WH Smith PLC · LSE:SMWH
WH Smith — FY2006 Earnings Presentation
37 slides from WH Smith's earnings presentation, Oct 12, 2006
Slide 1: Preliminary Results 2006
12 October 2006 Preliminary Results 2006
Slide 2: WH Smith PLC agenda
WH Smith PLC § Introduction Robert Walker § Financial review Alan Stewart § Operational review Kate Swann Ø High Street Ø Travel Preliminary Results 2006
Slide 3: Group Finance Director
Group Finance Director Preliminary Results 2006
Slide 4: Group financial summary
Group financial summary Year to Year to Aug 2006 Aug 2005 Change £m £m % Revenue 1,340 1,423 (6%) Headline profit before tax1 54 40 35% Profit before tax and exceptional items2 51 39 31% Profit before tax 44 31 42% Headline EPS3 25.0p 17.5p 43% Basic EPS4 18.6p 12.4p 50% Final dividend per share 6.2
Slide 5: Proforma Old WH Smith PLC profit before tax
Proforma “Old” WH Smith PLC profit before tax Year to Aug 2006 Year to Aug 2005 Growth £m £m % WH Smith PLC High Street 1 42 37 14% Travel 1 31 25 24% Trading operations 73 62 18% Central costs (14) (16) Internal rents 1 1 Finance charges (9) (8) Profit before tax 2 51 39 31% Smiths News PLC Trading
Slide 6: Demerger: basis of preparation
Demerger : basis of preparation § Demerger effective 31 August 2006 § WHSmith Retail presented as a stand alone entity for both years § Divisional profits are shown after directly attributable share based payment and pension service charges § Tax is stated as if the business has always been a separa
Slide 7: Group profit before tax
Group profit before tax Year to Year to Aug 2006 Aug 2005 Growth £m £m % High Street 1 42 37 14% Travel 1 31 25 24% Trading operations 73 62 18% Central costs (14) (16) Internal rents 1 1 Net finance charges (6) (7) Headline profit before tax2 54 40 35% Pension interest (3) (1) Profit before tax2 51
Slide 8: Profit from trading operations
Profit from trading operations Year to Year to Aug 2006 Aug 2005 Change £m £m % Revenue 1,340 1,423 (6%) Gross contribution 579 576 1% Costs (506) (514) 2% Costs – occupation costs (187) (181) – store costs (193) (206) – other costs (126) (127) Profit from trading operations1 73 62 18% Gross margin
Slide 9: Revenue analysis
Revenue analysis Year to Year to LFL Aug 2006 Aug 2005 Change Revenue £m £m % High Street 1,021 1,112 (7%) Travel 319 311 3% Total revenue 1,340 1,423 (4%) Year to Aug 2006 H1 H2 % LFL sales by category Stationery (4%) (4%) (4%) Books (4%) (7%)1 (5%) News & Impulse 2% 3% 3% Entertainment (17%) (21%)
Slide 10: Group free cash flow
Group free cash flow Year to Year to Aug 2006 Aug 2005 £m £m Headline profit before tax1 54 40 Net finance charges 6 7 Profit before interest and tax2 60 47 Depreciation and amortisation 37 41 Working capital 9 (8) Capital expenditure (29) (30) Tax (2) (2) Provisions (3) (6) Net interest paid (5) (2
Slide 11: Group net debt movement
Group net debt movement Year to Year to Aug 2006 Aug 2005 £m £m Free cash flow 68 44 Dividends paid (15) (11) Pension deficit and retirement benefit funding (12) (90) Sale and leaseback and fixed asset proceeds 9 2 Net disposals of subsidiaries 8 203 Corporate advisory and financing costs (6) (2) Pu
Slide 12: Group balance sheet
Group balance sheet 2006 2005 £m £m Goodwill & other intangible assets 30 29 Property, plant & equipment 184 197 Working capital (6) 15 Corporation tax (20) (26) Deferred tax 16 24 Provisions (12) (16) Operating assets employed 192 223 Net funds / (debt) 1 42 (58) Total net assets (excluding pension
Slide 13: Pensions
Pensions § Liability Driven Investment (“LDI”) policy adopted in September 2005 to minimise inherent scheme volatility § We have reduced the pension deficit significantly since 2003 2003 2004 2005 2006 Gross pension deficit (IAS 19) £152m £146m £60m £41m1 § On demerger “old” WH Smith PLC defined ben
Slide 14: Group key indicators
Group key indicators Year to Year to Aug 2006 Aug 2005 Growth £m £m % Headline EPS 1 25.0p 17.5p 43% Basic EPS 2 18.6p 12.4p 50% Final dividend per share 6.2p Free cash flow (£m) 68 44 Fixed charges cover 1.3x 1.3x ROCE 35% 23% 1 Headline EPS: profit before tax, exceptional items and IAS19 pension i
Slide 15: Current trading
Current trading LFL sales LFL sales Year to 5 weeks to 7 Aug 2006 October 2006 High Street (7%) (5%) Travel 3% 3% Total revenue (4%) (3%) Preliminary Results 2006
Slide 16: Group Chief Executive
Group Chief Executive Preliminary Results 2006
Slide 17: Group - overview
Group - overview § Good performance across the Group; profit progress in all areas § Further profit improvement in High Street § Strong performance from Travel during its peak trading season § Strong cash generation in both High Street and Travel § Successful separation of Retail and Smiths News via
Slide 18: High Street - overview
High Street - overview § Good profit improvement; up 14% § LFL sales down 7% § Strong gross margin performance up by c.290 bps § Continued delivery of mix changes § Focused cost control delivered savings of £22m in the year; further cost savings identified § Good cash generation through improved sto
Slide 19: High Street strategy
High Street strategy § Rebuild position as Britain’s most popular stationer, bookseller and newsagent § Retailing basics and cost control § Drive the gross margin by category mix management § Focus on core categories, rebuilding authority as a specialist § Reduce our reliance on entertainment § Use
Slide 20: Cost efficiency improvements
Cost efficiency improvements § October 2005 we targeted £48m of savings over 4 years to 2008 § Delivered £22m in 2006, £4m ahead of expectations § Identified further cost savings of £16m over the next 3 years, giving total target savings of £22m for 2007-2009 2005 2006 2007 2008 2009 Total Actual Ac
Slide 21: Cost efficiency improvements cont.
