Annual Report and Accounts 2010 - Connect Group · Annual Report and Accounts 2010 Performance...
Transcript of Annual Report and Accounts 2010 - Connect Group · Annual Report and Accounts 2010 Performance...
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Smiths News PLCWakefield HousePipers WaySwindonWiltshire SN3 1RFUnited Kingdom
Telephone 0845 123 0000Facsimile 01793 563601
www.smithsnews.co.uk
Annual Report and Accounts 2010
PerformanceServiceValue
Delivering
Annual R
epo
rt and A
ccounts 2010
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Welcome to
Smiths News PLCPerformance – Service – Value
Smiths News PLC is the UK’s largest distributor of newspapers, magazines and books. Our scale and expertise, combined with intelligent logistics systems, ensure we provide the best and widest range of services for both publishers and retailers. Delivering performance, service and value is coreto everything we do.
Our BusinessHighlights 01Chairman’s Statement 02Our Business at a Glance 04Questions and Answers 06 Our PerformanceBusiness Review Operating Review 08 Financial Review 28
Our GovernanceCorporate Responsibility Report 38Board of Directors 46Executive Management Team 48Directors’ Report 49Corporate Governance 52Remuneration Report 57Directors’ Responsibilities Statement 68
Our AccountsIndependent Auditors’ Report 69Group Income Statement 70Group Statement of Comprehensive Income 71Group Balance Sheet 72Group Statement of Changes in Equity 73Group Cash Flow Statement 74Notes to the Accounts 75Five Year Financial Summary 113Independent Auditors’ Report 115Company Balance Sheet 116Reconciliation of Movements in Shareholders’ Funds 116Notes to the Company Balance Sheet 117Shareholder Information 119Glossary of Terms 121
Contents
www.smithsnews.co.uk
Our PerformanceOur Business
Glossary of Terms
Smiths News PLC and its subsidiaries.
Smiths News PLC, registered in England and Wales with registered no. 5195191.
The businesses operated by a subsidiary of Smiths News PLC, Smiths News Trading Limited comprising Smiths News, InStore and NewsWorks.
The businesses operated by a subsidiary of Smiths News PLC, Bertram Trading Limited comprising Bertram Books, Bertram Library Services and Bertram Publisher Services.
The acquisition of the business and certain assets from the Bertram group of companies, formerly being known as (i) Bertram Group Limited(In Administration) (ii) Bertram Trading Limited (In Administration) and (iii) Bertram Books Limited (In Administration).
The news and magazine wholesaling business operated by (i) Surridge Dawson Limited (In Administration) and (ii) Solent SD Limited (InAdministration), together formerly trading as ‘Dawson News’.
Rascal Solutions Limited, a 50/50 joint venture between Smiths News and the Kemble family.
The Group
Smiths News PLC/ the Company
Smiths News
Bertrams
Acquisition of Bertrams
Dawson News
Rascal
In order to aid clarity the following terms are used throughout the Annual Report and Accounts 2010.
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Revenue
To £1,830m (2009: £1,326m)
+38%Underlying profit before tax
To £35.0m (2009: £30.5m)
+14.8%Profit before tax
To £28.1m (2009: £18.4m)
+52.7%Earnings per share
To 14.6p (2009: 13.8p)
+5.8%Dividend per share
To 7.4p (2009: 6.8p)
+8.8%Free cash flow
To £20.4m (2009: £23.7m)
-13.9%
■ Strong performance despite challenging markets
■ Integration of new territories now complete
■ 18 network changes and SAP installed at all depots
■ Cost savings of £5m in Smiths News
■ £25m of Regional Press gains
■ Bertrams trading strongly with underlying operating profit of £4m
■ Bertram Library Services wins new contracts and relocates to Norwich
■ New bank facilities in place until November 2014
Highlights
Our Business Our Performance
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Chairman’s StatementDennis Millard, Chairman
Unprecedented change with speed and precision
One of the most pleasing aspects of my
role as Chairman is the opportunity I
have to visit our depots throughout the
country. Nothing compares with seeing
an operation at first hand to get a sense
of the strengths and the values that drive our business. In
my time at Smiths News, I have become accustomed to
seeing the pride, professionalism, focus and determination
that is the hallmark of our staff at our depots across the
length and breadth of our network.
This year I have witnessed something more. It has been a
year of unprecedented growth and our management
and staff have demonstrated both the agility and
capability to manage massive change. The
complexity of absorbing £459m of new
contracts would be more than enough for
most companies to manage. But this has
been achieved without disruption to service,
whilst we restructured the organisation,
introduced and operated new systems
and processes and captured
significant efficiencies.
The list of achievements
often gives me pause
for thought: 6,000 new
customers and delivery
points, 18 depot
changes, the SAP system
fully installed across the
network, Regional Press
gains of £25m, new facilities
and technology at many
locations.
It is our ability to deliver this change with speed and precision
that gives me confidence in the future. It is clear that in Smiths
News we have the skills and abilities to drive performance,
both in our existing markets as well as new ones.
Bertrams is a good example. In the 18 months
since acquisition we have grown sales and profits,
winning new contracts and delivering efficiencies. We
have made investments too, extending our Norwich hub
to accommodate the Library Services business, a move
that will improve service and reduce operating costs. Most
importantly, Bertrams has fitted well into our culture; skills
and experience are willingly shared and the result is a
more diverse and stronger Group.
In what we recognised would be a year of change and
consolidation, the Group has delivered an excellent financial
performance. Revenue of £1.8bn was up 38% following
contract gains made in August 2009. Underlying profit
before tax of £35m increased by 14.8% and earnings per
share at 14.6p is up 5.8%. Cash flow remained strong and
we have renegotiated our borrowing facilities on attractive
terms. Given the Board’s confidence in the future prospects
for the Group and its positive cash flow characteristics, a
final dividend of 5.0p per share has been proposed, making
a full year dividend of 7.4p, up 8.8% on last year.
As a consequence of the contract awards, and as
reported last year, Smiths News will be withdrawing from
its established depots in Blackpool, Carmarthen, Sheffield
and Lancaster. Whilst the outcome of the contracts was
positive for the Group as a whole, it is nonetheless sad
to be leaving areas that we have served for many years.
I would like to thank our customers and particularly our
staff in these areas for their unwavering dedication in
what are difficult circumstances.
SMITHS NeWS SeRveS 30,000 ReTAILeRS ACROSS eNGLAND AND WALeS
FACT:
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I would also like to acknowledge Mark Cashmore for his
excellent leadership of the business and his executive
team for their efforts in what has been a demanding year.
My colleagues on the Board have, as always, provided
support and constructive challenge. I was delighted to
welcome Jonathan Bunting to the Board, following his
promotion to Chief Commercial Officer, and also Nick
Gresham who has joined the Company as Chief Financial
Officer. Nick replaces Alan Humphrey (Financial Director)
who retired in August. On behalf of the Board, I offer Alan
our sincere thanks for his skilful contribution over a long
period, and our very best wishes for his retirement.
The wider economic environment remains challenging
and our markets, though relatively resilient and
predictable, are no exception to consumer spending
patterns. The contract gains of recent years mean we
are well positioned to make progress, but our attention
to efficiencies will need to continue. It is encouraging that
we have completed many of the changes that will secure
savings in the year ahead. We will continue to look for
opportunities in areas where our capabilities are evident.
In this regard, we have consistently stated an ambition
to broaden the revenue mix of the Group, using our
skills in markets that can add value to customers and
shareholders. With the integration of the new territories
complete and Bertrams performing well, this is now a key
priority. We have thus begun to research a range of
opportunities with a focus on the specialist distribution
sector, where our competencies have most potential to
give us a competitive advantage.
Looking ahead, the Group is well positioned to make
progress. Our core businesses have each demonstrated
an exceptional ability to respond to change and grasp
opportunities. More than anything else, it is these qualities,
at the heart of our business, that give the Board
confidence for the future.
Dennis Millard
Chairman
1 A member of the customer services team at Bertrams.
ReGIONAL PReSS GAINS OF £25M
FACT:
PerformanceDelivering
1
Our Business Our Performance
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Our Business at a Glance
Smiths News has a unique insight into the
news industry. Working in one of the world’s
fastest supply chains, delivering 1.6 billion
newspapers and 800 million magazines
every year.
Our scale and expertise enables us to deliver a highly
efficient service backed by information systems that provide
a comprehensive supply chain solution. We deliver supplies,
collect and recycle returns, and forecast future demand,
working closely with publishers and retailers to meet the
needs of millions of consumers every day of the year.
Smiths News serves all the major magazine and
newspaper publishers. Deliveries go out every morning
to 30,000 retailers across england and Wales.
Our customers range from major supermarkets and high
street retailers to corner shops and remote community
stores.
We’re committed to providing excellent service, regardless
of our customers’ size or location.
Smiths News is the UK’s leading newspaper and magazine wholesaler, serving 30,000 customers from 58 distribution centres across the UK.
Smiths News
1
2
SMITHS NeWS DISTRIBUTeS 73 MILLION NeWSPAPeRS AND MAGAzINeS A WeeK
FACT:
1 A member of staff in our Nottingham depot packing magazines.
Deliveries being unloaded from a lorry.
2
Divisional Revenue
Key statistics
£1,692.5m2009: £1,272.5m
■ 30,000 customers
■ 58 distribution centres
■ 4,900 employees
Sales by type 1
2
Magazines
56%
Newspapers
39%
Other
5%
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BertramsBertrams is a leading book wholesaler. For more than 40 years it has supplied books to retailers large and small in the UK and overseas.
Based in Norwich, Bertrams employs over 400
staff at its distribution centre. Its warehouse
has an impressive capacity for storage of
over 200,000 titles.
Bertrams specializes in reaching independent booksellers
and online retailers, with over 2 million titles available to
order. Deliveries to the UK are usually within 24 hours and
the overseas operation can ship orders to 96 countries
round the world, in just 3–5 days.
The business comprises Bertrams Books, the book
wholesaler, Bertram Library Services, a leading library
supply business, and Bertram Publisher Services,
providing bespoke services to publishers.
With over 40 years’ experience and extensive industry
contacts, Bertrams is able to interpret and quickly
respond to the needs of both clients and customers.
Bertrams was acquired by Smiths News PLC in
March 2009.
BeRTRAMS HAS 200,000 TITLeS IN STOCK
FACT:
3 Bertrams sorting technology allows 200 customer orders to be processed together ensuring a speedy and efficient process.
A member of staff checking books at the goods in section.
4
3
4
Sales by type
Key statistics
Divisional Revenue
£137.1m2009: £53.5m
■ 2,000 customers
■ 1 distribution centre
■ 400 employees
Library 18%
Independents
19%
Internet 39%
High Street 6%
Media 2%
International 16%
Our Business Our Performance
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Questions and AnswersMark Cashmore, Group Chief executive
Our vision is to be a leading player in all our markets
Question:What is the Smiths News PLC vision?Answer: Our vision is to be a leading player in all our markets, following clear, focused strategies that benefit all stakeholders,
and delivering profit growth and cash generation for shareholders.
Over the last two years we have reinforced our position as the leading wholesaler of newspapers and magazines.
And we’ve successfully acquired Bertrams, growing its sales and profits in our first year of ownership. These,
our core businesses, have many opportunities to make efficiencies, increase revenues and improve profits in the future.
But we are ambitious to grow further and we plan on taking our skills to new markets that offer sustainable profit
growth. We will focus on those opportunities that best match our skills and competencies, and to which the Group
can add value.
Question:Is the newspaper and magazine industry under threat from digital technology?Answer: There’s been a lot of publicity about digital technologies and we’ve been watching developments carefully. We recently
commissioned a wide-ranging study, supported by Deloitte, to understand the potential impact on our business
and markets.
Our research concluded that there are considerable challenges for publishers to overcome if digital publishing is ever to
be profitable at scale. The economics of digital subscriptions and advertising remain unproven, and consumers retain a
strong affinity to traditional newspapers, magazines and books.
There are specialist areas, such as the financial and academic sectors, where digital publishing has capability to make
more impact more quickly. But in the broader market, whilst some change is inevitable, there are strong reasons to
believe any change will be evolutionary and not revolutionary.
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Question:What does 2011 hold for Smiths News PLC?Answer: I believe it is going to be an exciting time.
Last year we worked tirelessly to integrate our new businesses and reduce the higher operating costs that we had
inherited. In 2011 we plan to build on that success, seeking further efficiencies and consolidating the service
improvements for customers.
Our markets, like the wider economy, will continue to be challenging, but there are many opportunities
for new revenues as well as cost reductions.
But equally important is our commitment to expanding in new markets. With the contract integration
behind us, and the experience of acquiring Bertrams, this year is the ideal time to focus on how best
to develop the Group for the future.
Question:What makes Smiths News PLC different from its competitors?Answer: Firstly, I’d highlight our commitment to investments and particularly leading technology. We were
ten years ahead of our nearest competitor in installing SAP and we’ve consistently delivered new
solutions, better service and the most comprehensive offer to customers.
Secondly, our scale and network coverage is unmatched in our marketplace. We have the capability
to drive sustainable efficiencies in a way that others cannot.
And thirdly, I’d say our people, their passion for our business and determination to succeed.
Ultimately, our success is down to their efforts.
Question:What is your commitment to reducing environmental impact?Answer: We believe that responsible practice is good business, and we’re committed to reducing our impact
on the environment. We have made great strides in recycling and waste management as well as
reducing our energy usage. But I recognise there is more we can do and we’ll be focusing on making
our operation as efficient as possible without impacting on service to customers.
I was delighted that in October we were awarded the Carbon Trust Standard – it commits us to
making targeted year on year improvements, a challenge that we will embrace.
Our Business Our Performance
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Our Business Our Performance
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Business ReviewOperating ReviewMark Cashmore, Group Chief executive
A strong performance across the Group
I am delighted to report another year of progress for the
Smiths News Group. We have achieved or exceeded
all of the operational targets that we set last year and
delivered a strong financial performance in line with
expectations. As a result, the Group remains on track
with its strategy and is well positioned to make further
progress in the year ahead.
Despite challenging markets and the higher cost base
inherited in the former Dawson News territories, we have
increased underlying profit before tax by 14.8% to £35m.
This strong result was driven by the increase in sales
following the contract wins of 2009, supported by clearly
targeted performance and efficiency improvements,
further results of which will flow through into the
current year. Free cash flow at £20.4m was in line
with expectations, also a strong performance. The
dividend for the year of 7.4p, an increase of 8.8%,
reflects our confidence in the ongoing
performance of the Group.
Once again, teams at Smiths
News have demonstrated
their exceptional talent and
determination, successfully
implementing the integration
of 22 former Dawson News
depots and £459m of contract
gains. This huge task was
delivered on time and without
impact on service: an
exceptional achievement.
Bertrams has also performed
strongly, increasing profits and
winning new contracts in the
library sector. It is pleasing that
1
the first step in our strategy to widen the base of our
distribution activities within the Group has proved successful.
Such progress would not have been possible without the
exceptional efforts of our staff. In a year of immense
change I have been reminded, time and time again, of
their commitment and capability. I would like to thank
them for their efforts, and also acknowledge the support
and cooperation of our supply chain partners.
Smiths News – summary of performance
Smiths News has delivered a strong performance, with
underlying operating profits increasing to £33.1m (2009:
£31.7m) following the contract gains of 2009, and the
business responding to transformational change with
characteristic focus and determination.
In last year’s report, I described 2009 as an extraordinary
year for Smiths News. Our priority for this year was clear:
to assimilate the new business without disruption, quickly
implementing our leading processes and systems. By
doing so we planned to drive both service and efficiency
at the new locations to the standards of our established
network.
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The implementation of the SAP technology system at
the new locations was achieved on time and without
disruption to service. The scale of this achievement bears
a little reflection: in a period of only 28 weeks the project
team worked tirelessly, training 1,000 new staff and
successfully implementing the system at all the new
locations, improving service to over 6,000 new customers.
The business is now operating on one system with
consistent information and processes – as a result, we
were able to close the former Dawson News Head Office
in March 2010.
In parallel with the implementation of SAP we made
changes to our network, reducing the duplication of
facilities and integrating the new depots into our more
efficient ‘hub and spoke’ operation. Over the year we
made 18 network changes; we believe there is further
opportunity for consolidation and remain committed to
investing where necessary to ensure our network has the
best and most efficient infrastructure.
There were no contract renewals this year affecting
national newspapers or magazine distributors. However,
our expanded network has created opportunity for
Regional Press publishers and we secured new contracts
worth £25m on an annualised basis. Smiths News is now
the largest distributor of Regional Press in the UK with
£70m of revenues from these publishers – an increase of
£50m in only four years. As regional publishers look for
efficiencies we have expanded our capability to include
leaflet and free newspaper distribution. We are targeting
further growth from this sector as more regional publishers
review their distribution arrangements in the light of
market developments.
BeRTRAMS HAS THe ABILITy TO SHIP TO 96 COUNTRIeS WORLDWIDe
FACT:
2
1 A van outside our depot in Slough ready to deliver newspapers and magazines to our customers.
A newspaper packing area in our depot in Plymouth.
2
ServiceDelivering
Our Business Our Performance
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Business ReviewOperating Review continued
Bertrams – summary of performance
Bertrams has performed well in our first full year of
ownership, delivering an underlying operating profit of
£4m. In what has been a challenging market for UK retail
sales, Bertrams has performed ahead of the market, with
like-for-like sales growth of 6.8%. Of particular importance
has been the performance of Internet retailers and
international sales. New contracts for book supply and
fulfilment services from HMv, Mail Newspapers and WH
Smith have also contributed to the momentum. The
business has made good progress in identifying service
and efficiency improvements and the cultural and strategic
fit with the Group has proved to be strong.
Bertrams’ profits and revenues are more seasonal than
those of the news distribution business, with key periods
being the autumn (for back to School/University sales) and
Christmas. Independent booksellers are still at the core
of the business and in a difficult High Street environment
they have shown resilience, with their focus on service
and edited selection supporting a loyal consumer base.
The Internet continues to grow primarily at the expense
of chain booksellers and plays to Bertrams’ strengths
of speed of delivery and distribution efficiency. Lastly,
international sales benefited from a combination of the
continued global growth in english language usage and
the low value of sterling against both the dollar and euro.
excellent service, and breadth and depth of range, has
long been central to the Bertrams’ brand and it is
therefore pleasing to see service levels fully recovered
after the difficult period prior to our ownership, caused by
restricted investment in the business. In September 2009
we commissioned independently conducted surveys
1
ServiceDelivering
1
2
Bertrams 180,000 square foot warehouse in Norwich.
A retailer replenishing her magazine display.
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which showed Bertrams to be leading its competitors in
five out of the six most important service factors. Going
forward, we will continue to monitor service, responding
to customer feedback, ensuring we maintain the best and
most efficient offer in the market.
Bertram Library Services (BLS) is a leading supplier of
books to UK public libraries and its success is also
founded on excellent service. This year, BLS won or
retained new contracts worth £10.2m with Glasgow,
Tayside Consortium, Cheshire West and Chester,
Westminster and the new Scotland excel Consortium,
more than offsetting contract losses of £3.9m. Following
the Group’s £1m investment in a mezzanine floor at
Bertrams’ Norwich hub, BLS began, in July 2010, the
transfer of its operation from Leeds to Norwich. This move
was completed at the end of September 2010 and will
deliver greater overall efficiency as well as improving
despatch times to customers – one of the top service
requirements of the library consortia.
Markets
Newspapers and magazines
The newspaper market has been challenging, although it
remains resilient in the context of the wider economy.
Like-for-like newspaper sales are down by 4.2% with
performance in the second half showing a marginally
improving trend. Sales value has been impacted by price
SMITHS NeWS DeLIveRS 1.6 BILLION NeWSPAPeRS AND 800 MILLION MAGAzINeS eveRy yeAR.
FACT:
discounting of the Sun and Star, and whilst our margins are
protected, the discounting had a secondary impact in that
it restricted the ability of other titles to increase their cover
prices. In contrast to the market decline, total sales in
Smiths News were up 35% as a result of contract gains.
Like-for-like magazine sales are down by 4.0%, a welcome
improvement on last year’s trend. However, it is clear that
the market continues to be affected by the recession. The
World Cup boosted sales of one-shots and football stickers
in the year, reflecting the cyclical and ‘event driven’ nature
of this product. Looking forward, we are planning on the
basis of no significant change to current performance. Total
magazine sales in Smiths News grew by 30% as a result of
our contract gains last year.
Books
The total value of all books sold to consumers in the UK
was down by 2.7% in the period. This headline figure is
heavily influenced by sales of the major high street chains,
which account for only 6% of Bertrams’ mix. In contrast,
our diverse range of customers means we are less
dependent on any one sector; as a consequence
Bertrams performed ahead of the overall market, with
like-for-like sales up 6.8%.
2
PerformanceDelivering
InStore’s partnership with Sainsbury’s
InStore Field Marketing, part of the Smiths News Group, also had a successful year. In 2010 they worked with Sainsbury’s to implement its biggest review of magazines since 2004. The InStore team visited over 500 stores, updating their displays of magazines and replacing over 300,000 pieces of point of sale material. An intense activity that was delivered to deadline but more importantly delivered to the satisfaction of Sainsbury’s.
Our Business Our Performance
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Group strategy and objectives
The Group is the market leader in newspaper, magazine and
book distribution and seeks to become a meaningful player
in new markets that build on our skills and competencies,
creating demonstrable value for shareholders.
We plan to deliver profit growth and cash generation to
our shareholders by following clear, focused strategies
that benefit all stakeholders.
Our strategy is to deliver:
l World class logistics for news and book distribution
l Clearly defined services that are tailored to the needs
of each customer group
l Focused cost control, unsurpassed efficiency and
unbeatable economics
l Industry leading systems for process control, data
management, marketing information and sales
forecasting
l A combination of scale, service and relationship
management that makes us the clear ‘partner of
choice’ for retailers and publishers
l The necessary management structure, supported
by extensive training and development throughout
the business
l Sustainable profit growth by driving efficiencies and
sales opportunities in our core business, supported
by acquisitions in new markets that match our skills
and competencies
Progress against objectives for 2009/10
In the 2009 Annual Report we outlined six priorities for
2009/10. We have achieved or exceeded in all areas.
Business gains
The full integration of the depots acquired in August
2009, including the implementation of our SAP
information system at all locations.
This was our top priority for the year. We successfully
achieved the integration and implemented SAP without
impact on our core service. The last depot transferred
to SAP in March 2010, removing any reliance on the
legacy systems of the former Dawson News. Smiths
News now operates with consistent systems, processes
and management information – the essential tools to
improving service and efficiency.
SMITHS NeWS HAS OveR 1 MILLION SQUARe FeeT OF WAReHOUSe SPACe.
FACT:
Service excellence
To raise the standards of service in our newly
acquired depots towards those of our established
locations, providing greater service consistency
to customers throughout our network.
The service standards at the new depots have risen
gradually over the year. It is the SAP system that gives
us the visibility of performance that is required to target
improvements; as the system was rolled out we
developed clear action plans to address any service
weakness. Already a number of the new depots are
performing as well as our established locations.
We have also invested heavily in technology, processes
and training, including new pack lines and scanning
equipment and a major expansion of the sales-based
replenishment system.
Bringing graduates on board25-year-old Anya Perry is about to finish her graduate
scheme placement with Smiths News. Anya spent six
months with the Commercial department and a further
six months working for Operations. She has been
instrumental in pushing forward the Smiths News Carbon
Reduction programme. Anya has this to say about the
scheme: “This year has been very intense but extremely
rewarding. I have worked on various projects and been
very well supported along the way. The graduate scheme
is very well structured, but also allows for responding to
the needs of the business as they arise, giving the trainee
the opportunity to participate in current projects.”
For further information about careers go to www.smithsnews.co.uk
Delivering Performance
Our Business Our Performance
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300 MILLION ITeMS ARe SCANNeD eveRy yeAR
FACT:
Business ReviewOperating Review continued
Cost control
To maintain tight cost control across all businesses
in the Group, achieving a like-for-like reduction in
costs at least equal to inflation.
We had a clear plan to drive efficiencies from our new
contract areas, and achieved or exceeded all key targets,
making savings of £3.0m. A further £2.0m of annualised
savings was achieved from our established locations. The
business remains on track to achieve further efficiencies in
the year ahead.
Cost control is a core competence of the Group and we
continue to invest to facilitate efficiency improvements;
examples this year include the new mezzanine floor at
Bertrams and new depots for Smiths News in Oxford and
Newmarket.
Bertrams
To increase the sales and profitability of Bertrams by
applying the Group’s expertise in service and efficiency.
Bertrams increased its underlying operating profit to £4.0m.
The cultural and operational fit between Smiths News
and Bertrams has proved to be strong; best practice and
commercial expertise is being shared and both businesses
have benefited from Bertrams joining the Group. An
excellent example is the recent move of Bertram Library
Service from Leeds to Norwich and the integration of its
supporting administration into the Smiths News Accounting
Centre at Bradford.
New business development
To research, prepare for and be alive to new
business development opportunities that would
enhance the Group.
With the unprecedented demands on our core businesses
we had not planned to make any further acquisitions this year.
Nonetheless, we have continued to research opportunities
for expansion into complementary markets. There are
benefits for all stakeholders in a more diversified Group,
making use of our core skills. We will continue to pursue a
range of corporate development opportunities, focusing
on those areas where we can use our assets and
competencies to add value.
People
To increase our pool of market leading talent.
During the year we launched a major talent management
initiative, expanded our apprentice and graduate
schemes, and increased our investment in people and
their development. In the last 18 months we have
welcomed over 2,000 staff from Bertrams and Dawson
News; we regard our new staff as an important asset and
already our performance management and development
programmes are helping us to maximise their potential.
400 MILLION SUPPLeMeNTS ARe DISTRIBUTeD eveRy yeAR
FACT:
1
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2
Objectives for 2010/2011
We have identified six strategic priorities for the
current year:
• Operational excellence
To improve further the operational performance
and service consistency of both Smiths News
and Bertrams.
We plan to invest in our systems, to simplify processes
for retailers, and to take swift action in any areas of
underperformance. We will measure performance
against a wider range of KPIs to ensure we meet the
needs of all supply chain partners.
1 A range of magazines in a large retail outlet.
A member of Smiths News’ customer service team in Slough.
2
• Cost leadership
To make further efficiency savings without
impact on our capability or service standards.
We have clear plans to deliver further efficiencies from
the expanded network in Smiths News and equivalent
targets for Bertrams. This year we will look closely at
opportunities across our internal Group services.
• Network development
To review our longer term network strategy and
commence further regional consolidations.
We will work with publishers and retailers to
understand and agree the most effective and efficient
network for the future. We plan to close the four
depots for which our contracts were not renewed.
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Business ReviewOperating Review continued
98.8% OF NeWSPAPeR ReTURNS COLLeCTION WeRe ON TIMe
FACT:• Bertrams
To grow Bertrams’ scale and capability, winning
new business from retailers and libraries, and
increasing our share of the growth sectors.
We plan to offer a wider range of services, reinforcing
our position as ‘number one for customer service’.
We will develop an e-book offer for customers,
strengthening our position in this area of the market.
• Corporate development
To make clear progress in diversifying our
revenues through a combination of organic
growth, opportunities and acquisitions.
We plan to investigate a range of options and remain
committed to finding the best opportunities for the
Group. Our firm focus is on areas that will be
complementary to our skill base and shareholder
value will be paramount throughout.
• People
To support the delivery of our strategy by
improving the long term performance, capability
and engagement of our people.
We plan to roll out the leading performance
management software that will improve consistency
of objective setting and drive performance. We will
increase our commitment to training, development
and talent management.
Major business developments
Integration of the former Dawson News depots
The integration of the former Dawson News depots
was our top priority this year. We planned to implement
our SAP system at all locations, quickly removing our
dependency on the Dawson News legacy technology
and enabling the combination of service and efficiency
improvements that are the hallmark of Smiths News.
This was a huge undertaking: the installation of SAP
requires a change to almost every working process;
training requirements are extensive and the cut-over had
to be executed flawlessly. Over a period of 28 weeks the
project team rolled out the system to all our new depots,
hitting every deadline and achieving all key targets.
By the end of the project we had trained over 1,000 staff,
installed scanning and tracking equipment to match that
used in our traditional locations, extended our sales-
based replenishment service to the new locations and
transferred the marketing and administration services to
our centres of excellence. In April, after the last depot
transferred to SAP, we were able to close the former
Dawson News head office.
