24th Apr 2008 07:00
Smiths News PLC24 April 2008 Smiths News PLC Unaudited Interim Results Announcement for the six months ended 29 February 2008 Smiths News PLC (Smiths News) is the UK's leading newspaper and magazine wholesaler serving 22,000 retailers across England and Wales FINANCIAL HIGHLIGHTS (Unaudited) • Revenue of £618.4m, up 0.6% (2007: £615.0m) • Operating profit of £17.9m, up 1.7% (2007: £17.6m) • Profit before tax of £16.1m, up 5.9% (2007: £15.2m) • Adjusted earnings per share of 7.2p(1), up 4.3% (2007: 6.9p) • Earnings per share of 7.9p, down 2.5% (2007: 8.1p) • Interim dividend of 2.2p, up 4.8% (2007: 2.1p) Commenting on the results, Mark Cashmore, Chief Executive said: "The business has continued to perform well, despite challenging marketconditions. Revenues and profits have increased and costs have been tightlymanaged. This performance demonstrates the resilience and strength of thebusiness. "Our financial performance is underpinned by a service offer that continues toset the benchmark for the industry. Continual improvements remain at the heartof our strategy and we believe that stronger relationships with retailers willprovide the business with further opportunities and have invested accordingly.The recent joint venture with Rascal Solutions Ltd boosts our ability ininventory management and is a further step in this direction. "We have made good progress on new business, winning additional distributioncontracts in a number of areas as well as exploring wider opportunities for thebusiness to move into new markets. We have also secured a major contract withHarperCollins for The Returns Company. "Overall, trading remains in line with expectations." (1) Adjusted to reflect the anticipated full year tax rate of 20% for 2008(2007:20%) (2) Like for like revenue growth excludes newspaper and magazine publishercontract gains These definitions are applied consistently throughout this Interim ResultsAnnouncement Enquiries (for 24 April only): Smiths News PLC Alan Humphrey Investor Relations 020 7404 5959 Brunswick Kate Holgate Media Relations 020 7404 5959 Giles Croot Smiths News PLC's unaudited interim results 2008 are available atwww.smithsnews.co.uk and a copy of the unaudited interim results 2008 willshortly be available for inspection at the UK Listing Authority, 25 The NorthColonnade, London, E14 5HS. About Smiths News: Smiths News is the UK's leading newspaper and magazine wholesaler serving 22,000retailers across England and Wales. Smiths News also collects and processesreturns, supplies sales information to publishers and provides a range ofservices for its retail customers. Smiths News has an approximate 40 per cent share of the magazine wholesalingsector and an approximate 36 per cent share of the newspaper wholesaling sectorin the UK. Smiths News has 44 distribution centres across England and Wales, employing4,100 staff. INTERIM MANAGEMENT REPORT To the members of Smiths News PLC OPERATIONAL REVIEW Smiths News continued to make good progress over the first half of the year.Revenues and profitability grew, despite challenging markets. Revenues of£618.4m were up 0.6% on 2007 and profit before tax of £16.1m is up 5.9%. Newspapers performed well with strong price growth in the quality market.Performance in the magazine market varied by sector. Weekly titles have showngrowth and monthly titles continue to decline though the trend has slowed overthe period. The core business continues to pursue its strategy of improving efficiency andservice. Efficiency initiatives throughout the business have delivered savings of £1.7mand we are increasingly confident of exceeding our target of at least offsettingthe impact of inflation this year. The investments we have made this year andour further plans for rationalisation in the East Midlands in the second halfwill provide further cost saving opportunities for 2008 / 2009. The strategy of improving service and working more closely with retailers andpublishers is on track. Our service as measured against a range of keyperformance indicators has once again improved and a number of independentlyconducted surveys confirm our position as the wholesaler with the most efficientand effective service offer. Our sales based replenishment system has expandedto encompass more retailers and we have made further investments in ourinformation systems and data warehouse capability to support our drive forcompetitive advantage through service excellence. In our core markets we secured additional business from News International inthe Peterborough area; from Mail Newspapers in the Derby area, to begin fromJuly; from Newsquest, a regional press publisher, covering the South Wales area;plus, the previously announced News International contract wins in South Londonand Derby. The annualised sales value of all these contracts