market shows us that there are a total of just over 2,000 news, gift and specialty retail stores in the top 70 airports, giving us a small market share of around 12%. On the screen, we've pulled out the top 25 airports, and what this shows is how many stores we have either opened or have won in each of those locations in the dark blue section, with the light blue section showing you the scale of opportunity in each airport in terms of the stores that are dedicated to our categories. If you take the world's largest airport as an example, Atlanta, which is around three times the size of Heathrow, we have only 17 stores currently out of a possible 119 news and specialty stores within this airport. Compare this to Newark, where most of the retail space has been tendered over the past 18 months, and we've won around 40% of the available business here. This gives you an idea of the scale of opportunity available, and we expect a significant amount of business to come to the market over the medium term. We're also moving into new channels, opening our first store in rail in the US at Moynihan Train Station in New York, and we've recently won a new store at Penn Station. Turning now to the next slide. So just to pull all of this together and bringing it to life with some pictures of our stores in the US, we're really excited about the future and the scale of the opportunity. As I've already said, the US is the largest travel retail market in the world. Using our expertise, we continue to be highly successful in winning new business under multiple brands, and we're an attractive alternative to others in the market. We are growing market share but there is still plenty of share to go after and the opportunities really are substantial as you've heard. All of this is underpinned by our forensic approach to retailing and the four key pillars of our strategy. Turning now to slide 20 in our rest of the world business. Outside of the US, WHSmith has a very low market share of the international travel retail market. As a result, there is significant opportunity to grow our footprint in new and existing territories through news, books and convenience and technology tenders, using our three economic models of directly run, joint venture and franchise. And I'm pleased to say that we've made significant progress in winning new business in the year, with wins in Spain, Belgium, Italy, Sweden and Norway. This includes 38 new stores opened in the financial year and a further 76 due to open in the current financial year. Part of our success here has been utilising our expertise and skills from the US and bringing them to other countries. For example, we have been successful in winning tenders in new markets by creating a localised store design, drawing on local landmarks and popular cultural references to create a unique look and feel. This new approach has been extremely well received by landlords and gives us confidence in winning further stores across new territories. In addition, we have also won in motion stores in Dublin, Gothenburg, Milan and Stockholm airports during the year. As we have done in the UK, we are focused on areas within our control, including driving ATV and increasing conversion, as well as developing our formats and we're seeing good results. and we continue to build on areas where we already have a presence, for example, Spain, which I'll come on to now. You'll remember when we updated back in April that we had just won a significant and highly-competed tender in Spain, comprising 31 additionally directly-run stores, which now makes us the market leader in Spanish airports, and will take the total number of stores we operate there to over 50. Thanks to the efforts of the team, we recruited over 100 new colleagues across five airports prior to the summer peak and opened 15 of the 31 stores by the end of August. All this despite winning the tender at the end of April. And I'm pleased to say that the stores are performing well. In fact, the store on the screen is a great example of how we executed our store opening programme extremely well and at speed. And to give this some context, this store in Parma, Mallorca is trading at a higher sales per square metre than any of our other stores. And anecdotally, we're trading significantly ahead of the previous incumbent. We know there is more opportunity to go for, not just in the NBC market, but also the tech accessories market and the InMotion brand. Turning to the next slide now and let's take a look at our UK travel business. As you all know, this is our largest division and we're a significant player in the UK. It is in this market that we have brought real innovation to focus on the four pillars of our strategy to deliver sustainable growth. During the year, we have made really good progress in developing our formats and winning new and better quality space with 38 store openings across all of our channels in the UK. And we're on track to open a further 11 stores in the current financial year. We have a very strong customer and landlord proposition tailored to each location and channel. And a key area of focus in the year where we've seen some good success is our one-stop shop format, which I'll come on to in a moment. We continue to focus on customer conversion and driving ATV, where we're delivering good results. So lots still to go for. As I've just said, space management and our ongoing focus on format development has continued to drive significant opportunities across all our channels. Throughout our portfolio, we are continuing to identify opportunities where we can reposition our traditional format of news, books and convenience stores to a unique one-stop shop travel essentials format. What we mean by this is extending our categories such as health and beauty, tech and food to go to provide customers with all their travel retail needs under one roof. We know from our larger store formats that customers like it, it's good for us as it increases ATV and spend per passengers, and landlords also like it as it increases the pound per square metre of selling space. Moving on now to InMotion in the UK on slide 25. And you'll remember that we bought the InMotion business back in 2018, and at the time we knew there were good growth opportunities for this business both within and outside the US. Since winning the tender for UK airports just over a year ago, we have now successfully opened 31 stores, positioning us as the market-leading technology retailer in travel locations globally. Tech accessories is a strong growth market, and despite the first half of the year still being disruptive, we're pleased with the performance of the stores, and they're performing slightly ahead of our expectations. Both landlord and customer feedback has been positive. These stores combine the learnings and expertise from the US as well as the results of extensive customer research in the UK to provide a first class customer service experience and a combination of premium products from brands such as Apple, Bose, Sony and Samsung, as well as an extensive range of tech accessories. So turning now to our hospital and rail business on slide 26. The hospital channel is an important channel for us and is the second largest in revenue behind Ayr. It is a robust