WH Smith : Interim Results Announcement 6 Months to 28 February 2023

20 April 2023

WH SMITH PLC

The global travel retailer

INTERIM RESULTS ANNOUNCEMENT

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2023

Strong first half performance ahead of expectations

• Strong first half performance with Group revenue up 41% to £859m (2022: £608m)
• Headline profit before tax and non-underlying items* of £45m (2022: £14m)
• Strong momentum across our global Travel business with significant recovery in passenger numbers, strong average transaction value ('ATV') growth, successful category expansion and further space growth
• 60 new stores won so far this year including 11 in Canada
• New store pipeline of over 120 stores won and yet to open in Travel, including 60 in North America
• Investing for growth with capex in the current financial year expected to be around £150m
• Interim dividend of 8.1p per share reflecting strong current trading and confidence in future prospects
• Total Travel trading profit* of £47m (2022: £10m)
• High Street trading profit* of £24m (2022: £26m)
• Strong start to the second half, trading momentum continues ahead of peak summer period

Carl Cowling, Group Chief Executive, commented:

"We have seen a strong performance in the first half of the year further strengthening our confidence in the prospects of our global travel business. We expect Travel to represent over 70% of Group revenue and around 85% of Group profit from trading operations by the end of this financial year.

"In North America, we continue to open new stores with 29 opened in the period and these are performing well. At the same time, we have grown our new store pipeline with significant tender wins. We have won a further 28 stores so far this year, including 11 in Canada across Calgary and Edmonton airports. In the current financial year, we expect this division to generate over £50m profit*

• making it our second largest division.

"Travel UK, our largest division, has delivered a strong first half performance and has excellent growth prospects. Revenues are 19% ahead of 2019 levels despite passenger numbers being considerably below 2019 levels. This performance has been driven by our category expansion, focus on average transaction value, the success of InMotion and our travel essentials one-stop-shop format.

"I am increasingly excited by the opportunity in our Rest of the World division. Our strategy of establishing a presence in multiple countries as a base for significant growth is demonstrated well by the growth in our store estates in Spain, Germany and Australia.

"This set of results would not be possible without the fantastic efforts of our entire team and I would like to take this opportunity to thank them.

"Looking ahead, we are very well positioned to capitalise on the substantial growth drivers across our markets and we expect to make further good progress in the years ahead. Current trading is strong and we are ahead of expectations for the full year."

* Pre-IFRS 16

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Group financial summary

							Headline
				IFRS		pre-IFRS 162
				6 months to	6 months to		6 months to	6 months to
				Feb 2023	Feb 2022		Feb 2023	Feb 2022
	Travel UK trading profit1			£31m	£9m		£31m	£3m
	North America ('NA') trading profit1			£16m	£8m		£14m	£8m
	Rest of the World ('ROW') trading profit/(loss)1			£2m	£(2)m		£2m	£(1)m
	Total Travel trading profit1			£49m	£15m		£47m	£10m
	High Street trading profit1			£32m	£35m		£24m	£26m
	Group profit from trading operations1			£81m	£50m		£71m	£36m
	Group profit before tax and non-underlying items1			£47m	£24m		£45m	£14m
	Diluted earnings per share before non-underlying			24.8p	13.0p		23.3p	6.9p
	items1
	Non-underlying items1			£(2)m	£(6)m		£(2)m	£(3)m
	Group profit before tax			£45m	£18m		£43m	£11m
	Basic earnings per share			24.6p	9.2p		23.1p	5.3p
	Diluted earnings per share			24.1p	9.2p		22.6p	5.3p

Revenue performance

		6 months to		6 months to
		Feb 2023		Feb 2022
		£m		£m	% change
Travel UK	314	189	66%
North America	177	116	53%
Rest of the World	102	33	209%
Total Travel	593	338	75%
High Street	266	270	(1)%
Group	859	608	41%

1. Alternative Performance Measure (APM) defined and explained in the Glossary on page 37.
2. The Group adopted IFRS 16 'Leases' with effect from 1 September 2019. The Group continues to monitor performance and allocate resources based on pre-IFRS 16 information (applying the principles of IAS 17), and therefore the results for the periods ended 28 February 2023, 31 August 2022 and 28 February 2022 have been presented on both an IFRS 16 and a pre-IFRS 16 basis.
   Measures described as 'Headline' are presented pre-IFRS 16.
   For the purposes of narrative commentary on the Group's performance and financial position, both pre-IFRS 16 and IFRS 16 measures are provided. Reconciliations from pre-IFRS 16 measures to IFRS 16 measures are provided in the Glossary on page 37. Group revenue was not affected by the adoption of IFRS 16, and therefore all references to and discussion of revenue are based on statutory measures.