is £26m. In addition, The Returns Company secured a major contract with HarperCollins toprocess their book returns for all of the UK. The contract for circa 10 millionunits per year is an important next step for the business. Our recently announced joint venture with Rascal Solutions Limited is a cleardemonstration of our intention to invest in areas that extend our role and bringour skills to new categories and markets. To support our wider drive for new revenues we have strengthened the executiveteam with the appointment of a Corporate Development Director. The creation ofthis role is specifically to identify and develop new revenue opportunities. In March the Office of Fair Trading announced its intention to publish theresult of its review in late summer of this year. We remain focused on ourstrategy and are well positioned to deal with any potential outcome. In summary, the business continues to perform well despite challengingconditions. We believe that our strategy of driving service and efficiency inthe core business while exploiting the potential for revenue growth in new andexisting markets remains appropriate. Overall, trading remains in line with expectations. FINANCIAL REVIEW REVENUE -------------------------------------------------------------------------------- Feb Feb Change Like for like(2) growth 2008 2007 Fav/(Adv) Fav/(Adv) £m £m % %--------------------------------------------------------------------------------Newspapers 326.6 318.1 2.7% 1.7%Magazines 265.2 272.4 (2.6%) (2.6%)Other 26.6 24.5 8.6% 8.6%--------------------------------------------------------------------------------Total revenue 618.4 615.0 0.6% --------------------------------------------------------------------------------- Total revenues were 0.6% above last year with like for like revenues in linewith last year. Newspaper revenues of £326.6m were up 2.7% on last year. This included 1% growthfrom both a News International contract gain in the Peterborough area and fromRegional press gains in Cambridge, Plymouth and Peterborough. This year hasagain seen the continuing trend of value growth in Newspapers, driven by priceincreases in the quality market in the first half of the year. Magazine revenues of £265.2m were down 2.6%, an improved position on the 3.6%decrease in the underlying sales of last year. There has been continued growthin the Weekly market, together with a slowdown in the rate of decline in Monthlymagazines. In the first half of the year we have seen publisher price increasesin both the Weekly and Monthly markets. OPERATING PROFIT -------------------------------------------------------------------------------- Feb Feb Change 2008 2007 Fav/(Adv) £m £m %--------------------------------------------------------------------------------Gross profit 61.7 63.1 (2.2%)Gross margin 10.0% 10.3%Operating costs (43.8) (45.5) 3.7%--------------------------------------------------------------------------------Operating profit 17.9 17.6 1.7%-------------------------------------------------------------------------------- Gross margin reduced from 10.3% last year to 10.0%. This is largely attributableto a change in the sales mix, with increased sales of lower margin Newspapers. Operating costs of £43.8m were 3.7% lower than last year. The lower year on yearcosts came from a wide range of initiatives across the business that included: •The consolidation of telephone activity into regional centres, that was previously carried out in every depot •Depot rationalisations in Stoke and High Wycombe •Improved fleet and route configuration •The closure of the defined benefit pension scheme to future accruals in May 2007 The cost reductions contributed to an improvement in operating profit of 1.7% to£17.9m (2007: £17.6m). PROFIT BEFORE AND AFTER TAX -------------------------------------------------------------------------------- Feb Feb Change 2008 2007 Fav/(Adv) £m £m %--------------------------------------------------------------------------------Operating profit 17.9 17.6 1.7%Finance costs (1.8) (2.4)--------------------------------------------------------------------------------Profit before tax 16.1 15.2 5.9%Taxation (2.0) (0.9)--------------------------------------------------------------------------------Profit after tax 14.1 14.3 (1.4%)-------------------------------------------------------------------------------- Finance costs of £1.8m were £0.6m lower than last year, predominantly due tolower pension finance charges. Profit before tax for 2008 was £16.1m, anincrease of 5.9%. The income tax charge for the first half represents an effective tax rate of 12%(2007: 6%) and is based on the UK Corporation tax rate of 30%, adjusted for aprovision release of £2.6m in the period. The prior year charge benefited from a£4.0m provision release. It is anticipated that the full year effective