Interim Results. 23 April 2014

Transcription

1 Interim Results 23 April 2014

2 The leading supply chain, trading and distribution partner in our chosen supply markets - delivering consistently strong returns to shareholders 2

3 Evolution of Smiths News Group News Distribution Books Media Education & Care Smiths News, UK s largest newspaper and magazine wholesaler, today with a 55% market share A multichannel distributor of printed and digital books, serving retailers, libraries and consumers worldwide Supplying news and inflight media to 80 airlines in 50 countries. A global partner to a number of blue chip customers A leading distributor of consumables to the education and care markets Strategic ambition is to deliver 50% of profit outside of news and magazines by 2016 Connect Group PLC Interim Results April

4 Connect Group News Distribution Media Connect Group PLC Interim Results April

5 Core skills and competencies Operating in large and fragmented markets we connect suppliers with customers performing an essential and value added role in these supply chains Market knowledge and expertise Outstanding service Change management and integrations Unmatched efficiency Leading technology Talented people 5 year CAGR PBT : 10.3% EPS : 9.1% DPS : 6.8% 5

6 Delivering promises; realising potential Connect Group PLC Interim Results April

7 Highlights Mark Cashmore Group Chief Executive

8 Highlights Group revenue 899m -0.3% Underlying PBT 24.0m +3.0% Free cash flow 11.9m +16.7% News & Media: Profit +4.9%, 1.1bn annualised News revenue contracted to at least 2019 Books: strong growth in Wordery offset by weaker margin and return on investments impacting profit Education & Care: core sales growing at 5.0% EPS 10.1p +6.3% H1 dividend 3.1p, +3.3% 8

9 Group Financial Update Nick Gresham Chief Financial Officer

10 Cautionary statement This document contains certain forward-looking statements with respect to Connect Group PLC s financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as anticipates, expects, intends, plans, believes, seeks, estimates, targets, may, will, continue, project and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forwardlooking statements are not guarantees of Connect Group PLC s future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Connect Group PLC undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise. Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Connect Group PLC. For more detailed information, please see the interim announcement for the half-year ended 28 February 2014 which can be found on the Investor Relations section of the Connect Group PLC website However, the contents of Connect Group PLC s website are not incorporated into and do not form part of this document. The following definitions have been applied consistently throughout this interim results announcement: -Underlying 2014 and 2013 results exclude non-recurring items and amortisation of acquired intangibles and includes the results of acquired businesses from the date of acquisition and excludes results from businesses disposed in the prior period. -Underlying earnings per share are calculated using underlying profit before tax and the Group underlying effective tax rate of 21.5% for HY2014 and 24.9% for HY Free cash flow is cash flow excluding the following; payment of the dividend, acquisitions and disposals, the proceeds on the disposal of freehold properties, repayments of obligations under finance leases, the repayment of bank loans, EBT share purchase, and cash flows relating to non-recurring and other items. -Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases. -Like for like revenues exclude the impact of gains and losses, including contracts, new business and acquisitions reported in the current or prior year total sales. -HY 2014 refers to the six months ended 28 February 2014, FY 2013 refers to the year ended 31 August 2013 and HY2013 refers to the six months ended 28 February The Group adopted IAS 19 (revised) in the period which changed the accounting for defined benefit pension schemes. The prior period has been restated resulting in a 1.5m reduction in both underlying and statutory profit before tax. The consequent changes to the prior periods underlying and statutory earning per share are shown in note 1 to the Condensed financial statements. 10

11 Group performance m Feb 2014 Feb 2013 Change Non N&M mix % News Distribution % - Media % 4% News & Media operating profit % - Books operating profit (33.8)% 9% Education & Care operating profit % 11% Group operating profit % Net finance charges (2.8) (3.5)* Group PBT Tax (5.2) (6.2) Group PAT * EPS 10.1p 9.5p* +6.3% DPS 3.1p 3.0p +3.3% * Restated to reflect IAS19(R) Connect Group PLC Interim Results April

12 Non recurring and other items m Feb 2014 Feb 2013 Integration costs - (0.5) Network reorganisation costs (0.3) (1.0) Release of property provisions Acquisition costs (0.4) (2.1) Amortisation of acquired intangibles (1.3) (1.4) Impairment of acquired intangibles (0.5) - Disposal of MMC Total before taxation (1.9) (4.9) Taxation Total after taxation (1.8) (4.5) 12

