Smiths News plc

Good morning. Everyone should be, everyone has been admitted now. Right, good morning, everyone. Welcome to the Smiths News Interim Results presentation. Before handing you over to John and Tony to run through the presentation and go into Q&A, I'm just going to ask all attendees if they could kindly mute themselves. And then when we open up to Q&A, usually the raise hand function, we will then take questions or if you can type them in the chat bar, whichever works best. So over to you, John.

Good morning, everyone. Welcome to the Smiths News presentation. The presentation is being recorded and you'll be able to view it later on our website. For those of you that are joining us, once again, you'll be familiar with our format. I will cover our headline performance before handing over to Tony, our CFO, who will talk us through the financial results in more detail. I'll then review our operation on strategic progress, with particular focus on management through the pandemic and the impact it's had on our business and our markets. Lastly, and importantly, I'll cover our capital management policy on our plans to deliver shareholder value over the medium term. At the end of the presentation, we'll then take questions. So if we look at the headlines. I'm pleased to report that we are on track with all the key elements of our business plan, despite the continuation of difficult trading circumstances since the presentation of our full year results in November 2020. Overall, profit is in line with expectations as a result of careful management of our operations through the second and third lockdowns and the underlying resilience of our business model. Indeed, the core wholesale operation of Smiths News is ahead of last year, with overall profit down due to the impact of the pandemic on our ancillary businesses. Given that the comparable prior year period predated the COVID-19 pandemic, this is a strong performance from what is the main engine of our business. I'm pleased to confirm that our sales have stabilised and we've once again achieved the critical measure of savings and deficiencies offsetting the margin impact of the decline in core sales. To be doubly clear, we have done so without impact on service, maintaining a full service to our customers throughout the subsequent lockdowns. Meanwhile, our capital management directives are on track following the successful refinancing in November 2020. If we turn to the pandemic, we continue to provide a full and safe service to all of our customers with KPIs at pre-pandemic levels. Importantly, sales in lockdown two and three did not see the sharp decline that we saw in May to March of 2020, with far fewer retailers closing. Travel and commuting retailers, however, remain severely impacted and they continue to represent a substantial portion of the decline in the market as a whole. From the perspective of our financial performance, it is the relative stability that drives our ability to reduce costs and maintain controls whilst meeting our service obligations. In this respect, our teams have done a magnificent job. As the country gradually returns to more normal patterns, we are confident that the progress we have made can be sustained. with any increase in costs from potentially increased volumes being kept strictly in proportion to the benefits. Beyond the core wholesale operation, our ancillary businesses of DMD and in-store have suffered year-on-year profit impacts as a consequence of the pandemic. However, I can confirm they are operating at break-even or marginally better, and we are not reliant on their recovery in the second half of the year. Turning to dividends and capital management, We have been clear that we will pursue a prudent approach to capital management with a focus on maintaining liquidity through the pandemic and reducing debt in line with our new banking arrangements. The tight controls of cash, debt and capex have been achieved in line with our expectations and as we gradually emerge from Covid restrictions, we can be confident in the ongoing performance of the business. In this context, and of course subject to the performance being maintained, we are planning for the return to the payment of dividends later in this financial year. Indeed, after the bank financial covenant tests are met at the end of May, 2021. I'll give more detail on these shortly, but for now I'll hand over to Tony to take you through the numbers.