This year the integration has involved one-off costs of
£6.1m comprising technology investments, project
expenses and redundancies. It was essential to achieve
efficiencies that we operated on one system with consistent
processes and service to customers. The integration has
enabled network improvements and the centralisation of
services, delivering annualised savings of £3m in the year,
increasing to £6m in the year ending 31 August 2011.
Network changes
In parallel with the implementation of SAP we have
undertaken an extensive review of the network. The
acquisition of 22 depots at short notice was necessary
to ensure continuity of the supply chain but there were
clear areas of duplication and inefficiency that needed
to be addressed.
1 2
1 Bertrams staff moving books into the sorting machine.
Storage racking for books in Norwich.
2
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ValueDelivering
Leading library services
Bertram Library Services (BLS) is at the forefront of supply to Public and School Libraries throughout the UK and overseas. BLS provides delivery within two days for over 200,000 titles, including fiction and non-fiction, academic and reference. In addition, BLS offers pre-publication ordering as well as online search facilities for over 6 million book titles. As one of the leading and largest specialist library suppliers in the UK, BLS aims to develop a love of reading amongst the public, and assists libraries with promotional material to
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1
1.5 BILLION SALeS ITeMS ARe ANALySeD eveRy DAy
FACT:
This year we have made 18 network changes. We have
closed eight depots, and converted seven of the smaller
locations to become part of a ‘hub and spoke’ arrangement
with a regional centre. Replacement depots were also
opened at Oxford and Newmarket.
By sharing services and rationalising depots we make
savings and improve service to customers. The actions to
date have addressed the most urgent and available
opportunities but we plan to develop further our network,
ensuring it continues to offer the winning combination of
service and efficiency that is vital for publishers and retailers.
Bertrams
In our first full year of ownership our priorities were to
increase profits, seek operational efficiencies and ensure
Bertrams’ services were regarded as ‘best in class’ by its
customers. We have made progress in all areas.
Book sales are more seasonal than newspapers and
magazines, with important peaks in the autumn and at
Christmas. We performed above market trends,
capitalising on the ‘back to University’ period, making
strong international sales, and benefiting from the shift of
sales from High Street to Internet retailers. Service metrics
were high throughout, with stock and availability boosted
by investment from the Group. In addition, new contracts
were agreed with HMv, Mail Newspapers, and WH Smith.
In autumn 2009 we commissioned independently
conducted customer surveys to gauge our progress and
establish priorities for service improvements. The results
were encouraging: Bertrams ranked number one in five out
of the six areas that customers regarded as most important
for service. We continue to monitor service and act on
the views of customers. This year we redesigned and
relaunched our customer website and online ordering
service for retailers; we made parallel improvements to our
library services offer. Our Independent Booksellers Group
helps some of our largest independent retailers with
targeted offers and promotional agreements.
Bertram Library Services (BLS) has had an eventful and
successful year. This year, BLS won or retained new
contracts worth £10.2m, more than offsetting contract
losses of £3.9m. In July, the library processing operation
relocated from Leeds to Norwich, a move made possible
by a £1m Group investment in a mezzanine floor. This
centralising of all physical operations will significantly
reduce our cost base, increase profitability and at the
same time improve service levels to our customers: for
example, reducing the lead time for despatch to libraries.
The sales and marketing function for BLS has moved to
the Smiths News National Accounting Centre in Bradford.136 GIGAByTeS OF DATABASe GROWTH A MONTH
FACT:
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Industry regulation
Following the review of newspaper and magazine
distribution by the Office of Fair Trading in 2008, the
industry has considered its need for self regulation. In April
this year the Joint Industry Group disbanded and work
began on a simpler and more effective structure to ensure
service guarantees and cross industry efficiency.
The Press Distribution Forum was established in July
2010, and a new Industry Charter will be launched in
November, which gives clear guarantees of service to
retailers from publishers and wholesalers. The Charter
will be supported by an independent complaints and
review process.
Smiths News has embraced the Charter’s standards and
will apply them to all our customers, regardless of size or
location. We recognise that newspapers and magazines
are different to other products, having the most time
sensitive of supply chains and a requirement to serve all
areas of the UK with a universal service. To achieve this
requires some element of shared services and coordination
of logistics. We remain committed to working across the
supply chain with the goal of improving service and
ensuring consumer needs are met.
Lost contract territories
The contract awards in 2009 increased the market share
of Smiths News from 39% to 55%. This unprecedented
success came as publishers awarded contracts to fewer,
larger locations, with a consolidation of newspapers and
magazines. An unfortunate consequence of this publisher
strategy was the loss of our contracts at four smaller
locations: Blackpool, Carmarthen, Lancaster and Sheffield.
Whilst we continued to trade at these locations
throughout the financial year, the gradual withdrawal
of the publisher contracts has made it progressively
uneconomic for us to fulfil our commitments and maintain
acceptable standards of service. We have therefore
confirmed our withdrawal from these territories with effect
from 31 October 2010.
Smiths News has served these areas for many years and it
is with regret that we have had to withdraw. The financial
impact has been accounted for in the year ended 31 August
2010 and we expect there to be no further adverse impact.
We would like to thank all our customers and particularly our
staff in the regions for their dedication during what has
clearly been a difficult period.
Staff
Our people are central to our success. yet again, they
have made extraordinary efforts to ensure we meet our
strategic targets without disruption to the day-to-day
operation. The Group now encompasses 5,300 staff; they
are our most important competitive advantage and we are
committed to investing in and developing their talent.
This year we’ve introduced a new framework for talent
management to identify and develop future leaders at all
levels of the business. A comprehensive review covered
every department and operating depot in each Group
business. We linked the outcome to individual
development plans and have introduced a series of
leadership groups to ensure we fast track those staff who
have the commitment and capability to progress.
2 3
1 A member of staff in Plymouth packing newspapers.
Books being moved from a delivery lorry into the warehouse in Norwich.
A member of Smiths News’ customer services team in Plymouth.
2
3
2 3
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In support of our talent strategy we have expanded the
apprentice scheme – to date 28 staff have participated. It
is particularly pleasing to see the apprentices rising to new
challenges, and thriving on their new experience and
responsibilities. Our graduate scheme, now in its third
year, provides us with further new talent, with the initial
appointees now moving into permanent roles.
In August 2009 we welcomed over 1,800 new staff from
the former Dawson News. In what was a very unsettling
time, they have performed magnificently, maintaining their
commitment and enthusiasm, despite considerable
change to operating practices.
As we reported last year, the integration of the new
depots would inevitably result in some redundancies.
This is never easy but we have worked extremely hard
to be as clear in our communication, with fairness and
sensitivity as our guiding principles. In total we made
855 redundancies during the year.
Bertrams continues to progress with its award-winning
training programme. Working in conjunction with Learn
Direct and Pitman Training they deliver a range of courses
from adult certificate level Maths and english training to
advanced IT and management skills. The scheme results
in a better skilled, better motivated workforce for the ever
challenging market Bertrams operates in.
Business ReviewOperating Review continued
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Corporate responsibility
The Group takes a positive approach to corporate
responsibility, recognising that responsible business practice
benefits all stakeholders. Our approach to corporate
responsibility embraces our workplace, our marketplace,
the environment and the communities we serve.
A further development this year has been our preparation
for the newly introduced Carbon Reduction Commitment
programme. In October, the Group achieved the Carbon
Trust Standard and we are committed to finding new
ways of reducing our impact on the environment.
Further details of our corporate responsibility policy and
our initiatives can be found on page 38 of this report and
on our website www.smithsnews.co.uk
Outlook
Looking ahead, we remain cautious about the impact of
the current economic climate on the prospects for a
recovery in base sales and our strategy assumes our
markets will continue to be challenging. We therefore have
plans to reduce costs by £20m in the next three years and
will be pursuing new revenues with a clear vision to
develop the Group in specialist markets.
Risks and uncertainties
The Group operates in large and stable markets. Strong
cost control is a core competence and, given the relative
predictability of sales, the Group is well placed to mitigate
any major risks.
Both of the Group’s key businesses have relatively secure
revenues. Smiths News has exclusive agreements with
the major newspaper and magazine publishers for the
next five years for the vast majority of its revenues.
Bertrams has contracts for its library business that run
for an average of three years, whilst the remainder of
trading is with established customers.
The Group has robust internal procedures to monitor
sales, costs, profits and risks. The executive and Risk
Committee review the principal strategic and financial
risks on a quarterly basis. The Audit Committee oversees
the overall risk process and reviews the outcome of this
process twice a year. The business completes a detailed
reforecast at least twice a year and more regularly if any
significant issues arise and these forecasts are reviewed
by the Board.
Our assessment of the principal risks is as follows.
Consumer confidence and spending
The general economic environment remains uncertain,
affecting consumer confidence. In addition, the planned
Government spending cuts and changes to personal
benefits, together with the increase in vAT to 20% in
January 2011, could have a further negative impact.
Reduced confidence may lead to a squeeze on
discretionary spending including the sales of newspapers,
magazines and books.
Whilst consumer confidence has a clear correlation with
retail sales, the relatively low cover price and habitual
nature of newspapers and magazines helps
to limit the impact. Demand for books is similarly resilient
and the Group strategy remains to increase sales by
targeting growth sectors such as the Internet, international
sales and Regional Press. The vast majority of
newspapers, magazines and books have
a 0% VAT rating; nonetheless, it remains possible that
consumers seeking to economise could reduce spending
on discretionary items generally.
1 The Plymouth night team busy sorting and packing newspapers.
Spiral conveyor taking books to the sortation machine.
2
2
IN OCTOBeR, THe GROUP ACHIeveD THe CARBON TRUST STANDARD
FACT:
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Impact of passive sales
Following guidance issued by the Office of Fair Trading,
the new contracts awarded by magazine publishers make
allowance for sales outside of the designated territories in
response to unsolicited requests from retailers (passive
sales). Previously contracts could be more restrictive,
generally being granted on the basis of ‘absolute territorial
exclusivity’. The new arrangements could create an
incentive for retailers to seek alternative suppliers, with a
consequent impact on sales, margins and costs.
The combination of leading service and the most efficient
operation means Smiths News is well placed
to respond to any such requests. Over the last year,
Smiths News has received 80 applications to supply
retailers with magazines in those territories where we
already deliver newspapers. At the time of writing, these
requests are being processed and the subsequent sales
are likely to increase our profitability in these territories. We
have received only three requests from retailers wishing to
cancel their supply of magazines.
Reduced retail sales impacting on newspaper and
magazine publishers
A significant reduction in sales of newspapers and
magazines over time would have an adverse effect on
revenues and lower circulations could also undermine the
business model of publishers, leading to title closures.
National newspapers have a long-term trend of price
increases mostly offsetting the impact of volume declines.
Nonetheless, we are planning on the basis of limited price
inflation and our contracts provide protection to margins in
the event of promotional price discounting.
Magazine sales have been more impacted by
the recession though more recent performance has seen
an improvement in the rate of decline but there remains
a risk that some titles will cease publication.
The newspaper and magazine contract wins of 2009
increased sales by approximately £459m and market
share to 55%. Magazine launches and closures are a
feature of the market with new titles replacing those which
no longer reflect consumer lifestyles. Our comprehensive
understanding of sales and market dynamics helps us to
anticipate and plan for any worsening of conditions,
enabling us to take appropriate action to protect profits.
Contract renewal
At the time of contract renewal, publishers could seek
alternative routes to market in some of Smiths News’
current territories, which would result in lower sales.
Alternatively, there remains the risk of contract renewals at
lower margin.
The Group is well positioned to renegotiate its contracts
as and when they come up for renewal. We are the
leading news wholesaler with a strong service
performance and our combination of scale, specialist
services and category expertise is difficult for new entrants
to replicate. Smiths News has long-standing commercial
relationships throughout the supply chain and continues
to work closely with publishers and retailers to ensure our
plans and objectives are aligned.
Digital media
The recent launch of book readers such as the ipad and
Amazon Kindle, together with the The Times’ decision to
charge for online subscriptions has increased awareness of
digital publishing. This technology creates the potential for
consumers to move from traditional printed media to digital
alternatives, which could have an adverse effect on sales
and growth opportunities.
The Group is aware that digital media could have an
impact on traditional markets, and commissioned
research to understand its potential impacts more
fully. In this fast moving environment, making long-term
predictions is fraught with difficulty; however, the research
supports the Group’s view that the impact on news and
books is likely to be an evolutionary rather than
revolutionary process.
The research suggests that the format of newspapers,
magazines and books is more optimised to consumer
needs than music was, which has seen a significant shift
to digital downloads. It is relevant that the vast majority of
publishers make inadequate returns on investment from
stand-alone digital alternatives, so there are strong
incentives for continued investment in traditional channels.
The Group will continue to monitor market developments
closely.
Business ReviewOperating Review continued
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Impact of public sector spending cuts on library
purchasing
The Government’s stated plans to reduce spending in
the public sector could have a detrimental impact on
Bertram Library Services, reducing the value of ongoing
expenditure and future contracts.
Bertrams recognises that available funds in the public sector
may be more limited and has planned accordingly. This year
Bertrams won over £6m in net contract gains helping to
offset any future decline; the move of Bertram Library
Services to Norwich will also reduce overheads by enabling
a more streamlined operation.
Property and lease commitments
Potential liabilities could crystallise in respect of previous
assignments of leases where the liability could revert to the
Group if the lessee defaulted. Pursuant to the terms of the
Demerger Agreement any such contingent liability which
becomes an actual liability will be apportioned between
Smiths News PLC and WH Smith PLC in the ratio 35:65
(provided that the actual liability of Smiths News PLC in any
12 month period does not exceed £5m). The Group’s share
of these leases has an estimated future cumulative gross
rental commitment at 31 August 2010 of £21.2m (2009:
£26.6m).
Although the total liability is significant, many of the leases
were assigned to retail companies that continue to trade
well and are financially robust. Given the expiry of time, it is
also likely that many of the leases included within the
contingent liability have been renegotiated such that any
liability has been extinguished. The maximum potential
lease liability will continue to decline, with an estimated
maximum liability of below £5m by August 2015.
The Group, working with WH Smith PLC, has reached a
mediated settlement in relation to three leases following a
Creditor Voluntary Agreement made by Focus PLC. The
cost of the settlements to the Group totalled £0.5m and
two further properties remain to be resolved.
The cash impact resulting from the estimated future
cumulative gross rental commitment would spread over
more than ten years.
Financial exposure to key retailers and publishers
The failure of one or more of the Group’s major retailers or
publishers could affect the ability of the Group’s
profitability and cash flows.
The Group monitors payments carefully and has
a strong track record of cash collection from its
customer base. Payment for newspapers and magazines
from smaller retailers is generally received on a weekly
basis and their reliance on product means that settlement
of our invoice is generally prioritised.
The Group’s largest credit risk is to some of the UK’s
major retailers who have strong credit ratings. Of our
larger retailer customers, the top five are major UK PLCs
with good payment records and credit ratings. We also
have credit insurance against a number of smaller retail
chains. The average credit period taken on sale of goods
is 21 days (2009: 21 days). We continue to manage
our credit risk tightly to ensure our customers comply with
payment terms.
The failure of one or more of our publisher/distributor
suppliers could result in exposure to a significant cash
shortfall if the credits due to retailers for unsold copies are
greater than any outstanding payments due to the failed
publisher.
The Group monitors stock and unsold levels on a regular
basis and where appropriate phases payments to
publishers to ensure any exposure is minimised; we also
use external data to monitor credit ratings on a regular
basis. Our largest suppliers are large companies, and in
some cases part of larger quoted companies, with
established and stable business models.
The Group’s treasury and risk management policies are
set out in the Financial Review on page 28. The principal
financial risks (capital, market, credit and liquidity)
are detailed in Note 23 to the Accounts.
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Business ReviewOperating Review continued
Intelligent Logistics
you might think that it’s a
relatively easy process to move
a newspaper from A to B – but
have you ever considered what’s
really going on behind the
scenes in order to facilitate newspaper delivery
around the UK?
Smiths News is a leader in intelligent logistics.
Supporting our operation is a complex and
highly functioning database, based on the SAP
system. This is such an important part of our
business, that since 1998 we’ve invested over
£60m in SAP and our information systems. And
we will continue to invest ensuring we have the
most effective processes available.
Our information has to move as quickly as our
newspapers. every stage of our process is
controlled by scanning and tracking the products
– the key to fast-moving, accurate data.
We measure and adjust our service, based on
real-time knowledge, which helps us make
quick decisions that ensure we hit over 90% of
our key performance indicators.
We provide statistics on sales, customers,
returns, invoicing and more to newspaper and
magazine publishers, within hours of their
products going on or coming off sale. Some of
this is transmitted on eDI links and some is
available to download from a portal that serves
our biggest publishing customers.
At the publishers
We receive information from publishers telling us how many copies of each newspaper and magazine will arrive at each depot. Newspapers and magazines are scanned as soon as they reach the depot.
In the depots
Our systems tell our staff exactly how many copies of newspapers to pack and how many magazines to load into each retailer’s tote box. We can scan, pack and distribute over 6 million newspapers within three hours.
On the road
Drivers scan the tote boxes of newspapers and magazines on arrival at a retailer’s premises. The scanning guns record the time of delivery and the number of boxes dropped off. The driver also collects any magazines and newspapers which have been left for return.
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Managing returns
When unsold copies are returned they are scanned at the depot with either static machines or hand-held scanners. This is all processed by our SAP system. Retailers are credited for their unsold products and publishers receive up-to-the-minute sales data to help them set the next print quantity.
At the sales centres
Our Account Managers work with retailers to manage copy allocation, based on past sales and sales forecasts – data which is available from SAP.
At customer service centres
Our customer service staff have instant access to the newspapers and magazines supplied to our customers. This allows a seamless communication between Smiths News and its customers, including order quantities, delivery and invoicing.
ServiceDelivering
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Business ReviewOperating Review continued
Key Operational Performance Indicators
Operational Key Performance Indicators
2010 2009Measure
Newspaper pack accuracy
Magazine pack accuracy
On time delivery
Newspaper returns collection on time
Magazine returns processing accuracy
99.8%
99.6%
97.2%
98.8%
100%
99.8%
99.7%
97.0%
99.8%
99.9%
Smiths NewsThe most important performance measures are those that our publishers and retailers identify as having the biggest impact on their businesses.
We maintained our excellent performance in all of these areas during the year, operating well above targeted levels. Performance against these
measures is listed below.
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Operational Key Performance Indicators
2010 2009Measure
Availability of titles in core range
On-shelf stock integrity
Same day despatch
Deliverednext day
Telephone calls answered in less than 20 seconds
94.4%
99.8%
100%
98.7%
93.5%
94.1%
99.8%
100%
98.2%
93.3%
BertramsThis strong performance shows improvements year on year and reflects the continued focus on customer service following the Group’s acquisition
of Bertrams.
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Business ReviewFinancial ReviewNick Gresham, Chief Financial Officer
Focused cost control supports earnings growth
FY 2010 FY 2009 Change
Underlying results
Revenue £1,829.6m £1,326.0m 38.0%
Underlying(1) profit before tax £35.0m £30.5m 14.8%
Underlying(1) earnings per share 14.6p 13.8p 5.8%
Statutory results
Revenue £1,829.6m £1,326.0m 38.0%
Statutory profit before tax £28.1m £18.4m 52.7%
Statutory earnings per share 11.7p 9.9p 18.2%
Total dividend 7.4p 6.8p 8.8%
Free cash flow(2) £20.4m £23.7m (13.9%)
Net debt(3) £48.0m £49.5m 3.0%
The following definitions have been applied consistently throughout the annual report:(1) Underlying 2010 and 2009 results exclude non-recurring items and amortisation of acquired intangibles.(2) Free cash flow is the cash flow excluding the following; payment of the dividend, acquisitions, the proceeds on the disposal of
freehold properties, repayments of obligations under finance leases, the repayment of bank loans and non-recurring items.(3) Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and
obligations under finance leases.(4) Like-for-like revenue growth excludes magazine and newspaper publisher net contract gains during the year, and the annualisation
impact of gains made in the prior year. Like-for-like revenue for books excludes one-off sales in 2009.(5) Smiths News and Bertrams are also referred to as the Newspaper and Magazine wholesaling segment and the Book wholesaling
segment respectively. (6) Base business refers to the Smiths News business excluding ex-Dawson News territories.
Group revenues are up 38.0% as a
result of significant net contract gains
in Smiths News and an excellent
performance from Bertrams in our
first full year of ownership.
Underlying Group profit before tax of £35.0m represents a
14.8% increase year on year after a strong performance
from both businesses.
Statutory Group profit before tax of £28.1m generated a
52.7% increase in the year.
Underlying earnings per share (ePS) at 14.6p shows a
growth of 5.8% year on year.
The final dividend of 5.0p, subject to approval by
shareholders at the Annual General Meeting, will be paid
on 4 February 2011. This gives a full year dividend of 7.4p
which is up 8.8% and represents a yield of 7.3% on our
share price at 31 August 2010. This puts us in the top
quartile for dividend yield out of the FTSe All Share
companies.
The Group generated strong free cash flow(2) largely from
its operations, delivering £20.4m in the year and continues
to reduce its net debt position, with an underlying
reduction of £8.2m largely offset by £6.7m of expenditure
on non-recurring items. This results in a reported net debt
of £48.0m (2009: £49.5m).
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Group
Underlying Group operating profit of £37.1m has been driven by a strong performance from both businesses, generating
a 14.5% increase in the year.
Finance costs at £2.1m are marginally up in the year due to an increase in average borrowing following the acquisition of
Bertrams.
The tax charge for the year of £8.6m represents an effective rate of 25% benefiting from the release of prior year
tax credits.
Underlying Group profit after tax of £26.4m represents a 6.5% increase year on year with the strong trading performance
being partially offset by an increase in the effective tax rate.
£m FY 2010 FY 2009 Change
Group Income Statement Extracts
Revenue 1,829.6 1,326.0 38.0%
Gross profit 177.0 130.6 35.5%
Operating costs (139.9) (98.2) (42.5%)
Underlying operating profit 37.1 32.4 14.5%
Net finance costs (2.1) (1.9) (10.5%)
Underlying profit before tax 35.0 30.5 14.8%
Taxation (8.6) (5.7) (50.9%)
Tax rate 25.0% 19.0% (31.6%)
Underlying profit after tax 26.4 24.8 6.5%
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Business ReviewFinancial Review continued
Smiths News
£m FY 2010 FY 2009 Change LFL(4)
Newspapers 952.0 703.3 35.4% (4.2%)
Magazines 663.5 508.6 30.5% (4.0%)
Other 77.0 60.6 27.1%
Total revenue 1,692.5 1,272.5 33.0%
Gross profit 151.6 121.2 25.1%
Operating costs (118.5) (89.5) (32.4%)
Underlying operating profit 33.1 31.7 4.4%
Gross margin 8.9% 9.5% (60 bps)
Cost ratio (7.0%) (7.0%) –
Operating margin 1.9% 2.5% (60 bps)
Per cent of revenue contracted per annum
FY 2011 FY 2012 FY 2013 FY 2014
100% 100% 100%
87%
£6.5bn revenue
£5bn revenue
Smiths News’ total revenues are up 33.0% as a result of a
substantial increase in revenues following net contract
wins being partially offset by the declining market for
newspapers and magazines.
Gross margin rate is down 60 bps reflecting the
investment in pricing required to secure the additional
volume for contracts running through to 2016.
Operating costs are up £29.0m or 32.4% after an initial
45% increase in both the number of staff and depots in
our network following integration.
This total cost number is after annual savings of £5m,
£3m of which has been driven by SAP and network led
efficiencies in our new locations and £2m from further
activity in the base business.(6) Actions already taken give
us an annualisation benefit of a further £3m to take into
2011, achieving the £6m target indicated at the time of
the contracts wins.
Smiths News’ underlying operating profit at £33.1m is up
£1.4m or 4.4% year on year.
Our first contract is not scheduled to expire until Fy 2014,
which means over the next three years 100% of our
revenues are contracted. At Fy 2010 volumes, this
represents over £5bn of revenue or £6.5bn for the four
years to Fy 2014.
The Smiths News business tenders for news and
magazine contracts on a five yearly cycle.
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1
PerformanceDelivering
Bertrams
£m FY 2010 FY 2009 Change LFL(4)
Revenue 137.1 53.5 156.3% 6.8%
Gross profit 25.4 9.4 170.2%
Operating costs (21.4) (8.7) (146.0%)
Underlying operating profit 4.0 0.7 471.4%
Gross margin 18.5% 17.6% 90 bps
Cost ratio (15.6%) (16.3%) 70 bps
Operating margin 2.9% 1.3% 160 bps
Total revenues are up 156.3% in the first full year of ownership.
Like-for-like(4) revenue growth of 6.8% has significantly outperformed the retail books market benefiting from a
combination of strong international and Internet sales and a number of contract wins by Bertram Library Services.
The underlying operating profit of £4m supported by gross margin improvements and tight cost control generated an
operating margin of 2.9%, which is 160 bps higher than Fy 2009. Bertrams is a cyclical business driving significant cost
economies of scale throughout its seasonal peaks of back to school, back to university and Christmas, none of which
fell in the five month period of our ownership last year.
1 Books being delivered and stored at Bertrams warehouse in Norwich.
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Business ReviewFinancial Review continued
Non-recurring and other items
£m FY 2010 FY 2009
Dawson News integration (6.1) (4.6)
Bertram Library Services move to Norwich (0.6) –
The Returns Company 0.7 (3.1)
Amortisation of acquired intangibles (0.9) (0.4)
Cross currency contract – (1.5)
Reversionary leases – (2.5)
Total before taxation (6.9) (12.1)
Taxation 1.7 5.0
Total after taxation (5.2) (7.1)
Non-recurring items total £6.9m before tax and £5.2m
after tax for the financial year.
The largest element was the cost of integrating the former
Dawson News depots at £6.1m. This represents the final
charge associated with an integration, which has seen the
Smiths News network grow from 44 depots in July 2009
to a peak of 66 and back to a position of 58 by August
2010.
The majority of this cost relates to redundancies resulting
from a reduction in the workforce by almost 1,000
employees during the year. The balance relates to property
costs following the closure of eight sites and relocation of a
further three.
The Bertram Library Services charge of £0.6m reflects the
cost of moving the warehouse operation from Leeds to
the existing Bertrams Books site in Norwich, a move
which will drive improved operational efficiency and
service to retailers going forward.
The credit relating to The Returns Company (TRC) is the
release of a provision taken in 2009 following the sale of
the business in February 2010.
Amortisation of intangibles relates to assets from the
acquisition of Bertrams being amortised over their
expected economic lives.
We expect to incur further non-recurring costs of
approximately £5m to deliver £20m of cost savings
targeted over the next three years.
2
1 Returned magazines being scanned in Borehamwood.
Tote boxes complete with supplies ready to be delivered to customers.
2
1
PerformanceDelivering
Investors Online
Our investors are important to us. With the launch of our new website in 2009 we created a new investor relations centre. This provides current and potential investors with access to both up-to-date and historical information about our business. The Smiths News PLC share price is updated throughout the day. We provide share charting tools, share calculators and detailed trades information, which are also downloadable. Our Annual Report and Accounts can be downloaded, together with other finance-related information. Our financial calendar is available to view and interested parties can sign up to email alerts, to receive the PLC latest news as soon as it is announced.
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Business ReviewFinancial Review continued
The Group continues to generate strong free cash flow
from its operations, delivering £20.4m in the year.
Working capital outflow results from an increase in stock
relating to World Cup product returns which have still to
be credited by publishers, partially offset by a combination
of a net timing benefit of lower creditors and lower
debtors at the year end.
Free cash flow
£m FY 2010 FY 2009
Underlying profit before interest and tax 37.1 32.4
Depreciation and amortisation 7.3 6.7
eBITDA 44.4 39.1
Working capital (1.4) 4.6
Capital expenditure (8.6) (5.2)
Net interest paid (2.6) (2.9)
Taxation (5.9) (5.6)
Ongoing pension funding (6.4) (5.7)
Other 0.9 (0.6)
Free cash flow(2) 20.4 23.7
Capital expenditure is up on the prior year with the
investment in SAP and our expanded network helping us
to achieve operational cost savings.
The £6.4m pension funding for the year predominantly
relates to the annual pension deficit funding of £5.8m
agreed at the last triennial valuation in March 2009, and
also includes a catch-up payment relating to the period
from 31 March 2009 to the date that the revised
contributions started to be paid.
