Slide 1: WH Smith PLC Preliminary Results 2019
WH Smith PLC Preliminary Results 2019 17 October 2019
Slide 2: Agenda
WH Smith PLC Introduction Stephen Clarke Financial review Robert Moorhead Business review Carl Cowling Proposed Acquisition of MRG Carl Cowling Robert Moorhead Summary Stephen Clarke Questions Preliminary Results 2019
Slide 3: Distinct strategies for each business continue to deliver
Distinct strategies for each business continue to deliver Strong trading performance across the Group Total Group revenue up 11%; like-for-like revenue up 1% Strong performance in Travel Total revenue up 22% (up 8% excluding InMotion); LFL revenue up 3% Record year for international wins –
Slide 4: Robert Moorhead, Chief Financial Officer
Robert Moorhead Chief Financial Officer
Slide 5: Group financial summary
Group financial summary Year to Year to Aug 2019 Aug 2018 Change £m £m % Revenue 1,397 1,262 11% Group profit from trading operations1 177 163 9% Headline Group profit before tax2 155 145 7% Headline EPS2, 3 114.7p 108.2p 6% Free cash flow (£m) 109 96 14% Total dividend per share 58.2p 54.1p 8% 1 St
Slide 6: Revenue analysis
Revenue analysis Year to Year to Aug 2019 Aug 2018 Change Total Revenue £m £m % Travel 817 672 22% High Street 580 590 (2)% Total revenue 1,397 1,262 11% International 1 158 132 20% Year to H1 2019 H2 2019 Aug 2019 LFL Revenue % % % Travel 3% 3% 3% High Street (2)% (2)% (2)% 1% 1% 1% 1 Included in T
Slide 7: Group LFL revenue performance by category
Group LFL revenue performance by category Year to H1 2019 H2 2019 Aug 2019 % % % Stationery 2% 2% 2% News & Impulse 2% 2% 2% Books (5)% (6)% (5)% 1% 1% 1% Preliminary Results 2019
Slide 8: Group profit before tax
Group profit before tax Year to Year to Aug 2019 Aug 2018 Change £m £m % Travel trading profit1,2 117 103 14% High Street trading profit1 60 60 -% Group profit from trading operations 1 177 163 9% Unallocated central costs (17) (16) Group operating profit 3 160 147 9% Net finance costs (5) (2) Headl
Slide 9: Group free cash flow
Group free cash flow Year to Year to Aug 2019 Aug 2018 £m £m Group operating profit 1 160 147 Depreciation, amortisation and impairment 49 44 Non cash items 5 4 Capital expenditure (59) (53) Working capital (13) (14) Employers payroll tax on exercised share awards (1) (2) Net tax paid (27) (27) Net
Slide 10: Group net debt
Group net debt Year to Year to Aug 2019 Aug 2018 £m £m Free cash flow 109 96 Dividends paid (60) (54) Pension funding (3) (3) Net purchase of own shares for employee share schemes (6) (3) Other 1 (9) (11) Purchase of own shares for cancellation (32) (26) (1) (1) Non-underlying items 2 (16) (3) Acqui
Slide 11: Carl Cowling
Carl Cowling
Slide 12: WH Smith High Street
WIE Smith High Street
Slide 13: High Street – strategy
High Street – strategy Strategy focused on creating sustainable profits The three key elements of the strategy: space management margin growth lowering our cost to serve Ability to manage our categories on a store by store basis Create value from our assets including third party partne
Slide 14: High Street continues to perform well
High Street continues to perform well Good performance from High Street business Profit of £60m in line with expectations Total revenue down 2% with like-for-like revenue down 2% Margin up 70 bps Strong performance from Stationery over the peak Christmas trading and Back to School periods
Slide 15: Continued margin optimisation & focus on cost efficiencies
Continued margin optimisation & focus on cost efficiencies Margin growth of 70 bps in the year Space management continues to help drive the mix; further margin growth from better trading terms, sourcing and improved markdown management Cost efficiencies key to our strategy; £9m of cost savings
Slide 16: WH Smith Travel
WH Smith Travel
Slide 17: Travel – strategy
Travel – strategy Drive like-for-like revenue in existing stores through improved execution and service A forensic store by store focus on space and category management Develop new formats Invest in store environments and layouts Win new space in the UK and retain existing space Win new
Slide 18: Continue to drive good growth
Continue to drive good growth Total revenue up 22% (up 8% excluding InMotion); LFL revenue up 3% Now into sixth year in a row of good LFL sales growth Strong profit performance - up 14% to £117m Continue to invest in new stores and formats to drive future growth Record 45 new international
Slide 19: Sales growth across all key channels
Sales growth across all key channels Channel Total revenue LFL revenue(1) UK Air 5% 3% UK Hospital 12% 6% UK Rail 1% 1% International 91%(2) 3% Air performance ahead of pax Hospital channel remains key area of investment Strong performance from International business (1) Constant currency (2)
Slide 20: Investment in formats – Large store format in airports
Investment in formats – Large store format in airports Large store formats deliver significantly higher ATV and sales per passenger in airport locations Improving circulation and throughput capacity drives customer conversion Large store formats now open in London Gatwick North and South Termi