13 Free cash flow m Feb 2014 Feb 2013 Operating profit Depreciation and amortisation EBITDA Working capital (2.8) (7.2) Capital expenditure (4.5) (3.7) Net interest and fees (4.2) (2.1) Taxation (5.2) (5.0) Pension funding (2.1) (3.1) Other Free cash flow

14 Net debt m 28 Feb Aug Feb 2013 Opening net debt (98.5) (100.5) (100.5) Free cash flow Dividend (11.7) (16.0) (10.6) Non recurring items (1.9) (5.9) (2.2) Acquisitions (0.3) (5.1) (3.4) Other (4.5) (3.6) (2.9) Closing net debt (105.0) (98.5) (109.4) Net debt : EBITDA 1.6x 1.5x 1.6x 200m committed facilities to November 2018 Net debt / EBITDA covenant 2.75x Interest cover covenant 3.0x Fixed charge cover covenant 2.0x 14

15 Business update

16 Connect News & Media News distribution 2014 H1 Total Revenue 748.6m -1.6% LFL Revenue -2.8% Profit 20.5m +4.1% New business wins driving sales Strong dynamics in newspaper market: total sales +0.9% Segmental LFLs Newspapers -0.5% Magazines -8.1% % of Group Operating Profit 76% Continued weakness in magazine sales Metro contract: 200m copies per year Contract wins: 77% of total revenues secured until m cost savings in H1: on track for 20m 3-year target Customer innovation: driving further efficiency 16

17 Connect News & Media Media 2014 H1 Total Revenue 12.3m +4.2% LFL Revenue +1.8% Good progress in H1 Profit 1.0m +36.0% Segmental LFLs UK 11.0% International -4.5% % of Group Operating Profit Global BA contract secured to May 2019 Mirror contract: 18m copies per annum secured 11,000 ipads now deployed across 17 airlines Growth in digital services Operational integration delivering efficiency 4% 17

18 Business update

19 Connect Books 2014 H1 Total Revenue 106.6m +8.4% LFL Revenue -0.3% Profit 2.3m -33.8% Segmental LFLs Trade -4.6% D to C % Public Library -14.9% Academic -9.8% Digital +2.2% % of Group Operating Profit Sales mix and margin dilution impacting profitability Wordery: doubled sales; now making profit Challenging academic environment Planned H1 investment adding short term pressure Focused long-term growth strategy Clear plan addressing immediate challenges Close monitoring of return on investments 9% 19

20 Business update

21 Connect Education & Care 2014 H1 Total Revenue 31.2m +2.5% LFL Revenue +3.2% Profit 3.0m +3.4% Segmental LFLs Education +5.1% Early Years +12.0% Care -2.0% Other -17.8% Strong sales performance in core categories +5.0% Expanding geographic footprint from framework wins in Scotland and NI Continued investment in warehouse management, demand planning and customer service Range alignment in new catalogues % of Group Operating Profit 11% WMS range expanded by 5000 products from 1 March Well positioned for H2 peak 21

22 Summary & outlook

23 Summary & outlook Rebranding complete Strong performance in 2 of 3 divisions : representing 91% profit Challenges in Books division being addressed Diversification strategy unchanged, maintaining target of 50% profit mix by 2016 Strong cash flow dynamics and new committed facilities Maintaining dividend growth H1 Metrics PBT +3.0% EPS +6.3% DPS +3.3% 23

24 Interim Results 23 April 2014

25 Appendices

26 Connect News & Media News Distribution Income Statement m Feb 2014 Feb 2013 Change LFL Total revenue (1.6%) (2.8%) Gross profit Operating costs (41.2) (42.4) Operating profit % Gross margin 8.2% 8.2% - Cost ratio (5.5%) (5.6%) 10 bps Operating margin 2.7% 2.6% 10 bps 26

27 Connect News & Media Media Income Statement m Feb 2014 Feb 2013* Change LFL Total revenue % 1.8% Gross profit Operating costs (5.1) (4.4) Operating profit % Gross margin 49.6% 44.1% 550 bps Cost ratio (41.5%) (37.3%) (420 bps) Operating margin 8.1% 6.8% 130 bps * Excludes the results for the MMC business disposed of in April

28 Connect Books Income Statement m Feb 2014 Feb 2013 Change LFL Total revenue % (0.3%) Gross profit Operating costs (17.1) (15.2) Operating profit (33.8%) Gross margin 18.1% 19.0% (90 bps) Cost ratio (16.0%) (15.5%) (50 bps) Operating margin 2.2% 3.6% (140 bps) 28

