Smiths News : Preliminary results 12.11.20

November 16, 2020 at 06:37 am EST

This announcement contains inside information

Smiths News plc ('The Company')

Audited Preliminary Results Announcement for the 52 weeks ended 29 August 2020

Strong performance delivering on all strategic objectives, returning focus to our core strengths

Headlines

Performance ahead of revised full year expectations issued on 14 July 2020
Uninterrupted service to customers and communities across the UK
Trading resilience throughout lockdown and good recovery in fourth quarter
All major publisher contracts now secured to at least 2024
Robust cost control delivering sustainable operating efficiencies of £6.7m
Disposal of Tuffnells removing drag on profits and distraction of loss-making operation
New £120.0m three year bank facility agreed in November 2020
Bank net debt of £79.5m equivalent to leverage of 2 X EBITDA at the year end

Financial performance

Adjusted continuing results(7)	FY2020	FY2019	% Change
		restated
Revenue	£1,164.5m	£1,303.5m	-10.7%
EBITDA (excluding IFRS16) (4)	£39.1m	£48.8m	-19.9%
Profit before tax	£27.9m	£37.6m	-25.8%
Earnings per share	9.7p	11.5p	-15.7%
Free cash flow	£10.9m	£33.2m	-67.2%
Bank Net debt (5)	£79.5m	£73.9m	7.6%
Continuing statutory results(7)
Revenue	£1,164.5m	£1,303.5m	-10.7%
Profit before tax	£14.8m	£30.3m	-51.2%
Earnings per share	4.9p	9.0p	-45.6%
Net debt (5)	£112.9m	£73.9m	52.8%
Dividend per share	nil p	1.0p

Priorities for shareholder value

We are focused on the delivery of four clear priorities.

COVID-19 - continuing to proactively manage through the period of uncertainty, meeting our responsibilities to all stakeholders while protecting our long-term capability
Sustainable efficiencies - reducing our operational cost base through a combination of network and process optimisation, accompanied with a material reduction in central costs
Supply Chain leadership - maintaining our track record of service excellence and process re- engineering that delivers value for all
Capital management - leveraging our cash generative and capital light model to substantially reduce net debt and deliver shareholder returns

Capital management

The Company's new three year banking facility of £120m underpins our plans to strengthen the capital profile of the business, with an amortisation schedule of £15m per annum that is aligned to reducing net debt to a level of 1x EBITDA by 2023 and margin that reduces as the Company deleverages. More broadly,

the agreement also provides the necessary scope to meet the investment needs of the business, while delivering shareholder value through a stronger balance sheet and the restoration of a future dividend.

Outlook and current trading

Despite continued wider economic uncertainty our core markets remain relatively stable. The actions we have taken to reduce costs and the application of operational best practice, together with the lessons we have learned in managing successfully through the last eight months provides a resilient foundation for the year ahead. Trading in the year to date is in line with the Board's expectations having maintained the momentum from the last quarter of FY2020.

Jonathan Bunting, CEO, commenting on today's results said,

'Despite uniquely challenging circumstances we have returned a strong performance by meeting all our strategic objectives, resetting our business to focus on its core strengths and deliver value for our stakeholders. Inevitably, our financial results were impacted by COVID-19 but we have seen a gradual recovery with good momentum in the last quarter, demonstrating the resilience of our markets, our business model and our people.'

Enquiries:

Smiths News plc

Jonathan Bunting, Chief Executive OfficerVia Buchanan below Tony Grace, Chief Financial Officer

Investor.relations@smithsnews.co.uk

www.corporate.smithsnews.co.uk

Buchanan

Richard Oldworth/ Jamie Hooper/Toto Berger020 7466 5000 smithsnews@buchanan.com

www.buchanan.uk.com

Smiths News plc's Preliminary Results 2020 are available at www.corporate.smithsnews.co.uk

A video of a presentation for analysts is available to view at https://vimeo.com/478090543/6cb8825e09

A pdf copy of the presentation will be available from the Company's website from 7am today at https://corporate.smithsnews.co.uk/investors

Definitions

Notes

The Company uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'bank net debt', 'free cash flow', 'Adjusted revenue', 'Adjusted operating profit', 'Adjusted profit before tax', 'Adjusted earnings per share' 'Adjusted EBITDA' and 'Adjusted items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies.

The following are key non-IFRS measures identified by the Group in the consolidated financial statements as Adjusted results:
Continuing Adjusted operating profit - is defined as operating profit including the operating profit of businesses from the date of acquisition and excludes adjusted items and operating profit of businesses disposed of in the year or treated as held for sale.
Continuing Adjusted profit before tax - is defined as Continuing Adjusted operating profit less finance costs attributable to Continuing Adjusted operating profit and before adjusted items; including amortisation of intangibles and network and reorganisation costs.
Continuing Adjusted earnings per share - is defined as continuing adjusted PBT, less taxation attributable to adjusted PBT and including any adjustment for minority interest to result in adjusted PAT attributable to shareholders; divided by the basic weighted average number of shares in issue.
Adjusted items; are items of income or expense that are considered significant, in nature or value, and are excluded in arriving at Adjusted operating profit. The purpose of excluding these items from adjusted measures is to provide additional performance metrics to users of the financial statements that exclude the impact of the items the directors consider to have a significant impact on reported results and do not relate to the underlying trading activity of the Group. The specific items vary between financial years, and may include certain disposal related costs, legal provisions, amortisation of intangibles, integration costs, business restructuring costs and network re-organisation costs including those relating to strategy changes which are not normal operating costs of the underlying business. They are disclosed and described separately in Note 4 of the financial statements to provide further understanding of the financial performance of the Group. A reconciliation of adjusted profit to statutory profit is presented on the income statement
Free cash flow - is defined as cash flow excluding the following: payment of the dividend, acquisitions and disposals, the repayment of bank loans, EBT share purchases and cash flows relating to pension deficit repair. Free cash flow (excluding Adjusted items) is Free cash flow to equity adding back Adjusted cash costs.

Operating cash flow is defined as operating profit adding back non-cash items amortisation, depreciation, share based payments, share of profits of jointly controlled entities, and non-cash pension costs, adjusting the increase/ decrease in working capital then deducting pension contributions and tax payments in accordance with presentation in Note 27.
Adjusted EBITDA - is calculated as Adjusted operating profit before depreciation and amortisation. In line with loan agreements Adjusted Bank EBITDA used for covenant calculations is calculated as Adjusted operating profit before depreciation, amortisation, Adjusted items and share based payments charge but after adjusting for the last 12 months of profits/(losses) for any acquisitions or disposals made in the year. Adjusted EBITDA (excluding IFRS16) excludes the impact of IFRS16 lease accounting in FY2020 to aid comparability to FY2019
Bank net debt - is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance leases (excluding the adoption of IFRS16 lease accounting standards), as bank covenants are tested under frozen GAAP. Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under leases.
FY2020 - refers to the 52 weeks ended 29 August 2020. FY2019 refers to the full year ended 31 August 2019.
The Preliminary results have been prepared and presented on a continuing operations basis after adjusting for the discontinued operations of the Tuffnells business. The prior year period has been restated accordingly.
External revenue excludes intercompany sales, see Note 3: Segmental Analysis of Results for reconciliation.

Cautionary Statement

This document contains certain forward-looking statements with respect to Smiths News plc's financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as 'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward- looking statements. These forward-looking statements are not guarantees of Smiths News plc's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the renegotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Smiths News plc undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise. Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Smiths News plc. For more detailed information, please see the Preliminary Financial Results and/or the Annual Report and Accounts, each for the 52 week period ended 29 August 2020 which can be found on the Investor Relations section of the Smiths News plc website - www.corporate.smithsnews.co.uk. However, the contents of Smiths News plc's website are not incorporated into and do not form part of this document.

A robust performance in a uniquely challenging year

In the context of unprecedented external challenge, we have delivered a strong underlying performance, successfully addressing all our strategic priorities, with our continuing operations trading profitably through the most disruptive economic period in decades.

The health and wellbeing of our colleagues and customers has been our overriding priority in managing through recent months. We are proud to have maintained a full service to communities across the UK in the most difficult of circumstances - and by doing so, to have protected the long term capability and interest of the business.

The resilience of our markets and flexibility of our business model, together with our continued control of costs, has resulted in a financial performance ahead of revised expectations. Strategically, the sale of Tuffnells in May 2020, the securing of all our major publisher contracts and the renewal of our banking facilities, provides the foundations for a strategy that is focused on strengthening the financial base of the business to deliver value to all our stakeholders.

Building on a solid first half performance, Smiths News has remained profitable and cash generative throughout the COVID-19 crisis. Sales of newspapers and magazines, like many consumer products, were initially severely impacted by the measures taken to control the virus, but returned more strongly than anticipated in the last quarter of the year. Our actions to control cost will flow into the current year, underpinning our flexibility to manage through continued uncertainty in FY2021.

In this regard, the securing of our last remaining major publisher contracts provides surety of our territories and high visibility of revenue and cash flows through to at least 2024. More immediately, the sale of Tuffnells in May 2020 opens the way to simplify the former Group central services and actions in hand will deliver benefits in the current year.

In November 2020 the Company reached agreement for new banking facilities through to 2023. It is our intention to prioritise a significant reduction of net debt over the period of the agreement, delivering value through the combination of reduced leverage and the prudent allocation of surplus free cash to serve the long term interests of our stakeholders.

The strategy to focus on our leadership in newspaper and magazine wholesaling was underlined in November 2020 by the change of the Company's name to Smiths News plc. With the drag and distraction of former loss making operations behind us now we have clarity of purpose that aligns to our core competencies and we are well placed to successfully manage through the continued uncertainty while improving the underlying strength of the Company.

Financial performance impacted by COVID-19

Trading in our continuing operations was materially impacted by the COVID-19 crisis, the subsequent reduction in sales and changes to operating procedures that followed the imposition of the UK wide lockdown on 23 March 2020. Year on year comparisons do not therefore reflect like for like trading conditions nor are they necessarily representative of current trends as market conditions continue to vary in response to ongoing measures and uncertainty.

Adjusted EBITDA (excluding IFRS16) of £39.1m was down by £9.7m over the full year (2019: £48.8m) of which £2.6m related to H1 and £7.1m to H2. Key factors include:

In H1 the reduction was primarily driven by the adverse trading items which included: lower waste paper revenues from recycling unsold copies; a national discount retailer removing the newspaper and magazine category from its stores; the impact of the loss of DMD's contract with British Airways in June 2019.
In H2, the impact of these trading items continued but was largely offset by central overhead savings.
Over the full year, the impact on margin from the established structural decline in newspaper and magazine sales is estimated to have been approximately £6m (based on the continuation of H1 trends over the 12 months) - however, this was fully offset by £6.7m of network and operational cost savings.
In H2 trading in Smiths News, DMD and other propositions was adversely impacted by circa £7.5m as a consequence of the measures taken to limit the spread of COVID-19. This impact on trading reflects margin loss partially offset by incremental cost savings from lower volumes and government furlough receipts of £1.3m.

Adjusted profit before tax from continuing operations of £27.9m is down by 25.8% (FY2019: £37.6m) and Adjusted Earnings per Share of 9.7p is down 15.7% (FY2019:11.5p).

Continuing Free cash flow of £10.9m (FY2019: £33.2m) reflects cash movements from the trading impact of COVID-19 including the temporary closure and return of unsold supplies from a significant number of retail outlets during the lockdown. Working capital has subsequently reverted to a more standard monthly working capital cycle during the first few months of FY2021.

Bank Net Debt of £79.5m (FY2019: £73.9m) is impacted by the working capital loan of £6.5m provided to the purchaser of Tuffnells, but which has subsequently been repaid in October 2020 and the proceeds used to reduce debt under our banking facilities.

Continuing Statutory profit before tax of £14.8m (FY2019: £30.3m) is impacted by two key items: an

impairment charge relating to goodwill and assets in DMD of £5.7m (FY2019:£nil) and the impact of COVID- 19 on trading of circa £7.5m.

Resilient sales and markets

Newspaper sales were down 6.3% and magazine sales were down 9.6% in the year. Both categories were materially impacted in the second half of the year by the COVID-19 pandemic and subsequent restrictions on social movement, retail closures and suppressed economic activity.

Immediately following the introduction of the lockdown in March 2020, circa 10% of retail news outlets closed, including most high street and travel stores which represent some of our highest sales volume customers. In addition, the restrictions on personal movement had a severe impact on shopping, travel and commuting patterns, further impacting demand for newspapers and magazines.

In April 2020, sales of newspapers had fallen by 18% and magazines by 49% vs year-on-year comparisons. However, from May 2020 onward, sales and retail openings swiftly returned towards previous patterns and overall performance in the last quarter was stronger than anticipated. There was considerable fluctuation over this period as returning retailers restocked, however, by October 2020 sales had settled in more stable patterns, with newspapers down 7.5% and magazines down 16.4% in the month compared to the prior year.

Driving the recovery in sales has been the reopening of retail outlets as restrictions have eased, together with a shift in consumer purchasing towards smaller local stores. At 29 August 2020 only 2.5% of our retail outlets were still closed, equating to approximately 600 stores, and by October 2020 this had reduced further to approximately 360 outlets, predominately in high street and travel point locations. Following the implementation of a second lockdown in England starting on 5 November 2020 and scheduled to end on 2 December 2020, only a further 115 stores that we serve have temporarily closed.

The measures to combat the COVID-19 pandemic are ongoing, and the market continues to be affected by restrictions on social movement, changes to consumer behaviour, travel and commuting patterns. For long term strategic purposes we continue to plan on the basis of a core revenue decline in the range of 3% and 5% per annum, however, we expect year-on-year sales declines to be greater over the next 12 months, as a consequence of the ongoing impacts of COVID-19.

Proactively managing through COVID-19

As the sole supplier of newspapers and magazines to over half of the UK our frontline colleagues and service delivery partners were designated as key workers recognising our wider social responsibility to supply communities in our distribution territories across the UK.

Operationally, the imperatives of ensuring the safety of colleagues, service partners and customers, while maintaining a full service, were both complex and costly. By working collaboratively with our supply chain partners and through the commitment and courage of our frontline workforce and contractors we ensured communities across the UK continued to receive uninterrupted supplies. The robust control of costs and swift action to consolidate routes in the light of lower volumes provided some mitigation for the reduced sales and there are lessons and efficiency opportunities which will be carried forward.

Financially, the Smiths News business model proved exceptionally resilient in what was a significant stress test for any company. In particular, our multiple revenue streams of sales margin, distribution service charges and other incomes from recycling of unsold returned magazines has underpinned continued profitably and cash generation despite the materially reduced volumes. Working capital was impacted by the need to credit unsold copies of magazine returns from those retailers which had closed without a subsequent restock of titles. As the restrictions have eased and more retailers return to trading, this is unwinding, and working capital returned to normal levels in October 2020.

Since March 2020 colleagues in support roles have been asked to work from home and most have continued to do so. Where appropriate, colleagues were placed on furlough, primarily from central functions and our ancillary businesses DMD and Instore, the operations of which were temporarily suspended. All furloughed colleagues returned to work between July 2020 and 31 August 2020, at which time the Company ended any use of the furlough scheme.

Throughout the period of disruption and in planning for the future our actions have been guided by four principles:

Safety - the safety and wellbeing of our colleagues and customers is paramount Service - we have a responsibility to maintain as full a service as possible Capability - mitigating actions must not damage our long-term capability Sustainability - working with our partners to support the interests of the supply chain

These guiding principles remain central to our plans to pro-actively manage operations through the continuing restrictions and the uncertain arrangements for the winter months. While we are hopeful of a gradual return to normality in 2021, we are also fully prepared should restrictions remain or be strengthened, and confident that we can trade profitably through all reasonably foreseeable outcomes.

Good progress on cost and efficiency

Operational cost savings from network and distribution efficiencies amounted to £6.7m, more than offsetting the margin impact of the long term decline in core sales, prior to this year's further impact of the COVID-19 pandemic.

Sustainable efficiencies included: a detailed review and retendering of our routing and trunking arrangements; new totes that allow for additional fill capacity in vehicles, central cost reductions and network restructure; the automation of call handling and the increased take-up of online order management by customers.

The Company's outsourced support services in India have bedded in. Our UK customer service facilities have now reduced from three locations to one. Annualised savings of £4.0m from the restructure of central functions (following the sale of Tuffnells in May 2020) will flow through into the current year.

The opportunity to simplify layers of management in line with the more focused strategy and simpler corporate model has been taken. Several former senior executive roles and associated 'Group' functions have been removed. The new Executive team is directly responsible for the day to day management of Smiths News, blending deep experience with some fresh and diverse perspectives. Headcount at our head office and support functions has materially reduced since the sale of Tuffnells, enabling a resizing of our office facilities.

Looking ahead, now that our all our major publisher contracts are in place, we can return our full attention to network and process opportunities. In parallel, we plan on the basis of continuing incremental efficiency improvements while delivering great service that minimises rectification costs.

All contracts now secured

The completion of a new 5-year agreement in October 2020 with Associated Newspapers means we now have over 95% of our current publisher volumes and all our territories secured to at least 2024, with the remainder of smaller publishers operating on a rolling contractual basis. Our publisher contracts provide us with the necessary certainty to make investments in our network that will support further efficiency gains. They are also endorsement of Smiths News' leading service and positive relationships with our key trading partners.

Ancillary operations

The restrictions to international travel continue to have a material impact on the sales and distribution income of DMD, our ancillary business supplying airlines and travel points. Operations were suspended during the national lockdown and although these recommenced in July 2020 the outlook for the immediate future remains uncertain. Similarly, the demand for field marketing services through our Instore business was compromised by the measures to limit the spread of COVID-19, with retailers cancelling any non-critical visits by external parties to their stores. We are confident that the underlying business models can deliver value in future, however, our expectations for overall Company performance are not dependent on the recovery of these ancillary operations.

Successful disposal of Tuffnells

On 2 May 2020 in line with conclusions of a strategic review the Company sold the Tuffnells parcel freight business for an aggregate deferred consideration of £15 million, payable in three instalments between 18 months and three years from Completion. The disposal followed the earlier Sale and Leaseback of eight Tuffnells properties in Quarter 1 FY2020, with net proceeds of £14.6m.

As part of the sale agreement the Company made available a temporary working capital loan to the purchaser of which £6.5m was drawn down. In October 2020 the loan was repaid in full and the proceeds used to reduce net debt.

The sale of Tuffnells was achieved in the most challenging of circumstances due to the onset of the COVID- 19 pandemic, impacting both market interest in the acquisition as well as challenges around potential purchasers accessing financing in the credit markets. In removing the ongoing operating losses its disposal has played a major part in our ability to manage through the current uncertainty, materially reducing net cash outflows - this, in turn, has aided the successful renegotiation of the Company's banking arrangements in November 2020.

By removing the distraction of an underperforming business, management is now able to focus on our core strengths and expertise in newspaper and magazine distribution. Furthermore, the sale has an immediate positive impact on the Company's adjusted earnings per share on a restated basis, and facilitates the Board's priority to reduce net debt.

The net cash impact of Tuffnells in the year was an outflow of £15.9m (FY2019:£25.2m) comprising of losses from operations, the secured loan to the new owners, disposal costs and partially offset by the proceeds from the sale and leaseback of properties.

Focused strategy and priorities

Looking ahead, our strategy is clear. We will concentrate on our strength in newspaper and magazine wholesaling, delivering excellent service while continuing to drive efficiencies through network restructuring and the further reduction of central support costs. Our publisher contracts underpin a predictable and highly resilient business model from which we aim to deliver fair shareholder value in tandem with meeting the needs of other stakeholders.

Smiths News has an excellent track record of delivering on its core objectives. For the foreseeable future, improving profitability through a return to the basics of great service and robust cost control will be our focus. We recognise the challenge of long term revenue growth and will remain alert to discreet opportunities in our core market - however, we do not plan on diversification through acquisition.

Our operational priorities for the coming year are:

Proactively managing through current uncertainty:
- maintaining service and safety standards
- robustly controlling costs without damage to long term capability
- positively applying the lessons from the first lockdown into our business model
- capitalising on sales opportunities as markets return towards normal trends
Operational and central cost reduction in the year sufficient to offset the margin impact of the decline in core sales
Progressing the next generation of network restructuring and efficiencies in the supply chain that will deliver ongoing savings over the lifetime of our contracts

Refinancing

The Company's new banking arrangements provide facilities of £120.0m, comprised of three parts.

Term loan A of £45.0m- amortising at £15.0m p.a. over the lifetime of the facility
Term loan B of £35.0m - non amortising but subject to agreed repayments from the deferred consideration due from the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Company's defined benefit pension scheme.
A revolving credit facility of £40.0m

These facilities and their terms align to the Board's strategy of prudent capital management with a focus on significantly reducing net debt. The agreement precludes the payment of a dividend in relation to FY2020 but includes provisions for attractive shareholder returns through the payment of future dividends, subject to covenant tests and a cap of £4.0m relating to FY2021 and £6.0m in the following year.

Bank Net Debt

Bank Net Debt at year end was £79.5m (FY2019:£73.9m), up £5.6m as a consequence of a working capital loan of £6.5m to Tuffnells new owners, which was subsequently repaid in October 2020 and the proceeds used to reduce bank debt. Given the exceptional circumstances of the year and the initial impact of COVID- 19 on working capital this is ahead of our revised expectations.

Dividend

There will be no dividend for FY2020 (FY2019:1.0p), however, the Board expects to return to the payment of a dividend for FY2021.

Outlook

While the immediate outlook for our markets and the UK economy remains uncertain, we are confident that in applying the lessons of the last eight months we can continue to trade profitably with positive cash generation in all reasonably foreseeable scenarios. The trading momentum from the last quarter of FY2020 has flowed through to the current financial year and we are pressing ahead with our plans to further improve operational efficiency and reduce net debt. Trading in the year to date has been in line with the Board's expectations.

FINANCIAL REVIEW

OVERVIEW

Overall performance has been resilient in an unprecedented year, including the disposal of Tuffnells in May 2020 and the need for the business to quickly adapt to the impact of COVID-19 on margins and costs. Smiths News demonstrated the strength of its business model as it rapidly flexed its cost base to adapt to the reduction in newspaper and magazine volumes during the COVID-19 national lockdown in the spring and summer of 2020, while remaining focused on continuing to deliver its annual network costs saving target to maintain margins.

The financial position of the Group benefited from positive continuing free cash flow in the year of £10.9m. Although Bank Net Debt at year end increased to £79.5m (FY2019: £73.9m) as the positive continuing free cash flow from Smiths News was offset by discontinued cash outflows in the year including a working capital loan of £6.5m provided to the new owners of Tuffnells. The loan was fully repaid in October 2020, with the proceeds used to reduce net debt.

CONTINUING ADJUSTED RESULTS

GROUP

Continuing Adjusted results £m	2020	2019	Change
		restated


Revenue	1,164.5	1,303.5	(10.7%)


EBITDA	45.7	48.8	(6.4%)

Operating profit	35.1	43.6	(19.5%)
Net finance costs	(7.2)	(6.0)	(20.0%)

Profit before tax	27.9	37.6	(25.8%)
Taxation	(4.2)	(9.3)	54.8%

Effective tax rate	15.1%	24.7%

Profit after tax	23.7	28.3	(16.3%)

Continuing Adjusted operating profit of £35.1m was down £8.5m (19.5%) on the prior year. The variance can be separated into two components: core underlying trading in the full year and the impact of COVID -19 on trading in H2 2020.