Slide 21: New formats - Gatwick Airport
New formats - Gatwick Airport New 6,000 sq ft airport format working with Well Pharmacy to combine traditional WH Smith store with a pharmacy offer Good results to date with positive feedback from landlord and customers Continue to win new space; new Bookshop by WH Smith opened in H2 Now hav
Slide 22: Investment in Hospitals
Investment in Hospitals Hospital channel is an important business with good growth opportunities Strong customer offer aligned to NHS strategy on healthy eating Continued good results from M&S and Costa Coffee partnerships Broad suite of brands and formats allows us to meet the needs of our
Slide 23: Investment in formats – Rail
Investment in formats – Rail Investing in Rail; expect to open more new units in 2019/20 Developed further our Tech Express format; expect to open units at Liverpool Street Station and Birmingham New Street Station in 2019/20 Positive feedback from landlords and customers; scope for more Tech
Slide 24: Looking ahead: UK growth
Looking ahead: UK growth Airports continue to forecast passenger growth Active space management and new formats Invest in existing stores to drive sales per passenger Continue to open new space in all channels Expect to open around 15 - 20 stores this financial year across all channels Pre
Slide 25: WH Smith International
WH Smith International
Slide 26: International business is profitable and growing fast
International business is profitable and growing fast Sales per passenger continue to be strong Year to Year to YoY(1) LFL Aug 2019(1) Aug 2018 revenue(2) Sales (£m) 252 132 91% 3% Profit (£m) 20 11 82% 45 new units won in the year, including 8 units in Abu Dhabi, 2 units in Melbourne and 4 unit
Slide 27: Completed integration of InMotion
Completed integration of InMotion Acquired InMotion in November 2018 – market-leading, pure play digital accessories travel retailer in North America Integration now complete Performance ahead of our initial expectations 7 units won in the US since acquisition Confirms our view that US tra
Slide 28: Further growth opportunities overseas
Further growth opportunities overseas International Travel is a large, growing market WH Smith still a small player with good growth potential Short-term investment for long-term future growth Our broad customer offer and sales per pax are attractive to overseas landlords Good success in a
Slide 29: Proposed acquisition of Marshall Retail Group (MRG)
Proposed acquisition of Marshall Retail Group (MRG)
Slide 30: Strategic highlights
Strategic highlights Proposed acquisition of Marshall Retail Group (MRG) for $400m(1) MRG is a leading and fast growing US travel retailer Acquisition is in line with our strategic objectives: Compelling opportunity to accelerate growth of International Travel in the $3.2bn US airport travel
Slide 31: Significantly accelerates growth of WH Smith Travel
Significantly accelerates growth of WH Smith Travel The acquisition of MRG will drive growth in WH Smith Travel and will broadly double the size of WH Smith International Travel Travel Trading Profit High Street Trading Profit 2018/19 Travel acquisition First business International Travel Trading Pr
Slide 32: Combined business ideally positioned to win in fast growing US airport travel retail market
Combined business ideally positioned to win in fast growing US airport travel retail market US airport travel retail is a fast growing market Market underpinned by expected long-term spread across multiple categories passenger growth US airport travel retail market size(1) North American passenger t
Slide 33: MRG is a highly successful US travel retailer
MRG is a highly successful US travel retailer MRG is a leading and fast growing US travel retailer with complementary channels across airports, resorts and tourist locations Strong track record of concession wins in US airports Distinctive retail offering tailored to local consumers in high tr
Slide 34: Localised formats and brands driving strong sense of place
Localised formats and brands driving strong “sense of place” are a key driver of success Airports Resorts and tourist locations Large and growing US airport travel Stable and captive market base retail market A leading player in resorts and Present in high traffic US airports tourist locatio
Slide 35: Highly successful airport business with a rapidly increasing footprint
Highly successful airport business with a rapidly increasing footprint MRG airport footprint growth(1) Robust pipeline of awarded stores(1) Sq. ft. of Number of stores Stores awarded Expected year Airport(s) awarded stores (000’s) Selling area 2015 43 43 (sq.ft. 000’s) Los Angeles Vancouver Denver S
Slide 36: Demonstrated ability to win through localisation and sense of place
Demonstrated ability to win through localisation and “sense of place” and deliver strong performance Case Study A Case Study B MRG was the standout winner versus the competitors due to their concept, design Strong operational performance a key expertise and customer service excellence argument for l
