Smiths News plc

Before I start the presentation, I'd just like to take a moment to introduce Paul Baker, our new CFO. And Paul will no doubt talk a little bit later in the finance section. And I'd also like to pay tribute to Tony, the outgoing CFO who's He's done a fabulous job for us over the last three years and I personally valued not only his contribution to the business but his advice to myself and will be sad to see him go. So I just want to acknowledge that. So shall we start with the presentation? So if we turn to the headlines. So let's begin with an overview of the year. I'm pleased to report a continuation of our progress with the performance ahead of market expectations and another year of delivery against all of the key priority areas we've set out to achieve. EBITDA of 42.6 million is up 9% from revenues which are actually down 4.7%, but are back in line with the historic normal of 3% to 5% decline. Free cash flow has more than doubled to 24 million, and bank net debt at year end has reduced by a third to 53.2 million, with a reduction in our average net debt of circa 20 million. What's especially encouraging is this progress has been built on solid foundations, giving confidence that the business is better placed to deliver shareholder value than it has been for several years. Looking at our operations and what have been hugely challenging circumstances, we've maintained our laser-like focus on service and efficiency, on which all of our plans and prospects depend. Throughout the year dominated by the pandemic, we have served our communities without fail, made efficiency savings of £6 million, driven one-off sales opportunities such as the Euros, and worked closely with our retailers and our publishers as the markets emerged from the most disruptive period in recent memory. Our people are rightly proud of this performance because it's their commitment and initiative that has largely driven this. In July, consistent with our commitment to meet the needs of all stakeholders, we returned to the payment of regular dividends within the scope allowed by our financing arrangements. And it is our intention to maintain that momentum for the final dividend announced today. Tony will, of course, touch on this shortly. It is also our intention to reduce our net debt to one times EBITDA, and again, we'll touch on this shortly. In August, we began to feel the impact of the inflationary pressures in distribution markets, and these have since increased, confirming in our minds, at least, that this is not a temporary blip. I'll talk about our approach to managing these challenges later in the presentation. As we look ahead, therefore, there is a course of mix of opportunities and indeed challenges, both in the short and longer term. but we are addressing these from a position of much greater stability and strength. As such, I'm confident we are well-placed to continue to create and grow value, delivering strong profits in cash that are used to meet the needs of our shareholders, our financial partners, and the future, indeed, of our business. And now, Lysander, it's Tony to take us through the numbers.

Thanks, John, and good afternoon, everyone. A great pleasure today in presenting my final set of results for Smith News before handing over to Paul. not least because they confirm a strong performance which shines a light on the underlying strengths of a business that shall in many ways be sad to leave. Let's start with revenue, which at minus 4.7% year on year, has returned to within the historic range of structural decline for the market. Given the ongoing disruption of the COVID-19 pandemic, this is a great result reflecting the market's resilience and the ongoing strength of demand, for traditional newspapers and magazines. Adjusted EBITDA on a pre-IFRS 16 basis, which is the alternative performance measure used by management to manage and control the business, increased by 9% to 42.6 million. Operating profit at 39.6 million is a 12.8% increase from the previous year as a result of improved margin and continuing strong cost control. Operating margin of 3.6% compared to 3% in financial year 2020. Net finance charges increased to 8.7 million due to the fees and expenses associated with refinancing the business in November 2020. With an effective tax rate of 14.9%, the adjusted tax charge for the year is 4.6 million, which is 0.4 million higher than the previous year. Finally, adjusted earnings per share of 10.8 pence is an increase of 11.3% year-on-year. Coming now to adjusted items. There has been a significant decrease in the value of adjusted items compared to the previous year. The total charge after tax in the year is nil, which compares to 11.7 million in FY20. Charges in respect of network and reorganisation and asset impairment have reduced by 6.9 million and 4.8 million respectively compared to FY20. The major elements of adjusted outcomes in the current year relate to the impairment of a joint venture investment amounting to 4.6 million, costs related to the wind-up of the pension schemes, £1 million, and £1.1 million of costs related to transformation and long-term planning programmes. These have been offset by the £3.5 million accounting unwavering on the Tufts' deferred consideration as recoverability became clearer and more certain. And in fact, £6.5 million of the first payment due under the agreement was received last Tuesday. Free cash flow, a very strong message here as the company generated 24 million of free cash flow in FY21 compared to 10.9 million in FY20 and an increase of 120%. The significant improvement has been driven by increased EBITDA, 4.6 million, improved working capital of 6.7 million and lower capital expenditure of 4.6 million These have been partially offset by higher net interest and fees, 3 million, and 4.1 million of additional taxpayers. Looking at net debt, the closing bank net debt of 53.2 million represented 1.2 times even that. It compares to a rate of two times in the prior year when reported closing bank net debt was 79.7 million. The reduction in net debt is driven by two key factors, the $13.1 million improvement in free cash flow versus FY20, and the cash inflow from the repayment of the $6.5 million working capital loan made to the buyers of Tough Notes in May 2020, which was repaid in October 2020. This item alone represents a $13.2 million improvement year on year. I'll now hand over to Paul to introduce himself and discuss the impact of IFRS 16 on our results.

Thank you Tony and good afternoon everyone. Before I talk to this more technical slide, let me briefly introduce myself. I joined the company as Chief Financial Officer on the 4th of October and have been actively engaged in a thorough induction program since day one. In the last four weeks, I've managed to meet more than 90 leaders of the business and visit three operational sites to get a hands-on understanding of our operations and our business model, as well as spending time with our advisors and auditors. It's been a busy time, but exciting. And as you've just seen from Tony, Tony's presentation, The business, the financials of the business are solid with strong cash generation. But what has also impressed me in my first few weeks is the passion the people in the business have for what they do and the depth of their understanding and control in managing the operational performance. The planning and measurements within the business reflect this attention to detail, giving me confidence as I take up my new role. Now back to the charts. In our financial performance, we use an adjusted performance measure of pre-IFRS 16 EBITDA, which Tony mentioned. This subtracts 7.7 million of operating lease charges from our statutory IFRS 16 EBITDA of 50.3 million. I know many of you already use the IFRS 16 measure, and we will reference this more going forward. The lease charge within the business primarily relates to our 37 distribution sites. and the underlying impact is broadly consistent year on year. The reported net debt of 81.2 million includes lease liabilities of 29.2 million relating to 44 leases with an average total length of six years. When you also add back the unamortized bank fees from the 2020 refinancing of 1.2 million, you get to an adjusted bank net debt of 53.2 million, which Tony referenced. I look forward to speaking to you all in the future, but for now, back to John.