Cost efficiency improvements cont. Improvements have been delivered through, for example: § Consolidation of distribution network into two warehouses § Reconfiguration of our central distribution centre in Swindon § Creation of shared IT services § Staff flexibility programme § Store and other cost
Slide 22: Margin optimisation programme
Margin optimisation programme § Margin growth from intra-category and inter-category mix management § Further margin growth from: Ø Improved promotions management Ø Better buying terms Ø Improved Far East sourcing Ø Reduction in shrinkage Ø Improved mark-down management Preliminary Results 2006
Slide 23: Books
Books § Strategy to rebuild authority remains unchanged § Profit improved well YoY; LFL sales down 6% § Competitive market especially Christmas 2005 § Further period of share stabilisation vs. general high street § Expanded space to books in 70 stores § Improved efficiency and operational processes
Slide 24: Stationery
Stationery § Tough market with consumer spending down § Focused on core categories, successfully removing unprofitable ranges e.g. electronics § LFL sales down 4%; gross margin up strongly YOY § Category range reviews completed and initial benefits being delivered § New ranges and range extensions r
Slide 25: Back to School
Back to School Preliminary Results 2006
Slide 26: News & Impulse
News & Impulse § Challenging market, particularly monthlies and partworks § Held share in news and magazines § Good snacking and confectionery growth § LFL sales up 1% with gross margin up § Range developments implemented Ø Additional space to snacking/confectionery in c.160 stores Ø New bookazine t
Slide 27: Signage and layouts
Signage and layouts Preliminary Results 2006
Slide 28: Entertainment
Entertainment § Market remains very difficult § Our plan focused on maximising profit and delivering profitable sales § Developing Christmas 2006 plan on the same basis § Tightly controlled stock to reflect sales patterns while maintaining availability levels § Completed move to consolidator model §
Slide 29: Christmas 2006
Christmas 2006 § Tough retail environment likely to mean very competitive Christmas § Continue to focus only on profitable activity § Continued active management of entertainment category and mix § Christmas range focused on core categories; value improved § Further improvement to catalogue and web-
Slide 30: Travel – overview
Travel – overview § Excellent performance, profit up 24% § LFL sales growth of 3% Ø Continued strength in airport sales – up 6% Ø Total rail sales flat with H2 recovery in London rail § Further improvement in gross margin driven by category mix management and better buying § Costs tightly controlled
Slide 31: Travel strategy
Travel strategy § Deliver organic growth in existing space by better meeting customer needs § Retailing basics and cost control § More effective use of space § Renew existing contracts § Expand CTN format to new profitable locations § Develop, test and roll out new formats in our categories that mee
Slide 32: Travel - Airport stores
Travel - Airport stores § Strong growth; LFL sales growth of 6%, 2 percentage points ahead of passenger growth § Improved product ranges: Ø Extensions to Impulse offer e.g. roll out of food range Ø Development of healthier snacking ranges and drinks Ø Roll out of wider range of exclusive format book
Slide 33: Travel - Airport stores
Travel - Airport stores § Good progress renewing contracts § 4 contracts renewed in 05/06 § 9 refits completed in 05/06 and 20 planned for 06/07 § 5 new stores opened in 05/06 Ø Bristol Bookstore Ø Blackpool CTN Ø Glasgow CTN Ø Southampton CTN Ø Manchester T1 CTN § 5 new stores recently won Prelimin
Slide 34: Travel – Rail stores
Travel – Rail stores § Total LFL rail sales were flat in the year § Stronger H2 performance, LFL up 2% in both London and regional stores § Focus on London rail in H2 encouraging Ø Extended opening hours Ø Increase in tills open at peak trading hours to reduce queues Ø Improved customer service thro
Slide 35: Travel – Rail stores
Travel – Rail stores § 10 contracts renewed in 05/06 including contract with ScotRail for 12 sites § 9 refits in 05/06 and18 planned for 06/07 § 3 new stores opened in 05/06 Ø Liverpool Street Bookstore Ø Charing Cross Stationery Ø London Bridge Stationery § 2 new stores won and scheduled to open in
Slide 36: Travel
Travel Preliminary Results 2006
Slide 37: Summary
Summary § Strong profit performance across the Group § Successful separation of the Retail and News businesses § Continued improvement in High Street § Excellent performance from Travel § Strong cash generation § Tough trading conditions continue, however we have planned accordingly § Plan to delive