Core underlying trading was c£1m adverse in the year. This was driven by a combination of:

The full year impact of three trading items highlighted in the H1 2020 interim results. Lower waste paper rates; a national discount retailer removing the newspaper and magazine category from stores; and the full year impact of DMD's loss of the British Airways contract in June 2019.
The full year impact of these three items and the normal year-on-year structural decline in newspaper and magazine sales, was largely offset by £6.7m of network cost savings and central overhead savings.

In H2 2020 adjusted operating profit performance at Smiths News was adversely impacted by a COVID-19 impact on trading of c£7.5m compared to prior year. The reduction in newspaper and magazine margins from lower sales volumes due to COVID-19 lockdowns was partly mitigated by incremental cost saving initiatives implemented in H2 2020.

Net finance charges of £7.2m (FY2019: £6.0m) were up on prior year by £1.2m. Finance lease interest of

£1.7m (FY2019: £0.1m) includes the £1.7m impact of adopting IFRS16 lease accounting in the year. Other

net finance charges includes: interest costs on borrowing of £4.7m (FY2019: £5.1m) a decrease year-on- year as average gross borrowings fell in the year; amortisation of bank arrangement fees £0.6m (FY2019: £0.5m); and pension interest costs £nil (FY2019: £0.1m).

Adjusted profit before tax was £27.9m, down 25.8% on last year.

Taxation of £4.2m was a lower effective tax rate of 15.1% than prior year (2019: 24.7%), due to the loss in Tuffnells being absorbed as group relief.

STATUTORY CONTINUING RESULTS

GROUP

Statutory continuing results £m	2020	2019	Change
		restated

Revenue	1,164.5	1,303.5	(10.7%)

Operating profit	21.1	36.3	(41.9%)
Net finance costs	(6.3)	(6.0)	(5.0%)

Profit before tax	14.8	30.3	(51.2%)
Taxation	(2.8)	(8.4)	(66.7%)

Effective tax rate	18.9%	27.8%

Profit after tax	12.0	21.9	(45.2%)

Statutory continuing profit before tax of £14.8m, £15.5m down on the prior year (FY2019: £30.3m). The

decline was primarily driven by: the impact of COVID-19 on trading in H2 2020 at Smiths News which was

circa £7.5m, an impairment charge relating to goodwill and assets at DMD £5.7m (FY2019: £nil); and an

increase in network and reorganisation costs of £0.9m to £6.8m (FY2019: £5.9m).

The effective statutory income tax rate for continuing operations was 18.9% (FY2019: 27.8%), as the tax

deduction available for Adjusted items was higher at £1.4m (FY2019: £0.9m) and Group relief relating to the losses in Tuffnells.

Statutory continuing profit after tax of £12.0m is down by £9.9m (FY2019: £21.9m), and statutory

continuing profit per share of 4.9p is down 4.1p (FY2019: 9.0p).

The continuing profit after tax of £12.0m was offset by losses from discontinued operations relating to Tuffnells of £18.7m (FY2019: £53.4m - loss). This has led to an overall loss attributable to equity shareholders in the year of £6.7m (FY19: £31.5m loss). This resulted in the net liabilities on the balance sheet increasing £6.7m to a reported net liability at 29 August 2020 of £81.6m (FY2019: £74.3m).

The Smiths News plc company entity balance sheet continues to have distributable reserves of £129.1m to allow future dividend payments.

EARNINGS PER SHARE

	Continuing Adjusted	Continuing Statutory

	2020	2019	2020	2019
	restated	restated


Earnings attributable to ordinary shareholders (£m)	23.7	28.3	12.0	21.9
Basic weighted average number of shares (millions)	244.5	246.4	244.5	246.4
Basic Earnings per share	9.7p	11.5p	4.9p	9.0p
Diluted weighted number of shares (millions)	247.2	247.1	247.2	247.1
Diluted Earnings per share	9.6p	11.5p	4.9p	9.0p

Earnings attributable to shareholders on a continuing Adjusted basis of £23.7m resulted in an Adjusted EPS of 9.7p, a decrease of 1.8p on last year, driven by COVID-19 trading impacts despite a resilient underlying core performance at Smiths News.

The fully diluted weighted number of shares was 247.2m (FY2019: 247.1m). Fully diluted shares include a

2.6m diluted share adjustment for employee incentive schemes (FY2019: 0.7m).

Including Adjusted items, statutory continuing earnings per share is down 4.1p to 4.9p (FY2019: 9.0p per share).

DIVIDEND

	2020	2019

Dividend per share (paid & proposed)	nil	1.0p
Dividend per share (recognised)	1.0p	nil

The Board remain confident in future positive cash flows and the immediate trading priorities of the business. However, after careful consideration of: the Group's overall performance in the year; the ongoing uncertainty in relation to COVID-19 on the trading environment; and the newly signed three year refinancing facility, the Board has resolved not to propose a final dividend (FY2019: 1.0p).

SMITHS NEWS (including DMD)
Adjusted figures - £m	2020	2019	Change

Revenue	1,164.5	1,303.5	(10.7%)

Operating profit	35.1	43.6	(19.5%)

Operating margin	3.0%	3.3%	(30bps)

Revenue was £1,164.5m (FY2019: £1,303.5m) down 10.7%.

In H1 2020 revenue was down 4.5% compared to prior year, but in H2 2020 revenue decline increased following COVID-19 lockdowns and was down 16.9%.

Newspaper and magazine sales in H1 2020 continued to perform in line with long term trends, with a relatively stronger performance than expected from newspapers helping to offset weaker magazine sales. In H2 2020 newspaper and magazine sales were significantly disrupted by COVID-19. In the twelve weeks following national lockdown newspaper and magazine sales were down 25% as a result of restriction on customers' movements and the temporary closure of high street and travel location shops. Approximately 10% of news and magazine retail outlets closed as part of the national lockdown. Revenues recovered in the fourth financial quarter as lockdown restrictions eased but remain below pre-lockdown levels.

Overall, newspaper sales for FY20 were down 6.3% and magazine sales were down 9.6%. However, the split between H1:H2 2020 newspaper and magazine sales better illustrates the impact of COVID-19 on revenue. Newspaper sales in H2 2020 were 11.4% down on prior year (H1 2020: 2.1% down). Magazine sales in H2 were 24.7% down (H1 2020: 8.5% down).

The DMD business unit revenue of £10.5m (FY19: £24.1m) was down £13.6m (56%), primarily as a consequence of COVID-19 impacting its travel customers at airlines and airports, compounded by the annualised impact of the loss of the British Airways contract in FY2019.

Good progress has been made with the renewal of publisher contracts in the year. In September 2019, a new contract with the Telegraph was confirmed and on 13 October 2020, the renewal of the Associated Newspapers publisher agreement was announced. Over 95% of Smiths News' newspaper and magazine current contractual revenues are now secured until 2024. All our existing territories have been retained, providing the necessary certainty to unlock supply chain efficiencies over the contract periods.

Adjusted operating profit of £35.1m (FY2019: £43.6m) was down £8.5m (19.5%) which can be separated

into two distinct categories: underlying trading impacts for the full year (excluding COVID-19) and H2 2020 impact of COVID-19.

The underlying impacts (excluding COVID-19) in the year resulted in adjusted operating profit being down by c£1m.

The Smiths News network saving programme generated £6.7m of savings in year from the labour and the distribution cost base which fully mitigated the core structural margin decline in sales of newspapers and magazines. Network savings were generated from final mile route reductions and the annualised benefits of depot consolidation.
Reduction in waste paper rates by 50% compared to the prior year period resulted in £1.8m less margin.
A national discount retailer removed the newspaper and magazine category earlier in the year from its stores impacting £2.2m of margin.
DMD Adjusted operating profits fell by £0.9m in the period following the loss of the British Airways contract in June 2019.
Central cost overheads were reduced by £3.5m from continuation of cost saving initiatives, implementation of shared service model and rationalisation of back office costs following the disposal of Tuffnells in May 2020.

The impact of COVID-19 on profits in H2 2020 was to reduce adjusted operating profits by c£7.5m. The impact of COVID-19 and the sharp fall in H2 2020 revenue and margin was the single largest event in the year with a combined impact of c£7.5m on profits: Smiths News margins were impacted c£5m, DMD c£2m and other business propositions c£0.5m. The reduced profits were after:

the Smiths News COVID-19 cost response programme which generated incremental savings in H2 2020 as result of rapidly flexing the contractor cost base for lower volumes and changes to final mile delivery routes.
The Group furloughed approx. 550 colleagues between March 2020 and July 2020 during the height of the national lockdown at Smiths News, DMD and Instore and received a £1.3m furlough subsidy from the government towards their employment costs.

After the standard network savings actions plus the incremental COVID-19 cost mitigating actions were delivered, the operating margin in the year declined only 30bps to 3.0% (FY19: 3.3%).

ADJUSTED ITEMS

The Group incurred a total of £15.1m (2019: £60.8m) of Adjusted items, after tax £17.3m (2019: £50.9m).

Adjusting items before tax were split between continuing operations: £13.1m (2019: £7.3m) and

discontinued operations: £2.0m (2019: £53.5m).

Adjusting items are defined in the accounting policies in note 1 and in the glossary on page 45, in the directors' opinion the impact of removing these items from the adjusted profit give the true underlying performance of the Group.

Adjusting items before tax for discontinued operations all related to the Tuffnells business. The charges in the current year of £2m related to: asset impairments £0.6m; the net impact of the sale and leaseback of properties of £1.0m; the net profit of £0.6m following the strategic review and sale of Tuffnells; and depot closures and executive redundancies of £1m prior to disposal. In the prior year costs of £53.5m related primarily to the impairment of Tuffnells goodwill of £45.5m and amortisation of acquired intangibles of £6.6m. Tax charges on discontinued adjusting items totalled £3.6m (2019 credit of £9.0m).

The tables below and commentary provide a summary of the adjusting items impacting continuing operations. Full details of these and those impacting discontinued items can be found in note 4.

Continuing Operations £m	2020	2019

Network and re-organisation costs	(6.8)	(5.9)
Asset impairments	(6.4)	-
Pensions	(0.9)	(2.0)
Other	0.1	0.6

Total before tax and interest	(14.0)	(7.3)
Finance income - unwind of deferred consideration	0.9	-

Total before tax	(13.1)	(7.3)
Taxation	1.4	0.9

Total after taxation	(11.7)	(6.4)

Adjusted items from continuing operations before tax were a charge of £13.1m (2019: £7.3m).

The largest component of this was network and reorganisation costs of £6.8m. This can be broken down into three major components. Firstly, the outsourcing of central functions to our outsourcing partner in India; which began in 2019. In 2020, total costs were £1m (2019:£3.2m). Secondly, the restructuring of our magazine hubs in our network incurring £1.9m of mainly redundancy costs. Thirdly, as a consequence of both the disposal of Tuffnells and due to the impact of Covid-19 lockdowns on our trading, we have significantly reduced heads in both our DMD and Instore business and in our central functions incurring £2.7m of costs. The balance of costs was related to changes in the group's executive team.

The impact on trading of the lockdowns associated with the COVID-19 pandemic also triggered impairment reviews of a number of the group's trading assets. These reviews led the group to write down assets by £6.4m in total for the year. The largest component of this related to the full write down of the goodwill in the DMD business of £5.7m reflecting the significant reduction in trading of that business which trades primarily in the global travel market; which has been significantly adversely impacted.

The tax credit on continuing adjusted items was £1.4m (2019:£0.9m)

FREE CASH FLOW

Free cash flow generation remains one of the Group's key strengths. Free cash flow includes lease payments, Adjusted items, interest and tax; but it excludes pension deficit recovery payments.

	2020	2019
£m	restated



Operating profit continuing (including Adjusted items)	21.1	36.3
Adjusted items	14.0	7.3
Depreciation & amortisation	10.6	5.2

Adjusted EBITDA	45.7	48.8
Working capital movements	(5.7)	(0.7)
Capital expenditure	(7.0)	(2.8)
Lease payments	(6.8)	(1.5)
Net interest and fees	(6.5)	(5.1)
Taxation	(2.2)	(2.2)
Other	0.7	1.2

Free cash flow (excluding adjusted items)	18.2	37.7

Adjusted items - cash effect	(7.3)	(4.5)

Continuing Free cash flow	10.9	33.2

There has been a clear focus on cash performance and liquidity in the year with the Group still generating free cash flow of £10.9m (FY19: £33.2m) down 67.2%, in what has been an unprecedented period with both the disposal of Tuffnells and the tumultuous impact of COVID-19 on the second half of the financial year.

Adjusted EBITDA of £45.7m is down by £3.1m 6.6%, compared to FY2019 of £48.8m. The primary drivers are H2 2020 COVID-19 impact of circa £7.5m and the underlying trading, offset by the transition to IFRS16 'Lease' accounting with the rental charges of £6.6m being removed from EBITDA.

The decrease in working capital in the period was £5.7m (FY2019: decrease £0.7m) primarily reflecting the timing of working capital movements across year end.

Cash capital expenditure in the year was £7.0m (FY2019: £2.8m) an increase of £4.2m. This was as a result of the capital commitments and the capital creditor unpaid from the end of the last financial year of £2.3m and £2.0m respectively. Depot and network investments were £3.9m (FY2019: £2.6m) and technology investment was £3.1m (FY2019: £1.7m).

Lease payments of £6.8m (FY2019: £1.5m) have increased by £5.3m. This comprises £5.9m of IFRS 16 lease payments (formerly treated as operating leases) offset by £0.6m decrease in other former IT finance lease payments that expired in the year.

Net interest and fees of £6.5m (FY2019: £5.1m) has increased by £1.4m. Bank interest fell by £0.3m as average gross bank borrowings fell during the year. However, this was offset by the adoption of IFRS 16 leases which accounted for the £1.7m increase in interest payments (formerly treated as operating lease rentals).

Cash tax outflow of £2.2m (FY2019: £2.2m outflow).

The total net cash impact of Adjusted items was £7.3m (FY2019: £4.5m). This comprised: £6.4m (FY2019: £4.0m) of network reorganisation and restructuring costs; and pension buy-in costs £0.9m (FY2019:

£2.0m).

NET DEBT

£m	2020	2019
restated


Opening net debt	(73.9)	(83.4)
Continuing operations Free cash flow	10.9	33.2
Discontinued operations Free cash flow	(4.9)	(24.9)

Free cash flow	6.0	8.3
Lease creditor & other movement	2.5	2.4
Dividend paid	(2.4)	-
Purchase of own shares for employee share schemes	(0.7)	-
Disposal costs	(3.7)	-
Continuing operations - pension deficit recovery	-	(0.9)
Discontinued operations - pension deficit recovery	(0.8)	(0.3)
Discontinued operations - Tuffnells working capital loan	(6.5)	-

Bank net debt	(79.5)	(73.9)

IFRS16 leases	(33.4)	-

Closing net debt	(112.9)	(73.9)

Bank net debt (excluding IFRS16 'Leases') closed the period at £79.5m compared to £73.9m at August 2019 an increase of £5.6m. Smiths News continued to generate positive free cash flow in the year of £10.9m, despite the impact of COVID-19 in H2 2020. However, bank net debt rose by £5.6m primarily as a result of discontinued cash out flows and disposal costs of £15.9m following the disposal of Tuffnells in May 2020. The secured working capital loan of £6.5m provided to the new owners of Tuffnells in May 2020 was fully repaid in October 2020.

The Group's Bank net debt/EBITDA ratio rose to 2.0x, (FY2019: 1.9x) due to the decline in EBITDA following the impact of COVID-19 in H2 2020 and the advance of a secured working capital loan to the new owners of Tuffnells in May 2020 which was fully repaid in October 2020. The bank net debt to EBITDA covenant of 2.0x remains within our main leverage covenant ratio of 2.75x (covenant testing is based on frozen GAAP in the bank facility agreement).We remained comfortably within all our other bank covenant tests at year end.

The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing of up to £40m within the overall bank facility of £120m. This results in a predictable fluctuation of net debt during the course of the month compared to the closing net debt position. Our average gross borrowing (excluding net cash balances) during FY2020 were £105m (FY2019: £112m).

Free cash flow generation (after Adjusted items) of £10.9m in the year went towards the repayment of debt and the funding of a final FY19 announced dividend of £2.4m (FY2019: £nil).

Tuffnells had a net cash outflow of £16.0m in the period (FY2019: £18.7m outflow) after net proceeds from the sale and leaseback of eight Tuffnells properties generated £14.6m which offset other cash outflows of £22.6m in the period.

Discontinued pension funding costs increased to £0.8m (FY2019: £0.3m) for the Tuffnells defined pension scheme. Pension deficit repair payments are considered as a non-free cash flow item.

The adoption of the new IFRS16 'Leases' accounting standard has the impact of recognising a right-of-use asset of £32.8m and lease liability of £33.4m at the 29 August 2020. At the transition date of 1 September 2019 (including discontinued operations) a right-of-use asset of £73.4m and lease liability of £73.6m was recognised. Closing net debt (including IFRS16 'Leases') is £112.9m at 29 August 2020 an increase of £39.0m on prior year.

REFINANCING

On 6 November 2020, the Group signed a new three-year £120 million facility, comprises a £45m amortising term loan (Facility A), a £35m bullet repayment term loan (Facility B) and a £40 million multicurrency revolving credit facility (RCF). The agreement is with a syndicate of banks comprising existing lenders HSBC, Barclays, Santander, AIB and Clydesdale and one new lender, Shawbrook Bank.

The facility is available at an initial margin of 5.5% per annum over LIBOR (in respect of Facility A and the RCF) and 6% per annum over LIBOR (in respect of Facility B). This pricing is higher than current levels but remains competitive and reflective of the more difficult market conditions and tightened credit markets. The margin is subject to reduction as the Group reduces its net leverage in line with its stated strategic priorities.

Consistent with the Group's stated strategic priorities to reduce net debt, the terms of the new facility agreement include: an amortisation schedule of £15m per annum for the repayment of Facility A; agreed repayments against Facility B arising from funds received in relation to both deferred consideration received following the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Group's defined benefit pension scheme; and an absolute preclusion of payments of dividends in respect of FY2020 and capped dividend payments thereafter for FY2021 (up to £4m) and FY2022 onwards (up to £6m per year). As part of the terms of the refinancing, the Group and its principal trading subsidiaries have also agreed to provide security over their assets to the lenders.

As part of the terms of the refinancing, the Group and its principal trading subsidiaries have agreed to provide security over their assets to the lenders.

The refinancing replaces the Group's existing facility agreement (which comprises a term loan facility of £50 million and a multicurrency revolving loan facility of £125 million) which was due to mature on 31 January 2021. The final maturity date of the new facility is 6 November 2023.

PENSION SCHEMES

The Group operates a defined benefit scheme, which is both closed to new entrants and closed to future accrual.

The Smiths News defined benefit pension scheme (the WH Smith Pension Trust) which as at 29 August 2020 had an IAS 19 surplus of £15.2m (31 August 2019: £15.8m - restated for a prior period increase of £8.2m in the defined benefit obligation of the WH Smith Pension Trust in 2019 for equalisation of retirement age). The Group does not recognise the surplus in the accounts as the Group does not have an unconditional right to a refund of the surplus on closure of the scheme.

In October 2018, the Trust entered into an insurance backed annuity to the 'buy-in' of the Scheme assets within the section of the Trust sponsored by Smiths News. This 'buy-in' annuity is recognised as a plan asset and the difference in value is considered an actuarial re-measurement. The Smiths News section of the WH Smith Pension Trust completed the actuarial triennial valuation as at 31 March 2018 and concluded it no longer required funding.

The total cash contribution for both defined benefit schemes, which include pension administration fees and disclosed within the cash flow statement, amounted to £0.8m for FY2020 (FY2019: £1.6m).

DISCONTINUED OPERATIONS

On the 2 May 2020, the Group completed the sale of the Tuffnells business for £15.0m of cash, which is deferred and payable in three tranches between eighteen months and thirty-six months from date of disposal. The Group made a working capital loan available to the new owners of £10.5m (which was secured against the Tuffnells' properties) of which £6.5m was drawn at year end. On the 1st October 2020 the full loan was repaid and the security over the Tuffnells' properties released.

Tuffnells reported an Adjusted operating loss for the period to 2 May 2020 of £11.7m (FY19: £14.1m loss)

and adjusted loss before tax of £13.3m (FY19: £14.4m loss).

The disposal of Tuffnells resulted in a profit on disposal of £1.8m and disposal costs of £3.7m were incurred. Discontinued statutory loss before tax was £15.3m (FY2019: £67.9m)

There were no discontinued operations in the prior year. Further details of the strategic review and impact of the sale of Tuffnells are provided in note 11 of the financial statements.

PRINCIPAL AND EMERGING RISKS

The Group has a clear framework in place to continuously identify and review both the principal and emerging risks it faces. This includes, amongst others, a detailed assessment of business and functional teams' principal risks and regular reporting to and robust challenge from both the Executive Team and Audit Committee. The directors' assessment of the these principal risks is aligned to the strategic business planning process.

Specifically, key risks are plotted on risk maps with descriptions, owners, and mitigating actions, reporting against a level of materiality (principally relating to impact and likelihood) consistent with its size. These risk maps are reviewed and challenged by the Executive Team and Audit Committee and reconciled against the Group's risk appetite. As part of the regular principal risk process, a review of emerging risks (internal and external) is also conducted and a list of emerging risks is maintained and rolled-forward to future discussions by the Executive Team and Audit Committee. Where appropriate, these emerging risks may be brought into the principal risk registers. Additional risk management support is provided by external experts in areas of technical complexity to complete our bottom-up and top-down exercises.

As part of the Board's ongoing assessment of the principal and emerging risks, the Board has considered the performance of the business, its markets, the changing regulatory landscape and the Group's future strategic direction and ambition.

Risks are still subject to ongoing monitoring and appropriate mitigation.

The table below details each principal business risk, those aspects that would be impacted were the risk to materialise, our assessment of the current status of the risk and how each is mitigated.

	Principal risks	Change	Potential impact		Mitigating actions and
		during the			assurance
		year

1.	Deterioration of the	Increasing	Reductions in discretionary	•	Annual budgets and
	forecasts take into
	macro economic		spending may impact sales
			account the current
	environment - The		of newspapers or
			macro-economic
	risk of volatility and/or		magazines. Uncertainty
			environment to set
	prolonged economic		from either the COVID-19
			expectations internally
	downturn causes a		pandemic or the EU Exit
			and externally, allowing
	decline in demand for		may affect the business in
			for or changing
	our services including		both the short and medium
			objectives to meet short
	the uncertainty		term on trade
			and medium term
	associated with either		arrangements, future
			financial targets.
	the COVID-19		capital investment
		•	A thorough EU Exit
	pandemic or EU Exit.		strategies, debt refinancing
			planning exercise has
			and resourcing costs.
	This impacts current			been undertaken and

	and/or projected		Cash liquidity and available		accountability for the
	business performance,		headroom within the new		associated actions and
	cash liquidity and bank		bank facility could diminish		risks has been assigned
	facility headroom		in the event of a protracted		to the relevant Executive
	above that included in		deterioration of the macro		Team members.
	the business planning		economic environment or a	•	Business scenario
	and review process.		sharp deterioration in sales		planning for the different
			or working capital as a		evolving social
			result of COVID-19		movement restrictions
			lockdowns.		and 'lockdown' exit is
					underway to address the
					business risks posed by
					the COVID-19 pandemic.
				• The Group forecasts cash
					flows weekly and
					continually monitors
					treasury liquidity and
					headroom within the
					bank facility.
				• The Group continues to
					be significantly cash
					generating which
					supports opportunities
					19

					for refinancing and
					investment.

