WH Smith : Preliminary Results Announcement 6 Months to 31 August 2022

10 November 2022

WH SMITH PLC

PRELIMINARY RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 31 AUGUST 2022

Group now in its strongest ever position as a global travel retailer;

Dividend reinstated

• Significant recovery in Group performance with Group revenue of £1,400m (2021: £886m)
• Strong performance from Travel; momentum continuing into new financial year; total Travel revenue in 10 week period to 5 November 2022 at 148% of 2019
• Final dividend of 9.1p per share reflecting confidence in future and strong current trading
• New store pipeline of 150 stores won and yet to open in Travel, including 70 in North America, with over 125 stores due to open this financial year
• Headline profit before tax and non-underlying items* of £73m (2021: loss of £55m)
• Total Travel trading profit* of £89m (2021: loss of £39m)
• High Street trading profit* of £33m (2021: £19m)
• Investing for growth with capex in the current financial year expected to be around £150m
• Strong balance sheet with leverage now at 2x with further strengthening expected

Carl Cowling, Group Chief Executive, commented:

"2022 has been a successful year for WHSmith and we enter the new financial year with the Group in its strongest ever position as a global travel retailer with multiple growth opportunities across the world.

"We have opened 98 new stores in the year and we have a pipeline of 150 new stores yet to open across 16 countries and in airports as varied as Los Angeles, Salt Lake City, Brussels, Oslo and Melbourne.

"We continue to grow our North America business at pace and we have a very strong pipeline of new store openings. In the current financial year, our North America business is set to become larger, in profit terms, than our UK High Street business and we see significant opportunities to grow this business further.

"Our InMotion technology stores have had a very good year. We now have over 150 InMotion stores open, including 36 outside of the US. Our recently opened stores in the UK are trading ahead of our initial expectations and we have received excellent feedback from customers and landlords. We see significant scope to grow the brand globally.

"Our High Street division, including our online businesses, delivered another resilient and profitable performance. These businesses continue to generate strong cash flow allowing us to invest across the Group.

"The achievements of the last year are due to the tremendous efforts of the entire team around the world for which I am sincerely grateful.

"The resumption of the dividend announced today reflects our strong current trading and the Board's confidence in the future prospects of the Group.

"We have started the year well and, while there is economic uncertainty, travel patterns globally continue to improve and this, combined with the strength of the Group's growth opportunities, means that we are well positioned for a year of significant progress in 2023."

* Pre-IFRS 16

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Group financial summary:

							Headline
				IFRS 16		pre-IFRS 162
				Aug 2022	Aug 2021		Aug 2022	Aug 2021
	Travel UK trading profit/(loss)1			£60m	£(29)m		£54m	£(32)m
	North America ('NA') trading profit1			£33m	£2m		£31m	£6m
	Rest of the World ('ROW') trading profit/(loss)1			£3m	£(17)m		£4m	£(13)m
	Total Travel trading profit/(loss)1			£96m	£(44)m		£89m	£(39)m
	High Street trading profit1			£45m	£36m		£33m	£19m
	Group profit/(loss) from trading operations1			£141m	£(8)m		£122m	£(20)m
	Group profit/(loss) before tax and non-			£83m	£(51)m		£73m	£(55)m
	underlying items1
	Diluted earnings/(loss) per share before non-			47.7p	(22.1)p		41.7p	(23.7)p
	underlying items1
	Non-underlying items1			£(20)m	£(65)m		£(12)m	£(49)m
	Group profit/(loss) before tax			£63m	£(116)m		£61m	£(104)m
	Basic earnings/(loss) per share			36.2p	(62.6)p		35.4p	(54.2)p
	Diluted earnings/(loss) per share			35.6p	(62.6)p		34.8p	(54.2)p

Revenue performance:

			Total %
			change vs
	£m		Aug 2021
Travel UK	521	167%
North America	288	73%
Rest of the World	118	195%
Total Travel	927	131%
High Street	473	(2)%
Group	1,400	58%

1. Alternative Performance Measure (APM) defined and explained in the Glossary on page 47.
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 years ended 31 August 2022 and 31 August 2021 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 47. 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 Preliminary Results 2022 are available at whsmithplc.co.uk.

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GROUP OVERVIEW

The Group has had a strong year and is now trading ahead of 2019 levels. We continue to capitalise on multiple growth opportunities by utilising our broad suite of brands, new store opening programme and continuing to win new stores throughout the world. The Group is now in its strongest ever position as a global travel retailer.

We have had another very successful year in winning new business. Across North America, Rest of the World and the UK we won 99 stores in the year and now have 150 stores won and due to open, with over 125 stores scheduled to open in the current financial year.

