Smiths News PLC · LSE:SNWS
Smiths News — H1 2012 Earnings Presentation
52 slides from Smiths News's earnings presentation, Apr 24, 2012
Slide 1: Interim Results
Interim Results 24 April 2012
Slide 2: Highlights
Highlights Mark Cashmore Group Chief Executive
Slide 3: Highlights
Highlights Overall Group sales £893m, up 2.4% Strong financial performance Underlying PBT £21.5m, up 12% Free cash flow £6.0m, up 140% Smiths News profits up 5%; LFL sales down 3.7% Resilience in core businesses On track to deliver £5m efficiencies Bertrams Group profits up 33%; LFL sale
Slide 4: Group Financial Update
Group Financial Update Nick Gresham Chief Financial Officer
Slide 5: Cautionary statement
Cautionary statement Forward-looking statements This presentation contains certain forward-looking statements with respect to Smiths News PLC’s and/or The Consortium’s financial condition, results of operations and businesses, strategy, plans, objectives and performance. Words such as ‘anticipates’,
Slide 6: Solid Group performance with Group PBT up 12%
Solid Group performance with Group PBT up 12% £m Feb 2012 Feb 2011 Change Smiths News operating profit 19.2 18.3 4.9% Bertrams Group operating profit 3.2 2.4 33.3% Media and Marketing 0.8 - - Group operating profit 23.2 20.7 12.1% Net finance charges (1.7) (1.5) (13.3)% Group PBT 21.5 19.2 12.0% Tax
Slide 7: Smiths News income statement
Stronger revenues and ongoing cost efficiency underpins 5% operating profit growth Smiths News income statement £m Feb 2012 Feb 2011 Change LFL Newspapers 466.2 462.9 0.7% (1.2%) Magazines 277.6 295.6 (6.1%) (7.8%) Other 40.5 40.3 0.5% Total revenue 784.3 798.8 (1.8%) (3.7%) Gross profit 65.9 68.8 (
Slide 8: Bertrams Group operating profit growth of 33%
33% operating profit growth reflects addition of Dawson Books Bertrams Group income statement £m Feb 2012 Feb 2011 Change LFL Total revenue 91.9 73.5 25.0% 2.1% Gross profit 16.8 12.0 40% Operating costs (13.6) (9.6) (41.7%) Operating profit 3.2 2.4 33.3% Gross margin 18.3% 16.3% 200 bps Cost ratio
Slide 9: Media and Marketing profitable and cash generative
Media and Marketing profitable and cash generative Combined DMD and DMS income statements £m Feb 2012 Feb 2011 Change LFL Total revenue 17.0 - - - Gross profit 4.1 - - Operating costs (3.3) - - Operating profit 0.8 - - Gross margin 24.1% - - Cost ratio (19.4%) - - Operating margin 4.7% - - • DMD/DMS
Slide 10: Non recurring and other items
Non recurring and other items Smiths News Group £m Feb 2012 Feb 2011 Integration costs (0.9) - Network reorganisation costs (0.9) - Amortisation of acquired intangibles (0.9) (0.5) Total before taxation (2.7) (0.5) Taxation 0.4 0.1 Total after taxation (2.3) (0.4) 10 Interim Results 24 April 2012
Slide 11: Cash generative
Cash generative Smiths News Group £m Feb 2012 Feb 2011 Operating profit 23.2 20.7 Depreciation and amortisation 3.3 3.6 EBITDA 26.5 24.3 Working capital (13.2) (17.5) Capital expenditure (0.4) (1.5) Net interest (1.4) (1.5) Taxation (3.0) 1.3 Pension funding (3.1) (3.1) Other 0.6 0.5 Free cash flow
Slide 12: Maintaining low gearing
Maintaining low gearing Smiths News Group £m Feb 2012 Feb 2011 Opening net debt (63.3) (48.0) Free cash flow 6.0 2.5 Dividend (9.8) (9.1) Non recurring items (4.8) (1.7) New finance leases (1.3) (0.7) Share purchase (0.8) - Closing net debt (74.0) (57.0) Net debt: EBITDA 1.4x Total finance facil
Slide 13: Business Update
Business Update Mark Cashmore Group Chief Executive
Slide 14: Business coverage
Business coverage Newspapers and magazines Books Media and Marketing The Consortium Outlook 14 Interim Results 24 April 2012
Slide 15: Newspapers and magazines - markets