2.	Failure to refine,	Reducing	Sales and/or profit	• Disposal of the Tuffnells
	business in May 2020
	execute and/or		expectations may not be
			and the completion of
	monitor the Group's		met and/or the Company's
			the refinancing in
	strategy and		reputation and
			November 2020 reduces
	direction - The risk of		stakeholders' support for a
			the execution risk of
	not establishing		recovery plan may be
			Group strategy
	business plans and a		challenged.
		•	Performance to the
	clear vision for the
		The change management		business plan and budget
	Group impacts
		culture required in the		is reviewed regularly
	employee
		short term for restructuring		using a balanced
	engagement, financial
		may result in reduced		framework. This ensures
	returns, external
		performance and financial		effective and timely
	confidence and
		returns.		monitoring of
	stakeholders'
				performance with action
	perception.
				to be taken in the event

					of shortfalls to
					expectations.
				•	Financial and operational
					metrics are considered
					along with risk
					assessments and
					management impact
					before remedial action is
					taken.

3.	Failing to attract,	No change	Impact on the ability to	• We seek to offer market
	competitive terms to
	engage and retain		address the strategic
			ensure talent remains
	talent within a high		priorities and to deliver the
			engaged.
	performance and		forecast performance for
		•	We undertake workforce
	values-based culture		the Group.
			planning; performance,
	- The risk that we do
				talent and succession
	not attract or retain
				initiatives; learning and
	the people and the
				development
	skills we need to take
				programmes; and
	the Group forward and
				promote the Group's
	that employees are not
				culture and core values.
	motivated towards, or
			• Retention plans are being
	are disengaged from,
				reviewed to address key
	the task in hand.
				risk areas, and attrition

	Risk that the level of				across each business is
	change affects staff				regularly monitored.
	and retention levels.			•	Regular surveys are
					undertaken to monitor
					the engagement of
					employees.

4.	Increased labour	No Change	In the event of any legal	•	The Group regularly
	reviews its legal terms of
	market constraints		claim as to worker status
			engagement with
	and costs - The risk		by consultants,
			contractors and
	of legislative changes		subcontractors or agency
			consultants and has
	or interpretation,		workers, the business
			appropriate contractual
	coupled with the EU		could be liable for
			and operational
	Exit and political		increased costs (PAYE and
			arrangements in place.
	uncertainty, impacts		undeclared National
			Self-employed service
	the ability to recruit		Insurance contributions)
			delivery partners have
	and retain warehouse		and liabilities (such as
			clearly articulated
	and delivery		employee rights). The
			agreements which define
	contractors resulting in		inability to pass on such
			tasks they are contracted
	higher attrition risk in		statutory increases to our
			to provide, whether
	warehousing and		customers could impact
			personally or by a
	distribution and/or		profitability, and affect the

					20

	increasing liabilities		cost of future efficiency		substitute.
	and costs.		programmes.	•	Known increases to
			The implications of EU Exit		employment cost
				associated with National
			include a decreasing pool
				Living
			of available, suitably
				Wage/Apprenticeship
			qualified employees and
				Levy/ Auto Enrolment
			subcontractors.
				have been factored into

					latest budgets. Future
					changes in this area as a
					result of political changes
					/ decisions and the full
					impact of EU Exit on
					employment risks are
					unknown at the current
					time but are being
					tracked.
				•	Commercial contracts
					permit the renegotiation
					of long term supply
					agreements in the event
					of changes in law which
					impact the status of the
					Group's self-employed
					service delivery partners.
				•	Legal developments are
					monitored to ensure that
					the business maintains
					compliance with
					legislation and best
					practice.
				•	Workforce planning
					initiatives including
					apprenticeship and
					training programmes,
					such as Warehouse to
					Wheels, are supporting
					the longer term
					mitigation of driver
					shortage.
				•	Contractor processes,
					including monitoring
					compliance, are well
					established.

5.	Failing to meet high	Reducing	In addition to the danger to	• Safety is a key priority of
	the Group. Health and
	health & safety		staff or the public, the
			Safety performance is
	standards - The risk		impact of a health and
			reviewed by the Board,
	of an inadequate		safety failure negatively
			Audit Committee and
	health & safety		impacts operations,
			Executive Team.
	framework and		profitability and/or
		•	A dedicated Health &
	insufficiently enforcing		corporate reputation,
			Safety team executes
	a health & safety		together with the risk of
			improvement
	culture results in		possible enforcement
			programmes, undertakes
	serious injury to		action.
			audits and promotes a
	employees and/or the
		The risk of transport		safety culture.
	public, and/or a breach
		compliance failures may	•	The Group continues to
	of relevant health &
		impact consistent service		invest in H&S
	safety legislation.
		standards and/or the ability		improvements, including

	This includes the risk		to deliver the forecast		the role of H&S Director
	of failing to establish		performance for the Group.		and better management
	COVID-19 social				reporting.
	distancing within			• The risk is considered to
	depots and the				be well managed and the
	resultant risk of a				ambition continues to
					21

COVID 19 outbreak on		promote consistency in
service delivery and		standards and culture.
KPI performance.		• Established a COVID- 19
The risk of failing to		working group to promote
	and monitor a safe
adhere to external
	working environment for
laws and regulations
	colleagues.
by employees,

Smiths News plc

Group Income Statement for the 52 week period ended 29 August 2020

£m			2020			2019*1
	Note	Adjusted*	Adjusted	Total	Adjusted*	Adjusted	Total
	items	items

Revenue	2	1,164.5	-	1,164.5	1,303.5	-	1,303.5

Cost of Sales	3	(1,091.4)	(0.2)	(1,091.6)	(1,217.5)	(0.1)	(1,217.6)

Gross profit	3	73.1	(0.2)	72.9	86.0	(0.1)	85.9

Administrative expenses	3	(38.1)	(13.8)	(51.9)	(42.9)	(7.2)	(50.1)

Income from joint ventures		0.1	-	0.1	0.5	-	0.5

Operating profit	2,3	35.1	(14.0)	21.1	43.6	(7.3)	36.3

Finance costs	7	(7.4)	-	(7.4)	(6.0)	-	(6.0)

Finance income	7	0.2	0.9	1.1	-	-	-

Profit before tax		27.9	(13.1)	14.8	37.6	(7.3)	30.3

Income tax credit/(expense)	8	(4.2)	1.4	(2.8)	(9.3)	0.9	(8.4)

Profit for the year from
continuing operations		23.7	(11.7)	12.0	28.3	(6.4)	21.9
Discontinued operations

(Loss) for the year from	11
discontinued operations	(13.1)	(5.6)	(18.7)	(8.9)	(44.5)	(53.4)


(Loss)/Profit attributable to
equity shareholders		10.6	(17.3)	(6.7)	19.4	(50.9)	(31.5)
continuing and

discontinued operations



(Loss)/earnings per share from
continuing operations
Basic	10	9.7		4.9	11.5		9.0
Diluted	10	9.6		4.9	11.5		9.0
Earnings per share total
Basic	10	4.3		(2.7)	8.0		(12.9)
Diluted	10	4.3		(2.7)	7.9		(12.9)
Equity dividends per share	9			nil			1.0p
(paid and proposed)

This measure is described in note 1(4) of the accounting policies and the Glossary to the Accounts on page 45. Adjusted
items are set out in note 4 to the Group Accounts.
*1 the income statement has been restated to show the results of Tuffnells as a discontinued operation

Group Statement of Comprehensive Income for the 52 week period ended 29 August 2020

£m	Note	2020	2019
Continuing

Items that will not be reclassified to the Group Income Statement

Actuarial Gain/(loss) on defined benefit pension scheme Impact of IFRIC 14 on defined benefit pension scheme

Tax relating to components of other comprehensive income that will not be reclassified

6	(0.7)	(132.9)
6	0.9	135.6
8	-	0.6

	0.2	3.3
Items that may be subsequently reclassified to the Group Income
Statement
Currency translation differences	0.1	0.1


Other comprehensive result for the year - continuing	0.3	3.4
Profit for the year - continuing	12.0	21.9

Total comprehensive income for the year - continuing	12.3	25.3
Other comprehensive income/(loss) for the period discontinued	0.3	(0.6)
Loss for the year - discontinued	(18.7)	(53.4)

Total comprehensive (expense) for the year - discontinued	(18.4)	(54.0)

Total comprehensive (expense) for the year	(6.1)	(28.7)

Group Balance Sheet at 29 August 2020

£m	Note	2020	2019

Non-current assets
Intangible assets	13	4.0	10.1
Property, plant and equipment	14	9.4	10.9
Right of use assets	21	32.8	-
Interest in joint ventures	15	4.9	5.3
Other receivables	17	14.6	-
Deferred tax assets	23	0.8	5.2

		66.5	31.5

Current assets
Inventories	16	14.1	16.2
Trade and other receivables	17	101.2	124.2
Cash and bank deposits	19	50.6	24.0
Current tax asset		-	-
Assets classified as held for sale	11	-	16.8

		165.9	181.2

Total assets		232.4	212.7

Current liabilities
Trade and other payables	18	(139.5)	(173.7)
Current tax liabilities		(1.7)	-
Bank loans and other borrowings	19	(130.1)	(46.1)
Lease liabilities1	21	(5.8)	(2.2)
Retirement benefit obligations	6	-	(0.4)
Provisions	24	(6.8)	(7.3)

		(283.9)	(229.7)

Non-current liabilities
Retirement benefit obligations	6	-	(2.5)
Bank loans and other borrowings	19	-	(49.3)
Lease liabilities1	21	(27.6)	(0.3)
Other non-current liabilities	22	-	(1.2)
Non-current provisions	24	(2.5)	(4.0)

		(30.1)	(57.3)

Total liabilities		(314.0)	(287.0)

Total net liabilities		(81.6)	(74.3)

1. The Group has applied IFRS 16 using the modified retrospective approach as a result the Obligation under finance leases has been replaced with Lease liabilities which is wider in scope see Note 36 for details.

Group Balance Sheet at 29 August 2020 (continued)

£m	Note	2020	2019

Equity
Called up share capital	28(a)	12.4	12.4
Share premium account	28(c)	60.5	60.5
Demerger reserve	29(a)	(280.1)	(280.1)
Own shares reserve	29(b)	(1.8)	(1.7)
Translation reserve	29(c)	0.4	0.3
Retained earnings	30	127.0	134.3

Total shareholders' deficit		(81.6)	(74.3)

The accounts were approved by the Board of Directors and authorised for issue on 11 November 2020 and were signed on its behalf by:

Jonathan Bunting	Anthony Liam Grace
Chief Executive Officer	Chief Financial Officer
Registered number - 05195191

Group Statement of Changes in Equity for the 52 week period ended 29 August 2020

		Share	Share	Demerger	Own	Hedging &	Retained	Total
£m	Note	premium	shares	translation
capital	reserve	earnings
		account	reserve	reserve


Balance at 31 August		12.4	60.5	(280.1)	(2.1)	0.2	163.2	(45.9)
2018

Loss for the year

Actuarial loss on defined benefit pension scheme

Impact of IFRIC 14 on defined benefit pension scheme

-	-	-	-	-	(31.5)	(31.5)
-	-	-	-	-	(136.1)	(136.1)
-	-	-	-	-	139.7	139.7

Currency translation		-	-	-	-	0.1	-	0.1
differences

Tax relating to		-	-	-	-	-	(0.7)	(0.7)
components of other
comprehensive income
Total comprehensive		-	-	-	-	0.1	(28.6)	(28.5)
income for the year

Issue of share capital	28	-	-	-	-	-	-	-
Purchase of own shares		-	-	-	-	-	-	-
Dividends paid	9	-	-	-	-	-	-	-
Employee share		-	-	-	0.4	-	(0.4)	-
schemes

Recognition of share
based payments net of		-	-	-	-	-	0.1	0.1
tax
Balance at 31 August		12.4	60.5	(280.1)	(1.7)	0.3	134.3	(74.3)
2019


IFRS 16 transition		-	-	-	-	-	1.4	1.4
adjustment

Restated Balance at 31		12.4	60.5	(280.1)	(1.7)	0.3	135.7	(72.9)
August 20191
Loss for the year		-	-	-	-	-	(6.7)	(6.7)
Actuarial Gain/(loss) on
defined benefit pension	6	-	-	-	-	-	0.1	0.1
scheme
Impact of IFRIC 14 on
defined benefit pension	6	-	-	-	-	-	0.9	0.9
scheme
Currency translation		-	-	-	-	0.1	-	0.1
differences

Tax relating to
components of other		-	-	-	-	-	(0.5)	(0.5)
comprehensive income
Total comprehensive		-	-	-	-	0.1	(6.2)	(6.1)
expense for the year

Dividends paid	9	-	-	-	-	-	(2.4)	(2.4)
Employee share		-	-	-	(0.7)	-	-	(0.7)
schemes purchases

Employee share scheme		-	-	-	0.6	-	(0.6)	-
awards

Recognition of share
based payments net of		-	-	-	-	-	0.4	0.4
tax
Balance at 29 August		12.4	60.5	(280.1)	(1.8)	0.4	127.0	(81.6)
2020

1. The Group has applied IFRS 16 using the cumulative catch up approach as a result the Obligation under finance leases has been replaced with Lease liabilities which is wider in scope see Note 36 for details.

Group Cash Flow Statement for the 52 week period ended 29 August 2020

£m	Note	2020	2019

Net cash inflow from operating activities	27	23.4	23.0

Investing activities
Dividends received from joint ventures		0.2	0.1
Purchase of property, plant and equipment		(6.9)	(7.4)
Purchase of intangible assets		(2.4)	(1.2)
Net proceeds on sale of property, plant and equipment		14.6	0.5
Loans advances	11	(6.5)	-
Net cost of disposal of subsidiary	12	(3.7)	-

Net cash (used in) investing activities		(4.7)	(8.0)

Financing activities
Interest paid		(8.0)	(5.1)
Dividend paid	9	(2.4)	-
Repayments of lease principal		(15.6)	(2.8)
Net increase/(decrease) in revolving credit facility and overdrafts		50.8	(8.0)
Purchase of shares for employee benefit trust		(0.7)	-

Net cash generated /(used in) financing activities		24.1	(15.9)

Net increase/(decrease) in cash and cash equivalents		42.8	(0.9)
Effect of foreign exchange rate changes		(0.1)	0.1

		42.7	(0.8)
Opening net cash and cash equivalents		7.9	8.7

Closing net cash and cash equivalents	19	50.6	7.9

During the year, cash outflow from operating activities attributed to discontinued operations amounted to £10.3m (2019: £10.9m outflow) and paid £9.1m inflow (2019: £5.8m outflow) in respect of investing activities. There were £7.3m (2019: £6.9m) cash outflows associated with financing activities attributable to discontinued operations.

Notes to the accounts

1. Accounting policies

Basis of consolidation

Smiths News plc (formerly Connect Group PLC) ('the Company') is a company incorporated in England UK under Companies Act 2006. The Group accounts for the 52 week period ended 29 August 2020 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interests in joint ventures and associates. Subsidiary undertakings are included in the Group Accounts from the date on which control is obtained. They are deconsolidated from the date on which control ceases. All significant subsidiary accounts are made up to 29 August and are included in the Group Accounts.

Unless otherwise noted references to 2019 and 2020 relate to a 52 week period ended 31 August 2019 and 29 August 2020 as opposed to calendar year.

The accounts were authorised for issue by the directors on 11 November 2020.

(2) Accounting basis of preparation

The financial information contained within this preliminary announcement for the 52 weeks to 29 August 2020 and year to 31 August 2019 does not comprise statutory financial statements for the purpose of the Companies Act 2006, but is derived from those statements. The statutory accounts for Smiths News PLC (formerly Connect Group Plc) for the year to 31 August 2019 have been filed with the Registrar of Companies and those for the 52 weeks to 29 August 2020 will be filed following the Company's annual general meeting. The auditor's reports on the accounts for both the 52 weeks to 29 August 2020 and year to 31 August 2019 were unqualified, did not draw attention to any matters by way of emphasis, and did not include a statement under Section 498 (2) or (3) of the Companies Act 2006. The Annual Report and Accounts will be available for shareholders in December 2020.

3) Going concern

The Group currently has a net liability position of £81.6m as at 29 August 2020. All bank covenant tests were met at year end with the key bank net debt: EBITDA ratio of 2x, below the facility agreement covenant test threshold of 2.75x.

The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing of up to £40m which utilised the existing Revolving Credit Facility (RCF) of £125m available at year end. This results in a predictable fluctuation of bank net debt during the course of the month compared to the closing net debt position. Our average drawn gross borrowings (excluding cash balances) during FY20 were £105m (FY19: £112m).

Given this position and the lockdowns brought on by Covid-19, including the most recent lockdown announced by the Government on 1 November 2020 the directors have carefully considered the ability of the Group to meet its debts as they fall due.

3i) New bank facility

The Group's old banking facility was considered to have surplus headroom, with a total facility of £175m and a balance undrawn of £86.0m at the 29 August 2020.The Group signed a new facility agreement on the 6 November 2020 to replace the Group's existing facility agreement (which comprised a term loan facility of £50 million and a multicurrency revolving loan facility of £125 million) and was due to mature on 31 January 2021.

The new three-year £120 million facility, comprises a £45 million amortising term loan (Facility A), a £35m million bullet repayment term loan (Facility B) and a £40 million revolving credit facility (RCF). Term Loan (facility B) is also repayable from any proceeds received from the deferred consideration as part of the sale of Tuffnells and receipt of any pension surplus. The agreement is with a syndicate of banks comprising existing lenders HSBC, Barclays, Santander, AIB and Clydesdale and one new lender, Shawbrook Bank.

The facility is available at an initial margin of 5.5% per annum over LIBOR (in respect of Facility A and the RCF) and 6% per annum over LIBOR (in respect of Facility B). The margin is subject to reduction should the Company reduce its net leverage in line with its stated strategic priorities.

Company's defined benefit pension scheme; and an absolute preclusion of payments of dividends in respect of FY2020 and capped dividend payments thereafter for FY2021 (up to £4m) and FY2022 onwards (up to £6m per year). As part of the terms of the refinancing, the Company and its principal trading subsidiaries have also agreed to provide security over their assets to the lenders.

The final maturity date of the new facility is 5 November 2023.

3ii) COVID 19 effect

COVID 19 had a material impact on the business during H2 2020, while the Company continued to trade profitably and generate cash throughout the period. There was a temporary impact on working capital during the national lockdown in March 2020 to June 2020 when retailers who had closed their stores returned unsold newspapers and magazines to receive a refund from the Group; this refund was paid prior to the group obtaining the corresponding refund from the publisher.

At its peak in May 2020 the COVID-19 there remanded significant headroom within the existing bank facility. There were further mitigating actions available to management that the Company could have taken but there was sufficient headroom liquidity for these actions not to be required at that time. Post year end there has been a series of local lockdowns and the announcement of a full national lockdown in England. The impact of these has been considered in the Groups forecasts and projections.

3iii) Reverse stress testing

The directors have prepared their base case forecast which represents their best estimate of cash flows over the going concern period and in accordance with FRC guidance have prepared a reverse stress test that would create a covenant break scenario which could lead to the facilities being repayable on demand.

The break scenario would occur in August 2021 if EBITDA were to be 31% below base case. The directors consider the likelihood of this level of downturn to be remote based on:

Current trading which is ahead of base case;
The year-on-year declines in revenues being significantly over historical trends;
The contracts secured with publishers until 2024; and
The impact is more severe than the first national lockdown in March 2020.

3iv) Mitigating actions

In the event the break environment scenario went from being remote to possible. Then management would seek to take mitigating actions to maintain liquidity and compliance with the bank facility covenants. The options within the control of management would be to:

Optimise liquidity by working capital management of the peak- to-troughintra-month movement of c. £40m. Utilising existing vendor management finance arrangements with retailers and optimising contractual payment cycles to suppliers which would improve liquidity headroom:
Delay non-essential capex projects;
Cancel discretionary annual bonus payments; and
Identify other overhead and depot savings.

More extreme mitigating actions would also be available if the scenario arose.

3 v) Assessment

Having considered the above the Directors are therefore confident that headroom under the new bank facility remains adequate and future covenant tests can be met and there is a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

Alternate performance measures

The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS. The directors believe that the APMs, listed in the glossary on page 45, are important when assessing the underlying financial and operating performance of the Group and its segments. The APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.

Estimates and judgements

The preparation of these accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

Key sources of estimation uncertainty

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The key assumption concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Estimated impairment of intangibles, right of use assets and property plant and equipment (PPE)

The Group tests intangibles (note 13), right of use assets (note 21) and PPE (note 14) when impairment indicators exist in accordance with the accounting policy.

The carrying amounts of cash-generating units (CGU's) have been determined based on value in use calculations. The value determined on the cash generating units has been compared against the assets of the division to calculate impairments. These calculations require the use of estimates (note 13).

Provisions

The Group holds a number of provisions which are subject to estimates. The key provisions established in the year relate to restructuring provisions as a result of the Tuffnells disposal and operational restructuring projects; for further details see note 24.

Tuffnells

This estimate relates to the financial year to 31 August 2019. In the prior financial year Tuffnells made an adjusted operating loss of £14.1m (Tuffnells has been disposed of in the current year). The losses in the prior year resulted in the Group performing an impairment assessment of goodwill, intangibles and PPE. As a result of the review: the goodwill; acquired intangibles; and PPE were impaired. The value of the remaining assets in the division were written down to their fair value less costs to sell, as the value in use does not support them.

In the prior financial year an impairment charge of £6.0m, £26.4m and £13.2m arose to goodwill, intangibles and PPE respectively. The assets were valued based on the fair value less cost to sell and is based on the best estimates. Note 13 and 14 include details of directors' assumptions and impact of changing these.

Key accounting judgements

The significant judgements made in the accounts are:

Revenue

The Group recognises the wholesale sales price for its sales of newspapers and magazines. The Group is considered to be the principal based on the following indicators of control over its inventory: discretion to establish prices; it holds some of the risk of obsolescence once in control of the inventory; and has the responsibility of fulfilling the performance obligation on delivery of inventory to its customers. If the Group were considered to be the agent, revenue and cost of sales would reduce by £995.5m (2019: £1,111.0m).

Tuffnells Deferred consideration

The Tuffnells business unit was disposed on 2 May 2020; the Group is due £15.0m as deferred consideration payable over 3 years. The Group has calculated the fair value of the deferred consideration on disposal at £7.1m and has subsequently recognised the receivable at amortised cost. The fair value was calculated by discounting the deferred consideration at 30% which is considered the key judgement. A +/-5% change in the discount rate would result in a decrease/increase of the fair value of the deferred consideration by +/-£1.0m which would change the profit and loss on disposal. For more information see note 11.

The recoverability of the Tuffnells deferred consideration is also a key estimate management have assessed its recoverability and have concluded no impairment is necessary based on:

The loan receivable due from the purchaser was repaid early proving the new management's ability to refinance,

Management do not believe there has been a significant increase in the risk of recoverability of the deferred

consideration since inception.

This was assessed using a number of scenarios such as delays in payments and non-recovery of the balance, changes in these assumptions may lead to an impairment to the balance.

Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. The calculation of onerous contract provisions includes estimates of all future costs. Significant judgement is applied in the determination of when contracts become onerous. Management concluded that as result of the disposal of Tuffnells a number of contracts were onerous. See note 24 for further details.

Dawson Media Direct (DMD) - Impairment of goodwill

The impact of Covid-19 on DMD has been significant as the business primary source of revenue is from the airline industry and its operations were suspended. This has resulted in significant uncertainty around the future trading performance of the business. The value in use of the business unit is extremely sensitive to changes in estimations of future performance. As a result of the trading suspension and the uncertain outlook, the Directors considered that the goodwill relating to the business unit was no longer supportable. This has resulted in a £5.7m impairment charge. In the opinion of the directors the Goodwill was impaired to £nil in February 2020. For details of the sensitivities and the assumptions used to calculate the value in use, see note 13.