29 Connect Books sales comparison Digital (4% mix) +2.2% HY 2014 Consumer (4% mix) FY 2013 Digital (5% mix) +38.0% Consumer (11% mix) % UK Library (10% mix) -14.9% Academic (25% mix) -9.8% Trade (50% mix) -4.6% UK Library (13% mix) -10.9% Academic (20% mix) -11.4% Trade (58% mix) -3.3% 29

30 Connect Education & Care - Income Statement m Feb 2014 Feb 2013 Change LFL Total revenue % 3.2% Gross profit Operating costs (9.6) (9.1) Operating profit % Gross margin 40.5% 39.3% 120 bps Cost ratio (31.0%) (29.8%) (120 bps) Operating margin 9.5% 9.5% - 30

31 Reported Sales Performance Smiths News FY14 FY13 FY12 H1 Jan IMS FY July IMS H1 Jan IMS FY News (0.5%) - (2.7%) - (3.9%) - (2.1%) - (1.2%) - Magazines (8.1%) - (9.9%) - (7.7%) - (6.6%) - (7.8%) - LFL (2.8%) (2.8%) (4.6%) (4.6%) (5.0%) (4.7%) (4.3%) (4.1%) (3.7%) (3.2%) Total (1.6%) (2.0%) (2.6%) (3.2%) (3.0%) (1.9%) (1.9%) (2.6%) (1.8%) - July IMS H1 Jan IMS DMD LFL 1.8% 0.2% 1.9% - (0.3%) 0.5% - 8.6% - - Total 3.9% 2.0% (7.8%) (6.9%) (3.3%) (1.5%) - 6.7% - - Bertrams LFL (0.3%) (0.4%) (0.6%) 2.0% 2.8% 1.5% 5.8% 4.3% 2.5% (0.6%) Total 8.4% 9.7% 7.8% 11.2% 7.0% 4.4% 31.2% 32.5% (5.9%) - Consortium LFL 3.2% 4.2% 2.6% 1.4% 3.3%* 5.1%* Total 2.5% 4.2% (0.3%) (1.5%) 3.2%* 5.0%* - 7.2%*

32 Financial KPIs m HY 2014 FY 2013* FY 2012 FY 2011 FY 2010 Revenue , , , ,829.6 Profit before tax Profit after tax EPS 10.1p 20.8p 19.9p 15.5p 14.6p Free cash flow DPS 3.1p 9.3p 8.6p 8.0p 7.4p Net Debt

33 Income Statement m HY 2014 FY 2013* FY 2012 FY 2011 FY 2010 Revenue , , , ,829.6 Underlying Operating profit Non recurring items (1.9) (10.8) (10.9) (6.5) (6.9) Statutory Operating profit Net finance charges (2.8) (6.7) (3.7) (3.1) (2.1) Statutory Profit before tax Income tax expense (5.1) (10.8) (9.1) (10.2) (6.9) Statutory Profit after tax Earnings per share Statutory - basic - diluted Underlying - basic -diluted 9.2p 8.7p 10.1p 9.6p 15.4p 14.5p 20.8p 19.6p 15.2p 14.7p 19.9p 19.3p 12.1p 11.9p 15.5p 15.3p 11.7p 11.5p 14.6p 14.4p 33

34 Balance Sheet m HY 2014 FY 2013 FY 2012* FY 2011* FY 2010 Intangible assets Property, plant & equipment Other non current assets Total non current assets Cash Other current assets Total assets Other current liabilities (192.8) (206.1) (200.3) (194.8) (188.8) Borrowings (116.2) (106.8) (103.1) (65.2) (48.8) Retirement benefit (21.9) (23.3) (36.0) (36.3) - Other non current liabilities (8.5) (9.7) (14.3) (12.2) (6.0) Total liabilities (339.4) (345.9) (353.7) (308.5) (243.6) Total net liabilities (53.3) (56.9) (77.6) (87.4) (62.4) * Restated in respect of retirement benefit obligations 34

35 Cash flow m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Operating profit Depreciation and amortisation EBITDA Working capital (2.8) (5.0) (9.1) (10.3) (1.4) Capital expenditure (4.5) (7.9) (5.1) (3.1) (8.6) Net interest (4.2) (4.2) (3.3) (4.9) (2.6) Taxation (5.2) (10.5) (8.0) (1.7) (5.9) Pension funding (2.1) (6.5) (6.8) (6.2) (6.4) Other Free cash flow