tax ratewill be around 20%, which is the same rate as last year. Over time it isexpected that the effective tax rate will trend back to the standard rate ofcorporation tax. EARNINGS PER SHARE AND DIVIDEND -------------------------------------------------------------------------------- Feb Feb Change 2008 2007 Fav/(Adv) %--------------------------------------------------------------------------------Profit after tax (£m) 14.1 14.3Adjustment to reflect a 20% tax rate (£m) (1.2) (2.1)--------------------------------------------------------------------------------Adjusted profit after tax (£m) 12.9 12.2 5.7%Weighted average number of shares in issue forbasic earnings per share (millions) 179.1 176.9--------------------------------------------------------------------------------Basic EPS 7.9p 8.1p (2.5%)Adjusted EPS 7.2p 6.9p 4.3%-------------------------------------------------------------------------------- Basic EPS for the period is 7.9p (2007:8.1p). The reduction in basic EPS iscaused by the lower tax rate in the prior year, due to the higher provisionreleases. If our 2008 tax charge is adjusted to reflect our anticipated rate forthe full year of 20%, adjusted profit after tax is £12.9m, giving an adjustedEPS of 7.2p, an increase of 4.3% on last year's tax adjusted figure. Details ofdiluted EPS are shown in note 7. The increase in the weighted average number of shares is due to the allocationof share trust assets in the prior year as a direct result of the demerger. The Board has declared an interim dividend of 2.2p per ordinary share, whichrepresents a 4.8% increase on last year. The dividend will be paid on 12 June2008 to shareholders registered at the close of business on 23 May 2008 and willabsorb an estimated £3.9m of cash. FREE CASH FLOW -------------------------------------------------------------------------------- 6 months to 6 months to 29 Feb 2008 28 Feb 2007 £m £m--------------------------------------------------------------------------------Profit before interest and tax 17.9 17.6Depreciation & amortisation 3.0 2.7Non cash items 0.4 0.5Working capital (8.0) (3.5)Movement in tax debtor - 3.0Capital expenditure (1.3) (1.2)Tax (2.6) (4.7)Net interest paid (2.1) (1.6)Ongoing pension deficit funding (3.0) (3.1)Movement in provisions (0.1) ---------------------------------------------------------------------------------Free cash flow 4.2 9.7-------------------------------------------------------------------------------- We generated £4.2m of free cash flow at the half year which is less than lastyear due to a larger than usual £8.0m outflow of working capital. This outflowlargely relates to timing differences in some customer payments around thehalf-year end. However, we expect working capital to be broadly neutral acrossthe full year. After payment of last year's final dividend of £7.7m, net debt at 29 February2008 has increased by £4.4m since 31 August 2007 to £57.1m. PENSION The IAS 19 pension surplus on the defined benefit pension scheme has grown to£50.1m at February 2008, from £9.9m at 31 August 2007. This growth in the surplus has arisen from: £€12.3m increase in the assets of the scheme £€27.9m reduction in liabilities due mainly to the widening spread of AA Corporate bonds. As it is uncertain whether the current pension surplus can ever be realised bythe Group, no corresponding asset has been recognised in the balance sheet. The defined benefit scheme continues to be managed through the Liability DrivenInvestment policy, which, on an ongoing basis, minimises volatility through thehedging of interest and inflation. In addition, the Company is committed to make annual payments of around £5.4mper annum into the scheme through to 31 August 2011. POST BALANCE SHEET EVENTS Acquisition of 50% of Rascal Solutions Limited On 20 March 2008 it was announced that a 50% stake had been acquired in RascalSolutions Limited, a company that provides store level technology and resourcesto a number of major retailers in the news and magazine category. The totalconsideration for the acquisition was £3m of which £1m is deferred until 30October 2008. Rascal Solutions Limited had net assets of £1.0m at May 2007 and made £0.2mprofit before tax in the year to May 2007. We expect the impact of thisacquisition, after taking into account the increased finance charges, to bemarginally earnings enhancing across the next full year, whilst offering growthwithin and beyond the newspaper and magazine categories going forward. Property transaction In April 2008, sale and leaseback transactions were entered into over theGroup's five remaining freehold properties for a combined consideration of£2.3m. This will produce a profit on disposal of circa £1.4m. We expect some ofthis profit to be offset in the second half of the year by one-off costsrelating to a re-organisation in the