Wh Smith Plc · LSE:SMWH
Wh Smith — FY2004 Earnings Presentation
45 slides from Wh Smith's earnings presentation, Oct 14, 2004
Slide 1: 2004 Preliminary Results
2004 Preliminary Results 14 October 2004
Slide 2: WH Smith PLC Preliminary Results 2004
WH Smith PLC Preliminary Results 2004 1. Performance Review John Warren 2. WHSmith Group Summary Kate Swann • News Distribution Performance • Travel Retail Performance • High Street Performance 3. High Street Retail Turnaround Plan Actions Kate Swann
Slide 3: Group Sales
Group Sales Year to Year to LFL Aug 2004 Aug 2003 Growth £m £m % Continuing Operations: UK Retail 1,453 1,463 (1%) News Distribution 1,182 1,115 4%* less Internal Sales (115) (109) 4%* Total Continuing Sales 2,520 2,469 2% Discontinued Operations: USA Travel Retail 49 181 Aspac Retail 132 149 Publis
Slide 4: Profit Summary by Operating Business
Profit Summary by Operating Business Year to Year to Aug 2004 Aug 2003 Growth £m £m % Continuing Operations: UK Retail 44 90 (51%) News Distribution 35 32 9% Support costs (15) (14) (7%) Internal rents 1 3 (67%) Pensions (UKR & News) (14) (12) (17%) Interest (5) (4) (25%) Continuing Operations PBT 4
Slide 5: UK Retail Summary
UK Retail Summary Year to Year to Aug 2004 Aug 2003 Growth £m £m % Sales 1,453 1,463 (1%) Gross Contribution 554 573 Occupation costs (175) (165) Other store costs (213) (206) Central costs (122) (112) PBIT 44 90 (51%) Gross Contribution Margin 38.1% 39.1% Net Margin 3.0% 6.1% Stores 673 677 Average
Slide 6: UK Retail LFL Sales
UK Retail LFL Sales H1 H2 Total Books - (6%) (2%) Stationery 2% 4% 2% News & Impulse 2% 2% 2% Entertainment (4%) (12%) (7%) Total - (2%) (1%)
Slide 7: News Distribution
News Distribution 2004 2003 Growth £m £m % Sales* 1,182 1,115 6% Gross Contribution 132 127 House costs (62) (62) Administration costs (35) (33) PBIT 35 32 9% Gross Margin 11.2% 11.4% Net Margin 3.0% 2.9% * Includes internal sales of £115m (2003: £109m), up 6%
Slide 8: Central costs
Central costs £m Central costs 2004 (15) One-off items included above 2 Costs transferred to businesses 1 Cost of MIP & LTIP (3) Pro-forma 2005 (15)
Slide 9: Group Exceptional Items
Group Exceptional Items 2004 2003 £m £m Operating exceptional items (101) (53) Non-operating exceptional items (99) 7 Total Exceptional Charge (200) (46) The current period includes £39m previously written off to reserves in respect of US Travel Retail
Slide 10: Group Operating Exceptional Items
Group Operating Exceptional Items* H1 2004 H2 2004 2004 2003 £m £m £m £m UKR stock write-down (45) - (45) - Write-down of fixed assets (17) (3) (20) (6) Redundancy & reorganisation (1) (12) (13) - Other (3) - (3) - Publishing author advances provision (9) - (9) - Corporate advisory costs - (11) (11)
Slide 11: Group Non-operating Exceptional Items
Group Non-operating Exceptional Items Net Gain / Proceeds assets Costs (loss) USA Travel Retail 39 (28) (34) (23) Aspac Retail 50 (37) (3) 10 Publishing 210 (255) (3) (48) Other - - (1) (1) 299 (320) (41) (62) Goodwill previously written off to reserves (39) Profit on sale and leasebacks 2 Total Non
Slide 12: Free Cashflow
Free Cashflow 2004 2003 £m £m PBT pre-goodwill & exceptional items 67 102 Depreciation 46 49 Working capital (27) (9) Capital expenditure (49) (47) Tax (21) (32) Provisions (4) (4) Disposal of fixed assets - 2 Free cash flow 12 61
Slide 13: Movement in Net Cash
Movement in Net Cash 2004 2003 £m £m Free Cash Flow 12 61 Dividends (42) (47) Pension deficit funding (25) (6) Sale & leaseback proceeds 5 25 Net disposals / (acquisitions) 42 (2) Issue / (purchase) of shares - (8) Exceptional costs – net of tax relief (2) (2) (Cash) / debt in subsidiaries disp / ac
Slide 14: Balance Sheet
Balance Sheet 2004 2003 £m £m Goodwill 164 228 Fixed assets 237 273 Working capital 41 94 Tax (30) (39) Dividends (14) (32) Provisions (38) (27) Operating assets employed 360 497 Net cash 45 68 Net assets (excl pensions) 405 565 Net pension liability (149) (156) Total net assets 256 409
Slide 15: Pro-forma Balance Sheet
Pro-forma Balance Sheet 2004 Hodder Return Pension Pro-forma £m sale of cash payment £m Goodwill 164 (149) 15 Fixed assets 237 (7) 230 Working capital 41 (65) (24) Tax (30) 21 (9) Dividends (14) (14) Provisions (38) 15 (23) Operating Assets 360 (221) - 36 175 Net cash 45 207 (207) (120) (75) Net Ass
