Wh Smith Plc · LSE:SMWH
Wh Smith — FY2005 Earnings Presentation
47 slides from Wh Smith's earnings presentation, Oct 13, 2005
Slide 1: WH Smith PLC Preliminary Results 2005
WH Smith PLC Preliminary Results 2005 13 October 2005
Slide 2: Robert Walker, Chairman
Robert Walker Chairman
Slide 3: WH Smith PLC Preliminary Results 2005
WH Smith PLC Preliminary Results 2005 1. Financial Review Alan Stewart 2. WHSmith Group Review Kate Swann • News Distribution performance • Travel Retail performance • High Street Retail performance and Turnaround Plan update
Slide 4: Alan Stewart, Group Finance Director
Alan Stewart Group Finance Director
Slide 5: Group Financial Summary
WH Smith PLC Results – Year ended Group Financial Summary 31 August 2005 Year to Year to Including Discontinued businesses: Aug 2005 £m Aug 2004 £m Growth % Sales 2,508 2,834 (12%) Pre-tax profit before exceptional items & goodwill 73 67 9% Headline EPS1 31.6p 19.2p 65% EPS2 26.0p (60.7)p - Final di
Slide 6: Group Financial Summary - Continuing Operations
WH Smith PLC Results – Year ended Group Financial Summary 31 August 2005 Year to Year to Continuing Operations: Aug 2005 £m Aug 2004 £m Growth % Sales 2,497 2,520 (1%) Pre-tax profit before exceptional items & goodwill 73 46 59% Headline EPS1 31.6p 14.3p 121% EPS2 30.5p (20.5)p - Final dividend per
Slide 7: Group Sales
WH Smith PLC Results – Year ended Group Sales 31 August 2005 Year to Year to Aug 2005 Aug 2004 Growth £m £m % High Street 1,112 1,152 (3%) Travel 311 301 3% Retail 1,423 1,453 (2%) News Distribution 1,187 1,182 - Sales - continuing 2,610 2,635 (1%) Internal Sales (113) (115) Total Sales 2,497 2,520
Slide 8: Profit before Tax Business Summary
WH Smith PLC Profit before Tax Results – Year ended Business Summary 31 August 2005 Year to Year to Aug 2005 Aug 2004 Growth £m £m % Continuing Operations High Street Retail 43 23 87% Travel Retail 26 21 24% Retail 69 44 57% News Distribution 37 35 6% Trading operations 106 79 34% Support costs (16)
Slide 9: Retail LFL Sales by Category
Retail WH Smith PLC Results – Year ended LFL Sales by Category 31 August 2005 H1 H2 Total Stationery 4% 1% 3% Books (3%) (1%) (2%) News & Impulse 0% 1% 1% Entertainment (12%) (12%) (12%) Total (2%) (1%) (2%)
Slide 10: Retail Profit & Loss
Retail WH Smith PLC Results – Year ended Profit & Loss 31 August 2005 Year to Year to Aug 2005 Aug 2004 Growth £m £m % Sales 1,423 1,453 (2%) Gross Contribution 576 553 Costs (507) (509) Costs - Rent (181) (175) - Store (206) (213) - Central (120) (121) PBIT* 69 44 57% Gross Contribution Margin 40.5
Slide 11: News Distribution Profit & Loss
WH Smith PLC News Distribution Results – Year ended Profit & Loss 31 August 2005 Year to Year to Aug 2005 Aug 2004 Growth £m £m % Sales 1,187 1,182 - Gross Contribution 131 132 House costs (64) (62) Administration costs (30) (35) PBIT* 37 35 6% *PBIT excluding exceptional items and goodwill amortisa
Slide 12: Group Cash Flow
Group WH Smith PLC Results – Year ended Cash Flow 31 August 2005 2005 2004 £m £m Profit before Tax - continuing 73 46 - discontinued - 21 73 67 Depreciation and amounts written off tangible fixed assets 42 46 Working capital 4 (27) Capital expenditure (32) (49) Tax (4) (21) Net provisions (5) (4) Fr
Slide 13: Group Net Funds Movement
Group WH Smith PLC Results – Year ended Net Funds Movement 31 August 2005 2005 2004 £m £m Free Cash Flow 78 12 Equity dividends paid (21) (42) Cash returned to shareholders (205) - Net purchase of own shares (7) - Pension deficit funding (130) (25) Net disposals 203 31 Finance leases (13) - Financin
Slide 14: Group Balance Sheet
Group WH Smith PLC Results – Year ended Balance Sheet 31 August 2005 2005 2004 £m £m Goodwill 14 164 Fixed assets 231 237 Working capital (30) 41 Corporation Tax (27) (30) Deferred tax asset 20 - Dividends (16) (14) Provisions (31) (38) Operating Assets Employed 161 360 Net (debt) / funds (48) 45 To
Slide 15: Group Balance Sheet - 2004 Proforma
Group WH Smith PLC Results – Year ended Balance Sheet –2004 Proforma 31 August 2005 Reported Proforma Aug 2005 Aug 2004 £m £m Goodwill 14 15 Fixed assets 231 230 Working capital (30) (24) Corporation tax (27) (9) Deferred tax asset 20 15 Dividends (16) (14) Provisions (31) (38) Operating Assets Empl