East Midlands. This reorganisation willhelp to deliver future cost savings and service improvements. RISKS The major potential risk that could have a material impact on the Group'sperformance over the remaining six months of the financial year relates to thecurrent uncertain economic conditions. A potential slowdown in consumer spendingcould impact on sales of newspapers and magazines. Further information on the principal long-term risks and uncertainties of theGroup is included on pages 11 and 12 of our latest annual report. CAUTIONARY STATEMENT This Interim Management Report ("IMR") has been prepared solely to provideadditional information to shareholders to assess the Group's strategies and thepotential for those strategies to succeed. The IMR should not be relied on byany other party or for any other purpose. The IMR contains certain forward-looking statements. These statements are madeby the directors in good faith based on the information available to them up tothe time of their approval of this report and such statements should be treatedwith caution due to the inherent uncertainties, including both economic andbusiness risk factors, underlying any such forward-looking information. This IMR has been prepared for the Group as a whole and therefore gives greateremphasis to those matters, which are significant to Smiths News PLC and itssubsidiary undertakings when viewed as a whole. Condensed Group Income Statement (Unaudited) For the 6 months ended 29 February 2008 -------------------------------------------------------------------------------- Audited 6 months to 12 months to£m Note 29 Feb 2008 28 Feb 2007 31 Aug 2007--------------------------------------------------------------------------------Revenue 3 618.4 615.0 1,232.4--------------------------------------------------------------------------------Underlying operating profit 17.9 17.6 36.0Non-recurring item* - - 5.4--------------------------------------------------------------------------------Operating profit 17.9 17.6 41.4Investment revenues 0.4 0.6 0.7Finance costs (2.2) (3.0) (5.7)--------------------------------------------------------------------------------Profit before tax 3 16.1 15.2 36.4--------------------------------------------------------------------------------Underlying income tax expense (2.0) (0.9) (6.1)Income tax on non-recurring item* - - (1.6)--------------------------------------------------------------------------------Income tax expense 5 (2.0) (0.9) (7.7)--------------------------------------------------------------------------------Profit for the period 14.1 14.3 28.7-------------------------------------------------------------------------------- Earnings per shareBasic 7 7.9p 8.1p 16.1pDiluted 7 7.8p 7.9p 15.8p Non-GAAP measures--------------------------------------------------------------------------------Adjusted earnings per shareBasic 7 7.2p 6.9p 16.1pDiluted 7 7.1p 6.8p 15.8p-------------------------------------------------------------------------------- * The Non-recurring item is an actuarial curtailment credit on the definedbenefit pension scheme. There is an associated deferred tax impact on this. Condensed Group Balance Sheet (Unaudited) As at 29 February 2008 -------------------------------------------------------------------------------- Audited£m Note 29 Feb 2008 28 Feb 2007 31 Aug 2007--------------------------------------------------------------------------------Non-current assets Intangible assets 3.8 2.1 3.4Property, plant and equipment 16.8 18.2 18.2Deferred tax assets 4.4 9.9 6.0Interest in associate 0.1 0.2 0.2Derivative financial instruments - 0.5 0.9-------------------------------------------------------------------------------- 25.1 30.9 28.7-------------------------------------------------------------------------------- Current assets Inventories 10.8 11.9 11.9Available for sale investments 0.5 1.1 1.1Trade and other receivables 57.6 59.8 53.0Cash and cash equivalents 3.8 11.0 0.4-------------------------------------------------------------------------------- 72.7 83.8 66.4--------------------------------------------------------------------------------Total assets 97.8 114.7 95.1--------------------------------------------------------------------------------Current liabilities Trade and other payables (103.6) (107.8) (108.0)Current tax liabilities (5.5) (8.9) (8.8)Obligations under finance leases (1.8) (1.3) (1.5)Bank overdrafts and other borrowings (12.8) (22.9) (5.0)-------------------------------------------------------------------------------- (123.7) (140.9) (123.3)--------------------------------------------------------------------------------Non-current liabilities Bank loans and other borrowings (44.7) (49.6) (44.6) Retirement benefit obligation 4 - (20.6) -Derivative financial instruments (0.2) - -Deferred tax liabilities (1.6) (2.3) (1.6)Long-term