Smiths News Plc · LSE:SNWS
Smiths News — Connect Group — FY2014 Earnings Presentation
44 slides from Smiths News's earnings presentation, Oct 15, 2014
Slide 1: Preliminary Results
Preliminary Results 15 October 2014
Slide 2: Highlights
Highlights Mark Cashmore Group Chief Executive
Slide 3: Highlights
Highlights Group revenue: £1.8bn, +0.1% Underlying PBT: £50.0m, +0.2% Free cash flow: £37.2m, +14.1% : Net Debt: £93.0m Underlying EPS: 21.7p, +2.8% : DPS: 9.7p, +4.3% News & Media: Operating Profit £45.2m, +8.1% • Resilience of core Newspaper and Magazine sales • Pass my Parcel launched with Amazon
Slide 4: Group Financial Update
Group Financial Update Nick Gresham Chief Financial Officer
Slide 5: Cautionary statement
Cautionary statement This document contains certain forward-looking statements with respect to Connect Group PLC’s financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘believes’, ‘seek
Slide 6: Group performance
Group performance £m Aug 2014 Aug 2013 Change Non % N&M mix % News Distribution 42.9 40.0 +7.3% - Media 2.3 1.8 +22.8% 4.2% News & Media operating profit 45.2 41.8 +8.1% - Books operating profit 2.5 7.2 (65.7)% 4.4% Education & Care operating profit 7.8 7.4 +5.0% 14.1% Group operating profit 55.5 56
Slide 7: Earnings per share
Earnings per share £m Underlying Statutory August August Change August August Change 2014 2013 % 2014 2013 % restated restated Underlying earnings attributable 40.5 38.4 5.5% 34.6 28.7 20.6% to ordinary shareholders (£m) Basic number of shares (m) 186.3 182.2 186.3 182.2 Basic EPS 21.7p 21.1p 2.8% 1
Slide 8: Non recurring and other items
Non recurring and other items £m August 2014 August 2013 Integration costs - (1.1) Network reorganisation costs (3.0) (3.3) Release of property provisions 0.5 - Acquisition and disposal costs (0.9) (3.7) Amortisation of acquired intangibles (3.0) (2.8) Impairment of acquired intangibles (0.5) - Disp
Slide 9: Free cash flow
Free cash flow £m August 2014 August 2013 Operating profit 55.5 56.4 Depreciation and amortisation 8.0 7.6 EBITDA 63.5 64.1 Working capital 1.2 (5.0) Capital expenditure (10.3) (7.9) Net interest and fees (6.1) (4.2) Taxation (9.8) (10.5) Pension funding (4.6) (6.5) Other 3.3 2.6 Free cash flow 37.2
Slide 10: Net debt
Net debt £m 31 Aug 2014 31 Aug 2013 Opening net debt (98.5) (100.5) Free cash flow 37.2 32.6 Dividend (17.7) (16.0) Non recurring items (4.4) (5.9) Acquisitions (0.3) (5.1) Share purchase (5.6) (1.6) Other (3.7) (2.0) Closing net debt (93.0) (98.5) Net debt : EBITDA 1.44x 1.54x Committed Bank facili
Slide 11: Business update: Connect News & Media
Business update Connect News & Media
Slide 12: Connect News & Media – News distribution
Connect News & Media – News distribution 2014 Total Revenue £1,525m -0.3% Strong profit increase +7.3%, supported by World LFL Revenue -2.1% Cup sales Profit £42.9m 7.3% Newspaper sales and promotions driving revenue performance Segmental LFLs Newspapers -0.7% ► Sales run rates ahead of medium
Slide 13: Connect News & Media – Media
Connect News & Media – Media 2014 YE Total Revenue £25.1m -3.3% Strong profit growth in FY14 LFL Revenue -0.6% Profit £2.3m 22.8% 50% of revenues secured on long term contracts Segmental LFLs ► UK 1.9% New distribution operation opened in Thailand ► International -2.5% Operational integratio
Slide 14: Business update
Business update
Slide 15: Connect Books
Connect Books 2014 YE Total Revenue £193.7m 3.1% Total revenue growth +3.1% LFL Revenue -2.5% Profit £2.5m -65.7% Sales mix, margin dilution and challenging Academic and UK Libraries markets Segmental LFLs ► Trade -4.6% Investment returns & cost challenges impacting ► Direct to Consumer 50.9%
Slide 16: Business update: Education & Care
Business update Education & Care
Slide 17: Connect Education & Care
Connect Education & Care 2014 YE Total Revenue £64.9m 1.7% Good sales performance in core categories +4.7% LFL Revenue 3.1% Profit £7.8m 5.0% Strong core peak trading +5.7% 22% total profit growth since acquisition Segmental LFLs ► Education 4.8% Range integration driving improved sales and