Thank you, John. Good morning, everyone. The first half of the financial year includes a number of significant events Most notably, the completion of our refinancing in November 2020 and our response to the impact of the lockdowns in November and in the months after Christmas. So let's now turn to the adjusted continuing income statement. Total revenue declined year on year by 11.5%, reflecting the underlying structural decline of newspapers and magazines. the continuing closure of retailers located at travel hubs, and the more general additional impact of the lockdowns in the period. Adjusted EBITDA, excluding IFRS 16 lease accounting, was 20.5 million, 1.2 million down in the same period last year. This was a resilient performance in a challenging environment with planned cost savings dovetailing with incremental cost control as the business flexed to adjust to lower volumes. The decrease in EBITDA can be attributed to three distinct business drivers. A reduction in margin across all businesses of 8.2 million as a result of the decline in revenue and volume. However, the reduction in volume was partly offset by depot and delivery cost savings within Smith News of approximately £4 million. A proportion of these costs are variable with volume in nature, and we expect these to increase as revenues and volumes recover in H2. The final element is overhead savings of approximately £3 million, a result of the restructuring implemented at the end of FY20, and includes the transfer of certain activities to a shared service centre in India. Operating profit, including IFRS 16, but excluding adjusting items, is 18.9 million down 1 million year-on-year, which comprises a reduction of half a million for Smith News and half a million reduction in DMV. Operating margins increased to 3.4% compared to 3.1% in H1 2020, which underlines the flexibility and resilience of the business model. Finance costs increased by 900,000 to 4.5 million due to the increased amortisation cost of the facility arrangement fees, 600,000 and increased interest costs and borrowings of 300,000. Adjusted profit before tax was 14.4 million, down 1.9 million, 11.7%. The effective tax rate was 20.8% with a tax charge of 3 million pounds. which is 100,000 lower than last year. Adjusted earnings per share was 4.6 pence, down 13%. However, it's worth noting that on a statutory basis, the recovery for financial performance has been more marked. Profit before tax was 16 million, up 9.3 million, with adjusted items in the period of 1.6 million credit, which relates to the reassessment of the recovery of the tough notes deferred consideration. Statutory earnings per share in H1-21 was 5.3 pence, up 3.5 pence on H1-2020, and higher by 0.7 pence compared to adjusted continuing EPS in the period. I believe we have now established a stable, profitable foundation on which we can build a revised capital allocation policy, which John will explain later in the presentation. I want to look at free cash flow on a continuing basis. Free cash flow generation remains one of the company's key strengths and in these COVID-19 challenging times, the company has maintained its clear focus on cash generation and liquidity. In the challenging trading environment, the group generated 4.6 million of free cash flow compared to 4.3 million last year. It should be recognised that the business continued to be cash generated throughout all COVID-19 lockdowns. Overall, adjusted EBITDA, this time including the £3.9 million impact of IFRS 16, declined by half a million to £24.4 million. The working capital movement in the period was £4.8 million cash outflow, higher than the same period last year, and is driven by the timing of receipts from retailers and payments to publishers. It's worth noting that during the COVID-19 lockdowns in the period, we did not experience any significant abnormal returns of newspapers and magazines from the closure of retailers. Capital expenditure for Smith Hughes was £3.2 million lower than last year as the company maintained strict control over cash outflows. CapEx plans remain focused on replacement and maintenance rather than growth CapEx. and total spend will be broadly in line with the annual non-IFRS 16 depreciation charge, that's £4 million. Lease payments declined by £1 million to £2.9 million as some IT equipment leases came to an end in the prior period. Net interest paid has increased by £200,000 to £3.5 million as a result of higher interest rates under the new debt facility. Average borrowings of £89.5 million in the first half of the year were 9% lower than in the prior year. Arrangement fees of £2.8 million paid in the current year relates to the debt refinancing completed in November 2020. Tax payments of £2.8 million are higher than the prior year due to an additional quarterly payment made in February 2021. The cash cost of adjusting items in the period was 2.6 million compared to 4.2 million last year. This primarily represented network reorganisation costs of 2 million and pension buyout costs with similar outlays expected in H2 2021. Finally, I shall now turn to look at the net debt position of the group at the half year. The business has continued to remain focused on deleveraging, and this is reflected in the amortization schedule in the new bank facility. The first amortization of 7.5 million was completed last Friday. At half-year, closing bank net of 70 million, excluding IFRS 16, had increased by 1.5 million compared to last year. However, compared to year-end net debt to the year-end, net debt was down 9.7 million a result of 4.6 million from positive trading free cash flow and discontinued cash inflows of 5.4 million following full repayment of temporary working capital loan provided to the new owners of Tufto's. Following the adoption of IFRS 16 lease accounting property leases on our depots have been added to the calculation of net debt, giving an IFRS 16 total net debt of 101.3 million pounds. at the half year. As I've said already, we successfully refinanced a £120 million bank facility for three years in November 2020. Our bank covenants continue to be measured under frozen gap and consequently bank net debt at the half year was £70 million, which represents leverage of 1.8 times the EBITDA, a reduction from two times at the last half year. I shall now hand back to John for an update on operational and strategic progress.