On an underlying basis profit after tax of £26.4m gives an ePS of 14.6p, up 5.8% on 2009.
Including non-recurring items statutory profit after tax is £21.2m in Fy 2010 versus £17.7m in Fy 2009, which gives an
ePS of 11.7p, up 18.2% year on year.
The calculation of diluted ePS reflects the potential dilutive effect of employee incentive schemes. This increases the
number of shares by 3.3m to 183.9m and results in a diluted ePS of 14.4p (2009: 13.8p).
EPS and dividend
FY 2010 FY 2009 FY 2010 FY 2009
Underlying Statutory
Profit after tax (£m) 26.4 24.8 21.2 17.7
Basic number of shares (millions) 180.6 179.5 180.6 179.5
Basic ePS 14.6p 13.8p 11.7p 9.9p
Diluted ePS 14.4p 13.8p 11.5p 9.9p
Dividend per share 7.4p 6.8p 7.4p 6.8p
ServiceDelivering
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£19.00 IS OUR SMALLeST WeeKLy INvOICe, £27,000 OUR LARGeST
FACT:
Net debt
£m FY 2010 FY 2009
Opening net debt(3) (49.5) (44.0)
Free cash flow 20.4 23.7
Dividend paid (12.6) (12.0)
Non-recurring items (6.7) (1.2)
Acquisitions – (12.2)
New finance leases 0.4 (3.8)
Decrease/(increase) in net debt(3) 1.5 (5.5)
Closing net debt(3) (48.0) (49.5)
The business continues to reduce its net debt position, with an underlying reduction of £8.2m largely offset by £6.7m of
expenditure on non-recurring items. This results in a reported net debt of £48.0m an actual reduction of £1.5m.
We remain comfortably within our banking convenants with net debt : eBITDA at 1.1 versus last year at 1.3 and a
covenant of 2.5.
1
1
A view across Bertrams distribution centre in Norwich.
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Business ReviewFinancial Review continued
Bank facilities
The Group finalised a new banking facility on 27 August
2010 with a syndicate of 5 major lenders.
The agreement secures a £135m facility through to the
end of November 2014, with annual repayments of £3m,
£3m and £4m starting from September 2012.
In addition, the Group has the option for further
borrowings of up to £35m secured against Group assets.
Defined benefit scheme
The scheme had an actuarial deficit of £50m on
completion of the last triennial valuation at March 2009.
A revised deficit funding schedule of £5.8m per annum for
ten years was agreed with the trustees at that time.
This deficit continues to be managed through the Liability
Driven Investment (‘LDI’) policy, which seeks to minimise
volatility through the hedging of interest and inflation.
The IAS 19 pension surplus relating to the defined benefit
scheme at 31 August 2010 is £41.2m (2009: £19.3m), an
increase of £21.9m in the year. This increase is largely due
to the return on assets being greater than expected.
The scheme is closed to further accrual, which would
prevent the Group from realising any surplus through a
funding holiday or a reduction in contributions. As a result
the Group has not recognised the IAS 19 surplus on the
balance sheet.
Treasury and risk management
The Group endeavours to reduce exposure to interest
rates and other financial risk, to ensure sufficient liquidity is
available to meet foreseeable requirements and to invest
cash assets safely and profitably. The Group uses certain
derivative financial instruments to hedge interest rate
exposures and to support underlying business
requirements.
The Group’s treasury policies and procedures are
periodically reviewed and approved by the Audit
Committee and are subject to regular Group Internal
Audit review.
The principal financial risks for Smiths News PLC are set
out in Note 23 to the accounts.
Accounting policies and standards
The Group has prepared its consolidated accounts under
International Financial Reporting Standards for the year
ended 31 August 2010. The basis of preparation and
principal accounting standards are set out in Note 1 to the
consolidated accounts.
Going concern
The Group meets its day-to-day working capital
requirements through its bank facilities of up to £135m,
which do not expire until 30 November 2014. The Group’s
forecasts, taking into account the Board’s future
expectations of the Group’s performance, indicate that
there is substantial headroom within these bank facilities
and the Group will continue to operate well within the
covenants attaching to those facilities.
The directors have a reasonable expectation that the
Group has adequate resources to continue in operational
existence for the foreseeable future, having recognised the
current uncertain economic outlook and the Group’s
negative working capital position. Accordingly, they
continue to adopt the going concern basis in preparing
the accounts.
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2,000
1,500
1,000
500
0
35
33
31
29
27
25
Revenue £m
2007 2008 2009 2010
Underlying profit before tax £m
2007 2008 2009 2010
Free cash flow £m
2007 2008 2009 2010
Net debt £m
2007 2008 2009 2010
Total dividend Pence
8
7
6
52007 2008 2009 2010
Underlying earnings per share Pence
15
14
13
122007 2008 2009 2010
Key Financial Performance Indicators (KPIs)
31.01232
6.4
27.152.7
14.0
32.5
1241
6.7
21.3
44.0
14.5
30.5
1326
6.8
23.7
49.5
13.8
35.01830
7.4
20.4
48.0
14.6
24
23
22
21
20
19
25
26
27
50
45
40
35
30
55
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Corporate Responsibility Report
Working hard to make a difference
T he importance of a holistic and positive
approach to corporate responsibility has
never been more relevant than in today’s
business landscape. At Smiths News PLC
we take our responsibilities seriously –
in the workplace, the marketplace, our
environment and in our communities.
We’ve made progress in all areas, and this year’s highlight
is achieving the Carbon Trust Standard. The standard is
awarded to organisations for managing and reducing their
carbon emissions, and committing to reducing them year
on year. It has taken a lot of hard work to reach this stage
and we are confident that next year we can report even
more improvements.
The results of our employee survey showed that interest in
our Corporate Responsibility (CR) programme was high;
our people want to work for a company that makes a
difference and they want to be kept informed of progress.
In response, we’ve worked hard to communicate our
Corporate Responsibility programme more widely, with
newsletters and bulletins to keep everyone up to date.
That interest is reflected also in our community and charity
work. Across the business our staff are involved in
supporting good causes, raising money, volunteering time
and sharing their expertise.
The Group recognises the benefits of having clear targets
and priorities for the Company as a whole. But we believe
it is equally important to cascade these into the objectives
of our business unit leaders and their teams. More than
ever before our people are working to clear CR goals,
measuring progress and celebrating success. Taking our
responsibilities seriously is not an optional extra; it is how
we do business.
We HAve 5,300 eMPLOyeeS
FACT:
1 A member of staff from Plymouth with a stock cage.
1
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Electricity
Reduced electricity across the Group
-2.19%Gas
Reduced gas across the Group
-4.37%
Packaging Waste Recycling
of packaging waste recycled
70.0%of newspapers and magazines recycled
99.0%
In October 2010 we
achieved the Carbon Trust
Standard. This is awarded
to organisations for
measuring, managing and
genuinely reducing their
carbon emissions – and
committing to reduce them year on year. It has involved
a lot of work and a thorough review of our approach
to environmental concerns. We’ve reviewed our
environmental Policy, Company Car and Fleet policy,
installed more automatic meter readers at our depots
and introduced a company-wide programme to raise
awareness and encourage prudent use of energy.
Protecting the environment
For further information about our responsibility to the environment go to www.smithsnews.co.uk
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Corporate Responsibility Report continued
LAST yeAR We HeLPeD RAISe MORe THAN £600,000 FOR OUR INDUSTRy CHARITy, NeWSTRAID
FACT:
Training our teamsBertrams have been offering their employees training
in subjects such as numeracy, literacy and IT since
2007. In July 2009 they won an award for their efforts.
Run under the government’s Train to Gain scheme, the
courses are open to all. Caroline Wilson, HR Director
at Bertrams, said: “There has been an increase in
morale at Bertrams since we started this training, as
well as staff having improved confidence in their ability
to do their jobs. If you invest in people they will support
you back. It’s a two-way thing.”
For further information about our workplace go to www.smithsnews.co.uk
Delivering Service
Governance and management
The Corporate Responsibility Committee oversees the
management of our CR programme, working to clear
objectives, which are reviewed annually. The Committee
reports to the executive Management team and gives the
Board regular updates on any significant issues and
achievements. The Board considers a full progress report
every year and issues of particular significance or urgency
are considered by the executive and the Board as
they arise.
The Committee is composed of managers with
responsibility for our focus areas: community, workplace,
marketplace and environment. Its objectives are aligned
with those of our day-to-day operation. Where appropriate,
we have sub committees and steering groups to take
responsibility for those issues that require significant focus
and direction.
A sub committee is responsible for our carbon reduction
programme; it is chaired by the Operations Director and
includes managers with expertise and responsibilities for
our energy management and usage. Similarly, Bertrams
manages its own CR programme, working to objectives
agreed with the executive and building on its history of
community and staff involvement.
Workplace
With a workforce of 5,300 we understand that our people
are a vital asset. It is fundamental to our values that
everyone is given the opportunity to develop, is treated with
respect, and that we comply with all necessary legislation,
as well as our own internal standards.
Communication throughout the business has improved
with the introduction of regular staff newsletters. These
newsletters provide information about the Company
performance, report on any news from our depots around
the UK and offer employees the opportunity to take part
and send newsworthy items for the next edition.
We carry out regular employee surveys, listening carefully to
our staff and responding to the issues and suggestions that
are raised. We value this feedback and encourage all
employees to have their say. The results we receive shape
action plans that are drawn up at each depot and functional
area. Not every suggestion can be progressed but we aim
to be clear about what can work and what cannot.
In response to feedback we’ve worked to give staff a
greater understanding of the business performance,
explaining the key areas of our financial results, using
brochures, briefing sessions, and online audiocast of
preliminary and interim results. We’ve also taken time to
have some fun too. This year we ran a Fantasy Football
league during the World Cup with donations to charity as
well as prizes for the winners. This was so popular with staff
that another league has been introduced to coincide with
the english Premier League season.
A major focus this year was our talent management
programme, aimed at identifying and developing talent in
the business. In support of this we have a leadership
development group, an apprentice scheme – for which we
have been nominated for a national training award, and a
graduate scheme. The talent programme and our
performance management in general will be bolstered by
the introduction of an online goal-setting and performance
management tool, My Goals.
ValueDelivering
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Working in the community
In June 2010 members of our Commercial team rolled their sleeves up and got busy building a polytunnel at the Chalet School in Swindon. The school, which caters for autistic children, was delighted to have representatives from a local company get to work on their behalf. The head teacher Kathie Bryan said: “We often get cash donations, for which we are of course grateful, but it can be difficult to get the actual work done. The team from Smiths News have been fantastic, and with this polytunnel the children now have somewhere to learn about growing their own fruit and vegetables.”
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1
My goals ensures everyone is working to clear, consistent
and aligned objectives – it will be used by everyone in the
business, from the executive directors to frontline
distribution staff and teams.
Bertrams has continued with its award winning programme
of literacy and skills training. The training not only improves
efficiency at work, but also benefits staff in their personal
lives. Working with Pitman Training and Learndirect we offer
personalised training with the flexibility to fit around our
working hours and an environment in which staff feel
comfortable. The courses we offer include adult certificates
in Maths and english as well as a range of IT modules as
part of the CLAIT qualification.
This year we have reviewed and where appropriate
renewed policies to ensure we comply with and exceed
the requirements of all new and upcoming legislation.
This includes such diverse areas as the Agency Workers
Regulations (coming into effect 2011), the equality Act,
Working Time Regulations and NeST pensions.
Marketplace
We recognise that the newspaper and magazine supply
chain has characteristics that require a highly responsible
approach. In particular we understand the social and
political requirement of ensuring there is a widely available
and diverse press in all parts of the UK. With 55% market
share, Smiths News has an important role to play in
achieving that end.
In August 2009, parts of the supply chain faced an
unprecedented situation; there was a significant risk that
the failure of Dawson News would lead to a damaging
collapse of parts of the supply chain. Our operational
progress is covered in the Chief executive’s Operating
Review (on page 8), but beyond this we have given
particular attention to ensuring all stakeholders are fully
informed of any changes and their impacts minimised.
We have also sought to reassure customers that standards
will be maintained or improved, actively participating in the
development of a new Press Distribution Charter, to be
introduced this November. The Charter is a service
guarantee that sets out the standards customers can
expect from publishers and wholesalers; it will be
supplemented with an independent complaints and
arbitration process. The Charter is supported by the leading
publishers and wholesalers, and Smiths News will apply it
to all retailers, no matter their size or location.
Smiths News is also aware of the increasing public concerns
over the sale and display of adult and ‘lads’ magazines. We
have worked closely with publishers and retailers to ensure
our policies and processes reflect best practice.
1 Members of our Human Resources team digging a garden at Leonard Cheshire Care Home near Chippenham.
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BeRTRAMS ReDUCeD ITS GAS CONSUMPTION By 19% AND eLeCTRICITy By 5%
FACT:Environment
The Group has made good progress reducing its energy
consumption and carbon footprint.
Smiths News cut absolute energy use by 3.74% at those
locations for which we have year on year comparable data
(robust data was not available for the former Dawson
News depots). This is marginally behind our target of a
5% reduction, however, we experienced one of the
coldest winters on record and processed a 7% increase
in the volume of products at the locations for which data
is available. On a like-for-like basis, energy usage as a
ratio to sales is down 11%.
Bertrams reduced its gas consumption by 19% and
electricity by 5%. This result is particularly encouraging
in the light of the construction and operation of a further
34,000 sq ft of warehouse floor space. This year Bertrams
is targeting a further net reduction of 10%.
The Group is required to participate in the newly
introduced Carbon Reduction Commitment. This is a
government initiative designed to encourage companies
to measure, manage and reduce energy usage. We are
confident of achieving the early action metrics and in
October we achieved the Carbon Trust Standard. In
preparing our application, we have measured more energy
sources than ever before, confirming a 6% reduction in
our overall carbon footprint over the last three years
(excluding the new locations) – we are embracing the
challenge of reducing this further and have engaged
specialist consultants to help us with this goal.
We have also made progress in other areas:
The recycling of packaging waste is averaging at over
70% per month – a huge improvement on the position only
a few years ago when the recycling rate was only 15%. In
one year we have improved the performance of the former
Dawson News depots from 32% waste recycling to 61%
recycling. Our Newport depot adopted the recycling
practices with such enthusiasm that they were singled out
for an award by the Severnside Recycling scheme.
Newspaper and magazine returns continue to be
processed efficiently with over 99% of products being
recycled. We have installed walking-floor waste facilities at
Nottingham, Peterborough, Newport and Plymouth. There
has also been a reduction in cover-mounted gifts, which
has reduced the waste tonnage sent to landfill.
Bertrams now recycles 100% of all cardboard and paper
packaging waste and has found innovative ways to reuse
items such as old boxes that are used as infill on outgoing
parcels.
Our Company Car and Fleet policies have been reviewed.
We aim to increase the understanding amongst Company
car users of the benefits of lower emission vehicles, and
have worked with our suppliers to ensure that hybrid and
low emission vehicles can be supplied to all grades of
company users within their allocated cash allowances. Our
distribution fleet is another focus area: whilst we do not
currently consider alternative fuelled vehicles to be suitable,
we are committed to improving fuel efficiency and reducing
overall emissions. As members of the Carbon Trust we will
monitor and publish our fleet emissions, and will target
ongoing reductions.
Bertrams has reviewed transport for employees coming to
its distribution centre in Norwich, negotiating discounts
with the local bus service and working closely with the
other local tenants to promote schemes such as a Walk to
Work week, Car Share and Bike to Work week.
The Smiths News environmental Policy has been reviewed
to reflect our increased commitment. It can be viewed on
our website www.smithsnews.co.uk.
Community
every day we serve local communities with newspapers,
magazines and books. We know that what we do makes
a difference to many communities across the UK. But in
addition to this, more of our staff are getting involved in
projects and fundraising that go beyond our day job.
Charity fundraising and donations have increased, our new
locations bringing their own initiatives and ideas to help
increase the overall contribution of the Group. In the last
12 months our staff and customers have helped NewstrAid,
the industry charity, raise over £600,000. Bertrams donates
books to educational establishments, charities and other
good causes as well as giving at least 20% of the funds
raised through the staff bookshop to local sports teams
and other charity partners. In total, the Group donated
£19,445 to match the efforts of staff fundraising projects
and in June we were awarded the government bronze
quality mark for payroll giving schemes.
PerformanceDelivering
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Waste reduction
Unsold magazines and newspapers are collected and recycled by Smiths News. We collect returns at the same time as our daily deliveries, minimising the number of journeys required. In mid-2007 we started trialling ‘walking-floor’ technology and from 2008 to 2010 this has been rolled out across further depots. Using this machinery has reduced mileage for transporting waste, reducing our CO2 emissions and increased the amount of recycling we do.
Corporate Responsibility Report continued
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The Smiths News volunteering Policy was relaunched in
May, in time to support National volunteers week in June.
Under the scheme, staff can apply to use some of their
work time, on a regular or project basis, in support of
good causes. The policy will be adopted by Bertrams in
2010–11.
We encourage our teams to support community projects
and try to give them the tools they need to get involved and
make a difference in their communities. The Human
Resources department worked with Leonard Cheshire
Disability to transform a wasteland into a garden at a
residential facility for disabled adults near Chippenham. Our
Commercial department assisted a school for autistic
children, a team of 15 spending two days clearing a ground
and erecting a large polytunnel. The school was delighted
with the result – the polytunnel will be used to teach the
children to grow and sell their own fruit and vegetables.
Health & Safety
The Group takes the Health & Safety of its employees,
customers and contractors very seriously.
Our Health & Safety team monitors practices across the
Company and keeps our policies under continual review.
We strongly encourage employee involvement and
commitment to achieving safety standards. each location
Smiths News
2010 2010 2009 2008 2007
Total LFL*
Major injuries 1 1 2 1 5
Injuries resulting in over three days absence from
work/hospitalisation 67 40 34 61 61
All RIDDORS 68 41 36 62 66
* Like-for-like comparisons exclude the former Dawson News depots. Throughout the year we have rationalised the network and as a consequence these ‘core’ depots have seen a 5.8% increase in the volume of products they distribute. When incidents are measured as a ratio to turnover, these depots have seen a reduction from 35.3 to 33.3 incidents per billion pounds of turnover.
Bertrams
2010 2009 2008 2007
Major injuries 0 0 0 0
Injuries resulting in over three days absence from work/hospitalisation 3 6 2 1
All RIDDORS 3 6 2 1
1 1 A member of the Human Resources team working hard to clear a care home garden near Chippenham.
has a Health & Safety representative and training sessions
are held quarterly; every incident is investigated and,
where appropriate, action is taken to minimise future risk.
The Company has a Health & Safety Committee which
includes employee representatives. Health & Safety
performance is further monitored by the Internal Risk
Committee and the executive Management team. The
Board receives monthly updates on Health & Safety
performance, and the Audit Committee reviews incidents,
trends and overall performance on a regular basis.
The Health & Safety policy and overall performance is
reviewed at least annually by the Board.
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Board of Directors
Dennis Millard
Dennis Millard joined the Board as a non-executive director and Deputy Chairman on 31 August
2006 and became Chairman on 6 February 2008. He is Chairman of the Nominations
Committee and a member of the Audit and Remuneration Committees. He is Chairman of
Halfords Group plc and a non-executive director and Senior Independent Director of Premier
Farnell plc, Xchanging plc, and Debenhams plc. He was Finance Director of Cookson Group plc
from 1996 to 2005 and was a non-executive director of exel plc from 2003 until 2005. He is
Chairman of Trustees of the charity The Holy Cross Children’s Trust. Aged 61.
Chairman
Non-executive directors Andrew Brent
Andrew Brent is a non-executive director and joined the Board on 1 September 2008. He is
a member of the Audit, Remuneration and Nominations Committees. He was most recently
Group Brand Marketing Director of BSkyB and previously held senior marketing positions in a
number of leading companies including Alliance Boots Plc, Burger King Inc., Iceland Frozen
Foods Plc and Procter & Gamble Inc. Aged 51.
Anthony Cann
Anthony Cann is a non-executive director and joined the Board on 31 August 2006. He is
Chairman of the Remuneration Committee and a member of the Audit and Nominations
Committees. He is a solicitor, now non-practising, and was the worldwide Senior Partner of
Linklaters, an international law firm, from 2001 until September 2006. He is a non-executive
director of Panmure Gordon & Co. plc and was Chairman of Trustees of the charity Changing
Faces from 2007 until 2009. Aged 63.
John Worby
John Worby is a non-executive director and Senior Independent Director and joined the Board
on 31 August 2006. He is Chairman of the Audit Committee and a member of the Remuneration
and Nominations Committees. He is Finance Director of Genus plc and was previously Group
Finance Director and Deputy Chairman of Uniq plc (formerly Unigate plc). He is the Senior
Independent Director and Chairman of the Audit Committee of Cranswick plc. Aged 59.
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Mark Cashmore Group Chief Executive
Mark Cashmore joined the Board on 31 August 2006 as Group Chief executive. He started his
career with Pernod Ricard before moving to United News and Media in 1989. Between 1989
and 1999 he held senior positions in a number of news distribution businesses, including Sales
Director of United Magazine Distribution, USM and Seymour. He joined WH Smith News in 1999
and was appointed Magazine Sales Director in 2001 and Managing Director in June 2006.
Aged 50.
Board CommitteesAudit Committee
John Worby, Chairman
Andrew Brent
Anthony Cann
Dennis Millard
Nominations Committee
Dennis Millard, Chairman
Andrew Brent
Anthony Cann
John Worby
Remuneration Committee
Anthony Cann, Chairman
Andrew Brent
Dennis Millard
John Worby
Executive directors
Nick Gresham Chief Financial Officer
Nick Gresham joined Smiths News and was appointed to the Board on 1 August 2010. Prior to
joining Smiths News, he held various senior financial roles in GUS plc and Home Retail Group
plc over a ten year period, including Group Financial Controller, Finance Director of the Financial
Services division and most recently three years as Finance Director of Homebase. Before joining
GUS Nick worked for virgin Retail and Debenhams. Aged 39.
Jonathan Bunting Chief Commercial Officer
Jonathan Bunting joined the Board on 1 April 2010. He joined the business as a graduate recruit
in 1994. He rose through the organisation in a variety of sales and marketing managerial roles
before being promoted to the executive management team in 2001 as Trade Marketing Director.
He was appointed Commercial Director on 31 August 2006 and was promoted to the position
of Chief Commercial Officer on 1 April 2010. Aged 38.
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executive Management Team
Richard WebbInformation Systems Director
Richard Webb joined the business as a
graduate recruit in 1987. Richard worked in
a variety of roles at warehouse locations and
regional level before moving to Head Office
in 1994 to join the Information Systems
Department. He was appointed Information
Systems Director in 2004. Aged 45.
Michael NeilManaging Director, Bertrams
Michael Neil joined Bertrams in 2005. He has
extensive experience in buying, marketing
and operations, having formerly worked for
WH Smith, Waterstone’s, Blackwell’s and
Hammicks, and is a member of the
Booksellers Association Council. Aged 47.
.
Graeme UnderhillOperations Director
Graeme Underhill joined the business in
1975. Graeme managed a number of depots
before moving to Head Office in 1997 as
Project Manager for the Business Process
Review. He held various senior central
roles including SAP Project Manager and
Operations Development Manager before
being appointed Operations Director in
2001. Aged 52.
Mark CharltonCompany Secretary
Mark Charlton joined the business in 1993.
Mark was appointed Business Planning
Director in 2001. He was appointed
Company Secretary on the demerger
of WH Smith Retail on 31 August 2006.
Aged 49.
Glenn LeechHuman Resources Director
Glenn Leech joined the business in
November 2004 from Ford Motor Company.
He spent seven years at Ford, during which
time he held a number of managerial
positions in employee Relations, HR
Business Operations and as an HR Project
Manager. Aged 35.
The Executive
Mark Cashmore
Jonathan Bunting
Nick Gresham
Mark Charlton
Glenn Leech
Michael Neil
Graeme Underhill
Richard Webb
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Directors’ Report
The directors of Smiths News PLC (the ‘Company’) present their report
and audited accounts of the Company and its subsidiaries (the ‘Group’)
for the year ended 31 August 2010.
The report contains certain forward-looking statements with respect to the
operations, performance and financial condition of the Group. By their nature,
these statements involve uncertainty since future events and circumstances
can cause results to differ from those anticipated. Nothing stated in this
report should be construed as a profit forecast.
Pages 49 to 51 inclusive, together with the Corporate Governance Report
on pages 52 to 56, the Remuneration Report on pages 57 to 67 and the
sections of the Annual Report which comprise the Business Review, all of
which are deemed to be incorporated by reference in (and shall be deemed
to form part of) this report, consist of a directors’ report that has been
drawn up and presented in accordance with and reliance upon applicable
english company law and the liabilities of the directors in connection with
the report shall be subject to the limitations and restrictions provided by
such law.
Principal activities
The principal activities of the Group are the wholesale distribution of
newspapers, magazines and books operating as two divisions:
• Smiths News, the UK’s leading wholesaler of newspapers and
magazines, serving around 30,000 retailers across england and
Wales; and
• Bertrams, a leading UK book wholesaler, supplying books to a mix of
independent booksellers, online and multiple retailers, and libraries.
The principal companies affecting the profits or net assets of the Group in
the year are listed in Note 29 to the Accounts.
Business review
A review of the business of the Group during the financial year ended
31 August 2010, including an analysis of the position of the Group at the
end of the financial year, a description of the principal risks and
uncertainties facing the Group and an indication of likely future
developments is set out in the following sections of the Annual Report,
which are incorporated into this report by reference:
• Chairman’s Statement on pages 2 and 3;
• Business Review, comprising the Operating Review and Financial
Review, on pages 8 to 37; and
• Corporate Responsibility Report on pages 38 to 45.
Profit and dividends
The profit for the financial year, after taxation, was £21.2m (2009:
£17.7m).
The directors recommend the payment of a final dividend for the year of
5p per ordinary share (2009: 4.6p) on 4 February 2011 to members on
the Register at the close of business on 7 January 2011.
This final dividend, together with the interim dividend of 2.4p per ordinary
share paid on 11 June 2010, makes a total dividend of 7.4p per ordinary
share for the year ended 31 August 2010 (2009: 6.8p).
Capital structure
As at the date of this report the Company’s issued share capital
comprises 183,375,453 ordinary shares of 5p each nominal value.
Details of movements in the issued share capital can be found in Note 27
to the Accounts. The ordinary shares are listed on the London Stock
exchange.
All ordinary shares rank equally with respect to voting and dividend rights,
each share carrying the right to one vote at general meetings of the
Company. There are no specific restrictions either on the size of a holding
or on the transfer of shares, which are both governed by the provisions of
the Company’s Articles of Association (the ‘Articles’) and prevailing
legislation and regulations. No shareholder has any special rights of control
over the Company’s share capital and all issued shares are fully paid.
Details of the Company’s share schemes are set out in the Remuneration
Report on pages 57 to 67 and in Note 26 to the Accounts. The Trustee of
the Smiths News employee Benefit Trust waives its right to vote and to
dividends on the shares that it holds.
Issue of new ordinary shares
During the financial year ended 31 August 2010, 452,312 ordinary shares
in the Company were issued under the terms of the Sharesave Scheme
at prices between 79.2p and 100.8p. The Articles provide that the Board
may, subject to the prior approval of the members of the Company,
exercise all the powers of the Company to allot relevant securities
including new ordinary shares.
Purchase of own shares
At the Annual General Meeting held on 15 January 2010, authority was
given for the Company to purchase, in the market, up to 18,292,238
ordinary shares of 5p each. The Company did not use this authority to
make any purchases of its own shares during the financial year. This
authority is renewable annually and approval will be sought from
shareholders at the Annual General Meeting in 2011 to renew the authority
for a further year.
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Substantial shareholdings
As at 21 October 2010 the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following
significant holdings of voting rights in its shares:
Holder Number % Nature of Holding
Silchester International Investors Limited 34,803,278 19.03 Direct Interest
Standard Life Investments Limited 8,964,340 4.90 Direct and Indirect Interests
Legal & General Group Plc 7,035,428 3.84 Direct Interest
Significant agreements – change of control
The Company’s trading subsidiaries, Smiths News Trading Limited
and Bertram Trading Limited, have agreements with publishers and
distributors that contain change of control clauses giving rights to those
publishers and distributors on a takeover of the Company.