Newspapers and magazines - markets Newspapers Magazines Smiths News LFL sales % Smiths News LFL sales % 0 % 0 -4.7% -7.6% -5.8% -7.8% -4.2% -3.0% -2.0% -1.2% -2 -1 Weeklies/monthlies 0.7% Partworks/one-shots -4 -2 -6 1.0% Proportional impact of -1.8% part works and one-shots -3 on total magazine -8
Slide 16: Sales run rate well within strategic forecasts
Sales run rate well within strategic forecasts % Change H1 2012 FY 2011 Newspapers (1.2) (2.5) Magazines (6.8) (9.0) Reported total (3.4) (5.2) Excluding partworks / one shots (0.3) 1.1 Underlying run rate (3.7) (4.1) Medium term strategic forecast -3% : -5% 16 Interim Results 24 April 2012
Slide 17: Newspapers and magazines commentary
Newspapers and magazines commentary £5m efficiencies on track Network consolidation Systems upgrade People investment Positive OFT conclusion 17 Interim Results 24 April 2012
Slide 18: Books – sales by sector
20 18 Books – sales by sector 16 14 Bertrams Group LFL sales Bertrams Group 12 Sales performance 10% International (-3.1% LFL) 8 6 6.8% 21% 4 49% Academic Libraries 13% 2 2.1% UK Wholesale 15% (+0.8% LFL) 0 -1.4% -3.0% 3% -2 Public Libraries (+13% LFL) -4 6.8% -1.4% 2.1% e-books -3.0% 2010 2011 2011
Slide 19: Books – strategic progress
Books – strategic progress £3.8m synergies by 2014 Rushden into Norwich New senior team e-books progress Internet fulfilment 19 Interim Results 24 April 2012
Slide 20: Media and Marketing
Media and Marketing Sales £17m - profit £0.8m Print contract wins Ryanair, Cathay Pacific Digital contract wins BA, Jetstar, Thai Airways DMS contract wins Daily Mail, Instore, Sainsburys, Morrisons 20 Interim Results 24 April 2012
Slide 21: The Consortium
The Consortium 21 Interim Results 24 April 2012
Slide 22: Transaction meets stated strategic aim
Transaction meets stated strategic aim Clearly defined acquisition criteria Using core skills to consolidate position successfully achieved as a leading specialist distributor Effective change Specialist distribution management and Sustainable revenue growth integration Fragmented supplier and
Slide 23: Transaction summary
Transaction summary Leading Consideration value £38m: £32m day 1, debt financed educational and Enterprise value of £44m: pro forma EV/EBITDA 6.3x, post care products synergy EV/EBITDA 5.5x distributor Acquired from management incentivised through 16% lock-in £64m of revenue and £7.0m of EBI
Slide 24: The Consortium is a leading distributor of consumable products
The Consortium is a leading distributor of consumable products Distributor in the large and growing Revenue by category education and care markets Office Export Catalogue and web based sales Care Over 25,000 customers Early Years Product range of 40,000 SKUs Education Strong service and de
Slide 25: Growing profitability
Growing profitability Profit growth 4 out of 5 years 40% profit growth FY12 driven by WMS acquisition Opportunities for further growth 25 Interim Results 24 April 2012
Slide 26: Education market is large and structurally growing
Education market is large and structurally growing Strong market fundamentals Significant headroom in the addressable market Education market 6.2% of GDP Schools market Total day to day spend £38bn on resources 2.6% future annual growth forecast Schools supply All learning resources £4.5bn and servi
Slide 27: Residential elderly care is growing in importance
Residential elderly care is growing in importance Market is large and structurally growing Significant headroom in the current market 1.2% elderly care spend of GDP £16bn Care market Domiciliary and residential care market (private and public) 3.3% long term growth forecast Total Total consumable sp
Slide 28: The Consortium's proposition
