Smiths News plc

Good afternoon and welcome to the Smiths News PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and could be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. 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 publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to John Bunting, CEO. Good afternoon, sir.

Hello everyone and welcome to Smith News interim results for the 26 weeks ended the 28th of February 2026. I'm John Bunting, Smith News CEO and joining me today is our Chief Financial Officer Richard Clay. Richard joined the company in February of this year and we're delighted to have him on board. So before we dive into the detail, let me quickly cover off the broader headlines. Once again, Smiths News delivered a positive performance with full year results expected to be in line with market expectations. Pleasingly, the business generated adjusted operating profit of 18.3 million and adjusted profit after tax of 12.7 million, underpinning our interim dividend of 1.75 P per share. Our newspaper and magazine activities continue to remain resilient, tracking broader print market trends and historic norms. In addition, we have now secured 96% of our newspaper and magazine revenues to 2029 or beyond, following the renewal of a long-term contract with the Guardian newspaper group. The collectibles market has remained strong, driven by ongoing demand for Pokemon, including the 30th anniversary, and we're obviously looking forward to the summer men's FIFA World Cup, which typically provides a one-off boost to the second half. Progress continues across all the verticals, with recycling revenues up over 50%, an obvious highlight. I'll now hand over to Richard, who'll walk you through our financial performance in a little more detail.

Thank you, John, and good morning to everyone. Starting with the financial summary, revenues declined by 3.9% in the period, which is in line with our guidance of minus three to 5%. Whilst revenue from newspaper and magazines decreased at just above 4%, we saw an increase in revenue from collectibles and our growth verticals. We will look at revenue in more detail on the next slide. Adjusted operating profit decreased by 1.1 million to 18.3 million, impacted by the annualization of national insurance contributions since last April and ongoing investments in our cost base. The performance of collectibles, including Pokemon, and the ongoing benefit of cost reduction plans partially mitigated the impact of both inflation and lower income from newspapers and magazines. We expect full year results to be in line with market expectations. It is worth remembering that over the next few months, we will see revenue from FIFA World Cup trading card and sticker collections, which will give our profit a second half weighting this year. Free cash flow of 21.2 million was 7.9 million higher than last year and included a working capital timing benefit of 7.6 million, part of our normal working capital cycle. Underlying cash flow remains strong and has supported the move to an average net cash position, which was 16.2 million for the half year, noting that the ordinary and special dividends of 16.7 million were paid in February at the end of the reporting period. To give a little more colour to our revenue numbers on this slide, Our headline revenue number shows a 3.9% decline on the same period last year, which again is within the 3.5% annual decline which we guide to. Newspapers and magazines continue to make up over 90% of total revenue, and the 4.1% decline in these products drives the overall performance. Collectibles has continued to perform well, and we saw revenue up 13.3% since last half year. Revenue from growth verticals, while relatively small compared to the headline newspapers and magazines revenue, increased by 35%, in particular due to additional revenues in the recycle vertical, which John will touch upon later. Onto the adjusted income statement. Below operating profit, net finance charges were 0.4 million lower than last year, with the company in a net cash position from up to the first half. With lower finance charges, PBT reduced by 0.7 million, or 4%, to 17.0 million, with EPS then decreasing by 3.7% to 5.2p. An interim delivered end of 1.75p in line with last year has been approved by the Board and will be paid in July. Total free cash flow for the half was an inflow of 21.2 million, an increase of 7.9 million from last year, partly due to favourable timing of our working capital cycle, which gave a £10.1 million benefit when compared to last year. There are two items worth noting in this slide. Firstly, you may remember that we received two significant one-off inflows in the first half of FY25, £1.6 million from the Administrations of McColls and a £1.5 million tax credit from the sale of the Smiths News pension scheme. These were included within the £2.1 million presented as adjusting items inflows last year. Secondly, adjusting items in this period consisted of technology investment costs of 0.3 million, strategic project costs of 0.2 million and professional fees of 0.1 million in relation to the pension regulator's review of the Tufnell's defined benefit pension scheme. As previously announced, the Board is reviewing the warning notice received from the pensions regulator with its advisers and will have an opportunity to make submissions in response. the Board maintains the view that Smiths News acted reasonably throughout its time as parent of Tufnells and that it was an overall net contributor of funding to Tufnells during its period of ownership. Working down from working capital, capital expenditure at £0.9 million was £1.4 million lower than last year, reflecting the investment cycle and where we are in individual programmes. Lease payments reduced by 0.3 million year-on-year, in part due to properties exited in the first half of FY25. And tax cash payments were higher than last year, as the prior period included a credit relating to previous tax years. Finally, for me, this slide shows a 12-month rolling cash flow, bridging 12.4 million of net debt a year ago to a 7.8 million net cash position this half year. Over the last 12 months, the business has generated an underlying cashflow of 26.8 million, consistent with our guidance of circa 20 to 25 million annual inflow that the business has been delivering for some time. Noting that this figure includes 3.7 million received from the McColls administrator in the second half of last year, which formed part of the basis for the 7.4 million special dividend paid in February. We continue to focus on average net cash or debt as a headline measure, as our reported closing position is impacted by the timing of our working capital cycle and dividends. Average net debt of 1.1 million at H1 2025 improved to net cash of 16.2 million in H1 2026. In terms of dividends for the current year, the Board continues to assess the cash generated from trading alongside the needs to invest across all areas of business before deciding on distributions in line with our capital allocation policy. I'll now hand back to John.