ENQUIRIES:
WH Smith PLC
Nicola Hillman	Media Relations	01793 563354
Mark Boyle	Investor Relations	07879 897687
Brunswick
Tim Danaher		020 7404 5959

WH Smith PLC's Interim Results 2023 are available at whsmithplc.co.uk.

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GROUP OVERVIEW

The Group has delivered a strong first half performance and continues to go from strength to strength as a global travel retailer. At the end of this financial year, we expect the Travel division to represent over 70% of Group revenue and c.85% of Headline Group profit from trading operations1.

We continue to capitalise on multiple growth opportunities including the significant recovery in passenger numbers, growing average transaction value, expanding our categories, and winning new stores across the globe utilising our broad suite of brands. As a result, the Group is in its strongest ever position as a global travel retailer.

We have had another very successful period in winning new business. Across North America, Rest of the World and the UK we have won 60 stores so far this financial year and we now have over 120 stores won and due to open, with over 50 stores scheduled to open in the second half.

Our progress and success is supported by the key pillars of our strategy and our ongoing forensic approach to retailing across each of our businesses. These include:

TRAVEL

• Space growth:

1. Opening new stores;

1. Winning new business; going forward we would expect to win, on average, over 50 stores each year;

• 1. New, better quality space;
  1. Extending contracts;
  1. Developing formats and brands
• ATV growth:
• 1. Space management;

1. Refitting stores;

• 1. Range development
• Category development:
• 1. One-stop-shoptravel essentials format;
  1. Developing the InMotion brand;
  1. Improving ranges, e.g. health and beauty, food to go, and tech accessories
• Cost and cash management:
• 1. Flexible rent model;

1. Investing for growth (capex in the current financial year expected to be around £150m); o Productivity and efficiencies

HIGH STREET

• Maintain profitability and cash generation of UK High Street business and grow our digital businesses

CAPITAL ALLOCATION POLICY

• Disciplined capital allocation, supporting investment in growth and shareholder returns
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Group revenue

	Revenue
	6 months to Feb 2023
	Total		LFL1
	vs 2022		vs 2022
Travel UK	66%		52%
North America	53%		22%
Rest of the World	209%		122%
Total Travel	75%		48%
High Street7	(1)%		-%
Group	41%		27%

Revenue	7 weeks to
15 April
6 months to Feb 2023
20238
Total	LFL1	Total
vs 20193	vs 20193	vs 20193
19%	2%	24%
22%4	(2)%	33%4
31%5	(1)%	46%5
48%6	1%	59%6

Total Group revenue at £859m (2022: £608m) was up 41% for the first six months compared to the prior year.

In Travel, we saw a strong performance across all our markets and a rebound in profitability. Total Travel revenue for the first half was up 48%6 versus 20193 and up 1% on a like-for-like1 ('LFL') basis. This was driven by strong performances in all three Travel divisions with the UK up 19%, North America up 22%4, and ROW up 31%5 on 20193. In UK Travel, Air was our strongest channel with LFL sales up 4% versus 20193, despite passenger numbers still around 15% behind 20193 during the period. In North America, TSA data shows passenger numbers in the half down 4% versus 20193. Our LFL1 revenue was down 2%. This includes very strong sales in InMotion in the comparative period following the launch of Apple AirPods in 2019. Air and Resorts in MRG were both ahead of 2019 on a LFL1 basis.

Compared to last year, revenue in Travel was up 75% in total, with Travel UK up 66%, North America up 53% and ROW up 209%, driven by the strong recovery in passenger numbers and our key growth initiatives.

We saw a consistently good performance in High Street throughout the period, with the important Christmas trading period flat year on year on a LFL basis.