Slide 16: Pension payment
Pension payment • Pension payment of £120m, reducing the deficit by £84m after tax • Reduced cash outflows in future - £21m (vs £42m*) • Reduced pension service costs going forward - £10m (vs £14m*) – Increased contributions by employees – Reduced scheme benefits – Reduced pensionable salaries follo
Slide 17: Financing arrangements
Financing arrangements • Two facilities – Working capital £150m – Term loan of £90m drawn by late October 2004 • Both 3 years, LIBOR + 1.75% • £25m repayment by end of the first year
Slide 18: Return on Capital Employed (ROCE)
Return on Capital Employed (ROCE) 2004 2003 Operating Cap Operating Cap Assets Leases Assets Leases Employed ROCE ROCE Employed ROCE ROCE Continuing operations 139 37% 14% 181 55% 20% Discontinued operations 221 - - 316 2% 4% Total * 360 497 * Excludes the net pension deficit and cash
Slide 19: Key Indicators
Key Indicators 2004 2003 Adjusted EPS 18.0p 29.1p Dividend per share - Interim 4.0p 6.0p - Final 8.0p 13.0p - Total 12.0p 19.0p Fixed charges cover 1.3x 1.4x Effective tax rate – continuing operations * 30% 30% * Pre-goodwill and exceptionals
Slide 20: Earnings Per Share
Earnings Per Share Continuing Discontinued Total PBT * £m 46 21 67 Tax £m (14) (9) (23) Effective tax rate % 30% 43% 34% Earnings £m 32 12 44 Weighted Average Shares m 244m 244m 244m EPS* p 13.1p 4.9p 18.0p Pro-forma shares 176m Pro-forma EPS 18.2p * Pre-goodwill and exceptionals
Slide 21: Current Trading
Current Trading LFL sales 6 weeks to 9 October High Street Retail (2%) Travel Retail 4% Total UK Retail (1%) News Distribution 3% Total Sales 1%
Slide 22: Group Summary 2004
Group Summary 2004 • Unacceptable performance • Driven by High Street business and poor Christmas trading • Strong performance from News, Travel and Hodder Headline • Good progress simplifying the Group structure – US, ASPAC and Hodder Headline • Return of capital to shareholders and balance sheet r
Slide 23: News Distribution Performance 2004
News Distribution Performance 2004 • Strong performance driven by good sales and tight cost control • Operational efficiencies resulted in reduced costs for 3rd consecutive year • Further network changes implemented to improve service levels • New contracts secured with a number of key publishers •
Slide 24: UK Travel Retail Performance 2004
UK Travel Retail Performance 2004 • Solid performance with good profit growth and cash generation • LFL sales growth of 3% driven by airport sales in line with passenger increases; Rail stations flat • Increase in gross contribution • Efficiency gains from process improvements and good cost control
Slide 25: Kings Cross Travel Store
Kings Cross Travel Store
Slide 26: High Street Retail Performance 2004
High Street Retail Performance 2004 • High Street Retail has underperformed – Driven by poor Christmas performance – Rising cost base; sales and margin pressure • Underlying business performance weak for several years • Strategic response to competition inadequate; reduced authority on the high stre
Slide 27: High Street Retail Performance 2004
High Street Retail Performance 2004 • Issues challenging but addressable over time • Significant strengths provide opportunity to rebuild profitability – store portfolio – customer base – market share – category growth • Organisation and financial review in April led to 3 areas of focus – operating
Slide 28: High Street Retail Turnaround Plan
High Street Retail Turnaround Plan • Following organisation and financial review in April • Plan to deliver shareholder value communicated July • Update of progress in high street business since July • Very few of these activities positively impacted 2004 performance
Slide 29: How we will deliver value in High Street Retail
How we will deliver value in High Street Retail • Rebuilding position as Britain’s most popular stationer, bookseller and newsagent • Increasing product authority in core categories • Re-engineering ranges to faster growing, more profitable categories • Substantially improving space utilisation • Re
Slide 30: How we will deliver value in High Street Retail