Determining lease terms

In determining lease terms, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

For leases of warehouses, retail stores and equipment, the following factors are normally the most relevant:

If there are significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate);
If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate); and
Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Most extension options in vehicles leases have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption.

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

Adjusting items

Adjusting items of income or expense that are excluded in arriving at Adjusted operating profit. This enhances the users understanding of the Group's performance as it aids the comparability of information between reporting periods and business units by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, adjusted measures are defined with other APM's in the glossary on page 45.

Based on the nature of the transactions that it had Adjusting items after tax totalling £17.3m (2019: £50.9m) and a breakdown is included within note 4.

Sale and leaseback Tuffnells properties

The Group entered into several sale and leaseback transactions in relation to the Tuffnells Property Portfolio, for further information see note 11. On all transactions a sale was considered to have occurred as control of all properties had transferred to the purchaser based on the following:

The Group has no option to repurchase the properties;
The title of the land and property passed to purchaser;
The Group received payment for all of the properties sold and leased backed; and

The majority of the risks and rewards relating to the properties had transferred to the purchaser.

Discontinued operations - Tuffnells

On 28 February 2020, the Board concluded the Tuffnells division had met the criteria as being held for sale and should be classified as a discontinued operation in accordance with International Financial Reporting Standards (IFRS) 5 'Non-current Assets Held for Sale and Discontinued Operations'. The Tuffnells division was sold on 2 May 2020 and the net results of discontinued operations are presented separately in the Group income statement.

The facts that supported this judgement were as follows:

the Tuffnells business was actively being marketed;
Tuffnells was considered held for immediate sale;
a sale was considered to be highly probable;
as a result of receiving several competitive offers for Tuffnells, the Board concluded that a disposal of Tuffnells was the option that would offer the best opportunity to maximise Shareholder value; and
a proposed timeline for the sale was within the current financial year.

The date that Tuffnells became a discontinued operation is considered a key judgement and the conclusion reached by the Directors was based on the weight of facts surrounding each criterion, for further details see note 11.

Held for sale assets

This estimate relates to the financial year to 31 August 2019. In January 2019, the Group took the decision to actively market the Tuffnells freehold, long leasehold property and related assets. Post-sale, the Group would then leaseback these properties. Given the above, the Group considered that the following criteria for recognition of assets held for sale had been met:

The properties were available for immediate sale;
The properties were being actively marketed;
The sale was considered highly probable; and
The sale was expected to conclude within 1 year of January 2020.

Therefore these properties were reclassified as assets held for sale. For further details see note 11.

Retirement benefits

Following the completion of the 'buy-in' in October 2018 where the WH Smith Pension Trust entered into an insurance backed annuity of the Scheme assets within the section of the Trust sponsored by Smiths News, the pension schemes actuary notified the Group that future cash contributions by the Group to address the deficit would no longer be required and the Group has released the IFRIC 14 liability. The 'buy-in' annuity is recognised as a plan asset and the difference in value between the value of the insurance asset received of £425m at the date of transaction and the asset transferred in exchange for the policy £555m was considered an actuarial remeasurement recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.

If this was not considered to be an actuarial re-measurement the resulting difference of £130m would need to be recognised as a charge in the FY2019 income statement. The offsetting £130m, being the release of the restriction, would continue to be included within other comprehensive income.

Non-currentassets held for sale and disposal groups

Non-current assets held for sale and disposal groups are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of their carrying amount or fair value less costs to sell.

Held for sale as assets are assets that have met all the criteria required by IFRS 5 to be classified as held for sale, at which point they are derecognised as non-current assets.

Discontinued operations

In accordance with IFRS 5 'Non-current assets held for sale and Discontinued operations', the net results of discontinued operations are presented separately in the Group Income statement (and the comparatives restated) and the assets and liabilities of operations are presented separately in the Group balance sheet if they meet the held for sale criteria at the balance sheet date.

A cash generating unit would meet the classification of a discontinued operation when considered a material to the Group's overall results.

Revenue

Smiths News - Sales of Newspapers and Magazines

Sales of Newspapers and Magazines are recognised when control of the products has transferred, that is, when the products are delivered to the retailer and there is no unfulfilled obligation that could affect the retailer's acceptance of the products, the risks of obsolescence and loss have been transferred to the retailer. Goods are sold to retailers on a sale or return basis.

Revenue for goods supplied with a right of return is stated net of the value of any returns. Newspapers and magazines are often sold with retrospective volume discounts based on aggregate sales. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discount and returns', using the expected value method and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A returns reserve accrual and discount accrual (included in trade and other payables) is recognised for expected volume discounts and refunds payable to customers in relation to sales made until the end of the reporting period. A right to the returned goods (included in other debtors) are recognised for the products expected to be returned. No element of financing is deemed present, because the sales are made with short credit terms, which is consistent with market practice.

A receivable is recognised when the goods are delivered, since this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

Tuffnells - Delivery revenue

Delivery revenue is recognised on delivery when there are no unfulfilled obligations. Retrospective volume discounts based on aggregate sales are often given based on the aggregate sales over a short period. Revenue is only recognised to the extent that it is highly probable and a significant reversal will not occur.

Accrued income on all revenue is recognised when a service has been performed but an invoice has not been raised, the Group accrued income is short term and invoiced close to the service being provided.

Cost of Sales and Gross profit

The Group considers cost of sales to equate to cost of inventories recognised as an expense, net impairment losses on financial assets and distribution costs as these are considered to represent for the Group direct costs of making a sale.

The Group considers gross profit to equal revenue less cost of sales.

(10) Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent it relates to items recognised in other comprehensive income or directly in equity. Current tax is the expected tax payable based on the taxable profit for the year, using tax rates enacted, or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is calculated using tax rates enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these temporary differences can be utilised.

Dividends

Interim and final dividends are recorded in the financial statements in the period in which they are paid.

Capitalisation of internally generated development costs

Expenditure on developed software is capitalised when the Group is able to demonstrate all of the following: the technical feasibility of the resulting asset; the ability (and intention) to complete the development and use it; how the asset will generate probable future economic benefits; and the ability to measure reliably the expenditure attributable to the asset during its development. Subsequent to initial recognition, internally generated

intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Joint ventures

The Group Accounts include the Group's share of the total recognised gains and losses in its joint ventures on an equity accounted basis.

Investments in joint ventures are carried in the balance sheet at cost adjusted by post-acquisition changes in the Group's share of the net assets of the joint ventures, less any impairment losses. The carrying values of investments in joint ventures include acquired goodwill. Losses in joint ventures that are in excess of the Group's interest in the joint venture are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

Business combinations goodwill and intangibles

The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued, liabilities incurred or assumed at the date of exchange. Acquisition related costs are recognised in profit or loss as incurred. Any deferred or contingent purchase consideration is recognised at fair value over the period of entitlement. If the contingent purchase consideration is classified as equity, it is not remeasured and settlement is accounted for in equity. Any deferred or contingent payment deemed to be remuneration as opposed to purchase consideration in nature is recognised in profit or loss as incurred, and excluded from the acquisition method of accounting for business combinations. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The non-controlling interest is measured, initially, at the non-controlling interest's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquire, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Goodwill arising on all acquisitions is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

The carrying value is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets arising under a business combination (acquired intangibles) are capitalised at fair value as determined at the date of exchange and are stated at fair value less accumulated amortisation and impairment losses. Amortisation of acquired intangibles is charged to the income statement on a straight-line basis over the estimated useful lives as follows:

Customer relationships	- 2.5 to 7.5 years
Trade name	- 5 to 10 years

Software and development costs - 3 to 7 years

Computer software and internally generated development costs which are not integral to the related hardware are capitalised separately as an intangible asset and stated at cost less accumulated amortisation and impairment losses.

Assets held under 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 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.

Property, plant and equipment

Property, plant and equipment assets are stated at cost less accumulated depreciation and any recognised impairment losses. No depreciation has been charged on freehold land. Other assets are depreciated, to a residual value, on a straight-line over their estimated useful lives, as follows:

Freehold and long term leasehold properties - over 20 years

Short term leasehold properties- shorter of the lease period and the estimated remaining economic life

Fixtures and fittings	- 3 to 15 years
Equipment	- 5 to 12 years
Computer equipment	- up to 5 years
Vehicles	- up to 5 years

Assets held under 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 is reviewed for

impairment in accordance with IAS 36 'Impairment of Assets' when there are indications that the carrying value may not be recoverable.

Leasing

The Group has changed its accounting policy for leases where the Group is the lessee. The new policy is described below and the impact of the change in note 36. Leases of property, plant and equipment where the Group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases.

Finance leases were capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in other short-term and long-term payables.

Each lease payment was allocated between the liability and finance cost. The finance cost was charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases was depreciated over the asset's useful life, or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of adopting the new leasing standard.

The Group leases various offices, distribution depots, equipment and vehicles. Rental contracts are typically made for fixed periods of 12 months to 20 years, but may have extension options as described below.

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor.

Leased assets may not be used as security for borrowing purposes.

From 1 September 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date ;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group:

where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing; and
Makes adjustments specific to the lease, e.g. term, country, currency and security.

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs; and
Restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

Modifications

When the group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss.

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. Costs comprise 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.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group derecognises financial assets and liabilities only when the contractual rights and obligations are transferred, discharged or expire.

Financial assets comprise trade and other receivables and cash and cash equivalents. Financial liabilities comprise trade payables, financing liabilities, bank borrowings.

Financial assets

The group classifies its financial assets in the following measurement categories:

those to be measured subsequently at fair value (either through OCI or through profit or loss); and
those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

Trade receivables

Trade receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and then adjusted to reflect expectations about future credit losses. The Group does not have any significant contract assets.

Classification as trade receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method. Details about the Group's impairment policies and the calculation of the loss allowance are provided in note 17.

Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.

Other receivables

Other receivables are recognised on trade date, being the date on which the Group has the right to the asset. Other receivables are derecognised when the rights to receive cash flows from the other receivables have expired or have been transferred and the group has transferred substantially all the risks and rewards of ownership.

At initial recognition, the Group measures other receivable at their fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Subsequent measurement of other receivables depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. The group classifies its other receivables at amortised cost.

Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/ (losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the note 3.

The group classifies its financial assets as at amortised cost only if both of the following criteria are met:

the asset is held within a business model whose objective is to collect the contractual cash flows; and
the contractual terms give rise to cash flows that are solely payments of principal and interest.

The Group applies the general approach to impairment under IFRS 9 based on significant increases in credit risk rather than the simplified approach for trade receivables using lifetime ECL.

Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

Treasury

Cash and bank deposits

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. In the consolidated balance sheet, bank overdrafts are

shown within borrowings in current liabilities. Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and bank overdrafts which form part of the groups cash management.

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. Equity instruments issued are recorded at the proceeds received, net of direct issue costs.

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.

Foreign currencies

Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.

Foreign currency transactions

Transactions in foreign currencies are recorded using the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.

Provisions

Provisions are recognised when the Group 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 and if this amount is capable of being reliably estimated. If such an obligation is not capable of being reliably estimated, no provision is recognised and the item is disclosed as a contingent liability where material. Where the effect is material, the provision is determined by discounting the expected future cash flows.

Retirement benefit costs

The Group operates a number of defined contribution schemes for the benefit of its employees. Payments to the Group's schemes are recognised as an expense in the income statement as incurred. Following the disposal of Tuffnells, the Group operates one defined benefit pension scheme, The WH Smith Pension Trust which is closed to further accrual. The charge to the Group of providing benefits for this scheme 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 in the group statement of comprehensive income. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit, reduced by the fair value of scheme assets. An asset ceiling cap is applied in accordance with IFRIC 14 with an additional liability recognised where there is a contractual obligation to make further payments into the scheme. The Group do not recognise any surplus unless there is an unconditional right to do so.

Employee Benefit Trust

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. This value is deducted in arriving at shareholders' funds and presented as the own share reserve in line with IAS 32 'Financial Instruments: Disclosure and Presentation'.

Share schemes

Share based payments

The Group operates several share-based payment schemes, being the Sharesave Scheme, the Executive Share Option Scheme, the LTIP and the Deferred Bonus Plan. Details of these are provided in the Directors' Remuneration report and in note 31.

Equity-settledshare-based schemes are measured at fair value at the date of grant. The fair value is expensed with a corresponding increase in equity on a straight-line basis over the period during which employees become unconditionally entitled to the options. The fair values are calculated using an appropriate option pricing model. The income statement charge is then adjusted to reflect expected and actual levels of vesting based on non-market performance related criteria.

Administrative expenses and distribution and marketing expenses include the cost of the share-based payment schemes.

(26) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions.

Government grants relating to costs including furlough are deferred and recognised in profit or loss over the period necessary to match with the costs that they are intended to compensate. They are also presented with the costs they are matched with.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and they are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

Changes in accounting policies

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 September 2019:

IFRS 16 Leases;
IFRIC 23 Uncertainty over Tax Treatments;
Amendments to IFRS 9 - Prepayment Features with Negative Compensation;
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement;
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures; and
Annual Improvements to IFRS Standards 2015-2017 Cycle.

The Group had to change its accounting policies and make certain opening balance adjustments following the adoption of IFRS 16. This is disclosed in note 36. Most of the other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

New Standards and Interpretations not yet applied

At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group and which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 17 Insurance Contracts;
Amendments to IFRS 3 Business Combinations;
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate
Benchmark Reform;
Amendments to IAS 1 and IAS 8: Definition of Material; and
Amendments to references to the Conceptual Framework in IFRS Standards.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(28) Restatement of Income Statement

The prior year income statement has been restated, to present the results of Tuffnells within discontinued operations, this has no impact on overall result for the period.

(29) Restatement of Pension liability

As a result of the buy-in of the W.H.Smith Pension Trust in October 2018, a thorough review of the effectiveness of the steps taken to equalise the retirement age of pensioners was undertaken in the current financial year. Previously equalisation of retirement age was considered to have been effective from 1 April 1992 when communicated to employees. However,

the Trust Deed approving this equalisation was not signed until 29 July 1993, this is now considered the equalisation date.

The information reviewed which caused this change was available in past periods and given the same information was available; it is considered a similar review would have led to the same conclusion in earlier periods. It is considered a prior year error which has been corrected by restating Note 6 Retirement benefit obligation only. there was no/no material effect on the income statement, earning per share, statement of other comprehensive income or the balance sheet for 2019 and therefore a third

balance sheet has not been presented. There is no overall impact on net assets and the income statement in any period presented from reflecting this prior year adjustment.

As a result this has increased the pension scheme liabilities by £8.2m as at 1 September 2018, the opening position in these accounts. The increased liability is offset by a decrease in the restriction of the surplus which now stands at £15.2m (2019 restated: £15.8m) (1 September 2018 restated: £151.4m).The pension scheme surplus is not recognised as there is not an unconditional right for the Group to receive the surplus.

2. Segmental analysis

In accordance with IFRS 8 'Operating Segments', management has identified its operating segments. The performance of these operating segments is reviewed, on a monthly basis, by the Board. The Board primarily uses a measure of Adjusted operating profit before tax to assess the performance of the operating segments. However, the Board also receives information about the segments' revenue.

The continuing operating segments are:

Smiths News

Smiths News segment consists of the following:

Smiths News Core

The UK market leading distributor of newspapers and magazines to approximately 24,000 retailers across England and Wales.

Dawson Media Direct (DMD)

Supplies newspapers, magazines and inflight entertainment to airlines and travel points in the UK.

Instore

Supplies field marketing services to retailers and suppliers across the UK.

Other businesses

A number ancillary business which are adjacent to Smiths News.

Smiths News Core is considered the only reportable segment of the above given the size of the others and they are consolidated into one reportable segment based on size.

Tuffnells

A leading provider of next day B2B delivery of mixed and irregular freight consignments.

As explained in Note 11, Tuffnells was disposed of in the current year and therefore considered to be a discontinued operation in the current financial year. The division is presented as a discontinued operation and is included below, where necessary, for the purpose of reconciliation.

The following is an analysis of the Group's revenue and results by reportable segment:

Revenue

£m	2020	Restated*
2019

Smiths News	1,164.5	1,303.3

Continuing operations	1,164.5	1,303.3
Discontinued operations	98.2	164.6

Total continuing and discontinued operations	1,262.7	1,467.9

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1.

		2020			Restated*
				2019

	Adjusted	Adjusted	Statutory	Adjusted	Adjusted	Statutory
£m	operating	operating	operating	operating
items	items
	profit/(loss)	profit/(loss)	profit/(loss)	profit/(loss)

Smiths News	35.1	(14.0)	21.1	43.6	(7.3)	36.3

Continuing	35.1	(14.0)	21.1	43.6	(7.3)	36.3
operations

Net finance	(7.2)	0.9	(6.3)	(6.0)	-	(6.0)
expense

Continuing profit	27.9	(13.1)	14.8
before tax	37.6	(7.3)	30.3

Discontinued
operations profit	(13.3)	(2.0)	(15.3)	(14.4)	(53.5)	(67.8)
before tax*
Total
continuing and
discontinued	14.6	(15.1)	0.5	23.2	(60.8)	(37.6)

operations Profit before taxation

Discontinued operations in the table above are pre-tax measures. Presentations in the Group income statement for discontinued operations are post tax measures.

*The above tables have been restated to present the results of Tuffnells within discontinued operations; this has no impact on overall result for the period.

Information about major customers

Included in revenues arising from Smiths News are revenues of approximately £125.2m (2019: £136.5m) which arose from sales to the Group's largest customer. No other single customer contributed 6.0% or more of the Group's revenue in 2020 (2019: 6.0%).

Segment depreciation, amortisation and non-current asset additions

	Depreciation	Amortisation	Impairment	Additions to non-
	current assets

		Restated		Restated		Restated		Restated
£m	2020	*	2020	*	2020	*	2020	*
		2019		2019		2019		2019
Smiths News	(2.6)	(2.8)	(2.0)	(2.4)	(6.0)	-	5.0	5.4

Continuing operations	(2.6)	(2.8)	(2.0)	(2.4)	(6.0)	-	5.0	5.4
Discontinued operations	(0.4)	(4.1)	-	(6.8)	(2.5)	(45.5)	2.4	4.8

Consolidated total	(3.0)	(6.9)	(2.0)	(9.2)	(8.5)	(45.5)	7.4	10.2

Additions to non-current assets include intangible assets and property, plant and equipment.

* The above tables have been restated to present the results of Tuffnells within discontinued operations.

Geographical analysis

£m	Revenue by destination	Non-current assets by location of
operation

	2020	2019	2020	2019

United Kingdom	1,158.3	1,290.5	66.5	31.5
Spain	0.2	0.5	-	-
France	0.4	1.2	-	-
Germany	1.4	2.9	-	-
Netherlands	2.1	4.1	-	-
Rest of World	2.1	4.3	-	-

Continuing operations	1,164.5	1,303.5	66.5	31.5

Discontinued operations	98.2	164.6	-	-

Total Continuing and	1,262.7	1,467.9	66.5	31.5
discontinued operations

IFRS 8 requires that a measure of segment assets should be disclosed only if that amount is regularly provided to the chief operating decision maker and consequently no segment assets are disclosed.

3. Operating profit/(loss)

The Group's results are analysed as follows:

£m			2020			Restated*
				2019

Continuing operations	Note	Adjusted	Adjusted	Total	Adjusted	Adjusted	Total
items	items


Revenue		1,164.5	-	1,164.5	1,303.5	-	1,303.5

Cost of inventories		(995.5)	-	(995.5)	(1,111.0)	-	(1,111.0)
recognised as an expense

Net impairment losses on		(0.3)	(0.2)	(0.5)	(0.1)	-	(0.1)
financial assets

Distribution costs		(95.6)	-	(95.6)	(106.4)	(0.1)	(106.5)

Cost of sales		(1,091.4)	(0.2)	(1,091.6)	(1,217.5)	(0.1)	(1,217.6)

Gross profit		73.1	(0.2)	72.9	86.0	(0.1)	85.9

Other administrative		(35.8)	(7.8)	(43.6)	(40.1)	(7.2)	(47.3)
expenses

Share-based payment	31	(0.3)	-	(0.3)	(0.4)	-	(0.4)
expense

Amortisation of intangibles	13	(2.0)	-	(2.0)	(2.4)	-	(2.4)
Impairment		-	(6.0)	(6.0)	-	-	-

Administrative expenses		(38.1)	(13.8)	(51.9)	(42.9)	(7.2)	(50.1)

Share of profits from joint	15	0.1	-	0.1	0.5	-	0.5
ventures


Operating profit		35.1	(14.0)	21.1	43.6	(7.3)	36.3

The above tables have been restated to present the results of Tuffnells within discontinued operations. The operating profit/ (loss) are stated after charging/ (crediting):

£m		Note		2020			2019

			Continuing	Discontinued	Total	Continu	Discontinued	Total
			ing

Depreciation on property,	14	2.6	0.4	3.0	2.8	4.1	6.9
plant & equipment

Amortisation of intangible	13	2.0	-	2.0	2.4	6.8	9.2
assets

Depreciation on right use		6.0	5.0	11.0	-	-	-
assets

Operating lease charges
∙	occupied land and		0.9	0.4	1.3	7.1	3.0	10.1
	buildings

∙	equipment and		0.3	1.8	2.1	1.3	14.2	15.5
	vehicles

Operating lease rental		0.2	-	0.2	(0.3)	-	(0.3)
income - land and buildings

Write down of inventories		-	-	-	-	-	-
recognised as an expense

(Loss)/gain on disposal of		-	1.7	1.7	(0.3)	-	(0.3)
non-current assets

Staff costs (excluding share	5	49.0	44.7	93.7	65.2	69.7	124.5
based payments)

Included in administrative expenses are amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services which are as follows:

£m	2020	2019

Fees payable to the Company's auditor for the audit of the Company's	-	0.1
subsidiaries - Deloitte LLP

Fees payable to the Company's auditor for the audit of the Company's	0.3	0.2
annual accounts - BDO LLP

Fees payable to the Company's auditor for the audit of the Company's	0.2	0.2
subsidiaries - BDO LLP

Total non-audit fees	0.2	0.1

Total fees	0.7	0.6

Details of the Company's policy on the use of auditors for non-audit services and how the auditor's independence and objectivity was safeguarded are set out in the Audit Committee report.

4. Adjusted items

£m			2020			2019

		Continuing	Discontinued	Total	Continuing	Discontinued	Total

Network and re-	(a)	(6.8)	(1.0)	(7.8)	(5.9)	(0.5)	(6.4)
organisation costs

Asset impairments	(b)	(6.4)	(0.6)	(7.0)	-	(45.5)	(45.5)

Pension	(c)	(0.9)	-	(0.9)	(2.0)	(0.2)	(2.2)

Other	(d)	0.1	-	0.1	0.6	(6.6)	(6.0)

Review and sale of	(e)	-	0.6	0.6	-	-	-
Tuffnells

Sale and Leaseback	(f)	-	(1.0)	(1.0)	-	(0.7)	(0.7)


Total before tax and		(14.0)	(2.0)	(16.0)	(7.3)	(53.5)	(60.8)
interest

Finance income -	(g)	0.9	-	0.9	-	-	-
unwind of deferred
consideration
Total before tax		(13.1)	(2.0)	(15.1)	(7.3)	(53.5)	(60.8)
Taxation		1.4	(3.6)	(2.2)	0.9	9.0	9.9

Total after taxation		(11.7)	(5.6)	(17.3)	(6.4)	(44.5)	(50.9)

The Group incurred a total of £15.1m (2019: £60.8m) of Adjusted items, after tax £17.3m (2019: £50.9m). The above adjusted tax charge is the tax effect of the adjusted items.