provisions (0.4) (0.7) (0.5)Obligations under finance leases (1.6) (1.2) (2.0)Other non-current liabilities (0.4) (0.6) (0.5)-------------------------------------------------------------------------------- (48.9) (75.0) (49.2)--------------------------------------------------------------------------------Total liabilities (172.6) (215.9) (172.5)--------------------------------------------------------------------------------Total net liabilities (74.8) (101.2) (77.4)--------------------------------------------------------------------------------Equity Called up share capital 9 9.1 9.1 9.1ESOP reserve 9 (3.2) (3.7) (3.7)Other reserve 9 (280.1) (280.1) (280.1)Hedging reserve 9 (0.2) 0.5 0.9Retained earnings 9 199.6 173.0 196.4--------------------------------------------------------------------------------Total deficit (74.8) (101.2) (77.4)-------------------------------------------------------------------------------- Condensed Group Cash Flow Statement (Unaudited) For the 6 months to 29 February 2008 -------------------------------------------------------------------------------- Audited 6 months to 12 months to£m Note 29 Feb 2008 28 Feb 2007 31 Aug 2007-------------------------------------------------------------------------------- Net cash from / (used in)operating activities 8 7.6 (12.5) 9.0 Investing activities Interest received 0.1 0.6 0.7Loan repaid by associate - 0.1 0.1Purchase of property, plant and equipment (0.3) (1.2) (1.4)Purchase of intangible assets (1.0) - (1.8)--------------------------------------------------------------------------------Net cash used in investing activities (1.2) (0.5) (2.4)--------------------------------------------------------------------------------Financing activities Interest paid (2.2) (2.2) (4.5)Dividend paid (7.7) (7.1) (10.9)Repayments of obligationsunder finance leases (0.9) (0.4) (1.6)Increase in short term borrowings 7.8 22.9 ---------------------------------------------------------------------------------Net cash (used in) / fromfinancing activities (3.0) 13.2 (17.0)-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Net increase / (decrease) incash and cash equivalents 3.4 0.2 (10.4)Opening net cash and cash equivalents 0.4 10.8 10.8--------------------------------------------------------------------------------Closing net cash and cash equivalents 3.8 11.0 0.4-------------------------------------------------------------------------------- Condensed Group Statement of Recognised Income and Expenses (Unaudited) For the 6 months to 29 February 2008 -------------------------------------------------------------------------------- Audited 6 months to 12 months to£m Note 29 Feb 2008 28 Feb 2007 31 Aug 2007-------------------------------------------------------------------------------- (Loss) / gain on cash flow hedges (1.1) 0.5 0.9Actuarial gains on definedbenefit pension scheme 4 36.9 1.2 23.5Effect of asset limit ondefined benefit pension scheme 4 (40.2) - (9.9)UK deferred tax attributable todefined benefit pension schemeliabilities (0.7) (6.4) (8.2)UK current tax attributable to theadditional defined benefit pensionscheme contributions 1.8 2.0 3.9--------------------------------------------------------------------------------Net (expense) / income recogniseddirectly in equity (3.3) (2.7) 10.2Profit for the period 14.1 14.3 28.7--------------------------------------------------------------------------------Total recognised income forthe period 9 10.8 11.6 38.9-------------------------------------------------------------------------------- Notes to the Condensed Unaudited Interim Financial Statements For the 6 months to 29 February 2008 1 General information These Interim Financial Statements are unaudited and not reviewed. The information for the year ended 31 August 2007 does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. A copy of thestatutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. 2 Significant accounting policies The unaudited condensed set of financial statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation arefollowed in these unaudited condensed financial statements as were applied inthe preparation of the group's financial statements for the year ended 31 August2007. 3 Segmental analysis of results Revenue and profit before tax are derived from the one principal activity of thegroup, being the wholesaling of newspapers and magazines. The group operatessolely in the UK. Seasonality has no significant impact within the Newspaper and Magazine markets. 