The Consortium’s proposition Local authorities / Suppliers Specialist distributors schools Limited supplier reliance c.600 suppliers 40,000 SKUs Suppliers include Staedtler, Acco, SCA Tissue, Newell Rubbermaid, Hamelin 10% of supply comes from overseas which presents an opportunity Speed
Slide 29: The Consortium's proposition
The Consortium’s proposition Local authorities / Suppliers Specialist distributors schools Highly fragmented c30% of the market is the 5 PSBOs Long tail of private specialist players Regionalised competition North East The Consortium The Consortium: North West YPO – national reach Yorkshir
Slide 30: The Consortium's proposition
The Consortium’s proposition Local authorities / Suppliers Specialist distributors schools Strong own brand portfolio Why order your school One stop shop offering supplies from The Framework contacts with Consortium? Local Authorities Schools have buying Price match guarantee autonomy Fr
Slide 31: Compelling growth strategy
Compelling growth strategy Grow share of wallet with current customers Share of wallet Field sales and relationship driven Improved service and one stop shop offering Grow current penetration of schools, private care homes Market share and nurseries Capitalise on a consistently growing mar
Slide 32: An immediately earnings accretive acquisition
An immediately earnings accretive acquisition FY12 consensus Pro forma % accretion pre-acquisition post-acquisition PBT 43.0 48.0 12% PAT 32.0 35.0 9% Number of shares 184m 188m 1 EPS 17.4p 18.7p 7% 1. Share price assumption 90p 16% of Consideration locked in 4m shares will be issued to the Vend
Slide 33: Changing Group profit mix
Changing Group profit mix Pre-acquisition Post-acquisition FY12 Consensus * Pro-forma £m Turnover EBITDA % mix Turnover EBITDA % mix Smiths News 1,552 46 83% 1,552 46 74% Bertrams 179 8 15% 179 8 13% Media and marketing 33 1 2% 33 1 2% Education and care - - 64 7 11% division Total Smiths News Group
Slide 34: Capital structure remains strong
Capital structure remains strong Net debt ND/EBITDA Interest Fixed £m cover charge cover HY12 Net debt pre-acquisition 74.0 1.4x 14.2x 3.8x Acquisition costs 40.3 HY12 Net debt post-acquisition 114.3 1.9x 11.9x 3.5x Cash consideration and costs of £40.3m Funded from existing bank facilities Op
Slide 35: Acquisition summary
Acquisition summary Acquisition of a market leader with strong headroom for growth Excellent anchor Adding £64m revenue and £7m profit to the Group acquisition Management locked in and incentivised to deliver the business plan Tangible growth Strong market fundamentals opportunities in Tan
Slide 36: Future strategic direction
Future strategic direction Group Leading Specialist Distributor Newspaper Physical and Media and Education and Markets and Magazine Digital Book Marketing Care Distribution Distributor Fulfilment Consumables The Smiths News Bertrams Business DMD Consortium Instore Dawson Units DMS West Mercia Rascal
Slide 37: Group summary and outlook
Group summary and outlook Strong financial performance All key targets achieved Further sales and efficiency opportunities in H2 On track to meet FY12 market expectations The Consortium acquisition a strategic milestone 37 Interim Results 24 April 2012
Slide 38: Interim Results
Interim Results 24 April 2012
Slide 39: Appendices
Appendices Smiths News PLC
Slide 40: Appendix: Financial KPIs
Appendix: Financial KPIs £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Revenue 893.2 1,734.4 1,829.6 1,326.0 1,240.6 Profit before tax 21.5 38.6 35.0 30.5 32.5 EPS 8.9p 15.5p 14.6p 13.8p 14.5p Free cash flow 6.0 22.5 20.4 23.7 21.4 DPS 2.8p 8.0p 7.4p 6.8p 6.7p Net Debt 74.0 63.3 48.0 49.5 44.0 Profits
Slide 41: Appendix: Operational KPIs