Adjusted items are defined in the accounting policies in note 1, in the directors' opinion the impact of removing these items from the adjusted profit give the true underlying performance of the Group and comprises:

Continuing operations

(a) Network and re-organisation costs £6.8m (2019: £5.9m) These are analysed as follows:

£m	2020	2019
Executive team redundancies	1.2	0.9
Outsourcing of central functions	1.0	3.0
Business restructuring	2.7	1.2
Network reorganisation	1.9	0.8
Total	6.8	5.9

Executive Team redundancies

Costs of £0.5m have been incurred as a result of the departure of the CEO in November 2019. Separately, following the disposal of Tuffnells, the Group incurred £0.7m streamlining the Group's Executive Team. In the prior year the Group incurred £0.9m of costs when the Groups Executive team was restructured.

These costs are considered to be adjusting given the size and they enable comparability between years with equivalent costs of the Executive Team.

Outsourcing central functions

£1.0m of costs (2019: £3.0m) in the current year cost relates to the off-shoring of selected technology, customer

services and finance functions. This comprises a provision of £0.5m (2019: £2.5m) related to redundancy costs as

part of this transition and £1.4m (2019: £0.5m) related to set up costs which include the cost of parallel running when the shared service centre whilst transitioning. The costs were offset by a £0.9m release of the prior year redundancy provision (2019: £nil).

These costs are considered adjusting as the impact of the transition to an off shored central function is considered a one off. The running costs of the parts of the centre which are fully operational are being treated as non-adjusting.

Business Restructuring

The disposal of the Tuffnells business and lockdowns associated with the Covid-19 Pandemic have led to the group restructuring its support functions and two of its business units (DMD and Instore) and incurring incremental costs. In total these costs were £2.7m (2019:£1.2m).

£0.4m was incurred from the restructure DMD. The Covid-19 pandemic has had a significant impact on the DMD business and as a result the business was streamlined to have a lower and more variable cost base. In the previous year costs of £1.2m were incurred on redundancies and transferring operations into the Smiths News Slough depot, this was triggered when DMD's biggest contract with British Airways was ended.

The social distancing restrictions imposed by large retailers as a result of the Covid-19 pandemic has meant that the Instore business is unable to continue with the same business model and as a result a number of colleagues were notified prior to the year end that their the roles would be made redundant, a provision of £0.4m has been incurred as a result (2019: nil).

£1.5m of redundancy costs have been recognised as a result of the Groups restructure of its support functions following the disposal of Tuffnells (2019: nil).

The impact of the COVID-19 pandemic also triggered a one off increase of costs of £0.4m (2019: £nil) relating to incremental onshore shared service centre (SSC) cover staff and related items. The Groups SSC in India was put under an overnight lockdown and to ensure business as usual, extra onshore resource was brought in until a working from home strategy could be implemented.

These costs are considered to be adjusting given the size and they enable comparability between years with equivalent costs of the day to day operations of the business. Ongoing incremental costs incurred as a result of COVID-19 have been recognised with non-adjusted amounts.

Network reorganisation

£1.9m costs relating to the restructuring of the Smiths News network have been incurred. The costs incurred primarily relate to redundancies as a result of the decision to further consolidate its magazine hubs.

£0.8m was incurred in the prior year in redundancy and other re-organisation in streamlining the Smiths News network in the prior year.

Costs associated with the reorganisation programmes are considered Adjusting items given they are part of a strategic programme to drive future cost savings and therefore the impact of the costs in the current year distorts the true underlying performance of the Group.

Asset impairments £6.4m (2019: £nil)
The impact of the lockdowns associated with the COVID-19 pandemic triggered impairment reviews of a number of the group's assets:
The Covid-19 pandemic has and continues to have a significant impact on the global travel industry and consequently the trading of the DMD business. As a result, the Goodwill relating to DMD has been written off to £nil incurring a £5.7m impairment charge (2019:£nil). For further details of this review see Note 14.

The pandemic has also increased risk of recovery of DMD's receivables. This has been further evidenced as a number of key customers requested extensions and delayed payment terms which are consistent. As a consequence, to reflect the Group's underlying risk of collection, the Group recognised an increased provision resulting in a charge of £0.2m (2019:£nil)

A further £0.2m (2019: nil) charge has been incurred as a result of the write down of a balance with one of the Groups joint ventures.

The impact of the COVID-19 pandemic also triggered a review of the viability of Bluebox Avionics Limited (Bluebox); a joint venture of the Group. As a result, the outlook of Bluebox remains uncertain and the investment has been written off completely incurring a £0.3m (2019: £nil) impairment charge.

The Group consider the impact of the above to be adjusting given the unprecedented situation.

Pensions: £0.9m (2019: £1.5m)
£0.9m of professional costs were incurred rationalising the Groups pension portfolio which was triggered by the buy- in of an insurance backed annuity relating to WH Smith Pension Trust. The impact should streamline the cost of administrating the Group's defined contribution schemes.
In 2019, the Group incurred £1.5m, as a result of the WH Smith Pension Trust (one of the Group's defined benefit pension schemes) entering into an insurance backed annuity 'buy-in' of the Scheme assets, within the section of the Trust sponsored by Smiths News, which minimises the Group's exposure to future pension obligations.
These pension charges are not considered to be part of normal operations due to their size and nature and are therefore considered to be adjusting.
Other; £0.1m income (2019: £0.6m income)
At 31 August 2019 a provision of £0.5m remained of a provision for onerous contracts related to the closed Pass My Parcel business. All residual contracts had been terminated and £0.3m of that provision was released, leaving a small provision to cover any remaining costs. As no further costs were incurred by 29 August 2020, the remaining provision of £0.2m was released. This is considered adjusting as it matches the treatment of the cost.
Amortisation of acquired intangibles: £0.1m (2019: £0.2m). The Group incurred amortisation of continuing intangibles
for acquisitions, for which there is no associated cash cost, of £0.1m (2019: £0.2m), there is no cost in the current year. This is considered an adjusting item as it allows comparison between segments and therefore consistency of results at a consolidated level.

IPR settlement income: £nil (2019: £0.5m income). In 2019, the Group received £0.5m of one-off income in relation to the settlement of an IPR dispute concerning the proposed use of a similar brand to one of the Group's brands. This is considered adjusting given its size and one-off nature.

(g) Finance Income - Deferred consideration £0.9m income (2019: £nil)

£0.9m has been recognised as unwind of discount on deferred consideration. The deferred consideration relates to the disposal of Tuffnells and for that reason has been classified as adjusting because it does not relate to the underlying trade of the business.

Discontinued operations

(a) Network and re-organisation costs: £1.0m (2019: £0.5m)

These are analysed as follows:

Executive Team redundancies of £0.4m (2019: £nil)
Network reorganisation costs of £0.6m (2019: £0.3m)
Outsourcing of central functions of £nil (2019:£0.2m)

Executive Team redundancies £0.4m (2019: £nil)

These costs have been incurred as a result of the restructure of the Tuffnells executive team as part of the strategic review. These costs are considered to be adjusting given the size. As the business is expected to be disposed of these costs are not expected to reoccur.

Network Reorganisation £0.6m (2019: £nil)

These costs have been incurred as a result of depot closures. The depot closures were identified as a cost saving measure from the strategic review; the depot closure enables greater flexibility with minimal impacts on the businesses.

Outsourcing of central functions £nil (2019: £0.2m)

These costs have been incurred as a result of the outsourcing of central functions in the prior year.

These costs are considered to be adjusting given the size and allow comparability between years.

(b) Impairment of Tuffnells assets: £0.6m (2019: £45.5m)

Impairments of Tuffnells assets of £0.6m (H1 2019: £nil) were recognised by the Group in the current financial year against property plant and equipment.

The bids received for Tuffnells indicated that the net book value of the Tuffnells was above its fair value less costs to sell, indicating an impairment was required. Accordingly, impairments totalling £0.6m were recognised to reflect the updated value of the business.

Due to the sale process, it was considered that the deferred tax asset recognised on impairments was no longer recoverable and an amount of £3.5m was released creating an additional tax charge.

During the prior financial year, management reviewed the carrying value of the Tuffnells business unit and concluded that an impairment charge of £45.5m was required. This comprised £6.0m Goodwill, £26.4m acquired intangibles, £0.4m other intangibles and £12.7m property, plant and equipment.

The impairment of Goodwill in the prior year had no tax impact, the impairment of acquired intangibles resulted in the release of £4.5m deferred tax liability as a credit to adjusted items income tax. A deferred tax asset of £2.5m was recognised in the prior year which credited adjusted items income tax as a result of the impairment of the other assets.

It is considered adjusting due to its significant value and aids comparability between years to show the underlying performance of the Group.

In 2019 £0.2m in relation to equalisation of Guaranteed Minimum Payments (GMP) of the Tuffnells Parcel Express pension scheme. This is considered to be an Adjusting item as it was due to a one off change in the interpretation of the law relating to previously recognised cost, this is considered out of control of management and therefore is considered an Adjusting item.

(d) Other: £0.0m (2019: £6.6m)

The following costs were all incurred in Tuffnells in 2019; no costs were incurred in 2020 related to these matters:

The Group incurred £0.1m of insurance settlement costs in relation to a fatality at its Brierley Hill depot that occurred in January 2016. The Group had previously recognised the cost of the fine and legal costs in relation to this - see note

16. Given the magnitude, one-off nature and to ensure consistent treatment with previously reported costs it is considered to be an adjusting item.

The Group released £0.1m of the provision held in respect of potential National Minimum Wage regulatory compliance fines. This was recognised as an adjusting item to be consistent with prior periods and due to its one-off nature and magnitude.

A charge of £6.6m was recognised in 2019 relating to considered an Adjusting item as it allows comparison performance of the Group at a consolidated level.

amortisation of acquired intangibles in Tuffnells. This is between segments and, therefore, consistency in the

Review and sale of Tuffnells: £0.6m income (2019:£nil) These comprise:

£m	2020	2019

Costs of the strategic review	(0.3)	-
Profit on sale of Tuffnells	1.8	-

Onerous Contract provision	(0.9)	-

Total Income	0.6	-

On 6 November 2019, the Board announced a strategic review of Tuffnells in order to determine its longer term role and prospects within the Group.

During the review period, alongside actions to improve the efficiency of operations, the Board undertook a careful review of the prospects for Tuffnells' turnaround within the Group's ownership as well as its potential impact on the Group. The review involved evaluating a number of options in order to maximise value for Shareholders, including:

continuing to support the continuing Tuffnells turnaround under the Group's ownership;
the potential for and consequences of closing the business; and
a possible disposal to a third party.

The costs incurred as a result of this review were £0.3m.

The Board subsequently concluded that a sale to a third party would generate the most value for shareholders. For further information on the sale, see Note 11.

Following the strategic review, Tuffnells was sold on the 2 May 2020 and a profit of £1.8m was generated see note 11 for details.

As part of the disposal agreement with Tuffnells, Tuffnells were provided services under a transitional service agreement. Tuffnells notified the Group that it intends to terminate a number of services early within the transitional service agreement. A number of these services are provided under contract by third party suppliers. Where the Group is unable to coterminate these contracts with its suppliers, it considers these onerous contracts. As a result, an onerous contract provision of £0.9m has been recognised at the lower of the cost of exiting contracts or the expected contractual outflows.

This is considered adjusting as it no longer represents the underlying cost of running the business.

Sale and leaseback: £1.0m (H1 2019: £0.5m)

In January 2019, the Group took the decision to enter into a sale and leaseback arrangement for the "Tuffnells property portfolio" and recognised the assets as held for sale. See note 9 for further details. The Group disposed of 8 of the properties in the portfolio during the period. However, as a result of the Tuffnells strategic review, the Board took the decision to pause the process on the sale and leaseback until the outcome of the strategic review was certain.

As a result of the above the following were incurred:

£m		2020	2019

Sale & leaseback
Profit on disposal of Tuffnells properties	(i)	1.5	-
Rectification costs	(ii)	(0.6)	-
Abortive transaction costs	(iii)	-	(0.5)
Impairment	(iv)	(1.9)	-

Total		(1.0)	(0.5)

Profit on loss on disposal of Tuffnells properties £1.5m (2019: £nil)

In line with IFRS 16, a profit of £1.5m (2019 £nil) has been recognised.

Rectification costs £0.6m (2019: £nil)

As part of the terms of the disposal the Group agreed to undertake rectification works to the disposed of properties within 2 years. A provision totalling £0.6m was recognised in relation to this obligation.

Abortive transaction costs £nil (2019: £0.5m)

In 2019, the Group incurred £0.5m of costs relating to the sale and leaseback the Tuffnells property portfolio. However, due to the market conditions and outlook at the time, the proposals received did not meet the Board's expectations in respect of value, economic return and timings. As a consequence the process was stopped and the abortive costs written off. The process was then restarted and completed this financial year.

Impairment £1.9m (2019: £nil)

In November 2019, the remaining unsold properties were valued at the lower of fair value less costs to sell or historic cost. On one property the bids received did not support the cost and as a result an impairment charge of £1.9m has been recognised when the assets were classified back into property plant and equipment.

Given the magnitude of the sale and leaseback and one-off nature is considered to be an adjusting item.

5. Staff costs and employees

Staff costs

The aggregate remuneration of employees (including executive directors) was:

£m	Note	2020	2019
Continuing


Wages and salaries		44.9	48.3
Furlough		(0.9)	-

Net wages and salaries		44.0	48.3
Social security		3.7	4.1
Pension costs	6	1.3	1.4

Continuing operations total		49.0	53.8

Discontinued operations

Wages and salaries		41.4	65.3
Furlough		(0.5)	-

Wages and salaries		40.9	65.3
Social security		3.5	5.3
Pension costs	6	0.3	0.5

Discontinued operations total		44.7	71.1

Total		93.7	124.9

Pension costs shown above exclude charges and credits for pension scheme financing and actuarial gains and losses arising on the pension schemes. Wages and salaries shown above exclude amounts related to share based payment charges. On a continuing basis there was a charge of £0.3m in 2020 (2019: £0.4m) relating to share based payments (refer to note 3).

Employee numbers

The average total monthly number of employees relating to operations (including directors) was:

Number	2020	2019

Continuing operations
Operations	1,787	1,038
Support functions	268	1,242

Continuing operations total	2,055	2,280

Discontinued operations
Operations	2,380	2,225
Support functions	74	521

Discontinued operations total	2,454	2,746

Total	4,509	5,026

		44

6. Retirement benefit obligation (Restated)

Defined benefit pension schemes

The Group operated two defined benefit schemes, the WH Smith Pension Trust (the 'Pension Trust') and the Tuffnells Parcels Express Pension Scheme.

Following the completion of the 'buy-in' in October 2018 where the WH Smith Pension Trust entered into an insurance backed annuity of the Scheme assets within the section of the Trust sponsored by Smiths News, the annuity matches the liabilities that it guarantees resulting in no further payments due for that portion of the scheme. During the year a thorough review of the effectiveness of the steps taken to equalise the retirement age of pensioners was undertaken in the current financial year. Previously equalisation of retirement age was considered to have been effective from 1 April 1992 when communicated to employees. However, the Trust Deed approving this equalisation was not signed until 29 July 1993, this is now considered the equalisation date, as a result the opening liability on the pension scheme has increased by £8.2m and this note has been restated. This has reduced the surplus not recognised by £8.2m to £15.2m (2019: 15.8m)

The Group has no liability relating to the Tuffnells Parcels Express Pension Scheme following the disposal of Tuffnells in May 2020.

The Group's defined benefit pension plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members' length of service and their salary in the final years leading up to retirement. Benefits are paid to members from trustee-administered funds. The trustees are responsible for ensuring that the plan is sufficiently funded to meet current and future benefit payments. If investment experience is worse than expected, the Group's obligations are increased.

The trustees must agree a funding plan with the sponsoring company such that any funding shortfall is expected to be met by additional contributions and investment performance. In order to assess the level of contributions required, triennial valuations are carried out with plan's obligations measured using prudent assumptions (relative to those used to measure accounting liabilities). The trustees' other duties include managing the investment of plan assets, administration of plan benefits and exercising of discretionary powers.

The amounts recognised in the balance sheet are as follows:

	WH Smith	Tuffnells Parcels		*Restated	Tuffnells Parcels	*Restated
£m	Express	2020	WH Smith
Pension Trust	Express	2019
			Pension Trust

Present value of	(481.2)	-	(481.2)	(478.4)	(13.4)	(491.8)
defined benefit
obligation
Fair value of assets	496.4	-	496.4	494.2	10.5	504.7

Net surplus/ (loss)	15.2	-	15.2	15.8	(2.9)	12.9
Amounts not	(15.2)	-	(15.2)	(15.8)	-	(15.8)
recognised due to
asset limit
Pension liability	-	-	-	-	(2.9)	(2.9)

*The above table has been restated to reflect the increased position of the defined benefit obligation of the WH Smith pension Trust in 2019 by £8.2m this increase has decreased unrecognised surplus due to asset limit by the same amount, no other changes have been made. For more information see Note 1 (29).

The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of £15.2m at 29 August 2020 (2019 restated: £15.8m in surplus) which the Group does not recognise in the accounts as the Group do not have an unconditional right to either a reduction of future contributions or right to a refund on closure of the scheme. The valuation of the defined benefit schemes for the IAS 19 disclosures have been carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for membership experience, equalisation and changes in the actuarial assumptions.

WH Smith Pension Trust

The actuarial valuation of the Smiths News section of the WH Smith Pension Trust at 31 March 2018 was completed and resulted in no further funding being required from the Group at this time. Following the completion of the 'buy-in' in October 2018 where the WH Smith Pension Trust entered into an insurance backed annuity of the Scheme assets within the section of the Trust sponsored by Smiths News. The 'buy-in' annuity is recognised as a plan asset and the difference in value between the value of the insurance asset received of £425m at the date of transaction and the asset transferred in exchange for the policy £555m is considered an actuarial remeasurement recognised within other comprehensive income and is offset by the release of the IFRIC 14 liability.

Tuffnells Parcels Express scheme

The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2019 was a scheme deficit of £5.3m. Deficit recovery contributions to the scheme have been agreed at £0.5m per annum. £1.4m of pension liabilities were disposed of on completion of the sale of the Tuffnells division on 2 May 2020.

The weighted average duration of the schemes is 16 years for the W H Smith Pension Trust.

The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:

% p.a.	2020		2019

Discount rate	1.5		1.8
Inflation assumptions - CPI	2.1		2.2
Inflation assumptions - RPI	3.1		3.2

Demographic assumptions for WH Smith Pension Trust:	2020		2019

Life expectancy at age 65	Male	Female	Male	Female
Member currently aged 65	21.7	23.6	21.5	23.3
Member currently aged 45	22.7	24.8	22.5	24.5

Demographic assumptions for Tuffnells Parcels Express	2020		2019
scheme:


Life expectancy at age 65	Male	Female	Male	Female
Member currently aged 65	N/A	N/A	22.1	24.1
Member currently aged 45	N/A	N/A	23.3	25.4

Inflation assumptions

Pension increases in deferment in both Schemes are granted in line with CPI for all deferred members. RPI inflation is used to determine the increases for pensions currently in payment, subject to any annual caps and floors.

A summary of the movements in the net balance sheet asset/ (liability) and amounts recognised in the Group Income Statement and Other Comprehensive Income are as follows:

	Fair value	*Restated	*Restated
	Defined	Impact of IFRIC 14
£m	of scheme	Total
benefit	on defined benefit
	assets
	obligation	pension schemes

At 31 August 2018	592.7	(448.6)	(151.4)	(7.3)

Current service cost	-	-	-	-
Net interest cost	14.9	(11.0)	(4.1)	(0.2)
Past service cost	-	(0.1)		(0.1)
Administration expenses	(0.4)	-	-	(0.4)

Total amount recognised in income statement	14.5	(11.1)	(4.1)	(0.7)

Actual return on scheme assets (excluding amounts	(83.0)	-	5.2	(77.8)
included in net interest expense)

Actuarial gains arising from experience

Actuarial gains arising from changes in financial assumptions

Actuarial gains arising from changes in demographic assumptions

-	7.3	-	7.3
-	(60.1)	-	(60.1)
-	(0.4)	-	(0.4)

Change in surplus not recognised	-	-	134.5	134.5

Amount recognised in other comprehensive income	(83.0)	(53.2)	139.7	3.5

Employer contributions	1.6	-	-	1.6
Employee contributions	-	-	-	-
Benefit payments	(21.1)	21.1	-	-

Amounts included in cash flow statement	(19.5)	21.1	-	1.6

At 31 August 2019	504.7	(491.8)	(15.8)	(2.9)

Net interest cost	8.5	(8.2)	(0.3)	-
Administration expenses	(0.3)	-	-	(0.3)

Total amount recognised in income statement	8.2	(8.2)	(0.3)	(0.3)

Actual return on scheme assets (excluding amounts	14.8	-	-	14.8
included in net interest expense)

				46

Actuarial gains/(loss) arising from experience

Actuarial gains/(loss) arising from changes in financial assumptions

Actuarial gains/(loss) arising from changes in demographic assumptions

-	-	-	-
-	(12.6)	-	(12.6)
-	(2.1)		(2.1)

Change in surplus not recognised	-	-	0.9	0.9

Amount recognised in other comprehensive income	14.8	(14.7)	0.9	1.0

Employer contributions	0.8	-	-	0.8
Employee contributions	-	-	-	-
Benefit payments	(21.8)	21.8	-	-

Amounts included in cash flow statement	(21.0)	21.8	-	0.8

Disposal of business	(10.3)	11.7	-	1.4

At 29 August 2020	496.4	(481.2)	(15.2)	-

Included within Current liabilities				-
Included within Non-current liabilities				-

*The above table has been restated to reflect the increased opening position of the defined benefit obligation by £8.2m this has decreased the IFRIC 14 restriction at 1 September 2018 and 31 August 2019 no other changes have been made. For more information see Note 1 (29).

The charge for the current service cost is included within administrative expenses. 'Net interest costs' are calculated by applying a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income and expense.

An analysis of the assets at the balance sheet date is detailed below:

£m		2020	2019

Gilts and swaps portfolio	Quoted and Unquoted	10.9	10.8
Corporate bonds	Quoted and Unquoted	-	-
Equity funds	Unquoted	-	10.5
Insurance policy	Unquoted	473.0	470.2
Cash and other	Unquoted	12.5	13.2

		496.4	504.7

The return on scheme assets during 2020 was a gain of £14.8m (2019: a loss of £83.0m).

The value of the assets held by the Trust in Smiths News Plc (formerly Connect Group PLC) issued financial instruments is £nil (2019: £nil).

Sensitivity of results to changes in the main assumptions:

			Effect on balance
Assumption	Change in assumption	Impact on IAS 19 liabilities	sheet at 29
			August 2020

Discount rate	- 0.5%	+£42.1m	£nil

Rate of inflation	+ 0.5%	+£37.3m	£nil

Life expectancy	+ 1 year	+£22.2m	£nil

The sensitivity analysis for each significant actuarial assumption has been determined based on reasonably possible changes to the assumptions at the end of the reporting period. It is based on a change in the key assumption while holding all other assumptions constant. The effect of a change in more than one assumption will be different to the sum of the individual changes. When calculating the sensitivities, the same methodology used to calculate the liability recognised in the balance sheet has been applied. The methodology and types of assumptions used in preparing the sensitivity analysis is consistent with the previous period.