A change of control of the Company following a takeover bid may cause a
number of other agreements to which the Company, Smiths News Trading
Limited or Bertram Trading Limited is party, such as banking arrangements,
property leases and licence agreements, to alter or terminate. In addition,
the executive directors’ service agreements and employee share plans
would be similarly affected on a change of control, including in the case of
Mark Cashmore, compensation for loss of office if his contract was
terminated. Details of the change of control clause in Mark Cashmore’s
contract can be found in the Remuneration Report on page 61.
Directors
The directors are responsible for the management of the business of the
Company and may exercise all the powers of the Company subject to
applicable legislation and regulation and the Company’s Articles.
The names of the directors as at the date of this report, together with
biographical details, are set out on pages 46 and 47. All the directors
served throughout the year except as set out below:
Jonathan Bunting was appointed as a director on 1 April 2010.
Nick Gresham was appointed as a director on 1 August 2010.
Alan Humphrey, who was appointed as a director on 31 August 2006,
stepped down from the Board on 31 August 2010 and will leave the
Company on 31 October 2010.
The Company’s Articles give a power to the Board to appoint directors
and (where notice is given signed by all the other directors) remove a
director from office. They also give a power to the Company to appoint
directors (by ordinary resolution) and remove a director from office (by
special resolution or by ordinary resolution of which special notice has
been given). The Company’s Articles themselves may be amended by
special resolution of the shareholders.
The Company’s Articles require that directors offer themselves for
re-election every three years and that new directors appointed by the
Board offer themselves for election at the next Annual General Meeting
following their appointment. However, in accordance with the new UK
Corporate Governance Code (the ‘New Code’), which replaces the existing
Combined Code on Corporate Governance for accounting periods
beginning on or after 29 June 2010, the Board has agreed that all directors
will stand for re-election at the Annual General Meeting to be held on
14 January 2011. This is notwithstanding that the Company, which is a
‘smaller company’ for the purposes of the New Code, is not formally
required to re-elect all directors on an annual basis.
The Chairman confirms that, following the formal performance evaluation
carried out in August 2010, each of the non-executive directors makes an
effective and valuable contribution to the Board and demonstrates
commitment to their respective roles.
John Worby has led a review of Dennis Millard’s contribution to the Board
and confirms that, following the formal performance evaluation carried out
in August 2010, he continues to be an effective Chairman.
The interests of the directors and their immediate families in the share
capital of the Company, along with details of directors’ share options and
awards, are set out in the Remuneration Report on pages 57 to 67.
Directors’ Report continued
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At no time during the year did any of the directors have a material interest
in any significant contract with the Company or any of its subsidiaries.
The Company maintains directors’ and officers’ liability insurance which gives
appropriate cover for any legal action brought against its directors. The
Company has also provided an indemnity for its directors and secretary, to
the extent permitted by law, which is a qualifying third party indemnity
provision for the purposes of section 234 of the Companies Act 2006.
Employees
The Group employs approximately 5,300 people (2009: 6,100)
throughout the United Kingdom and it is proud of its long history of being
regarded as a responsible and respected employer.
employees are kept well informed of the performance and objectives of
the business through personal briefings and email and the Group’s open
management style encourages employees to contribute to the
development of the business.
The Company operates an HM Revenue & Customs Approved Save-As-
you-earn share option scheme (Sharesave Scheme), which provides
employees with the opportunity to acquire shares in the Company.
Approximately 600 employees participate in this scheme (2009: 560).
The Board believes in creating throughout the Group a culture that is free
from discrimination and harassment and will not permit or tolerate
discrimination in any form. Proper consideration is given to applications
for employment from disabled people. Should an employee become
disabled when working for the Group, efforts are made to continue his/
her employment and retraining is provided if necessary.
Charitable and political donations
Charitable donations during the year ended 31 August 2010 totalled
£19,445 (2009: £6,594). The Group encourages its employees to give
their time and skills for the benefit of a variety of charitable causes.
Further details can be found in the Corporate Responsibility Report on
pages 38 to 45.
It is the Group’s policy not to make political donations and no political
donations or eU political expenditure were made in the year (2009: £nil).
Supplier payment policy
The Group’s policy for the payment of suppliers, which complies with the
CBI Code of Practice for Buyers, is to agree the terms of payment in
advance in line with normal trade practice and, provided a supplier
performs in accordance with the agreement, to abide by such terms. The
Group’s trade creditors figure as at the balance sheet date was equivalent
to 35 days (2009: 34 days) based on average daily amounts invoiced by
suppliers during the year. The Company is a holding company and does
not have any trade creditors.
Disclosure of information to auditors
each director confirms that, so far as he is aware, there is no relevant
audit information of which the Company’s auditors are unaware and that
each director has taken all the steps he ought reasonably to have taken
as a director in order to make himself aware of any relevant audit
information and to establish that the Company’s auditors are aware of
that information.
This confirmation is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act 2006.
Auditors
Deloitte LLP (‘Deloitte’) have expressed their willingness to continue in office
as auditors of the Company. Resolutions to re-appoint Deloitte as auditors to
the Company and to authorise the Audit Committee to determine their
remuneration will be proposed at the Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at Wakefield
House, Pipers Way, Swindon, Wiltshire, SN3 1RF on 14 January 2011 at
11.30am. The Notice of Annual General Meeting is given, together with
explanatory notes on the five items of special business to be considered
at the meeting, in the booklet which accompanies this report.
By order of the Board
Mark Charlton
Company Secretary
21 October 2010
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Corporate Governance
Smiths News PLC is committed to achieving high standards of corporate
governance. The principal governance rules applying to UK companies
listed on the London Stock exchange, for accounting periods beginning
before 29 June 2010, are contained in the June 2008 Combined Code on
Corporate Governance (the ‘Code’).
Statement of compliance with the Code
The Board confirms that the Company has applied the main principles of
and has complied with all of the provisions set out in Section 1 of the
Code for the financial year ended 31 August 2010. This report, together
with the Remuneration Report on pages 57 to 67, describe how the
Company has applied the main principles of the Code during the year.
The Board
Board composition
On 21 October 2010, the Board comprised the Chairman, three executive
directors and three independent non-executive directors. Jonathan
Bunting and Nick Gresham were appointed to the Board as executive
directors on 1 April 2010 and 1 August 2010 respectively. Alan Humphrey
resigned as an executive director on 31 August 2010. Details of the
selection and appointment process are set out on page 54. Short
biographies of each of the directors, which illustrate their range of
experience and qualifications, are set out on pages 46 and 47.
There is a clear division of responsibility at the head of the Company;
Dennis Millard (Chairman) being responsible for running the Board
and Mark Cashmore (Group Chief executive) being responsible for
implementing Group strategy. The division of responsibilities between the
Chairman and Group Chief executive have been set out in writing and
agreed by the Board. The Board considers that it is of an appropriate size
to oversee the Company’s business, with a structure that ensures that no
individual or group dominates the decision-making process.
Dennis Millard, who was non-executive Deputy Chairman until his
appointment as Chairman on 6 February 2008, met the independence
criteria set out in the Code on appointment as a director. Andrew Brent,
Anthony Cann and John Worby (Senior Independent Director), who
served as non-executive directors throughout the year and up to the date
of this report, meet the independence criteria set out in the Code.
The Chairman’s other directorships are described in his biographical
details set out on page 46. There have been no significant changes
during the year relating to these commitments. The Board is satisfied that
the directors who have external directorships have sufficient time available
to be effective members of the Board.
The Board’s role
The Board, which had eight scheduled meetings and two additional
meetings during the year, manages the Company through a formal
schedule of matters reserved for its decision. Such matters include:
• overall strategic management of the Company, including acquisitions
and disposals;
• approval of long-term objectives and commercial strategy;
• approval of the annual operating and capital expenditure budgets;
• major capital expenditure;
• changes relating to the Company’s capital structure;
• approval of the accounts, material agreements and non-recurring
projects;
• treasury policy;
• control, audit and risk management;
• remuneration of directors and senior managers; and
• corporate responsibility.
Directors
All directors have access to the advice and services of the Company
Secretary and may take independent professional advice at the
Company’s expense where necessary. In preparation for Board meetings,
information is received by the Board in a timely manner, of a quality
sufficient for the Board to take decisions.
All new directors receive induction training on joining the Board, which is
tailored to meet the needs of the individual. The induction programme is
supplemented by ongoing training and development, the need for which
is regularly assessed by the Board.
The Company’s Articles of Association (the ‘Articles’) require that directors
offer themselves for re-election every three years and that new directors
appointed by the Board offer themselves for election at the next Annual
General Meeting following their appointment. However, in accordance
with the new UK Corporate Governance Code (the ‘New Code’), which
replaces the existing Combined Code on Corporate Governance for
accounting periods beginning on or after 29 June 2010, the Board has
agreed that all directors will stand for re-election at the Annual General
Meeting (‘AGM’) on 14 January 2011. This is notwithstanding that the
Company, which is a ‘smaller company’ for the purposes of the New
Code, is not formally required to re-elect all directors on an annual basis.
Details of the directors’ service contracts, remuneration, options to
subscribe for shares in the Company and interests of the directors and
their immediate families in the share capital of the Company are shown in
the Remuneration Report on pages 57 to 67.
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Directors’ conflicts of interest
The Companies Act 2006 provides that a director must avoid situations
where he can have a direct or indirect interest that conflicts or might
conflict with the interests of the Company (‘situational conflicts’). The
Company’s Articles contain provisions that allow the Board to consider
and, if it sees fit, to authorise situational conflicts.
The Board confirms that such powers have been operated effectively and
that a formal system for directors to declare their interests and for the
independent directors to authorise situational conflicts continues to be in
place. Any authorisations given are recorded in the Board minutes and in
a register of directors’ conflicts which is reviewed annually by the Board.
Board Committees
The Board delegates specific responsibilities to the Board Committees
(described below). The role and responsibilities of each Committee are
set out in formal terms of reference, which are reviewed annually. The
terms of reference for each of the Committees are available on the
Company’s website (www.smithsnews.co.uk) and from the Company
Secretary on request.
Audit Committee
The Audit Committee is chaired by John Worby, who the Board has
determined has recent and relevant financial experience, and its other
members are Andrew Brent, Anthony Cann and Dennis Millard, who all
have extensive business experience. John Worby, Andrew Brent and
Anthony Cann are independent non-executive directors and Dennis
Millard was independent on appointment as a director in August 2006.
Short biographies of each of the directors, which illustrate their range of
experience and qualifications, are set out on pages 46 and 47. At the
invitation of the Committee, the Group Chief executive, Chief Financial
Officer, Chief Commercial Officer, Head of Internal Audit and
representatives of the external auditors regularly attend meetings.
The Committee’s terms of reference, which are available on the
Company’s website (www.smithsnews.co.uk) and from the Company
Secretary on request, set out the responsibilities of the Committee. These
responsibilities include:
• monitoring the integrity of the annual and interim accounts and other
announcements relating to financial performance;
• reviewing significant financial reporting issues and judgements which
they contain;
• keeping under review the effectiveness of the internal control and risk
management systems;
• monitoring and reviewing the effectiveness of external audit (including
auditor independence) and internal audit;
• making recommendations to the Board as to the re-appointment or
otherwise of the external auditors; and
• monitoring and reviewing the arrangements for employees to raise, in
confidence, concerns about possible improprieties in matters of
financial reporting, control and other matters (‘whistle-blowing’).
The Committee met four times during the year. In addition to ensuring the
integrity of the annual and interim accounts the Committee was also
active throughout the year in other key areas, including:
• reviewing the preliminary announcement, Annual Report and
Accounts, interim announcement and interim results;
• considering reports from the external auditors reviewing any
accounting or judgemental issues requiring its attention;
• approving audit plans for the external and internal auditors;
• considering reports from the Head of Internal Audit on the results of
internal audit reviews, significant findings, management action plans,
and timeliness of resolution;
• reviewing reports on the Company’s risk management process;
• reviewing management of fraud risk and incidences of fraud;
• meeting privately with the external auditors and the Head of
Internal Audit;
• reviewing the effectiveness of the internal audit activities;
• reviewing the effectiveness of the Company’s whistle-blowing
process; and
• reviewing the independence and performance of the external auditors.
In relation to the external auditors, the Committee assesses the scope,
fee, objectivity and effectiveness annually. The Committee has a formal
policy to review the selection of external auditors at least every five years,
including consideration of whether a tender process is appropriate. For
this purpose the current term of engagement of the incumbent external
auditors, Deloitte LLP (‘Deloitte’), is regarded as having commenced on
31 August 2006, being the date of demerger of old WH Smith PLC. In
line with professional standards, Deloitte has a policy of rotating partners
every five years.
The Committee also has a formal policy on the Company’s relationship
with the external auditors which includes financial approval limits for
non-audit services and restrictions on the nature of work that can be
performed to ensure that the external auditors’ objectivity is
not impaired.
The Audit Committee, following its annual review, is satisfied that
Deloitte continue to provide an effective audit service and has
recommended to the Board that they be re-appointed. Accordingly, a
resolution to re-appoint Deloitte will be put to shareholders at the AGM.
The fees paid to Deloitte in respect of non-audit services are shown in
Note 3 to the Accounts.
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Nominations Committee
The Nominations Committee is chaired by Dennis Millard and its other
members are Andrew Brent, Anthony Cann and John Worby.
The Committee’s terms of reference, which are available on the
Company’s website (www.smithsnews.co.uk) and from the Company
Secretary on request, set out the responsibilities of the Committee, which
include the following:
• reviewing the composition of the Board including the skills, knowledge
and experience of the directors;
• ensuring plans are in place for orderly succession planning for
directors and senior management; and
• identifying and nominating candidates to fill Board vacancies.
During the year the Committee led the recruitment process for a new
Chief Financial Officer after Alan Humphrey informed the Board that he
intended to retire. Following a tender, search consultants, egon zehnder
International, were instructed by the Committee in connection with this
process. The Committee considered the skills, knowledge, background
and experience required for the role, and a job specification was
prepared. Following an extensive search, the Committee recommended
to the Board that Nick Gresham be appointed. Nick Gresham joined the
Company and was appointed to the Board on 1 August 2010.
The Committee holds one meeting each year to review succession
planning and otherwise meets as required. The Committee met three
times during the year.
Remuneration Committee
The Remuneration Committee, which met five times during the year,
is chaired by Anthony Cann and its other members are Andrew Brent,
Dennis Millard and John Worby. At the invitation of the Committee,
the Group Chief executive, Chief Financial Officer, HR Director and
representatives of its external independent adviser may attend meetings.
The Committee’s principal responsibility is to determine and recommend
to the Board the remuneration of executive directors and the Chairman.
It also monitors the level and structure of remuneration for senior
management and seeks to ensure that remuneration packages are
designed to attract, retain, and motivate executive directors and senior
management to run the Company successfully. The remuneration of
the non-executive directors is determined by the Chairman and the
executive directors.
The Remuneration Report, which provides more detailed information on
the role of the Committee and the remuneration of the directors, is set out
on pages 57 to 67.
The Committee’s terms of reference are available on the Company’s
website (www.smithsnews.co.uk) and from the Company Secretary
on request.
Corporate Governance continued
Attendance at Board and Committee meetings
The following table shows the attendance of directors at Board and Committee meetings held during the year.
Scheduled Committee Meetings
Board Meetings Audit Nominations Remuneration
No. of meetingsa 8 4 3 5
Dennis Millard 8 4 3 5
Jonathan Buntingb 3 – – –
Mark Cashmore 8 – – –
Nick Greshamc – – – –
Alan Humphrey 8 – – –
Andrew Brent 8 4 3 5
Anthony Cann 8 4 3 5
John Worby 8 4 3 4
a) Two additional Board meetings were held by telephone conference call during the year.b) Jonathan Bunting was appointed to the Board on 1 April 2010 and attended all Board meetings in the year after that date.c) Nick Gresham was appointed to the Board on 1 August 2010. There were no Board meetings held in the year after that date.
The Board has met twice since 31 August 2010 and all the directors attended both meetings. In addition, the Audit Committee has met once and the
Remuneration Committee has met twice since 31 August 2010.
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Evaluation of the Board and its committees
The Board has a formal process for evaluating its performance, the
performance of its committees and of individual directors. This process
takes place in August and September each year and consists of: each
director completing an extensive questionnaire covering Board and
Committee procedures and effectiveness and individual contributions
to Board and Committee meetings; a one-to-one discussion between
the Chairman and each director to discuss their contribution and
performance during the year and training needs, if any; and a meeting of
the non-executive directors led by the senior independent director to
discuss the Chairman’s performance and provide feedback.
The findings of this year’s evaluation were considered by the Board
at its September meeting. The Chairman led this discussion, based on
the responses to the questionnaires and his one-to-one discussions.
The Board also reviewed the two main actions arising from the 2009
evaluation process (the scheduling of additional depot visits following the
increase in size of the network and the continuation of the programme of
pre-Board breakfast meetings with functional teams) and noted that these
had been implemented during the year.
The outcome of the evaluation was that the Board is working effectively
with an appropriate balance of skills and adequate time and resources.
With the Company’s increasing focus on corporate development, it
was felt that the Board had been strengthened by the appointment of
Jonathan Bunting during the year and that this had further increased its
effectiveness. In addition, in accordance with the New Code, it was
agreed that the Board would review its collective risk appetite with a view
to outlining its approach to risk in next year’s Annual Report.
Internal control and risk management
The Board has overall responsibility for the Company’s system of internal
control including risk management and for reviewing its effectiveness
throughout the Group. Such a system is designed to manage or mitigate
rather than eliminate the risk of failure to achieve business objectives, and
can only provide reasonable and not absolute assurance against material
misstatement or loss.
Risk management
The Board confirms that there is an ongoing process for identifying,
evaluating and managing significant risks faced by the Company,
including those risks relating to social, environmental and ethical matters.
This process was in place throughout the year under review and up to the
date of approval of the Annual Report and accords with the revised
guidance on internal control published in October 2005 (the ‘Turnbull
Guidance’). The Audit Committee has kept under review the effectiveness
of the system of internal control and has reported regularly to the Board.
The key features of the risk management process are as follows:
• the Company has an internal Risk Committee which is responsible for
monitoring the nature and extent of the risks across the business;
• the business conducts half yearly risk assessments based on identified
business objectives which are reviewed and agreed by its executive
management. Risks are categorised into strategic, operational, financial
and compliance and are evaluated in respect of their potential impact
and likelihood. These risk assessments are reviewed and updated
quarterly by the Risk Committee and are reported to and reviewed by
the executive management and Audit Committee; and
• the results of the business risk assessment form one of the bases for
determining the internal audit plan. Audit reports in relation to the
areas reviewed are discussed with the Risk Committee and agreed
with the Audit Committee.
Internal control
The Company has an established framework of internal controls covering
both financial and non-financial controls, the effectiveness of which is
regularly reviewed by the executive management and the Board.
The Board is responsible for overall Group strategy, for approving revenue
and capital budgets and plans, for approving major acquisitions and
disposals and for determining the financial structure of the Group,
including treasury and dividend policy.
The Board has established an organisational structure with clearly defined
reporting lines and controls at all levels of management across the
business, identifying transactions requiring approval by the Board or by
the Approvals Committee.
The Approvals Committee, which comprises the Group Chief executive
and Chief Financial Officer, and for commercial transactions the relevant
member of the executive management, is authorised by the Board to
approve routine matters within agreed financial limits.
The Audit Committee assists the Board in the discharge of its duties
regarding the Group’s accounts, accounting policies and the maintenance
of proper internal financial controls.
The system of financial control also includes:
• a comprehensive system for budgeting and planning together with
monitoring and reporting the performance of the Company’s business
to the Board. Monthly results are reported against budget and prior
year, and forecasts for the current financial year are regularly revised in
the light of actual performance. These cover profits, cash flows, capital
expenditure and balance sheets;
• a full appraisal of all major investment projects;
• key controls over major business risks including reviews against
performance indicators and exception reporting, and the preparation
of monthly management accounts;
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• monthly reporting of treasury activities and risks, for review by senior
executives; and
• annual reports covering treasury policies, pensions and insurance, for
review by the Board and Audit Committee.
Additional non-financial controls include:
• key performance indicators to monitor customer service levels at
every location, whilst summary level results are reported to the
Board monthly;
• independent customer satisfaction surveys;
• a corporate responsibility programme which addresses the impact of
the Company’s activities on the environment, workplace, marketplace
and community;
• a Corporate Responsibility Committee which is responsible for
reviewing delivery against corporate responsibility objectives, with
annual updates provided to the Board;
• an environmental Policy, which is reviewed annually by the Board;
• a Health & Safety Policy, which is reviewed annually by the Board;
• a Risk Management team, working with the business to assess health
and safety risks and introduce systems to mitigate them. Details of
major business incidents are reported to the Risk and Audit
Committees and all notified accidents are investigated;
• reports under the Reporting of Injuries, Diseases and Dangerous
Occurence Regulations provided to the Board on a monthly basis;
• a commitment by the Company to ensure that its personnel meet high
standards of integrity and competence. The Company’s systems
cover recruitment, training and development of personnel, and the
communication of Company policies and procedures throughout the
organisation;
• business recovery plans to enable the business to continue with
minimum disruption to customers in the event of a disaster. These
plans are reviewed by the Risk and Audit Committees;
• a Code of Business Conduct (including whistle-blowing) which takes
into account the interests of all stakeholders; and
• strict guidelines for the use of confidential customer data.
The Internal Audit team assists in maintaining adequate financial controls.
It is also responsible for reviewing the effectiveness of those controls by
undertaking an agreed schedule of internal audits each year and reporting
its findings to the executive management, Risk and Audit Committees.
The schedule of internal audits forms part of an audit plan approved by
the Audit Committee annually.
Internal Audit meets annually with senior executives in order to complete
a formal certification of the effectiveness of internal controls. These
certificates are submitted to the Risk Committee. In turn, the Risk
Committee provides a certificate to the Audit Committee in order to assist
the Board with conducting its annual review of the effectiveness of
internal controls in compliance with the Turnbull Guidance.
The Audit Committee has carried out a specific review of the effectiveness
of the system of internal control during the year. This assessment
considered all significant aspects of internal control arising during the
period covered by this report including the work of internal audit. During
the course of this review, the Audit Committee has not identified nor been
advised of any failings or weaknesses which it has determined to be
significant. Therefore a confirmation in respect of necessary actions has
not been considered appropriate.
Relations with shareholders
The Board is responsible for and recognises the importance of
communicating with the Company’s shareholders to ensure that both
strategy and performance are understood. This is achieved principally
through the Company’s website, www.smithsnews.co.uk, and the AGM.
The website provides a range of information about the Company,
including Annual Reports, results announcements and presentations,
AGM information, share price data, the Company’s financial calendar and
regulatory news releases.
Following the announcement of the Company’s full year and interim
results, formal presentations are made to institutional shareholders by the
Group Chief executive and Chief Financial Officer covering a range of key
issues affecting the Company’s performance.
All shareholders have the opportunity to ask questions at the AGM, which
is normally attended by all of the directors. The notice of the AGM is sent
to shareholders at least 20 working days before the meeting and includes
notice of the availability of the Annual Report on the Company’s website.
At the AGM, separate resolutions are proposed on each separate issue
and shareholders vote on each resolution on a show of hands, unless a
poll is validly called. Proxy Forms allow shareholders to vote for or
against, or to withhold their vote on each resolution, and the results of
proxy voting are made available at the meeting, announced to the London
Stock exchange and published on the Company’s website.
The Board as a whole is kept fully informed of the views and concerns of
major shareholders. The Group Chief executive and Chief Financial Officer
update the Board following meetings with major shareholders whilst
independent feedback from shareholders is provided to the Board by the
Company’s advisers and brokers. The Chairman and Senior Independent
Director make themselves available to attend meetings with major
shareholders.
Approval
This report was approved by the Board and signed on its behalf by:
Mark Charlton
Company Secretary
21 October 2010
Corporate Governance continued
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Remuneration Report
This Remuneration report has been prepared on behalf of the Board by
the Remuneration Committee. The Committee has adopted the principles
of good governance as set out in the Combined Code and complies with
Schedule 8 to the Accounting Regulations under the Companies Act
2006 and the Listing Rules of the Financial Services Authority. Part A of
the report, which is not subject to audit, sets out the Company’s
remuneration policy. Part B, which has been audited, provides details of
the remuneration, pensions and share incentives of the directors for the
year ended 31 August 2010. Shareholders will be asked to approve the
report at the Annual General Meeting on 14 January 2011.
Part A – Unaudited
Remuneration Committee
The Remuneration Committee is chaired by Anthony Cann and its other
members throughout the year were Andrew Brent, Dennis Millard and
John Worby. Anthony Cann, Andrew Brent and John Worby are all
independent non-executive directors and Dennis Millard was independent
on appointment as a director in August 2006. The Committee met five
times during the year.
The Committee’s terms of reference, which are available on the
Company’s website and from the Company Secretary on request,
set out the responsibilities of the Committee which include:
• determining and agreeing with the Board the broad policy for the
remuneration of the Chairman, executive directors and certain other
senior executives;
• reviewing the ongoing appropriateness and relevance of the
remuneration policy;
• reviewing the policy for any performance related pay schemes
operated for those below executive management level and approving
total annual payments made under all performance related pay
schemes;
• reviewing the design of all short and long-term incentive plans for
approval by the Board and, where required, by shareholders;
• determining the policy for the grant of share incentives to executive
directors and senior executives, setting appropriate performance
targets and approving the quantum of grants and vesting schedules;
• ensuring that contractual terms on termination, and any payments
made, are fair to the individual and the Company, that failure is not
rewarded and that the duty to mitigate loss is fully recognised; and
• determining the total individual remuneration package of each
executive director and other senior executives including bonuses
and share incentives.
During the year the Committee received external advice and services from
its independent adviser, Deloitte LLP (‘Deloitte’). Deloitte also provided
audit services to the Company. The Committee is satisfied that the
remuneration advice it receives from Deloitte is independent. Glenn
Leech, Human Resources Director also materially assisted the Committee
in carrying out its duties, except in relation to his own remuneration.
Remuneration policy
The Company’s remuneration policy aims to encourage a performance-
based culture, attract and retain high calibre executive directors and align
the interests of executive directors and shareholders. In forming this
policy the Committee has adopted the principles set out in
Section B of the Combined Code.
The aims of the policy are achieved by providing a remuneration
package, comprising salary and benefits, positioned around the median
of a comparator group of peer companies, pension provision and
performance related benefits. Any payments made to executive directors
other than salary are not pensionable. The performance related benefits,
which consist of an annual bonus, an economic profit bonus and
long-term incentive (‘LTIP’), account for a significant proportion of
total remuneration.
In line with the Association of British Insurers’ Guidelines on Responsible
Investment Disclosure, the Committee will ensure that the incentive
structure for executive directors and senior management will not raise
environmental, social or governance (‘eSG’) risks by inadvertently
motivating irresponsible behaviour. More generally, with regard to the
overall remuneration structure, there is no restriction on the Committee
which prevents it from taking into account corporate governance on
eSG matters.
Under our current policy, the overall maximum remuneration opportunity
is 300% of salary for Mark Cashmore and 255% of salary for Jonathan
Bunting and Nick Gresham. For Mark Cashmore, this comprises base
salary, an annual bonus opportunity of 100% of base salary, an economic
profit bonus opportunity of 50% of base salary and an LTIP opportunity of
50% of base salary. For Jonathan Bunting and Nick Gresham, it
comprises base salary, an annual bonus opportunity of 80% of base
salary, an economic profit bonus opportunity of 40% of base salary and
an LTIP opportunity of 35% of base salary. For the year ending 31 August
2011, Nick Gresham’s economic profit bonus opportunity is capped at
13% of base salary (see table on page 58). Also, it has been decided that
the proportion of the annual bonus and economic profit bonus to be paid
in the form of deferred shares will remain unchanged at 33% and 50%
respectively. The Annual Bonus Plan, economic Profit Plan (‘ePP’) and
LTIP are described in more detail below.
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Salary and benefits
To align the timing of salary reviews throughout the Group, the Committee
has decided to move its annual review of executive directors’ salaries
from September to January, with any new salaries taking effect from
1 January. When conducting any review, the Committee takes into
account a range of factors including the Group’s performance, market
conditions, the prevailing market rates for similar positions in a
comparable group of companies, the responsibilities, individual
performance and experience of each executive director and the level
of salary increases awarded to employees throughout the Group.