36 Net debt m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Opening net debt (98.5) (100.5) (63.3) (48.0) (49.5) Free cash flow Dividend (11.7) (16.0) (14.9) (13.8) (12.6) Non recurring items (1.9) (5.9) (10.3) (5.2) (6.7) Acquisitions (0.3) (5.1) (38.1) (17.9) - Disposals Other (4.5) (3.6) (1.1) (0.9) 0.4 Closing net debt (105.0) (98.5) (100.5) (63.3) (48.0) Decrease/(Increase) in debt (6.5) 2.0 (37.2) (15.3) 1.5 Net debt : EBITDA 1.6x 1.5x 1.6x 1.3x 1.1x 36

37 Non-recurring and other items m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Integration costs - (1.1) (2.7) - - Network re-organisation costs (0.3) (3.3) (2.0) (2.7) (6.7) Acquisition costs (0.4) (3.7) (4.6) (2.4) - Property provisions (0.5) - Amortisation of acquired intangibles (1.3) (2.8) (2.1) (0.9) (0.9) Impairment of acquired intangible (0.5) Interest - (0.2) MMC disposal The Returns Company Total before taxation (1.9) (11.0) (10.9) (6.5) (6.9) Taxation Total after taxation (1.8) (9.7) (8.6) (6.3) (5.2) Non-recurring cash (per cash flow) (1.9) (5.9) (10.3) (5.2) (6.7) 37

38 Taxation m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Current tax Adj in respect of prior year UK corporation tax - (2.6) (1.6) (0.5) (1.4) Total current tax charge Deferred tax current year (0.1) (0.7) (0.6) (0.4) (0.1) Deferred tax prior year 0.2 (0.3) Total tax on profit Effective tax rate 21.5% 24.2% 24% 27% 25% Non recurring items (0.1) (1.3) (2.3) (0.2) (1.7) Tax on profit after non recurring Effective statutory tax rate 23.1% 27.8% 25% 32% 24% 38

39 Lease commitments m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Land and buildings within one year in second to fifth year beyond fifth year Total Equipment and vehicles within one year in second to fifth year beyond fifth year Total Total within one year in second to fifth year beyond fifth year Total

40 Defined benefit schemes HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Scheme assets Scheme liabilities (428.0) (419.2) (395.3) (348.3) (367.4) Surplus Asset cap (58.1) (53.2) (40.3) (26.8) (41.2) Additional liability IFRIC 14 (18.8) (20.3) (33.5) (36.3) - Liability on balance sheet (21.9) (23.3) (36.0) (36.3) - Asset on balance sheet The Group operates three defined benefit schemes of which WHS Smith Pension Trust (the Pension Trust ) represents over 96% of the total obligation at 28 February The Pension Trust Actuarial deficit 23m at 19 June 2013, Contributions agreed at 4.1m per annum, 2.1m in HY 2014 Managed through Liability Driven Investment Scheme, Closed to further accruals 40

41 Contingent liability m HY 2014 FY 2013 FY 2012 FY 2011 FY 2010 No. of Reversionary leases Contingent liability Maximum annual liability Under the terms of the 2006 Demerger Agreement, Connect Group Plc has a contingent liability for 35% of any of the total WHS Group potential reversionary leases, whereby a lease liability could revert back to WH Smith is the assignee were to fail. 41

42 Restatement of retirement benefit obligation During the period the Group adopted IAS 19 (revised) affecting the accounting for defined benefit schemes and specifically to reflect pension interest in the income statement calculated on the net balance sheet position at the beginning of the period. To aid comparison we have restated the pension interest costs and hence the result of the Group for the 6 month period ended 28 February 2013 and the year ended 31 August There is no impact on cashflow or covenants. During the year ended 31 August 2013 the Group reconsidered its accounting for deficit contributions of pension schemes and has amended its accounting to reflect future agreed deficit contributions as a liability on the balance sheet to better reflect the requirements of IFRIC14. Accordingly the February 2013 Condensed financial statements have also been restated to reflect the schedule of contributions as a liability of 22.6m and a resulting tax asset of 4.7m on our balance sheet at 28 February The key impacts on the earnings are set out below: 6 months to Feb months to Aug 2013 m Reported Adjustment Restated Reported Adjustment Restated Operating profit 26.9 (0.1) (0.1) 56.4 Net interest (2.0) (1.5) (3.5) (3.5) (3.0) (6.5) Profit before tax 24.9 (1.6) (3.1) 49.9 Profit after tax 18.7 (1.6) (3.1) 37.8 EPS basic 10.3p (0.8p) 9.5p 22.4p (1.6p) 20.8p EPS diluted 9.7p (0.8p) 8.9p 21.1p (1.5p) 19.6p 42

43