The Group's defined benefit pension plans have a number of areas of risk, the most significant of which are set out below:

Life expectancy

The majority of the plans' obligations are to provide a pension for the life of the member, so increases in life expectancy will result in an increase in the plans' liabilities.

Inflation risk
The plans' benefit obligations are linked to inflation and higher inflation will lead to higher liabilities.
Changes in bond yields
Falling bond yields tend to increase the funding and accounting liabilities. The schemes both hold investments in corporate and government bonds which offer a degree of matching, i.e. the movement in assets arising from changes in bond yields partially matches the movement in the funding or accounting liabilities. In this way, the exposure to movements in bond yields is reduced.

However, as the WH Smith Pension Trust entered into an insurance backed annuity 'buy-in' of the Scheme assets, within the section of the Trust sponsored by Smiths News, which minimises the Group's exposure to future pension obligations (note 32).

Defined contribution schemes

The Group operates a number of defined contribution schemes. For the 52 weeks ended 29 August 2020, contributions from the respective employing company for continuing operations totalled £1.6m (2019: £1.9m) which is included in the Income Statement.

A defined contribution plan is a pension plan under which the group pays contributions to an independently administered fund - such contributions are based upon a fixed percentage of employees' pay. The group has no legal or constructive obligations to pay further contributions to the fund once the contributions have been paid. Members' benefits are determined by the amount of contributions paid by the Company and the member, together with investment returns earned on the contributions arising from the performance of each individual's chosen investments and the type of pension the member chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk (that assets invested in will not perform in line with expectations) fall on the employee.

7. Finance costs

£m	Note	2020	2019

Continuing operations
Interest on bank overdrafts and loans		(4.7)	(5.1)
Amortisation of loan arrangement fees		(0.6)	(0.5)
Interest payable on leases		(1.7)	-

Total interest cost on financial liabilities at amortised cost		(6.9)	(5.6)
Net interest expense on defined benefit obligation	6	-	-.
Unwinding of discount on provisions - trading	24	(0.5)	(0.4)

Finance costs - continuing operations		(7.4)	(6.0)
Interest income on loans and deferred consideration		1.1	-

Net Finance costs - continuing operations		(6.3)	(6.0)
Interest payable on leases		(1.5)	(0.1)
Net interest expense on defined benefit obligation	6	-	(0.1)
Unwinding of discount on provisions - trading	24	(0.1)	(0.1)

Net Finance costs - discontinued operations		(1.6)	(0.3)

Net Finance costs - continuing and discontinued operations		(7.9)	(6.3)

8.	Income tax expense

£m				2020			Restated*
					2019

Continuing operations	Adjusted	Adjusted	Total	Adjusted	Adjusted	Total
items	items

Current tax	3.4	(1.4)	2.0	6.6	(0.9)	5.7
Adjustment in respect of prior year	0.4	-	0.4	2.1	-	2.1

Total current tax charge	3.8	(1.4)	2.4	8.7	(0.9)	7.8
							48

Deferred tax - current year

Deferred tax - prior year

Deferred tax - impact of rate change

0.1	-	0.1	0.3	-	0.3
0.4	-	0.4	0.1	-	0.1
(0.1)	-	(0.1)	0.2	-	0.2

Total tax (credit)/charge -	4.2	(1.4)	2.8	9.3	(0.9)	8.4
continuing operations


Effective tax rate	15.1%		18.9%	24.7%		27.7%

Tax charge/(Credit) - discontinued	(0.2)	3.6	3.4	(5.5)	(9.0)	(14.5)
operations

Tax charge - continuing and	4.0	2.2	6.2	3.8	(9.9)	(6.1)
discontinued operations

The effective adjusted income tax rate for continuing operations in the year was 15.1% (2019: 24.7%). After the impact of

Adjusted items of £13.1m (2019: £7.3m), the effective statutory income tax rate for continuing operations was 18.9%

(2019: 27.7%).

Corporation tax is calculated at the main rates of UK corporation tax, those being 19.0% (2019: 19.0%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The impairment of DMD Goodwill in the current year creates a disallowable expense to continuing operations tax.

In the prior year discontinued operations the impairment of Tuffnells goodwill creates a disallowable expense; the prior impairment of acquired intangibles has resulted in the release of £4.5m deferred tax liability as a credit to adjusted items income tax. A deferred tax asset of £2.5m has been recognised which has credited adjusted items income tax as a result of the impairment of the other assets. See note 4 and 13 for details relating to the impairments.

The tax charge for the year can be reconciled to the loss in the income statement as follows:

£m	2020	Restated*
2019


Continuing Profit before tax	14.8	30.3

Tax on profit at the standard rate of UK corporation tax 19.0% (2019:	2.8	5.8
19.0%)

Expenses not deductible for tax purposes	(1.1)	0.1
Group relief (discontinued operations)	(1.8)	-
Adjustment in respect of prior years	0.8	2.2
Impact of change in UK tax rate	0.1	0.2
Impact of higher overseas tax rates	-	0.1

Tax (credit)/charge	2.8	8.4

Expenses not deductible for tax purposes are comprised mainly of the tax effect of the impairment of Goodwill in DMD. See note 4.

Tax charges to other comprehensive income and directly in equity

£m	2020	2019
Continuing operations


Current tax relating to the defined benefit pension scheme	-	(0.2)
Deferred tax relating to retirement benefit obligations	-	0.2
Deferred tax relating to share based payments	-	-

Tax charge/(credit) to other comprehensive income and directly in	-	-
equity - continuing operations


Tax charge to other comprehensive income and directly in equity -	0.5	0.7
discontinued operations


Tax charge/(credit) to other comprehensive income and directly in	0.5	0.7
equity - continuing and discontinued operations


		49

9. Dividends

Amounts paid and proposed as distributions to equity shareholders in the years:

	2020	2019	2020	2019
Paid & proposed dividends for the year	Per share	Per share	£m	£m

Interim dividend - paid	-	-	-	2.4
Final dividend - proposed	-	1.0	-	-

	-	-	-	2.4

Recognised dividends for the year

Final dividend - prior year	1.0	-	2.4	-
Interim dividend - current year	-	-	-	-

	1.0	-	2.4	-

There is no proposed final dividend per share for the 52 weeks ended 29 August 2020 (2019: 1.0p).

10.	Earnings per share

			2020			2019
		£m		Pence	£m		Pence
		Earnings	Weighted	per share	Earnings	Weighted	per share
			average			average
			number			number of
			of shares			shares
			million			million
Weighted average number of shares in issue		246.7			247.7
Shares held by the ESOP (weighted)		(2.2)			(1.3)

Basic earnings per share (EPS)

Continuing operations

Adjusted earnings attributable to ordinary	23.7	244.5	9.7	28.3	246.4	11.5
shareholders


Adjusted items	(11.7)			(6.4)

Earnings attributable to ordinary shareholders	12.0	244.5	4.9	21.9	246.4	9.0

Discontinued operations

Adjusted Losses attributable to ordinary shareholders

Adjusted items

Losses attributable to ordinary shareholders

Total - Continuing and discontinued operations

Adjusted earnings attributable to ordinary shareholders

Adjusted items

(13.1)	244.5	(5.3)	(8.9)	246.4	(3.5)
(5.6)			(44.5)
(18.7)	244.5	(7.7)	(53.4)	246.4	(21.7)

10.6	244.5	4.3	19.4	246.4	7.9
(17.3)			(50.9)

Earnings attributable to ordinary shareholders	(6.7)	244.5	(2.7)	(31.5)	246.4	(12.9)

Diluted earnings per share (EPS)

Effect of dilutive share options - continuing operations

Effect of dilutive share options - adjusting continuing

2.6	0.7
2.6	0.7

Effect of dilutive share options - discontinued	-	-

operations
Effect of dilutive share options - total		-			-
Continuing operations

Diluted adjusted EPS	23.7	247.2	9.6	28.3	247.1	11.5

Diluted EPS	12.0	247.2	4.9	(6.4)	247.1	9.0


Discontinued operations - Diluted EPS

Diluted adjusted EPS	(13.1)	244.5	(5.3)	(8.9)	247.1	(3.5)
Diluted EPS	(18.7)	244.5	(7.7)	(53.4)	247.1	(21.7)
Total - Continuing and discontinued
operations

Diluted adjusted EPS	10.6	247.2	4.3	19.4	247.1	7.9

Diluted EPS	(6.7)	244.5	(2.7)	(31.5)	246.4	(12.9)

Dilutive shares increase the basic number of shares at 29 August 2020 by 2.6m to 244.5m (31 August 2019: 246.4m).

The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 2.6m dilutive shares (31 August 2019: 0.7m).

Dilutive shares are only dilutive for the purposes of the Group's adjusted measure, where a profit is recognised. The application of the dilutive shares to the adjusted profits measure reduces the profit per share. Where the Group's statutory measures are loss making, the potential dilutive effect of employee incentive schemes is antidilutive, in that they would reduce the loss per share. Accordingly, they are not applied to the statutory calculation with basic and dilutive EPS being the same.

11. Discontinued Operations and assets held for sale

Discontinued operations - Tuffnells

On 6 November 2019, the Board announced a strategic review of Tuffnells in order to determine its longer term role and future within the Group.

The review involved evaluating a number of options in order to assess which would be most likely to maximise value for Shareholders including:

support the turnaround of the Tuffnells Group under the Group's ownership;
the potential for and consequences of closing the business; and
a possible disposal to a third party.

A competitive sales process was entered concurrently with continuing to support the turnaround. On 12 February 2020 the Group received several bids, the Board considered a number of these represented a good economic return for the business continued to pursue a sale.

On 28 of February 2020, the Board concluded that a sale of the business was the most appropriate strategy to maximise shareholder return committing to this strategy and concluded that the sale process was progressed enough to conclude that the business would be sold within the next year. The Board therefore concluded that the requirements of IFRS 5 to classify Tuffnells as held for sale and a discontinued operation had been met.

Subsequently on 14 April 2020, a share purchase agreement was signed with Palm Bidco Limited to sell Tuffnells subject to shareholder approval. At the Company's General Meeting held on 1 May 2020 shareholders approved the sale and completion concluded on 2 May 2020.

The key terms of the share purchase agreement are as follows:

Unsecured consideration payable by Palm Bidco Limited to the Group of £15.0m in cash, payable in three tranches as follows:

£6.5m on the date 18 months following Completion;
£4.25m on or prior to the date 27 months following Completion; and
£4.25m on or prior to the date 36 months following Completion.

The Group have discounted the consideration at 30% and recognised £7.1m on Completion.

Tuffnells being cash free debt free on Completion which represented the Group repaying the Tuffnells overdraft and writing off the intercompany loan at completion.

The Group agreed to make available a loan facility secured against selected properties. The total facility available was £10.5m and included a 10% coupon. The facility drawn on Completion was £6.5m; a further £1.0m a month was available to be drawn from 1 September 2020 up to the limit of £10.5m. After Completion no further funds were drawn from the

facility. On 1 October 2020, the full balance of the loan was repaid, included accrued interest. On the same day, the facility was cancelled and security the Group held over Tuffnells properties released.

The Group repaid £1.0m of lease creditors prior to Completion. Tuffnells were covered under a Group insurance policy as part of the disposal the decision was made that the Group would pay for any pre-existing motor and employment liability claims that Tuffnells incurred prior to disposal. These claims will be settled as they arise, on Completion the total liability was estimated at £1.8m. A balance of £1.6m remains at 29 August 2020.

The Group have recognised costs of disposal as incurred; the total costs of disposal were £3.6m.

Accounting impact

On 28 February Tuffnells was considered to be held for sale, at that date the fair value less cost to sell of Tuffnells was negative £14.1m based on the bids received. Included within this calculation were the discounted deferred consideration and the forecast future cash trading losses of Tuffnells.

The net liabilities of Tuffnells were £13.5m at 29 February 2020; when compared to the fair value less costs to sell, this indicated impairment and a charge of £0.6m was recognised against property plant and equipment.

On disposal a profit of £1.8m was recorded as a result of the non-cash losses generated between the half year and the 52 week period end.

As part of the disposal agreement with Tuffnells, Tuffnells were provided services under a transitional service agreement. Tuffnells notified the Group that it intended to terminate a number of services early within the transitional service agreement. A number of these services are provided under contract by third party suppliers. Where the Group is unable to co-terminate these contracts with its suppliers, it considers these onerous contracts. As a result, an onerous contract provision of £0.9m has been recognised at the lower of the cost of exiting contracts or the expected contractual outflows.

Tuffnells strategic review

The results of discontinued operations, have been included within the consolidated income statement, are as follows:

		2020			2019
£m

	Adjusted	Adjusted items	Total	Adjusted	Adjusted items	Total

Revenue	98.2	-	98.2	164.4	-	164.4
Cost of sales	(102.5)	-	(102.5)	(168.6)	(1.0)	(169.6)


Gross profit	(4.3)	-	(4.3)	(4.2)	(1.0)	(5.2)

Administrative expenses	(7.4)	(2.0)	(9.4)	(9.9)	(52.5)	(62.4)

Operating loss	(11.7)	(2.0)	(13.7)	(14.1)	(53.5)	(67.6)

Finance costs	(1.6)	-	(1.6)	(0.3)	0.0	(0.3)

Loss before tax	(13.3)	(2.0)	(15.3)	(14.4)	(53.5)	(67.9)
Income tax expense	0.2	(3.6)	(3.4)	5.5	9.0	14.5

Loss from discontinued operations	(13.1)	(5.6)	(18.7)	(8.9)	(44.5)	(53.4)

Assets held for sale

Tuffnells Properties held for sale

In January 2019 the Group took the decision to enter into a sale and leaseback arrangement for the Tuffnells freehold and long leasehold property portfolio and related assets with a net book value of £16.8m. These were reclassified as assets held for sale in January 2019 as they were considered to meet the definition.

During the year 8 of the properties were sold and leased back for a combined consideration £15.2m, with lease commitments of £1.0m per annum.

The total impact of this disposal was to recognise £1.5m gain on disposal.

An impairment review was performed on the remaining properties as the bids received indicated that the one property was held at cost in excess of its fair value less cost to sell. As a result of this review, an impairment of £1.9m was recognised on this property.

Following the strategic review and conclusion of Tuffnells being held for sale on 29 February 2020, the remaining properties were considered to form part of the Tuffnells disposal group and subsequently transferred from assets held for sale.

£m	2020	2019

Non-current assets held for sale	-	16.8

Jack's Beans

In January 2019, the Group sold the assets relating to the Jack's Beans division for consideration of £0.5m. The division was not considered to meet the definition of a discontinued operation given the size of the operation making up less than 1% of the Groups total revenue. The decision made to sell the division was made in August 2018, to enable the Group to focus on its core businesses, the bids received indicated an excess of net book value of £1.0m, therefore, the Group impaired the assets down to £0.5m in the financial year 2018 and moved them into non-current assets held for sale.

12	Disposal of subsidiaries
The Group disposed of the Tuffnells business on 2 May 2020.
The net assets of the business at the date of disposal were:
		2020
		£m
Intangible assets	0.2
Property, plant and equipment	12.0
Right of use assets	36.5
Inventories	0.6
Trade and other receivables	15.2
Cash and bank balances	-
Trade and other payables	(17.3)
Lease creditor	(41.6)
Retirement benefit creditor	(1.4)
Provisions	(2.6)

Net assets disposed	1.6
Deferred consideration	7.1
Net cash outflow arising from disposal of Tuffnells business	(3.7)
Net assets disposed	(1.6)

Profit on disposal	1.8
Net cash outflow arising on disposal
Cash disposal costs	(3.7)

Net cash outflow arising from disposal of Tuffnells business	(3.7)

*As part of the sale and purchase agreement a Group overdraft balance and a lease was settled which was intrinsically linked to the Tuffnells business.

13. Intangible assets

		Acquired Intangibles		Internally	Computer
					generated	software
£m	Goodwill	Customer	Trade	Software	Total
development	costs
		relationships	name
			costs

Cost:
At 1 September 2019	57.8	29.3	30.7	0.8	7.4	11.4	137.4
Additions	-	-	-	-	0.3	1.9	2.2
Disposal	-	-	-	-	(4.4)	(4.6)	(9.0)
Disposal of business	(52.1)	(26.9)	(30.5)	(0.8)	(0.4)	(1.2)	(111.9)

At 29 August 2020	5.7	2.4	0.2	-	2.9	7.5	18.7

Accumulated
amortisation:
At 1 September 2019	(52.1)	(29.3)	(30.7)	(0.8)	(6.0)	(8.4)	(127.3)
Amortisation charge	-	-	-	-	(0.4)	(1.6)	(2.0)
Disposals	-	-	-	-	4.2	4.6	8.8
Disposal of business	52.1	26.9	30.5	0.8	0.3	0.9	111.5
Impairment	(5.7)	-	-	-	-	-	(5.7)

At 29 August 2020	(5.7)	(2.4)	(0.2)	-	(1.9)	(4.5)	(14.7)

							54

Net book value at 29	-	-	-	-	1.0	3.0	4.0
August 2020

Cost:
At 1 September 2018	57.8	29.3	30.7	0.8	7.1	12.5	138.2
Additions	-	-	-	-	0.4	1.0	1.4
Disposals	-	-	-	-	(0.1)	(2.1)	(2.2)

At 31 August 2019	57.8	29.3	30.7	0.8	7.4	11.4	137.4

Accumulated
amortisation:
At 1 September 2018	(46.1)	(15.3)	(11.4)	(0.8)	(5.4)	(8.5)	(87.5)
Amortisation charge	-	(3.7)	(3.1)	-	(0.6)	(1.8)	(9.2)
Disposals	-	-	-	-	-	2.3	2.3
Impairment	(6.0)	(10.3)	(16.2)	-	-	(0.4)	(32.9)

At 31 August 2019	(52.1)	(29.3)	(30.7)	(0.8)	(6.0)	(8.4)	(127.3)

Net book value at 31	5.7	-	-	-	1.4	3.0	10.1
August 2019

The net book value of the Group's Goodwill and acquired intangibles split by CGU is included in the table below.

		Goodwill		Acquired Intangibles		Total

£m	2020	2019	On	2020	2019	On	2020	2019	On
acquisition	acquisition	acquisition

DMD	-	5.7	5.7	-	-	2.6	-	5.7	8.3
Smiths News	-	-	-	-	-	0.3	-	-	0.3
Tuffnells	-	-	52.1	-	-	58.1	-	-	110.2

	-	5.7	57.8	-	-	61.0	-	5.7	118.8

Impairment tests goodwill

Goodwill is not amortised, but tested annually for impairment or more frequently if there are indications that goodwill might be impaired with the recoverable amount being determined from value in use calculations. The recoverable amounts of the combined cash generating units are determined from the value in use calculations. The Group prepares cash flow forecasts derived from the most recent plan for the following as approved by the Board and extrapolates these cash flows on an estimated growth rate into perpetuity.

The rate used to discount the forecast cash flows is included in the table below, being the Group's weighted average cost of capital adjusted for industry and market risk.

DMD

The Covid-19 pandemic and the effects that had started to be seen on the airline industry were considered an impairment indicator and a full impairment review was performed in February 2020 on the Goodwill and other assets relating to this business unit.

The table below includes the key assumptions used to calculate the Group's cash generating unit value in use:

	DMD

	2020	2019

Average plan revenue growth	2.0%*	2.5%*1
Post tax discount rate	20.0%	10.5%

Pre-tax discount rate	37.8%	19.9%

Long term growth rate	0.0%	0.0%

*Return of 80% of the market followed by 2% growth *1Average growth of revenue relates to years FY2021-FY2023

In generating these budgets the Board has considered the overall strategy of the Group, the principal and emerging risks and uncertainties inherent within the business, as well as making a number of key strategic planning assumptions which are noted below:

No significant impact on trading as a result of the EU Exit or other political change;
Continued decline in sales of printed media during the assessment period offset by overhead efficiencies in the assessment period.
Return of the airline industry within 14 months of April 2020 (the start of the lockdown in the UK) and a return of contracts to 80% in the industries activity

Given the risks inherent within the plan and the recovery of the market a risk premium of 11.9% was applied to the Groups WACC of 8.1%.

Consistent with IAS 36, revenues in relation to enhancement of assets have not been included.

Sensitivity to changes in key assumptions

Impairment testing is dependent on management's estimates and judgements, particularly as they relate to the forecasting of future cash flows, the discount rates selected and expected long-term growth rates.

As goodwill is written down to £nil, any sensitivity is considered to not have a material impact on the financial statements.

DMD

The DMD CGU had a recoverable value of £0.2m, based on this Goodwill has been impaired to £nil resulting in an impairment charge of £5.7m.

Tuffnells

In the prior year the Group impaired the Goodwill and other intangibles down to £nil. This was based on the following assumptions:

	Tuffnells

	2019

Average plan revenue growth	2.2%

Post tax discount rate	11.5%

Pre-tax discount rate	20.0%

Long term growth rate	2.0%

The prior year losses of £14.1m in the Tuffnells business unit was a key indicator of impairment and impacted the future outlook, which negatively impacted the value in use of the Tuffnells CGU and resulted in the Group recording an impairment of £6.0m against the value of the goodwill as it is considered to have no recoverable basis.

14. Property, plant and equipment

£m		Land & Buildings

	Freehold	Long term	Short term	Fixtures &	Equipment &
	leasehold	leasehold	Total
	properties	fittings	vehicles
	improvements	improvements

Cost:
At 1 September 2019	0.2	0.3	13.4	4.5	35.7	54.1
Additions	0.4	-	0.2	0.9	3.3	4.8
Disposals	-		(0.4)	(0.4)	(2.1)	(2.9)
Transferred from held for sale	13.0	-	0.2	1.1	-	14.3
Disposal of business	(13.6)	(0.1)	(3.3)	(3.4)	(14.5)	(34.9)

At 29 August 2020	-	0.2	10.1	2.7	22.4	35.4

Accumulated depreciation:
At 1 September 2019	-	(0.3)	(11.1)	(4.1)	(27.7)	(43.2)
Depreciation charge	-	-	(0.5)	(0.2)	(2.3)	(3.0)
Transferred from held for sale	(1.7)	-	(0.1)	(0.8)	(0.9)	(3.5)
Disposals	0.3	-	0.3	0.4	2.3	3.3
Impairments	(2.5)	-	-	-	-	(2.5)
						56

Disposal of business	3.9	0.1	3.2	3.0	12.7	22.9

At 29 August 2020	-	(0.2)	(8.2)	(1.7)	(15.9)	(26.0)

Net book value at 29 August	-	-	1.9	1.0	6.5	9.4
2020

Cost:
At 1 September 2018	14.0	1.3	13.6	5.4	42.2	76.5
Additions	0.2	0.3	0.2	0.7	7.4	8.8
Disposals	-	-	(0.2)	(0.4)	(11.3)	(11.9)
Classified as held for sale	(14.0)	(1.3)	(0.2)	(1.2)	(2.6)	(19.3)

At 31 August 2019	0.2	0.3	13.4	4.5	35.7	54.1

Accumulated depreciation:
At 1 September 2018	(0.2)	(0.3)	(8.7)	(3.6)	(24.9)	(37.7)
Depreciation charge	-	(0.4)	(0.6)	(1.3)	(4.6)	(6.9)
Transfers between asset classes	-	0.3	(0.4)	0.6	(0.6)	(0.1)
Disposals	0.1	-	0.2	0.4	10.9	11.6
Impairments	(0.5)	-	(1.7)	(0.9)	(9.5)	(12.6)
Classified as held for sale	0.6	0.1	0.1	0.7	1.0	2.5

At 31 August 2019	-	(0.3)	(11.1)	(4.1)	(27.7)	(43.2)

Net book value at 31 August	0.2	-	2.3	0.4	8.0	10.9
2019

Tuffnells

In the current year an impairment charge of £1.9m was booked against the value of one of the Tuffnells properties see Note 4 for details. A further impairment charge of £0.6m was booked when the Tuffnells business unit was classified as held for sale as the value in use of the business was in excess of its value in use see note 11 for further details.