Appendix: Operational KPIs Smiths News HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Newspaper pack accuracy 99.8% 99.8% 99.8% 99.8% 99.8% Magazine pack accuracy 99.7% 99.6% 99.6% 99.7% 99.6% On time delivery 97.3% 97.6% 97.2% 97.0% 96.3% Newspaper returns 99.0% 98.9% 98.8% 99.8% 98.3% collection time Mag
Slide 42: Appendix: Operational KPIs
Appendix: Operational KPIs Bertrams HY 2012 FY 2011 FY 2010 FY 2009 Number of titles in stock 220k 220k 180k 165k Availability of titles in core 89.0% 88.0% 94.4% 94.1% range On–shelf stock integrity 99.6% 99.6% 99.8% 99.8% Same day despatch 100% 100% 100% 100% Delivered next day 97.5% 97.0% 98.7% 9
Slide 43: Appendix: Income statement
Appendix: Income statement £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Revenue 893.2 1,734.4 1,829.6 1,326.0 1,240.6 Operating profit before non recurring items 23.2 41.7 37.1 32.4 36.0 Non recurring items (2.7) (6.5) (6.9) (10.8) 0.1 Operating profit 20.5 35.2 30.2 21.6 36.1 Net finance charges (1.7
Slide 44: Appendix: Sales mix and LFL
Appendix: Sales mix and LFL Total revenue £m 935.7 Revenue growth 2% (5%) 38% 7% 1% Like for like sales H1 2012 H2 2011 H1 2011 H2 2010 H1 2010 H2 2009 H1 2009 H2 2008 H1 2008 Newspapers (1.2%) (2.0%) (3.0%) (4.1%) (4.3%) (3.5%) (2.0%) 0.5% 1.7% Magazines (7.8%) (7.6%) (9.9%) (4.9%) (3.1%) (7.0%) (8
Slide 45: Appendix: Balance sheet
Appendix: Balance sheet £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Non current assets Intangible assets 35.9 36.9 12.7 12.7 4.1 Property, plant & equipment 17.8 18.7 21.0 21.1 15.5 Deferred tax assets 2.1 3.0 1.6 3.3 11.6 Other non current assets 4.1 4.0 3.7 3.5 3.5 Total non current assets 59.9 62.
Slide 46: Appendix: Cash flow
Appendix: Cash flow £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Operating profit 23.2 41.7 37.1 32.4 36.1 Depreciation and amortisation 3.3 6.8 7.3 6.7 6.1 EBITDA 26.5 48.5 44.4 39.1 42.2 Working capital (13.2) (10.3) (1.4) 4.6 (3.0) Capital expenditure (0.4) (3.1) (8.6) (5.2) (3.8) Net interest (1.4
Slide 47: Appendix: Net debt
Appendix: Net debt £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Opening net debt (63.3) (48.0) (49.5) (44.0) (52.7) Free cash flow 6.0 22.5 20.4 23.7 21.4 Dividend (9.8) (13.8) (12.6) (12.0) (11.7) Non recurring items (4.8) (5.2) (6.7) (1.2) - Acquisitions - (17.9) - (12.2) (2.1) Disposal of freeholds
Slide 48: Appendix: Taxation
Appendix: Taxation £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Current tax 6.3 11.3 9.8 9.5 9.6 Adj in respect of prior year UK (0.4) (0.5) (1.4) (2.4) (4.5) corporation tax Total current tax charge 5.9 10.8 8.4 7.1 5.1 Deferred tax – current year (0.6) (0.4) (0.1) (0.6) 1.2 Deferred tax – prior year
Slide 49: Appendix: Lease commitments
Appendix: Lease commitments £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Land and buildings within one year 9.7 9.9 8.8 8.7 6.1 in second to fifth year 27.3 29.3 28.7 28.9 18.9 beyond fifth year 26.9 27.4 29.5 24.7 18.5 Total 63.9 66.6 67.0 62.3 43.5 Equipment and vehicles within one year 1.3 1.6 1.0
Slide 50: Appendix: Defined benefit scheme
Appendix: Defined benefit scheme HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Scheme assets 434.8 375.1 408.6 357.4 382.5 Scheme liabilities (365.6) (348.3) (367.4) (338.1) (320.1) Surplus 69.2 26.8 41.2 19.3 62.4 Asset cap (69.2) (26.8) (41.2) (19.3) (62.4) IAS 19 balance per accounts - - - - - Actuaria
Slide 51: Appendix: Contingent liability
Appendix: Contingent liability £m HY 2012 FY 2011 FY 2010 FY 2009 FY 2008 No. of Reversionary leases 74 90 105 122 136 Contingent liability 12.5 13.9 21.2 26.6 34.4 Maximum annual liability 5.0 5.0 5.0 5.0 5.0 Under the terms of the 2006 Demerger Agreement, Smith News has a contingent liability for
Slide 52: Interim Results
Interim Results 24 April 2012