Slide 16: Group Pension Reconciliation
Group WH Smith PLC Results – Year ended Pension Reconciliation 31 August 2005 £m Reported net deficit at August 04 (149) Disposals 17 Proforma net deficit at August 04 (132) Current service cost (10) Interest (2) Cash contributions 142 Actuarial losses (42) Movement in deferred tax asset (27) Net de
Slide 17: New Pension Deficit Funding Agreement
New Pension Deficit Funding WH Smith PLC Results – Year ended Agreement 31 August 2005 • Minimise inherent volatility within scheme • Revised funding agreement giving greater predictability of cash flows • New Pension Funding agreement: £15m in 2006, £17m in 2007, £20m in 2008 and thereafter increas
Slide 18: Adoption of IFRS
WH Smith PLC Results – Year ended Adoption of IFRS 31 August 2005 • An accounting change and will not impact commercial operations • IFRS fully implemented in year ended 31 August 2006 • Key areas of impact include: – Share based remuneration – Leases – Pension assets – Dividends – Goodwill • Report
Slide 19: Group Key Indicators
Group WH Smith PLC Results – Year ended Key Indicators 31 August 2005 2005 2004 increase Headline EPS 1 (continuing) 31.6p 14.3p 121% Dividend per share - Interim 4.5p 4.0p 13% - Final 9.2p 8.0p 15% - Total 13.7p 12.0p 14% Free cash flow (£m) 78 12 Fixed charges cover 1.4x 1.3x ROCE 48% 37% 1 Headli
Slide 20: Current Trading
WH Smith PLC Results – Year ended Current Trading 31 August 2005 LFL sales LFL Sales LFL Sales H1 2005 H2 2005 6 weeks to 8 October High Street (3)% (3)% (4)% Travel Retail 4% 3% 3% Retail (2)% (1)% (2)% News Distribution 2% (1)% (1)% Total Sales (1)% (1)% (2)%
Slide 21: Kate Swann, Group Chief Executive
Kate Swann Group Chief Executive
Slide 22: Group Overview
Group Overview • Strong profit recovery across the Group one year into the turnaround plan, despite tough trading conditions • Substantially improved profitability in the High Street Retail, through good category mix management and tight cost control • Strong performance from Travel Retail from sale
Slide 23: News Distribution
News Distribution • Solid performance with 6% profit growth • Overall sales flat Newspapers +1% Magazines flat Partworks & One Shots -15% • Efficiency improvements – Head office restructuring – Completed consolidation of network across North East, Thames Valley and West Midlands • Continued investme
Slide 24: Publisher Contracts Update
Publisher Contracts Update • Magazines – All major distributor contracts renewed with c.90% of magazine revenues contracted for c. next 5 years • Newspapers – Mirror and Mail renewal completed – Brings total to c.60% of revenues contracted for c. next 3 years – Forthcoming tenders: Express, Guardian
Slide 25: OFT Update
OFT Update • Draft opinion from OFT issued in May • Highlights of draft opinion: – Newspapers • Exclusive territories awarded by publishers • Existing contracts likely to be acceptable – Magazines • Exclusive contracts with publishers remain • Contracts must allow for ‘passive’ sales • Believe diffe
Slide 26: Travel Retail
Travel Retail • Strong performance with profit growth of 24% driven by good sales growth, margin gains and well controlled costs • Sales growth of 3% driven by airport stores sales up 7%; sales at station stores flat • Average transaction value increased through range improvements and targeted promo
Slide 27: Travel Retail - Channels Update
Travel Retail - Channels Update Airport Stores • Continued strong growth; 2% ahead of passenger growth • Performance driven by: – increased density of fixtures – improved product ranges – store layout improvements Railway Stores • Continued focus on improving rail performance: – IT investment – Tria
Slide 28: Travel Retail - Business Development
Travel Retail - Business Development • New business gained in 04/05 – London Luton Airport – standard format and specialist bookstore – Gatwick North – specialist bookstore conversion – Bristol Airport - secured extension of existing stores contract and gained additional bookstore to open in Spring
Slide 29: WHSmith Book Store in Luton airport
WHSmith Book Store in Luton airport
Slide 30: High Street Retail