In the prior year, the value in use calculation performed for the Tuffnells business unit resulted in a value in use of negative £0.6m, therefore the assets relating to the this business unit were considered to be no longer supported, see note 13 for details of the assumptions used and reason for this decline in value.

Therefore as fair value less costs to sell was higher than value in use this was used. The property plant and equipment relating to the Tuffnells business unit was valued at £1.6m in the prior year therefore resulting in an impairment charge of £12.6m in the prior year.

15. Interests in joint ventures

£m	2020	2019

At 1 September	5.3	5.1
Share of profit	0.1	0.3
Impairments	(0.3)	-
Dividends received	(0.2)	(0.1)

At 29/31 August	4.9	5.3

The Joint venture listed below has share capital consisting solely of ordinary shares, which is held directly by the Group.

Nature of investments in Joint Ventures

Company name/	Share Class	Group %	Company name/	Share Class	Group %
(number)			(number)
Two Snowhill, Snow Hill, Birmingham, B4 6GA

Worldwide Magazine	Ordinary Shares	50%	FMD Limited	Ordinary A shares	50%
Distribution Limited 01206287			03729720

27 Kings Road, Berkhamsted, Hertfordshire, HP4 3BH

Fresh On The Go Limited	Ordinary Shares	30%
08775703
Estantia House, Pitreavie Drive,	Pitreavie Business	Park, Dunfermline, Fife KY11 8US

Bluebox Aviation Systems Ltd	Ordinary Shares	36.1%	Bluebox Systems Group	Ordinary A Shares	36.1%
SC267388			Limited SC544863
Inflight House, Hurricane Way,	Langley, SL3 8AG

Bluebox Avionics Limited	Ordinary Shares	36.1%
05684001
Silbury Court, 420 Silbury Boulevard, Milton Keynes MK9 2AF

Open-Projects Limited	Ordinary Shares	50%	Rascal Solutions Limited	Ordinary A Shares	50%
02422753			05191277

The Group interest in the ordinary shares of Rascal Solutions Limited, a company incorporated in England, which in turn owns 100% of the ordinary shares of Open-Projects Limited. The latest statutory accounts of Rascal Solutions Limited were drawn up to 29 August 2020. Rascal Solutions Limited provides retail support services and is a strategic partnership for the Group to provide additional services to its existing customers.

Bluebox Systems Group Limited, is the holding company of Bluebox Aviation Systems Ltd, which the principal activity is the sale of innovative in-flight entertainment systems, this business is a strategic partnership with DMD which also provides inflight media to the aviation industry.

Fresh On The Go Limited, this business provides retail with coffee other related products.

The Group investment in FMD Limited, is the holding company of Worldwide Magazine Distribution Limited, a company incorporated in England. The latest statutory accounts of FMD Limited were drawn up to 31 July 2019. Both FMD Limited and Worldwide Magazine Distribution Limited are currently in the process of liquidation.

All Joint ventures are private companies and there is no quoted market price available for their shares.

The Group has no commitments relating to its joint ventures

The Group's share of the results, assets and liabilities of joint ventures is as follows:

£m		2020			2019

	Rascal	Other		Rascal	Other
	solutions		Total	solutions		Total
	Limited			Limited
Revenue	6.9	4.3	11.2	9.1	2.4	11.5

Depreciation	1.4	0.1	1.5	0.8	-	0.8

Tax	0.1	-	0.1	0.3	0.9	1.2

Profit after tax	0.2	0.1	0.3	1.0	-	1.0



Non-current assets	3.1	-	3.1	2.8	0.9	3.7
Current assets	1.6	1.5	3.1	2.7	2.4	5.1
Cash	1.3	1.1	2.4	1.3	0.6	1.9

Total assets	6.0	2.6	8.6	6.8	3.9	10.7

Current liabilities	(2.2)	(0.9)	(3.1)	(2.8)	(1.1)	(3.9)
Non-current liabilities	-	(0.8)	(0.8)	-	(1.1)	(1.1)

Total liabilities	(2.2)	(1.7)	(3.9)	(2.8)	(2.2)	(5.0)

Net assets	3.8	0.9	4.7	4.0	1.7	5.7

Goodwill	2.9	-	2.9	2.9	-	2.9

Impairment	-	(0.3)	(0.3)	-	-	-


Share of net assets	4.9	-	4.9	5.0	0.3	5.3

Dividends of £0.2m (2019: £0.1m) were received in the 52 weeks to 29 August 2020 from joint ventures.

Bluebox Systems Group Limited

An impairment of £0.3m (2019: £nil) was charge against the value of the investment of Bluebox Aviation Limited see note 4 for further details.

Rascal Solutions Limited investment

During the year the results of Rascal Solutions Limited declined from a profit of £1.0m in 2019 to £0.2m in the current financial year, this was partly linked to the onset of Covid-19. As a result an impairment review has been performed.

A value in use of £5.9m has been calculated based on the future cashflows of the business and have been discounted at a rate of 15.0%. This leaves the business with £1.0m of headroom and no impairment has been booked.

The value in use assumes the profits will return to levels seen in 2019 based on new customer wins.

Sensitivities to assumptions

If profits continue at their current level the value in use has been calculated at £1.4m requiring an impairment of £3.3m. A delay in winning of new customers by one year would result in the value in use dropping to £5.5m with £0.6m of headroom.

16.	Inventories

£m		2020	2019

Goods held for resale	13.9	15.5
Raw materials and consumables	0.2	0.7

Inventories	14.1	16.2

17. Trade and other receivables

£m	2020	2019


Trade receivables	65.1	87.2
Provision for expected credit losses	(0.4)	(0.3)

	64.7	86.9
Other debtors	30.9	32.1
Prepayments	4.1	2.8
Accrued income	1.5	2.4

Trade and other receivables	101.2	124.2

Trade receivables

The average credit period taken on sale is 23 days (2019: 22 days). Trade receivables are generally non-interest bearing.

The following table provides information about the Group's exposure to credit risk and ECLs against customer balances as at 29 August 2020 under IFRS 9:

£m		2020			20191


	Gross	Loss	Net	Gross	Loss	Net
	carrying	allowance	carrying	carrying	allowance	carrying
Current (not overdue)	64.3	(0.1)	64.2	84.5	(0.1)	84.4
30-60 days overdue	0.4	-	0.4	2.0	(0.1)	1.9
61-90 days overdue	0.1	-	0.1	0.4	-	0.4
91-120 days overdue	-	-	-	-	-	-
Over 120 days overdue	0.3	(0.3)	-	0.3	(0.1)	0.2

65.1	(0.4)	64.7	87.2	(0.3)	86.9

The following table provides information about the Group's loss rates applied against customer balances as at 29 August

2020 under IFRS 9:

%	2020	2019


Current (not overdue)	0.1	0.1
30-60 days overdue	0.1	2.9
61-90 days overdue	4.0	6.1
91-120 days overdue	16.8	-
Over 120 days overdue	55.6	18.4

Of the trade receivables balance at the end of the year:

One customer (2019: one) had an individual balance that represented more than 10% of the total trade
receivables balance. The total of this was £11.7m (2019: £13.0m); and
A further five customers (2019: three) had individual balances that represented more than 5% of the total trade
receivables balance. The total of these was £22.7m (2019: £17.0m).

Movement in the allowance for doubtful debts:

£m	2020	2019

At 1 September	0.3	0.5
Impairment losses recognised	0.4	0.2
Amounts written off as uncollectible	(0.1)	(0.2)
Amounts recovered during the year	-	(0.2)
Amounts released during the year	-	-
Disposal of business	(0.2)	-

At 29/31 August	0.4	0.3

The directors consider that the carrying amount of trade and other receivables approximates their fair value which is considered to be a level 2 methodology of valuing them.

Default occurs when the debt becomes overdue by 90 days.

Other debtors and prepayments

The largest items included within this balance are £18.5m (2019: £20.2m) returns reserve asset and £10.7m (2019: £7.9m) of publisher debtors.

Non-Current - other receivables

£m	2020	2019

Deferred consideration	8.1	-
Loans receivable	6.5	-

	14.6	-

The deferred consideration is related to the sale of Tuffnells and is unsecured for more details see note 11.

The loan receivable was given as part of the deal to sell Tuffnells see note 11 for further information. Was secured and repaid in full on the 1 October 2020 after the year end.

18. Trade and other payables

£m	2020	2019

Trade payables	(97.3)	(114.4)
Other creditors	(34.1)	(47.0)
Accruals	(8.0)	(12.1)
Deferred income	(0.1)	(0.2)

	(139.5)	(173.7)

Included within other creditors is a balance of £21.4m (2019: £23.4m) relating to the returns reserve accrual.

Trade and other payables principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 26 days (2019: 31 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 using a level 2 valuation.

19. Cash and borrowings

Cash and borrowings by currency (Sterling equivalent) are as follows:

£m	Sterling	Euro	US Dollar	Other	Total	2019
2020

Cash and bank deposits	48.4	1.4	0.4	0.4	50.6	24.0

Overdrafts - included in cash and cash	-	-	-	-	-	(16.1)
equivalents


Net Cash and cash equivalents	48.4	1.4	0.4	0.4	50.6	7.9

Overdrafts - included in borrowings	(41.3)	-	-	-	(41.3)	-
Revolving credit facility - disclosed within	(39.0)	-	-	-	(39.0)	(30.0)
current liabilities

Term loan - disclosed within current	(49.8)	-	-	-	(49.8)	-
liabilities

Term loan - disclosed within non-current	-	-	-	-	-	(49.3)
liabilities


Total borrowings	(130.1)	-	-	-	(130.1)	(95.4)

Net borrowings	(81.7)	1.4	0.4	0.4	(79.5)	(71.4)

Total borrowings

Amount due for settlement within 12	(130.1)	-	-	-	(130.1)	(46.1)
months

Amount due for settlement after 12	-	-	-	-	-	(49.3)
months

	(130.1)	-	-	-	(130.1)	(95.4)

Cash and bank deposits 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.

In October 2017, the Group entered into banking facilities of £175.0m with six relationship banks with a term which runs until January 2021. The Group has refinanced post year end, for more details see note 32. The facility comprises of a term loan of £50.0m with no amortisation and a revolving credit facility (RCF) for £125.0m (see note 20). The £130.1m due for settlement within 12 months relates to the term loan RCF and overdraft.

Available Group bank facilities are outlined in note 20. Interest payable under the facility in place at 29 August 2020 is calculated as the cost of one month LIBOR plus an interest margin of between 1.35% and 2.35% dependent on the net debt/ adjusted EBITDA covenant ratio. The weighted average interest rate for the year was 5.8% (2019: 5.5%).

Post year end the Group refinanced see further details in note 32 post balance sheet events.

Reconciliation of liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non- cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

	£m	Note	01/09/2019	Financing	New	Disposals	Other	29/08/2020
	cash flows	leases	changes


	Term Loan	19	49.3	-	-	-	0.5	49.8
	Revolving	19	30.0	9.0	-	-	-	39.0
	credit facility

	Overdrafts	19	-	41.3	-	-	-	41.3
	Leases		2.5	(15.6)	82.6	(41.6)	5.5	33.4

	Total		81.8	34.7	82.6	(41.6)	6.0	163.5


					Financing	New	Other
£m		Note	01/09/2018	cash	finance	31/08/2019
	changes
					flows	leases


Term Loan		19	48.8	-	-	0.5	49.3
Revolving credit facility	19	38.0	(8.0)	-	-	30.0
Finance leases			5.3	(2.8)	-	-	2.5

Total			92.1	(10.8)	-	0.5	81.8

	Other changes include interest accruals, payments.
	Analysis of net debt

	£m				Note		2020	2019

	Cash and cash equivalents			19		50.6	7.9
	Current borrowings			19		(130.1)	(30.0)
	Non-current borrowings			19		-	(49.3)

	Net borrowings						(79.5)	(71.4)
	Lease liabilities				21		(33.4)	(2.5)

	Net debt						(112.9)	(73.9)

The movement in net debt in the period includes £0.5m loan fee amortisation.

Cash and cash equivalents includes cash of £50.6m (2019: £24.0m) offset by £nil (2019: £16.1m) of overdrafts, this is due to the way the Group utilises its cash pooling, the cash and cash equivalents after deducting overdrafts was £9.3m (2019: £7.9m).

20. Financial instruments

Treasury policy

The Group operates a centralised treasury function to manage the Group's funding requirements and financial risks in line with the Board approved treasury policies and procedures and their delegated authorities. Treasury's role is to ensure that appropriate financing is available for running the businesses of the Group on a day to day basis, whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern 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, cash and cash equivalents as disclosed in note 19 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 only externally imposed capital requirements for the Group are debt to EBITDA, fixed charge cover and interest cover under the terms of the bank facilities, which remain under the new banking facilities which were entered into post year end. The Group has fully complied during both the current year and the prior year. To maintain or adjust its capital structure, the Group may adjust the dividend payment to shareholders and/or issue new shares. There is a future cap on dividends of £4.0m in 2021 and £6.0m in 2022 under the new banking facility, this is also subject to all the covenants.

The Board regularly reviews the capital structure. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The Group intends to take a more prudent and disciplined approach to capital management. We expect free cash from operations to be sufficient to reduce net debt while also maintaining an attractive total shareholder return. The Group is targeting a reduced net debt/EBITDA ratio of 1 x by 2023, with repayment achieved through surplus free cash from operations. The Group's facilities include a frozen GAAP clause and the net/EBITDA is stated on this basis.

Liquidity risk

The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows. The facilities that the Group has at its disposal to further reduced liquidity risk are described below.

As at 29 August 2020, the Group had £175.0m committed bank facilities in place (2019: £175.0m). Bank facilities comprised:

a £50.0m syndicated term loan; and
a £125.0m syndicated revolving credit facility,

Which together expire in January 2021.

The facility described above is subject to the following covenants which are subject to a frozen GAAP clause:

Leverage cover - the net debt: adjusted EBITDA ratio which must remain below 2.75x. At 29 August 2020 the
ratio was 2.0x (2019: 1.9x);
Interest cover - the consolidated net interest: adjusted EBITDA ratio which must remain above 4.0x. As at 29
August 2020 the ratio was 10.1x (2019: 7.2x);
Fixed charge cover - the ratio of adjusted EBITDA to consolidated fixed charges is not less than 1.75x to 1. As at 29 August 2020 the ratio was 4.0x (2019: 2.1x); and
Guarantor cover - The annual turnover, gross assets and pre-tax profits of the Guarantors contribute at any time 80 per cent or more of the annual consolidated turnover, gross assets and pre-tax profits of the Group for each of its financial years. The guarantors, which are all 100% owned or wholly owned subsidiaries of the Smiths News Plc (formerly Connect Group PLC), are each of Smiths News Plc, Smiths News Holdings Limited, and Smiths News Trading Limited.

At 29 August 2020, the Group had available £86.0m (2019: £95.0m) of undrawn committed borrowing facilities. There were no breaches of loan agreements during either the current or prior years.

The bank facility was refinanced on 6 November 2020 which replaces the existing facility of £175.0m with a new facility of £120.0m to November 2023 for more information see Note 32.

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 at Smiths News that results in significant predictable swings within each month of around £40.0m, the Groups average gross borrowings for the past year was £105.0m (2019: £112.0m). The Group has utilised the Revolving Credit Facility of £125.0m for this.

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 within 1	Due between 1	Due between 2	Greater than 3
Year	and 2 years	and 3 years	years

At 29 August 2020
Non derivative financial
liabilities
Bank and other borrowings	(130.8)	-	-	-
Trade and other payables	(109.5)	-	-	-
Leases	(7.3)	(7.1)	(6.5)	(18.3)

Total	(247.6)	(7.1)	(6.5)	(18.3)

At 31 August 2019
Non derivative financial
liabilities
Bank and other borrowings	(38.0)	(50.0)	-	-
Trade and other payables	(135.9)	-	-	-
Leases1	(2.2)	(0.3)	-	-
Total	(176.1)	(50.3)	-	-

				63

Counterparty risk

Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored.

Foreign currency risk

The majority of the Group's transactions are carried out in the functional currencies of its operations, and so transactional exposure is limited.
The majority of the Group's net liabilities are held in Sterling, with only £0.7m (2019: £3.2m) of net assets held in overseas currencies. Translation exposure arises on the re-translation of overseas subsidiaries profits and net assets into sterling for financial reporting purposes and is not seen as significant.
Note 19 denote borrowings by currency.
There are no material currency exposures to disclose.

Interest rate risk

The Group monitors its exposure to interest rate in light of the Group's debt exposure, consideration of the macroeconomic environment and sensitivity to potential interest rate rises. 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.

Interest rate sensitivity analysis

Based on the assumption that the liabilities outstanding at the balance sheet date were 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 52 weeks ending 29 August 2020 would decrease/increase by £0.5m (2019: £0.5m).

Credit risk

The Group considers its exposure to credit risk at 29 August 2020 to be as follows:

£m	2020	2019

Bank deposits	50.6	24.0
Deferred consideration	8.1	-
Loans receivable	6.5	-
Trade and other receivables	100.7	124.2

	165.9	148.2

Further detail on the Group's policy relating to trade receivables and other receivables can be found in note 17.

21. Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to leases:
£m	Equipment &	Land &	Total
vehicles	buildings


Cost:
At 31 August 2019	-	-	-
Transition adjustment	21.9	51.9	73.8

Additions	0.6	8.2	8.8

Disposals	-	(2.5)	(2.5)

Disposal of business	(20.7)	(20.7)	(41.4)

At 29 August 2020	1.8	36.9	38.7

Accumulated depreciation:
At 31 August 2019	-	-	-

Depreciation charge	(4.1)	(6.9)	(11.0)

Disposals	-	0.1	0.1

Disposal of business	3.7	1.3	5.0

At 29 August 2020	(0.4)	(5.5)	(5.9)

Net book value at 29 February 2020	1.4	31.4	32.8

Amounts recognised in the income statement
£m		2020	2019

Continuing operations

Interest expense (included in finance cost)		1.7	-
Expense relating to short-term and low value leases (included in cost		1.2	-
of sales and administrative expenses)

Property rental income		0.2	0.2
Total cash outflow from leases		9.7	10.0
Discontinued operations

Interest expense (included in finance cost)		1.5	-
Expense relating to short-term and low value leases (included in cost		2.3	-
of sales and administrative expenses)

Total cash outflow from leases		12.6	18.5
Gain on sale and leaseback		1.5	-

The Group has applied IFRS 16 using the cumulative catch up approach as a result the expense relating to short term and low value did not exist in the prior year, IFRS 16 which is wider in scope see Note 36 for details.

£m	2020	2019

Lease Liabilities
Current	(5.8)	(2.2)
Non-current	(27.6)	(0.3)

Total	(33.4)	(2.5)

In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17 Leases. The assets were presented in property, plant and equipment and the liabilities as part of the Group's borrowings. For adjustments recognised on adoption of IFRS 16 on 1 September 2019, please refer to note 36.

22. Other non-current liabilities

£m	2020	2019

Other creditors	-	(1.2)

The balance disclosed as other creditors within non-current liabilities relates to operating lease incentives which are being recognised over the lease term these were only applicable under IAS 17.

23. Deferred tax

Deferred tax assets and liabilities are attributable to the following:

	Accelerated		Share	Intangible	Retirement
£m	tax	Other	based	Total
assets	benefits
	depreciation		payments

At 1 September 2019	4.6	-	0.1	-	0.5	5.2
Charge to income	(3.9)	-	-	-	-	(3.9)
Charge to other comprehensive	-	-	-	-	(0.5)	(0.5)
income and directly in equity


At 29 August 2020	0.7	-	0.1	-	-	0.8


Deferred tax assets						0.8

Deferred tax liabilities						-


At 1 September 2018	1.9	0.2	-	(5.9)	1.3	(2.5)
Charge to income	2.7	(0.2)	-	5.9	-	8.4
Charge to other comprehensive	-	-	0.1	-	(0.8)	(0.7)
income and directly in equity


At 31 August 2019	4.6	-	0.1	-	0.5	5.2


Deferred tax assets	4.6	-	0.1	-	0.5	5.2

Deferred tax liabilities	-	-	-	-	-	-

The deferred tax assets have been deemed recoverable as the Group forecasts that it will continue to make profits against which the assets can be utilised.

The Group has capital losses carried forward of £23.9m (2019: £28.2m). The Group has utilised £4.3m of taxable losses against the taxable gain created from the sale and leaseback of the Tuffnells properties. Deferred tax assets have not been recognised in respect of the capital losses carried forward due to the uncertainty of their utilisation.

The tax rate was due to reduce from 19% to 17% from 1 April 2020, following changes substantively enacted on 6 September 2016. However the proposed reduction in corporation tax rate was removed in the Budget in March 2020 and the 19% tax rate was substantively enacted on 17 March 2020.

The deferred tax asset at the year-end has been calculated based on the rate of 19% substantively enacted at the balance sheet date.

24.	Provisions

		Provision for	Re-organisation	Insurance	Property
£m		onerous	and legal	Total
	provisions	provisions
		contracts	provision

At 1 September 2019	-	(3.6)	(2.3)	(5.4)	(11.3)
Charged to income statement	(0.9)	(2.2)	(1.3)	(0.9)	(5.3)
Credited to income statement	-	1.3	1.0	-	2.3
Utilised in period	-	1.5	0.8	0.6	2.9
Unwinding of discount utilisation	-	-	-	(0.5)	(0.5)
						66

Disposal of business	-	0.3	-	2.3	2.6

At 29 August 2020	(0.9)	(2.7)	(1.8)	(3.9)	(9.3)

£m				2020	2019
Included within current liabilities				(6.8)	(7.3)
Included within non-current liabilities				(2.5)	(4.0)

Total				(9.3)	(11.3)

Included within non-current liabilities is £2.5m (2019: £4.0m) relating to Property provisions.

Re-organisation provisions of £2.5m relates to the restructuring of Instore, DMD, the Smiths News network and the Groups support functions, this was all announced prior to the year end. In the prior year redundancy costs had been accrued as part of the Group's strategy to offshore its shared service centres, the transition had been announced prior to the year end and the £1.5m has been utilised during the financial year (see note 4 for further information).

Insurance & legal provisions represent the expected future costs of employer's liability, public liability, motor accident claims and legal claims, included within the total balance is £1.6m relating to claims from the Tuffnells business prior to disposal.

The property provision represents the estimated future cost of the Group's onerous leases on non-trading properties and for potential dilapidation costs across the Group. These provisions have been discounted at a risk adjusted rate and this discount will be unwound over the life of the leases. The provisions cover the period to 2036, however, a significant portion of the potential liability falls within five years.

25. Contingent liabilities and capital commitments

£m	2020	2019

Bank and other loans guaranteed	7.1	7.8

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 from WH Smith PLC, any such contingent liability in respect of assignment prior to demerger, 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 29 August 2020 of £0.6m (2019: £0.8m).

Contracts placed for future capital expenditure approved by the directors but not provided for amount to: £nil (2019: £2.3m).

As at 29 August 2020, the Group have an approved letter of credit of £7.1m to the insurers of the Group for the motor insurance and employer liability insurance policy. The letter of credit covers the employer deductible element of the insurance policy for insurance claims. On 25 September 2020, the Group were notified that the letters of credit reduced by £2.1m to £5.0m.