We are pleased with the start to the second half. In the 7 week period to 15 April 2023, Travel revenue was up 59% with all three divisions continuing to perform well. In the UK, we saw a strong performance over Easter despite passenger numbers still well below 2019 levels. Looking forward, this is likely to be the last time we report against 2019 as it is becoming a progressively less relevant comparison.

Group profit

For the six month period to 28 February 2023, Travel delivered a Headline trading profit1 of £47m (2022: £10m). In UK Travel, Headline trading profit1 increased by £28m to £31m and in North America, Headline trading profit1 increased by £6m to £14m, in both cases driven by a recovery in sales and improved margins. ROW delivered a Headline trading profit1 of £2m.

High Street delivered a Headline trading profit1 of £24m (2022: £26m), in line with expectations.

Headline Group profit from trading operations1 for the period was £71m (2022: £36m) with Headline

Group profit before tax and non-underlying items1 at £45m (2022: £14m).

The Group profit before tax, including non-underlying items and on an IFRS 16 basis, was £45m (2022: £18m) in the period.

1. Equivalent month in 2019
2. 2019 comparatives include pro forma North America adjustment, at constant currency
3. Constant currency
4. As reported (excludes 2019 pro forma North America adjustment)
5. Includes internet businesses
6. Adjusted for the timing of Easter in 2019

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Group balance sheet

The Group has a strong balance sheet, is very cash generative and has substantial liquidity. In addition to £327m of convertible bonds which mature in 2026 and £126m of term loan with a maturity in 2025, the Group has an undrawn £250m Revolving Credit Facility ('RCF'), which matures in 2025.

The Group has the following cash, committed facilities and drawn debt as at 28 February 2023:

	28 February 2023	Maturity
Cash and cash equivalents9	£46m
Revolving Credit Facility10	£250m	April 2025
Term loan11	£126m	April 2025
Convertible bonds	£327m	May 2026

The Group pays a fixed coupon at 1.625% on the convertible bonds and the term loan is interest bearing at a margin over SONIA. Therefore around 70% of our debt is at fixed interest rates.

As at 28 February 2023, Headline net debt1 was £378m (31 August 2022: £296m) with access to over £270m of liquidity (£24m cash on deposit and £250m undrawn RCF).

Group cash flow

The Group generated an operating cash flow1 of £90m in the half demonstrating the cash generative nature of the business. Capital investment was £60m (2022: £38m) as we continued to invest in new stores, IT and energy efficient store fixtures and fittings. We had a working capital outflow of £79m in the period (2022: £36m). Of this outflow, c.£40m results from the usual working capital cadence in the Group, where there has always been a large working capital outflow in the first half, due to the seasonality in the Travel business. The balance mainly relates to the investment in new stores and the recovering Travel business. In total there was a free cash outflow in the half of £66m.

For the full year, we expect to generate a free cash inflow, reflecting the normal working capital cadence of the Group and the substantial level of operating cash flows1 generated by the Group during the second half. We anticipate full year debt to be in the region of £325m-£335m.

Capital allocation policy

The Group's disciplined approach to capital allocation remains unchanged:

• investing in our existing business and in new opportunities where rates of return are ahead of the cost of capital;
• paying a dividend, we have a progressive dividend policy with a target dividend cover of 2.5x;
• undertaking attractive value-creating acquisitions in strong and growing markets;
• returning surplus cash to shareholders via share buy backs.

Leverage at 28 February 2023 was 2.0x Headline EBITDA1. We have a target leverage level of between 0.75x and 1.25x Headline EBITDA1 and we anticipate being close to the top end of this envelope by the end of this financial year and to be annualising within it, even with this year's significant investment programme.

Dividend

The Board has declared an interim dividend of 8.1p per share. This reflects our strong start to the year, the cash generative nature of the business and our confidence in the future prospects of the business. Our intention is to return, in time, to a cover ratio of around 2.5 times earnings, paid on an interim and final basis on a 1/3:2/3 split. The dividend will be paid on 3 August 2023.

1. Cash and cash equivalents comprises cash on deposit of £24m and cash in transit of £22m
2. Undrawn as at 28 February 2023 and 19 April 2023
3. Repayments of £27m are due within 12 months and are recorded as current liabilities (see Note 10 to the Financial Statements)

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