Slide 37: District Market, San Francisco Airport
District Market San Francisco Airport Preliminary Results 2019
Slide 38: Longstanding relationships and expertise in high return resort and tourism channels
Longstanding relationships and expertise in high return resort and tourism channels Strong portfolio focused on Las Vegas Strong trends in passenger numbers to Las Vegas Key tourist location with strong and stable visitor through economic cycles(1) numbers (42m p.a.) 43 42 42 CAGR 1998-2018: 1.5
Slide 39: Combination of WH Smith and MRG creates significant opportunity for further wins
Combination of WH Smith and MRG creates significant opportunity for further wins Top 25 busiest US airports(1) # Airport InMotion MRG Combined Current MRG Airport location 1 Atlanta (ATL) New awarded MRG Airport location 2 Los Angeles (LAX) InMotion Airport location 3 Chicago (ORD) 4 Dallas Fort Wor
Slide 40: MRG is highly complementary to WH Smith's existing airport business
MRG is highly complementary to WH Smith’s existing airport business With MRG, WH Smith will be able to access all Highly complementary strengths in Airports relevant categories in the $3.2bn US airport travel retail market… MRG InMotion WH Smith Combined 1. Apparel 2. Licensed brand retailing Specia
Slide 41: Attractive financial returns
Attractive financial returns $400m(1)* purchase price Implied multiple of 10.0x 2019E EBITDA including synergies, 13.7x excluding synergies(2) 2019E EBITDA of c.$31.5m(3) not fully reflecting recent wins 36 awarded stores expected to open between 2020E and 2024E, of which 24 are expected to
Slide 42: Financing structure in line with disciplined approach to cash and capital allocation
Financing structure in line with disciplined approach to cash and capital allocation Debt and equity financing structure Class 1 circular and General Meeting Debt financing provided by existing Class 1 transaction under the facility banks Listing Rules New £200m term loan facility Circular c
Slide 43: Consistent with our focus on value creation for shareholders
Consistent with our focus on value creation for shareholders Compelling opportunity to accelerate the growth of WH Smith’s International Travel business in line with Group strategy Fast growing and highly successful US travel retailer with proven business model and unique capabilities across channel
Slide 44: Stephen Clarke, Group Chief Executive
Stephen Clarke Group Chief Executive
Slide 45: Continue to deliver shareholder value
Continue to deliver shareholder value Strong growth in Travel: further opportunities in UK and International Acquisition significantly accelerates growth of Travel Good profit performance from High Street, particularly given challenging UK trading environment Final dividend up 8% Good cash
Slide 46: Appendix
Appendix
Slide 47: Glossary
Glossary Note: Footnotes to Slide [33] (1) Based on 36 stores expected to open between 2020E and 2024E; awarded stores may be subject to delayed opening (2) EBITDA on a fully consolidated basis excluding certain non-recurring items. As is mandatory in some US airport lease contracts (and consistent
Slide 48: Now present in 102 airports and 30 countries outside of the UK
Now present in 102 airports and 30 countries outside of the UK Location Directly Joint Franchise Total run Venture Europe 44 5 32 81 North America 116 - - 116 South America - 11 - 11 Middle East 9 7 39 55 India - - 59 59 SE Asia 9 13 34 56 Australia 55 - - 55 Total 236 25 175 433 Preliminary Results
Slide 49: Non-underlying items
Non-underlying items Non-underlying items in the year relate to: Acquisition of InMotion integration completed High Street review completed Year to Aug 2019 Income Cash Statement Impact £m £m Acquisition of InMotion – Transaction costs 6 6 – Integration costs 5 3 – Amortisation 2 - 13 9 Complete
Slide 50: Return of cash to shareholders
Return of cash to shareholders Over £1.0bn returned 4,5 Dividend up 8% Supplemented by buybacks and a special dividend 96 93 91 91 84 84 81 80 79 31 41 Share Buyback² 54 47 26 63 4 Final Dividend¹ 61 Interim Dividend¹ 50 41 55 50 35 44 3 41 37 34 31 28 23 26 23 20 19 17 15 17 19 19 14 15 16 10
Slide 51: Group balance sheet
Group balance sheet Aug 2019 Aug 2018 £m £m Goodwill & other intangible assets 225 72 Property, plant & equipment 201 179 Working capital (4) (29) Corporation tax (7) (9) Other assets 10 10 Provisions (5) (6) Operating assets employed 420 217 Cash 34 12 Term loan (200) - Finance leases (14) (14) Tot
Slide 52: Impact of IFRS 16
Impact of IFRS 16 New lease accounting standard to take effect in FY20 – going forward operating leases to be treated similarly to finance leases Expected recognition of lease liability on transition date (1 September 2019) in the region of £470m to £490m Profit before tax for FY20 will be low
Slide 53: Disclaimer
Disclaimer This document, which has been prepared by WH Smith PLC (the "Company"), is produced solely in connection with a proposed placing (the "Placing") of new ordinary shares in the Company (the "Placing Shares") and the proposed admission of the Placing Shares to listing on the premium listing