Mark Cashmore’s and Jonathan Bunting’s salaries, which were last
reviewed in September 2009, are £320,000 and £200,000 respectively.
Nick Gresham, who joined the Company and was appointed a director on
1 August 2010, receives a salary of £230,000.
executive directors also receive taxable benefits including the provision of
a company car and private medical insurance.
The fees paid to non-executive directors are determined by the Chairman
and the executive members of the Board and take into account the
required time commitment and the fee payments for non-executive
directors of similar organisations. There were no changes to the fees paid
to non-executive directors during the year under review. Non-executive
directors do not participate in any bonus or share schemes.
Annual Bonus Plan
The plan is designed so that the level of bonus paid is dependent on
the achievement of an underlying profit before tax target and personal
performance, set at the beginning of each year. Target level is based on
the achievement of stretching performance; maximum level requires
outstanding performance.
For the year under review, Mark Cashmore had the opportunity to receive
an annual bonus up to a maximum of 100% of base salary (47.5% at
target level) and Alan Humphrey and Jonathan Bunting had the
opportunity to receive an annual bonus up to a maximum of 80% of base
salary (37.5% at target level), one third of which is payable in the form of
shares, the receipt of which is deferred for two years (see Deferred Bonus
Plan below).
Largely as a result of achieving the maximum profit before tax target of
£35m, Mark Cashmore’s annual bonus for the year under review is
£320,000, of which £213,333 will be paid in cash in November 2010 and
£106,667 will be paid in the form of shares. Alan Humphrey and Jonathan
Bunting will each receive an annual bonus for the year under review of
£150,000, of which £100,000 will be paid in cash in November 2010 and
£50,000 will be paid in the form of shares.
For the year ending 31 August 2011, the annual bonus opportunity for
Mark Cashmore and Jonathan Bunting will remain unchanged. Nick
Gresham will have the opportunity to earn an annual bonus up to a
maximum of 80% of base salary (37.5% at target level), of which one third
is payable in shares.
Economic Profit Plan
Under this plan, which was introduced in 2008, executive directors and key
senior executives may receive each year a cash payment and/or be
granted a share award under the terms of the Deferred Bonus Plan, based
on the value of an economic profit pool (the ‘Pool’). The value of the Pool is
determined by the economic profit (calculated as profit after tax less the
cost of capital employed) created in each financial year, with 10% of this
economic profit being contributed to the Pool (if there is an economic loss
in any year the value of the Pool will be diminished). One third of the Pool is
then distributed to participants each year (allocated in the proportion of
each participant’s base salary to the participants’ total base salaries) and
two-thirds is carried forward to form part of the Pool for the following year.
Remuneration Report continued
Relative value of remuneration package 2010/11
The table below shows the expected relative value at target and maximum performance levels of the fixed and performance-related elements of the
executive directors’ remuneration package for the financial year ending 31 August 2011.
Fixed element Performance-related elements
Base salary Annual Bonus Plana EPPb LTIP
Target Max. Target Max. Target Max. Target Max.
Mark Cashmore 47% 33% 22% 33% 17% 17% 14% 17%
Jonathan Bunting 53% 39% 20% 31% 16% 16% 11% 14%
Nick Gresham 59% 44% 22% 35% 6% 6%c 13% 15%
a) 33% of the annual bonus will be paid in the form of shares, the receipt of which is deferred for two years (see Deferred Bonus Plan below).b) 50% of the ePP bonus will be paid in the form of shares, the receipt of which is deferred for two years (see Deferred Bonus Plan below).c) As a new joiner, Nick Gresham’s maximum ePP bonus opportunity is 13% of base salary (one-third of 40%), representing 6% of his total remuneration package.d) The above table does not include the value of other benefits such as the provision of a company car, private medical insurance and employer pension contributions.
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The main objectives of the plan are to retain key executives and to
incentivise the executive management team to generate profits over and
above the Group’s cost of capital. Mark Cashmore receives an allocation of
up to 50% of base salary and Jonathan Bunting receives an allocation of
up to 40% of base salary. Given the nature of the plan, an executive’s
entitlement will build up during the first three years of participation. As such,
Nick Gresham is able to receive an allocation of up to 13% of base salary in
the year ending 31 August 2011, 27% of base salary in the year ending
31 August 2012 and 40% of base salary in the year ending 31 August
2013. It is current policy that 50% of the annual payout will be in cash and
50% will be in the form of deferred shares (see Deferred Bonus Plan
below). However, the Committee reserves the right to change these
proportions for future years in light of the circumstances prevailing at
the time.
The economic profit generated in the year to 31 August 2010 resulted in
a contribution to the Pool of £622,700, bringing the total value of the Pool
to £947,000. Of this Pool, Mark Cashmore will receive £89,574, of which
£44,787 will be paid in cash in November 2010 and £44,787 will be paid in the
form of shares, Alan Humphrey will receive £45,974, of which £22,987 will be
paid in cash in November 2010 and £22,987 will be paid in the form of shares,
and Jonathan Bunting will receive £46,108, of which £23,054 will be paid in
cash in November 2010 and £23,054 will be paid in the form of shares.
Deferred Bonus Plan
Under this plan, executive directors and key senior executives may be
granted each year share awards (in the form of nil cost options)
representing a proportion of the bonuses earned under the Annual
Bonus Plan and/or economic Profit Plan. The awards are exercisable
after a holding period of two years, subject to continued employment.
As described under Annual Bonus Plan and economic Profit Plan, for
performance in the year under review, Mark Cashmore, Alan Humphrey
and Jonathan Bunting will be granted share awards under this plan with
market values at the date of grant of £106,667, £50,000 and £50,000
respectively in connection with the Annual Bonus Plan and £44,787,
£22,987 and £23,054 respectively in connection with the economic Profit
Plan. These awards will be granted in October 2010.
Alan Humphrey stepped down from the Board on 31 August 2010 and
will retire on 31 October 2010. In accordance with the rules of the plan,
his outstanding awards will vest in the normal way, i.e. after the expiry of
the two year holding period, after which he will have six months in which
to exercise them.
Long-term incentives
Smiths News LTIP
Under this plan, executive directors and key senior executives may be awarded each year conditional entitlements to ordinary shares in the Company (in the
form of nil cost options) or, in order to retain flexibility and at the Company’s discretion, a cash sum linked to the value of a notional award of shares up to a
value of 200% of base salary.
The vesting of awards is subject to the satisfaction of a performance condition, which is determined by the Remuneration Committee at the time of grant.
The Committee believes that for executive directors and Smiths News senior executives earnings per share (‘ePS’) is the most appropriate measure of the
Company’s performance.
For awards granted in November 2006 and November 2007, the performance condition is based on real growth in the Company’s ePS over the three
years ended 31 August 2009 and 31 August 2010 respectively (the ‘Performance Period’) as set out in the following table.
Annual rate of growth in EPS (compounded annually)
in excess of growth in RPI over the Performance Period Proportion exercisable
Below 3% zero
3% 35%
Prorating applies between these points Between 35% and 100%
9% or more 100%
This performance condition has not been met and, as such, the awards granted in November 2006 and November 2007 lapsed on 22 October 2009
and 21 October 2010 respectively.
In light of the prevailing business environment, for awards granted to the executive directors and Smiths News senior executives in April and November
2009, the performance condition is based on the Company’s aggregate absolute ePS over the three years ending 31 August 2011 and 31 August
2012 respectively (the ‘Performance Period’) as set out in the following tables.
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Awards granted in April 2009
Aggregate EPS performance
over the Performance Period Proportion exercisable
Below 41p zero
41p 20%
Prorating applies between these points Between 20% and 100%
45p or more 100%
Awards granted in November 2009
Aggregate EPS performance
over the Performance Period Proportion exercisable
Below 42.5p zero
42.5p 20%
Prorating applies between these points Between 20% and 100%
47.5p or more 100%
For the purposes of the above targets, ePS will be determined by reference to basic earnings per share, as defined by IAS 33, before non-recurring
items and their associated tax impact, adjusted by the Committee as considered appropriate to ensure consistency.
Remuneration Report continued
Smiths News share option schemes
The Company operates two types of share option scheme:
a) an executive Share Option Scheme which is used to grant options to
executives up to an annual limit of 200% of base salary. The
performance condition for options granted in November 2006 and
November 2007 is based on real growth in the Company’s ePS
and is the same as the 2006 and 2007 LTIP performance condition
described above. This condition has not been met and, as such,
these options lapsed on 22 October 2009 and 21 October 2010
respectively. Options granted in November 2008 will only be
exercisable if the Company’s profit before tax for the year ending 31
August 2011 exceeds £30m and options granted in November 2009
will only be exercisable if the Company’s profit before tax for the year
ending 31 August 2012 exceeds £30.5m. The Committee will conduct
its annual review of the performance condition prior to the grant of
options in November 2010. The executive directors did not participate
in this Scheme in the financial year ended 31 August 2010 and will not
participate in the current financial year; and
b) an HM Revenue & Customs Approved Save-As-you-earn share option
scheme (the ‘Sharesave Scheme’). The Sharesave Scheme is open to
all employees who have completed one year’s service and who enter
an approved savings contract for a term of three or five years. The
maximum amount which can be saved is £250 per month, the total
savings at the end of the term being used to purchase
shares at 80% of their market value at the start of the savings
contract. In common with most schemes of this type, there are no
performance conditions applicable to options granted under the
Sharesave Scheme.
WH Smith Executive Share Option Scheme 1999 (pre-demerger)
For options granted in 2004 and 2005, prior to the demerger of
WH Smith Retail on 31 August 2006, the performance condition is based
on the Company’s adjusted ePS growth over a fixed three year period,
the proportion of options that become exercisable increasing on a
straight-line basis from 40% for growth of RPI plus 9% to 100% for
growth of RPI plus 15%.
For those options granted in November 2004, adjusted ePS growth
exceeded RPI plus 15% over the three year period ended
31 August 2007 and, as such, these options became exercisable in
full on 3 November 2007.
For those options granted in November 2005, adjusted ePS growth
exceeded RPI plus 15% over the three year period ended 31 August
2008 and, as such, these options became exercisable in
full on 2 November 2008.
Personal shareholdings
The Company’s shareholding guidelines require executive directors to
build up over a period of five years and then maintain a target holding of
100% of salary and other members of the executive management team
to build up over a period of five years and then maintain a target holding
of 75% of salary.
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Contracts of service
The contract dates and notice periods for each executive director are as follows:
Notice period Notice period
Date of contract by Company by director
Jonathan Bunting 1 April 2010 One year Nine months
Mark Cashmore 4 July 2006 One year Nine months
Nick Gresham 23 August 2010 One year Nine months
It is the Company’s policy to enter into contracts of employment with executive directors which may be terminated at any time by the Company upon
12 months’ notice and upon nine months’ notice by the executive director. In the event of a change of control, Mark Cashmore’s contract provides for a
payment of liquidated damages of 95% of salary and benefits if the contract is terminated in breach of the notice period. In other circumstances, the
Committee believes that any question of compensation should be decided upon at the appropriate time rather than in advance so that the principle of
mitigation is applied in the particular circumstances.
The Chairman and other non-executive directors, who have letters of appointment, are appointed for an initial term of three years, which may be
terminated at any time upon three months’ written notice on either side, and are subject to review thereafter.
Appointment of Nick Gresham
Nick Gresham joined the Board as Chief Financial Officer on 1 August 2010. The following sets out the main terms of Nick Gresham’s appointment:
• salary of £230,000;
• participation in the Annual Bonus Plan. 37.5% of salary at target level of performance and maximum opportunity of 80% of salary. Delivery is 2/3 in
cash and 1/3 in deferred shares;
• participation in the economic Profit Plan at 40% of salary (as described on page 59, this is built up during the first three years of participation);
• an LTIP appointment award of 113% of salary to be made in November 2010, under the same performance conditions as for LTIP awards to be
made to other executives. This will be made in part in lieu of incentives forgone from his previous employer and is subject to performance;
• ordinary LTIP participation from 2011, i.e. 35% of salary;
• participation in the Company’s defined contribution pension scheme as described on page 62;
• car allowance of £915 per month and private medical insurance.
Performance graph
Cumulative TSR growth since 31 August 2006.
a) The graph illustrates the TSR performance of the Company on a cumulative basis (with dividends reinvested) since the demerger of WH Smith Retail on 31 August 2006 compared with the FTSe Support Services Sector Index over the same period.
b) Smiths News PLC is a member of the FTSe Support Services sector and, as such, this sector was considered to be the most appropriate comparator group upon which a broad equity market index is calculated.
Accounting year end
120
110
100
90
80
70
60Smiths News FTSe Support Services
2006 2007 2008 20102009
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Smiths News Employee Benefit Trust
The Smiths News employee Benefit Trust is used to facilitate the
acquisition of ordinary shares in the Company for the purpose of
satisfying awards and options granted under the Company’s executive
share schemes including the pre-demerger share scheme. The Trust is
a discretionary trust, the sole beneficiaries being employees (including
executive directors) and former employees of the Company. The Trust
waives its right to vote and to dividends on the shares that it holds. The
Trustee is eeS Trustees International Limited, an independent professional
trustee company based in Jersey.
The number of shares held in the Smiths News employee Benefit Trust
at 31 August 2010 was 2,122,616. The accounting treatment is
shown in the Group Statement of Changes in equity on page 73.
Dilution limits
Share awards and executive share options are usually satisfied using
market purchase shares. The Company’s share plans comply with
recommended guidelines on dilution limits and the Company has always
operated within these limits.
Pensions
For the year under review, the Company operated two defined
contribution pension schemes, the money purchase section of the
WH Smith Pension Trust, for those employees who were active members
of the defined benefit section of the WH Smith Pension Trust on 1 May
2007 and the WH Smith Retirement Savings Plan. The Company ceased
service accruals for active members of the defined benefit pension
scheme on 1 May 2007.
Jonathan Bunting participates in the money purchase section of the WH
Smith Pension Trust. The other executive directors participate in the
Smiths News section of the WH Smith Retirement Savings Plan. Under
these plans an executive director may contribute up to an amount
equivalent to 5% of salary which is then matched by the Company. In
addition, a salary supplement, in respect of pension entitlement, is also
payable which may be taken as an additional pension contribution or as
an addition to basic pay. For the financial year ended 31 August 2010, for
Mark Cashmore and Alan Humphrey, the salary supplement was
equivalent to 25% of salary and for Jonathan Bunting and Nick Gresham
it was equivalent to 20% of salary.
External appointments
It is the Company’s policy to allow each executive director to accept one
non-executive directorship of a publicly quoted company provided that it is
not a chairmanship of a FTSe 100 company and it does not conflict with
the interests of the Company. executive directors may retain the fee for
such an appointment. The executive directors do not currently hold any
non-executive directorships.
Part B – Audited
Directors’ remuneration
The remuneration of the directors for the financial year ended 31 August 2010 was as follows:
Pension
Economic supplement Year to
Annual Profit and 31 August
Salary/fees bonus Plan benefits Total 2009
£’000 £’000 £’000 £’000 £’000 £’000
Executive
Jonathan Bunting 83 42 10 9 144 –
Mark Cashmore 320 213 45 68 646 495
Nick Gresham 19 – – 5 24 –
Alan Humphrey 200 100 23 73 396 341
Non-executive
Dennis Millard (Chairman) 110 – – – 110 110
Andrew Brent 35 – – – 35 35
Anthony Cann 40 – – – 40 40
John Worby 40 – – – 40 40
Total 847 355 78 155 1,435 1,061
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a) Pension supplement and benefits: this includes any pension salary supplement taken as an addition to basic pay, the provision of a company car and private medical insurance.
b) Jonathan Bunting earned an annual bonus of £150,000, of which £50,000 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010. The values shown in the table are in respect of the period 1 April 2010 (date of appointment) to 31 August 2010.
c) Mark Cashmore earned an annual bonus of £320,000, of which £106,667 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.
d) Alan Humphrey earned an annual bonus of £150,000, of which £50,000 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.
e) Jonathan Bunting will receive an economic Profit Plan payout of £46,108, of which £23,054 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.
f) Mark Cashmore will receive an economic Profit Plan payout of £89,574, of which £44,787 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.
g) Alan Humphrey will receive an economic Profit Plan payout of £45,974, of which £22,987 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.
h) Jonathan Bunting was appointed as a director of the Company on 1 April 2010. Jonathan Bunting’s salary for the full year was £200,000.i) Nick Gresham was appointed as a director of the Company on 1 August 2010. Nick Gresham’s annual salary is £230,000. j) All of the directors, with the exception of Jonathan Bunting and Nick Gresham, served throughout the year.
Directors’ pensions
Defined contribution schemes
Jonathan Bunting was a member of the Smiths News section of the WH Smith Pension Trust during the year ended 31 August 2010. Mark Cashmore,
Nick Gresham and Alan Humphrey were members of the Smiths News section of the WH Smith Retirement Savings Plan during the year ended
31 August 2010.
Directors’ pension contributions during the year were as follows:
Employee contribution Employer contribution % of salary £’000 % of salary £’000
Jonathan Bunting 25 21 5 4
Mark Cashmore 15 48 5 16
Nick Gresham 5 1 5 1
Alan Humphrey 5 10 5 10
a) executive directors receive a salary supplement which may be taken as an additional pension contribution or as an addition to basic pay; this payment if taken as an addition to basic pay is included in the table of directors’ remuneration under the heading Pension supplement and benefits.
b) Jonathan Bunting, who was appointed to the Board on 1 April 2010, received a salary supplement of 20% of salary, all of which was taken as an additional pension contribution and is included in the employee contribution in the above table.
c) Mark Cashmore received a salary supplement of 25% of salary, 10% of which was taken as an additional pension contribution and is included in the employee contribution in the above table and 15% of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.
d) Nick Gresham, who was appointed to the Board on 1 August 2010, received a salary supplement of 20% of salary, all of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.
e) Alan Humphrey received a salary supplement of 25% of salary, all of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.f) The dependants of Jonathan Bunting are eligible for payment of a lump sum in the event of death-in-service equivalent to eight times salary. The dependants of the other
executive directors are eligible for payment of a lump sum in the event of death-in-service equivalent to four times salary.
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Directors’ deferred share awards
Smiths News Deferred Bonus Plan
Details of the deferred share awards (in the form of nil cost options) granted to executive directors under the Smiths News Deferred Bonus Plan (arising
from the Annual Bonus Plan and economic Profit Plan), are as follows:
Number of
shares Number of Number of
subject to shares shares Number of
awards at subject to subject to shares Share
1 September awards awards subject to price
2009 granted exercised awards at at date
Date of (or date of during during 31 August of grant
grant appointment) the year the year 2010 (pence) Exercise period
Jonathan Bunting
Annual Bonus Plan 26.11.09 48,837 – – 48,837 107.50 26.11.11 – 26.11.12
economic Profit Plan 26.11.09 10,620 – – 10,620 107.50 26.11.11 – 26.11.12
Total 59,457 – – 59,457
Mark Cashmore
Annual Bonus Plan 23.10.08 194,106 – 194,106 – 56.67 22.02.10 – 22.02.11
Annual Bonus Plan 26.11.09 – 102,326 – 102,326 107.50 26.11.11 – 26.11.12
economic Profit Plan 26.11.09 – 20,860 – 20,860 107.50 26.11.11 – 26.11.12
Total 194,106 123,186 194,106 123,186
Alan Humphrey
Annual Bonus Plan 23.10.08 106,097 – 106,097 – 56.67 22.02.10 – 22.02.11
Annual Bonus Plan 26.11.09 – 51,628 – 51,628 107.50 26.11.11 – 26.11.12
economic Profit Plan 26.11.09 – 11,227 – 11,227 107.50 26.11.11 – 26.11.12
Total 106,097 62,855 106,097 62,855
a) Full details of the Annual Bonus Plan, economic Profit Plan and Deferred Bonus Plan are set out on pages 58 and 59.b) There are no further performance conditions attached to these awards, which are exercisable subject only to continued employment.c) No option price is payable on either the grant or exercise of any award.d) To maintain the tax treatment at the time the awards were granted, the expiry of the holding period for awards granted on 23 October 2008 was brought forward from
23 October 2010 to 22 February 2010 on condition that shares acquired on the exercise of awards were retained until 23 October 2010.e) Mark Cashmore exercised the award granted to him on 23 October 2008 on 23 February 2010. The market value of the shares on the date of exercise was £225,163
(116p per ordinary share).f) Alan Humphrey exercised the award granted to him on 23 October 2008 on 23 February 2010. The market value of the shares on the date of exercise was £123,073
(116p per ordinary share).g) The total gains made by all directors on the exercise of deferred share awards was £348,236.h) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the plan, his outstanding awards
will vest in the normal way, i.e. after the expiry of the two year holding period, after which he will have six months in which to exercise them.i) No awards have lapsed during the year ended 31 August 2010.j) No awards have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.
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Directors’ long-term incentive schemes
Smiths News LTIP
Details of the conditional awards (in the form of nil cost options) to acquire ordinary shares of the Company granted to executive directors under the
Smiths News LTIP are as follows:
Number of
shares Number of Number of
subject to shares shares Number
awards at subject to subject to of shares Share
1 September awards awards subject to price
2009 granted lapsed awards at at date
Date of (or date of during during 31 August of grant
grant appointment) the year the year 2010 (pence) Exercise period
Jonathan Bunting
2007 15.11.07 50,601 – – 50,601 110.67 –
2008 30.04.09 61,146 – – 61,146 100.17 Oct 2011 – 30.04.19
2009 26.11.09 65,116 – – 65,116 107.50 Oct 2012 – 26.11.19
Total 176,863 – – 176,863
Mark Cashmore
2006 16.11.06 196,078 – 196,078 – 127.50 –
2007 15.11.07 124,243 – – 124,243 110.67 –
2008 30.04.09 137,267 – – 137,267 100.17 Oct 2011 – 30.04.19
2009 26.11.09 – 148,837 – 148,837 107.50 Oct 2012 – 26.11.19
Total 457,588 148,837 196,078 410,347
Alan Humphrey
2006 16.11.06 105,882 – 105,882 – 127.50 –
2007 15.11.07 58,507 – – 58,507 110.67 –
2008 30.04.09 64,640 – – 64,640 100.17 Oct 2011 – 30.04.19
2009 26.11.09 – 65,116 – 65,116 107.50 Oct 2012 – 26.11.19
Total 229,029 65,116 105,882 188,263
a) The number of shares subject to awards is the maximum (100%) number of shares that could be received by the director if the performance targets as set out on pages 59 and 60 are fully met.
b) The threshold ePS performance target applicable to the awards granted on 16 November 2006 and 15 November 2007 has not been met and, as such, these awards lapsed on 22 October 2009 and 21 October 2010 respectively.
c) No option price is payable on either the grant or exercise of any award.d) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the plan, a time-based proportion
of his outstanding awards will, to the extent that the performance targets are met, be exercisable within six months of the normal vesting dates.e) No awards have vested or been exercised during the year ended 31 August 2010.f) No awards have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.
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Share option schemes
Details of the options to acquire ordinary shares of the Company granted to executive directors are as follows:
Number of
shares Number of Number of
subject to shares shares Number of
options at subject to subject to shares
1 September options options subject to
2009 granted exercised options at Option
Date of (or date of during during 31 August price
grant appointment) the year the year 2010 (pence) Exercise period
Jonathan Bunting
WH Smith 03.11.04 64,203 – – 64,203 81.00 03.11.07 – 02.11.14
executive
Share Option 02.11.05 120,681 – – 120,681 88.00 02.11.08 – 01.11.15
Scheme 1999
Smiths News 04.06.08 11,058 – – 11,058 85.00 01.08.11 – 31.01.12
Sharesave
Scheme
Total 195,942 – – 195,942
Mark Cashmore
WH Smith 03.11.04 64,203 – – 64,203 81.00 03.11.07 – 02.11.14
executive
Share Option 02.11.05 169,022 – – 169,022 88.00 02.11.08 – 01.11.15
Scheme 1999
Smiths News 29.11.06 3,750 – 3,750 – 100.80 01.02.10 – 31.07.10
Sharesave
Scheme 04.06.08 4,423 – – 4,423 85.00 01.08.11 – 31.01.12
24.06.09 2,310 – – 2,310 79.20 01.09.12 – 28.02.13
02.06.10 – 3,689 – 3,689 98.40 01.08.13 – 31.01.14
Total 243,708 3,689 3,750 243,647
Alan Humphrey
WH Smith 03.11.04 57,696 – – 57,696 81.00 03.11.07– 02.11.14
executive
Share Option 02.11.05 177,404 – – 177,404 88.00 02.11.08 – 01.11.15
Scheme 1999
Smiths News 29.11.06 3,750 – 3,750 – 100.80 01.02.10 – 31.07.10
Sharesave
Scheme
Total 238,850 – 3,750 235,100
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a) The middle market price of an ordinary share at the close of business on 31 August 2010 was 100.75p (28 August 2009: 120p).b) The high and low middle market prices of an ordinary share during the year were 126p and 96p respectively.c) The maximum ePS performance target applicable to the options granted under the WH Smith executive Share Option Scheme 1999 on 3 November 2004 and
2 November 2005, as set out on page 60, has been met and as such these options became exercisable in full on 3 November 2007 and 2 November 2008 respectively.d) Mark Cashmore exercised the Sharesave option granted to him on 29 November 2006 on 27 January 2010. The market price of the shares on the date of exercise was
118p and the gain was £645.e) Alan Humphrey exercised the Sharesave option granted to him on 29 November 2006 on 21 July 2010. The market price of the shares on the date of exercise was 108p
and the gain was £270.f) The total gains made by all directors on the exercise of share options was £915.g) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the WH Smith executive Share
Option Scheme 1999, his outstanding options, both of which have vested, will be exercisable within 12 months of his date of retirement.h) No share options lapsed during the year ended 31 August 2010.i) No share options have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.
Directors’ interests in shares
The beneficial interests of the directors and their immediate families in the ordinary shares of the Company are set out below:
31 August 2009
31 August 2010 (or date of appointment)
Andrew Brent 10,101 –
Jonathan Bunting 130,402 130,402
Anthony Cann 30,000 30,000
Mark Cashmore 157,847 109,736
Nick Gresham – –
Alan Humphrey 234,743 168,484
Dennis Millard 85,000 75,000
John Worby 12,000 12,000
There has been no change in the directors’ interests shown above between 1 September 2010 and 21 October 2010.
Approval
This report was approved by the Board and signed on its behalf by:
Anthony Cann
Chairman of the Remuneration Committee
21 October 2010
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Directors’ Responsibilities Statement
The directors are responsible for preparing the Annual Report,
Directors’ Remuneration Report and the accounts in accordance
with applicable law and regulations.
Company law requires the directors to prepare accounts for each financial
year. Under that law the directors are required to prepare the Group
accounts in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the european Union and Article 4 of the IAS
Regulation and have elected to prepare the parent Company accounts in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law).
Under Company law the directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period.
In preparing the parent Company accounts, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained
in the accounts; and
• prepare the accounts on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
In preparing the Group accounts, International Accounting Standard 1
requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on
the entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue as a
going concern.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the accounts comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and
dissemination of accounts may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the accounts, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
• the management report, which is incorporated into the Directors’
Report, includes a fair review of the development and performance of
the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
Mark Cashmore Nick Gresham
Group Chief executive Chief Financial Officer
21 October 2010 21 October 2010
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Independent Auditors’ Report to the Members of Smiths News PLC
We have audited the Group accounts of Smiths News PLC for the year
ended 31 August 2010, which comprise the Group Income Statement, the
Group Statement of Comprehensive Income, the Group Balance Sheet, the
Group Statement of Changes in equity, the Group Cash Flow Statement
and the related Notes 1 to 29. The financial reporting framework that has
been applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the european Union.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the
directors are responsible for the preparation of the Group accounts and
for being satisfied that they give a true and fair view. Our responsibility is
to audit the Group accounts in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) ethical
Standards for Auditors.
Scope of the audit of the accounts
An audit involves obtaining evidence about the amounts and disclosures
in the accounts sufficient to give reasonable assurance that the accounts
are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are
appropriate to the Group’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall presentation
of the accounts.