26. Operating lease

The Group as lessor:

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

£m	2020	2019

Within one year	0.2	0.2
In the second to fifth years inclusive	0.4	0.7
More than five years	0.1	0.2

	0.7	1.1

27. Net cash inflow from operating activities

£m	Note	2020	2019

Operating (loss)/profit - continuing	3	21.1	36.3
			67

Operating (loss)/profit - discontinued	3	(13.7)	(67.6)

Operating (loss)/profit - total		7.4	(31.3)
(Profit)/Losses on disposal of assets		(1.4)	0.2
Impairment of Goodwill	4	5.7	-
Impairment of investments		0.3	-
Share of profits of joint ventures	15	0.1	(0.4)
Profit on disposal of subsidiary	12	(1.8)	-
Adjustment for pension funding	6	(0.8)	(1.2)
Depreciation of property, plant and equipment	14	3.0	6.9
Depreciation of right of use assets	21	11.0
Amortisation of intangible assets	4	2.0	9.2
Impairment of Tuffnells assets	4	2.5	45.5
Share based payments		0.4	0.2
(Increase)/decrease in inventories		2.2	(2.8)
Decrease in receivables		23.0	5.3
Decrease in payables		(31.3)	(2.9)
Increase/(decrease) in provisions		0.8	(3.5)
Non cash pension costs		0.3	0.4
Income tax paid		-	(2.6)

Net cash inflow from operating activities		23.4	23.0


Net cash flow from operating activities is stated after the
following adjusted items:

Continuing operations
Re-organisation & restructuring costs		(6.4)	(2.2)
PMP exit costs		-	(0.8)
Pension		(0.9)	(2.0)
Other		-	-
IPR settlement		-	0.5

		(7.3)	(4.5)
Discontinued operations
Re-organisation & restructuring costs		(1.3)	(1.8)
Strategic review		(0.5)	-
Sale and leaseback		14.3	-
Brierley Hill settlement		-	(1.7)
NMW settlement		-	(0.3)

		12.5	(3.8)

Total adjusting items cash flow		5.2	(8.3)

28. Share Capital

Share capital

£m	2020	2019

Issued, authorised and fully paid:
At 1 September	12.4	12.4
		68

Shares issued during the year

247.7m ordinary shares of 5p each (2019: 247.7m)

Movement in share capital

Number (m)

31 August 2019

Shares issued during the year

At 29 August 2020

12.4 12.4

Ordinary shares of 5p each

247.7

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 general meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.

No shares were issued during the 52 weeks to 29 August 2020 or the year to 31 August 2019.

Share premium

£m	2020	2019

Balance at 1 September	60.5	60.5
Premium arising on issue of equity shares	-	-

Balance at 29/31 August	60.5	60.5

29. Reserves

Demerger reserve

£m	2020	2019

At 1 September	(280.1)	(280.1)

At 29/31 August	(280.1)	(280.1)

This relates to reserves created following the capital re-organisation undertaken as part of the demerger of WH Smith PLC in 2006. The balance represented the difference between the share capital and reserves of the Group restated on a pro-forma basis as at 31 August 2004 and the previously reported share capital.

Own shares reserve

£m	2020	2019

Balance at 1 September	(1.7)	(2.1)
Acquired in the period	(0.7)	-
Disposed of on exercise of options	0.6	0.4

Balance at 29/31 August	(1.8)	(1.7)

The reserve represents the cost of shares in Smiths News PLC purchased in the market and held by the Smiths News Employee Benefit Trust to satisfy awards and options granted under the Group's Executive Share Schemes (see note 31). The number of ordinary shares held by the Trust as at 29 August 2020 was 2,630,591 (2019: 1,188,537). In accordance with IAS 32, these shares are deducted from shareholders' funds. Under the terms of the Trust, the Trustee has waived all dividends on the shares it holds.

(c)	Translation reserve

£m		2020	2019

Balance at 1 September	0.3	0.2
Exchange differences on translating net assets of foreign operations	0.1	0.1

Balance at 29/31 August	0.4	0.3

30.	Retained Earnings

		£m

Balance at 31 August 2018	163.2
Amounts recognised in Total comprehensive income	(28.6)
Dividends paid	-
Employee share schemes	(0.4)
Equity-settled share based payments, net of tax	0.1

Balance at 31 August 2019	134.3

IFRS 16 Adjustment1	1.4
Restated balance at 31 August 2019	135.7
Amounts recognised in Total comprehensive expense	(6.1)
Dividends paid	(2.4)
Disposed of on exercise of options	(0.6)
Equity-settled share based payments, net of tax	0.4

Balance at 29 August 2020	127.0

31. Share-based payments

In 2020, the Group recognised a total charge of £0.4m related to equity-settledshare-based payment transactions. In 2019 there was a total charge of £0.4m. The average share price throughout the year was 26.2p (2019: 37.4p).

The Group operates the following share incentive schemes:

Sharesave Scheme		Under the terms of the Smiths News Group Sharesave Scheme, the
		Board may grant options to purchase ordinary shares in the Company to
		eligible employees who enter into an HM Revenue & Customs approved
		Save-As-You-Earn ('SAYE') savings contract for a term of three 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.

Executive Share Option Scheme		Under the terms of the Smiths News Group Executive Share Option
(ESOS)		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 adjusted profit
		after a three year period, which is determined by the Remuneration
		Committee at the time of grant. Provided that the target is met, options are
		normally exercisable until the day preceding the 10th anniversary of the
		date of grant.

LTIP		Under the terms of the Smiths News Group LTIP, executive directors and
		key senior executives may be awarded each year conditional entitlements
		to ordinary shares in the Company (which may be in the form of nil cost
		options or conditional awards) 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 three year performance condition, which is
		determined by the Remuneration Committee at the time of grant. Subject
		to the satisfaction of the performance condition, awards are normally
		exercisable until the 10th anniversary of the date of grant.

Deferred Bonus Plan (DBP)		Under the terms of the Smiths News Group 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. Awards are
		normally exercisable after two years subject to continued employment.

	70

Details of the options/awards are as follows:

	Sharesave	ESOS	LTIP		DBP
		Weighted		Weighted		Weighted		Weighted
Number of	No of	average	No of	average	No of	average	No of	average
options/ awards	shares	exercise	shares	exercise	shares	exercise	shares	exercise
		price (p)		price (p)		price (p)		price
At 31 Aug 2018	3,922,245	60.4	6,629,519	136.3	3,104,757	-	479,854	-
Granted	3,104,452	30.40	-	-	8,561,924	-	416,378	-

Exercised	-	-	-	-	-	-	(158,785)	-
Expired /Forfeited	(1,908,532)	79.40	(2,290,577)	154.5	(1,786,330)	-	(92,297)	-

At 31 Aug 2019	5,118,165	45.42	4,338,942	126.7	9,880,351	-	645,150	-
Granted	6,108,793	30.4	-	-	4,970,279	-	1,716,731	-

Exercised	-		-	-	-	-	(480,892)	-

Expired /Forfeited	(2,974,071)	45.8	(2,553,109)	126.7	(3,883,596)	-	(416,378)	-
At 29 Aug 2020	8,252,887	34.2	1,785,833	126.7	10,967,034	-	1,464,611	-


Exercisable at 29	642,804	36.11	1,785,833	126.7	-	-	-	-
Aug 2020


Exercisable at 31	16,312	110.3	4,338,942	126.7	-	-	-	-
Aug 2019

The weighted average remaining contractual life in years of options/awards is as follows:

	Sharesave	ESOS	LTIP	DBP

Outstanding at 29 August 2020	2.5	5.8	1.9	2.0
Outstanding at 31 August 2019	2.5	6.8	1.9	1.3

Details of the options/awards granted or commencing during the current and comparative year are as follows:

	Sharesave	ESOS	LTIP	DBP

During 2020:
Effective date of grant or commencement date	Jun 2021	-	Dec 2020	Dec 2020
Average fair value at date of grant or scheme	5.5	-	24.0	24.0
commencement - pence


During 2019:
Effective date of grant or commencement date	Jun 2020	-	Dec 2019
May 2020

Average fair value at date of grant or scheme	8.0	-	36.5
commencement - pence

The options outstanding at 29 August 2020 had exercise prices ranging from nil to 189.5p (2019: nil to 189.5p).

The weighted average share price on the date of exercise was 37p (2019: 108p).

The Sharesave options granted during each period have been valued using the Black-Scholes model, the LTIP performance measures include 50% total shareholder return (TSR) metric this is valued by reference to the share price at date of grant less an adjustment for the TSR portion of the award. The DBP schemes are valued by reference to the share price at the date of grant.

The inputs to the Black-Scholes model are as follows:

Sharesave

LTIP

DBP

2020 options/awards:

Share price at grant date - pence	18.0	30.0		30.0
TSR adjustment - pence	-	(6.0)		-
Exercise price - pence	14.0	-		-
Expected volatility - per cent	97.0	-		-
Expected life - years	3.0	-		-
Risk free rate - per cent	(0.1)	-		-
Expected dividend yield - per cent	10.0	-		-
Weighted average fair value - pence	5.5	24.0		-


2019 options/awards:	Jun 19	May 19	Dec 18	Dec 18
Share price at grant date - pence	38.0	37.4	36.25	36.25
Exercise price - pence	30.4	-	-	-
Expected volatility - per cent	39%	-	-	-
Expected life - years	3.0	-	-	-
Risk free rate - per cent	0.4%	-	-	-
Expected dividend yield - per cent	2.6%	-	-	-
Weighted average fair value - pence	8.0	37.4	36.25	36.25

32. Post balance sheet events

Tuffnells working capital loan

On its disposal of Tuffnells in May 2020, the Group made available a temporary working capital loan of up to £10.5m to the purchaser, of which £6.5m was drawn down. The purchaser has recently informed the Company of their successful refinancing and has repaid the amount plus interest in full. As a result, the remaining part of the loan has been cancelled and we have released the security held over the 7 Tuffnells properties in England. The funds received have been used to repay existing debt.

Letters of credit

The Group have approved letter of credit to the insurers of the Group for the motor insurance and employer liability insurance policy. The letter of credit covers the employer deductible element of the insurance policy for insurance claims. After the year end the Group were notified that the letters of credit reduced by £2.1m to £5.0m.

Refinancing

A new three-year £120 million facility was agreed in November 2020, comprising a £45m amortising term loan (Facility A), a £35m bullet repayment term loan (Facility B) and a £40 million multicurrency revolving credit facility (RCF). The agreement is with a syndicate of banks comprising existing lenders HSBC, Barclays, Santander, AIB and Clydesdale and one new lender, Shawbrook Bank.

Consistent with the Company's stated strategic priorities to reduce net debt, the terms of the new facility agreement include: an amortisation schedule of £15m per annum for the repayment of Facility A; agreed repayments against Facility B arising from funds received in relation to both deferred consideration received following the sale of Tuffnells and any cash surplus arising from the proposed move to buy-out of the Company's defined benefit pension scheme; and an absolute preclusion of payments of dividends in respect of FY2020 and capped dividend payments thereafter for FY2021 (up to £4m) and FY2022 onwards (up to £6m per year).

As part of the terms of the refinancing, the Company and its principal trading subsidiaries have agreed to provide security over their assets to the lenders.

The refinancing replaces the Company's existing facility agreement (which comprises a term loan facility of £50 million and a multicurrency revolving loan facility of £125 million) which was due to mature on 31 January 2021. The final maturity date of the new facility is 6 November 2023.

33. Related party transactions

Transactions between businesses within the Group which are related parties have been eliminated on consolidation and are not disclosed in this note.

Transactions with the Group's pension schemes are disclosed in note 6.

Trading transactions

	Sales to related parties	Amounts owed by related parties

£m	2020	2019	2020	2019

Joint ventures	0.4	2.6	0.2	0.5

Sales to related parties are for management fees, payment is due on the last day of the month following the date of invoice.

Non-trading transactions

Loans to related parties

£m	2020	2019

Joint ventures	0.4	0.6

The balance above is secured against the assets of Fresh on the Go Limited.
Directors' remuneration

£m	2020	2019

Salaries	0.9	1.0
Bonus	0.1	-
Non-executive director fees	0.5	0.3
Post-employment benefits	-	0.1
Termination benefits	0.4	0.6

	1.9	2.0

Information concerning directors' remuneration, interest in shares and share options are included in the Directors' Remuneration report in the Annual Report. Jos Opdeweegh and Mark Cashmore, the Group's former Chief Executive Officer's continued to receive their basic salary, Mark Cashmore also received benefits and pension. These were subject to offset against earnings received elsewhere from any other executive role, until 31 October 2020 for Jos Opdweweegh and 30 June 2019 for Mark Cashmore. This totalled £0.4m for Jos Opdweweegh and for Mark Cashmore totalled £nil (2019: £0.6m).

There are 2 directors to whom retirement benefits are accruing in respect of qualifying services under money purchase schemes.

Directors made gains on share options of £0.1m (2019: £0.1m).

Key management personnel (including directors)

The remuneration of the directors and the Executive Team, who are the key management personnel of the continuing Group, is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures.'

£m	2020	2019

Short-term employee benefits	2.5	2.9
Post-employment benefits	-	-
Termination benefits	0.6	0.3
Share based payments	0.2	0.2

	3.3	3.4

34. Subsidiary and associated undertakings

Company name/	Share Class	Group %	Company name/	Share Class	Group %
(number)			(number)
United Kingdom

Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH

Connect Limited	Ordinary Shares	100%	Martin-Lavell Limited	Ordinary Shares	100%
02008952			02654521 (*)
Connect Logistics Limited	Ordinary Shares	100%	Pass My Parcel Limited	Ordinary Shares	100%
09172965			09172022
Connect News & Media Limited	Ordinary Shares	100%	Phantom Media Limited	Ordinary Shares	100%
08572634			03805661 (*)
Connect Parcel Freight Limited	Ordinary Shares	100%	Smiths News Holdings Limited	Ordinary Shares	100%
09295023			04236079
Connect Parcels Limited	Ordinary Shares	100%	Smiths News Instore Limited	Ordinary Shares	100%
09172850			03364589
Connect Services Limited	Ordinary Shares	100%	Smiths News Investments	Ordinary Shares	100%
08522170			Limited(*)
			06831284
Connect Specialist Distribution	Ordinary Shares	100%	Smiths News Limited	Ordinary Shares	100%
Group Limited			08506961
08458801
Connect2U Limited	Ordinary Shares	100%	Smiths News Trading Limited	Ordinary Shares	100%
03920619			00237811
Dawson Media Services Limited	Ordinary Shares	100%	Dawson Limited	Ordinary Shares	100%
06882722			03433262
Dawson Guarantee Company	Ordinary Shares	100%	Dawson Media Direct Limited	Ordinary Shares	100%
Limited 06882393			06882366
Dawson Holdings Ltd (*)	Ordinary Shares	100%
00034273
France

Dawson Media Direct SAS	Ordinary Shares	100%	11 rue Léopold Bellan, 75000 Paris, France
450 101 340 RCS Bobigny
Spain

Dawson Media Direct Iberica SL	Ordinary Shares	100%	Avendida de la Industria 38, Nave C-17, 28223 Coslada, Spain
CIF-B84692904
Germany

Dawson Media Direct GmbH	Ordinary Shares	100%	Auf der Roos 6-12, 65795 Hattersheim am Main, Germany
HRB 99445
Belgium

Dawson Media Direct NV	Ordinary Shares	99%	Brixtonlaan 1E, 1930 Nossengem, Belgium
474.114323
Turkey

Dawson Media Direct Anonim	Ordinary Shares	100%	Parima Plaza Maltepe Mahallesi Eski Cirpici Yolu Sok No:8 K:14-
Sirketi			176 Merter-Zeytinburnu Istanbul Turkey
14449-5
Australia

Dawson Media Direct Australia	Ordinary Shares	100%	C/O Grant Thornton Australia Level 17, 383 Kent Street, Sydney
Pty Limited			NSW 2000, Australia
615545545
Hong Kong

Dawson Media Direct China	Ordinary Shares	100%	Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai,
Limited			Hong Kong
1167911
Thailand

Dawson Media Direct Co. Ltd	Ordinary Shares	48.9%	87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road,
105558138385			Lumpini Sub-District, Pathumwan District, Bangkok, Thailand
United Arab Emirates

DMD Holdings Limited (JAFZA)	Ordinary Shares	100%	PO Box 7992, Dubai, United Arab Emirates
OF3596
United States

Dawson Media Direct Holdings	Common Stock	100%	Corporation Trust Centre, 1209 Orange Street, Wilmington IL
Inc			DE19801, United States
4056281
Dawson Media Direct Inc	Common Stock	100%	40 Wall Street, 28th Floor, New York, NY 10005, USA
4056283

* Audit exemption statement

For the 52 weeks ended 29 August 2020, the companies as indicated in the table by '(*)' above were entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. As such, Smiths News Plc (formerly Connect Group PLC) has provided a guarantee against all debts and liabilities in these subsidiaries as at 29 August 2020. The members of these companies have not required them to obtain an audit of their financial statements for the 52 weeks ended 29 August 2020.

35. Reconciliation of Free cash flow to net movement in cash and cash equivalents

A reconciliation between free cash flow and the net increase/ (decrease) in cash and cash equivalents are shown below:

£m	2020	2019
Net (decrease) /increase in cash & cash equivalents	42.7	(0.8)
Increase in borrowings and overdrafts	(50.8)	8.0

Movement in borrowings and cash	(8.1)	7.2
Dividend paid	2.4	-
Tuffnells disposal costs	3.7	-
Adjustment for pension funding	0.8	1.2
Working capital loan to Tuffnells	6.5
Outflow for EBT shares	0.7	-
Dividends received	-	(0.1)

Total Free cash flow	6.0	8.3

Discontinued free cash outflow	(4.9)	(24.9)

Continuing free cash flow	10.9	33.2

36. Adoption of new accounting standards

IFRS 16 'Leases'

Requires a right-of-use asset and lease liability to be recognised in respect of all leases other than those that are less than one year in duration or of a low value. The effect of this for the Group has been to recognise a right-of-use asset of £73.8m and lease liability of £74.0m at the transition date of 1 September 2019.

Practical expedients

The Group has taken advantage of the practical expedients:

to grandfather previous conclusions (under IAS 17) on which contracts contain leases;
to apply the cumulative catch up approach rather than full retrospective application; and
to measure the right of use asset at an amount equal to the lease liability (adjusted for accruals and prepayments) at transition date.
applying a single discount rate to a portfolio of leases with reasonably similar characteristics
relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review
accounting for operating leases with a remaining lease term of less than 12 months as at 1 September 2019 as short-term leases
excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease

The Group's IBR used to discount the liability on transition was between 5.1% and 5.4% based on age and security. A reconciliation of the previous disclosed commitments is as follows:

	£m
Operating lease commitments disclosed as at 31 August 2019	79.3
Discounted using the lessee's incremental borrowing rate of at the date of initial application	(11.1)
(Less): short-term leases not recognised as a liability	(1.7)
(Less): low-value leases not recognised as a liability	(0.9)
Extension options reasonably certain to be exercised	8.4

Total Lease commitments recognised on 1 September 2019	74.0

The effect of the accounting policy changes on 1 September 2019 can be summarised as follows:
	£m
Right-of-use assets	73.8

Change in total assets	73.8

Trade and other payables	0.4
Lease liabilities ‐ current	(15.8)
Other non-current liabilities	1.2
Lease liabilities ‐ non‐current	(58.2)

Change in total liabilities	(72.4)

Change in total equity	1.4

37. Continuing Adjusted EBITDA reconciliation

£m	2020	2019
Operating profit	21.1	36.3
Adjusting items	14.0	7.3

Adjusted operating profit	35.1	43.6
Depreciation	2.6	2.8
Amortisation	2.0	2.4
Right of use asset depreciation*1	6.0	-
IFRS 16 adjusted EBITDA	45.7	N/A

IAS 17 lease charges*1	(6.6)	-
Adjusted EBITDA	39.1	48.8

*1The Group has adopted IFRS 16 from 1 September 2019, the right of use depreciation the rental charges for the old IAS 17 lease accounting

Glossary - Alternative performance measures

Introduction

In the reporting of financial information, the directors have adopted various APMs.

These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry.

APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.

Purpose

The directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

APMs are also used to enhance the comparability of information between reporting periods and business units by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid users in understanding the Group's performance.

Consequently, APMs are used by the directors and management for performance analysis, planning, reporting and incentive-setting purposes.

Glossary - Alternative performance measures (continued)

The key APMs that the Group has focused on and changes to APMs within the period can be found in note 1.

APM	Closest	Adjustments to	Note/page	Definition and purpose
	equivalent	reconcile	reference for
	IFRS	to IFRS measure	reconciliation
	measure

Income Statement
Adjusted	No direct	N/A	Note 4	Are items of income or expense that are excluded in arriving at
Items	equivalent			Adjusted operating profit. This enhances users understanding of
				the Group's performance as it aids the comparability of
				information between reporting periods and business units by
				adjusting for non-recurring or uncontrollable factors which affect
				IFRS measures.
Adjusted	Operating	Adjusted items	Income	Adjusted operating profit is defined as operating profit from
operating	profit*		statement/	continuing operations, excluding the impact of adjusting items
profit			Note 4	(defined above). This is the headline measure of the Group's
				performance and is a key management incentive metric.
Adjusted	Profit before	Adjusted items	Income	Adjusted profit before tax is defined as profit before tax from
profit	tax (PBT)		statement/	continuing operations, excluding the impact of adjusting items
before tax			Note 4	(defined above).
Adjusted	Profit after	Adjusted items	Income	Adjusted profit after tax is defined as profit after tax from
profit after	tax (PAT)		statement/	continuing operations, excluding the impact of adjusting items
tax			Note 4	(defined above).
Adjusted	Operating	Depreciation and	Note 37	This measure is based on business unit operating profit from
EBITDA	profit*	amortisation		Continuing operations. It excludes depreciation, amortisation and
		Adjusted items		adjusting items. This is the headline measure of the Group's
				performance and is a key management incentive metric.
Adjusted	Earnings per	Adjusted items	Note 10	Adjusted earnings per share is defined as continuing adjusted
earnings	share			PBT, less taxation attributable to adjusted PBT and including any
per share				adjustment for minority interest to result in adjusted
				PAT attributable to shareholders; divided by the basic weighted
				average number of shares in issue.
Cash flow Statement
Free cash	Cash	Dividends,	Note 27	Free cash flow is defined as cash flow excluding the following:
flow	generated	acquisitions and		payment of the dividend, acquisitions and disposals, the
	from	disposals,		repayment of bank loans, EBT share purchases and cash flows
	operating	Repayment of bank		relating to pension deficit repair. This measure reflects the cash
	activities	loans,		available to shareholders.
		EBT share
		purchases,
		Pension deficit repair
		payments
Free cash	Cash	Dividends,	Note 27	Free cash flow (excluding Adjusted items) is Free cash flow
flow	generated	acquisitions and		adding back Adjusted cash costs.
(excluding	from	disposals,
adjusting	operating	Repayment of bank
items)	activities	loans,
		EBT share
		purchases,
		Pension deficit repair
		payments
		Adjusted items
Balance Sheet
Bank net	Borrowings		Cash flow	Bank net debt is calculated as total debt less cash and cash
debt	less cash		statement	equivalents. Total debt includes loans and borrowings, overdrafts
				and obligations under finance leases as defined by IAS 17.
Net debt	Borrowings		Cash flow	Net debt is calculated as total debt less cash and cash
	less cash		statement	equivalents. Total debt includes loans and borrowings, overdrafts
				and obligations under leases.

Operating profit is presented on the Group income statement. It is not defined per IFRS, however, is a generally accepted profit measure.

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