Smiths News plc

Good afternoon and welcome to the Smith News PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Jonathan Bunting, CEO. Good afternoon to you, sir.

Good afternoon everyone. Welcome to Smiths News PLC's interim results for the first half of 2024. I'm delighted to report another robust performance from the business over the last six months. Furthermore, we have this morning announced our new finance facility and revised capital allocation policy and I look forward to discussing this in more detail alongside our progress to date with you this morning. Today's presentation will follow our usual format. I will cover a summary of the highlights. Paul Baker, our chief financial officer, will then review our financial results before I return to discuss progress of our wider strategy. As always, we will welcome any questions you may have, and we'll take these at the end of the presentation. Finally, a copy of the presentation will be available to view on the investor section of our website later this afternoon. Turning to the headlines. Let me start by saying how pleased we are to have announced today that we have successfully concluded our debt refinancing agreement, which not only reinforces the group's strong financial position, but also creates a more flexible financial template to invest in the business and reward our key stakeholders. Furthermore, the removal of the 10 million distribution cap allows us to better align shareholder distributions with our revised capital allocation policy. And we will go through this in more detail later in the presentation. Overall, we are pleased by the group's continued solid trading performance throughout the period. We delivered an adjusted operating profit of £18.8 million, down £1.6 million versus H1 2023, which was a very strong comparator that was boosted by events including the state funeral of Her Majesty the Queen and the winter timing of the Men's Football World Cup, which generated an additional £1.2 million of operating profit. in terms of funding average net debt was reduced by 53 in the period to just 12.5 million with the business maintaining strong levels of cash generation we're also pleased to report an interim dividend of 1.75 p per share an increase of 25 versus last year's interim the business traded in line with our internal expectations and was supported by ongoing operational efficiencies alongside further optimization of our network infrastructure We successfully commenced distribution of regional titles for Midlands News Association alongside additional News UK distributions in London. And we expect to receive an additional boost in the second half driven by collectibles from the men's UEFA European Championships. Elsewhere, our teams have now secured 74% of contracted revenues through to 2029, providing visibility of contract renewals and certainty of revenues, which is critical for future planning. Most importantly, we now have good momentum in our organic growth strategy, and we expect to see the contribution tripling to 2 million in the current financial year. So in summary, a very pleasing six months for the business, which is focused on optimizing our business operations while securing additional revenue opportunities which complement the core business. I'll now hand over to Paul, who will discuss the first half financial results in more detail.

Thank you, John, and good afternoon, everyone. Starting with the financial headlines, revenues decreased 1.9% in the half, ahead of the historic norm of a 3-5% decline which we have previously guided to. Price increases have continued to support revenue and partially offset volume decline, although these increases are expected to slow in second half. The second half will see the benefit from the men's Eurofootball collectibles and the start of the new wholesale contracts announced last year. Adjusted operating profit decreased by £1.6 million to £18.8 million, of which the Royal Succession and the 2022 Football World Cup contributed £1.2 million. In addition, softer waste prices impacted the sale of magazine waste by £0.9 million, which was offset by the continued expansion of our growth initiatives, which increased by £0.7 million versus half on 2023. The operations team continues to focus on our cost out initiatives and have delivered 2.4 million of savings in the half, which, along with 0.7 million of overhead savings, have helped offset inflation. With the benefit of the 2024 Euro football collectibles in the second half, the results are in line with plan and we are confident of delivering full year expectations. Adjusted earnings per share is down 0.7 pence, of which 0.4 pence is due to an average lower shareholding in our employee benefit trust. Free cash flow is in line with expectations and ahead of last year due to the timing of our customer payment, which last year came in just after the reporting period. The interim dividend, as mentioned, is proposed at 1.75 pence, an increase of 25%. On to the adjusted income statement. Below operating profit, net finance charges in the period are down 0.4 million, driven by the continued reduction in the bank debt. Profit before tax was down 1.2 million at 15.9 million as a result. The tax charge of 4.1 million reflects an effective tax rate which has increased to 25.8%. due to the rise in the main rate of UK corporation tax to 25% in April 2023. Profit after tax of £11.8 million is therefore £1.5 million lower than last year, and this has reduced adjusted earnings per share by 0.3 pence. The remainder, as mentioned, was due to lower owned shares held by the company. Free cash flow for the half was an inflow of 4.2 million and compared to a small outflow last year of 0.2 million. In the first half of the year we have a working capital outflow which is part of our normal working capital cycle and is 6.3 million better than last year due to the timing of a large customer payment. As a result our free cash flow for the full year will include the impact of the 53rd week and will therefore include the publisher payments we make at the end of the calendar month leading to a full year working capital outflow. Capital expenditure at 1.9 million is slightly lower than last year As John will outline later, having now completed our refinancing and as part of our overall strategy, we aim to increase our investment in the business by up to two million per annum for a three year period before returning to four million per annum thereafter. The majority of this expenditure has positive returns to our growth and cost out programmes, with the remaining amounts representing investment in our facilities. Lease payments have reduced 0.5 million year on year due to the exit of one lease and the timing of renewals. With inflationary pressure, I would expect full year lease payments to be circa 7 million when all of the leases have been renewed. Net interest and fees are slightly down than 2023 by 0.3 million, driven by lower net debt. And the impact of cash on the adjusting items was a small level of 0.2 million. Bank net debt continues to reduce and the business generated 21.5 million of cash flow before working capital and dividends in the last 12 months. Over the last two years, we have focused on average net debt as a headline measure, as reported net debt is impacted by the timing of our working capital cycle. Average net debt has reduced from 26.3 million at the first half 2023 to 12.5 million in 2024. A consistent level of cash flow between 20 and 25 million for the last three years allows the business to reduce debt and plan with certainty. Turning to the refinancing announced this morning, we have in place now a facility which matches the key requirements of our business model, reduces costs and enables management of our interim working capital cycle. The facility also provides flexibility in the uncommitted accordion to support any Bolton acquisitions identified in implementing our strategic ambitions. Before briefly taking you through the details of the facility, I would, on behalf of the Board, John and the business, like to thank all four banks in the old syndicate for their support of the business over the last few years. The principal facility is a £40 million revolving credit facility designed to meet our working capital cycle and enable us to support investment both in the news and magazine business and in our strategic growth objectives. The tenor of the facility is based on a 3 plus 1 plus 1 whereby, subject to lenders agreement, in each of the first two anniversaries the facility could be extended. The margin of 2.45% is 155 basis points below that of our previous facility. As John stated, the previous distribution restrictions have been removed, and this has enabled the business to revise its capital allocation policy. Turning to that policy, which is detailed on this chart and was included in both press releases issued this morning, the business has worked hard over the past few years to rebuild a strong balance sheet, and this will remain a cornerstone of the business model. We will continue to invest in the news and magazine business and organic growth activities. And as I mentioned earlier, we will see an increase in capex over the next three years as we ensure we have the capabilities to meet our customer needs. As part of our strategic plan to build on our organic growth platforms, we will look at potential Bolton acquisitions, but as in 2023, when we walked away from a potential deal, we will be disciplined and seek clear accretive returns. Importantly, the new financing facility enables the board to implement the previously stated two times cover policy for dividends. The removal of the distribution cap also allows the board to consider further capital returns to shareholders. I'll now hand back to John.