Smiths News plc

Good afternoon, ladies and gentlemen. Welcome to the Smiths News PLC four-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish their responses where it's appropriate to do so. Before we begin, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from Smiths News PLC. John, good afternoon, sir.

Good afternoon and good afternoon everyone. Welcome to Smith News full year results for the period ended the 31st of August 2024. I'm John Bunting, CEO of Smith News and with me today to talk through our full year results presentation is Paul Baker, our CFO. But before I get into the detail of the results, I'd like to take a minute to briefly highlight the main headlines and give a flavour of what we will cover later in the presentation. First and foremost, I'm delighted to confirm that our full year results reported today are ahead of market expectations, driven principally by improved revenue in news and magazines and the contribution of our growth activities. This excellent outcome has been built on another resilient performance from our news and magazine business, which continues to both underpin and sit at the heart of our developing strategy for growth. Pleasingly, we've now secured over 90% of publisher revenues until at least 2029, providing stability for the business and surety of revenues across the medium term. The remaining revenues typically operate on shorter term contracts or arrangements. Meanwhile, our focus on growth continues to gather momentum. Our established expertise fits squarely within the needs of the growing early morning market. And we're seeking to leverage our existing network and proven capabilities in this space to build out and expand our services. And though it's early days, we are seeing good progress with 2 million of company profit generated in the period from these efforts. I will revisit this again later in the presentation as we seek to implement our vision to become the UK's leading provider early morning end-to-end supply chain solutions. We also announced our new refinancing agreement in May this year, which removes restrictions on shareholder distributions and allows the company to implement its capital allocation policy. To that end, we are delighted to announce a proposed final dividend of 3.4 pence and a special dividend payment of 2 pence, taking total dividends for the year to 7.15 pence, up 72% year on year. And now I'll hand over to Paul who will talk you through the financials.

Thank you, John, and good afternoon, everyone. I'm pleased to report a good set of financial results and following the refinancing in May, the implementation of our capital allocation policy, which has increased distribution to shareholders. For the financial headlines, revenue was up 1.1% to 1.1 billion, benefiting from the men's European football championships, increased contribution from our growth activities and the 53rd week of trading. As a result, adjusted operating profit was 0.3 million higher than last year at 39.1 million. Adjusted EPS was 0.5p less than last year, despite lower interest costs due to the higher UK headline tax rate. Free cash flow of 7.3 million was 14.5 million lower than last year, but impacted by an expected net cash outflow of 15.7 million during the 53rd trading week, which was part of our normal working capital cycle. Average bank net debt, which is a better measure of our net debt trend, continued to reduce and was 11.7 million, 53% lower than last year. As John mentioned, dividends are proposed at 7.15 pence, a 3p increase on last year. The full year ordinary dividend is proposed at 5.15 pence, which represents two times cover in line with our capital allocation policy. and is augmented by a special dividend proposed of 2p per share, both to be paid on the 6th of February 2025. Moving on to revenue, revenue of 1.1 billion was up 1.1% on the prior year and included a 1.9% benefit from the 53rd week and a 2.3% benefit from the new contracts we announced in December. Newspaper revenues were again supported by cover price increases, although these continue to impact volumes. Growth activities, while showing significant increases year on year, represent a relatively small part of our overall sales. Underlying revenue from collectibles decreased by 13% this year, partly driven by a weaker performance from the current Pokemon series. Sales are now back in line with their pre-2022 levels after a very strong period last year. While the overall revenue decrease was just below the historic trend of minus three to minus five, our medium-term view of a minus three to minus five decline on newspapers and magazines still holds. Adjusted operating profit was 39.1 million and includes a 0.9 million benefit from the 53rd week of trading. We had a good contribution from the Men's European Football Championships. This contributed about the same as the Royal Succession and the Men's Football World Cup in total last year. Our stout plans delivered 5.6 million of savings, partially offsetting the combined impact of margin decline and inflation, which remains high compared to historic levels. Encouragingly, though, our growth initiatives delivered a contribution of 2 million, an increase of 1.3 million on last year. Net finance charges have reduced by 0.6 million due to lower average debt. Profit after tax of 24.7 million is 0.9 million lower than last year and includes the impact of the higher UK corporation tax rates. This also had an impact on the headline EPS, which reduced to 10.3 pence. Continuing free cash flow for the year was 7.3 million, although this includes the net 15.7 million cash outflow in the 53rd week, which was part of our normal working capital cycle. We shall outline the impact of our working capital cycle on reported results in more detail in a moment. Capital expenditure at 4.4 million was higher than last year due to our depot refurbishment programme and the start of our technology upgrade programmes. As we mentioned at the half year, we anticipate investment spend increasing by around 6 million over the next three years before dropping back to a run rate of about 4 million per annum. Lease payments were 0.2 million lower than last year due to the exit of one lease and another lease which was downsized. We've signed several renewals in the final quarter and expect lease payments to increase above 6 million again next year. Net interest and fees are lower than in 2023 due to the lower average net debt, partially offset by the impact of refinancing fees. The cash impact of adjusting items were 0.4 million The outflow was higher in the prior year due to the cost of the aborted M&A. The impact of the 53rd week on our reported net debt and cash flows was a net outflow of 15.7 million, driven by payments made to our publishers at the end of the calendar month. This is part of our normal working capital cycle and consistent with a 15 to 20 million net outflow in the last week of August. As we have previously disclosed, our working capital cycle can swing by more than 40 million within a single month, depending on the timing of receipts from large supermarkets and the calendar month end payments to major publishers. While average net debt is closer to 10 million, we have also designed our banking facility, which has a limit of 40 million to cope with our normal working capital swings. On to slide 10, which shows the movement in average net debt and dividends paid and proposed over the last four years. We have seen average net debt reduced by 87% to 11.7 million since fiscal year 2021. We continue to generate a consistent level of cashflow of between 20 and 25 million. This enables the business to plan with confidence and implement the key tenants of our capital allocation policy, which include maintaining a two times dividend cover, investment in news and magazines and growth, and then considering further returns to shareholders when appropriate. The bars on the chart show the development since 2021 of the dividend we have declared. Dividends in 2021 to 23 were restricted by our banking covenants. The 17.2 million we proposed to pay in relation to fiscal year 2024 is enabled by the renegotiation of those facilities in May earlier this year. This is made up of a 12 million ordinary dividend, a 24% increase on the prior year. In addition, the board are proposing a 5 million special dividend. Finally, I thought it was worth sharing our capital allocation policy again, which is detailed on this slide. Policy seeks to maintain a strong balance sheet whilst allowing investment for the future and returns to shareholders. As highlighted on the previous slide, the RCF facility enables the business to manage its normal borrowing peaks throughout the year. It outlines our commitment to the newspaper and magazines business and our measured approach to organic growth and M&A. The immediate impact of the policy can be seen in the dividend proposal that we have made this year with a two-piece special dividend alongside the two times ordinary dividend. I'll now hand back to John.