High Street Retail • Substantially improved profitability versus last year, up 87% • Sales down 3% in challenging trading environment • Strong gross margin performance driven by good mix management • Cost savings delivered ahead of schedule • Improvement in retail basics • Encouraging results where
Slide 31: High Street Retail Turnaround Plan
High Street Retail Turnaround Plan • Rebuild 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 • Refocusing busines
Slide 32: Cost efficiency improvements
Cost efficiency improvements 2005 2006 2007 2008 Total Actual Forecast Forecast Forecast £m £m £m £m £m Original planned cost 15 8 7 30 savings Actual savings achieved 18 7 5 30 Further savings identified 2 5 7 4 18 Total savings 20 12 12 4 48
Slide 33: Margin optimisation programme
Margin optimisation programme • Half of margin growth from category mix management • Remainder of margin growth from: – Improved price and promotion management – Better buying terms – Reduction in shrinkage and improved mark down management • Mix improvements will continue to be a key driver of prof
Slide 34: Margin optimisation programme - continued
Margin optimisation programme - continued Margin Improvement Plans for 2005/06 • Continued category mix shift • Far East sourcing - target to increase sourcing by c.20% next year • Shrink management - new targets with focus on news and entertainment categories • Stock management – plan to reduce sto
Slide 35: Operational contribution initiatives
Operational contribution initiatives • Product availability improved • Stock management improved • Focus on retail basics yielding results • Store investment to improve standards
Slide 36: Strategic contribution initiatives
Strategic contribution initiatives Two key areas of focus 1. Increasing authority in strategically attractive categories to drive mix shift • Improved product range, category refocus • Started with key sub-categories in stationery • Activity to improve books supply chain to enable increased choice 2
Slide 37: Strategic contribution initiatives: Stationery
Strategic contribution initiatives Stationery • Attractive category – good economics, strong market position • Delivered increased offer in key sub-categories – More range via space utilisation – Sourced products ‘missing’ from existing ranges e.g. kids correspondence • Delivered improved offer – Ne
Slide 38: Rebuilding authority - stationery
Rebuilding authority - stationery
Slide 39: Rebuilding authority - fashion stationery
Rebuilding authority – fashion stationery
Slide 40: Strategic contribution initiatives: Books
Strategic contribution initiatives Books • Attractive category with high competition where we aim for a more profitable and authoritative position – Focus this year on improving profitability and retail operation of category; early moves towards more authoritative position • Significant changes to e
Slide 41: Strategic contribution initiatives: Books
Strategic contribution initiatives Books • Early positive signs – H1 good margin growth but reduced market share due to anniversary of unprofitable promotions in 03/04 – H2 market share performance stabilised versus general high street – Harry Potter 6 - Competed effectively with supermarkets and hi
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Slide 45: Strategic contribution initiatives
Strategic contribution initiatives • News and Impulse – Leading position in magazines supplemented by further opportunities in impulse – Product enhancements to further increase authority e.g. Bookazines – Expanded successful promotions e.g. ‘Mag &’ • Entertainment – Within category we continue to f
Slide 46: Christmas 2005
Christmas 2005 • Tough retail environment likely to mean very competitive Christmas • Continue to focus only on profitable activity • Removed non-strategic, low-margin products • Phasing of offer will better reflect customer shopping habits e.g. customers are shopping later and later • Christmas ran
Slide 47: Group Summary
Group Summary • Strong profit recovery across the Group • Materially improved profitability in High Street Retail • Strong performance from Travel Retail and solid performance from News • Trading conditions likely to remain challenging however we have planned accordingly • One year in, plan to deliv