Slide 18: Diversification Update
Diversification Update
Slide 19: Connect Group – Diversification update
Connect Group – Diversification update Acquisition Strategy Pipeline of opportunities across a range of markets Organic revenue opportunities Jacks Beans - Premium vended coffee offer Pass my Parcel - Unique click & collect parcel service Maintaining our ambition to deliver 50% of profits from
Slide 20: Connect News & Media – Jack's beans
Connect News & Media – Jack’s beans Premium vended coffee offer in a growing market Utilises Smiths News extensive distribution network of independent retailers Attractive, low risk financial model Incremental footfall driver for retailers Service integrated to the existing core distributi
Slide 21: Connect News & Media – Pass my Parcel
Connect News & Media – Pass my Parcel Wholly owned click and collect parcel service Launched with Amazon Uses Smiths News extensive distribution network of independent retailers Twice daily delivery to retail collection points 7 days a week and 364 days a year capability “This is our faste
Slide 22: Connect News & Media – Pass my Parcel
Connect News & Media – Pass my Parcel Connect Group PLC Preliminary Results October 2014 22
Slide 23: Connect News & Media – Pass my Parcel
Connect News & Media – Pass my Parcel B2C Parcel market valued at £3bn+ 40% growth of click and collect market over the next 3 years 91% of customers say ‘convenience’ is their key reason for online shopping Unique fit with distribution network and infrastructure Opportunity for new servic
Slide 24: Summary & outlook
Summary & outlook
Slide 25: Summary & outlook
Summary & outlook Strong performance in two divisions, representing 90% of Group profit Good shareholder returns through EPS and DPS growth Exciting new organic opportunities supporting diversification strategy Maintaining ambition to grow profits from activities outside of newspaper and mag
Slide 26: Appendices
Appendices
Slide 27: Connect News & Media – News Distribution Income Statement
Connect News & Media – News Distribution Income Statement £m 2014 2013 Change LFL Total revenue 1524.8 1529.3 (0.3%) (2.1%) Gross profit 125.1 125.5 Operating costs (82.2) (85.5) Operating profit 42.9 40.0 7.3% Gross margin 8.2% 8.2% - Cost ratio (5.4%) (5.6%) 20bps Operating margin 2.8% 2.6% 20bps
Slide 28: Connect News & Media – Media Income Statement
Connect News & Media – Media Income Statement £m 2014 2013* Change LFL Total revenue 25.1 25.9 (3.3%) (0.6%) Gross profit 12.3 11.9 Operating costs (10.0) (10.0) Operating profit 2.3 1.8 22.8% Gross margin 49.0% 45.9% 320bps Cost ratio (39.8%) (38.6%) (30bps) Operating margin 9.2% 6.9% 290bps * Excl
Slide 29: Connect Books Income Statement
Connect Books Income Statement £m 2014 2013 Change LFL Total revenue 193.7 187.9 3.1% (2.5%) Gross profit 34.6 36.9 Operating costs (32.1) (29.7) Operating profit 2.5 7.2 (65.7%) Gross margin 17.9% 19.6% (170bps) Cost ratio (16.6%) (15.8%) (80bps) Operating margin 1.3% 3.8% (250bps) Connect Group PL
Slide 30: Connect Books sales comparison
Connect Books sales comparison FY 2014 FY 2013 Digital Digital (4% mix) Consumer (5% mix) -0.8% (4% mix) +38.0% Consumer (11% mix) +50.9% UK Library UK Library (13% mix) (10% mix) Trade -10.9% Trade -14.2% (50% mix) (58% mix) -4.6% -3.3% Academic Academic (20% mix) (25% mix) -11.4% -11.4% Connect Gr
Slide 31: Connect Education & Care - Income Statement
Connect Education & Care - Income Statement £m 2014 2013 Change LFL Total revenue 64.9 63.8 1.7% 3.1% Gross profit 26.9 26.3 Operating costs (19.1) (18.9) Operating profit 7.8 7.4 5.0% Gross margin 41.5% 41.2% 30bps Cost ratio (29.5%) (29.6%) 10bps Operating margin 12.0% 11.6% 40bps Connect Group PL
Slide 32: Reported Sales Performance