Thank you, Richard. Now turning to the operational review of our H1 performance, starting with our newspaper and magazine vertical. As already touched on, our newspapers and magazine vertical remains resilient to continue to perform in line with market trends. We have now secured 96% of revenues out to 2029 following a recent contract renewal with The Guardian, which reinforces our broader business confidence by providing further revenue visibility. Our teams remain committed to ongoing service excellence and forging closer relationships with both our publisher partners and retail customers, which are essential to maintaining longer-term demand. Cover price inflation continues to be a feature of the market and benefits our commercial model. Our newspaper and magazine vertical continues to be at the centre of our business, underpinning our expansion and reinforcing our commitment to deliver shareholder value. To that end, I thought a quick reminder of the breadth of our activities might be useful. Smith News has been involved in the distribution of newspapers and magazines since 1792, and it's fair to say much has changed since then. Over that time, we have established a sophisticated early morning distribution network, which now encompasses over 160,000 weekly deliveries, delivering over 15 million items per week and collecting over 5.5 million items per week. We service over 22,000 customers across all retail formats, including large supermarkets, petrol forecourts, high street chains, travel points and thousands of small independent retailers across England and Wales, covering 55% of the UK. We process over 280 million returns per annum and recycle 99% of all printed products that are returned. Since the beginning of FY23, we have been upgrading a number of our systems and processes to ensure the backbone of our business not only remains future proof, but can also support our growth ambitions for many years to come. We are experts in the early morning supply chain space and leveraging this knowledge base and capability sits at the heart of our business strategy. Looking at collectibles, in some ways collectibles could sit in our new categories vertical and the segment is indeed in structural growth. However, for now we continue to report it as part of our news and magazine vertical. We've had another period of strong performance with the demand seen last year continuing into the first half of 2026. Our team have been working proactively to secure additional retailers to distribute Pokemon cards to, including a number of our national supermarket customers, alongside commencing the trial of another Japanese anime card game, all of which has been made possible by leveraging our proven track record in this growing market sector. With the upcoming Men's FIFA World Cup and Pokemon's 30th anniversary, we expect additional sales momentum in the second half, setting the category up for another excellent performance across the year. Our resiting vertical, now under the leadership of new MD Adam Wiley, delivered a highly promising performance, culminating in a 50% year-on-year increase in revenues and the launch of a number of new services. The team has focused heavily on strengthening ties with waste brokers, which we believe will unlock additional routes to market and in turn create further commercial opportunities. We have launched a number of new services, including recycling services for vape and small wee, alongside undertaking a coffee cup collection trial for a national high street chain. Regulation will continue to play a key role in the ongoing development of our recycling activities. You may be aware of DRS due to launch in late 2027, which may represent an opportunity for Smith News recycling. The Deposit Return Scheme or DRS will be introduced in the UK towards the end of 2027 with the aim to generate a refundable deposit into every single used drinks container at the point of purchase, which is an estimated 25 billion units. Essentially, consumers will