4 Retirement benefit obligation The pension arrangements for employees are operated through the Smiths News PLCsections of the WH Smith PLC pension schemes. There is a defined benefit scheme,WHSmith Pension Trust ("Pension Trust"), and a defined contribution scheme,WHSmith Retirement Savings Plan. The Smiths News section of the Pension Trust isclosed to future service accruals. The market value of the assets and the present value of the liabilities in thedefined benefit scheme were: --------------------------------------------------------------------------------£m At 29 Feb 2008 At 28 Feb 2007 At 31 Aug 2007--------------------------------------------------------------------------------Present value of the obligation (283.4) (343.4) (311.3)Fair value of plan assets 333.5 322.9 321.2--------------------------------------------------------------------------------Surplus / (deficit) in thepension scheme 50.1 (20.5) 9.9Amounts not recognised dueto asset limit (50.1) - (9.9)Retirement medical benefitliabilities - (0.1) ---------------------------------------------------------------------------------Retirement benefit obligationrecognised in balance sheet - (20.6) --------------------------------------------------------------------------------- As it is uncertain whether the current pension surplus can ever be realised bythe Group an asset has not been recognised in the balance sheet at 29 February2008 and 31 August 2007. Movements in the present value of the defined benefit scheme obligations in theperiod were as follows: -------------------------------------------------------------------------------- 6 months to 12 months to£m 29 Feb 2008 28 Feb 2007 31 Aug 2007--------------------------------------------------------------------------------At beginning of period (311.3) (334.0) (334.0)Current service cost (0.1) (1.5) (2.1)Interest cost (8.6) (8.5) (16.9)Actuarial gains / (losses) 30.9 (5.4) 21.9Benefits paid 5.7 6.0 14.4Plan curtailment - - 5.4--------------------------------------------------------------------------------At end of period (283.4) (343.4) (311.3)-------------------------------------------------------------------------------- Movements in the fair value of defined benefit scheme assets in the year were asfollows: -------------------------------------------------------------------------------- 6 months to 12 months to£m 29 Feb 2008 28 Feb 2007 31 Aug 2007--------------------------------------------------------------------------------At beginning of period 321.2 285.0 285.0Expected return on scheme assets 9.0 7.7 15.7Actuarial gains 6.0 6.6 1.6Contributions 3.0 29.6 33.3Benefits paid (5.7) (6.0) (14.4)--------------------------------------------------------------------------------At end of period 333.5 322.9 321.2-------------------------------------------------------------------------------- 5 Income tax expense The income tax rate for the six-month period is 12% (six months ended 28February 2007: 6%; Year ended 31 August 2007: 21%). This represents the UKCorporation tax rate of 30%, adjusted for a provision release of £2.6m (sixmonths ended 28 February 2007: £4.0m; Year ended 31 August 2007: £4.0m). 6 Dividends During the interim period, a dividend of 4.3p (2007: 4.0p) per share was paid toshareholders. In addition, the directors are recommending an interim dividend in respect ofthe period ended 29 February 2008 of 2.2p per ordinary share (2007: 2.1p). Thiswill be paid on 12 June 2008 to shareholders registered at the close of businesson 23 May 2008 and will absorb an estimated £3.9m of shareholders funds. 7 Earnings per share -------------------------------------------------------------------------------- 6 months to 12 months to 29 Feb 2008 28 Feb 2007 31 Aug 2007-------------------------------------------------------------------------------- £m £m £m--------------------------------------------------------------------------------Profit for the period 14.1 14.3 28.7Adjustment to reflect a 20% tax rate (1.2) (2.1) ---------------------------------------------------------------------------------Adjusted profit for the period 12.9 12.2 28.7-------------------------------------------------------------------------------- Number Number Number m m m--------------------------------------------------------------------------------Weighted average number of sharesin issue 182.9 182.9 182.9Shares held by EmployeeBenefit Trust (weighted) (3.8) (6.0) (5.1)Weighted average number of sharesin issue for basic earnings per share 179.1 176.9 177.8Shares issuable (weighted) 1.8 3.4 3.7Weighted average number of shares inissue for diluted earnings per share 180.9 180.3 181.5-------------------------------------------------------------------------------- Pence Pence Pence-------------------------------------------------------------------------------- Earnings per share: Basic 7.9 8.1 16.1Diluted 7.8 7.9 15.8 Adjusted earnings per share: Basic 7.2 6.9 16.1Diluted 7.1 6.8 15.8-------------------------------------------------------------------------------- 8 Net cash inflow / (outflow) from operating activities -------------------------------------------------------------------------------- 6 