Opinion on accounts
In our opinion the Group accounts:
• give a true and fair view of the state of the Group’s affairs as at
31 August 2010 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted
by the european Union; and
• have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in Note 1 to the Group accounts, the Group in addition to
complying with its legal obligation to apply IFRSs as adopted by the
european Union, has also applied IFRSs as issued by the International
Accounting Standards Board (IASB).
In our opinion the Group accounts comply with IFRSs as issued by
the IASB.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the
financial year for which the accounts are prepared is consistent with the
Group accounts.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• certain disclosures of directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require
for our audit.
Under the Listing Rules we are required to review:
• the directors’ statement contained within the Directors’ Report in
relation to going concern; and
• the part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review.
Other matter
We have reported separately on the parent Company accounts of Smiths
News PLC for the year ended 31 August 2010 and on the information in the
Directors’ Remuneration Report that is described as having been audited.
Mark Mullins (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
Reading
United Kingdom
21 October 2010
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Group Income StatementFor the year ended 31 August 2010
£m 2010 2009
Non-recurring Non-recurring
and other and other
Note Underlying* items† Total Underlying* items† Total
Continuing operations
Revenue 2 1,829.6 – 1,829.6 1,326.0 – 1,326.0
Operating profit 3 37.1 (6.9) 30.2 32.4 (10.8) 21.6
Investment revenues 7 1.1 – 1.1 1.2 1.4 2.6
Finance costs 8 (3.2) – (3.2) (3.1) (2.7) (5.8)
Profit before tax 35.0 (6.9) 28.1 30.5 (12.1) 18.4
Income tax expense 9 (8.6) 1.7 (6.9) (5.7) 5.0 (0.7)
Profit for the year 26.4 (5.2) 21.2 24.8 (7.1) 17.7
Earnings per share
Basic 11 14.6p 11.7p 13.8p 9.9p
Diluted 11 14.4p 11.5p 13.8p 9.9p
equity dividends per share 10 7.4p 6.8p
* Before non-recurring and other items.† Non-recurring and other items are set out in Note 3 to the Accounts.
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Group Statement of Comprehensive IncomeFor the year ended 31 August 2010
£m Note 2010 2009
Gain/(loss) on cash flow hedges 0.9 (1.7)
Actuarial gain/(loss) on defined benefit pension scheme 4 14.5 (50.0)
effect of asset limit on defined benefit pension scheme 4 (21.9) 43.1
Tax relating to components of other comprehensive income 2.1 1.8
Other comprehensive income for the year (4.4) (6.8)
Profit for the year 21.2 17.7
Total comprehensive income and expense for the year 16.8 10.9
Total comprehensive income and expense for the year is fully attributable to the equity holders of the parent Company.
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Group Balance SheetAt 31 August 2010
£m Note 2010 2009
Non-current assets
Intangible assets 12 12.7 12.7
Property, plant and equipment 13 21.0 21.1
Investments in joint venture and associate 14 3.7 3.5
Deferred tax assets 20 1.6 3.3
39.0 40.6
Current assets
Inventories 38.1 31.1
Trade and other receivables 15 99.2 114.8
Cash and cash equivalents 15 4.0 4.3
Assets held for sale 15 0.9 –
142.2 150.2
Total assets 181.2 190.8
Current liabilities
Trade and other payables 16 (181.7) (191.6)
Current tax liabilities – (1.2)
Obligations under finance leases 18 (1.6) (1.5)
Bank loans and other borrowings 21 (48.8) (15.1)
Provisions 19 (5.0) (3.8)
Derivative financial instruments 22 (0.5) (0.2)
(237.6) (213.4)
Non-current liabilities
Bank loans and other borrowings 21 – (34.3)
Retirement benefit obligation 4 – –
Deferred tax liabilities 20 (1.9) (2.0)
Long-term provisions 19 (1.9) (4.6)
Obligations under finance leases 18 (1.6) (2.9)
Derivative financial instruments 22 – (1.3)
Other non-current liabilities 17 (0.6) (0.7)
(6.0) (45.8)
Total liabilities (243.6) (259.2)
Total net liabilities (62.4) (68.4)
Equity
Called up share capital 27 9.2 9.1
Share premium account 27 0.4 –
eSOP reserve (2.4) (3.4)
Other reserve (280.1) (280.1)
Hedging reserve (0.5) (1.4)
Retained earnings 211.0 207.4
Total equity (62.4) (68.4)
Registered number – 05195191
The accounts were approved by the Board of Directors and authorised for issue on 21 October 2010 and were signed on its behalf by:
Mark Cashmore Nick Gresham
Group Chief executive Chief Financial Officer
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Group Statement of Changes in equityFor the year ended 31 August 2010
£m
Share
Share premium Other ESOP Hedging Retained
capital account reserve1 reserve reserve earnings Total
Balance at 1 September 2008 9.1 – (280.1) (3.9) 0.3 206.3 (68.3)
Profit for the period – – – – – 17.7 17.7
Loss on cash flow hedges – – – – (1.7) – (1.7)
Actuarial loss on defined benefit pension scheme – – – – – (50.0) (50.0)
effect of asset limit on defined benefit
pension scheme – – – – – 43.1 43.1
Tax relating to components of other
comprehensive income – – – – – 1.8 1.8
Total comprehensive income for the year – – – – (1.7) 12.6 10.9
Dividends paid – – – – – (12.0) (12.0)
employee share schemes – – – 0.5 – (0.5) –
Recognition of share-based payments – – – – – 1.0 1.0
Balance at 31 August 2009 9.1 – (280.1) (3.4) (1.4) 207.4 (68.4)
Profit for the period – – – – – 21.2 21.2
Gain on cash flow hedges – – – – 0.9 – 0.9
Actuarial gain on defined benefit pension scheme – – – – – 14.5 14.5
effect of asset limit on defined benefit
pension scheme – – – – – (21.9) (21.9)
Tax relating to components of other
comprehensive income – – – – – 2.1 2.1
Total comprehensive income for the year – – – – 0.9 15.9 16.8
Issue of share capital 0.1 0.4 – – – – 0.5
Dividends paid – – – – – (12.6) (12.6)
employee share schemes – – – 1.0 – (1.0) –
Recognition of share-based payments – – – – – 1.3 1.3
Balance at 31 August 2010 9.2 0.4 (280.1) (2.4) (0.5) 211.0 (62.4)
1 The ‘Other’ reserve includes reserves created in relation to the pro forma restatement and the demerger of WH Smith PLC.
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Group Cash Flow StatementFor the year ended 31 August 2010
£m Note 2010 2009
Net cash inflow from operating activities 25 24.7 31.9
Investing activities
Interest received – 0.1
Acquisition of investment in joint venture – (1.0)
Acquisition of investment in Bertrams – (11.2)
Purchase of property, plant and equipment (6.3) (4.0)
Purchase of intangible assets (2.3) (1.2)
Net cash used in investing activities (8.6) (17.3)
Financing activities
Interest paid (2.6) (4.2)
Dividend paid (12.6) (12.0)
Repayments of obligations under finance leases (2.2) (2.6)
Proceeds on issue of shares 0.5 –
Repayments of borrowings (5.0) (5.0)
Increase in revolving credit facility 5.5 10.1
Net cash used in financing activities (16.4) (13.7)
Net (decrease)/increase in cash and cash equivalents (0.3) 0.9
Opening net cash and cash equivalents 4.3 3.4
Closing net cash and cash equivalents 4.0 4.3
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Notes to the Accounts
1 Accounting policies
(a) Basis of preparation
The consolidated Group accounts have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the
european Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. These standards, subsequent
amendments and related interpretations issued and adopted by the International Accounting Standards Board (‘IASB’) are those that have been
endorsed by the european Union at the year end and therefore the Group accounts comply with Article 4 of the european Union International
Accounting Standards (‘IAS’) regulations.
The consolidated Group accounts have also been prepared in accordance with IFRS and International Financial Reporting Interpretations
Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.
Smiths News PLC is a company incorporated in the United Kingdom under the Companies Act 2006.
In preparing the Group accounts for the current year, the Group has adopted the following new IFRS, amendments to IFRS and IFRIC
interpretations:
l IAS 1 (revised) ‘Presentation of financial statements’. effective for periods commencing 1 January 2009, requires the presentation of a
Statement of Changes in equity as a primary statement and a Statement of Comprehensive Income.
l IFRS 7 (amended) ‘Financial instruments: Disclosures’. Additional disclosures on financial instrument levels have been included.
In preparing the Group accounts for the current year, the Group has adopted the following new IFRS, amendments to IFRS and IFRIC
interpretations, which have not had a significant impact on the results or net assets of the Group:
l IFRS 1 ‘Cost of an Investment in a Subsidiary, Jointly controlled entity or Associate’
l IFRS 2 (amended) ‘vesting conditions and cancellations’
l IFRS 3 (revised) ‘Business Combinations’
l IAS 23 (revised) ‘Borrowing costs’
l IAS 27 (revised) ‘Consolidated and Separate Financial Statements’
l IFRIC 9 and IAS 39 ‘embedded Derivatives’
l IFRIC 12 ‘Service Concession Arrangements’
l IFRIC 14 IAS 19 ‘The limit on a defined benefit asset, minimum funding requirements and their interaction’
l IFRIC 15 ‘Agreements for the Construction of Real estate’
At the date of authorisation of these consolidated Group accounts, the following Standards and Interpretations which have not been applied in
these accounts were in issue but not yet effective (and in some cases had not been adopted by the eU):
l IFRS 1 (amended) ‘Additional exemptions for First Time Adopters’
l IFRS 2 (amended) ‘Group Cash settled Share-based Payment Transactions’
l IFRS 9 ‘Financial Instruments’
l IAS 24 (revised) ‘Related Party Disclosures’
l IAS 32 (amended) ‘Classification of Rights Issue’
l IFRIC 14 (amended) ‘Prepayments of Minimum Funding Requirement’
l IFRIC 17 ‘Distributions of Non-cash Assets to Owners’
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1 Accounting policies continued
l IFRIC 18 ‘Transfer of Assets from Customers’
l IFRIC 19 ‘extinguishing Financial Liabilities with equity Instruments’
l Improvements to IFRS (2010 and 2009)
The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial
statements of the Group.
A summary of the Group’s accounting policies is given below.
Accounting convention
The accounts are drawn up on the historical cost basis of accounting except for the revaluation of certain financial instruments. The financial
information is rounded to the nearest hundred thousand, except where otherwise indicated. The principal accounting policies, which have been
applied consistently throughout both years, have been set out below.
Going concern
The Group meets its day-to-day working capital requirements through its bank facilities of up to £135m, which do not expire until November 2014.
The Group’s forecasts, taking into account the Board’s future expectations of the Group’s performance, indicate that there is reasonable headroom
within these bank facilities and the Group will continue to operate well within the covenants attaching to those facilities.
The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future,
having recognised the current uncertain economic outlook and the Group’s negative working capital position. Thus, they continue to adopt the
going concern basis in preparing the accounts.
Basis of consolidation
The consolidated Group accounts incorporate the accounts of Smiths News PLC, its subsidiaries and investments in joint ventures and associates
up to the year end date.
Subsidiary undertakings are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying
a shareholding of more than one-half of the voting rights, so as to obtain benefits from its activities.
Results of subsidiary undertakings disposed of during the financial year are included in the accounts up to the effective date of disposal. Where a business
component representing a separate major line of business is disposed of, or classified as held for sale, it is classified as a discontinued operation.
All intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control
of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued
Operations, which are recognised and measured at fair value less costs to sell.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
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1 Accounting policies continued
(b) Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services
provided in the normal course of business, net of discounts, vAT and other sales related taxes. Sales of goods are recognised when goods are
delivered and title has passed.
(c) Operating profit
Operating profit is stated after charging restructuring costs and after the share of results of associates but before investment income and
finance costs.
(d) Retirement benefit costs
Payments to Smiths News PLC’s defined contribution pension scheme, The WH Smith Retirement Savings Plan, are recognised as an expense in
the income statement as they fall due.
The cost of providing benefits for the defined benefit scheme, WH Smith Pension Trust, is determined by the Projected Unit Credit Method, with
actuarial calculations being carried out at the balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur.
They are recognised outside the income statement in the consolidated statement of comprehensive income.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for
unrecognised past service cost, and as reduced by the fair value of scheme assets.
The scheme is closed to further accrual, which would prevent the Group from realising any surplus through a funding holiday or a reduction in
contributions. As a result the Group has not recognised the IAS 19 surplus on the balance sheet.
(e) Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value determined at the inception of the lease or, if lower,
at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligations so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are recognised directly in the income statement.
Rentals payable and receivable under operating leases are charged to the income statement on a straight-line basis over the term of the
relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
(f) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets
and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill, which is recognised as an asset is reviewed for impairment at
least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.
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1 Accounting policies continued
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of
the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is
an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata
on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or
loss on disposal.
(g) Other Intangible assets
Intangible assets arising under a business acquisition (acquired intangible assets) are capitalised at fair value as determined at the date of
acquisition and are stated at that fair value less accumulated amortisation (see below) and impairment losses (see below).
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of acquired intangibles from the date they
are acquired. The estimated useful lives are as follows:
Customer relationships 2.5–10 years
Trade name 10 years
Software 5 years
The costs of acquiring and developing software that is not integral to the related hardware is capitalised separately as an intangible asset. These
intangibles are stated at cost less accumulated amortisation and impairment losses.
Assets held under finance leases are amortised over their expected useful lives on the same basis as owned assets or, where shorter, over the term
of the relevant lease.
All intangible assets are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’, when there are indications that the carrying
value may not be recoverable.
(h) Property, plant and equipment
Property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised impairment in value. The carrying
values of tangible fixed assets previously revalued have been retained at their book amount.
Depreciation is charged so as to write off the costs of assets, other than land, over their estimated useful lives, using the straight-line method, with
the annual rates applicable to the principal categories being:
Freehold and long leasehold properties over 20 years
Short leasehold properties shorter of the lease period and the
estimated remaining economic life
Fixtures and fittings 10 years
Equipment 8 to 10 years
Computer equipment (disclosed within up to 5 years
equipment in Note 13 to the Accounts)
Vehicles up to 5 years
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1 Accounting policies continued
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the
term of the relevant lease.
All property, plant and equipment are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’, when there are indications that
the carrying value may not be recoverable.
(i) Joint ventures and associates
A joint venture is an entity where the Group has joint control with one or more other venturers, under a contractual agreement, through participation
in the financial and operating policy decisions of the investee.
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation
in the financial and operating policy decisions of the investee.
The results, assets and liabilities of joint ventures and associates are incorporated in these accounts using the equity method of accounting.
Investments in joint ventures and associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share
of the net assets of the joint venture and associate, less any impairment in value. The carrying values of investments in joint ventures and
associates include acquired goodwill.
Losses in a joint venture or associate in excess of the Group’s interest in the joint venture or associate are recognised only to the extent that the
Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate.
(j) Inventories
Inventories comprise goods held for resale and are stated at the lower of cost or net realisable value. Inventories are valued using a weighted
average cost method. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition.
(k) Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing
use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.
Management must be committed to the sale which should be expected to qualify as recognition as a completed sale within one year from the date
of classification.
(l) Provisions
Provisions are recognised in the balance sheet when Smiths News PLC has a present legal or constructive obligation as a result of a past event
and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the directors’ best
estimate of the expenditure required to settle the obligation at the balance sheet date. Where the effect is material, the provision is determined by
discounting the expected future cash flows at the Group’s post-tax weighted average cost of capital (‘WACC’).
(m) Taxation
The tax expense included in the income statement comprises current and deferred tax.
Current tax is the expected tax payable based on the taxable profit for the year, using tax rates that have been enacted or substantively enacted by
the balance sheet date.
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1 Accounting policies continued
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax basis
used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than in business combination) of other assets and liabilities in a transaction that affects
neither tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is
also dealt with in equity.
(n) Financial instruments
Financial assets
Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (‘FvTPL’), ‘held-to-maturity’
investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the
financial assets and is determined at the time of initial recognition.
A financial asset other than a financial asset held for trading may be designated as FvTPL upon initial recognition if:
l Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
l The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on
a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the Group is
provided internally on that basis; or
l It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement
permits the entire combined contract (asset or liability) to be designated as FvTPL.
Financial assets at FvTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit
or loss incorporates any dividend or interest earned on the financial asset.
Trade receivables
Trade receivables do not carry any interest and are stated at their fair value. They are subsequently measured at amortised cost using the effective
interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is evidence
that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three
months or less.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Notes to the Accounts continued
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1 Accounting policies continued
Bank borrowings
Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and are
subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or
redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate
method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.
Equity instruments
equity instruments issued are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group uses certain derivative financial instruments to hedge interest rate exposures and to support underlying business requirements.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly
in equity and any ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted
transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the
derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result
in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the
hedged item affects the net income statement.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as
they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted
transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the
net income or expense for the year.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the
income statement.
(o) Share schemes
Smiths News Employee Benefit Trust
The shares held by the Smiths News employee Benefit Trust are valued at the historical cost of the shares acquired. They are deducted in arriving
at shareholders’ funds and are presented as an other reserve in line with IAS 32 ‘Financial Instruments: Disclosure and Presentation’.
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Share-based payments
The Company has applied IFRS 2 from 1 September 2004. employees of the Group receive part of their remuneration in the form of share-based
payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). equity-settled
share-based payments are measured at fair value at the date of grant. The fair value is calculated using an appropriate option pricing model. The
fair value is expensed to the income statement on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will
eventually vest.
(p) Critical accounting judgements and key sources of estimation uncertainty
Retirement benefit obligation
The Group recognises and discloses its retirement benefit obligation in accordance with the measurement and presentational requirement of
IAS 19 ‘Retirement Benefit Obligations’. The calculations include a number of judgements and estimations in respect of the expected rate of return
on assets, the discount rate, inflation assumptions, the rate of increase in salaries and life expectancy, amongst others. Changes in these
assumptions can have a significant effect on the value of the retirement benefit obligation.
In order to substantially reduce the volatility in the underlying investment performance and reduce the risk of a significant increase in the obligation,
the Pension Trust Trustee has adopted a Liability Driven Investment policy. This is discussed in more detail in Note 4 to the Accounts.
Use of non-GAAP measures
Smiths News PLC has identified certain measures that it believes provide additional useful information on the performance of the Group. This
approach is comparable with that previously used, but as the measures are not defined under IFRS, they may not be directly comparable with other
companies’ adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance.
The following are the key non-GAAP measures identified by the Group:
Net debt
Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under
finance leases.
Underlying profit
Profit before non-recurring and other items as described below.
Non-recurring and other items
Non-recurring and other items are material items of income or expense that are disclosed separately due to their nature or amount. They are
disclosed and described separately in the accounts where it is necessary to do so to provide further understanding of the financial performance of
the Group.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been
allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a
suitable discount rate in order to calculate present value. Details of the value in use calculation are provided in Note 12 to the Accounts.
Notes to the Accounts continued
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2 Segmental analysis
The information presented to the Board for the purpose of resource allocation and assessment of segment performance is focused on the type of
product sold. The principal activities of the Group reported to the Board are split into two categories of products sold:
– Newspaper and Magazine wholesaling (referred to as Smiths News).
– Book wholesaling (referred to as Bertrams).
The following is an analysis of the Group’s revenue and results by reportable segment in the year ended 31 August 2010:
£m 2010 2009 2010 2009 2010 2009
Newspaper & Magazine
wholesaling Book wholesaling Consolidated
Continuing operations
Revenue 1,692.5 1,272.5 137.1 53.5 1,829.6 1,326.0
Underlying operating profit 33.1 31.7 4.0 0.7 37.1 32.4
Non-recurring and other items (5.4) (10.4) (1.5) (0.4) (6.9) (10.8)
Operating profit 27.7 21.3 2.5 0.3 30.2 21.6
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1.
Segment assets
£m 2010 2009
Newspaper & Magazine wholesaling 130.4 140.2
Book wholesaling 50.8 50.6
Consolidated total assets 181.2 190.8
For the purposes of monitoring segment performance and allocating resources between segments, the Board monitors the tangible, intangible and
financial assets attributable to each segment. Goodwill and acquired intangible assets have been allocated to the Book wholesaling segment.
The £0.9m asset held for sale relates to the Book wholesaling segment.
Segment liabilities
£m 2010 2009
Newspaper & Magazine wholesaling (211.8) (223.2)
Book wholesaling (31.8) (36.0)
Consolidated total liabilities (243.6) (259.2)
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2 Segmental analysis continued
Other segment information
£m 2010 2009 2010 2009
Depreciation and Additions to
amortisation non-current assets
Newspaper & Magazine wholesaling (6.5) (6.5) 7.6 8.7
Book wholesaling (1.7) (0.6) 1.8 13.3
Consolidated total (8.2) (7.1) 9.4 22.0
In addition to the depreciation and amortisation reported above, in the prior year impairment losses of £0.7m relating to the reorganisation of The
Returns Company were recognised in respect of property, plant and equipment. These impairment losses were attributable to the Newspaper &
Magazine wholesaling segment. No such impairment losses have been recognised in the year ended 31 August 2010.
The Group operates predominantly in the UK.
3 Operating profit
The Group’s results are analysed as follows:
£m 2010 2009
Non-recurring Non-recurring
and other and other
Underlying items Total Underlying items Total
Revenue 1,829.6 – 1,829.6 1,326.0 – 1,326.0
Cost of sales (1,652.6) – (1,652.6) (1,195.4) – (1,195.4)
Gross profit 177.0 – 177.0 130.6 – 130.6
Distribution costs (95.9) (5.8) (101.7) (64.4) (2.2) (66.6)
Administrative expenses (44.0) (1.1) (45.1) (33.8) (8.6) (42.4)
Operating profitOperating profit 37.1 (6.9) 30.2 32.4 (10.8) 21.6
The operating profit is stated after charging/(crediting):
£m 2010 2009
Cost of inventories recognised as an expense 1,580.0 1,136.8
Write down of inventories recognised as an expense 0.8 0.3
Depreciation and amounts written off property, plant and equipment 5.9 5.3
Amortisation of intangible assets 2.3 1.8
Operating lease charges – land and buildings 10.5 11.7
– equipment and vehicles 2.6 2.2
Operating lease rental income – land and buildings (0.4) (0.5)
Loss on disposal of fixed assets 0.2 –
Staff costs (Note 5) 108.6 81.2
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3 Operating profit continued
The analysis of auditors’ remuneration is as follows:
£m 2010 2009
Fees payable to the Company’s auditors and their associates for
– The audit of the Company’s subsidiaries pursuant to legislation 0.2 0.2
Total audit fees 0.2 0.2
Other services pursuant to legislation
– Tax services – 0.2
– Corporate finance services – 0.1
– Other services 0.1 0.1
Total non-audit fees 0.1 0.4
Fees associated with the audit of the Company’s annual accounts are included within the audit of the Company’s subsidiaries fees and are £5,000
(2009: £5,000).
Tax services in the prior year include one-off fees associated with the cross-currency contract.
Corporate finance services include the fees associated with the acquisition of Bertrams.
Included within Other services is £102,000 (2009: £39,000) relating to consultancy services and £29,000 (2009: £63,000) relating to recruitment
and remuneration services.
Non-recurring and other items
£m 2010 2009
Re- Amortisation
The Returns organisation of acquired
Company costs intangibles Total Total
Operating profit/(loss) 0.7 (6.7) (0.9) (6.9) (10.8)
Finance costs/Investment revenues – – – – (1.3)
Non-recurring profit/(loss) before tax 0.7 (6.7) (0.9) (6.9) (12.1)
Income tax (charge)/credit (0.2) 1.9 – 1.7 5.0
Non-recurring profit/(loss) after tax 0.5 (4.8) (0.9) (5.2) (7.1)
The Returns Company (‘TRC’)
On 3 February 2010 The Returns Company (a returns processing business) was sold. In 2009 an impairment charge of £3.1m was recognised to
write down the assets and provide for an onerous lease liability. The sale of the business allowed an earlier exit from the lease than was anticipated,
resulting in a £0.7m provision release.
Reorganisation costs
The largest element was the cost of integrating the former Dawson News business at £6.1m. This represents the final charge associated with an
integration, which has seen the Smiths News network grow from 44 depots in July 2009 to a peak of 66 and back to a position of 58 by August
2010. The majority of this cost relates to redundancies resulting from a reduction in the workforce by almost 1,000 employees during the year.
The balance relates to property costs following the closure of eight sites and relocation of a further three.
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Notes to the Accounts continued
3 Operating profit continued
The remaining charge of £0.6m reflects the cost of moving the Bertram Library Services warehouse operation from Leeds to the existing Bertrams
Books site in Norwich, a move which will drive improved operational efficiency and service to retailers going forward. The majority of this cost
relates to redundancy.
Amortisation of acquired intangibles
Intangible assets relating to the acquisition of Bertrams are amortised over their expected economic lives. The charge to the income statement in
the year to 31 August 2010 is £0.9m (for the five months to 31 August 2009: £0.4m) for which there is no associated cash impact.
4 Retirement benefit obligation
Pension arrangements for employees are operated through a defined benefit scheme, WH Smith Pension Trust (‘Pension Trust’), and a defined
contribution scheme, WH Smith Retirement Savings Plan. The most significant is the Pension Trust, which is described in Note 4 (a) to the
Accounts. The scheme is independent of the Company and is administered by a Trustee. The Trustee of the Pension Trust has extensive powers
over the pension plan’s arrangements, including the ability to determine the levels of contribution.
The amounts recognised in the balance sheet in relation to these plans are as follows:
£m 2010 2009
Present value of the obligation (367.4) (338.1)
Fair value of plan assets 408.6 357.4
Surplus 41.2 19.3
Amounts not recognised due to asset limit (41.2) (19.3)
Retirement benefit obligation recognised in the balance sheet – –
The scheme is closed to further accrual, which would prevent the Group from realising any surplus through a funding holiday or a reduction in
contributions. As a result the Group has not recognised the IAS 19 surplus of £41.2m (2009: £19.3m) on the balance sheet.
The valuation of the defined benefit pension scheme used for the IAS 19 disclosures is based upon the most recent actuarial valuation. Scheme
assets are stated at their market value at the relevant reporting date.
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4 Retirement benefit obligation continued
(a) Defined benefit pension scheme
The Pension Trust
The majority of the assets in the investment fund are structured such that they are expected to alter in value in line with changes in the pension
liability caused by changes in interest and inflation (a Liability Driven Investment (‘LDI’) policy). The volatility in interest rate and inflation is minimised
through hedging.
The key features of the investment policy are:
l 95% of the Pension Trust’s assets are invested in an LDI policy with a leading international institutional fund manager; and
l 5% of the Pension Trust’s assets are used to purchase a portfolio of long-dated equity call-spreads. These represent a notional exposure to
underlying equities of some £216m.
The 31 March 2009 triennial valuation produced an actuarial deficit of £50m. A revised deficit funding schedule of £5.8m per annum has been
agreed for the next ten years with the trustees.
The Group has paid £6.5m to the Pension Trust over the course of the year in relation to the agreed pension deficit funding, which also includes a
catch-up payment relating to the period from 31 March 2009 to the date that the revised contributions started to be paid.
The principal long-term assumptions used to calculate scheme liabilities under IAS 19 are:
% 2010 2009
Rate of increase in salaries – –
Rate of increase in pension payments and deferred pensions 3.22 3.28
Discount rate 4.86 5.32
Inflation assumptions 3.22 3.28
The amounts recognised in the income statement were as follows:
£m 2010 2009
Current service cost (0.1) (0.1)
Interest cost (17.6) (19.9)
expected return on scheme assets 18.6 21.0
0.9 1.0
The charge for the current service cost has been included within administrative expenses. Interest cost and expected return on scheme assets
have been included within investment revenues.
Movements in the present value of the defined benefit scheme obligation in the year were as follows:
£m 2010 2009
At 1 September (338.1) (320.1)
Current service cost (0.1) (0.1)
Interest cost (17.6) (19.9)
Actuarial losses (24.6) (10.4)
Benefits paid 13.0 12.4
At 31 August (367.4) (338.1)
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Notes to the Accounts continued
4 Retirement benefit obligation continued
Movements in the fair value of defined benefit scheme assets in the year were as follows:
£m 2010 2009
At 1 September 357.4 382.5
expected return on scheme assets 18.6 21.0
Net actuarial gains/(losses) 39.1 (39.6)
Contributions 6.5 5.9
Benefits paid (13.0) (12.4)
At 31 August 408.6 357.4
An analysis of the defined benefit scheme assets at the balance sheet date is detailed below:
£m 2010 2009
Liquid cash funds 353.3 350.6
Inflation swaps 39.1 (13.6)
equity call options 16.2 20.4
408.6 357.4
The actual return on plan assets was a gain of £57.7m (2009: a loss of £18.6m).