pay a small refundable deposit on plastic bottles and aluminium and steel cans, which will then be refunded upon returning containers to the designated returns points, such as supermarkets, convenience retailers, or hospitality venues. We expect 10% to 15% of all containers will return via manual returns points, where the retailer or hospitality venue doesn't invest in an automated machine. These containers will need to be bagged and then collected, scanned and recycled in order for the retailer to receive their credit. We estimate that around 70% of Smithnews convenience stores and independent retailers will be obliged to become a return point. We therefore see an opportunity in partnering with Exchange for Change around DRS, the scale of which could run from the full national partner for both services through to a smaller regional partner for one service. There is a significant overlap of our footprint, and we're also well-placed to count and process these containers at our final mine depots. This process is almost identical to the returns process that we undertake successfully for many years for newspapers and magazines. There is still work to be done, but this remains an exciting potential opportunity for the business, and we expect to have a further update in the coming months. Within our other two growth verticals, new categories and final mile, we continue to make ongoing progress to further leverage network capacity. Within our book distribution service, our teams are now delivering 30,000 books per week across our footprint, and our pipeline is developing nicely. Our in-store merchandising team has also recently secured a book contract, further demonstrating Smithsview's expertise in providing a truly end-to-end service. We now pick, pack, and distribute books to the store. Our merchandisers now manage the fixture, and we collect the unsold books and process them for either redistribution or recycle. Within our final mile activities, we are currently onboarding an international provider of optical and hearing care services to deliver through-the-night delivery services. This contract, when fully rolled out, will see Smiths News make deliveries six days a week to over 580 stores across the entire Smiths News footprint. These collective wins are all good examples of our strategy in progress. In 2025, we launched our internal investment program designed to optimize our warehouse management operations and enhance existing capabilities. This program continues to future-proof both our established business and our growth activities. By the end of 2026, we will have rolled out our transport management system across all final mile sites, and we'll have already expanded our cloud warehouse management system to support our growth customers. In addition, we are now in the process of launching a new data platform and we're also replacing our legacy contact centre infrastructure, which is expected to be live by the end of 2026. These are important upgrades and improvements to our business. Whilst the quantum investment remains the same, we expect some of the works to now complete in 2028 as we phase their implementation sensibly into the business. Turning to the outlook for the remainder of the current financial year, we've made a pleasing start to 2026 and are on track to deliver results for the full year results in line with market expectations. Our newspapers and magazine segment remains resilient with another promising performance from our growth verticals. Collectibles are expected to perform strongly, supported by an anticipated boost in H2 from the FIFA Men's World Cup, supporting our H2 profit weighting in the current year. The business is also on track to deliver operation efficiencies across FY26 in excess of £4 million. In all, a positive outlook for the broader business as we look ahead to the remainder of the financial year. I'd like to thank you all for listening, and Richard and I are now very happy to take any questions you may have. Thank you.