Reported Sales Performance FY14 FY13 FY12 July Jan July July Jan FY H1 FY H1 Jan IMS FY H1 IMS IMS IMS IMS IMS News Distribution News (0.7%) (0.4%) (0.5%) - (2.7%) - (3.9%) - (2.1%) - (1.2%) - Magazines (6.4%) (6.8%) (8.1%) - (9.9%) - (7.7%) - (6.6%) - (7.8%) - LFL (2.1%) (2.1%) (2.8%) (2.8%) (4.6%)
Slide 33: Financial KPIs
Financial KPIs £m FY 2014 FY 2013* FY 2012 FY 2011 FY 2010 Revenue 1,808.5 1,806.9 1,803.9 1,734.4 1,829.6 Profit before tax 50.0 49.9 47.5 38.6 35.0 Profit after tax 40.7 38.4 36.1 28.2 26.4 EPS 21.7p 21.1p 19.9p 15.5p 14.6p Free cash flow 37.2 32.6 27.2 22.5 20.4 DPS 9.7p 9.3p 8.6p 8.0p 7.4p Net D
Slide 34: Income Statement
Income Statement £m FY 2014 FY 2013* FY 2012 FY 2011 FY 2010 Revenue 1,808.5 1,806.9 1,803.9 1,734.4 1,829.6 Underlying Operating profit 55.5 56.4 51.2 41.7 37.1 Non recurring items (6.9) (10.8) (10.9) (6.5) (6.9) Statutory Operating profit 48.6 45.6 40.3 35.2 30.2 Net finance charges (5.5) (6.7) (3
Slide 35: Balance Sheet
Balance Sheet £m FY 2014 FY 2013 FY 2012* FY 2011* FY 2010 Intangible assets 65.7 68.2 67.1 36.9 12.7 Property, plant & equipment 29.0 26.6 24.5 18.7 21.0 Other non current assets 12.4 12.8 14.5 16.1 5.3 Total non current assets 107.1 107.6 106.1 71.7 39.0 Cash 20.4 10.1 5.1 4.2 4.0 Other current as
Slide 36: Cash flow
Cash flow £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Operating profit 55.5 56.4 51.2 41.7 37.1 Depreciation and amortisation 8.0 7.6 6.9 6.8 7.3 EBITDA 63.5 64.1 58.1 48.5 44.4 Working capital 1.2 (5.0) (9.1) (10.3) (1.4) Capital expenditure (10.3) (7.9) (5.1) (3.1) (8.6) Net interest (6.1) (4.2) (3
Slide 37: Net debt
Net debt £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Opening net debt (98.5) (100.5) (63.3) (48.0) (49.5) Free cash flow 37.2 32.6 27.2 22.5 20.4 Dividend (17.7) (16.0) (14.9) (13.8) (12.6) Non recurring items (4.4) (5.9) (10.3) (5.2) (6.7) Acquisitions (0.3) (5.1) (38.1) (17.9) - Disposals - - 1.0 -
Slide 38: Non-recurring and other items
Non-recurring and other items £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Integration costs - (1.1) (2.7) - - Network re-organisation costs (3.0) (3.3) (2.0) (2.7) (6.7) Acquisition costs and disposal costs (0.9) (3.7) (4.6) (2.4) - Property provisions 0.5 - - (0.5) - Amortisation of acquired intangi
Slide 39: Taxation
Taxation £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Current tax 12.3 15.1 13.6 11.3 9.8 Adj in respect of prior year UK (2.4) (2.6) (1.6) (0.5) (1.4) corporation tax Total current tax charge 9.9 12.5 12.0 10.8 8.4 Deferred tax – current year (0.4) (0.7) (0.6) (0.4) (0.1) Deferred tax – prior year (0
Slide 40: Lease commitments
Lease commitments £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 Land and buildings within one year 7.7 8.1 10.0 9.9 8.8 in second to fifth year 25.6 26.2 28.9 29.3 28.7 24.3 26.7 29.6 27.4 29.5 beyond fifth year Total 57.6 61.0 68.5 66.6 67.0 Equipment and vehicles within one year 2.1 1.6 1.3 1.6 1.0 i
Slide 41: Defined benefit schemes
Defined benefit schemes FY FY 2013 FY 2012 FY 2011 FY 2010 2014 Scheme assets 522.6 469.6 433.1 375.1 408.6 Scheme liabilities (450.6) (419.2) (395.3) (348.3) (367.4) Surplus 72.0 50.4 37.8 26.8 41.2 Asset cap (75.7) (53.2) (40.3) (26.8) (41.2) Additional liability – IFRIC 14 (17.3) (20.3) (33.5) (3
Slide 42: Contingent liability
Contingent liability £m FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 No. of Reversionary leases 27 35 59 90 105 Contingent liability 6.3 8.4 10.9 13.9 21.2 Maximum annual liability 5.0 5.0 5.0 5.0 5.0 Under the terms of the 2006 Demerger Agreement, Connect Group Plc has a contingent liability for 35% of
Slide 43: Restatement of retirement benefit obligation and MMC
Restatement of retirement benefit obligation and MMC During the period the Group adopted IAS 19 (revised) affecting the accounting for defined benefit schemes and specifically to reflect pension interest in the income statement calculated on the net balance sheet position at the beginning of the p
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