How we will deliver value in High Street Retail Cost efficiency Margin optimisation • Scale exploitation • Head office restructuring • Far East sourcing • Promotions pricing / markdown control • Store staff flexibility / productivity • Improved mix management • Administration efficiency • Shrink man
Slide 31: Action – Cost efficiency initiatives underway
Action – Cost efficiency initiatives underway • Target cost savings circa £30m pa by end 2007 • Head office restructuring – majority complete – Net reduction 272 roles saving £8.5m in 2005, £10m pa by 2007 – 240 people already left the Company • Store staff flexibility & productivity plans saving £7
Slide 32: Action – Margin optimisation programme
Action – Margin optimisation programme • Better buying – Leverage significant buying scale in books and stationery – Further increase Far East sourcing in stationery • Changing the promotional stance of business – Avoidance of unprofitable promotions – Promotions on a category specific basis from Su
Slide 33: Action – Operational contribution initiatives
Action – Operational contribution initiatives • On-shelf product availability - improving – Enhanced via improvements in supply chain & store standards – Meeting target of 95% availability for top selling products – Focus moved to rest of range availability • Core products – quick wins on books and
Slide 34: Action – Strategic contribution initiatives
Action – Strategic contribution initiatives • Store portfolio has capacity to increase display space and product density substantially and hence rebuild authority • In circa 90 of largest stores, increase in display space will create more space than needed for largest increased product ranges • Oppo
Slide 35: Action – Space expansion initiative
Action – Space expansion initiative • Planned space expansion by increasing density • Space used for four main areas: – Substantial increase in card products, average from 1,400 to 3,500 – Permanent ‘flexible’ space in books and stationery – Increase in stationery range, particularly extended filing
Slide 36: Before height extensions implemented
Before height extensions implemented
Slide 37: Height extensions to card ranges
Height extensions to card ranges
Slide 38: Extended filing range
WH S Extended filing range Ti ma LJ WN Ai. |
Slide 39: Action – Entertainment initiative
Action – Entertainment initiative • Difficult to achieve authority across all entertainment categories – Space shift to areas where competitive position can be achieved • Immediate re-focus of space towards faster growing DVD category – Implementation complete end October – 67 stores have a destinat
Slide 40: Action – Large Stores initiative
Action – Large Stores initiative • Further opportunity to increase display space in largest 90 stores by estimated 15% • Firstly, build compelling product range in core categories – Broadening choice in stationery and related services – Product range enhanced further in books – New ranges in six tri
Slide 41: Costa Coffee shop in WHSmith store
Costa Coffee shop in WHSmith store
Slide 42: Christmas 2004
Christmas 2004 • Some changes made but more to do • Gift product more focused on core categories, some progress on improving ranges • In-store set-up minimised post implementation of flex-space • Promotions specific to category reflecting the way customers shop • New advertising campaign with greate
Slide 43: Christmas Advertising
Christmas Advertising • New creative and media agencies appointed • New creative execution – Positions WHS as category enthusiast – Well branded, memorable – Strong call to action • New media plan – Mainstream media – TV and national press – More for the money approach
Slide 44: Culture and Structure - actions
Culture and Structure - actions • Retail management strengthened, multiple key new appointments • Central structure streamlined with clear accountabilities • Focus on performance aided by management investment plan Kate Swann Group CEO Tanith Dodge Simon Marinker John Simpson Stephen Clarke Robert M
Slide 45: Summary – Group
Summary – Group • Disappointing set of Results • Good progress made simplifying Group – divestment of Hodder Headline, ASPAC, USA • Two of core businesses performing well – News Distribution and Travel Retail • Substantial operational issues and strategic challenges in High Street business exposed a