Despite some disruption from Covid-19 in the first half, it has been a year of substantial progress supported by the key pillars of our strategy and our ongoing forensic approach to retailing across each of our businesses. These include:

• Space growth:

• 1. Opening new stores;
  1. Winning new business;
  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
• 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
• Maintain profitability of UK High Street business and grow our digital businesses
• Disciplined capital allocation, supporting investment in growth and shareholder returns

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Group summary

The Group saw a strong recovery during the year which has continued into the current financial year. Total Group revenue as a percentage of 2019 total revenue by quarter has been:

		% of 2019 Revenue3
		FY 2022			FY 2023
	Q1	Q2		Q3	Q4	10 weeks to 5
		November 2022
Travel UK	69%	72%		102%	113%	118%
North America4	91%	91%		110%	116%	117%
Rest of the World5	41%	48%		87%	116%	131%
Total Travel6	83%	81%		122%	135%	148%8
High Street7	87%	84%		79%	81%	87%
Group	85%	83%		106%	117%	125%

Second half revenue for the Group was 113% of 2019 on a total basis and 89% on a like-for-like1 ('LFL') basis as shown in the table below. LFL revenue in Travel was 92% of 2019.

		FY 2022 H2
	% of 2019 Revenue3
	Total		LFL1
Travel UK	109%		94%
North America4	113%		94%
Rest of the World5	103%		82%
Total Travel6	130%		92%
High Street7	82%		83%
Group	113%		89%

Total Group revenue at £1,400m (2021: £886m) was up 58% compared to the prior year and slightly ahead of 2019. It was the highest annual revenue generated by the Group since its creation in its current form in 2006.

In Travel, while the first half was impacted by the Omicron variant from December 2021 to February 2022, we saw thereafter a robust recovery across all our travel markets and a strong rebound in profitability. Travel revenue for the second half was at 130% 6 of 2019 (92% on a LFL1 basis) and over the key summer trading period from June to August, Travel revenue was at 135% of 2019 (96% on a LFL1 basis).

In the 10 week period to 5 November 2022, Travel revenue has been 148% 8 of 2019 which demonstrates the intrinsic strength of our business and the markets in which we operate.

We saw a consistently good performance in High Street throughout the year with the important December 2021 trading period at 90% of 2019.

Total Travel delivered a substantial increase in trading profit1 to £89m (2021: loss of £39m) and High

Street a trading profit1 of £33m (2021: £19m).

Headline Group profit from trading operations1 for the year was £122m (2021: loss of £20m) with

Headline Group profit before tax and non-underlying items1 at £73m (2021: loss of £55m). Including

non-underlying items, the Headline Group profit before tax1 was £61m (2021: loss of £104m).

1. Equivalent month in 2019
2. Pro forma, constant currency
3. Constant currency
4. As reported (excludes pro forma North America adjustment)
5. Includes internet businesses
6. 141% on constant currency basis

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The Group profit before tax, including non-underlying items and on an IFRS 16 basis, was £63m (2021: loss of £116m).

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 £133m 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 31 August 2022:

	31 August 2022	Maturity
Cash and cash equivalents9	£132m
Revolving Credit Facility10	£250m	April 2025
Term loan	£133m	April 2025
Convertible bonds	£327m	May 2026

1. Cash and cash equivalents comprises cash on deposit of £101m and cash in transit of £31m
2. Undrawn as at 31 August 2022 and 9 November 2022

As at 31 August 2022, Headline net debt1 was £296m (2021: £291m) with access to over £350m of liquidity (£101m cash on deposit and £250m undrawn RCF). We have a clear focus on cash generation. Group free cash flow1 was an inflow of £41m (2021: £14m), reflecting the strong trading performance as well as our investment in growth opportunities with capital investment in the year of £83m (2021: £44m).

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. As a consequence, around 70% of our debt is at fixed interest rates. The Group places surplus cash in overnight interest bearing accounts, ensuring immediate liquidity. As at 31 August 2022, the Group had £101m placed in interest bearing deposit accounts.

On 8 August 2022, the Group announced that the Trustee of the WHSmith Pension Trust, (the

'Trust'), had purchased a bulk annuity insurance policy from Standard Life, insuring all liabilities to pay all future defined benefit pensions to the Trust's 12,950 members and any eligible dependants. The insurance policy was purchased using most of the existing assets held within the Trust, without the need for the Group to make any additional cash contributions. As a result of this comprehensive risk removal, the Group will not be required to make any future cash contributions into the Trust regarding defined benefit liabilities.

The Board today announces that it will be reinstating the dividend and is proposing a final dividend of 9.1p per share in respect of the financial year ending 31 August 2022 which is payable on 26 January 2023. This reflects our strong start to the year and our confidence in the future prospects of the Group. Assuming a 1/3:2/3 split between interim and final dividends, this implies a cover ratio of 3 times earnings for the full year. Our intention is to return, in time, to a cover ratio of around 2.5 times normalised earnings paid on an interim and final basis on a 1/3:2/3 split.

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

• investing in our existing business and in new opportunities where we see rates of return ahead of the cost of capital;
• paying a dividend to our shareholders;
• undertaking attractive value-creating acquisitions in strong and growing markets;
• returning surplus cash to shareholders.

Leverage at 31 August 2022 was 2.0x Headline EBITDA1. We have a leverage target of between 0.75x and 1.25x Headline EBITDA1 and we anticipate achieving this level within the next 12 to 18 months, including this year's significant investment programme.

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