The expected rate of return on these investments, calculated as a weighted average of the expected return on the LDI fund and the equity call
options, was 4.61% at 31 August 2010 (5.26 % at 31 August 2009).
The mortality assumptions (in years) underlying the value of the accrued liabilities are:
Male Female
Life expectancy at age 65
Member currently aged 65 21.4 23.3
Member currently aged 45 23.3 25.1
Life expectancy at age 60
Member currently aged 60 26.1 28.0
Member currently aged 45 27.6 29.5
The mortality assumptions are based on the SAPS mortality tables (as published by the Institute of Actuaries). The mortality rates underlying the
table have been decreased by 5% to reflect the Trust’s actual experience. A long-term mortality improvement assumption of 1% has been included
as an overlay to these tables, together with 80% of long cohort for men and 60% of long cohort for women.
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption Change in assumption Impact on scheme liabilities
Discount rate Increase/decrease by 0.5% Decrease/increase by £29m
Rate of inflation Increase/decrease by 0.5% Increase/decrease by £34m
Rate of mortality Increase by 1 year Increase by £13m
No sensitivity has been undertaken for the rate of salary growth as the scheme is closed to further service accrual.
The sensitivity of the present value of the scheme liabilities to changes in the discount rate and rate of inflation are effectively hedged through the
Liability Driven Investment policy.
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4 Retirement benefit obligation continued
The history of experience adjustments is as follows:
£m 2010 2009 2008 2007 2006
Present value of defined benefit obligation (367.4) (338.1) (320.1) (311.3) (334.0)
Fair value of scheme assets 408.6 357.4 382.5 321.2 285.0
Amounts not recognised due to asset limit (41.2) (19.3) (62.4) (9.9) –
Deficit in the scheme – – – – (49.0)
experience adjustments on scheme liabilities
Amount (£m) (1.4) 12.5 3.6 21.9 (16.6)
Percentage of scheme liabilities 0% 4% 1% 7% (5%)
experience adjustments on scheme assets
Amount (£m) 39.1 (39.6) 48.6 1.6 (16.2)
Percentage of scheme assets 10% (11%) 13% 1% (6%)
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption of IFRS is a gain of
£1.1m (2009: a loss of £13.4m).
(b) Defined contribution pension scheme
The pension cost charged to the income statement for the defined contribution scheme, WH Smith Retirement Savings Plan, amounted to £1.8m
for the year ended 31 August 2010 (2009: £1.6m).
5 Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees was:
£m 2010 2009
Wages and salaries 99.5 74.1
Social security 7.2 5.4
Pension costs 1.9 1.7
Total 108.6 81.2
Charges and credits for pension scheme financing and actuarial gains and losses arising on the pension scheme are not disclosed in the
table above.
(b) Employee numbers
The average total monthly number of employees (including executive directors) was:
Number 2010 2009
Operations 5,114 3,840
Support functions 607 489
Total 5,721 4,329
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Notes to the Accounts continued
6 Operating lease commitments
The Group as lessee:
Minimum lease payments under non-cancellable operating leases are as follows:
£m 2010 2009
Land & Equipment Land & equipment
buildings & vehicles Total buildings & vehicles Total
Within one year 8.8 1.0 9.8 8.7 1.3 10.0
In the second to fifth years inclusive 28.7 0.8 29.5 28.9 0.7 29.6
In more than five years 29.5 – 29.5 24.7 – 24.7
67.0 1.8 68.8 62.3 2.0 64.3
The Group leases various distribution properties and plant and equipment under non-cancellable operating lease agreements. The leases have
varying terms, escalation clauses and renewal rights.
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
£m 2010 2009
Within one year 0.3 0.3
In the second to fifth years inclusive 0.7 0.9
1.0 1.2
Property rental income earned during the year was £0.2m (2009: £0.2m).
7 Investment revenues
£m 2010 2009
Interest on bank deposits – 0.1
Net change in fair value of derivative liabilities designated as fair value through profit and loss 0.1 –
Net income on pension scheme (Note 4) 1.0 1.1
Underlying investment revenues 1.1 1.2
Non-recurring item – interest income – 1.4
Investment revenues 1.1 2.6
The prior year non-recurring item relates to the gain arising from the interest rate differential on the cross-currency contract.
8 Finance costs
£m 2010 2009
Interest on bank overdrafts and loans 2.9 2.8
Net change in fair value of derivative liabilities designated as fair value through profit and loss – 0.1
Interest payable on finance leases 0.2 0.2
Unwinding of discount on provisions 0.1 –
Underlying finance costs 3.2 3.1
Non-recurring item – foreign exchange loss on cross-currency contract – 2.7
Finance costs 3.2 5.8
The prior year non-recurring item relates to the foreign exchange loss incurred on closing out the cross-currency contract on 25 February 2009.
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9 Income tax expense
£m 2010 2009
Non-recurring Non-recurring
and other and other
Underlying items Total Underlying items Total
Current tax 9.8 – 9.8 9.5 – 9.5
Current tax – non-recurring items – (1.7) (1.7) – (5.0) (5.0)
Adjustment in respect of prior year UK corporation tax (1.4) – (1.4) (2.4) – (2.4)
Total current tax charge 8.4 (1.7) 6.7 7.1 (5.0) 2.1
Deferred tax – current year (0.1) – (0.1) (0.6) – (0.6)
Deferred tax – prior year 0.3 – 0.3 (0.8) – (0.8)
Total tax on profit 8.6 (1.7) 6.9 5.7 (5.0) 0.7
Effective tax rate 25% 24% 19% 4%
The underlying income tax rate for the year is 25%, which represents the UK corporation tax rate of 28%, adjusted for tax credits relating to prior
years of £1.1m (2009: £3.2m). The tax relief relating to non-recurring and other items of £1.7m (2009: £5.0m) reduces the effective income tax rate
to 24% (2009: 4%).
Reconciliation of the tax charge
£m 2010 2009
Profit before tax 28.1 18.4
Tax on profit at the standard rate of UK corporation tax 28% (2009: 28%) 7.9 5.2
Permanent differences 0.3 (1.0)
Share schemes (0.2) (0.3)
Adjustment in respect of prior year UK deferred tax 0.3 (0.8)
Adjustment in respect of prior year UK corporation tax (1.4) (2.4)
Total tax charge 6.9 0.7
In addition to the amount charged to the income statement, current and deferred tax relating to the defined benefit pension scheme amounting to
£2.0m (2009: £1.8m) together with deferred tax relating to derivative financial instruments of £0.1m (2009: £nil) has been recognised directly in
other comprehensive income (see the Group Statement of Comprehensive Income).
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Notes to the Accounts continued
10 Dividends
Amounts recognised as distributions to equity shareholders in the year are as follows:
£m 2010 2009
Final dividend for the year ended 31 August 2009 of 4.6p (2008: 4.5p) per share 8.3 8.0
Interim dividend for the year ended 31 August 2010 of 2.4p (2009: 2.2p) per share 4.3 4.0
12.6 12.0
The proposed final dividend for the year ended 31 August 2010 of 5.0p is subject to approval by shareholders at the Annual General Meeting and
has not been included as a liability in these accounts. The proposed dividend, if approved, will be paid on 4 February 2011 to shareholders on the
register at close of business on 7 January 2011.
11 Earnings per share
£m 2010 2009
Profit for the financial year 21.2 17.7
Non-recurring items 5.2 7.1
Underlying profit for the financial year 26.4 24.8
Number m 2010 2009
Weighted average number of shares in issue 183.1 182.9
Shares held by eSOP (weighted) (2.5) (3.4)
Weighted average number of shares in issue for basic earnings per share 180.6 179.5
Shares issuable (weighted) 3.3 0.1
Weighted average number of shares in issue for diluted earnings per share 183.9 179.6
Pence 2010 2009
Earnings per share:
Basic 11.7 9.9
Diluted 11.5 9.9
Underlying earnings per share:
Basic 14.6 13.8
Diluted 14.4 13.8
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12 Intangible assets
£m
Acquired Intangibles
Internally
generated Computer
Customer development software
Goodwill relationships Trade name Software costs costs Total
Cost:
At 1 September 2009 4.1 3.3 1.3 0.5 1.7 21.7 32.6
Additions – – – – 0.4 1.9 2.3
Disposals – – – – – (0.1) (0.1)
At 31 August 2010 4.1 3.3 1.3 0.5 2.1 23.5 34.8
Accumulated amortisation:
At 1 September 2009 – 0.3 0.1 – 0.5 19.0 19.9
Amortisation charge – 0.7 0.1 0.1 0.5 0.9 2.3
Disposals – – – – – (0.1) (0.1)
At 31 August 2010 – 1.0 0.2 0.1 1.0 19.8 22.1
Net book value at 31 August 2010 4.1 2.3 1.1 0.4 1.1 3.7 12.7
Cost:
At 1 September 2008 – – – – – 22.2 22.2
Additions – – – – 0.6 0.6 1.2
Inter-segment transfer – – – – 1.1 (1.1) –
Acquisition of subsidiary 4.1 3.3 1.3 0.5 – – 9.2
At 31 August 2009 4.1 3.3 1.3 0.5 1.7 21.7 32.6
Accumulated amortisation:
At 1 September 2008 – – – – – 18.1 18.1
Inter-segment transfer – – – – 0.2 (0.2) –
Amortisation charge – 0.3 0.1 – 0.3 1.1 1.8
At 31 August 2009 – 0.3 0.1 – 0.5 19.0 19.9
Net book value at 31 August 2009 4.1 3.0 1.2 0.5 1.2 2.7 12.7
The goodwill of £4.1m and acquired intangibles totalling £5.1m arise from the acquisition of the business and assets of Bertrams on 20 March
2009 and have been allocated to the Book wholesaling segment. Goodwill is allocated to the Group’s cash generating units which are the same as
the segments presented in Note 2 to the Accounts.
The recoverable amounts of the cash generating units are determined from the value in use calculations. The Group prepares cash flow forecasts
derived from the most recent budgets and forecasts approved by the Board and extrapolates these cash flows on an estimated growth rate of 1%
over a 20 year period.
The rate used to discount the forecast cash flows from the Book wholesaling segment was 11%, being the Group’s post-tax WACC. The
calculation of value in use is most sensitive to the discount rate and growth rates used. Management believes that no reasonable potential change
in any of the above key assumptions would cause the carrying value to exceed its recoverable amount.
Capitalised software comprises costs that are not deemed to be an integral part of the related hardware, which is classified within property, plant
and equipment.
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Notes to the Accounts continued
13 Property, plant and equipment
£m
Land & Buildings
Freehold Long-term Short-term Fixtures Equipment
properties leasehold leasehold & fittings & vehicles Total
Cost or valuation:
At 1 September 2009 0.9 0.5 14.2 7.4 34.4 57.4
Additions – – 0.5 1.5 5.1 7.1
Inter-segment transfer – – (1.2) 1.0 0.2 –
Transfer to assets held for sale (0.9) – – – – (0.9)
Disposals – (0.1) (0.7) (0.3) (0.8) (1.9)
At 31 August 2010 – 0.4 12.8 9.6 38.9 61.7
Accumulated depreciation:
At 1 September 2009 – 0.1 9.0 3.5 23.7 36.3
Depreciation charge – 0.1 0.7 0.9 4.2 5.9
Disposals – – (0.5) (0.2) (0.8) (1.5)
At 31 August 2010 – 0.2 9.2 4.2 27.1 40.7
Net book value at 31 August 2010 – 0.2 3.6 5.4 11.8 21.0
Cost or valuation:
At 1 September 2008 – 0.5 12.5 5.1 27.9 46.0
Additions – – 0.6 0.4 6.5 7.5
Acquisition of subsidiary 0.9 – 1.2 2.0 – 4.1
Disposals – – (0.1) (0.1) – (0.2)
At 31 August 2009 0.9 0.5 14.2 7.4 34.4 57.4
Accumulated depreciation:
At 1 September 2008 – – 8.4 2.9 19.2 30.5
Impairment loss – – 0.1 0.1 0.5 0.7
Depreciation charge – 0.1 0.6 0.6 4.0 5.3
Disposals – – (0.1) (0.1) – (0.2)
At 31 August 2009 – 0.1 9.0 3.5 23.7 36.3
Net book value at 31 August 2009 0.9 0.4 5.2 3.9 10.7 21.1
The Group leases plant and equipment under a number of finance lease arrangements and has the option to purchase the equipment at the end
of each lease. The net book value of finance leases contained within these balances is £3.1m at 31 August 2010 (2009: £4.4m).
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14 Investment in joint ventures and associates
The Group’s share of the results, assets and liabilities of joint ventures and associates:
£m 2010 2009
Joint Joint
venture Associate Total venture Associate Total
Non-current assets 0.4 0.2 0.6 0.3 0.1 0.4
Current assets 0.8 0.8 1.6 0.6 0.5 1.1
Total assets 1.2 1.0 2.2 0.9 0.6 1.5
Current liabilities (0.4) (0.7) (1.1) (0.3) (0.4) (0.7)
Non-current liabilities (0.3) – (0.3) (0.2) – (0.2)
Total liabilities (0.7) (0.7) (1.4) (0.5) (0.4) (0.9)
Goodwill 2.9 – 2.9 2.9 – 2.9
Share of net assets 3.4 0.3 3.7 3.3 0.2 3.5
Revenue 2.7 3.7 6.4 2.3 2.5 4.8
Profit after tax 0.1 – 0.1 0.1 0.1 0.2
The Group has a 45% (2009: 30%) interest in the ordinary shares of FMD Limited, the holding company of Worldwide Magazine Distribution
Limited, a company incorporated in england and Wales. The accounts of the associate are drawn up to 31 August 2010 for inclusion in the
consolidated accounts. The latest statutory accounts of the associate were drawn up to 30 April 2010.
The Group has a 50% interest in the ordinary shares of Rascal Solutions Limited, a company incorporated in england and Wales. The latest
statutory accounts of the joint venture were drawn up to 31 August 2010.
15 Other financial assets
Trade and other receivables
£m 2010 2009
Trade receivables 85.9 101.5
Allowance for doubtful debts (0.6) (0.6)
85.3 100.9
Other debtors 8.3 10.0
Prepayments and accrued income 5.6 3.9
99.2 114.8
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Notes to the Accounts continued
15 Other financial assets continued
Trade receivables
Total trade receivables net of allowances for doubtful debts held by the Company at 31 August 2010 amounted to £85.3m (2009: £100.9m),
comprising the amounts presented above.
The average credit period taken on sales of goods is 21 days (2009: 21 days). Trade receivables are generally non-interest bearing. The Group has
provided fully for all receivables over 90 days for independent customers as historical experience is such that receivables past due beyond 90 days
are generally not recoverable. For larger multiple customers the Group provides for receivables on an individual customer basis based on
circumstances known at that time and the likelihood of recovery.
Of the trade receivables balance at the end of the year, five customers had individual balances that represented more than 5% of the total trade
receivables balance. The total of these was £34.7m (2009: £39.2m). The directors believe that there is no further credit provision required due to
the concentration of credit risk in excess of the allowance for doubtful debts.
The Group does not have any individual customers whose sales in the year represent more that 10% of the Group revenue.
Included in the outstanding trade receivables balance are debtors with an overdue amount of £0.2m (2009: £0.3m) that the Group has not
provided for as these amounts are still considered recoverable and fall outside our pre-determined policy.
Ageing of past due but not impaired receivables:
£m 2010 2009
30–60 days 0.1 0.2
60–90 days 0.1 0.1
0.2 0.3
Movement in the allowance for doubtful debts:
£m 2010 2009
At 1 September 0.6 0.1
Impairment losses recognised 0.7 0.4
Acquisition of subsidiary – 0.5
Amounts written off as uncollectable (0.5) (0.3)
Amounts recovered during the year (0.2) (0.1)
At 31 August 0.6 0.6
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15 Other financial assets continued
Ageing of past due and impaired trade receivables:
£m 2010 2009
30–60 days 0.1 0.1
60–90 days 0.1 0.3
90–120 days 0.4 0.2
0.6 0.6
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
Cash and cash equivalents
£m 2010 2009
Cash and cash equivalents 4.0 4.3
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The
carrying amount of these assets approximates their fair value.
Assets held for sale
£m 2010 2009
Assets held for sale 0.9 –
The move of Bertram Library Services warehouse operation from Leeds to the existing Bertrams Books site in Norwich has been completed
since year end. The Leeds property is expected to be sold within the next 12 months and is classified as an asset held for sale and presented
separately on the balance sheet.
16 Trade and other payables
£m 2010 2009
Trade payables 152.9 166.1
Other tax and social security 2.4 2.7
Other creditors 9.9 12.1
Accruals and deferred income 16.5 10.7
181.7 191.6
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade purchases is 35 days (2009: 34 days). No interest is charged on trade payables. The directors consider that the carrying amount of trade
and other payables approximates to their fair value.
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Notes to the Accounts continued
17 Other non-current liabilities
£m 2010 2009
Other creditors 0.6 0.7
18 Obligations under finance leases
£m 2010 2009
Present value Present value
Minimum of minimum Minimum of minimum
lease lease lease lease
payments payments payments payments
Amount payable under finance leases:
Within one year 1.8 1.6 1.7 1.5
In the second to fifth years inclusive 1.8 1.6 3.2 2.9
Total 3.6 3.2 4.9 4.4
Less: future finance charges (0.4) – (0.5) –
Present value of lease obligations 3.2 3.2 4.4 4.4
Less: Amount due for settlement within 12 months (shown under current liabilities) (1.6) (1.6) (1.5) (1.5)
Amount due for settlement after 12 months 1.6 1.6 2.9 2.9
It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 3–4 years. Interest rates are
fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates their carrying amount.
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19 Provisions
£m
Reorganisation Property
provisions provisions Total
Gross provisions:
At 1 September 2009 4.1 6.6 10.7
Additions 1.5 1.9 3.4
Utilisation (3.6) (0.7) (4.3)
Released unutilised (0.7) – (0.7)
At 31 August 2010 1.3 7.8 9.1
Discount:
At 1 September 2009 – (2.3) (2.3)
Unwinding of discount utilisation – 0.1 0.1
At 31 August 2010 – (2.2) (2.2)
Net book value at 31 August 2010 1.3 5.6 6.9
Gross provisions:
At 1 September 2008 – 0.8 0.8
Additions 4.3 6.3 10.6
Utilisation (0.2) (0.5) (0.7)
At 31 August 2009 4.1 6.6 10.7
Discount:
At 1 September 2008 – (0.1) (0.1)
Additions – (2.2) (2.2)
At 31 August 2009 – (2.3) (2.3)
Net book value at 31 August 2009 4.1 4.3 8.4
£m 2010 2009
Included within current liabilities 5.0 3.8
Included within non-current liabilities 1.9 4.6
Total 6.9 8.4
The property provisions represent the estimated future cost of the Group’s onerous and reversionary leases in non-trading properties based on
known and estimated rental sub-leases. These provisions have been discounted at 11% (being the Group’s post-tax WACC), and this discount will
be unwound over the life of the leases. The provisions are expected to be utilised over the period to 2019, when all of the leases that have been
provided against will have expired.
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20 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting periods.
£m
Accelerated Retirement
tax Share-based benefit
depreciation Other payments obligations Total
At 1 September 2009 (0.7) – 0.5 1.5 1.3
Charge to income 0.1 (0.3) – – (0.2)
Charge to other comprehensive income – 0.1 – (1.5) (1.4)
At 31 August 2010 (0.6) (0.2) 0.5 – (0.3)
At 1 September 2008 (1.7) – 0.1 3.1 1.5
Charge to income 1.0 – 0.4 – 1.4
Charge to other comprehensive income – – – (1.6) (1.6)
At 31 August 2009 (0.7) – 0.5 1.5 1.3
The Company has capital losses carried forward of £23.9m (2009: £23.9m).
Deferred tax assets have not been recognised in respect of the capital losses carried forward due to the uncertainty of their utilisation.
Certain deferred tax assets and liabilities have been offset in the table above. The following is an analysis of the deferred tax balances, after offset,
for financial reporting purposes.
£m 2010 2009
Deferred tax assets 1.6 3.3
Deferred tax liabilities (1.9) (2.0)
Net deferred tax (liability)/asset (0.3) 1.3
Notes to the Accounts continued
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21 Borrowings
£m 2010 2009
Term loan – disclosed within current liabilities 33.2 –
Term loan – disclosed within non-current liabilities – 39.3
Revolving credit facility 15.6 9.5
Overdraft – 0.6
Total borrowings 48.8 49.4
Total borrowings
Amount due for settlement within 12 months 48.8 15.1
Amount due for settlement after 12 months – 34.3
Total borrowings 48.8 49.4
All borrowings are in sterling. There were no breaches of the loan agreement during either the current or prior year.
The other principal features of the Group’s borrowings are as follows:
A new banking facility was finalised on 27 August 2010 with a syndicate of five major lenders. At 31 August 2010 the term loan was drawn under
the facility that was due to expire on 26 June 2011, and as a result has been shown as a creditor within current liabilities. Since year end the Group
has started to use the new banking facility and the term loan will be disclosed as a creditor within non-current liabilities in future periods.
At year end the Group has committed bank facilities in place of £135m, plus a further committed asset backed facility of up to £35m, which
comprise:
l a £40m term loan of which £3m is repayable in September 2012 and September 2013, £4m is repayable in September 2014 with the balance
repayable in November 2014;
l a £95m revolving credit facility is in place which is also repayable in November 2014; and
l a committed asset backed facility of up to £35m of which £15m can be secured against the debtors of Bertrams and £20m against other
Group assets.
There is an interest rate hedge in place until June 2011 at an all in effective rate of 6.76%, which at 31 August 2010 covered £13.5m of the
term loan.
The weighted average interest rates paid during the year were as follows:
% 2010 2009
Term loan 4.1 5.4
Revolving credit facility 1.2 2.3
Undrawn borrowing facilities
At 31 August 2010, the Group had available £106.2m (2009: £54.6m) of undrawn committed borrowing facilities.
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22 Derivative financial instruments
£m 2010 2009 2010 2009
Current Non-current
Derivatives that are designated and effective as hedging instruments carried at fair value:
Interest rate swaps (0.5) – – (1.3)
Derivatives that are designated and carried at fair value through profit and loss (FvTPL):
Basis interest rate swap – (0.2) – –
Total derivative financial instruments (0.5) (0.2) – (1.3)
Further details of derivative financial instruments are provided in Note 23 to the Accounts.
23 Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the
borrowings disclosed in Note 21 to the Accounts, cash and cash equivalents and equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings as disclosed in the Group Statement of Changes in equity.
The Group is not subject to externally imposed capital requirements.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis
on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in
Note 1 to the Accounts.
Categories of financial instruments
£m 2010 2009
Financial assets
Cash and cash equivalents 4.0 4.3
Financial liabilities
Derivative instruments in designated hedge accounting relationships 0.5 1.3
Derivatives designated as fair value through the profit and loss – 0.2
Borrowings 48.8 49.4
Finance leases 3.2 4.4
Market risk
Interest rate management
The Group regularly monitors its exposure to interest rate risk and considers from time to time whether there would be a benefit in further hedging
this risk. The Group avoids the use of derivatives or other financial instruments in circumstances when the outcome would effectively be largely
dependent upon speculation on future rate movements. The Group uses interest rate swaps to manage its exposure to interest rate movements on
its bank borrowings.
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23 Financial instruments continued
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at
the balance sheet date. For floating rate liabilities the analysis is prepared assuming the amount of liability outstanding at the balance sheet date
was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group’s profit and equity for the year ended 31 August
2010 would decrease/increase by £0.3m (2009: £0.2m).
Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on
agreed notional principal amounts. Such contracts enable the Group to mitigate the cash flow exposures on the issued variable rate debt held.
The fair value of interest rate swaps at the reporting date is based on the market values of equivalent instruments at the balance sheet date, and
is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date:
2010 2009 2010 2009 2010 2009
Average contract Notional principal
fixed interest rate amount Fair value
Outstanding receive floating, pay fixed contracts
Less than 1 year 5.13% – £13.5m – (£0.5m) –
2 to 5 years – 5.13% – £24.8m – (£1.3m)
The interest rate swaps settle on a semi-annual basis. The floating rate on the interest rate swaps is 6 months LIBOR. The Group will settle the
difference between fixed and floating interest rates on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for
fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable interest
rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is
recognised in the income statement over the period that the floating rate interest payments on debt impact the income statement.
Credit risk
The Group considers its exposure to credit risk at 31 August to be as follows:
£m 2010 2009
Bank deposits 4.0 4.3
Trade receivables 85.3 100.9
Total 89.3 105.2
The Group’s policy is to transact derivatives only with counterparties whose long-term credit is rated at least A1 by Moody’s. Further detail on the
Group’s policy relating to trade receivables can be found in Note 15 to the Accounts.
Investment risk management
The Group’s pension scheme, the WH Smith Pension Trust, has significant assets valued at £408.6m as at 31 August 2010. An Investment
Committee of the Trustees to the Scheme meets regularly to review the performance of the asset managers and the scheme as a whole. The
Group is represented on this committee by the Chief Financial Officer. In adopting the LDI structure in 2005 a number of inflation and interest rate
hedges and option agreements were entered into, with collateral posted daily to or from the scheme to the relevant counterparty. The risk of failure
of counterparties to these instruments and of the investment manager is monitored regularly by the Committee, as such failure could expose the
scheme to loss.
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23 Financial instruments continued
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows.
Included in Note 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. The renewal of
the bank facility just before year end at an increased level enhances the Group’s ability to manage liquidity risk. As the Group is cash generative its
liquidity risk is considered low. The Group’s cash generation allows it to meet all loan commitments as they fall due as well as sustain a negative
working capital position.
The Group invests significant resources in the forecasting and management of its cash flows. This is critical given a routine cash cycle that results
in significant predictable swings within each month of around £50m.
The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and derivatives. The undiscounted cash
flows will differ from both the carrying value and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date.
£m
Due Due Due
within between 1 between 2 Greater
1 year and 2 years and 3 years than 3 years
At 31 August 2010
Non-derivative financial liabilities
Bank and other borrowings (48.8) – – –
Interest payments on borrowings – – – –
Finance leases (1.8) (1.0) (0.8) –
Derivative and other financial liabilities
Net settled derivative contracts – receipts 0.1 – – –
Net settled derivative contracts – payments (0.6) – – –
Total (51.1) (1.0) (0.8) –
At 31 August 2009
Non-derivative financial liabilities
Bank and other borrowings (15.1) (35.0) – –
Interest payments on borrowings (2.9) (2.6) – –
Finance leases (1.7) (1.8) (0.8) (0.6)
Derivative and other financial liabilities
Net settled derivative contracts – receipts 0.3 0.3 – –
Net settled derivative contracts – payments (1.2) (0.9) – –
Total (20.6) (40.0) (0.8) (0.6)
All financial instruments are classified as level 2 based upon the degree to which the fair value movements are observable. Level 2 fair value
measurements are defined as those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (prices
from third parties) or indirectly (derived from third party prices).
The loan shown on the balance sheet at year end was repaid on 9 September 2010, when the new bank facility was brought into use. As a result
the contracted amounts of interest payment on borrowing at the year end were not significant enough to include in the above table.
Notes to the Accounts continued
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24 Contingent liabilities and capital commitments
£m 2010 2009
Bank and other loans guaranteed 3.0 3.1
Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement, any such contingent liability, which becomes an actual liability, will be
apportioned between Smiths News PLC and WH Smith PLC in the ratio 35 : 65 (provided that the actual liability of Smiths News PLC in any
12 month period does not exceed £5m). The Company’s share of these leases has an estimated future cumulative gross rental commitment at
31 August 2010 of £21.2m (2009: £26.6m).
Contracts placed for future capital expenditure approved by the directors but not provided for amount to £nil (2009: £1.1m).