That's great. Thank you very much for your presentation. And if I may just bring back up your cameras. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab situated on the right-hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed by your investor dashboard. As you can see, we have received a number of questions throughout today's presentation, but please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you, Lily. I'm going to start with some questions first on news and mags. Hopefully, we'll try to give a bit of structure. So the first question is, what is the competition when you do your contract negotiations, and what are the key requirements? OK.

So typically, we have one direct competitor, which is Impost News Trade, formerly known as Menzies Distribution. And then we have a number of indirect competitors, which likely to tender for the business when we tender. In terms of the criteria that publishers are awarding against, there are normally four things I think that a publisher is looking for. The first is what is our vision for the category going forward and how do we see our service offer evolving to meet the needs of retailers going forward. It's very much a focus on meeting the retailer requirement. The second is obviously price, so on what basis are we prepared to provide that service. The third is really track record. So obviously, we've been providing this service for a long time now, so they can look at our track record from a service perspective and take a degree of confidence from that. And I think the last element is always relationship. Are you good to do business with? And do they feel they can trust you to manage their business in partnership with them for a number of years? So I think it's all of those things, vision for the category, service, price.

Great. So I will now move to a question on fuel. So can you clarify your expectation with the impact of the group from sustained higher diesel prices? So we put something into the R&S actually on this. So around the ongoing conflict in the Middle East and within the macroeconomic uncertainty principle risk. I suppose the good news is that there's negligible impact on our cost base. some cost increases in trunking. And as the question went on to ask about contractors, so most of our contractors are driving diesel vans and in the negotiations with them, the cost of fuel will come up. But that's just normal course of business at this stage. We're not noticing any significant impact or we'll keep it under close monitoring. Just related energy costs. So our energy costs are hedged over the short to medium term and therefore we're also not noticing any impact on our cost base at this stage and we would expect that to continue as long as the conflict does not go on for a very long period. So next I'm going to go to a question on collectibles. I suppose, John, could you bring out some of the highlights in collectibles? And there were some specifics about Japanese anime, if you can just cover that off.

Okay, yes. I mean, as you all have heard Richard mention, we've had another strong start from a collections perspective in the year, up 13% year on year. We still continue to see good demand for Pokemon, which is obviously important. with football collections. Normally we're referring to the Premier League but actually this year we've also seen a real increase in interest in the EFL and then in the second half we've got the men's FIFA World Cup. So overall we're expecting another very strong performance from that category. We do continue to look at other products that might help boost our performance in that area and that could be Japanese anime and a variety of things that we're actually results just on that category now given the growth we're experiencing there. Too early to talk about it at this stage but overall we're really pleased with the performance of collectibles.

Great. A slightly more general question about crime within the convenience store sector and whether this represents a threat to our business and newspapers and magazine distribution.

Any thoughts on that? Yeah, that wasn't a question I was expecting. Yeah, I mean, it's definitely something that all of our retail customers are facing into on a daily basis. And I have to say, I do feel for them in terms of how you manage that, trying to keep your staff secure whilst also making it clear that that's not an acceptable behaviour. We don't actually see that much crime relating to the news and magazine category, I'm pleased to say. But it is something that many of our retail customers do have

Next, a question on recycling and DRS in particular, but also other areas in recycling. What's been the general feedback from your retail customers on the implementation of DRS and also vape recycling, and what are the typical

So the deposit return scheme doesn't actually go live until the autumn of 2027. So at this moment in time, there isn't sort of any implementation feedback. I think what we've seen from the work we've done looking at DRS in other markets is that it's really important that our retail customers do participate. It's proven to be a footfall driver. So you get extra footfall in your store if you're a retail customer that provides that solution. But also if you don't, So I think the way we're looking at it is that should we be successful when we tender for this business, part of our role will be to help educate our In terms of vape, it's really interesting. So we launched our service only a few weeks ago in this space. What's the single biggest barrier? Probably education. So it's actually a legal requirement if you sell a certain percentage of vapes within your store to provide a recycle solution for it. But when we're selling the solution to many of our customers, they're not actually aware of the legal obligation and they assume So I would say the single biggest barrier at the moment is just education. But we're pleased with the response we're getting in the first few weeks of selling that proposition.