market and there are plenty more opportunities for us to continue to grow our space and improve the retail proposition. It is a great example of how we continue to innovate with a strong proposition tailored to each location with a broad suite of brands in addition to WH Smith, including M&S, Costa Coffee and the Post Office. Looking ahead, we have a good pipeline of opportunities where we see scope for at least one of our four formats in up to 200 further hospitals. Turning to rail, and rail is an attractive channel for us and has proven to be resilient. We have seen a very encouraging return of leisure passengers with leisure and weekend passengers recurring the fastest, which is helping to drive our ATV growth. We know from our segmentation and return on space analysis that leisure is the customer segment which is most valuable to us. and we also continue to invest here in new formats and new opportunities to meet customer needs. Earlier in the year, we successfully opened our first one-stop shop format in rail at Euston Station, including a pharmacy. This has been very well received by passengers with strong sales. In addition, we have opened a new standalone bookshop at Edinburgh Station and our first rail store with a combined M&S food offer in Bristol. In the current financial year, we will be trialling an extended health and beauty offering across a further eight major network rail locations, including Paddington, London Victoria and Liverpool street stations. Turning now to slide 27 and a quick summary on our overall travel business. We've had a very good year with a strong recovery across all of our travel markets and we're now in our strongest ever position as a global travel retailer. In line with most industry commentators, we remain cautiously optimistic that passenger numbers will fully recover by 2024. Across each of our divisions, we have a robust plan in place to drive ATV and increase conversion, and we have a very strong pipeline of new space across all of our channels and territories, totalling 150 new stores won and due to open over the next three years, with over 125 due to open over the next year. Going forward, we expect to win around 50 to 60 new stores per year across our global travel business. We are now the number one technology retailer in travel locations globally, with over 150 stores across the US, UK, Europe and Australia under our InMotion brand. And we expect further good growth opportunities across all of our channels. Turning now to our high street and online business on slide 29. And our high street business generated good growth and profitability despite the well-reported challenges to UK high street footfall. Our high street strategy is as relevant today as it has ever been, and ensures that the cash flow and profits of this business are sustainable. During the year, we've delivered savings of 42 million pounds, slightly ahead of plan. These savings come from right across the business, including rent reductions at lease end of around 50%, as well as logistics and supply chain efficiencies. As many of you know, we've worked hard over the past 10 years to create a very flexible lease portfolio in the High Street, with short leases where our average lease length is now just under two years. This has set us up very well to respond quickly to changing market conditions. We have around 450 leases due to expire over the next three years. Given this rolling programme of lease renewals, we therefore have further opportunities to renegotiate our occupation costs going forward and expect some rent reductions to remain a key component of our future cost reduction strategy. Even with years of savings, the high street cost base is still substantial and we continue to see further opportunities for savings. You can see on the table our latest forecast for cost savings up to 2025. This gives us a total of 24 million pounds over the next three years. Turning now to funkypigeon.com on slide 30. Funky Pigeon has recovered well since we last updated you. The market for greetings cards in the UK is substantial and estimated at 1.6 billion pounds with online penetration continuing to grow. We continue to invest in the business, and we see plenty of opportunities to grow the platform. We have launched a new Funky Pigeon app, invested in platform enhancements, extended our gifting ranges, and following a very successful Mother's Day earlier in the year, we've seen an increase in flower ordering. We have also extended the fulfillment capability to meet demand with a production facility in Swindon, leveraging our group assets. And we are really pleased with the performance of our next day delivery service, seven days a week, which has received very positive customer feedback. So we continue to see plenty of opportunity to grow this business. Turning to the next slide and our ongoing focus on ESG. We have excellent sustainability credentials, and we've made good progress in the past 12 months. We were the top performing specialty retailer in Morningstar's Sustainalytics ESG benchmark in the year. and we were included once again in the Dow Jones World Sustainability Index. We have set our target to achieve net zero, and we've continued to invest in energy-saving measures such as LED and chiller replacements, and have reduced scope one and two emissions by 60% since 2007. The need for literacy support for disadvantaged children continues, and we continue to invest in our partnership with the National Literacy Trust. During the year, we've been delighted in seeing a resurgence in children's books with a particularly strong World Book Day. And finally, we have enhanced our sustainability governance, introducing an ESG committee of the board, and we have included ESG measures in our senior executive short and long-term incentive plans. So before I summarise, I thought I would play you a quick video showcasing our stores across the globe. So looking ahead and as I've said the group is now in its strongest ever position as a global travel retailer. We have won some significant new business across the globe and we have a very strong pipeline of 150 store openings across the next three years. In line with most interesting commentators we too expect passenger numbers to recover fully by 2024. We have seen a strong rebound in profitability, coupled with an encouraging start to this financial year, and we expect to see substantial further growth in profitability in the current year, with North America becoming a more significant part of the group. Just to reiterate, the growth opportunities are substantial. We now have a highly successful global technology business within motion, with stores open all one across six countries outside of the US. We are very conscious that the economic outlook remains uncertain. However, we are a profitable, cash-generative, and innovative group. And as always, we remain focused on creating value for our shareholders, and we are optimistic about the current financial year and beyond. The resumption of the dividend today reflects the strength of current trading and high levels of confidence in the future prospects of the group. So that's it from me. Thank you, and we will now take your questions, starting with those of you in the room. I'll just run back.