25 Net cash inflow from operating activities
£m 2010 2009
Operating profit 30.2 21.6
Adjustment for pension funding (6.4) (5.7)
Depreciation of property, plant and equipment 5.9 5.3
Amortisation of intangible assets 2.3 1.8
Share-based payments 1.3 1.0
Increase in inventories (7.0) (10.9)
Decrease/(increase) in receivables 15.6 (41.7)
(Decrease)/increase in payables (10.0) 57.2
Income tax paid (4.7) (4.3)
(Decrease)/increase in provisions (2.5) 7.6
Net cash inflow from operating activities 24.7 31.9
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Notes to the Accounts continued
26 Share-based payments
Details of the share schemes operated by the Group are provided in the Remuneration Report on pages 57 to 67. The Group recognised total
expenses of £1.3m in 2010 (2009: £1.0m) related to equity-settled share-based payment transactions.
The average share price throughout the period was 114.5p (2009: 84.9p).
Sharesave Scheme
Under the terms of the Smiths News Sharesave Scheme, the Board may grant options to purchase ordinary shares in the Company to eligible
employees who enter into an Inland Revenue approved Save-As-you-earn (‘SAye’) savings contract for a term of three or five years. Options are
granted at a 20% discount to the market price of the shares on the day preceding the date of offer and are normally exercisable for a period of six
months after completion of the SAye contract.
2010 2009
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
Outstanding at the beginning of the period 2,745,297 87.2p 1,944,417 93.3p
Granted 1,042,952 98.4p 1,173,638 79.2p
exercised (452,312) 100.6p (329) 85.0p
Forfeited (246,392) 83.1p (372,429) 93.6p
expired (119,998) 100.8p – –
Outstanding at the end of the period 2,969,547 88.9p 2,745,297 87.2p
Exercisable at the end of the period – – – –
Outstanding options granted under the Sharesave Scheme as at 31 August 2010 are as follows:
2010 2009
Weighted Weighted
Weighted average Weighted average
average remaining average remaining
Number of exercise contractual Number of exercise contractual
Date of grant options price life (years) options price life (years)
29 November 2006 (3 years) – – – 573,103 100.8p 0.9
29 November 2006 (5 years) 229,820 100.8p 1.9 242,813 100.8p 2.9
4 June 2008 (3 years) 476,094 85.0p 0.4 525,406 85.0p 1.4
4 June 2008 (5 years) 202,858 85.0p 2.4 232,185 85.0p 3.4
24 June 2009 (3 years) 714,242 79.2p 1.8 817,231 79.2p 2.8
24 June 2009 (5 years) 309,113 79.2p 3.8 354,559 79.2p 4.8
2 June 2010 (3 years) 748,574 98.4p 2.9 – – –
2 June 2010 (5 years) 288,846 98.4p 4.9 – – –
2,969,547 88.9p 2.4 2,745,297 87.2p 2.5
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26 Share-based payments continued
Executive share option schemes
Under the terms of the Smiths News executive Share Option Scheme, the Board may grant options to purchase ordinary shares in the Company
to executives up to an annual limit of 200% of base salary. The exercise of options is conditional on the achievement of a performance target,
which is determined by the Remuneration Committee at the time of grant.
As a result of the demerger of the WH Smith Retail business on 31 August 2006 all outstanding options under the unapproved part of the
WH Smith executive Share Option Scheme 1999 were exchanged for new options over the Company’s shares.
2010 2009
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
Outstanding at the beginning of the period 7,877,217 89.0p 6,845,998 96.8p
Granted 1,465,641 107.5p 1,987,383 63.3p
exercised (781,204) 84.8p (632,093) 85.5p
Forfeited (913,276) 120.3p (324,071) 103.7p
Outstanding at the end of the period 7,648,378 89.2p 7,877,217 89.0p
Exercisable at the end of the period 2,845,330 86.4p 3,626,534 86.1p
The weighted average share price at date of exercise was 119.6p.
Outstanding options granted under the executive share option schemes as at 31 August 2010 are as follows:
2010 2009
Weighted Weighted
Weighted average Weighted average
average remaining average remaining
Number of exercise contractual Number of exercise contractual
Date of grant options price life (years) options price life (years)
7 December 1999 – – – 24,688 93.0p 0.3
31 October 2000 77,723 94.0p 0.2 77,723 94.0p 1.2
1 November 2001 103,427 105.0p 1.2 103,427 105.0p 2.2
5 November 2002 42,635 86.0p 2.2 72,584 86.0p 3.2
20 November 2003 191,915 82.0p 3.2 243,706 82.0p 4.2
3 November 2004 616,357 81.0p 4.2 934,137 81.0p 5.2
26 November 2004 60,166 74.0p 4.2 60,166 74.0p 5.2
26 April 2005 154,065 86.0p 4.7 154,065 86.0p 5.7
2 November 2005 1,599,042 88.0p 5.2 1,956,038 88.0p 6.2
16 November 2006 – – – 732,861 127.5p 7.2
15 November 2007 1,468,521 110.7p 7.2 1,530,439 110.7p 8.2
27 November 2008 1,915,055 63.3p 8.2 1,987,383 63.3p 9.2
26 November 2009 1,419,472 107.5p 9.2 – – –
7,648,378 89.2p 7.1 7,877,217 89.0p 7.1
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26 Share-based payments continued
LTIP
Under the terms of the Smiths News LTIP, executive directors and key senior executives may be awarded each year conditional entitlements to
ordinary shares in the Company (in the form of nil cost options) or, in order to retain flexibility and at the Company’s discretion, a cash sum linked to
the value of a notional award of shares up to a value of 200% of base salary. The vesting of awards is subject to the satisfaction of a performance
condition, which is determined by the Remuneration Committee at the time of grant.
2010 2009
Number of Number of
awards awards
Outstanding at the beginning of the period 2,643,656 1,405,396
Granted 636,046 1,250,843
exercised – –
Forfeited (772,235) (12,583)
Outstanding at the end of the period 2,507,467 2,643,656
Exercisable at the end of the period – –
Outstanding awards granted under the LTIP as at 31 August 2010 are as follows:
2010 2009
Weighted Weighted
average average
remaining remaining
Number of contractual Number of contractual
Date of grant awards life (years) awards life (years)
16 November 2006 – – 772,235 7.2
15 November 2007 620,578 7.2 620,578 8.2
30 April 2009 1,250,843 8.7 1,250,843 9.7
26 November 2009 636,046 9.2 – –
2,507,467 8.5 2,643,656 8.6
Notes to the Accounts continued
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26 Share-based payments continued
Deferred Bonus Plan
Under the terms of the Smiths News Deferred Bonus Plan, executive directors and key senior executives may be granted each year share awards
(in the form of nil cost options) dependent on the achievement of the Annual Bonus Plan performance targets and economic Profit Plan payouts.
The shares under award are exercisable after two years, subject to continued employment.
2010 2009
Number of Number of
awards awards
Outstanding at beginning of the period 690,180 –
Granted 428,694 775,873
exercised (690,180) (85,693)
Outstanding at the end of the period 428,694 690,180
Exercisable at the end of the period – –
The weighted average share price at date of exercise was 116p.
Outstanding awards granted under the Deferred Bonus Plan as at 31 August 2010 are as follows:
2010 2009
Weighted Weighted
average average
remaining remaining
Number of contractual Number of contractual
Date of grant awards life (years) awards life (years)
23 October 2008 – – 690,180 1.2
26 November 2009 428,694 2.2 – –
428,694 2.2 690,180 1.2
Economic Profit Plan
Under this plan, executive directors and key senior executives may receive each year a cash payment and/or be granted a share award under
the terms of the Deferred Bonus Plan, based on the value of an economic profit Pool. The value of the Pool is determined by the economic
profit (calculated as profit after tax less the cost of capital employed) created in each financial year, with 10% of this economic profit being
contributed to the Pool (if there is an economic loss in any year the value of the Pool will be diminished). One-third of the Pool is then distributed
to participants each year and two-thirds is carried forward to form part of the Pool for the following year. Awards in respect of this plan totalling
75,429 shares were granted under the terms of the Deferred Bonus Plan on 26 November 2009, and are included within the disclosures for
that plan.
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26 Share-based payments continued
Sharesave scheme and executive share option schemes
The share options granted during each period have been valued using a Black–Scholes model.
The inputs to the Black–Scholes model are as follows:
2010 2009 2010 2009
Sharesave Executive
scheme share options
Share price at grant date – pence 119.5 85.0 110.0 63.3
exercise price – pence 98.4 79.2 110.0 63.3
expected volatility – per cent 38.0 38.0 40.0 40
expected life – years 3.0–5.0 3.0–5.0 3.0 3.0
Risk-free rate – per cent 2.7 2.5 2.5 2.5
Dividend yield – per cent 5.7 6.8 6.4 6.7
Weighted average fair value – pence 30.3 29.3 18.2 11.7
expected volatility was based on the median three-year share price volatility of 42 FTSe Support Services companies.
Awards
The fair values of the LTIP and Deferred Bonus Plan awards granted in 2010 were measured by reference to the share price at date of grant
discounted at the estimated dividend yield per cent.
The inputs into this calculation were as follows:
2010 2009
Share price – pence 107.5 100.2
Dividend yield – per cent 6.4 6.7
Weighted average fair value – pence 88.2 81.4
Notes to the Accounts continued
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27 Called up share capital
(a) Share Capital
£m 2010 2009
Authorised:
300.0m ordinary shares of 5p each 15.0 15.0
Issued and fully paid:
183.4m ordinary shares of 5p each (2009: 182.9m ordinary shares of 5p each) 9.2 9.1
(b) Movement in Share Capital
£m
Ordinary shares
of 5p each
At 1 September 2008 and 31 August 2009 9.1
Issue of share capital in relation to sharesave schemes 0.1
At 31 August 2010 9.2
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the
meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
During the year 452,312 ordinary 5p shares were issued for a consideration of £455,027, resulting in a share premium of £432,411.
The concept of authorised share capital was repealed by the Companies Act 2006 with effect from 1 October 2009, and on 15 January 2010,
the Company passed a Special Resolution disapplying the existing provisions of its Memorandum of Association from applying to its Articles
of Association.
28 Related party transactions
Transactions between businesses within this Group, which are related parties, have been eliminated on consolidation and are not disclosed in
this note.
Trading transactions
£m 2010 2009 2010 2009
Sales to Amounts owed
related parties by related parties
Joint venture 0.4 0.1 – –
Sales to related parties are for management fees; payment is due on the last day of the month following the date of invoice.
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Non-trading transactions
£m 2010 2009
Loan to related parties
Joint venture 0.3 0.3
The loan to related parties has no set date for repayment and accrues interest at LIBOR + 2%.
Remuneration of key management personnel
The remuneration of the directors and the executive management team, who are the key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.
£m 2010 2009
Short-term employee benefits 2.3 2.7
Post-employment benefits 0.2 0.2
Share-based payments 0.8 0.5
3.3 3.4
Information concerning directors’ remuneration, interest in shares and share options are included in the Remuneration Report on pages 57 to 67.
Directors’ transactions
There are no other transactions with directors.
29 Principal companies
The principal companies of the Group are disclosed below, these are wholly owned subsidiaries and joint ventures:
Name Country of incorporation/registration Proportion of ownership interest
Smiths News Holdings Limited england and Wales 100%
Smiths News Trading Limited england and Wales 100%
Bertram Trading Limited england and Wales 100%
Rascal Solutions Limited england and Wales 50%
Notes to the Accounts continued
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Group income statement
£m 2010 2009 2008 2007 2006
12 months to
31 August 31 August 31 August 31 August 31 August
Continuing operations
Revenue 1,829.6 1,326.0 1,240.6 1,232.4 1,210.6
Operating profit before non-recurring items 37.1 32.4 36.0 36.0 33.0
Non-recurring items (6.9) (10.8) 0.1 5.4 1.3
Operating profit 30.2 21.6 36.1 41.4 34.3
Net finance charges (2.1) (3.2) (3.5) (5.0) (2.3)
Profit before tax 28.1 18.4 32.6 36.4 32.0
Income tax expense (6.9) (0.7) (6.1) (7.7) (6.4)
Profit for the year from continuing operations 21.2 17.7 26.5 28.7 25.6
Discontinued operations – – – – 32.1
Profit for the period 21.2 17.7 26.5 28.7 57.7
Earnings per share
Basic – continuing operations 11.7p 9.9p 14.8p 16.1p 14.9p
Basic 11.7p 9.9p 14.8p 16.1p 33.5p
Diluted 11.5p 9.9p 14.7p 15.8p 33.3p
Underlying Earnings per share
Basic – continuing operations 14.6p 13.8p 14.5p 14.0p 14.1p
Basic 14.6p 13.8p 14.5p 14.0p 32.8p
Five year Financial Summary
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Group balance sheet
£m 2010 2009 2008 2007 2006
31 August 31 August 31 August 31 August 31 August
Non-current assets
Intangible assets 12.7 12.7 4.1 3.4 2.6
Property, plant and equipment 21.0 21.1 15.5 18.2 19.2
Deferred tax assets 1.6 3.3 11.6 6.0 15.6
Other non-current assets 3.7 3.5 3.5 1.1 0.3
Total non-current assets 39.0 40.6 34.7 28.7 37.7
Current assets 142.2 150.2 76.1 66.4 93.0
Total assets 181.2 190.8 110.8 95.1 130.7
Current liabilities (237.6) (213.4) (126.9) (123.3) (134.4)
Non-current liabilities
Bank loans and other borrowings – (34.3) (39.7) (44.6) (49.6)
Retirement benefit obligation – – – – (49.1)
Deferred tax liabilities (1.9) (2.0) (10.1) (1.6) (1.7)
Other non-current liabilities (4.1) (9.5) (2.4) (3.0) (3.2)
Total liabilities (243.6) (259.2) (179.1) (172.5) (238.0)
Total net liabilities (62.4) (68.4) (68.3) (77.4) (107.3)
Five year Financial Summary continued
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Independent Auditors’ Report to the Members of Smiths News PLC
We have audited the parent Company accounts of Smiths
News PLC for the year ended 31 August 2010 which
comprise the Parent Company Balance Sheet, the Parent
Company Reconciliation of Movements in Shareholders’
Funds and the related notes 1 to 7. The financial reporting
framework that has been applied in their preparation is
applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the
fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company
and the Company’s members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the
preparation of the parent Company accounts and for
being satisfied that they give a true and fair view. Our
responsibility is to audit the parent Company accounts in
accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s
(APB’s) ethical Standards for Auditors.
Scope of the audit of the accounts
An audit involves obtaining evidence about the amounts
and disclosures in the accounts sufficient to give
reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the parent Company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the
overall presentation of the accounts.
Opinion on accounts
In our opinion the parent Company accounts:
• give a true and fair view of the state of the parent
Company’s affairs as at 31 August 2010 and of its
result for the year then ended;
• have been properly prepared in accordance with
United Kingdom Generally Accepted Accounting
Practice; and
• have been prepared in accordance with the
requirements of the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance
with the Companies Act 2006; and
• the information given in the Directors’ Report for the
financial year for which the accounts are prepared is
consistent with the parent Company accounts.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent Company accounts and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Other matter
We have reported separately on the Group accounts of
Smiths News PLC for the year ended 31 August 2010.
Mark Mullins (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
Reading
United Kingdom
21 October 2010
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Company Balance SheetAs at 31 August 2010
£m Note 2010 2009
Fixed assets
Investments in subsidiary undertakings 3 520.0 520.0
520.0 520.0
Creditors: Amounts falling due after more than one year 4 (452.7) (440.6)
Total net assets 67.3 79.4
Capital and reserves
Called up share capital 5 9.2 9.1
Share premium account 6 0.4 –
Retained earnings 6 57.7 70.3
Total shareholders’ funds 67.3 79.4
Registered number – 05195191
These accounts were approved by the Board of Directors on 21 October 2010 and were signed on its behalf by:
Mark Cashmore Nick Gresham
Group Chief executive Chief Financial Officer
21 October 2010 21 October 2010
Reconciliation of Movements in Shareholders’ FundsFor the year ended 31 August 2010
£m 2010 2009
Opening shareholders’ funds 79.4 160.6
Dividend paid (12.6) (12.0)
Retained loss for the financial year – (69.2)
Shares issued in the year 0.5 –
Net reduction in shareholders’ funds (12.1) (81.2)
Closing shareholders’ funds 67.3 79.4
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Notes to the Company Balance Sheet
1 Accounting Policies
(a) Accounting convention
The accounts are prepared in compliance with the Companies Act 2006 and in accordance with applicable United Kingdom law and accounting
standards. The accounts are prepared under the historical cost convention. The accounting policies have been applied consistently in the current
and prior year.
In accordance with FRS 1 (Revised), a statement of cash flows has not been prepared.
(b) Investment in subsidiary undertakings
Investments in subsidiary undertakings are individually valued at historical cost less provision for impairment in value.
(c) Financial liabilities and equities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(d) Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively
enacted at the balance sheet date.
2 Loss for the year
The Company has not presented its own profit and loss account as permitted by section 408 of the Companies Act 2006. The loss for the year
attributable to shareholders, which is stated on an historical cost basis, was £nil (2009: £69.2m). The £69.2m loss in the prior year comprised,
impairment of investments in subsidiary undertakings of £149.2m offset by intercompany dividends received of £80.0m. There were no other
recognised gains or losses. Dividend paid in the year is £12.6m (2009: £12.0m).
3 Investments in subsidiary undertakings
£m 2010 2009
Cost or valuation:
At 1 September 520.0 669.2
Impairment – (149.2)
At 31 August 520.0 520.0
During the prior year the Company reviewed the carrying value of its investments. The outcome resulted in a £149.2m impairment in the value of
the investments in Group companies.
4 Creditors: amounts falling due after more than one year
£m 2010 2009
Amounts owed to Group companies 452.7 440.6
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Notes to the Company Balance Sheet continued
5 Called up share capital
(a) Share capital
£m 2010 2009
Authorised:
300.0m Ordinary Shares of 5p each 15.0 15.0
£m 2010 2009
Issued and fully paid Ordinary Shares of 5p each
At 1 September 9.1 9.1
Shares issued in the year 0.1 –
At 31 August 9.2 9.1
(b) Movement in share capital
Number m
Ordinary shares
of 5p each
At 1 September 2009 182.9
Issued in the year 0.5
At 31 August 2010 183.4
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the
meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
6 Reserves
£m 2010 2009
Share Profit
Share premium and loss
capital account account Total Total
Balance at 1 September 9.1 – 70.3 79.4 160.6
Dividend paid – – (12.6) (12.6) (12.0)
Loss retained for the year – – – – (69.2)
Shares issued in the year 0.1 0.4 – 0.5 –
Balance at 31 August 9.2 0.4 57.7 67.3 79.4
7 Related party transactions
The Company has taken advantage of the exemption granted by paragraph 3(c) of FRS 8, Related Party Disclosures, not to disclose transactions
with Smiths News Group companies and interests of the Group, which are related parties.
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Shareholder Information
Company Secretary and Registered Office
Mark Charlton, Smiths News PLC, Wakefield House,
Pipers Way, Swindon, Wiltshire, SN3 1RF.
Telephone 0845 1230000.
Smiths News PLC is registered in england and Wales
(Number 5195191).
Company website
Smiths News PLC Annual Reports and results
announcements are available via the Internet on our
website www.smithsnews.co.uk. The site provides a wide
range of information about the Company including AGM
information, share price data, financial calendar and
regulatory news releases.
Annual Report and Accounts
This Annual Report and Accounts is published on our
website at www.smithsnews.co.uk and has only been
sent to those shareholders who have asked for a copy.
Shareholders who have not requested a paper copy of the
Annual Report and Accounts have been notified of its
availability on the website.
A paper copy of the Annual Report and Accounts can be
obtained by writing to the Company Secretary, Smiths
News PLC, Wakefield House, Pipers Way, Swindon,
Wiltshire, SN3 1RF or you can email your request to
Annual General Meeting
The Annual General Meeting will be held at Wakefield
House, Pipers Way, Swindon, Wiltshire, SN3 1RF on
Friday 14 January 2011 at 11.30am. The Notice of Annual
General Meeting sets out the business to be transacted.
Shareholders who wish to attend the meeting should
detach the Attendance Card from the Proxy Form and
present it at the registration desk on arrival.
Proxy Form
A Proxy Form is enclosed for those shareholders unable
to attend the Annual General Meeting. To be effective, it
must be completed and lodged with the Company’s
Registrars, equiniti, by not later than 11.30am on
12 January 2011.
Electronic proxy voting
you may if you wish register the appointment of a proxy
for the meeting electronically, by logging onto the website
www.sharevote.co.uk. Full details of the procedure are
given on the website. you will need to have your Proxy
Form to hand when you log on as it contains information
which will be required. CReST members may appoint a
proxy electronically via equiniti (ID RA19). electronic proxy
voting instructions must be received by not later than
11.30am on 12 January 2011.
Registrars
If you have any enquiries about your shareholding in
Smiths News PLC or wish to advise of a change of
address, please contact equiniti, Aspect House, Spencer
Road, Lancing, West Sussex, BN99 6DA (telephone
0871 384 2771* or from outside the UK +44 (0) 121 415
7565). A textphone facility for shareholders with hearing
difficulties is available by telephoning 0871 384 2255*. In
addition, equiniti provides a range of shareholder
information online at www.shareview.co.uk (to register for
this service you will need your shareholder reference
number which can be found on the Proxy Form).
*Calls to this number cost 8p per minute from a BT landline, other providers’ costs may vary. Lines are open 8.30am to 5.30pm, Monday to Friday.
Financial calendar
Financial year end 31 August 2010
Results announced 21 October 2010
Annual Report published 6 December 2010
Final dividend ex dividend date 5 January 2011
Final dividend record date 7 January 2011
Interim Management Statement 14 January 2011
Annual General Meeting 14 January 2011
Final dividend payment date 4 February 2011
Half year end 28 February 2011
Interim results announced April 2011
Interim dividend ex dividend date May 2011
Interim dividend record date May 2011
Interim dividend payment date June 2011
Interim Management Statement July 2011
Financial year end 31 August 2011
Results announced October 2011
Share dealing services
The Company has arranged for Shareview Dealing, a
telephone and Internet share dealing service offered by
equiniti, to be made available to UK shareholders wishing
to buy or sell the Company’s shares. For telephone
dealing call 08456 037 037 between 8.30am and
4.30pm, Monday to Friday, and for Internet dealing log
on to www.shareview.co.uk/dealing. you will need
your shareholder reference number shown on your
share certificate.
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JPMorgan Cazenove provides a postal share dealing
service for private investors who wish to buy or sell the
Company’s shares. Further details are available from
JPMorgan Cazenove, telephone 020 7155 5155.
ShareGIFT
If you only have a small number of shares which are
uneconomic to sell, you may wish to consider donating
them to charity under ShareGIFT, a charity share donation
scheme administered by the Orr Mackintosh Foundation.
A ShareGIFT transfer form may be obtained from equiniti.
Further information about the scheme can be found on
the ShareGIFT website at www.sharegift.org.
Shareholder security
Shareholders are advised to be wary of any unsolicited
advice, offers to buy shares at a discount or offers of
free reports about the Company. Details of any
share dealing facilities that the Company endorses
will be included in the Company’s mailings or on our
website. More detailed information can be found at
www.moneymadeclear.fsa.gov.uk.
UK Capital Gains Tax
Demerger 31 August 2006
Following the demerger of new WH Smith PLC on
31 August 2006, in order to calculate any chargeable
gains or losses arising on the disposal of shares after
31 August 2006, the original tax base cost of your old
WH Smith PLC ordinary shares of 213/81p (adjusted if you
held your shares at 24 September 2004 and 22 May 1998
to take into account the capital reorganisations of
27 September 2004 and 26 May 1998 respectively (see
below)) will have to be apportioned between the
shareholdings of ordinary shares of 5p in the Company
and ordinary shares of 226/67p (or 20p if the disposal took
place before 22 February 2008) in new WH Smith PLC in
the ratio of 0.30415 and 0.69585 respectively.
Capital reorganisation 27 September 2004
If your shares result from a holding of old WH Smith PLC
shares acquired on or before 24 September 2004, in
order to calculate any chargeable gains or losses arising
on the disposal of shares after 24 September 2004, the
original tax base cost of your old WH Smith PLC ordinary
shares of 555/9p (adjusted if you held your shares as at
22 May 1998 to take into account the capital
reorganisation of 26 May 1998 (see below)) will have to be
apportioned between the shareholdings of ordinary shares
of 213/81p and ‘C’ shares resulting from the capital
reorganisation.
The cost of your shareholding of ordinary shares of 213/81p
is calculated by multiplying the original base cost of your
ordinary shares of 555/9p (adjusted where necessary to
take into account the capital reorganisation of 26 May
1998 referred to above) by 0.73979.
Capital reorganisation 26 May 1998
If your shares result from a holding of old WH Smith PLC
shares acquired on or before 22 May 1998, in order to
calculate any chargeable gains or losses arising on the
disposal of shares after 22 May 1998, the original tax
base cost of your old WH Smith PLC ordinary shares of
50p will have to be apportioned between the
shareholdings of ordinary shares of 555/9p and
redeemable ‘B’ shares resulting from the capital
reorganisation.
The cost of your shareholding of ordinary shares of 555/9p
is calculated by multiplying the original base cost of your
ordinary shares of 50p by 0.90714.
March 1982 values
If your shares result from a holding of old WH Smith PLC
shares acquired on or before 31 March 1982, in order to
calculate any chargeable gains or losses arising on the
disposal of shares, the tax base cost of your ordinary
shares is the 31 March 1982 base values per share as
follows:
Arising from an original
shareholding of old
WH Smith PLC
‘A’ ordinary ‘B’ ordinary
shares shares
Ordinary shares of 5p 26.93p 22.25p
WH Smith PLC ordinary
shares of 226/67p 61.62p 50.92p
If you have a complicated tax position, or are otherwise in
doubt about your tax circumstances, or if you are subject
to tax in a jurisdiction other than the United Kingdom, you
should consult your professional adviser.
Shareholder Information continued
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Welcome to
Smiths News PLCPerformance – Service – Value
Smiths News PLC is the UK’s largest distributor of newspapers, magazines and books. Our scale and expertise, combined with intelligent logistics systems, ensure we provide the best and widest range of services for both publishers and retailers. Delivering performance, service and value is coreto everything we do.
Our BusinessHighlights 01Chairman’s Statement 02Our Business at a Glance 04Questions and Answers 06 Our PerformanceBusiness Review Operating Review 08 Financial Review 28
Our GovernanceCorporate Responsibility Report 38Board of Directors 46Executive Management Team 48Directors’ Report 49Corporate Governance 52Remuneration Report 57Directors’ Responsibilities Statement 68
Our AccountsIndependent Auditors’ Report 69Group Income Statement 70Group Statement of Comprehensive Income 71Group Balance Sheet 72Group Statement of Changes in Equity 73Group Cash Flow Statement 74Notes to the Accounts 75Five Year Financial Summary 113Independent Auditors’ Report 115Company Balance Sheet 116Reconciliation of Movements in Shareholders’ Funds 116Notes to the Company Balance Sheet 117Shareholder Information 119Glossary of Terms 121
Contents
www.smithsnews.co.uk
Our PerformanceOur Business
Glossary of Terms
Smiths News PLC and its subsidiaries.
Smiths News PLC, registered in England and Wales with registered no. 5195191.
The businesses operated by a subsidiary of Smiths News PLC, Smiths News Trading Limited comprising Smiths News, InStore and NewsWorks.
The businesses operated by a subsidiary of Smiths News PLC, Bertram Trading Limited comprising Bertram Books, Bertram Library Services and Bertram Publisher Services.
The acquisition of the business and certain assets from the Bertram group of companies, formerly being known as (i) Bertram Group Limited(In Administration) (ii) Bertram Trading Limited (In Administration) and (iii) Bertram Books Limited (In Administration).
The news and magazine wholesaling business operated by (i) Surridge Dawson Limited (In Administration) and (ii) Solent SD Limited (InAdministration), together formerly trading as ‘Dawson News’.
Rascal Solutions Limited, a 50/50 joint venture between Smiths News and the Kemble family.
The Group
Smiths News PLC/ the Company
Smiths News
Bertrams
Acquisition of Bertrams
Dawson News
Rascal
In order to aid clarity the following terms are used throughout the Annual Report and Accounts 2010.
121
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Smiths News PLCWakefield HousePipers WaySwindonWiltshire SN3 1RFUnited Kingdom
Telephone 0845 123 0000Facsimile 01793 563601
www.smithsnews.co.uk
Annual Report and Accounts 2010
PerformanceServiceValue
Delivering
Annual R
epo
rt and A
ccounts 2010