Thanks, John. Just going to pause to read one that just came in recently, just to check whether it's on that. No, so we've got a few questions then on financial. So a factual one. First up, what is the expectation for unadjusted gap PBT for the full year? So the consensus that we put into the R&S is an operating profit level of 37.2. That's the PBT level was 34.1 at the time of publishing. reports coming from analysts this morning, but it wouldn't be material. So that's that one. And then what are the reasons for not doing a share buyback and preferring the special dividend? So that's a sort of capital allocation policy question and share buyback versus dividend in particular. We know that across our investor base, we needs and therefore we evaluate those on a regular basis when we discuss this at the board and at this stage we have chosen in the past to do a special dividend rather than a share buyback but at any stage we would keep all of those under review. A new question has just come in. Let me just check if I've read it. So historically, a lot of the focus was on reducing debt and strengthening the balance sheets. Now that Smith News has moved into a net cash position with strong cash generation, what are you thinking about managing the cash balance going forward? I suppose that's really, again, a capital allocation question. So first of all, as the question infers, it's about strong balance sheet. Yes, we've got to a net cash position, but one does have to think about that net cash position, both in terms of, and as we refer to the average cash versus the closing cash, there are big working capital movements, whether month on month or within the months that we need to make sure that we are able to manage. But once we've confirmed the strong balance sheet, then we start to think about the uses. We think about investing for growth, investing for the sustainable future of this business. That's why the R&S has a lot about the growth, both the news and mags business, but also in the growth verticals in particular. And then we come to think about dividends and share Hopefully that helps. A few more coming in now. So good run for the money. I'll stay with these. So what level of interest rate is earned on cash? Yes, we are starting to earn on cash. We have a liquidity facility which is earning well. We don't disclose the interest rate, but it is helpful. It's worth noting that within the interest cost on the P&L, there's both the interest cost on leases and then the interest cost on the debt. And actually, the large proportion of it is the interest cost on the leases. So whilst we're earning on cash now, that's not dramatically changing the overall interest expense in the P&L. But you can see some movement on that line in the detail. And then just more recently, a DRS question coming in. Exactly how does the process work with regards to cans and bottles? How will that function? And is it glass as well? Okay, that's a good question.

So the way to think about it is that the consumer will be charged more for the individual products And they will, but it's a deposit in effect. So when you then take that product back to a designated returns location, which could be one of our convenience stores or a hospitality venue, you have one of two options depending on the site. Either you can place it into a machine which will scan the barcode and produce a credit for you. And you can take that credit, which is a little set of paper, Or, in some cases, the retailer may decide, actually, I don't want to have one of those machines. I'm happy simply to allow the consumer to come up to my counter, hand me their product over, I'll scan it, and use an app to provide exactly the same service. But really, the emphasis is on the consumer. When they bought the product, Thank you. That's all the questions that have been posted so far.

So I'll just give a few seconds to see if any more pop in.

That's great. Thank you for answering all those questions you carry from investors. And of course, the company can review all questions submitted today and will publish those responses on the InvestorMeet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, John, could I please just ask you for a few closing comments?

Sure. Thanks, Lily. Look, we're at the half year. Hopefully you've heard from Richard and I that we're in a good position. We're on our key numbers, which is always important. The news and magazine market remains resilient and revenues are in line with our strategic forecast. We're on plan from a cost saving perspective as well, so that's all good from a base business perspective. Hopefully you're encouraged by the sort of growth we're starting to see now in our new verticals, 35% overall and over 50% from the recycled vertical. So that's clearly gaining traction. And in DRS, we don't know whether it's an opportunity for us or not, because we have to tender for that business. But we will be tendering for that business. And we think we're a good fit to provide a good solution. So time will tell. Beyond all of that, we're in line with four-year forecasts. And we're looking forward to a positive H2. So I'd like to thank everyone for their interest. And thank you for your support.

That's great. Thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation and good afternoon to you all.