months to 12 months to£m 29 Feb 2008 28 Feb 2007 31 Aug 2007--------------------------------------------------------------------------------Operating profit 17.9 17.6 41.4Adjustment for pension funding (3.0) (3.1) (11.6)Depreciation of property, plant and equipment 2.4 2.2 4.5Loss on sale of property, plant and equipment - - 0.1Amortisation of intangible assets 0.6 0.5 1.0Non cash items 0.4 0.5 0.5Decrease in inventories 1.1 0.3 0.3(Increase) / decrease in receivables (4.6) 10.2 17.0Decrease in payables (4.5) (11.0) (10.9)Income tax paid (2.6) (4.7) (8.1)Decrease in provisions (0.1) - (0.2)--------------------------------------------------------------------------------Net cash inflow from operatingactivities before one-off items 7.6 12.5 34.0One-off pension funding payment - (25.0) (25.0)--------------------------------------------------------------------------------Net cash inflow/ (outflow) fromoperating activities 7.6 (12.5) 9.0-------------------------------------------------------------------------------- 9 Reconciliation of movements in equity ------------------------------------------------------------------------------------------£m Share Other ESOP Translation Retained Capital Reserve Reserve & Hedging Earnings Total Reserve------------------------------------------------------------------------------------------ Balance at 1 September 2006 9.1 (280.1) (7.1) - 170.8 (107.3)Total recognised income andexpense for the period - - - 0.5 11.1 11.6Dividends paid - - - - (7.1) (7.1)Employee share schemes - - 2.6 - (2.6) -Recognition of share basedpayments - - - - 0.5 0.5Transfer to available forsale investments - - 0.8 - 0.3 1.1------------------------------------------------------------------------------------------Balance at 28 February 2007 9.1 (280.1) (3.7) 0.5 173.0 (101.2)Total recognised income andexpense for the period - - - 0.4 26.9 27.3Dividends paid - - - - (3.8) (3.8)Recognition of share basedpayments - - - - 0.3 0.3------------------------------------------------------------------------------------------Balance at 31 August 2007 9.1 (280.1) (3.7) 0.9 196.4 (77.4)Total recognised income andexpense for the period - - - (1.1) 11.9 10.8Dividends paid - - - - (7.7) (7.7)Employee share schemes - - 0.5 - (0.5) -Recognition of share basedpayments - - - - 0.1 0.1Available for sale investments - - - - (0.6) (0.6)------------------------------------------------------------------------------------------Balance at 29 February 2008 9.1 (280.1) (3.2) (0.2) 199.6 (74.8)------------------------------------------------------------------------------------------ 10 Contingent Liability The Group has a potential liability that could crystallise in respect ofprevious assignments of leases where the liability could revert to the Group ifthe lessee defaulted. Pursuant to the terms of the Demerger Agreement, any suchcontingent liability that becomes an actual liability will be apportionedbetween Smiths News PLC and WH Smith PLC in the ratio 35:65 (provided that theactual 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 grossrental commitment at 29 February 2008 of £37.6m (At 31 August 2007: £40.9m). 11 Events after the balance sheet date On 20 March 2008 the Group acquired a 50% interest in Rascal Solutions Ltd.Total cash consideration was £3m, of which £1m is deferred until 30 October2008. Directly attributable costs were £0.4m. Given that we did not completeuntil 20 March 2008, certain disclosures required by IFRS 3 'BusinessCombinations' have not been made as it has not been practical to do so. In April 2008, sale and leaseback transactions were entered into over theGroup's five remaining freehold properties for a combined consideration of£2.3m. This will produce a profit on disposal of circa £1.4m. 12 Related party transactions At the balance sheet date there had been no material changes in the relatedparty transactions described in the last annual report. On 20 March 2008 the Group acquired a 50% interest in Rascal Solutions Ltd,which will be a related party. 13 Responsibility statement We confirm that to the best of our knowledge: - the condensed set of financial statements has been prepared inaccordance with IAS 34 'Interim Financial Reporting' - the interim management report includes a fair review of the informationrequired by DTR 4.2.7R (indication of important events during the first sixmonths and description of principal risks and uncertainties for the remainingsix months of the year); and - the interim management report includes a fair review of the informationrequired by DTR 4.2.8R (disclosure of related parties' transactions and changestherein). By order of the Board. Mark Cashmore Alan HumphreyChief Executive Finance Director24 April 2008 24 April 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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